<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
REGISTRATION NO. 333-60857
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MOLL INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3089 62-1427775
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
1111 NORTHSHORE DRIVE, SUITE N-600
KNOXVILLE, TN 37919-4048
(423) 450-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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PHYLLIS C. BEST
CHIEF FINANCIAL OFFICER
MOLL INDUSTRIES, INC.
1111 NORTHSHORE DRIVE, SUITE N-600
KNOXVILLE, TN 37919-4048
(423) 450-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
ROBERT M. CHILSTROM, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER NOTE PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
10 1/2% Senior Subordinated
Notes due 2008.............. $130,000,000 100% $130,000,000 $38,350(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION DATED DECEMBER 23, 1998
PROSPECTUS
OFFER FOR ALL OUTSTANDING 10 1/2% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR 10 1/2% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OF
[MOLL INDUSTRIES LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT P.M., NEW YORK CITY TIME ON , 1998,
UNLESS EXTENDED.
Moll Industries, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$130,000,000 of its 10 1/2% Senior Subordinated Notes due 2008 (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 10 1/2% Senior Subordinated Notes due 2008 (the "Old Notes" and,
together with the New Notes, the "Notes") from the holders thereof. The terms of
the New Notes are identical in all material respects to the Old Notes, except
for certain transfer restrictions and registration rights relating to the Old
Notes and except for certain provisions providing for an increase in the
interest rate on the Old Notes under certain circumstances relating to the
timing of the Exchange Offer, which rights will terminate upon termination of
the Exchange Offer.
On June 26, 1998, the Company issued $130,000,000 aggregate principal amount
of Old Notes pursuant to an offering (the "Offering") which was exempt from the
registration requirements of the Securities Act and applicable state securities
laws.
Interest on the Notes is payable semi-annually on January 1 and July 1 of
each year, commencing January 1, 1999. The Notes will be redeemable at the
option of the Company, in whole or in part, at any time on or after July 1, 2003
in cash at the redemption prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages (as defined), if any, thereon to the date of
redemption. In addition, at any time prior to July 1, 2001, the Company may on
any one or more occasions redeem up to 35% of the aggregate principal amount of
Notes originally issued at a redemption price equal to 110.5% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, with the net cash proceeds of one or more Public
Equity Offerings (as defined); provided that at least 65% of the aggregate
principal amount of Notes originally issued remains outstanding immediately
after the occurrence of any such redemption. See "Description of Notes--Optional
Redemption." In addition, upon the occurrence of a Change of Control (as
defined), each holder of Notes will have the right to require the Company to
repurchase all or any part of such holder's Notes at an offer price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase. See
"Description of Notes--Repurchase at the Option of Holders--Change of Control."
There can be no assurance that, in the event of a Change of Control, the Company
would have sufficient funds to purchase all Notes tendered. See "Risk
Factors--Limitations on Ability to Make Change of Control Payment."
The Old Notes are, and the New Notes will be, general unsecured obligations
of the Company, and the Old Notes rank, and the New Notes will rank, subordinate
in right of payment to all Senior Debt (as defined) and the Old Notes rank, and
the New Notes will rank, senior or pari passu in right of payment to all
existing and future subordinated indebtedness of the Company. The Old Notes are,
and the New Notes will be, effectively subordinated to all liabilities,
including trade payables, of the Company's subsidiaries. As of October 3, 1998,
the Company did not have any debt junior to the Notes and the Notes were
subordinated to $123.5 million of Senior Debt and effectively subordinated to
$42.6 million of liabilities of the Company's subsidiaries (other than Senior
Debt). As of October 3, 1998, the Company and its subsidiaries had $337.4
million of outstanding liabilities (including trade payables). Subject to
certain conditions, at October 3, 1998 approximately $48.8 million of capacity
was available for borrowing under the Revolving Credit Facility (as defined).
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from June 26, 1998. Accordingly, if the relevant record date for
interest payment occurs after the consummation of the Exchange Offer, registered
holders of New Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from June 26, 1998. If, however, the relevant record date for interest
payment occurs prior to the consummation of the Exchange Offer, registered
holders of Old Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from June 26, 1998. Old Notes accepted for exchange will cease to accrue
interest from and after the date of the consummation of the Exchange Offer,
except as set forth in the immediately preceding sentence. Holders of Old Notes
whose Old Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after consummation of the Exchange
Offer.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
June 26, 1998 among the Company and the other signatories thereto (the
"Registration Rights Agreement"). Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission") as set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement with any person to participate in the distribution of
such New Notes. However, the Company does not intend to request the Commission
to consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder (including, without
limitation, any Holder that is a broker-dealer) must acknowledge that (A) it is
not an Affiliate (as defined in Rule 144 of the Securities Act), (B) it is not
engaged in, and does not intend to engage in, a distribution of New Notes and
has no arrangement or understanding to participate in a distribution of New
Notes, and (C) it is acquiring the New Notes in its ordinary course of business.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, during the Prospectus Delivery Period (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Company terminates the Exchange Offer and does
not accept for exchange any Old Notes, the Company will promptly return the Old
Notes to the holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or the
ability of holders of the New Notes to sell their New Notes or the price at
which such holders may be able to sell their New Notes. Donaldson, Lufkin, &
Jenrette Securities Corporation and NationsBanc Montgomery Securities LLC
(together, the "Initial Purchasers") have advised the Company that they
currently intend to make a market in the New Notes. The Initial Purchasers are
not obligated to do so, however, and any market-making with respect to the New
Notes may be discontinued at any time without notice. The Company does not
intend to apply for listing or quotation of the New Notes on any securities
exchange or stock market.
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SEE "RISK FACTORS" COMMENCING ON PAGE 13 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD
NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998.
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FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statements"
as that term is defined under the Private Securities Litigation Reform Act of
1995. When used in this Prospectus, the words, "believe", "anticipate,"
"should," "intend," "plan," "will," "expects," "estimates," "projects,"
"positioned," "strategy," and similar expressions identify such forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from those contemplated or projected, forecast, estimated or budgeted in or
expressed or implied by such forward-looking statements. Such factors include,
among others, the risk and other factors set forth under "Risk Factors" as well
as the following: general economic and business conditions, industry trends, the
loss of major customers or suppliers, the timing of orders received from
customers, cost and availability of raw materials, changes in business strategy
or development plans, availability and quality of management, and availability,
terms and deployment of capital.
AVAILABLE INFORMATION
Anchor Holdings, Inc., the direct parent of the Company ("Anchor
Holdings"), and the Company, are currently subject to the periodic reporting and
other informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith file periodic reports
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the Public Reference Room maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. The Commission maintains a Web site (http://www.sec.gov) that
contains reports and information statements and other information regarding
registrants, such as Anchor Holdings and the Company, that file electronically
with the Commission.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes and file with the
Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in such a filing with the Commission on Forms 10-Q and 10-K if the
Company was required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's certified
independent public accountants and (ii) all reports that would be required to be
filed with the Commission on Form 8-K if the Company was required to file such
reports. In addition, for so long as any of the Notes remain outstanding, the
Company has agreed to make available to any prospective purchaser of the Notes
or beneficial owner of the Notes in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act. This
Prospectus constitutes a part of a Registration Statement on Form S-4 filed by
the Company with the Commission under the Securities Act. This Prospectus omits
certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the New
Notes offered hereby. Any statements contained herein concerning the provisions
of any document are not necessarily complete, and, in each instance, reference
is made to such copy filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
may be inspected without charge at the office of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be
obtained from the Commission at prescribed rates.
----------------------------------------
UNTIL 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) DEALERS
AFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE
EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS OBLIGATION IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise indicates, the term (i) "Company" refers to Moll Industries,
Inc., the surviving entity of the merger (the "Merger") of Anchor and Moll (each
as defined below), and its direct and indirect subsidiaries, and to the business
formerly conducted by each of Anchor and Moll, (ii) "Anchor" refers to Anchor
Advanced Products, Inc., and its direct and indirect subsidiaries, prior to the
Merger, (iii) "Moll" refers to Moll PlastiCrafters Limited Partnership, and its
direct and indirect subsidiaries, prior to the Merger, (iv) "Anchor Holdings"
refers to Anchor Holdings, Inc., the direct parent of the Company, (v)
"Holdings" refers to AMM Holdings, Inc., the indirect parent of the Company and
the direct parent of Anchor Holdings, and (vi) "Gemini Plastic" refers to Gemini
Plastic Services, Inc. The Company's fiscal year ends on December 31 of each
year. Unless otherwise indicated, all references to pro forma information give
effect to the Transactions. See "The Transactions." Certain market data used in
this Prospectus reflect management estimates; while such estimates are believed
by the Company to be reliable, no assurance can be given that such data is
accurate in all material respects.
THE COMPANY
OVERVIEW
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company serves over 450
customers, including leading multinational companies such as Abbott
Laboratories, Colgate-Palmolive, Kimberly-Clark, L'Oreal, Maybelline, Motorola,
Procter & Gamble, Renault, Revlon, Siemens, Whirlpool and Xerox. Products using
the Company's plastic components are sold in a wide range of end markets,
including end markets for consumer products, telecommunications/business
equipment, household appliances, automobiles and medical devices. The Company
believes that the diversity of its customers, markets and geographic regions
creates a stable revenue base and reduces the Company's exposure to particular
market or regional economic cycles. On a pro forma basis after giving effect to
the Transactions, the Company generated 1997 net sales, net income and EBITDA of
$414.6 million, $.6 million and $54.7 million, respectively, making it the sixth
largest non-automotive plastic injection molding company in North America and
one of the largest plastic component suppliers in Europe.
The Company has 27 manufacturing facilities, with approximately 680 molding
machines throughout North America and Europe, including France, Germany, the
United Kingdom and Portugal. The Company is capable of providing its customers
with integrated design and prototype development, mold design and manufacturing,
advanced plastic injection molding capabilities, and value-added finishing
services, such as hot stamping, pad printing, assembly and complete product
testing, all of which enable it to provide "one-stop" shopping to customers
seeking a wide range of services. The Company's technologically advanced
manufacturing facilities and equipment enable it to provide customized solutions
to highly demanding customer specifications. For 1997, approximately 45% of the
Company's sales of molded products were covered by long term purchase and sale
contracts which stipulate anticipated volume requirements and pricing terms.
However, such contracts do not contain any minimum purchase requirements on the
part of the customer. Almost all such contracts can be terminated by the parties
thereto by mutual agreement and can also be terminated by either party giving
notice of termination upon certain occurrences, including, without limitation,
disagreement on quality, quantity and pricing issues, insolvency or dissolution
of any party thereto and upon any material breach of such contracts by any party
thereto. Management believes that few competitors offer the scale, expertise,
reputation and range of services that the Company provides.
According to industry sources, demand for injection molded plastics in the
United States is projected to grow at 3.3% annually. Such growth is expected to
result from a number of key factors, including: (i) improved resins and
processing capabilities; (ii) versatility of the injection molding process; and
(iii) cost and performance advantages of plastic over substitute materials.
Despite the expected increase in demand for plastic injection molded products,
the U.S. molding industry remains highly fragmented, with over 2,500 injection
molders operating more than 10,000 plant locations. In addition to the growth
projected for the plastics industry as a whole, growth for full service,
multiple plant injection molders such as the Company is driven by industry
consolidation and the trend among customers to outsource their injection molding
needs. Management believes that larger injection molders such as the Company
will benefit from continued industry
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consolidation and the trend by original equipment manufacturers ("OEMs") to
outsource their injection molding needs to larger, full-service independent
molders that are able to provide total project management.
Concurrently with the Offering, the Company was formed through the merger
of two leading plastic injection molders, Moll PlastiCrafters Limited
Partnership and Anchor Advanced Products, Inc., which were each controlled by
Mr. George Votis. Immediately prior to the Merger, Moll and Anchor were
independently operated entities. Mr. Votis acquired Moll's predecessor in 1989
and has since completed seven acquisitions, increasing Moll's revenues from
approximately $8 million in 1989 to approximately $232.4 million in 1997 on a
pro forma basis, excluding the acquisition of Anchor. Such acquisitions included
the acquisition in August 1997 of Hanning, a leading supplier of injection
molded plastic components for use in digital photocopiers with manufacturing
facilities located in the United States, the United Kingdom and Germany, which
had 1997 revenues of $49.6 million, and the acquisition in January 1998 of
Somomeca, a French injection molder which had 1997 revenues of $88.5 million. In
March 1998, Mr. Votis acquired Anchor, which had 1997 revenues of $161.2
million. See "The Company."
The Company has been formed to combine the manufacturing, marketing and
management resources of Moll and Anchor to create further opportunities for
growth and development. As a result of the Transactions, management believes
that the Company has become better positioned to benefit from the growth and
consolidation of the plastics industry. The Company also believes that
consummation of the Transactions has significantly enhanced its future growth
prospects and revenue stability by broadening its customer base, manufacturing
capabilities and geographic presence. Moreover, the Company expects to benefit
from its increased scale, ability to centralize certain key logistical functions
and attendant cost savings opportunities. Since March 1998, the Company has
eliminated approximately $2.8 million in annualized costs by reducing
duplicative administrative expenses, eliminating less profitable business lines
and streamlining manufacturing processes. The savings consist of $1.7 million in
payroll costs gained through the elimination of duplicate expenses and excessive
resources and $1.1 million in benefit costs gained through a revision of the
retirement benefits. The savings were calculated based on the salaries of the
positions eliminated and an actuarial estimation of the savings associated with
the change in the retirement plan.
MARKETS
The Company serves the following end markets:
CONSUMER PRODUCTS--The Company designs, manufactures and packages a broad
array of plastic components used for consumer end-products such as mascara
packages and lipstick containers for leading cosmetics manufacturers such as
L'Oreal, Maybelline, Revlon and Estee Lauder, and toothbrushes for
Colgate-Palmolive, Procter & Gamble, Cheseborough-Ponds and SmithKline Beecham.
The Company derived 27.6% of 1997 pro forma net sales from this end market.
TELECOMMUNICATIONS/BUSINESS EQUIPMENT--The Company is a leading
manufacturer of various plastic components and accessories for cellular phones,
photocopiers, computers and printers for telecommunications and business
equipment manufacturers such as Siemens, Motorola, 3M and Xerox. The Company
derived 18.9% of 1997 pro forma net sales from this end market.
HOUSEHOLD APPLIANCES--The Company designs and manufactures plastic parts
for a wide variety of household appliances, including refrigerators (primarily
high end side-by-side refrigerators), ranges, room air conditioners, counter-top
appliances and televisions made by Whirlpool, Tefal, Electrolux and Daewoo. The
Company derived 17.6% of 1997 pro forma net sales from this end market.
AUTOMOTIVE--The Company designs and manufactures plastic parts such as door
handles, gear shift knobs, sunvisors and wheel covers for automobiles and light
trucks manufactured by major foreign and domestic automobile manufacturers,
including General Motors, Renault, BMW, Audi and Saab. The Company derived 12.3%
of 1997 pro forma net sales from this end market.
MEDICAL DEVICES--The Company manufactures various plastic medical devices,
including blood filtration devices, angiographic syringes, intravenous equipment
and in-vitro diagnostic kits for major medical product manufacturers, including
Abbott Laboratories, Johnson & Johnson, Baxter, Pfizer and 3M. The Company
derived 8.1% of 1997 pro forma net sales from this end market.
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<PAGE> 6
PACKAGING AND OTHER--The Company manufactures and assembles a broad range
of plastic components and end-products such as soap dispensing equipment and
packaging materials and closures for a number of large manufacturers, including
Kimberly-Clark, Electrolux, Seaquist and Tetrapak. The Company derived 15.5% of
1997 pro forma net sales from this end market.
COMPETITIVE STRENGTHS
Management believes that the Company has achieved its current position as a
market leader because of the following competitive strengths:
BROAD GEOGRAPHIC PRESENCE. The Company's multiple plant locations
throughout North America and Europe enable it to (i) compete effectively for
contracts that require large volume runs and multiple distribution points, (ii)
offer its customers multiple production locations and (iii) allocate production
to the facility best suited for a job in view of its relative capabilities and
proximity to the customer. As a result, the Company is able to provide its
customers with a broad range of manufacturing capabilities, improved
responsiveness, timely delivery, and reduced freight costs. In addition, by
operating geographically diverse plants, the Company can mitigate customer
sourcing risks associated with single facility production.
FULL SERVICE CAPABILITIES. The Company provides its customers with
comprehensive services ranging from product design, product development,
prototyping and mold making to molding, painting and other value-added services.
As a result, management believes that the Company is one of a limited number of
full service plastic injection molders in North America and Europe that is well
positioned to benefit from the trend of customers outsourcing total project
management to full service multiple plant suppliers.
STRONG CUSTOMER RELATIONSHIPS. The Company believes that its ability to
attract and retain customers is in part attributable to the high level of
customer service it provides. The Company also believes that frequent
interaction with its customers in the product development process helps it to
develop long-term relationships. Of the Company's top ten customers in 1997, two
have been with the Company for over fifty years, three have been with the
Company for over ten years and the remainder have been with the Company for over
four years. For many of its key customers, the Company is the sole supplier for
specific parts. The Company's emphasis on customer partnerships and its
long-standing customer relationships provide it with a significant competitive
advantage.
MANUFACTURING CAPABILITIES. The Company utilizes a wide range of advanced
manufacturing processes, such as gas assist molding, co-injection and two-shot
molding, automated assembly and testing, in-mold decorating, thin-wall molding
and in-mold bristling. The Company's manufacturing capabilities enable it to
provide innovative solutions and supply components in an integrated process. For
example, the Company worked closely with Renault to produce dashboard grilles
using a newly developed co-injection molding technology.
SUPERIOR PRODUCT QUALITY. The Company uses quality systems and operations
management techniques to meet the highest standards and to reduce costs. The
Company continually invests in technology and training to monitor and improve
quality. Included among such investments are effective management systems to
ensure real-time information and control, statistical process control systems,
failure mode and effect analysis systems, microprocessor-controlled molding
machines and automated assembly equipment. In addition, the Company has material
and product testing equipment that monitor product reliability to meet exacting
quality standards.
BUSINESS STRATEGY
The Company seeks to further strengthen its leadership position in the
plastic molding industry and to maximize its financial performance by employing
the following strategies:
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The Company believes that the
Merger creates new opportunities to cross-sell products and services between
each of Anchor's and Moll's customer bases. For example, while Anchor's
operations prior to the Merger were confined to North America, many of its
customers are multinational firms with significant European operations.
Management believes that offering such customers access to the Company's
European operations, operated by Moll prior to the Merger, is a
3
<PAGE> 7
significant growth opportunity. The Company has hired a new Senior Vice
President, Marketing to target and capitalize on such opportunities.
CENTRALIZE SALES AND MARKETING. The Company plans to centralize management
of its sales and marketing efforts to improve communication with customers,
better cross-sell services to customers and ensure uniform pricing and sales
strategies. While local sales and management staff will maintain direct
relationships with customers and production facilities, a centralized sales and
marketing effort will enable the Company to serve national and international
accounts more effectively and to pursue customers located outside an individual
plant's geographic service area. The Company's centralized sales and marketing
group will be responsible for identifying market trends and assisting customers
with new product ideas as well as promoting the Company through customer
presentations, advertising and trade shows.
EXPAND GLOBALLY. The Company believes that it is one of the largest North
American plastic injection molders with a significant European presence. Such
capabilities allow the Company to (i) penetrate new geographic regions with its
existing multinational customers, such as L'Oreal, Siemens, Whirlpool and Xerox,
and (ii) acquire complementary manufacturing facilities in strategic locations.
Continuing to pursue this strategy will enable the Company to effectively
provide a complete and integrated range of molding, manufacturing and
value-added services on a global basis.
REDUCE COSTS. The Company continually aims to improve its cost
effectiveness by increasing productivity and implementing operational
improvements. Since March 1998, the Company has eliminated approximately $2.8
million in annualized costs by reducing duplicative administrative expenses,
eliminating less profitable business lines and streamlining manufacturing
processes. The savings consist of $1.7 million in payroll costs gained through
the elimination of duplicate expenses and excessive resources and $1.1 million
in benefit costs gained through a revision of the retirement benefits. The
savings were calculated based on the salaries of the positions eliminated and an
actuarial estimation of the savings associated with the change in the retirement
plan. Management believes that the combination of Anchor, Moll and Gemini
Plastic will result in additional opportunities to reduce costs by: (i) reducing
overhead expenses through optimization of labor and equipment resources at each
of the Company's facilities; (ii) divesting or discontinuing less profitable
business lines; (iii) eliminating redundant administrative operations and
related personnel; and (iv) where appropriate, moving key management personnel
on-site to the Company's manufacturing plants in order to oversee expansion
and/or execution of cost control measures.
CONTINUE STRATEGIC ACQUISITIONS. Strategic acquisitions have been, and
management believes will continue to be, an important element in the Company's
growth and in its efforts to capitalize on favorable industry trends. The
Company will consider future acquisition opportunities that are attractively
priced and which the Company believes will strengthen its customer base, broaden
its geographic presence, enhance its production capabilities and provide
significant operating synergies. While the Company routinely enters into
discussions with potential acquisition candidates, no such discussions have
progressed beyond the preliminary stages.
THE TRANSACTIONS
Concurrently with the consummation of the Offering, the following
transactions were consummated: (i) the Merger; (ii) the acquisition of Gemini
Plastic; (iii) the distribution of Moll's 69% limited partnership interest in
Reliance Products Limited Partnership, a Delaware limited partnership doing
business in Canada ("Reliance Products"), to certain of Moll's limited partners;
(iv) the entering into the Revolving Credit Facility and (v) the Holdings Notes
Offering (as defined). The Company consummated the acquisition of Gemini Plastic
on June 30, 1998. See "The Transactions."
------------------------------------------
The Company's principal executives offices are located at 1111 Northshore
Drive, Suite N-600, Knoxville, Tennessee 37919-4048, and its telephone number is
(423) 450-5300.
4
<PAGE> 8
THE EXCHANGE OFFER
SECURITIES OFFERED............ Up to $130,000,000 principal amount of 10 1/2%
Senior Subordinated Notes Due 2008, which have
been registered under the Securities Act. The
terms of the New Notes and the Old Notes are
identical in all material respects, except for
certain transfer restrictions and registration
rights relating to the Old Notes and except for
certain interest provisions relating to the Old
Notes described below under "--Summary
Description of the New Notes."
THE EXCHANGE OFFER............ The New Notes are being offered in exchange for
a like principal amount of Old Notes. The
issuance of the New Notes is intended to
satisfy obligations of the Company contained in
the Registration Rights Agreement. For
procedures for tendering, see "The Exchange
Offer".
TENDERS, EXPIRATION DATE;
WITHDRAWAL.................. The Exchange Offer will expire at [--] p.m.,
New York City time, on , 1998 or
such later date and time to which it is
extended. The tender of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Note not
accepted for exchange for any reason will be
returned without expense to the tendering
Holder thereof as promptly as practicable after
the expiration or termination of the Exchange
Offer.
CERTAIN CONDITIONS TO
EXCHANGE OFFER.............. The Company shall not be required to accept for
exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend
the Exchange Offer if at any time before the
acceptance of the Old Notes for exchange or the
exchange of the New Notes for such Old Notes
certain events have occurred, which, in the
reasonable judgment of the Company, make it
inadvisable to proceed with the Exchange Offer
and/or with such acceptance for exchange or
with such exchange. Such events include (i) any
threatened, instituted or pending action
seeking to restrain or prohibit the Exchange
Offer, (ii) a general suspension of trading in
securities on any national securities exchange
or in the over-the-counter market, (iii) a
general banking moratorium, (iv) the
commencement of a war or armed hostilities
involving the United States and (v) a material
adverse change or development involving a
prospective material adverse change in the
Company's business, properties, assets,
liabilities, financial condition, operations,
results of operations or prospects that may
affect the value of the Old Notes or the New
Notes. In addition, the Company will not accept
for exchange any Old Notes tendered, and no New
Notes will be issued in exchange for any such
Old Notes, at any such time as any stop order
shall be threatened or in effect with respect
to the Registration Statement of which this
Prospectus constitutes a part or the
qualification of the Indentures under the Trust
Indenture Act of 1939. See "The Exchange
Offer -- Certain Conditions to the Exchange
Offer."
5
<PAGE> 9
FEDERAL INCOME TAX
CONSEQUENCES................ The exchange pursuant to the Exchange Offer
should not result in any income, gain or loss
to the holders or the Company for federal
income tax purposes. See "Certain Federal
Income Tax Considerations."
USE OF PROCEEDS............... There will be no proceeds to the Company from
the Exchange Offer.
EXCHANGE AGENT................ State Street Bank and Trust Company is serving
as Exchange Agent in connection with the
Exchange Offer.
SHELF REGISTRATION
STATEMENT..................... Under certain circumstances, certain holders of
Notes (including holders who are not permitted
to participate in the Exchange Offer or who may
not freely resell New Notes received in the
Exchange Offer) may require the Company to file
and cause to become effective, a shelf
registration statement under the Securities
Act, which would cover resales of Notes by such
holders. See "Description of the Notes,
Registration Rights; Liquidated Damages."
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of the
Notes--Registration Rights; Liquidated Damages." Based on interpretations by the
staff of the Commission, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the Company does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder (including, without
limitation, any Holder that is a broker-dealer) must acknowledge that (A) it is
not an Affiliate (as defined in Rule 144 of the Securities Act), (B) it is not
engaged in, and does not intend to engage in, a distribution of New Notes and
has no arrangement or understanding to participate in a distribution of New
Notes, and (C) it is acquiring the New Notes in its ordinary course of business.
As a condition to its participation in the Exchange Offer each Holder using the
Exchange Offer to participate in a distribution of the New Notes shall
acknowledge and agree that, if the resales are of New Notes obtained by such
Holder in exchange for Old Notes acquired directly from the Company or an
Affiliate thereof, it (i) could not rely on the applicable interpretations of
the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction and that such a secondary resale transaction must
be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K under the Securities Act. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will
6
<PAGE> 10
deliver a prospectus in connection with any resale of such New Notes. See "Plan
of Distribution." In addition, to comply with state securities laws, the New
Notes may not be offered or sold in any state unless they have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and is complied with. The Company currently does not
intend to register or qualify the sale of the New Notes in any state where an
exemption from registration or qualification is required and not available.
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except for certain provisions providing for an
increase in the interest rates on the Old Notes under certain circumstances
relating to timing of the Exchange Offer, which rights will terminate upon
consummation of the Exchange Offer. The New Notes will bear interest from the
most recent date to which interest has been paid on the Old Notes or, if no
interest has been paid on the Old Notes, from June 26, 1998. Accordingly, if the
relevant record date for interest payment occurs after the consummation of the
Exchange Offer registered holders of New Notes on such record date will receive
interest accruing from the most recent date to which interest has been paid or,
if no interest has been paid, from June 26, 1998. If, however, the relevant
record date for interest payment occurs prior to the consummation of the
Exchange Offer, registered holders of Old Notes on such record date will receive
interest accruing from the most recent date to which interest has been paid or,
if no interest has been paid, from June 26, 1998. Old Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer, except as set forth in the immediately preceding
sentence. Holders of Old Notes whose Old Notes are accepted for exchange will
not receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
SECURITIES OFFERED............ Up to $130.0 million in aggregate principal
amount of 10 1/2% Senior Subordinated Notes due
2008, which have been registered under the
Securities Act.
MATURITY DATE................. July 1, 2008
INTEREST RATE................. The Notes will bear interest at the rate of
10 1/2% per annum, payable semi-annually in
arrears on January 1 and July 1 of each year,
commencing January 1, 1999.
SUBORDINATION................. The Old Notes are, and the New Notes will be,
general unsecured obligations of the Company,
and the Old Notes rank, and the New Notes will
rank, subordinate in right of payment to all
Senior Debt and the Old Notes rank, and the New
Notes will rank, senior or pari passu in right
of payment to all existing and future
subordinated indebtedness of the Company. The
Old Notes are, and the New Notes will be,
effectively subordinated to all liabilities,
including trade payables, of the Company's
subsidiaries. As of October 3, 1998, the Notes
were subordinated to $123.5 million of Senior
Debt and effectively subordinated to $42.6
million of liabilities of the Company's
subsidiaries (other than Senior Debt). Subject
to certain conditions, at October 3, 1998
approximately $48.8 million of capacity was
available for borrowing under the Revolving
Credit Facility. However, after giving effect
to the most restrictive covenants contained in
the Company's loan documents, as of October 3,
1998, the maximum amount of Senior Debt that
could be incurred by the Company in addition to
the $122.6 million of Senior Debt outstanding
on such date was approximately $24 million.
OPTIONAL REDEMPTION........... The Notes will be redeemable at the option of
the Company, in whole or in part, at any time
on or after July 1, 2003 in cash at the
7
<PAGE> 11
redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption
date. In addition, at any time prior to July 1,
2001, the Company may on any one or more
occasions redeem up to 35% of the aggregate
principal amount of Notes originally issued at
a redemption price equal to 110.5% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, with the net
cash proceeds of one or more Public Equity
Offerings (as defined); provided that at least
65% of the aggregate principal amount of Notes
originally issued remains outstanding
immediately after the occurrence of any such
redemption.
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control,
each holder of Notes will have the right to
require the Company to repurchase all or any
part of such holder's Notes at an offer price
in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase. See
"Description of Notes--Repurchase at the Option
of Holders--Change of Control." There can be no
assurance that, in the event of a Change of
Control, the Company would have sufficient
funds to purchase all Notes tendered. See "Risk
Factors--Limitations on Ability to Make Change
of Control Payment."
CERTAIN COVENANTS............. The Indenture contains certain covenants that
limit, among other things, the ability of the
Company to: (i) pay dividends, redeem capital
stock or make certain other restricted payments
or investments, (ii) incur additional
indebtedness or issue preferred equity
interests, (iii) merge, consolidate or sell all
or substantially all of its assets, (iv) create
liens on assets and (v) enter into certain
transactions with affiliates or related
persons. See "Description of Notes--Certain
Covenants."
USE OF PROCEEDS............... The Company will not receive any proceeds from
the Exchange Offer. The net proceeds from the
sale of the Old Notes were estimated to be
approximately $122.5 million (after deducting
discounts and commissions and estimated
expenses of the Offering) and were used by the
Company to refinance certain indebtedness of
the Company and to consummate the Transactions.
See "Use of Proceeds" and "The Transactions."
EXCHANGE OFFER; REGISTRATION
RIGHTS........................ Holders of New Notes (other than as set forth
below) are not entitled to any registration
rights with respect to the New Notes. Pursuant
to the Registration Rights Agreement, the
Company agreed, for the benefit of the Holders
of Old Notes, to file an Exchange Offer
Registration Statement (as defined). The
Registration Statement of which this Prospectus
is a part constitutes the Exchange Offer
Registration Statement. Under certain
circumstances, certain Holders of Notes
(including Holders who may not participate in
the Exchange Offer or who may not freely resell
New Notes received in the Exchange Offer) may
require the Company to file, and cause to
become effective, a shelf registration
statement under the Securities Act, which would
cover resales of Notes by such Holders. See
"Description of the Notes--Registration Rights;
Liquidated Damage."
8
<PAGE> 12
RISK FACTORS
PROSPECTIVE HOLDERS OF NEW NOTES SHOULD CONSIDER CAREFULLY ALL OF THE
INFORMATION SET FORTH IN THIS PROSPECTUS AND, IN PARTICULAR, SHOULD EVALUATE THE
SPECIFIC FACTORS SET FORTH UNDER "RISK FACTORS" BEFORE MAKING A DECISION TO
TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
9
<PAGE> 13
SUMMARY UNAUDITED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary pro forma data for the Company, as
well as summary historical financial data of each of Moll (Anchor Holdings, Inc.
and its subsidiary Moll Industries, Inc. -- the Registrant), Anchor Holdings (an
acquired company) and Somomeca (an acquired company) for the periods indicated.
The summary historical financial data for the years ended 1995, 1996 and 1997
for Moll and Anchor Holdings were derived from the audited consolidated
financial statements contained elsewhere in this Prospectus. The summary
historical data for the years ended 1996 and 1997 for Somomeca were derived from
unaudited financial statements prepared by management. The summary unaudited
interim balance sheet data and the summary unaudited statements of operations
and other data for the thirty-nine or twenty-six weeks of 1997 and 1998 were
derived from unaudited financial statements contained elsewhere in this
Prospectus. These unaudited financial statements were prepared on the same basis
as the annual financial statements and, in the opinion of management, reflect
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation. The unaudited pro forma data were derived from the unaudited
pro forma financial statements contained elsewhere in this Prospectus and
reflect the Transactions as if they had occurred at the beginning of the period
presented. Neither the summary historical consolidated financial data nor the
summary pro forma consolidated financial data are necessarily indicative of
either the future results of operations or the results of operations that would
have occurred if the Transactions had been consummated on any date. The
following table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the historical
consolidated financial statements of each of Moll, Anchor Holdings and Somomeca,
as well as the unaudited pro forma financial statements of the Company,
including accompanying notes thereto, included elsewhere in this Prospectus.
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THIRTY-NINE WEEKS
DECEMBER 31, 1997 1998
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................... $414,630 $296,253
Gross profit................................................ 60,048 38,478
Selling, general and administrative expenses................ 29,493 22,483
Operating income............................................ 30,355 15,845
Interest expense, net....................................... 27,006 20,747
Income (loss) before taxes and extraordinary items.......... 4,219 (4,763)
Income (loss) before extraordinary item..................... 624 (3,043)
OTHER DATA:
EBITDA(1)................................................... $ 54,705 $ 31,143
Cash flows from operating activities........................ 12,853 4,440
Cash flows from investing activities........................ (29,764) (40,902)
Cash flows from financing activities........................ 18,209 48,150
Depreciation and amortization............................... 23,480 15,159
Capital expenditures........................................ 15,559 16,709
Cash interest expense, net(2)............................... 25,932 19,499
Ratio of EBITDA to cash interest expense, net............... 2.1x NA
Ratio of net debt to EBITDA(3).............................. 4.3x NA
</TABLE>
SUMMARY UNAUDITED INTERIM BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT OCTOBER 3, 1998
<S> <C>
Cash........................................................ $ 19,972
Working capital............................................. 78,139
Total assets................................................ 340,508
Total debt.................................................. 253,527
Stockholders' equity........................................ 3,101
</TABLE>
10
<PAGE> 14
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTY-NINE
YEAR ENDED DECEMBER 31, WEEKS
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, ------------------------------- -------------------
MOLL INDUSTRIES, INC., THE REGISTRANT(4) 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales....................................... $90,876 $ 89,464 $116,947 $85,248 $221,585
Gross profit.................................... 16,966 16,502 19,861 16,217 32,711
Selling, general and administrative expenses.... 8,301 7,190 10,758 6,428 17,861
Operating income................................ 9,019 8,574 8,186 8,535 13,943
Interest expense, net........................... 2,414 2,518 3,405 2,463 11,785
Income before taxes and extraordinary item...... 6,485 6,037 4,645 4,741 1,978
Income before extraordinary item................ 6,485 6,037 4,563 4,741 1,620
PRO FORMA INFORMATION:
Provision for income taxes...................... $ 2,594 $ 2,415 $ 2,531 $ 1,992 $ 412
Income before extraordinary item................ 3,891 3,622 2,114 2,749 1,566
Earnings per share before extraordinary item.... 2.51 2.33 1.36 1.77 1.01
OTHER DATA:
EBITDA(1)....................................... $13,317 $ 12,703 $ 13,450 $11,075 $ 23,553
Cash flows from operating activities............ 9,709 10,802 5,506 1,282 3,106
Cash flows from investing activities............ (2,553) (11,592) (14,215) (9,974) (33,568)
Cash flows from financing activities............ (6,972) 1,336 9,595 9,512 48,065
Depreciation and amortization................... 4,418 4,148 5,400 3,871 9,790
Capital expenditures............................ 2,776 1,387 6,562 2,961 12,150
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX
YEAR ENDED DECEMBER 31, WEEKS
ANCHOR HOLDINGS, INC.(5), -------------------------------- ------------------
ACQUIRED COMPANY 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales....................................... $149,366 $156,858 $161,161 $84,745 $75,810
Gross profit.................................... 24,338 27,637 25,187 13,424 6,578
Selling, general and administrative............. 9,409 11,358 10,979 5,490 6,337
Income (loss) from operations................... 13,267 14,749 12,510 7,269 (488)
Interest expense, net........................... 8,616 8,124 11,165 4,982 6,026
Income (loss) before taxes and extraordinary
item.......................................... 3,677 6,217 1,632 2,200 (6,616)
Income (loss) before extraordinary item......... 2,438 3,626 838 1,400 (4,216)
OTHER DATA:
EBITDA(1)....................................... $ 21,742 $ 23,627 $ 22,370 $11,916 $ 4,664
Cash flows from operating activities............ 8,822 13,076 16,037 5,877 1,365
Cash flows from investing activities............ (6,453) (8,014) (8,847) (3,481) (7,185)
Cash flows from financing activities............ (2,265) (4,268) (1,854) (244) --
Depreciation and amortization................... 9,449 9,286 9,573 4,734 5,254
Capital expenditures............................ 6,932 8,028 8,413 3,481 4,416
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
SOMOMECA INDUSTRIES, ACQUIRED COMPANY 1996 1997
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales......................................... $89,003 $ 88,502
Gross profit...................................... 12,055 10,559
Income from operations............................ 5,104 5,090
Interest expense, net............................. 2,436 2,391
Income before taxes............................... 2,214 2,474
Net income........................................ 1,006 1,438
OTHER DATA:
EBITDA(1)......................................... $12,218 $ 10,923
Cash flows from operating activities.............. (3,498) 8,627
Cash flows from investing activities.............. (8,225) (4,623)
Cash flows from financing activities.............. 11,718 (4,356)
Depreciation and amortization..................... 7,568 6,058
Capital expenditures.............................. 9,638 5,097
</TABLE>
- ------------------------------
(1) EBITDA represents income before taxes plus interest expense, net,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income, net income or cash flows from operating
activities in analyzing the referenced company's operating performance,
financial position or cash flows, the referenced company has included EBITDA
because it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt. As all
companies may not calculate EBITDA in the same manner, these amounts may not
be comparable to other companies.
(2) Cash interest expense, net represents interest expense minus amortization of
debt issuance costs.
(3) Net debt, as used in calculating this ratio, represents total debt at
October 3, 1998 of $253,527 minus cash of $19,972. EBITDA, as used in this
calculation, represents EBITDA for the year ended December 31, 1997.
(4) The financial data presented here for the periods prior to June 26, 1998 is
derived from the financial statements of Moll as Moll was the accounting
acquiror in the Merger. At October 3, 1998, there were no significant
differences between the financial statements of Moll Industries, Inc. (the
Registrant) and Anchor Holdings, Inc.
(5) The consolidated financial statements of Anchor Holdings (acquired company)
do not differ significantly from those of Anchor. See Note 16 to the
historical consolidated financial statements of Anchor Holdings.
12
<PAGE> 16
RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate the
following risks before tendering their Old Notes in the Exchange Offer, although
the risk factors set forth below (other than "--Consequences of Failure to
Exchange") are generally applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act or under any applicable
state securities laws. See "The Exchange Offer--Consequences of Exchanging or
Failing to Exchange Old Notes."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has substantial indebtedness and incurred additional
indebtedness in connection with the Offering. As of October 3, 1998, the
Company's total indebtedness was $253.5 million, and the Company had, subject to
certain conditions, at October 3, 1998 an additional $48.8 million of capacity
available for borrowing under the Revolving Credit Facility. For 1997, on a pro
forma basis, the Company's ratio of earnings to fixed charges would have been
1.2 to 1. As of October 3, 1998, the Company's annual debt service was $11.8
million in respect of the Senior Notes (11 3/4%) and $13.7 million in respect of
the Notes (10 1/2%). The total amount of the Company's Senior Debt outstanding
as of October 3, 1998 consisted of $100 million of the Senior Notes and $23.5
million of equipment leases and other debt.
The degree to which the Company is leveraged could have important
consequences for the Company, including the following: (i) the ability of the
Company to obtain additional financing for working capital, capital
expenditures, acquisitions, debt service requirements or other purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
will be required to pay the Company's interest expense and principal repayment
obligations and will not be available for its general corporate needs; (iii) the
substantial indebtedness incurred by the Company coupled with the restrictive
covenants to which the Company is subject may reduce the Company's flexibility
to adjust to changing market conditions, and its ability to compete against its
less highly leveraged competitors; (iv) the Company may be more vulnerable in
the event of a downturn in its business; and (v) to the extent that the Company
incurs borrowings under the Revolving Credit Facility at variable rates, it will
be vulnerable to increases in interest rates.
The Company's ability to pay interest on the Notes, and its obligation
under the Revolving Credit Facility, will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond its control.
Although the Company believes it will be able to pay its obligations as they
come due, there can be no assurance that it will generate earnings in any future
period sufficient to cover its debt service requirements. However, all or a
portion of the principal payment at maturity of the Notes may require
refinancing. Each of the Revolving Credit Facility and the Indenture contains
covenants that restrict the Company's ability to take certain of the foregoing
actions, including selling assets and using the proceeds therefrom. There can be
no assurance as to the timing of such actions, the ability of the Company to
consummate such actions under its existing financing agreements or the proceeds
that the Company could realize therefrom, and there can be no assurance that any
such transactions would be feasible at the time or that such proceeds would be
adequate to meet the obligations then due. Furthermore, a failure to comply with
the obligations contained in the Revolving Credit Facility or any agreements
with respect to any future indebtedness could result in an event of default
under such agreements and the acceleration of the related debt. See
"Management's Discussion and Analysis of
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<PAGE> 17
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
"Description of Certain Indebtedness" and "Description of Notes."
SUBORDINATION
The Old Notes are, and the New Notes will be, general unsecured obligations
of the Company, and the Old Notes rank, and the New Notes will rank, subordinate
in right of payment to all Senior Debt and the Old Notes rank, and the New Notes
will rank, senior or pari passu in right of payment to all existing and future
subordinated indebtedness of the Company. As of October 3, 1998, the Company had
outstanding $123.5 million of Senior Debt. In the event of a bankruptcy,
liquidation, reorganization or other winding up of the Company, the assets of
the Company will be available to pay obligations on the Notes only after all
Senior Debt of the Company has been paid in full, and, as a result, there may
not be sufficient assets remaining to pay amounts due on the Notes. In the event
of a payment default with respect to any Senior Debt of the Company, no payments
may be made on account of principal, premium, if any, or interest on the Notes
until such default has been cured or waived, except holders of Notes may receive
Permitted Junior Securities (as defined). In addition, under certain
circumstances, no payments may be made for a specified period with respect to
principal, premium, if any, or interest on the Notes if certain non-payment
defaults exist with respect to certain Senior Debt of the Company, except
holders of Notes may receive Permitted Junior Securities. See "Description of
Notes--Subordination." In addition, the Company operates certain of its
businesses through its subsidiaries, particularly in Europe. Accordingly, the
Old Notes are, and the New Notes will be, effectively subordinated to all
liabilities of the Company's subsidiaries, including trade payables. At October
3, 1998, the subsidiaries of the Company had $42.6 million of liabilities (other
than Senior Debt).
UNSECURED STATUS OF THE NOTES; ABSENCE OF GUARANTEES
The Old Notes are, and the New Notes will be, unsecured obligations of the
Company. The Indenture permits the Company to incur certain secured
indebtedness, including indebtedness under the Revolving Credit Facility, which
is secured by a lien on substantially all the assets of the Company. The holders
of any secured indebtedness will have a claim prior to the holders of the Notes
with respect to any assets pledged by the Company as security for such
indebtedness. Upon an event of default under the Revolving Credit Facility, the
lenders thereunder would be entitled to foreclose on the assets of the Company.
In such event, the assets of the Company remaining after repayment of such
secured indebtedness may be insufficient to satisfy the obligations of the
Company with respect to the Notes. Additionally, the Company's obligations under
the Senior Notes are guaranteed by Anchor Holdings and certain Restricted
Subsidiaries (as defined in the Senior Notes Indenture (defined below)) of the
Company while the Company's obligations under the Notes and the Revolving Credit
Facility are not guaranteed by Anchor Holdings and such subsidiaries. See
"Description of Certain Indebtedness--Revolving Credit Facility."
RELIANCE ON MAJOR CUSTOMERS
Approximately 55% of the Company's pro forma net sales in 1997 were derived
from its ten largest customers. Additionally, approximately 10.7% and 10.3% of
the Company's pro forma net sales in 1997 were derived from L'Oreal and
Whirlpool, respectively. The Company expects that it will continue to be
dependent upon a limited number of customers for a significant portion of its
net sales for future periods. Although the Company has ongoing supply
relationships with its principal customers, there can be no assurance that sales
to such customers will continue at the same level. As a result of this customer
concentration, the Company's businesses, operating results and financial
condition could be materially adversely affected by (i) the failure of
anticipated orders to materialize, (ii) deferrals or cancellations of orders or
(iii) increases by its largest customers of their in-house production of the
Company's products or selecting other manufacturers from whom to buy products.
There can be no assurance that in future periods the revenues from these
customers will be maintained at historic levels. In addition, certain of the
Company's agreements to produce parts are tied to specific models or product
lines of its customers. Accordingly, the Company's business, and estimates for
future business, are dependent upon consumer demand for the specific models and
product lines that incorporate parts manufactured by the Company. While
management believes that the Company's relation-
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ships with its customers are mutually satisfactory, if any of these customers
were to reduce substantially or discontinue purchases from the Company, or if
consumer demand for products incorporating plastic parts manufactured by the
Company were to significantly decrease, the financial condition and results of
operations of the Company would be materially adversely affected.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company competes with a significant number of companies of varying sizes,
including divisions or subsidiaries of larger companies, on the basis of price,
service, quality and the ability to supply products to customers in a timely
manner. Some of these competitors have, and new competitors may have, greater
financial and other resources than the Company. Additionally, each of Reliance
Products (which is controlled by the principal stockholders of the Company) and
the Company are engaged in the injection molded plastics business. The products
manufactured, and the markets served, by each of Reliance Products and the
Company are different, and Reliance Products and the Company have not competed,
and do not compete, with each other. However, no assurance can be given that
Reliance Products and the Company will not compete for the same business
opportunities in the future, which may present conflicts of interest.
Competitive pressures or other factors, including the vertical integration by
certain of the Company's major customers of manufacturing processes
traditionally outsourced to the Company, could cause the Company to lose market
share or could result in a significant price erosion with respect to the
Company's products, either of which could have a material adverse effect on the
Company's results of operations. Furthermore, the Company's customers operate in
highly competitive markets. To the extent the Company's major customers lose
market share in their respective markets, the Company's results of operations
and financial condition could be materially adversely affected. See
"Business--Competition."
MANAGING INTEGRATION AND GROWTH
The Company's ability to implement its growth strategy depends, in part, on
its success in integrating its acquisitions, into the Company's operations. The
Company has grown significantly over the past year and a half through
acquisitions that represent a substantial increase in the scope of the Company's
business. The pursuit and integration of acquisitions, including the integration
of Anchor and Moll as part of the Transactions, will require substantial
attention from the Company's senior management, which will limit the amount of
time these individuals will have available to devote to the Company's existing
operations. Successful integration of each of their operations will depend
primarily on the Company's ability to manage such operations and to integrate
their respective managements. There can be no assurance that the Company can
successfully integrate such acquisitions into its business or implement its
plans without delay or substantial cost. In addition, future acquisitions by the
Company could result in the incurrence of debt and contingent liabilities which
could have a material adverse effect upon the Company's financial condition and
results of operations. Any failure or any inability to effectively manage and
integrate growth may have a material adverse effect on the Company's financial
condition and results of operations. See "The Company."
RAW MATERIALS
The Company's primary raw materials are various plastic resins, nylon and
packaging materials. Raw material prices are subject to cyclical price
fluctuations, including those arising from supply shortages and as a result of
changes in the prices of natural gas, crude oil and other petrochemical
intermediates from which resin is derived. Accordingly, the Company's financial
performance is directly linked to its ability to pass along increased raw
material costs to its customers. Although the Company has historically been able
to pass on increased costs to its customers, there can be no assurance that it
will be able to do so in the future or that a significant price increase in raw
materials would not have a material adverse effect on the Company's financial
condition and results of operations. Although most of the raw materials used by
the Company are available from several suppliers, several of such raw materials
are currently obtained from single sources. The Company has no reason to believe
that there will not be an ample supply of its raw materials at prices
commercially acceptable to the Company for the reasonably foreseeable future,
but the Company cannot make any prediction as to the future price of such raw
materials. See "Business--Raw Materials."
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INTERNATIONAL OPERATIONS
The Company derived approximately 33% of its 1997 pro forma net sales from
its operations in Europe. The Company's international operations are subject to
risks inherent in international business activities, including, in particular,
compliance with a variety of foreign laws and regulations, unexpected changes in
regulatory requirements, overlap of different tax structures, foreign currency
exchange rate fluctuations and general economic conditions.
The Company prices its products and incurs operating expenses in Europe in
the currency of the country in which the product is manufactured and sold and,
in the United States, in United States dollars. To the extent that costs and
prices are in the currency of the country in which the products are manufactured
and sold, the costs and prices of such products in dollars will vary as the
value of the dollar fluctuates against such currencies. There can be no
assurance that there will not be increases in the value of the dollar against
such currencies that will reduce the dollar return to the Company on the sale of
its products in such countries.
COMMON EUROPEAN CURRENCY
The Treaty on European Economic and Monetary Union provides for the
introduction of a single European currency, the Euro, in substitution for the
national currencies of the member states of the European Union that adopt the
Euro. In May 1998, the European Council determined (i) the 11 member states that
met the requirements for Monetary Union, and (ii) the currency exchange rates
among the currencies of the member states joining the Monetary Union. The
transitory period for the Monetary Union starts on January 1, 1999. According to
Council Resolution of July 7, 1997, the introduction of the Euro will be made in
three steps: (i) a transitory period from January 1, 1999 to December 31, 2001
in which current accounts may be opened and financial statements may be drawn in
Euros, and local currencies and Euros will coexist; (ii) from January 1, 2002 to
June 30, 2002, in which local currencies will be exchanged for Euros; and (iii)
from July 1, 2002 in which local currencies will disappear. Although there can
be no assurance that a single European currency will be adopted or, if adopted,
on what time schedule and with what success, substantial transition costs could
result as the Company redesigns its software systems to reflect the adoption of
the new currency. In addition, no assurance can be given as to the effect of the
adoption of the Euro on the Company's payment obligations under loan agreements
for borrowings in currencies to be replaced by the Euro or on the Company's
commercial agreements in such currencies.
CONCENTRATION OF CONTROL
AMM Holdings, LLC, a Delaware limited liability company ("AMM Holdings,
LLC") owns all the capital stock of Holdings, which owns all the capital stock
of Anchor Holdings, which owns all the Company's outstanding capital stock. Moll
PlastiCrafters, Inc. (Del), a Delaware corporation ("MPI"), owns 75.6% of the
outstanding Capital Units (as defined) and 69.3% of the outstanding Profit Units
(as defined) of AMM Holdings, LLC. George T. Votis owns all the outstanding
capital stock of MPI as well as 4.8% of the outstanding Capital Units and 10.8%
of the outstanding Profit Units of AMM Holdings, LLC. Mr. Votis is the manager
of AMM Holdings, LLC and, pursuant to the Limited Liability Company Agreement,
dated as of June 26, 1998 (the "LLC Agreement") of AMM Holdings, LLC, has
exclusive power to manage the business and affairs of AMM Holdings, LLC.
Therefore, Mr. Votis will be able to indirectly control the business, policies
and affairs of the Company, including the election of directors and managers and
major corporate transactions of the Company. Circumstances may occur in which
the interests of Mr. Votis could be in conflict with the interests of the
holders of the Notes. For example, if the Company encounters financial
difficulties or is unable to pay certain of its debts as they mature, the
interests of Mr. Votis might conflict with those of the holders of the Company's
indebtedness, including the Notes. In addition, Mr. Votis may have an interest
in pursuing acquisitions, divestitures or other transactions that, in its
judgment, could enhance its equity investment, even though such transactions
might involve risks to the holders of the Company's indebtedness, including the
Notes. See "Certain Beneficial Owners."
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DEPENDENCE ON KEY PERSONNEL
The success of the Company depends in large part on the Company's senior
management and its ability to attract and retain other highly qualified
management personnel. The Company faces competition for such personnel from
other companies and other organizations. There can be no assurance that the
Company will be successful in hiring or retaining key personnel. In particular,
the Company believes that it has benefitted substantially from the leadership of
Mr. George T. Votis, the Company's Chairman and Chief Executive Officer. The
loss of the services of Mr. Votis or other key personnel of the Company could
have a material adverse effect on the Company's business and its future
operations. The Company does not maintain any key person life insurance. Mr.
Votis and Mr. Charles B. Schiele, the Company's President, devote a portion of
their business time to other companies, including Reliance Products. There can
be no assurance that the inability of either Mr. Votis or Mr. Schiele to devote
their full time and resources to the Company will not adversely affect the
Company's business, financial condition and results of operations. See
"Management."
ENVIRONMENTAL MATTERS
Federal, state, local and foreign governments could enact laws or
regulations concerning environmental matters that increase the cost of
producing, or otherwise adversely affect the demand for, plastic products. The
Company is aware that certain local governments have adopted ordinances
prohibiting or restricting the use or disposal of certain plastic products that
are among the types of products produced by the Company. If such prohibitions or
restrictions were widely adopted, such regulatory and environmental measures or
a decline in consumer preference for plastic products due to environmental
considerations could have a material adverse effect upon the Company. In
addition, certain of the Company's operations are subject to Federal, state,
local and foreign environmental laws and regulations that impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous wastes. While the
Company has not been required historically, and does not currently expect, to
make significant capital expenditures in order to comply with applicable
environmental laws and regulations, the Company cannot predict with any
certainty its future capital expenditure requirements because of continually
changing compliance standards and environmental technology. The Company does not
have insurance coverage for environmental liabilities and does not anticipate
obtaining such coverage in the future. See "Business--Environmental Matters."
FRAUDULENT CONVEYANCE
The Company believes that the indebtedness represented by the Notes has
been incurred for proper purposes and in good faith, and that, based on present
forecasts, asset valuations and other financial information, after the
consummation of the Transactions, the Company is solvent, has sufficient capital
for carrying on its business and will be able to pay its debts as they mature.
See, however, "--Substantial Leverage; Ability to Service Debt." Notwithstanding
the Company's belief, however, under federal or state fraudulent transfer laws,
if a court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time of the incurrence of such
indebtedness, the Company was insolvent, was rendered insolvent by reason of
such occurrence, was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital, intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, or intended to hinder, delay or defraud its creditors, and that the
indebtedness was incurred for less than reasonably equivalent value, then such
court could, among other things, (a) void all or a portion of the Company's
obligations to the Holders of the Notes, the effect of which would be that the
Holders of the Notes might not be repaid in full and/or (b) subordinate the
Company's obligations to the Holders of the Notes to other existing and future
indebtedness of the Company to a greater extent than would otherwise be the
case, the effect of which would be to entitle such other creditors to which the
Notes were not previously subordinated to be paid in full before any payment
could be made on the Notes.
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LIMITATIONS ON THE ABILITY TO MAKE CHANGE OF CONTROL PAYMENT
Pursuant to the Indenture, upon a Change of Control, the Company is
obligated to make an offer to purchase all outstanding Notes at a price equal to
101% of the principal amount of the Notes, plus accrued interest thereon. In
addition, any Change of Control under the Indenture would also constitute a
Change of Control under the indenture (the "Senior Notes Indenture") governing
the 11 3/4% Senior Notes due 2004 of Anchor (the "Senior Notes"). The Revolving
Credit Facility prohibits the Company from purchasing any Notes and also
provides that the occurrence of certain Change of Control events with respect to
the Company would constitute a default thereunder. In the event of a Change of
Control, the Company would be required to repay all borrowings under the
Revolving Credit Facility or obtain the consent of its lenders under the
Revolving Credit Facility to make the purchase of the Notes. If the Company does
not obtain such consent or repay such borrowings, the Company will remain
prohibited from purchasing the Notes or the Senior Notes. In such case, the
Company's failure to purchase tendered Notes or Senior Notes, as the case may
be, would constitute a default under the Indenture or the Senior Notes
Indenture, respectively, which, in turn, would constitute a default under the
Revolving Credit Facility. Furthermore, there can be no assurance that the
Company will have the financial ability to purchase the Notes upon the
occurrence of a Change of Control. See "Description of Notes--Change of
Control."
YEAR 2000
Historically, certain computerized systems have had two digits rather than
four digits to define the applicable year, which could result in recognizing a
date using "00" as the year 1900 rather than the year 2000. This could result in
major failures or miscalculations, and is generally referred to as the "Year
2000 issue." The Company recognizes that the impact of the Year 2000 issue
extends beyond traditional computer hardware and software to automated plant
systems and instrumentation, as well as to third parties. The Year 2000 issue is
being addressed within the Company by its individual business units, and
progress is reported periodically to management.
The Company has committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, plant systems and external parties. Information
technology includes telecommunications, as well as traditional computer software
and hardware in the mainframe, midrange and desktop environments. Plant systems
include all automation and embedded chips used in plant operations. External
parties include any third party with which the Company does business.
In the information technology area, inventory and assessment audits in the
mainframe and midrange environments were completed in third quarter 1998 with
corrective action scheduled for completion by the fourth quarter 1998, except
for business application software which is expected to be completed by the
second quarter 1999. Inventory and assessment audits for telecommunications were
completed in third quarter 1998 with corrective action expected to be completed
by the second quarter 1999. Finally, inventory and assessment audits in the
desktop environment were completed in third quarter 1998, with corrective action
expected to be completed by the third quarter 1999. The companies located in
Europe will begin installing systems in the fourth quarter 1998 that will be
Year 2000 ready.
In the plant systems area, 75% of the Company's business units have
completed their inventory and assessment audits; the remaining units are
expected to complete this work by the fourth quarter 1998. The Company is
relying on vendor testing and certification with validation through limited
internal testing and/or industry test results. Downtime for normally scheduled
plant maintenance will be used to conduct testing, with corrective action
expected to be completed by the second quarter 1999.
With respect to external parties, 65% of the Company's business units have
completed their inventory audit of critical external parties. The remaining
business units are expected to complete this work by the fourth quarter 1998.
Risk assessment is expected to be complete by the fourth quarter 1998, and
monitoring of risk in this area will continue into 1999, as many external
parties will not have completed their work.
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The total cost of Year 2000 activities is not expected to be material to
the Company's operations, liquidity or capital resources. Costs are being
managed within each business unit. The total cost for the Company's Year 2000
work is estimated to be $2 million. 1997 costs were $500,000, and 1998 costs
through September 1998 were $300,000. Costs exclude expenditures for replacement
systems, which were previously scheduled.
There is still uncertainty around the scope of the Year 2000 issue. At this
time the Company cannot quantify the potential impact of these failures. There
can be no assurance that there will not be a delay in, or increased costs
associated with, the Company's efforts to address the Year 2000 issue, and the
Company's inability to implement the necessary changes could have an adverse
effect on the Company. The Company's Year 2000 program and contingency plans are
being developed to address issues within the Company's control. The program
minimizes but does not eliminate the issues of external parties.
LACK OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued on June 26, 1998 to a small number of institutional investors
and institutional accredited investors and are eligible for trading in the
Private Offering, Resale and Trading through Automated Linkages (PORTAL) Market,
the National Association of Securities Dealers' screenbased, automated market
for trading of securities eligible for resale under Rule 144A. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for the remaining untendered Old Notes could be adversely affected. There
is no existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of holders of the New Notes to sell their New Notes or the price at which such
holders may be able to sell their New Notes. Although the Initial Purchasers
have informed the Company that they currently intend to make a market in the New
Notes, they are not obligated to do so, and any such market-making may be
discontinued at any time without notice. As a result, the market price of the
New Notes could be adversely affected. The Company does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market.
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THE COMPANY
OVERVIEW
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company's products are sold to
a wide range of end-markets, including end markets for consumer products,
telecommunications/business equipment, household appliances, automobiles and
medical devices. On a pro forma basis after giving effect to the Transactions,
the Company generated 1997 net sales, net income and EBITDA of $414.6 million,
$.6 million and $54.7 million, respectively, making it the sixth largest
non-automotive plastic injection molding company in North America and one of the
largest plastic component suppliers in Europe.
HISTORY
Anchor
Anchor began operations in 1941 as a manufacturer of cosmetic brushes for
Maybelline and, in 1958, began producing Pepsodent(R) toothbrushes for Lever
Brothers Company, Inc. Anchor was acquired in 1990 by affiliates of the Thomas
H. Lee Company and management. Since such acquisition, Anchor has pursued a
growth strategy designed to increase sales while diversifying its revenue base.
In the pursuit of this strategy, Anchor acquired Mid-State Plastics, Inc.
("Mid-State") in 1994, which served to expand Anchor's business into the medical
device and computer components markets. In March 1997, Anchor completed a
recapitalization and in connection therewith issued the Senior Notes. In March
1998, Mr. Votis, who controls Moll, acquired Anchor from affiliates of the
Thomas H. Lee Company. Since such time, Anchor has eliminated approximately $2.8
million in annualized costs by reducing duplicative administrative expenses,
eliminating less profitable business lines and streamlining manufacturing
processes. The savings consist of $1.7 million in payroll costs gained through
the elimination of duplicate expenses and excessive resources and $1.1 million
in benefit costs gained through a revision of the retirement benefits. The
savings were calculated based on the salaries of the positions eliminated and an
actuarial estimation of the savings associated with the change in the retirement
plan.
Moll
In July 1991, certain entities controlled by Mr. Votis and his partners
were merged to form Moll. Since 1991, Moll has grown significantly through
several strategic acquisitions in North America and Europe:
Textek Plastics, Inc. In December 1992, Moll acquired Textek Plastics,
Inc. ("Textek"), a plastic injection molding manufacturer with one facility in
each of San Antonio and Round Rock, Texas. Textek specialized in manufacturing
plastic components and end-products for the telecommunications and business
products markets. Textek had revenues of $14.2 million in 1992.
Advanced Custom Molders. In July 1993, Moll acquired Advanced Custom
Molders ("ACM"), based in Georgetown and El Paso, Texas. The acquisition of ACM
added two additional plants. ACM had revenues of $15.5 million in 1993.
Quality Plastics Company. In October 1994, Moll acquired Quality Plastics
Company, Inc. ("Quality"), based in Newberg, Oregon. The acquisition of Quality
added manufacturing capacity in the Pacific Northwest. Quality had revenues of
$13.3 million in 1994.
Hanning. In August 1997, Moll acquired the Hanning group of companies
("Hanning"), with manufacturing facilities located in the United States, the
United Kingdom and Germany. Hanning is a leading supplier of injection molded
plastic components for use in digital photocopiers. The acquisition of Hanning:
(i) established the Company's geographic presence in Europe; and (ii) broadened
the Company's product offerings to include precision plastic components for the
business equipment and automotive markets. Hanning had revenues of $49.6 million
in 1997.
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Somomeca Industries. In January 1998, Moll acquired Somomeca Industries
S.A.R.L. and its subsidiaries ("Somomeca"), a major French supplier of injection
molded plastic components and plastic injection molds. Somomeca has seven
operating facilities in France and one operating facility in Portugal. The
acquisition of Somomeca: (i) expanded the Company's geographic presence in
Europe, (ii) established the Company's mold-making capabilities, and (iii)
expanded the Company's presence in the automotive sector. Somomeca had revenues
of $88.5 million in 1997.
Gemini Plastic. The Company consummated the acquisition of Gemini Plastic
on June 30, 1998. Gemini Plastic had revenues of approximately $21 million in
1997.
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THE TRANSACTIONS
Concurrently with the consummation of the Offering, the following
transactions were consummated: (i) the Merger; (ii) the acquisition of Gemini
Plastic; (iii) the distribution of Moll's 69% limited partnership interest in
Reliance Products, a Delaware limited partnership doing business in Canada, to
certain of Moll's limited partners; (iv) the entering into the Revolving Credit
Facility and (v) the Holdings Notes Offering. All of the foregoing transactions,
including the Offering and the Holdings Notes Offering, are hereinafter
collectively referred to as the "Transactions."
THE MERGER
The Company was formed through the merger of Moll and Anchor. Immediately
before and as a condition precedent to the issuance of the Holdings Notes and
the Notes, and as part of the Merger, the Company succeeded to all the assets of
Moll. Such assets included all of the equity interests in Moll's foreign
subsidiaries, which operate in France, Germany, the United Kingdom and Portugal.
As a result of the Merger, all of the U.S. operating assets of Moll and Anchor
are held by the Company. As the successor corporation in the Merger, the Company
also succeeded to the debt and other obligations of Anchor and Moll, including
the Senior Notes. See the unaudited pro forma consolidated financial statements
of the Company for a discussion of the accounting treatment of the Merger.
[MOLL CORPORATION FLOW CHART]
Note: Certain subsidiaries of Moll Industries, Inc. are held through one or
more intermediate holding companies for certain corporate and tax
considerations. However, such holding companies have not been
reflected on this chart.
ACQUISITION OF GEMINI PLASTIC
The Company consummated the acquisition of Gemini Plastic on June 30, 1998.
Gemini Plastic had revenues of approximately $21 million in 1997.
DISTRIBUTION OF MOLL'S INTEREST IN RELIANCE PRODUCTS
In 1996, Moll acquired Reliance Products, a Delaware limited partnership
doing business in Canada, which manufactures a proprietary line of camping
equipment and bulk storage containers. Immediately prior
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to the Merger, Moll distributed its 69% Class B limited partnership interest in
Reliance Products to certain of Moll's limited partners. Reliance Products had
revenues of $17.4 million in 1997.
REVOLVING CREDIT FACILITY
General. Concurrently with the Offering, the Company amended its then
existing credit facility (as amended, the "Revolving Credit Facility") with
NationsBank, N.A., as Agent and sole lender. The Revolving Credit Facility
provides for revolving loans to the Company in an aggregate amount not to exceed
$50.0 million, with a $10.0 million sublimit for the issuance of standby and
commercial letters of credit and a $20.0 million sublimit for the making of
foreign currency loans. It is anticipated that the Revolving Credit Facility
will be syndicated.
Availability. Borrowings under the Revolving Credit Facility are subject
to a borrowing base equal to the sum of (a) 85% of "eligible receivables," (b)
50% of "eligible inventory" which is not work-in-process inventory and (c) the
lesser of $5,000,000 and 25% of "eligible inventory" which is work-in-process
inventory (as such terms are defined in the Revolving Credit Facility), where
such inventory is valued at the lesser of book value or fair market value.
Security. The Revolving Credit Facility is secured by (i) a first priority
perfected security interest in (a) 100% of the equity interests in all domestic
subsidiaries of the Company, (b) in the event that any foreign subsidiary of the
Company which is a direct foreign subsidiary of the Company or any of its
domestic subsidiaries shall have 5% or more of consolidated total assets or
consolidated EBITDA, 65% of the equity interests in such foreign subsidiary, and
(c) all of the inventory, trademarks, trademark licenses, accounts receivable,
cash and cash equivalents maintained on deposit with the Agent and books and
records relating to the foregoing, of the Company and its domestic subsidiaries,
which assets shall not be subject to any other lien or encumbrance, except for
liens permitted under the Revolving Credit Facility, and (ii) a negative pledge
(subject to certain carve-outs) upon all other present and future assets and
properties of the Company and all of the domestic and foreign subsidiaries of
the Company (including, without limitation, accounts receivable, inventory, real
property, machinery, equipment, contracts, trademarks, copyrights, patents,
license agreements, and general intangibles).
The foregoing security shall ratably secure the Revolving Credit Facility
and any interest rate swap/foreign currency swap or similar agreements with a
lender (or any affiliate of a lender) under the Revolving Credit Facility.
Guarantees. Anchor Holdings has guaranteed the Company's obligations under
the Revolving Credit Facility. Additionally, in the event that any person
becomes a Designated Subsidiary (defined in the Revolving Credit Facility as, at
any time, any direct or indirect subsidiary of the Company, having at such time
any outstanding guarantee obligations in respect to any Funded Indebtedness (as
defined in the Revolving Credit Facility) of the Company other than the
indebtedness arising under the Senior Notes Indenture and the Senior Notes) of
the Company, the Company shall, cause such person to execute a Joinder Agreement
(as defined in the Revolving Credit Facility) by which such person shall be
deemed to be a party to the Revolving Credit Facility, and shall have all of the
obligations of a Guarantor (as defined in the Revolving Credit Facility),
provided, however, if such Designated Subsidiary is a foreign subsidiary of the
Company, such Joinder Agreement shall provide that the obligations of such
person under the Revolving Credit Facility shall be limited to the extent
necessary to cause such obligations to be in compliance with the laws of such
Person's jurisdiction of incorporation.
Maturity. The Revolving Credit Facility will mature on June 30, 2003.
Interest Rate. The Revolving Credit Facility bears interest at a rate
equal to IBOR plus an applicable margin, which initially is 200 basis points or
the Base Rate (defined as the higher of (i) the prime rate of NationsBank N.A.
and (ii) the Federal Funds rate plus 1/2%) plus an applicable margin, which
initially is 100 basis points. The Company may select interest periods of one,
two, three or six months for IBOR loans, subject to availability. A penalty rate
shall apply on all loans in the event of default at a rate per annum of 2% above
the applicable interest rate.
23
<PAGE> 27
Covenants. The Revolving Credit Facility contains covenants customary for
working capital financings, including, without limitation: (i) restrictions on
capital expenditures, incurrence of additional indebtedness, dividends and
redemptions; and (ii) restrictions on mergers, acquisitions and sales of assets.
Additionally, the Revolving Credit Facility contains the following three
financial covenants:
(a) the Interest Coverage Ratio (EBITDA to cash interest expense), as
of the last day of each fiscal quarter of the Consolidated Parties (being
Anchor Holdings and its subsidiaries) calculated on a twelve month rolling
basis, shall be greater than or equal to (i) for the period from June 26,
1998 to and including the next to last day of the fiscal quarter of the
Company ending in December, 2000, 2.00 to 1.00, (ii) for the period from
the last day of the fiscal quarter of the Company ending in December, 2000
to and including the next to last day of the fiscal quarter of the Company
ending in December, 2001, 2.15 to 1.00, and (iii) for the period from the
last day of the fiscal quarter of the Company ending in December, 2001 and
at all times thereafter, 2.50 to 1.00;
(b) the Leverage Ratio (funded indebtedness net of cash and cash
equivalents to EBITDA), as of the last day of each fiscal quarter of the
Consolidated Parties, shall be less than or equal to (i) for the period
from June 26, 1998 to and including the next to last day of the fiscal
quarter of the Company ending in December, 1998, 4.75 to 1.00, (ii) for the
period from the last day of the fiscal quarter of the Company ending in
December, 1998 to and including the next to last day of the fiscal quarter
of the Company ending in December, 2000, 4.50 to 1.00, and (iii) for the
period from the last day of the fiscal quarter of the Company ending in
December, 2000 and at all times thereafter, 4.00 to 1.00; and
(c) at all times Consolidated Net Worth (Deficit) (shareholders'
equity or net worth) shall be greater than or equal to the sum of
($6,000,000), increased on a cumulative basis by an amount equal to (i) as
of the end of each fiscal quarter of the Company, commencing with the
fiscal quarter of the Company ending in September, 1998, 50% of
Consolidated Net Income (as defined in the Revolving Credit Facility) (to
the extent positive) for the fiscal quarter then ended and (ii) as of the
date of any Equity Issuance (as defined in the Revolving Credit Facility),
100% of the Net Proceeds (as defined in the Senior Note Indenture and the
Indenture) of any Equity Issuance.
Events of Default. The Revolving Credit Facility contains events of
default customary for working capital facilities, including, without limitation:
(i) nonpayment of principal, interest, fees or other amounts, (ii) violation of
covenants, and (iii) inaccuracy of representations and warranties.
HOLDINGS NOTES OFFERING
Concurrently with the Offering, Holdings consummated an offering (the
"Holdings Notes Offering") of approximately $35.3 million aggregate gross
proceeds of its 13 1/2% Senior Discount Notes due 2009 (the "Holdings Notes").
Approximately $2 million of the proceeds of the Holdings Notes Offering were
contributed to the Company.
24
<PAGE> 28
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds to the Company from the Offering were approximately $122.5 million. The
Company used the net proceeds of the Offering to (i) refinance approximately
$91.2 million of existing debt of the Company; (ii) finance the acquisition of
Gemini Plastic and (iii) pay certain fees and expenses. The Company consummated
the acquisition of Gemini Plastic on June 30, 1998. See "The Transactions" and
"Plan of Distribution."
<TABLE>
<S> <C>
Sources of Funds:
Notes sold................................................ $130,000,000
============
Uses of Funds:
Refinance Moll's bank debt (payable in installments
through 2005, average interest rate of 8.25%).......... $ 84,698,000
Refinance Anchor acquisition debt (payable on April 15,
2002, interest rate of 8.3% until September 11, 1998
and 12% thereafter).................................... 6,453,000
Acquisition of Gemini Plastic............................. 10,186,000
Estimated fees and expenses............................... 7,550,000
Excess cash............................................... 21,113,000
------------
$130,000,000
============
</TABLE>
25
<PAGE> 29
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the actual cash and cash equivalents and
capitalization of Anchor Holdings at October 3, 1998. This table should be read
in conjunction with the historical consolidated financial statements of each of
Anchor Holdings (the Registrant), Moll and Anchor Holdings (the acquired
company), including the notes thereto, and the unaudited pro forma financial
statements of the Company, including the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AT OCTOBER 3, 1998(1)
---------------------
<S> <C>
Cash........................................................ $ 19,972
========
Total debt (including current maturities):
Revolving credit facility(2).............................. $ --
11 3/4% Senior Notes...................................... 100,000
10 1/2% Senior Subordinated Notes......................... 130,000
Other Somomeca long-term obligations...................... 12,069
Mortgage payable.......................................... 2,826
Payables to former owners................................. 2,492
Other debt................................................ 6,140
--------
Total long-term debt.............................. 253,527
--------
Stockholders' equity........................................ 3,101
--------
Total capitalization.............................. $256,628
========
</TABLE>
- ------------------------------
(1) The October 3, 1998 amounts do not reflect the effects of the Holdings Notes
Offering, except for the $2.0 million capital contribution from Holdings.
(2) Subject to certain conditions, at October 3, 1998 approximately $48.8
million of capacity was available for borrowing under the Revolving Credit
Facility. See "Description of Certain Indebtedness--Revolving Credit
Facility."
26
<PAGE> 30
SELECTED UNAUDITED PRO FORMA AND HISTORICAL
CONSOLIDATED FINANCIAL DATA
The following table sets forth selected unaudited pro forma data for the
Company, as well as selected historical financial data of Moll (Anchor Holdings,
Inc and its subsidiary Moll Industries, Inc -- the Registrant) and Anchor
Holdings (the acquired company) for the periods indicated. The selected
historical financial data for the years ended 1995, 1996 and 1997 were derived
from the audited consolidated financial statements of each of Moll and Anchor
Holdings contained elsewhere in this Prospectus. The selected historical
financial data for 1993 and 1994 were derived from the audited consolidated
financial statements of each company not contained herein. The selected
unaudited interim balance sheet data and the selected unaudited statements of
operations and other data for the thirty-nine or twenty-six weeks of 1997 and
1998 were derived from unaudited financial statements contained elsewhere in
this Prospectus. These unaudited financial statements were prepared on the same
basis as the annual financial statements and, in the opinion of management,
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation. The unaudited pro forma data were derived from the
unaudited pro forma financial statements contained elsewhere in the Prospectus
and reflect the Transactions as if they had occurred at the beginning of the
period presented. Neither the selected historical consolidated financial data
nor the selected pro forma consolidated financial data are necessarily
indicative of either the future results of operations or the results of
operations that would have occurred if the Transactions had been consummated on
any date. The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the historical consolidated financial statements of each of Moll and Anchor
Holdings, as well as the unaudited pro forma financial statements of the
Company, including accompanying notes thereto, included elsewhere in this
Prospectus.
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THIRTY-NINE WEEKS
DECEMBER 31, 1997 1998
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................... $414,630 $296,253
Gross profit................................................ 60,048 38,478
Selling, general and administrative expenses................ 29,493 22,483
Operating income............................................ 30,355 15,845
Interest expense, net....................................... 27,006 20,747
Income (loss) before taxes and extraordinary item........... 4,219 (4,763)
Income (loss) before extraordinary item..................... 624 (3,043)
OTHER DATA:
EBITDA(1)................................................... $ 54,705 $ 31,143
Cash flows from operating activities........................ 12,853 4,440
Cash flows from investing activities........................ (29,764) (40,902)
Cash flows from financing activities........................ 18,209 48,150
Depreciation and amortization............................... 23,480 15,159
Capital expenditures........................................ 15,559 16,709
Cash interest expense, net(2)............................... 25,932 19,499
Ratio of EBITDA to cash interest expense, net............... 2.1x NA
Ratio of net debt to EBITDA(3).............................. 4.3x NA
</TABLE>
27
<PAGE> 31
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC., THE REGISTRANT(4)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THIRTY-NINE WEEKS
------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.................... $56,116 $78,066 $90,876 $ 89,464 $116,947 $85,248 $221,585
Gross profit................. 9,685 15,218 16,966 16,502 19,861 16,217 32,711
Selling, general and
administrative expenses.... 5,602 6,804 8,301 7,190 10,758 6,428 17,861
Operating income............. 4,083 8,414 9,019 8,574 8,186 8,535 13,943
Other (income) expense....... -- -- 120 50 (299) 933 (59)
Interest expense, net........ 1,613 1,941 2,414 2,518 3,405 2,463 11,785
Income before taxes and
extraordinary item......... 2,470 6,473 6,485 6,037 4,645 4,741 1,978
Provision for income taxes... -- -- -- -- 83 -- 358
Extraordinary item(5)........ -- -- -- -- -- -- (1,971)
Net income (loss)............ 2,470 6,473 6,485 6,037 4,563 4,741 (351)
PRO FORMA INFORMATION:
Provision for income taxes... $ 988 $ 2,589 $ 2,594 $ 2,415 $ 2,531 $ 1,992 $ 412
Income before extraordinary
item....................... 1,482 3,884 3,891 3,622 2,114 2,749 1,566
Earnings per share before
extraordinary item......... .96 2.50 2.51 2.33 1.36 1.77 1.01
OTHER DATA:
EBITDA(1).................... $ 6,537 $11,932 $13,317 $ 12,703 $ 13,450 $11,075 $ 23,553
Cash flows from operating
activities................. 2,062 11,110 9,709 10,802 5,506 1,282 3,106
Cash flows from investing
activities................. (3,749) (7,507) (2,553) (11,592) (14,215) (9,974) (33,568)
Cash flows from financing
activities................. 1,686 (3,457) (6,972) 1,336 9,595 9,512 48,065
Depreciation and
amortization............... 2,454 3,518 4,418 4,148 5,400 3,871 9,790
Capital expenditures......... 747 2,766 2,776 1,387 6,562 2,961 12,150
Ratio of earnings to fixed
charges(6)................. 2.3x 3.8x 3.3x 2.9x 2.1x 2.5x 1.2x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------- AT OCTOBER 3,
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................. $ 33,067 $ 47,288 $ 51,287 $ 53,901 $86,925 $340,508
Long-term debt obligations... 13,777 19,739 30,466 33,640 47,932 253,527
</TABLE>
28
<PAGE> 32
ANCHOR HOLDINGS, INC., ACQUIRED COMPANY(7)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWENTY-SIX WEEKS
---------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales................... $118,047 $118,267 $149,366 $156,858 $161,161 $84,745 $75,810
Gross profit................ 20,778 18,208 24,338 27,637 25,187 13,424 6,578
Selling, general and
administrative............ 9,096 7,634 9,409 11,358 10,979 5,490 6,337
Amortization................ 577 1,712 1,662 1,530 1,698 665 729
Income (loss) from
operations................ 11,105 8,862 13,267 14,749 12,510 7,269 (488)
Other (income) expense...... (110) (739) 974 408 (287) 87 102
Interest expense, net....... 5,385 5,984 8,616 8,124 11,165 4,982 6,026
Income (loss) before taxes
and extraordinary item.... 5,830 3,617 3,677 6,217 1,632 2,200 (6,616)
Provision (benefit) for
income taxes.............. 1,606 1,507 1,239 2,591 794 800 (2,400)
Extraordinary item(5)....... -- (334) -- -- (1,210) (1,210) --
Net income (loss)........... 4,224 1,776 2,438 3,626 (372) 190 (4,216)
EBITDA(1)................... $ 17,881 $ 18,439 $ 21,742 $ 23,627 $ 22,370 $11,916 $ 4,664
Cash flows from operating
activities................ 6,875 8,684 8,822 13,076 16,037 5,877 1,365
Cash flows from investing
activities................ (33,039) (6,711) (6,453) (8,014) (8,847) (3,481) (7,185)
Cash flows from financing
activities................ 26,844 (2,708) (2,265) (4,268) (1,854) (244) --
Depreciation and
amortization.............. 6,666 8,838 9,449 9,286 9,573 4,734 5,254
Capital expenditures........ 6,729 5,724 6,932 8,028 8,413 3,481 4,416
Ratio of earnings to fixed
charges(6)................ 2.1x 1.6x 1.4x 1.7x 1.1x 1.4x (0.1)x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................... $79,227 $115,065 $116,529 $115,263 $120,839
Long-term debt obligations..... 50,444 80,387 78,133 74,468 101,939
</TABLE>
- ------------------------------
(1) EBITDA represents income before taxes plus interest expense, net,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income, net income or cash flows from operating
activities in analyzing the referenced company's operating performance,
financial position or cash flows, the referenced company has included EBITDA
because it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt. As all
companies may not calculate EBITDA in the same manner, these amounts may not
be comparable to other companies.
(2) Cash interest expense, net represents interest expense minus amortization of
debt issuance costs.
(3) Net debt, as used in calculating this ratio, represents total debt at
October 3, 1998 of $253,520 minus cash of $19,972. EBITDA, as used in this
calculation, represents EBITDA for the year ended December 31, 1997.
(4) The financial data presented here for the periods prior to June 26, 1998 is
derived from the financial statements of Moll as Moll was the accounting
acquiror in the Merger. At October 3, 1998, there were no significant
differences between the financial statements of Moll Industries, Inc. (the
Registrant), and Anchor Holdings, Inc.
29
<PAGE> 33
(5) With respect to Moll, amount represents loss on extinguishment of debt. With
respect to Anchor Holdings in 1997, amount represents loss on extinguishment
of debt net of tax.
(6) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income before income taxes and extraordinary item, plus fixed
charges. "Fixed charges" consist of interest expense, net, which includes
the amortization of deferred financing costs, and that portion of rental
expense representative of interest (deemed to be one-third of rental
expense).
(7) The consolidated financial statements of Anchor Holdings (acquired company)
do not differ significantly from those of Anchor. See Note 16 to the
historical consolidated financial statements of Anchor Holdings.
30
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes forward-looking statements with respect to
the Company's future financial performance. These forward-looking statements are
subject to various risks and uncertainties, including the factors described
under "Risk Factors" and elsewhere in this Prospectus, that could cause actual
results to differ materially from historical results or those currently
anticipated.
THE COMPANY
OVERVIEW
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company's products are sold to
a wide range of end-markets, including end markets for consumer products,
telecommunications/business equipment, household appliances, automobiles and
medical devices. On a pro forma basis after giving effect to the Transactions,
the Company generated 1997 net sales, net income and EBITDA of $414.6 million,
$.6 million and $54.7 million, respectively, making it the sixth largest
non-automotive plastic injection molding company in North America and one of the
largest plastic component suppliers in Europe.
Approximately 45% of the Company's 1997 pro forma net sales of molded
products was covered by long term purchase and sale contracts which stipulate
anticipated volume requirements and pricing terms. However, such contracts do
not contain any minimum purchase requirements on the part of the customer.
Almost all such contracts can be terminated by the parties thereto by mutual
agreement and can also be terminated by either party giving notice of
termination upon certain occurrences, including, without limitation,
disagreement on quality, quantity and pricing issues, insolvency or dissolution
of any party thereto and upon any material breach of such contracts by any party
thereto. The remainder of the Company's sales of molded products was sold on a
short-term basis with components ordered by customers to meet their pending
production requirements. See "Risk Factors--Reliance on Major Customers."
The Company typically charges its customers a fixed price for each
component it manufactures, which component may consist of single or multiple
parts. Prices are quoted based on (i) the type of product, (ii) the type of
services provided (design, prototyping, molding, and other value-added
services), (iii) the complexity of manufacturing processes involved, and (iv)
the Company's estimates of part weight, resin costs, machine requirements and
parts produced per hour (cycle time). In many cases, the Company purchases the
raw materials on behalf of its customers. In such instances, the Company's
arrangements with most of its customers provide that price changes in such raw
materials are passed through to the customer by changes in the component prices
charged by the Company. As customers generally seek price reductions during the
product life cycle, the Company's ability to improve operating performance is
generally dependent on increasing manufacturing efficiency through improved
process control, increased automation, engineering changes to molds and reduced
operating and labor expenses. See "Business Strategy -- Reduce Costs."
During the product life cycle, components are ordered by the Company's
customers to meet their just-in-time production requirements. Typical lead times
range from two to six weeks. Traditionally, once a mold is awarded to a
particular supplier and is in production, it is rarely moved to a competitor. As
of December 31, 1997, the Company maintained approximately 2,700 active molds
for its customers. A majority of such molds are owned by the customer but the
Company is responsible for the general maintenance and safe storage of the mold
during its lifetime. Costs for maintenance of the mold are expensed as incurred.
Major tool modifications and renovations are charged to the customer.
The Company has been formed by a number of acquisitions that have been
integrated through consolidation of manufacturing facilities, logistical
optimization and reduction of overhead. See "Business Strategy--Continue
Strategic Acquisitions." In July 1991, certain entities controlled by Mr. Votis
and his
31
<PAGE> 35
partners were merged to form Moll. Since 1991, Moll has grown significantly
through several strategic acquisitions in North America and Europe. In December
1992, Moll acquired Textek, based in San Antonio and Round Rock, Texas. In July
1993, Moll acquired ACM, based in Georgetown and El Paso, Texas. In October
1994, Moll acquired Quality, based in Newberg, Oregon. See "The Company."
In 1996, Moll acquired Reliance Products, a Delaware limited partnership
doing business in Canada, which manufactures a proprietary line of camping
equipment and bulk storage containers. Immediately prior to the Merger, Moll
distributed its 69% Class B limited partnership interest in Reliance Products to
certain of Moll's limited partners. In August 1997, Moll acquired Hanning, a
leading supplier of injection molded plastic components for use in digital
photocopiers, with manufacturing facilities located in the United States, the
United Kingdom and Germany. In January 1998, Moll acquired Somomeca, a major
French supplier of injection molded plastic components and plastic injection
molds. In March 1998, Mr. Votis, who controlled Moll, acquired Anchor from
affiliates of the Thomas H. Lee Company.
Concurrently with the Offering, the Company was formed through the merger
of two leading plastic injection molders, Moll and Anchor, which were each
controlled by Mr. George Votis. Immediately prior to the Merger, Moll and Anchor
were independently operated entities. The Company consummated the acquisition of
Gemini Plastic on June 30, 1998. See "The Company" and "The Transactions."
Since 1995, the Company has generally experienced strong, growing net sales
from its Cosmetics Division and Medical Products Division despite anticipated
declines in toothbrush net sales associated with the decision of
Colgate-Palmolive to move production "in-house." In early 1998, the Company made
a strategic decision to discontinue production of certain business product
components at its Round Rock facility in favor of producing medical end products
and components which the Company believed to be more profitable, stable and
faster growing business. Since March 1998, the Company has eliminated
approximately $2.8 million in annualized costs by reducing duplicative
administrative expenses, eliminating less profitable business lines and
streamlining manufacturing processes. The savings consist of $1.7 million in
payroll costs gained through the elimination of duplicate expenses and excessive
resources and $1.1 million in benefit costs gained through a revision of the
retirement benefits. The savings were calculated based on the salaries of the
positions eliminated and an actuarial estimation of the savings associated with
the change in the retirement plan.
Over the past three years, Moll experienced growth in net sales through
several strategic acquisitions and the addition of manufacturing facilities.
However, in 1997, such increases were offset by operating inefficiencies related
to such acquisitions, especially the Hanning acquisition and the closing of
Moll's El Paso facility. As a result of the acquisition of Somomeca which had
generated approximately $88.5 million of European sales in 1997, Moll enhanced
its international manufacturing capabilities.
32
<PAGE> 36
RESULTS OF OPERATIONS
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC., THE REGISTRANT(1)
The following financial information presents certain historical financial
information of Moll expressed as a percentage of net sales, for 1995, 1996 and
1997 and for the thirty-nine weeks of 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED THIRTY-NINE WEEKS
----------------------- ------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................... 18.7 18.4 17.0 19.0 14.8
Selling, general and administrative expenses....... 9.1 8.0 9.2 7.9 8.1
Tooling income, net................................ 1.9 0.8 1.6 0.3 --
Management fee..................................... 1.5 1.6 1.4 1.4 0.4
Loss incurred on closure of facility............... -- -- 1.0 -- --
Operating income................................... 9.9 9.6 7.0 10.0 6.3
Other (income) expense............................. 0.1 -- (0.3) 1.6 --
Interest expense, net.............................. 2.7 2.8 2.9 2.9 5.4
Income before taxes and extraordinary items........ 7.1 6.7 4.0 5.5 0.9
Provision for income taxes......................... -- -- 0.1 -- 0.2
Extraordinary item................................. -- -- -- -- 0.9
Net income......................................... 7.1 6.7 3.9 5.5 (0.2)
OTHER DATA:
EBITDA(2).......................................... 14.7% 14.2% 11.5% 13.0% 10.6%
Cash flows from operating activities............... 10.6 12.1 4.7 1.5 1.4
Cash flows from investing activities............... (2.8) (13.0) (12.2) (11.7) (15.1)
Cash flows from financing activities............... (7.7) 1.5 8.2 11.2 21.7
Depreciation and amortization...................... 4.9 4.6 4.6 4.5 4.4
Capital expenditures............................... 3.1 1.6 5.6 3.5 5.5
</TABLE>
- ------------------------------
(1) The financial data presented here for the periods prior to June 26, 1998 is
derived from the financial statements of Moll as Moll was the accounting
acquiror in the Merger. At October 3, 1998, there were no significant
differences between the financial statements of Moll Industries, Inc. and
Anchor Holdings, Inc.
(2) EBITDA represents income before taxes plus interest expense, net,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income, net income or cash flows from operating
activities in analyzing Moll's operating performance, financial position or
cash flows, Moll has included EBITDA because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance, leverage and liquidity and to determine a company's
ability to service debt. As all companies may not calculate EBITDA in the
same manner, these amounts may not be comparable to other companies.
39 Weeks Ended October 3, 1998 Compared to 39 Weeks Ended September 30, 1997
Net Sales. Net sales for the thirty-nine weeks ended October 3, 1998
increased $136.4 million or 160% to $221.6 million from $85.2 million for the
thirty-nine weeks ended September 30, 1997, due primarily to the Hanning
acquisition, ($30.1 million), the Somomeca acquisition ($65.1 million), the
Anchor acquisition ($36.6 million) and the Gemini acquisition ($4.1 million).
These increases were offset by a $3 million reduction in sales due to the
divestiture of Reliance. Net sales for the remaining facilities increased $4.2
million in the period due to increased sales to existing customers.
33
<PAGE> 37
Gross Profit. Gross profit for the first thirty-nine weeks of 1998
increased $16.5 million, or 102%, to $32.7 million from $16.2 million for the
corresponding period in 1997 due primarily to the Hanning ($2.5 million),
Somomeca ($9.4 million) and Anchor ($4.2 million) acquisitions. These increases
were partially offset by a $0.2 million gross loss at Gemini and a $0.7 million
decrease in gross profit due to the divestiture of Reliance in June 1998. Within
the Company's historical business, gross profit increased $1.3 million due to
increased sales which were partially offset by a decline in the plastic molding
industry in the northwest United States.
SG&A Expenses. SG&A expenses increased $11.1 million, or 144% in the first
thirty-nine weeks of 1998 to $18.8 million from $7.7 million in the 1997 period
due primarily to the Hanning ($1.9 million). Somomeca ($3.9 million), Anchor
($4.0 million) and Gemini ($1.0 million) acquisitions.
Operating Income. Operating income increased $5.4 million, or 64%, in the
first thirty-nine weeks of 1998 to $13.9 million from $8.5 million in the
corresponding nine months of 1997 due primarily to the Somomeca ($4.8 million)
acquisition offset by the acquisition of Gemini ($0.5 million). The pre merger
domestic facilities of the Company increased operating earnings $1.4 million in
the period due to the increased sales to existing customers and the reduction in
management fees beginning in the third quarter of 1998.
Interest Expense. Interest expense increased $9.3 million for the
thirty-nine weeks ended October 3, 1998 to $11.8 million from $2.5 million for
the corresponding period of 1997, due primarily to the increased long-term debt
associated with the acquisitions discussed above.
Provision for Income Taxes. For the thirty-nine weeks ended October 3,
1998 a provision of $0.4 million has been made for income taxes. Prior period
Consolidated Financial Statements for the Company had no provision for income
taxes due to the Company's Partnership tax status which allowed the income to be
reported on the tax returns of the partners rather than the Company. As part of
the Anchor acquisition, the Company became a taxable entity and the Hanning and
Somomeca acquisitions resulted in taxable entities in Germany, the United
Kingdom, France and Portugal.
Extraordinary Loss. Extraordinary loss from extinguishment of debt of $2.0
million represents unamortized fees incurred in connection with debt which was
repaid with the proceeds of the Senior Subordinated Debt.
Net Income. Net income for the first thirty-nine weeks of 1998 decreased
$5.1 million to a loss of $0.4 million from income of $4.7 million for the 1997
period as a result of the items listed above.
EBITDA. EBITDA increased by $12.5 million, or 113%, to $23.6 for the first
thirty-nine weeks of 1998 from $11.1 million for the first thirty-nine weeks of
1997 as a result of the above factors.
Fiscal 1997 Versus Fiscal 1996
Net Sales. Net sales increased $27.4 million, or 30.7%, in fiscal 1997 to
$116.9 million from $89.5 million in fiscal 1996, primarily due to the
inclusion, in fiscal 1997 results, of a full year of Reliance Products results
which contributed net sales of $17.4 million (19.4% of net sales in fiscal
1996,) and Hanning results since August 7, 1997 which contributed net sales of
$19.8 million (22.1% of net sales in fiscal 1996.) Such increase was partially
offset by a decrease of $3.3 million in net sales due to the closing of Moll's
El Paso facility and a decrease of $4.8 million in net sales resulting from raw
material price adjustments and lower volumes of certain components.
Gross Profit. Gross profit increased $3.4 million, or 20.4%, in fiscal
1997 to $19.9 million from $16.5 million in fiscal 1996 primarily due to the
inclusion, in fiscal 1997 results, of a full year of Reliance Products results
which contributed gross profit of $4.1 million (24.8% of gross profit in fiscal
1996.) Such increase was partially offset by decreased margin of $470,000 at the
El Paso facility and operating inefficiencies encountered in the acquired
Hanning facilities, which was also responsible for the gross margin decline to
17.0%, in 1997 from 18.4% in 1996.
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<PAGE> 38
Selling, General and Administrative Expenses. SG&A expenses increased $3.6
million, or 49.6% in fiscal 1997 to $10.8 million from $7.2 million in fiscal
1996 primarily due to the inclusion, in fiscal 1997 results, of a full year of
Reliance Products results, and Hanning results since August 7, 1997.
Tooling Income, Net. Tooling income, net, increased $1.2 million, or
170.4%, in fiscal 1997 to $1.9 million from $0.7 million in fiscal 1996
primarily due to the completion of several projects completed by the acquired
Hanning companies.
Management Fee. Management fee increased $0.3 million, or 14.3%, in fiscal
1997 to $1.7 million from $1.4 million in fiscal 1996 primarily due to the
increase in net sales.
Operating Income. Operating income decreased $0.4 million, or 4.5%, in
fiscal 1997 to $8.2 million from $8.6 million in fiscal 1996 due to the loss
incurred on the closure of Moll's El Paso facility offset by factors listed
above.
Interest Expense. Interest expense increased $0.9 million, or 35.2%, in
fiscal 1997 to $3.4 million from $2.5 million in fiscal 1996 primarily due to
the debt acquired in connection with the acquisition of Reliance Products and an
increase in debt to complete the Hanning acquisition.
Provision for Income Taxes. The provision for income taxes in 1997
represents foreign income taxes recorded in connection with the new corporate
subsidiaries in Germany and the United Kingdom.
Net Income. Net income decreased $1.4 million, or 24.4% in fiscal 1997 to
$4.6 million from $6.0 million in fiscal 1996 as a result of the items discussed
above.
EBITDA. EBITDA increased $0.7 million, or 5.9%, to $13.4 million for
fiscal 1997 from $12.7 million for fiscal 1996 as a result of the above factors.
Fiscal 1996 Versus Fiscal 1995
Net Sales. Net sales for fiscal 1996 decreased by $1.4 million, or 1.6%,
to $89.5 million from $90.9 million for fiscal 1995, primarily due to raw
material price adjustments on certain components and the discontinuation of the
production of certain keyboard components at Moll's El Paso facility. Such
decrease was partially offset by increases in sales at Moll's other facilities.
Gross Profit. Gross profit for fiscal 1996 decreased by $0.5 million, or
2.7%, to $16.5 million from $17.0 million for fiscal 1995 primarily due to
unrecovered fixed costs incurred at Moll's El Paso facility.
Selling, General and Administrative Expenses. SG&A expenses decreased $1.1
million, or 13.4% to $7.2 million in fiscal 1996 from $8.3 million in fiscal
1995, primarily due to the integration of the Quality acquisition and staff
reductions in Moll's El Paso facility.
Tooling Income, Net. Tooling income, net decreased $1.0 million, or 58.8%,
in fiscal 1996 to $0.7 million from $1.7 million in fiscal 1995 primarily due to
the completion in 1995 of major tooling programs for two large customers. Such
programs are cyclical by nature.
Management Fee. Management fee remained relatively stable at $1.4 million
in fiscal 1996 and 1995 due to the relatively constant net sales.
Operating Income. Operating income decreased $0.4 million, or 4.9%, to
$8.6 million for fiscal 1996 from $9.0 million in fiscal 1995 due to the factors
listed above.
Interest Expense. Interest expense for fiscal 1996 increased by $0.1
million, or 4.3%, to $2.5 million from $2.4 million for fiscal 1995, primarily
due to increased debt issued in connection with the recapitalization of Moll in
September 1995.
Net Income. Net income for fiscal 1996 decreased by $0.5 million, or 6.9%,
to $6.0 million from $6.5 million for fiscal 1995 as a result of the items
listed above.
EBITDA. EBITDA decreased $0.6 million, or 4.6%, to $12.7 million in fiscal
1996 from $13.3 million for fiscal 1995 as a result of the above factors.
35
<PAGE> 39
ANCHOR HOLDINGS, INC., ACQUIRED COMPANY
The following financial information presents certain historical financial
information of Anchor Holdings, expressed as a percentage of net sales, for
1995, 1996 and 1997 and for the twenty-six weeks of 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX WEEKS
----------------------- -----------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit...................................... 16.3 17.6 15.6 15.8 8.7
Selling, general and administrative............... 6.3 7.2 6.8 6.4 8.3
Amortization...................................... 1.1 1.0 1.1 0.8 1.0
Operating income (loss)........................... 8.9 9.4 7.8 8.6 (0.6)
Other (income) expense............................ 0.7 0.3 (0.2) 0.1 0.1
Interest expense, net............................. 5.8 5.2 6.9 5.9 8.0
Income (loss) before taxes and extraordinary
items........................................... 2.5 3.9 1.0 2.6 (8.7)
Provision (benefit) for income taxes.............. 0.8 1.7 0.5 1.0 (3.2)
Extraordinary item................................ -- -- -- 1.4 --
Net income (loss)................................. 1.6 2.3 (0.2) 0.2 (5.5)
OTHER DATA:
EBITDA(1)......................................... 14.6% 15.1% 13.9% 14.1% 6.1%
Cash flows from operating activities.............. 5.9 8.3 10.0 6.9 1.8
Cash flows from investing activities.............. (4.3) (5.1) (5.5) (4.1) (9.5)
Cash flows from financing activities.............. (1.5) (2.7) (1.2) (0.3) --
Depreciation and amortization..................... 6.3 5.9 5.9 5.6 6.9
Capital expenditures.............................. 4.6 5.1 5.2 4.1 5.8
</TABLE>
- ------------------------------
(1) EBITDA represents income before taxes plus interest expense, net,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income, net income or cash flows from operating
activities in analyzing Anchor Holdings' operating performance, financial
position or cash flows, Anchor Holdings has included EBITDA because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt. As all companies may not
calculate EBITDA in the same manner, these amounts may not be comparable to
other companies.
26 Weeks Ended July 4, 1998 ("Interim 98") Compared to 26 Weeks Ended June 28,
1997 ("Interim 97")
Net Sales. Net sales decreased by $8.9 million, or 10.5%, to $75.8 million
for Interim 98 from $84.7 million for Interim 97, mainly because of lower
toothbrush sales in the amount of $8.5 million to Colgate-Palmolive as a result
of in-house manufacturing by Colgate-Palmolive, partially offset by increased
sales to Anchor's Cosmetics Division customers. The transition to in-house
manufacturing by Colgate-Palmolive began in the third quarter of 1997;
accordingly, future periods are not expected to be further impacted by such
change.
Gross Profit. Gross Profit decreased by $6.8 million, or 51.0%, to $6.6
million for Interim 98 from $13.4 million for Interim 97, due to lower sales to
Colgate-Palmolive, losses incurred on inventory produced specifically for two
customers with which the Company no longer does business and quality issues in
one facility which have been resolved.
Selling, General and Administrative. SG&A expenses increased by $.8
million, or 15.4%, to $6.3 million for Interim 98 from $5.5 million for Interim
97, primarily due to selling expense associated with increased sales to Anchor's
Cosmetics Division customers and to salary and benefit increases for 1998.
36
<PAGE> 40
Amortization. Goodwill amortization remained flat at $.7 million.
Operating Income. Operating income decreased by $7.8 million, or 106.7%,
to $(.5) million for Interim 98 from $7.3 million for Interim 97 for the reasons
listed above.
Other Expense. Other expense remained flat at $.1 million.
Net Interest Expense. Net interest expense increased by $1.0 million, or
20.0%, to $6.0 million for Interim 98 from $5.0 million for Interim 97 due to
the issuance of the Senior Notes in April 1997.
Income Taxes. Income taxes decreased by $3.2 million, or 400.0%, to $(2.4)
million for Interim 98 from $.8 million for Interim 97 as a result of decreased
operating income.
Extraordinary Item. Extraordinary item decreased by $1.2 million, or
100.0%, from $1.2 million for Interim 97 due to the writeoff of $.4 million in
bank fees, and a $.8 million prepayment penalty associated with the retirement
of subordinated debt, all of which are net of tax.
Net Income. Net income decreased $4.4 million, to $(4.2) million for
Interim 98 from $.2 million for Interim 97 as a result of the above factors.
EBITDA. EBITDA decreased $7.2 million, or 44.2%, to $4.7 million for the
first half of 1998 from $11.9 million for the first half of 1997 as a result of
the above factors.
Fiscal 1997 Versus Fiscal 1996
Net Sales. Net sales increased by $4.3 million, or 2.7%, to $161.2 million
for fiscal 1997 from $156.9 million for fiscal 1996, primarily due to the
continued strong sales to Anchor's Cosmetics Division customers and the
increased sales of medical devices. The increase in gross sales for this period
was partially reduced by a drop of $9.0 million in sales of toothbrushes to
Colgate-Palmolive as a result of in-house manufacturing by Colgate-Palmolive.
Gross Profit. Gross profit decreased by $2.4 million, or 8.7%, to $25.2
million for fiscal 1997 from $27.6 million for fiscal 1996, resulting from the
decline in sales of toothbrushes to Colgate-Palmolive, lower than expected
production volumes in the Round Rock facility, the addition of lower gross
margin Compaq sales, and a $0.6 million charge taken in the second quarter of
1997 for renegotiation of a Mexican labor contract.
Selling, General and Administrative. SG&A expenses decreased $0.4 million,
or 3.5%, to $11.0 million for fiscal 1997 from $11.4 million for fiscal 1996,
reflecting effective cost control measures.
Amortization. Goodwill and capitalized fees amortization increased by $0.2
million, or 13.3%, to $1.7 million for fiscal 1997 from $1.5 million for fiscal
1996, as a result of transaction fees incurred during the issuance of the Senior
Notes in April 1997.
Operating Income. Operating income decreased by $2.2 million, or 15.0%, to
$12.5 million for fiscal 1997 from $14.7 million for fiscal 1996 for the reasons
listed above.
Other Expense. Other expense decreased by $0.7 million, or 175.0%, to $0.3
million income for fiscal 1997 from $1.0 million expense for fiscal 1996
reflecting income from a one time legal settlement during the fourth quarter of
1997.
Net Interest Expense. Net interest expense increased by $3.1 million, or
38.3%, to $11.2 million for fiscal 1997 from $8.1 million for fiscal 1996 due to
the issuance of the Senior Notes in April 1997. Such increase was partially
offset by the retirement of bank debt of $51.5 million and $21.0 million of
subordinated debt.
Income Taxes. Income taxes decreased by $1.8 million, or 69.2%, to $0.8
million for fiscal 1997 from $2.6 million for fiscal 1996 as a result of
decreased operating income.
Extraordinary Item. Extraordinary item of $1.2 million, net of taxes, for
fiscal 1997 resulted from the writeoff of $0.4 million in bank fees, and a $0.8
million prepayment penalty associated with the retirement of bank debt and
subordinated debt.
37
<PAGE> 41
Net Income. Net income decreased $4.0 million, or 111.1%, to $0.4 million
loss for fiscal 1997 from $3.6 million income for fiscal 1996 as a result of the
above factors.
EBITDA. EBITDA decreased $1.2 million, or 5.1%, to $22.4 million for
fiscal 1997, from $23.6 million for fiscal 1996 for the reasons listed above.
Fiscal 1996 Versus Fiscal 1995
Net Sales. Net sales increased by $7.5 million, or 5.0%, to $156.9 million
for fiscal 1996 from $149.4 million for fiscal 1995, principally as a result of
inclusion of the first full year of point-of-purchase ("POP") display sales and
an increase in computer component sales. Such increase was partially offset by a
decrease in unit sales for toothbrushes as a result of general market
conditions.
Gross Profit. Gross profit increased by $3.3 million, or 13.6%, to $27.6
million for fiscal 1996 from $24.3 million for fiscal 1995, principally as a
result of increased net sales in the POP display and computer component markets
as well as higher gross margins. Such increase was partially offset by a decline
in gross profit for toothbrush sales. Gross margin increased to 17.6% for fiscal
1996 from 16.3% in fiscal 1995, primarily due to the realization of a full year
of efficiency gains in the Matamoros, Mexico manufacturing facility. Such
increase was partially offset by inefficiencies related to the start-up of the
manufacturing facility in Round Rock, Texas.
Selling, General and Administrative. SG&A expenses increased by $2.0
million, or 20.7%, to $11.4 million for fiscal 1996 from $9.4 million for fiscal
1995, principally as a result of professional expenses incurred in connection
with the formation of a possible joint venture in China, and costs associated
with a management information systems upgrade.
Amortization. Amortization expense decreased by $0.2 million, or 7.9%, to
$1.5 million for fiscal 1996 from $1.7 million for fiscal 1995, principally as a
result of the expiration of certain amortized fees and expenses incurred in the
1990 acquisition of Anchor by affiliates of the Thomas H. Lee Company.
Operating Income. Operating income increased by $1.4 million, or 11.2%, to
$14.7 million for fiscal 1996 from $13.3 million for fiscal 1995 as a result of
the items discussed above.
Other Expense. Other expense decreased by $0.6 million, or 58.1%, to $0.4
million for fiscal 1996 from $1.0 million for fiscal 1995, principally as a
result of expenses related to the relocation of the Matamoros, Mexico facility
in 1995 which were not repeated in 1996.
Net Interest Expense. Net interest expense decreased by $0.5 million, or
5.7%, to $8.1 million for fiscal 1996 from $8.6 million for fiscal 1995,
principally as a result of a $5.0 million pay down on a certain term loan
facility and greater use of LIBOR rates under such agreement.
Income Taxes. Income tax expense increased by $1.4 million, or 109.1%, to
$2.6 million for fiscal 1996 from $1.2 million for fiscal 1995.
Net Income. Net income increased by $1.2 million, or 48.7%, to $3.6
million for fiscal 1996 from $2.4 million for fiscal 1995 as a result of the
above factors.
EBITDA. EBITDA increased by $1.9 million, or 8.7%, to $23.6 million for
fiscal 1996 from $21.7 million for fiscal 1995 as a result of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
Moll
Historically, Moll funded its business with cash generated from operations
and borrowings under its revolving credit agreement and its term loan facility
with Bank of America, as Agent. In 1995, 1996 and 1997, Moll generated cash from
operating activities of $9.7 million, $10.8 million, and $5.5 million,
respectively. The decrease in cash from operating activities in 1997 resulted
from a substantial increase in accounts receivable due to a change in credit
terms with a large customer. Moll's capital expenditures for 1995, 1996 and 1997
38
<PAGE> 42
were $2.8 million, $1.4 million and $6.6 million, respectively, principally for
additions to maintain or improve Moll's manufacturing capacity and efficiency.
The increase in capital expenditures in 1997 was primarily due to the
construction of a new facility in Austin, Texas. In 1996, Moll spent $10.2
million to purchase the assets of the Reliance division of Lawson Mardon
Packaging, Inc., and in 1997, Moll spent $7.2 million to purchase the Hanning
companies. In 1995, Moll received proceeds from the issuance of long-term debt
of $14.3 million to fund a recapitalization of Moll.
Anchor Holdings
Anchor's liquidity requirements consisted primarily of working capital
needs and capital expenditures, required payments of principal and interest on
any borrowings under the Revolving Credit Facility (as it existed prior to the
Merger) and required payments of interest on the Senior Notes and principal at
maturity. The Revolving Credit Facility, prior to the Merger, provided for
revolving loans to, and the issuance of letters of credit on behalf of, Anchor
in an aggregate amount not to exceed $15.0 million, $13.8 of which was available
under the revolving loans, and $1.2 million of which was reserved under the
letters of credit, at December 31, 1997.
Cash generated by operations in 1997 was used to fund $13.0 million
purchases of property, plant and equipment, and other long-term assets. Anchor's
cash grew by $5.3 million to $6.9 million for 1997 from $1.6 million for 1996.
On April 2, 1997 Anchor issued the Senior Notes. Cash from this financing
activity allowed Anchor to retire $50.7 million in borrowings under a certain
revolving credit and term loan agreement, to redeem $21.0 million of certain
subordinated notes, and to pay $22.8 million of a $29.5 million dividend on the
common stock of Anchor Holdings, Inc.
Following the Transactions
The Company's liquidity requirements consist primarily of working capital
needs and capital expenditures, required payments of principal and interest on
any borrowings under the Revolving Credit Facility and required payments of
interest on the Notes and the Senior Notes. The Company estimates that its
capital expenditures in 1998 will total approximately $15 million.
The Revolving Credit Facility provides for revolving loans to, and the
issuance of letters of credit on behalf of, the Company, in an aggregate amount
not to exceed $50.0 million, $48.8 million of which is available for borrowing,
subject to certain conditions. The Revolving Credit Facility will mature in 2003
and contains certain covenants customary for working capital financings
(including restrictions on: capital expenditures, incurrence of additional
indebtedness, dividends and redemptions, and mergers, acquisitions and sales of
assets). See "Description of Certain Indebtedness--Revolving Credit Facility."
The Company believes that cash flows from operating activities and its
ability to borrow under the Revolving Credit Facility will be adequate to meet
the Company's debt service obligations, working capital needs, and planned
capital expenditures at least through December 31, 1998. See "Risk
Factors -- Substantial Leverage; Ability to Service Debt."
While the Company routinely enters into discussions with potential
acquisition candidates, no such discussions have progressed beyond the
preliminary stages. The Company expects that funding for future acquisitions may
come from a variety of sources, depending on the size and nature of any such
acquisition. Potential sources of capital include cash generated from
operations, borrowings under the Revolving Credit Facility, additional equity
investments or other external debt or equity financings. There can be no
assurance that such additional capital sources will be available to the Company
on terms that the Company finds acceptable, or at all.
As a result of the Transactions (excluding the Holding Notes Offering), the
Company is expected to incur an increase in cash paid for interest expense of
$6.5 million per year. Additionally, the Company expects to incur additional
non-cash expenses for depreciation and amortization related to the Transactions
totaling $2.6 million per year.
39
<PAGE> 43
YEAR 2000
Historically, certain computerized systems have had two digits rather than
four digits to define the applicable year, which could result in recognizing a
date using "00" as the year 1900 rather than the year 2000. This could result in
major failures or miscalculations, and is generally referred to as the "Year
2000 issue." The Company recognizes that the impact of the Year 2000 issue
extends beyond traditional computer hardware and software to automated plant
systems and instrumentation, as well as to third parties. The Year 2000 issue is
being addressed within the Company by its individual business units, and
progress is reported periodically to management.
The Company has committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, plant systems and external parties. Information
technology includes telecommunications, as well as traditional computer software
and hardware in the mainframe, midrange and desktop environments. Plant systems
include all automation and embedded chips used in plant operations. External
parties include any third party with which the Company does business.
In the information technology area, inventory and assessment audits in the
mainframe and midrange environment were completed in third quarter 1998 with
corrective action scheduled for completion by the fourth quarter 1998, except
for business application software which is expected to be completed by the
second quarter 1999. Inventory and assessment audits for telecommunications were
completed in third quarter 1998 with corrective action expected to be completed
by the second quarter 1999. Finally, inventory and assessment audits in the
desktop environment were completed in third quarter 1998, with corrective action
expected to be completed by the third quarter 1999. The companies located in
Europe will begin installing systems in the fourth quarter 1998 that will be
Year 2000 ready.
In the plant systems area, 75% of the Company's business units have
completed their inventory and assessment audits; the remaining units are
expected to complete this work by the fourth quarter 1998. The Company is
relying on vendor testing and certification with validation through limited
internal testing and/or industry test results. Downtime for normally scheduled
plant maintenance will be used to conduct testing, with corrective action
expected to be completed by the second quarter 1999.
With respect to external parties, 65% of the Company's business units have
completed their inventory audit of critical external parties. The remaining
business units are expected to complete this work by the fourth quarter 1998.
Risk assessment is expected to be complete by the fourth quarter 1998, and
monitoring of risk in this area will continue into 1999, as many external
parties will not have completed their work.
The total cost of Year 2000 activities is not expected to be material to
the Company's operations, liquidity or capital resources. Costs are being
managed within each business unit. The total cost for the Company's Year 2000
work is estimated to be $2 million. 1997 costs were $500,000, and 1998 costs
through September 1998 were $300,000. Costs exclude expenditures for replacement
systems, which were previously scheduled.
There is still uncertainty around the scope of the Year 2000 issue. At this
time the Company cannot quantify the potential impact of these failures. There
can be no assurance that there will not be a delay in, or increased costs
associated with, the Company's efforts to address the Year 2000 issue, and the
Company's inability to implement the necessary changes could have an adverse
effect on the Company. The Company's Year 2000 program and contingency plans are
being developed to address issues within the Company's control. The program
minimizes but does not eliminate the issues of external parties. See "Risk
Factors--Year 2000."
COMMON EUROPEAN CURRENCY
The Treaty on European Economic and Monetary Union provides for the
introduction of a single European currency, the Euro, in substitution for the
national currencies of the member states of the European Union that adopt the
Euro. In May 1998, the European Council determined (i) the 11 member states that
met the requirements for Monetary Union, and (ii) the currency exchange rates
among the currencies of the member states joining the Monetary Union. The
transitory period for the Monetary Union starts on January 1, 1999. According to
Council Resolution of July 7, 1997, the introduction of the Euro will be made in
three steps: (i) a transitory period from January 1, 1999 to December 31, 2001
in which current accounts may be
40
<PAGE> 44
opened and financial statements may be drawn in Euros, and local currencies and
Euros will coexist; (ii) from January 1, 2002 to June 30, 2002, in which local
currencies will be exchanged for Euros; and (iii) from July 1, 2002 in which
local currencies will disappear. Although there can be no assurance that a
single European currency will be adopted or, if adopted, on what time schedule
and with what success, substantial transition costs could result as the Company
redesigns its software systems to reflect the adoption of the new currency. In
addition, no assurance can be given as to the effect of the adoption of the Euro
on the Company's payment obligations under loan agreements for borrowings in
currencies to be replaced by the Euro or on the Company's commercial agreements
in such currencies. See "Risk Factors--Common European Currency."
SEASONALITY
Historically, shipments of the Company's components have been higher in the
first, second and third quarters as a result of increased demands for the
products manufactured by the Company's customers during such periods. As a
result, sales may vary from period to period solely dictated by the demand for
the products manufactured by the Company's customers. Also, many manufacturing
facilities in Europe, including those belonging to the Company, shut down during
certain parts of the months of August and December for the holidays, and as a
result there is no production at such facilities during such periods.
41
<PAGE> 45
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means p.m., New
York City time, on , 1998; provided, however, that if the
Company, in its discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $130,000,000 aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998, to all
holders of Old Notes known to the Company. The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth below under "--Certain Conditions to the Exchange
Offer."
The Company expressly reserves the right, at any time or from time to time
in its reasonable discretion, to extend the period of time during which the
Exchange Offer is open, and thereby delay acceptance for exchange of any Old
Notes, by giving oral or written notice of such extension to the holders thereof
as described below. During any such extension, all Old Notes previously tendered
will remain subject to the Exchange Offer and may be accepted for exchange by
the Company. Any Old Notes not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Company expressly reserves the right in its reasonable discretion, to
amend or terminate the Exchange Offer, and not to accept for exchange any Old
Notes not therefore accepted for exchange, upon the occurrence of any of the
events specified below under "--Certain Conditions to the Exchange Offer." The
Company will give oral or written notice of any extension, amendment,
non-acceptance or termination to the holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of a
press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit either (i) a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to State Street Bank and Trust
Company, as Exchange Agent, at the address set forth below under "--Exchange
Agent" on or prior to the Expiration Date, or (ii) if such Old Notes are
tendered pursuant to the procedures for book-entry transfer set forth below, a
holder tendering Old Notes may transmit an Agent's Message (as defined herein)
to the Exchange Agent in lieu of the Letter of Transmittal on or prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must be
received by the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, along with
the Letter of Transmittal or an Agent's Message, as the case may be, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted to the Book-Entry
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<PAGE> 46
Transfer Facility and received by the Exchange Agent and forming a part of the
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the tendering Participant (as defined
herein) that such Participant has received and agrees to be bound by the Letter
of Transmittal and the Company may enforce the Letter of Transmittal against
such Participant. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL OR
AGENT'S MESSAGES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by, the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, and that neither the holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. As a condition to its participation in the
Exchange Offer each Holder using the Exchange Offer to participate in a
distribution of the New Notes shall acknowledge and agree that, if the resales
are of
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<PAGE> 47
New Notes obtained by such Holder in exchange for Old Notes acquired directly
from the Company or an Affiliate thereof, it (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any secondary resale transaction and that such a secondary
resale transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507 or 508,
as applicable, of Regulation S-K under the Securities Act. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the terms and conditions to the
Exchange Offer, the Company will accept, promptly after the Expiration Date, all
Old Notes properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes. See "--Certain Conditions to the Exchange Offer."
For purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent, with written confirmation
of any oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Interest on the New Notes will accrue from June 26, 1998,
the date of original issuance of the Old Notes.
The Registration Rights Agreement provides that (i) if the Company fails to
file an Exchange Offer Registration Statement with the Commission on or prior to
the 45th day after the Closing Date, (ii) if the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior to the 180th
day after the Closing Date, (iii) if the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement is
declared effective, (iv) if obligated to file the Shelf Registration Statement
and the Company fails to file the Shelf Registration Statement with the
Commission on or prior to the 60th day after such filing obligation arises, (v)
if obligated to file a Shelf Registration Statement and the Shelf Registration
Statement is not declared effective on or prior to the 90th day after the
obligation to file a Shelf Registration Statement arises, or (vi) if the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is declared effective but thereafter ceases to be effective or
useable in connection with resales of the Old Notes, for such time of
non-effectiveness or non-usability (each, a "Registration Default"), the Company
agrees to pay to each Holder of Old Notes affected thereby liquidated damages
("Liquidated Damages") in an amount equal to $0.05 per week per $1,000 in
principal amount of Old Notes held by such Holder for each week or portion
thereof that the Registration Default continues for the first 90 day period
immediately following the occurrence of such Registration Default. The amount of
the Liquidated Damages shall increase by an additional $0.05 per week per $1,000
in principal amount of Old Notes with respect to each subsequent 90 day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week per $1,000 in principal amount of Old
Notes. The Company shall not be required to pay Liquidated Damages for more than
one Registration Default at any given time. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents or, in the case of a Book-Entry
Confirmation, an Agent's Message in lieu thereof. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount than
the holder desired to exchange, such unaccepted or non-exchanged Old Notes will
be returned without expense to the tendering holder thereof (or,
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<PAGE> 48
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees, or an Agent's Message in lieu of a
Letter of Transmittal, and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at one of the addresses set
forth below under "--Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company,
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<PAGE> 49
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order of decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the reasonable judgment of
the Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the reasonable judgment of
the Company, might result in the holders of New Notes having obligations
with respect to resales and transfers of New Notes which are greater than
those described in the interpretation of the Commission referred to on the
cover page of this Prospectus, or would otherwise make it inadvisable to
proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
reasonable judgment of the Company, is or may be adverse to the Company, or
the Company shall have become aware of facts that, in the reasonable
judgment of the Company, have or may have adverse significance with respect
to the value of the Old Notes or the New Notes;
which in the reasonable judgment of the Company in any case, and regardless of
the circumstances (including any action by the Company) giving rise to any event
described above, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
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<PAGE> 50
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time in its reasonable discretion.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indentures under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal and Agent's
Messages should be directed to the Exchange Agent at one of the addresses set
forth below. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal or Agent's Message and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
DELIVERY TO: STATE STREET BANK AND TRUST COMPANY, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Overnight Courier or Hand:
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
</TABLE>
By Facsimile Transmission
(for Eligible Institutions only):
(617) 664-5290
Attention: Corporate Trust Department
Confirm by Telephone:
(617) 664-5587
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
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<PAGE> 51
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$[ ].
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of the
Notes--Registration Rights; Liquidated Damages." Based on interpretations by the
staff of the Commission, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the Company does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder (including, without
limitation, any Holder that is a broker-dealer) must acknowledge that (A) it is
not an Affiliate (as defined in Rule 144 of the Securities Act), (B) it is not
engaged in, and does not intend to engage in, a distribution of New Notes and
has no arrangement or understanding to participate in a distribution of New
Notes, and (C) it is acquiring the New Notes in its ordinary course of business.
As a condition to its participation in the Exchange Offer each Holder using the
Exchange Offer to participate in a distribution of the New Notes shall
acknowledge and agree that, if the resales are of New Notes obtained by such
Holder in exchange for Old Notes acquired directly from the Company or an
Affiliate thereof, it (i) could not rely on the applicable interpretations of
the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction and that such a secondary resale transaction must
be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K under the Securities Act. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with state securities laws, the New Notes may not be offered
or sold in any state unless they have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is complied with. The Company currently does not intend to register or qualify
the sale of the New Notes in any state where an exemption from registration or
qualification is required and not available.
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<PAGE> 52
BUSINESS
OVERVIEW
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company serves over 450
customers, including leading multinational companies such as Abbott
Laboratories, Colgate-Palmolive, Kimberly-Clark, L'Oreal, Maybelline, Motorola,
Procter & Gamble, Renault, Revlon, Siemens, Whirlpool and Xerox. Products
utilizing the Company's plastic components are sold in a wide range of end
markets, including end markets for consumer products,
telecommunications/business equipment, household appliances, automobiles and
medical devices. The Company believes that the diversity of its customers,
markets and geographic regions creates a stable revenue base and reduces the
Company's exposure to particular market or regional economic cycles. On a pro
forma basis after giving effect to the Transactions, the Company generated 1997
net sales, net income and EBITDA of $414.6 million, $.6 million and $54.7
million, respectively, making it the sixth largest non-automotive plastic
injection molding company in North America and one of the largest plastic
component suppliers in Europe.
The Company has 27 manufacturing facilities with approximately 680 molding
machines throughout North America and Europe, including France, Germany, the
United Kingdom and Portugal. The Company is capable of providing its customers
with integrated design and prototype development, mold design and manufacturing,
advanced plastic injection molding capabilities, and value-added finishing
services, such as hot stamping, pad printing, assembly and complete product
testing, all of which enable it to provide "one-stop" shopping to customers
seeking a wide range of services. The Company's technologically advanced
manufacturing facilities and equipment enable it to provide customized solutions
to highly demanding customer specifications. For 1997, approximately 45% of the
Company's sales of molded products were covered by long term purchase and sale
contracts which stipulate anticipated volume requirements and pricing terms.
Management believes that few competitors offer the scale, expertise, reputation
and range of services that the Company provides.
The Company was formed through the merger of two leading plastic injection
molders, Moll PlastiCrafters Limited Partnership and Anchor Advanced Products,
Inc., which were each controlled by Mr. George Votis. Immediately prior to the
Merger, Moll and Anchor were independently operated entities. Mr. Votis acquired
Moll's predecessor in 1989 and has since completed seven acquisitions increasing
Moll's revenues from approximately $8 million in 1989 to $232.4 million in 1997
on a pro forma basis excluding the acquisition of Anchor. Concurrently with the
Offering, Holdings consummated the Holdings Notes Offering. In March 1998, Mr.
Votis acquired Anchor which had revenues of $161 million in 1997. On June 30,
1998, the Company consummated the acquisition of Gemini Plastic, a specialty
medical and telecommunications product plastic molding company with
approximately $21 million of revenues in 1997. See "The Transactions."
The Company has been formed to combine the manufacturing, marketing and
management resources of Moll and Anchor to create further opportunities for
growth and development. As a result of the Transactions, the Company will become
better positioned to benefit from the growth and consolidation of the plastics
industry. The Company also believes that the consummation of the Transactions
has significantly enhanced its future growth prospects and revenue stability by
broadening its customer base, manufacturing capabilities and geographic
presence. Moreover, the Company expects to benefit from its increased scale,
ability to centralize certain key logistical functions and attendant cost
savings opportunities. Since March 1998, the Company has eliminated
approximately $2.8 million in annualized costs by reducing duplicative
administrative expenses, eliminating less profitable business lines and
streamlining manufacturing processes. The savings consist of $1.7 million in
payroll costs gained through the elimination of duplicate expenses and excessive
resources and $1.1 million in benefit costs gained through a revision of the
retirement benefits. The savings were calculated based on the salaries of the
positions eliminated and an actuarial estimation of the savings associated with
the change in the retirement plan.
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<PAGE> 53
COMPETITIVE STRENGTHS
Management believes that the Company has achieved its current position as a
market leader because of the following competitive strengths:
BROAD GEOGRAPHIC PRESENCE. The Company's multiple plant locations
throughout North America and Europe enable it to (i) compete effectively for
contracts that require large volume runs and multiple distribution points, (ii)
offer its customers multiple production locations and (iii) allocate production
to the facility best suited for a job in view of its relative capabilities and
proximity to the customer. As a result, the Company is able to provide its
customers with a broad range of manufacturing capabilities, improved
responsiveness, timely delivery, and reduced freight costs. In addition, by
operating geographically diverse plants, the Company can mitigate customer
sourcing risks associated with single facility production.
FULL SERVICE CAPABILITIES. The Company provides its customers with
comprehensive services ranging from product design, product development,
prototyping and mold making to molding, painting and other value-added services.
As a result, management believes that the Company is one of a limited number of
full service plastic injection molders in North America and Europe that is well
positioned to benefit from the trend of customers outsourcing total project
management to full service multiple plant suppliers.
STRONG CUSTOMER RELATIONSHIPS. The Company believes that its ability to
attract and retain customers is in part attributable to the high level of
customer service it provides. The Company also believes that frequent
interaction with its customers in the product development process helps it to
develop long-term relationships. Of the Company's top ten customers in 1997, two
have been with the Company for over fifty years, three have been with the
Company for over ten years and the remainder have been with the Company for over
four years. For many of its key customers, the Company is the sole supplier for
specific parts. The Company's emphasis on customer partnerships and its
long-standing customer relationships provide it with a significant competitive
advantage.
MANUFACTURING CAPABILITIES. The Company utilizes a wide range of advanced
manufacturing processes, such as gas assist molding, co-injection and two-shot
molding, automated assembly and testing, in-mold decorating, thin-wall molding
and in-mold bristling. The Company's manufacturing capabilities enable it to
provide innovative solutions and supply components in an integrated process. For
example, the Company worked closely with Renault to produce dashboard grilles
using a newly developed co-injection molding technology.
SUPERIOR PRODUCT QUALITY. The Company uses quality systems and operations
management techniques to meet the highest standards and to reduce costs. The
Company continually invests in technology and training to monitor and improve
quality. Included among such investments are effective management systems to
ensure real-time information and control, statistical process control systems,
failure mode and effect analysis systems, microprocessor-controlled molding
machines and automated assembly equipment. In addition, the Company has material
and product testing equipment that monitor product reliability to meet exacting
quality standards.
BUSINESS STRATEGY
The Company seeks to further strengthen its leadership position in the
plastic molding industry and to maximize its financial performance by employing
the following strategies:
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The Company believes that the
Merger creates new opportunities to cross-sell products and services between
each of Anchor's and Moll's customer bases. For example, while Anchor's
operations prior to the Merger were confined to North America, many of its
customers are multinational firms with significant European operations.
Management believes that offering such customers access to the Company's
European operations, operated by Moll prior to the Merger, is a significant
growth opportunity. The Company has hired a new Senior Vice President, Marketing
to target and capitalize on such opportunities.
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<PAGE> 54
CENTRALIZE SALES AND MARKETING. The Company plans to centralize management
of its sales and marketing efforts to improve communication with customers,
better cross-sell services to customers and ensure uniform pricing and sales
strategies. While local sales and management staff will maintain direct
relationships with customers and production facilities, a centralized sales and
marketing effort will enable the Company to serve national and international
accounts more effectively and to pursue customers located outside an individual
plant's geographic service area. The Company's centralized sales and marketing
group will be responsible for identifying market trends and assisting customers
with new product ideas as well as promoting the Company through customer
presentations, advertising and trade shows.
EXPAND GLOBALLY. The Company believes that it is one of the largest North
American plastic injection molders with a significant European presence. Such
capabilities allow the Company to (i) penetrate new geographic regions with its
existing multinational customers, such as L'Oreal, Siemens, Whirlpool and Xerox,
and (ii) acquire complementary manufacturing facilities in strategic locations.
Continuing to pursue this strategy will enable the Company to effectively
provide a complete and integrated range of molding, manufacturing and
value-added services on a global basis.
REDUCE COSTS. The Company continually aims to improve its cost
effectiveness by increasing productivity and implementing operational
improvements. Since March 1998, the Company has eliminated approximately $2.8
million in annualized costs by reducing duplicative administrative expenses,
eliminating less profitable business lines and streamlining manufacturing
processes. The savings consist of $1.7 million in payroll costs gained through
the elimination of duplicate expenses and excessive resources and $1.1 million
in benefit costs gained through a revision of the retirement benefits. The
savings were calculated based on the salaries of the positions eliminated and an
actuarial estimation of the savings associated with the change in the retirement
plan. Management believes that the combination of Anchor, Moll and Gemini
Plastic will result in additional opportunities to reduce costs by: (i) reducing
overhead expenses through optimization of labor and equipment resources at each
of the Company's facilities; (ii) divesting or discontinuing less profitable
business lines; (iii) eliminating redundant administrative operations and
related personnel; and (iv) where appropriate, moving key management personnel
on-site to the Company's manufacturing plants in order to oversee expansion
and/or execution of cost control measures.
CONTINUE STRATEGIC ACQUISITIONS. Strategic acquisitions have been, and
management believes will continue to be, an important element in the Company's
growth and in its efforts to capitalize on favorable industry trends. The
Company will consider future acquisition opportunities that are attractively
priced and which the Company believes will strengthen its customer base, broaden
its geographic presence, enhance its production capabilities and provide
significant operating synergies. While the Company routinely enters into
discussions with potential acquisition candidates, no such discussions have
progressed beyond the preliminary stages.
INDUSTRY OVERVIEW AND TRENDS
Injection molding is one of the most widely used plastic processing methods
in the world due to the high-quality properties of the finished product and its
cost effectiveness. According to industry sources, demand for injection molded
plastics in the United States is projected to grow at 3.3% annually. Such growth
is expected to result from a number of key factors including: (i) improved
resins and processing capabilities; (ii) versatility of the injection molding
process; and (iii) cost and performance advantages of plastic over substitute
materials. Despite the expected increase in demand for plastic injection molded
products, the U.S. molding industry remains highly fragmented with over 2,500
injection molders operating more than 10,000 plant locations. The capabilities
of these molders vary widely, as do their end markets.
In recent years, plastic injection molders have benefited from technology
improvements that have enabled plastic to replace other materials (most notably
metal, glass and paper) in a variety of applications. Plastic has been
substituted for these materials primarily because of its disposability, ease of
manufacture, durability, aesthetic appeal, flexibility of form and weight.
Additionally, plastic often provides significant cost savings over other
materials due to design and fabrication and raw material cost advantages. By
successfully substituting plastic for other materials, manufacturers can
significantly reduce the amount of necessary parts, manufactur-
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<PAGE> 55
ing steps, labor costs, energy costs and transportation expenses associated with
producing their products. As a result, management believes that substantial
growth potential exists for plastics through further materials substitution.
In addition to the growth projected for the plastics industry as a whole,
growth for larger injection molders such as the Company is driven by industry
consolidation and the trend among customers to outsource their injection molding
needs. Management believes that the consolidation of the highly fragmented
plastics injection molding industry has accelerated in recent years as a result
of customer preferences toward larger, full-service independent molders that are
able to provide total project management. As customers place increasing emphasis
on minimizing the "time to market" for their new products and ensuring that
their requirements for production, quality and timely delivery are satisfied,
they are increasingly relying on one full-service supplier for each new product
launch. Given that molders in these relationships are involved in many decisions
that affect cost and prevent complications in production, they are better able
to preserve attractive margins.
The trend toward customer consolidation of suppliers has created
significant opportunities for injection molders such as the Company who possess
full-service capabilities. Given the capital investment required to successfully
compete as a full-service injection molder, management believes that an
increasingly limited number of injection molders will be capable of providing
the quality and breadth of services demanded by high volume customers.
Furthermore, management believes that the trend among customers to develop
closer relationships with full-service injection molders mitigates the potential
threat of out-of-market competition. Inconsistent product quality, weak tooling
capabilities and significant distance from customers' manufacturing locations
have traditionally hindered limited service or out-of-market competitors from
competing effectively for projects that require full-service capabilities,
outstanding quality and quick response time.
MARKETS AND PRODUCTS
MARKETS
The following table sets forth the percentages of the Company's total net
sales for the periods presented that were derived from sales to its different
end markets:
<TABLE>
<CAPTION>
1996(1) 1997(1)
<S> <C> <C>
Consumer Products........................................... 26.6% 27.6%
Telecommunications/Business Equipment....................... 17.3 18.9
Household Appliances........................................ 16.2 17.6
Automotive.................................................. 15.2 12.3
Medical Devices............................................. 7.2 8.1
Packaging and Other......................................... 17.5 15.5
---- ----
Total............................................. 100% 100%
</TABLE>
- ------------------------------
(1) The information for 1996 and 1997 gives effect to the Transactions as if
they had occurred on the beginning of the periods presented.
CONSUMER PRODUCTS
Within the consumer products market, the Company has particular strength in
the cosmetics and oral care sectors. The Company manufactures and supplies
plastic components to the cosmetics industry in five major product categories:
mascara, nail applicators, compacts, closures and lipstick containers which
collectively account for more than 220 different mascara packages and 19
different lipstick containers. The Company enjoys substantial business with the
leading cosmetics companies, including Estee Lauder, L'Oreal, Maybelline, Mary
Kay, Revlon, Amway and Aveda, which produce products marketed under the brand
names Great Lash(R), Clinique and many others. The Company manufactures
toothbrushes for Colgate-Palmolive, Procter & Gamble, Cheseborough-Ponds and
SmithKline Beecham, under such well-known brand names as Crest(R), Colgate(R),
Pepsodent(R) and Flexosaurus(R), and electric toothbrush heads for Teledyne
Water Pik, a
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<PAGE> 56
division of Teledyne Industries, Inc. Toothbrushes accounted for approximately
13.4% and 11.2% of proforma consolidated sales in 1996 and 1997, respectively.
The Company also manufactures and assembles POP displays for Maybelline.
Approximately 10.7% of the Company's pro forma net sales in 1997 were derived
from L'Oreal. The Company's relationship with L'Oreal is governed by a letter
agreement which will expire on December 31, 2000. Such agreement does not
contain any minimum purchase requirements on the part of L'Oreal. Such agreement
provides that if long term quality and reliability is violated, such agreement
will become null and void.
The Company serves the eye and lip preparation and nail polish segments of
the domestic cosmetics market. Management estimates that in 1996, eye make-up,
lip make-up and nail care products accounted for approximately 24% ($662
million), 22% ($611 million), and 11% ($318 million), respectively, of the total
U.S. cosmetics market, which management estimates totaled $2.8 billion in 1996.
The Company is also a leading independent designer, manufacturer and packager of
toothbrushes in the United States with an estimated 1997 market share of
approximately 27% of all toothbrush manufacturing. Management estimates that the
domestic market for toothbrushes was 676 million units in 1996.
Management believes that the consumer products market is largest segment of
the injection molded plastic industry. In 1996, market demand for this end
market was approximately 35.8% of the total plastic injection market.
TELECOMMUNICATIONS/BUSINESS EQUIPMENT
The Company designs and manufactures plastic components for
telecommunications and business equipment in North America and Europe, including
complete multi-component assemblies for business telephones and cellular
telephone handsets manufactured by Siemens and Motorola, and electronic
telecommunications equipment and cellular tower construction hardware
manufactured by the 3M Corporation and Specialty Teleconstructers. The Company
also manufactures plastic components used in business equipment such as (i)
photocopiers and digital imaging systems manufactured by Xerox, (ii) printers
and computer assemblies manufactured by Tektronix, Ogden Atlantic, Lexmark and
Sequent and (iii) custom casings and assemblies for computers manufactured by
Compaq and IBM.
Management believes that this end market offers attractive growth
opportunities due to growth currently being experienced in the
telecommunications market, particularly with respect to cellular telephones and
other personal communications devices. In addition, many multinational business
equipment manufacturers have also enjoyed strong and steady market growth
through international expansion as international sales continue to strengthen
profits. Based on industry sources, management believes that computer and office
equipment shipments will grow at over 6% annually (in real inflation-adjusted
terms through the year 2001) from $135 billion in 1996 to $182 billion in 2001.
HOUSEHOLD APPLIANCES
The Company is a leading independent designer and manufacturer of plastic
components used in household appliances including (i) refrigerators (primarily
high end side-by-side refrigerators), room air conditioning systems and free
standing and built-in ranges manufactured by Whirlpool, (ii) countertop
appliances manufactured by Tefal, (iii) laundry washers and dryers manufactured
by Electrolux and (iv) televisions manufactured by Daewoo. Approximately 10.3%
of the Company's pro forma net sales in 1997 were derived from Whirlpool. The
Company's relationship with Whirlpool is governed by a written contract.
However, such contract does not contain any minimum purchase requirements on the
part of Whirlpool. The initial term of such contract expires on December 31,
2000, and, thereafter, such contract will be automatically renewed for one year
terms unless terminated in the manner provided therein. Such contract can be
terminated (i) by the parties by mutual agreement at any time; (ii) by either
party giving the other at least six months notice of termination upon (a) the
expiration of the initial term or upon the expiration of any calendar year
subsequent to the initial term and (b) the parties failing to agree to certain
price and quality specifications, and (iii) each party has the right to
unilaterally terminate such contract for cause, which includes, without
limitation, substantial default, dissolution of either party and insolvency of
either party.
Management believes that this market offers attractive growth opportunities
due to steady growth in the household appliance market. Based on industry
sources, management believes that home appliance shipments
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<PAGE> 57
will grow at over 2.3% annually (in real inflation-adjusted terms through the
year 2001) from $223 billion in 1996 to $250 billion in 2001 driven by
replacement demand as appliances purchased in the 1980's are replaced with new
products.
AUTOMOTIVE
The Company designs and manufactures plastic automotive components which
include (i) door handles, sun visors, wheel covers, intake grill manifolds for
Renault, (ii) gear shift knobs used in buses and trucks manufactured by General
Motors, (iii) motor scooter components for Peugeot, (iv) plastic components used
in turn signal and cruise control systems manufactured by Delphi, (v) interior
components used in vehicles manufactured by Audi, BMW and Freightliner and (vi)
insulating battery cases for Lydall.
Management believes that this market offers favorable growth opportunities
due to the steady growth in the automobile market in North America and Europe.
MEDICAL DEVICES
The Company manufactures products for the U.S. medical device market. The
Company manufactures various plastic medical devices, including blood filtration
devices, angiographic syringes, intravenous equipment, in-vitro diagnostic kits,
medical scrub brushes and cardiotomy reservoirs, as well as various internal and
external plastic components used in medical and dental equipment manufactured by
Adec, Acquson, Abbott Hospital Products Division and Alcon Medical.
Plastics are becoming more widely used in medical devices as the medical
field realizes the value of reduced breakage, the ability to manufacture
extremely consistent parts in a cost effective manner and the infection control
benefits of disposable products. Management believes that the medical device
market offers attractive growth opportunities.
PACKAGING AND OTHER
The Company manufactures and assembles a broad range of commercial and
industrial soap dispensing equipment for Kimberly-Clark. The Company also
manufactures hatch covers used in recreational boats manufactured by Tempress,
and plastic lawn and garden equipment for Electrolux Consumer Products. In
addition, the Company manufactures resealable "living hinge" plastic closures
for Tetrapak and dispensing closures for Seaquist.
GEOGRAPHIC MARKETS
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company has 27 manufacturing
facilities with approximately 680 molding machines throughout North America and
Europe, including France, Germany, the United Kingdom and Portugal. The Company
derived approximately 67% and 33% of its fiscal 1997 pro forma net sales in
North America and Europe, respectively. Through its recent acquisitions, the
Company's geographic presence has been strategically expanded into new regional,
national and international markets. While the Company believes its increased
global presence allows it to better service its numerous multinational
customers, the Company views its markets in North America and Europe as distinct
in terms of customer base and product requirements. Within each of these
markets, the Company places great emphasis on serving individual regional and
national markets separately from international markets and customers because
such regional and national customers often have specific requirements and
preferences. Overall, the Company believes that its expanded global presence has
improved international market penetration while facilitating more customized and
expedient service at the local and regional market level through proximity to
its customers.
CUSTOMER RELATIONSHIPS
The Company has built and maintained solid and long-term relationships with
its customers. In certain cases, such ongoing relationships are governed by
long-term purchase and sale contracts. In 1997, approximately 45% of the
Company's pro forma net sales of molded products was covered by such contracts.
However, such contracts do not contain any minimum purchase requirements on the
part of the customer.
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<PAGE> 58
Almost all such contracts can be terminated by the parties thereto by mutual
agreement and can also be terminated by either party giving notice of
termination upon certain occurrences, including, without limitation,
disagreement on quality, quantity and pricing issues, insolvency or dissolution
of any party thereto and upon any material breach of such contracts by any party
thereto.
PRODUCTION
The Company utilizes a broad range of manufacturing processes and tool
making capabilities to service the needs of its diverse customer base. Using
such processes and capabilities, the Company can manufacture products ranging
from simple plastic parts to highly complex multi-component assemblies. The
Company's automated, high volume assembly and on-site testing capabilities
further broaden its manufacturing capabilities and provide it with a competitive
edge in obtaining and maintaining preferred supplier status with its customers.
The process for producing a plastic component can be divided into two
functions: (i) design and tooling and (ii) molding. These different functions
often are not performed by one supplier. Many customers have "in-house" design
departments for their plastic components. To manufacture the molds to design
specifications, such departments frequently use tooling companies that are
specialists in mold manufacturing but are not manufacturers of plastic
components. Such molds are owned by the customer who then provides them to the
suppliers for the purpose of manufacturing plastic components from such molds.
Unlike numerous plastic component manufacturers, the Company has the capability
to design and produce plastic components as well as the molds used to
manufacture such plastic components.
DESIGN AND TOOLING
The Company has three tooling facilities in the United States, three such
facilities in France and one such facility in Portugal.
The Company produces prototypes and molds to make plastic components for
customers without in-house tooling capabilities. The Company also sells
prototypes and molds to other plastic component manufacturers, as well as
manufacturing them for some of its own operations. The Company performs, or
expects to perform, the injection molding for a majority of the products for
which it makes molds. Plastic products for which the Company builds the mold but
which are not injection molded by the Company are typically molded in-house by
the customer.
The Company produces a broad range of injection mold prototypes and molds
weighing from 1,100 pounds to 88,000 pounds. Injection molds are used for the
mass production of plastic parts in amounts that can vary considerably depending
on the application, but that usually exceed one million parts over the life of
the mold. Each of the Company's mold making facilities offers a full range of
services, including conceptual part and tool design, building and testing, and
is staffed with engineers skilled in mold design and manufacture. The primary
areas of focus include product design, process improvement, enhancement of
product performance and maximization of aesthetics. Such engineers incorporate,
on an experimental basis, the expertise that is derived from having the
capabilities to design, build and run molds that incorporate the strategies of
the operating unit. Management views the Company's mold designing and building
operations primarily as supportive of its manufacturing business, and also as an
independent profit center.
MOLDING
The Company has 12 plants for manufacturing plastic components in the
United States, five such plants in France and one such plant in each of Mexico,
the United Kingdom and Germany. See "--Properties."
The Company manufactures a majority of its plastic components utilizing the
injection molding process of thermoplastic materials. This process requires
sophisticated injection molding machines and ancillary equipment and produces a
high quality engineered product at relatively high speed. In this process,
thermoplastic materials created from plastic resins and other raw materials are
specially prepared and treated, melted to a defined temperature, injected into a
mold under high pressure at relatively high speed, cooled by channels conveying
water throughout the mold and transformed into a plastic part that is
automatically removed when the mold opens. In some cases, additional finishing
operations are performed on the plastic
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<PAGE> 59
part. The typical molding cycle falls into a range of 8 to 60 seconds and is
dependent upon the material type, part design, mold design, and the dimensional
and aesthetic requirements established by the customer.
In addition to relatively common and established technology for injection
molding, the Company utilizes other newer technologies that employ advanced
manufacturing processes such as gas-assist molding, co-injection, two-shot
molding, insert molding and in-mold decorating.
While the Company has developed proprietary techniques and manufacturing
expertise for the manufacture of injection-molded plastic components, the
Company has no patents for these proprietary techniques and chooses to rely on
trade secret protection. The Company believes that although its proprietary
techniques and expertise are subject to misappropriation or obsolescence,
development of improved methods and processes and new techniques by the Company
will continue on an ongoing basis as dictated by the technological needs of the
business.
VALUE-ADDED SERVICES
The Company offers a broad range of value-added services, including
finishing and automated assembly services. These services include hot stamping,
painting, pad printing, silkscreening, ultrasonic welding and insertion, heat
staking, solvent bonding, painting and impulse welding. At a customer's request,
the Company also outsources additional value-added services such as
electromagnetic and radio frequency interference shielding.
The Company also provides a wide range of inventory management services and
logistical support to its customers. Moving beyond just-in-time delivery, the
Company assists its customers with planning and managing production
requirements; routing inventory to in-process, intermediate and final
distribution points; and adjusting to customers' inventory requirements on a
real time basis through the alignment of the Company's production capabilities
with a customer's production requirements through electronic data interchange.
RAW MATERIALS
The Company's primary raw materials are various plastic resins, nylon and
packaging materials. Raw material prices are subject to cyclical price
fluctuations, including those arising from supply shortages and as a result of
changes in the prices of natural gas, crude oil and other petrochemical
intermediates from which resin is derived. Accordingly, the Company's financial
performance is directly linked to its ability to pass along increased raw
material costs to its customers. Although the Company has historically been able
to pass on increased costs to its customers, there can be no assurance that it
will be able to do so in the future or that a significant price increase in raw
materials would not have a material adverse effect on the Company's financial
condition and results of operations. Although most of the raw materials used by
the Company are available from several suppliers, several of such raw materials
are currently obtained from single sources. The Company has no reason to believe
that there will not be an ample supply of its raw materials at prices
commercially acceptable to the Company for the reasonably foreseeable future,
but the Company cannot make any prediction as to the future price of such raw
materials. See "Risk Factors--Raw Materials."
MARKETING AND SALES
The Company seeks to increase its sales through cross-selling to its
existing customer base and by attracting new customers. The Company's primary
marketing strategy is to develop and maintain close working relationships with
the engineering, procurement, quality, tooling and manufacturing departments of
its customers. Several of the Company's largest customers are serviced by a
dedicated sales agent. The Company employs six sales agents and uses two
independent sales representatives to service its customers. These relationships
help ensure close cooperation in product design and help the Company in gaining
repeat and new business with its existing customer base. The Company believes
that its design, engineering and tooling expertise, together with its ability to
service and cross sell to customers from multiple locations on a worldwide
basis, have enabled it to broaden its product lines, further penetrate its
existing customer base and attract new customers.
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<PAGE> 60
COMPETITION
The markets in which the Company operates are highly competitive. The
Company competes with a significant number of companies of varying sizes,
including divisions or subsidiaries of larger companies and the in-house
departments of potential customers, on the basis of price, service, quality and
the ability to supply products to customers in a timely manner. Some of these
competitors have, and new competitors may have, greater financial and other
resources than the Company. Additionally, each of Reliance Products (which is
controlled by the principal stockholders of the Company) and the Company are
engaged in the injection molded plastics business. The products manufactured,
and the markets served, by each of Reliance Products and the Company are
different, and Reliance Products and the Company have not, and do not, compete
with each other. However, no assurance can be given that Reliance Products and
the Company will not compete for the same business opportunities in the future,
which may present conflicts of interest. Competitive pressures or other factors,
including the vertical integration by certain of the Company's major customers
of manufacturing processes traditionally outsourced to the Company, could cause
the Company to lose market share or could result in a significant price erosion
with respect to the Company's products, either of which could have a material
adverse effect on the Company's results of operations. Furthermore, the
Company's customers operate in highly competitive markets. To the extent the
Company's major customers lose market share in their respective markets, the
Company's results of operations and financial condition could be materially and
adversely affected. See "Risk Factors--Competition."
ENVIRONMENTAL MATTERS
Federal, state, local and foreign governments could enact laws or
regulations concerning environmental matters that increase the cost of
producing, or otherwise adversely affect the demand for, plastic products. The
Company is aware that certain local governments have adopted ordinances
prohibiting or restricting the use or disposal of certain plastic products that
are among the types of products produced by the Company. If such prohibitions or
restrictions were widely adopted, such regulatory and environmental measures or
a decline in consumer preference for plastic products due to environmental
considerations could have a material adverse effect upon the Company. In
addition, certain of the Company's operations are subject to Federal, state,
local and foreign environmental laws and regulations that impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous wastes. While the
Company has not been required historically, and does not currently expect, to
make significant capital expenditures in order to comply with applicable
environmental laws and regulations, the Company cannot predict with any
certainty its future capital expenditure requirements because of continually
changing compliance standards and environmental technology. The Company does not
have insurance coverage for environmental liabilities and does not anticipate
obtaining such coverage in the future. See "Risk Factors--Environmental
Matters."
EMPLOYEES
As of December 31, 1997, the Company had 3,776 employees, and approximately
40% of such employees were covered by collective bargaining agreements. The
Company's employees in the United States and the United Kingdom are neither
represented by a union nor covered by any collective bargaining agreement. In
Germany, the Company's plant workers are represented by a union, however, the
Company is not liable for any severance costs associated with any workforce
reductions at its German facilities. The Company's employees in Mexico are
covered by a collective bargaining agreement. The Company's employees in France
are covered by national and regional collective agreements for the plastics
industry and the steel and metal industry. Such collective agreements were not
negotiated between the Company and its employees, but rather were concluded by
representatives of all employers and employees in such industries. Some of the
collective agreements covering the Company and its employees have been extended
by the French Labor Ministry to have nationwide scope, while others apply
regionally only. Such collective agreements do not expire until the employers'
or employees' representatives give the other party prior notice.
The Company has historically enjoyed good employee relations.
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<PAGE> 61
PROPERTIES
As of October 3, 1998, the Company owned or leased 15 production facilities
in the United States, seven production facilities in France and one production
facility in each of Mexico, the United Kingdom, Germany and Portugal. The
Company believes that its facilities are well maintained and in good operating
condition and anticipates that, although substantial capital expenditures will
be required to meet the production requirements for new and developing product
lines, the facilities themselves will be sufficient to meet the Company's needs
for the next several years. There can be no assurance, however, that
unanticipated developments will not occur that would require the Company to add
or eliminate production facilities sooner than expected. The following table
indicates as at the date hereof the locations, the area, nature of ownership,
and principal use of the Company's land and related facilities.
<TABLE>
<CAPTION>
LOCATION AREA (SQ. FT.) OWNERSHIP USE
<S> <C> <C> <C>
North America
Austin, Texas............................ 79,000 Owned Manufacturing
Elk Grove, Illinois...................... 10,000 Leased Mold Shop/engineering
Evansville, Indiana...................... 5,000 Leased Engineering office
Fort Lauderdale, Florida................. 85,000 Owned Manufacturing
Fort Smith, Arkansas..................... 143,000 Owned Manufacturing
Harlingen, Texas......................... 45,000 Leased Warehouse
Knoxville, Tennessee..................... 12,000 Leased Office
Matamoros, Mexico........................ 118,000 Owned Manufacturing
Morristown, Tennessee.................... 90,000 Leased Warehouse
Morristown, Tennessee, Plant B........... 180,000 Owned Manufacturing
Morristown, Tennessee, Plant C........... 120,000 Owned Manufacturing
Nashville, Tennessee..................... 121,000 Owned Manufacturing
Newberg, Oregon.......................... 108,000 Owned Manufacturing
Rochester, New York...................... 79,000 Owned Manufacturing
Round Rock, Texas........................ 71,300 Owned Manufacturing
San Antonio, Texas....................... 62,000 Leased Manufacturing
Sanford, North Carolina.................. 12,500 Owned Mold Shop
Seagrove, North Carolina................. 31,700 Leased Warehouse
Seagrove, North Carolina................. 133,200 Owned Manufacturing
Waterbury, Connecticut................... 120,000 Owned Manufacturing
Europe
Blanzy, France........................... 57,750 Leased Manufacturing
35,400 Leased Warehouse
Bonneval, France......................... 19,800 Owned Manufacturing
26,080 Leased Mold shop/engineering
Chalon, France........................... 23,400 Owned Mold shop/engineering
16,200 Leased Mold shop
21,175 Leased Manufacturing
Marinha Grande, Portugal................. 81,850 Owned Mold shop
Mitcheldean, United Kingdom.............. 15,000 Leased Manufacturing
Paderborn, Germany....................... 160,000 Leased Manufacturing
Rouvray, France.......................... 109,000 Leased Manufacturing
Saint-Vit, France........................ 12,320 Owned Mold shop
12,000 Leased Mold shop
Villers-La-Montagne, France.............. 111,000 Owned Manufacturing
</TABLE>
To the extent any such properties are leased, the Company expects to be
able to renew such leases or lease comparable facilities on terms commercially
acceptable to the Company. Management believes that the Company's facilities are
suitable for its operations and provide sufficient capacity to meet the
Company's requirements for the foreseeable future.
LEGAL PROCEEDINGS
The Company believes that it is not presently a party to, or threatened
with, any litigation the outcome of which would have a material adverse effect
on its financial condition or results of operation.
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<PAGE> 62
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The current directors and officers of the Company are as follows:
<TABLE>
<CAPTION>
CURRENT TERM
NAME AGE EXPIRES POSITION
<S> <C> <C> <C>
George T. Votis....................... 36 April, 1999 Chairman and Chief Executive Officer
Charles B. Schiele.................... 56 April, 1999 President and Director
Phyllis C. Best....................... 52 April, 1999 Chief Financial Officer
Michael N. Red........................ 51 April, 1999 Senior Vice President, Marketing
T. Michael Bauer...................... 48 April, 1999 Executive Vice President,
Eastern Operations and U.K.
Geoffrey A. de Rohan.................. 41 April, 1999 Executive Vice President, Cosmetics
Robert T. Parkey...................... 61 April, 1999 Executive Vice President, Oral Care
Jean-Jacques de Boissieu.............. 40 April, 1999 Executive Vice President,
France and Portugal
Mogens Andersen....................... 47 April, 1999 Vice President, Germany
</TABLE>
George T. Votis. Mr. Votis serves as Chairman and Chief Executive Officer
of the Company and as Chairman and Chief Executive Officer of Galt Industries
which he founded in 1988. Prior to 1988, Mr. Votis was a Vice President and
Principal at Carlisle Capital in Boston, Massachusetts.
Charles B. Schiele. Mr. Schiele joined Anchor in March 1998 as President.
Prior to joining Anchor, Mr. Schiele served as Executive Vice President of
Alcoa's Closure Systems International Division, a global packaging company since
1994. Mr. Schiele served as President of HC Industries; Regional Manager for the
Americas, and Global Manager, Plastic Closures from 1984 to 1993.
Phyllis C. Best. Prior to becoming Chief Financial Officer of the Company
in 1998, Ms. Best was Senior Vice President, Finance and Controller of Anchor
since 1995 and Vice President and Controller of Anchor since 1990.
Michael N. Red. Mr. Red joined Anchor in May 1998 as Senior Vice
President, Marketing. Mr. Red has more than 10 years of experience in the
plastic industry, including seven years from 1988 to 1995 with Closure Systems
International as Vice President Global Sales and two years from 1996 to 1997
with Soft Alloy Extrusion Division, Tifton, Georgia, as Vice President of Sales
and Marketing.
T. Michael Bauer. Prior to becoming Executive Vice President, Eastern
Operations and U.K. of the Company in 1998, Mr. Bauer joined Moll in October
1988 as General Manager of the Company's Fort Smith division. Mr. Bauer has more
than 23 years of experience in plastics industry, including three years from
1985 to 1988 with Michigan Plastics Company as Vice President of Manufacturing,
one year from 1984 to 1985 with Grote Manufacturing Company as Manager of
Manufacturing Engineering Services and ten years from 1974 to 1984 with Kusan
Manufacturing Company.
Geoffrey A. de Rohan. Prior to becoming Executive Vice President,
Cosmetics of the Company in 1998, Mr. de Rohan was a Director of Anchor and
General Manager of the Mid-State Plastics Division of Anchor since 1996 and
Executive Vice President of Anchor and General Manager of the Cosmetics Division
of Anchor since 1995. Prior to joining Anchor, Mr. de Rohan served as Vice
President and General Manager of Wheaton Injection Molding, President of Wheaton
Plastic Products, and Vice President of Development Health Care Market at
Wheaton, Inc. from 1986 to 1995.
Robert T. Parkey. Prior to becoming Executive Vice President, Oral Care of
the Company in 1998, Mr. Parkey was a Director and Executive Vice President of
Anchor and General Manager of the Brush Division of Anchor since 1992 and was
Senior Vice President of Anchor from 1990 to 1992. Mr. Parkey joined Anchor in
1975 and was promoted to Vice President, Healthcare Division in 1978. Prior to
joining Anchor, he was Vice President, Sales Manager with Husky Industries, a
division of Husky Oil Company.
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<PAGE> 63
Jean-Jacques de Boissieu. Mr. de Boissieu joined Moll as Executive Vice
President, France and Portugal in January 1998. Prior to joining Moll, Mr. de
Boissieu was a consultant at C.N.P.A. since 1996. Mr. de Boissieu served as
Managing Director and General Manager US Filter Water Treatment France from 1994
to 1996, and was Automotive Development Engineer General Electric Plastics
France, Product Manager Europe General Electric Plastics Netherlands, Managing
Director of General Electric Silicones France, Spain and Portugal and Manager
Europe of General Electric Silicones building and construction, Netherlands from
1985 to 1994.
Mogens Andersen. Mr. Andersen is a Vice President, Germany of the Company.
Mr. Andersen joined Moll in August 1997. Prior to joining Moll, Mr. Andersen was
with Alcoa Closure Systems International Europe from 1995 to 1997 where he was
finance and procurement manager, with Treasure Craft from 1994 to 1995 as
controller and with Capella Com-Data from 1993 to 1994 as finance manager/vice
managing director.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to (i) the Company's Chairman and Chief Executive Officer during 1997, (ii)
and each of the Company's four most highly compensated executive officers (other
than the Chairman and Chief Executive Officer), and (iii) up to two additional
individuals, if any, for whom disclosures would have been provided pursuant to
clause (ii) above but for the fact that the individual was not serving as an
executive officer of the Company at the end of the last completed fiscal year
(the "Named Executive Officers") for 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
OTHER ANNUAL PAYOUTS(4) ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION LTIP PAYOUTS COMPENSATION
---------------------------- -------- -------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
George T. Votis................... $ 0 $ 0 $1,300,000(2) $ 0 $ 0
Chairman and Chief Executive
Officer(1)
T. Michael Bauer.................. 142,133 122,000 0 -- 267(5)
Executive Vice President
Robert T. Parkey.................. 167,175 71,300 19,823(3) 540,168 0
Executive Vice President
Geoffrey A. de Rohan.............. 162,916 68,400 9,268(3) -- 0
Executive Vice President
Richard P. Fackler................ 578,655 560,000 1,650,000(2) 0 167,589(5)
Francis H. Olmstead, Jr.(6)....... 259,896 380,000 38,821(3) 760,800 0
</TABLE>
- ------------------------------
(1) Mr. Votis has never received any salary or bonus from the Company. However,
in 1997, the Company paid approximately $650,000 and approximately $742,000
in management fees to Galt Management, Inc. and Galt Industries, Inc.,
respectively, each of which is a Delaware corporation wholly owned by Mr.
Votis. On a going forward basis he will receive an annual salary and will be
part of a bonus plan to be established for the senior management of the
Company.
(2) Amounts represent tax distributions paid due to the flow through tax status
of Moll prior to the Transactions.
(3) Amounts consisted of Company reimbursements of certain taxes paid by the
Named Executive Officers shown above (except Messrs. Votis, Fackler and
Bauer), which were as follows: Mr. Olmstead, $38,821; Mr. Parkey, $19,823;
and Mr. de Rohan, $9,268.
(4) Amounts represent (i) dividends on 28,400 shares of restricted stock of
Anchor Holdings that were purchased pursuant to an option by Mr. Parkey and
(ii) dividends on 40,000 shares of restricted stock of Anchor Holdings that
were purchased pursuant to an option by Mr. Olmstead.
(5) Consist of insurance premiums with respect to term life insurance.
(6) Mr. Olmstead retired from the Company in connection with the acquisition of
Holdings in March 1998 by Anchor Acquisition Co.
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<PAGE> 64
AGGREGATED OPTIONS EXERCISED IN FISCAL YEAR 1997
AND 1997 FISCAL YEAR OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 1997 YEAR END AT 1997 YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis H. Olmstead, Jr..... 40,000 $740,000 0 0 0 0
Robert T. Parkey............ 28,400 525,400 0 0 0 0
Geoffrey A. de Rohan........ 0 0 0 10,000(2) 0 0
</TABLE>
- ------------------------------
(1) None of Holdings' capital stock is publicly traded. Market value of the
options was calculated on the basis of the fair market value of the
underlying securities at December 31, 1997 of $4.00 per share as determined
by Holdings' Board of Directors.
(2) Such options were cancelled in conjunction with the acquisition of Holdings
in March 1998 by Anchor Acquisition Co.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements, effective as of April 1,
1996 (the "Agreements"), with each of Robert T. Parkey, Geoffrey A. de Rohan and
Phyllis C. Best (each an "Employee" and, collectively, the "Employees").
The initial employment terms, the base salaries and maximum bonus amounts
(as a percentage of base salary) are set forth below:
<TABLE>
<CAPTION>
MAXIMUM
EMPLOYEE INITIAL TERM BASE SALARY BONUS(1)
-------- ------------ ----------- --------
<S> <C> <C> <C>
Robert T. Parkey.................................. 12/31/98 $161,000 40.0%
Geoffrey A. de Rohan.............................. 12/31/98 $145,000 40.0%
Phyllis C. Best................................... 12/31/98 $125,000 40.0%
</TABLE>
- ------------------------------
(1) The bonus will be computed on the Company's financial and other results and
the overall performance of the Employee as determined in the sole discretion
of the Board of Directors. The bonus will be paid, if at all, in the year
following the year in which it is earned.
Upon a termination of employment due to death or disability of the
Employee, the Employee, or his estate, as the case may be, shall be entitled to
one year's base salary plus the amount of the last full-year bonus, pro-rated to
the effective date of termination. Upon a termination of employment by the
Employee for Cause (as defined in the Agreements) or termination by the Company
without Cause, the Employee shall be entitled to an amount equal to base salary
and bonus (the amount of the last full-year bonus), both computed to the end of
the term. Upon a termination of employment by the Employee without Cause or
termination by the Company with Cause, the Company may pay, at its sole
discretion, one-half of one year's base salary as consideration for a one-year
non-competition agreement with the Employee. Upon a termination of employment
due to expiration of the term of employment the Company may pay, at its sole
discretion, one year's base salary as consideration for a one-year
non-competition agreement with the Employee. All severance payments pursuant to
this paragraph will be paid in quarterly installments. Further, if the Employee
obtains other employment during the period in which the Company is obligated to
make severance payments, the Company's obligation to make such payments will be
reduced by an amount equal to 75% of the total earnings such Employee makes from
such other employment.
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<PAGE> 65
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS AGREEMENTS
Each of the persons listed above as parties to Employment Agreements is
also party to a Supplemental Executive Retirement Benefits Agreement (the "SERB
Agreements") with the Company. Under these agreements, the above-mentioned
Employees are, upon retirement (as defined in the SERB Agreements), entitled to
a life-time annual retirement benefit (distributed monthly) calculated based
upon the higher of two separate formulas (see note (3) below). The annual
retirement benefits under one of these formulas calculated based upon years of
credited service (as defined in the SERB Agreements) and earnings (as defined in
the SERB Agreements) is set forth in the table below. The annual retirement
benefits are subject to a reduction for the employee's vested accrued benefit
under the North American Philips Plan and any defined benefit plan maintained by
the Company. The SERB Agreements also provide for spousal survival benefit
options and for death benefits under certain circumstances. Lastly, in the event
of the sale or exchange of substantially all the assets of the Company or a
merger, reorganization, consolidation or a change of control, the Employee is
entitled to a lump sum payment in an amount equal to the actuarial equivalent of
the Employee's normal retirement benefit unless the successor entity or
resulting controlling entity expressly assumes in writing the obligations under
the SERB Agreements.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
------------------------------------------------------
EARNINGS 15 20 25 30 35
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000.............................. $ 20,625 $ 27,500 $ 34,375 41,250 48,125
150,000.............................. 24,750 33,000 41,250 49,500 57,750
175,000.............................. 28,875 38,500 48,125 57,750 67,375
200,000.............................. 33,000 44,000 55,000 66,000 77,000
250,000.............................. 41,250 55,000 68,750 82,500 96,250
300,000.............................. 49,500 66,000 82,500 99,000 115,500
400,000.............................. 66,000 88,000 110,000 132,000 154,000
450,000.............................. 74,250 99,000 123,750 148,500 173,250
500,000.............................. 82,500 110,000 137,500 165,000 192,500
</TABLE>
- ------------------------------
(1) The compensation covered by this plan is the average of the employee's
highest five years, selected from the last ten calendar years, of earnings,
which are defined under this plan as the total cash compensation paid to the
employee during a calendar year includible in the employee's gross income
under the Internal Revenue Code, excluding any expense reimbursements,
deferred compensation payments, lump sum severance payments, stock options,
or any distributions from any long-term incentive plan, or any long-term key
employee compensation program.
(2) The credited years of service under this plan for each of the following
persons as of June 1998 (except for Messrs. Votis, Fackler and Bauer) are as
follows: Mr. Olmstead, 14.5833; Mr. Parkey, 13; Mr. de Rohan, 3.5; Ms. Best,
18.6667.
(3) The annual retirement benefit is the higher of (i) the product of (a) the
average of employee's highest five years of earnings; (b) years of credited
service under the plan (to a maximum of 43); and (c) 1.1% and (ii) the sum
of (a) the product of (1) the average of employee's highest five years of
earnings; (2) years of credited service under the plan (to a maximum of 43);
and (3) 1.0%; and (b) the product of (1) the amount by which the average of
employee's highest five years of earnings exceeds the Average Social
Security Taxable Wage Base; (2) years of credited service under the plan (to
a maximum of 35); and (3) 0.6%. For purposes of this plan, the "Average
Social Security Taxable Wage Base" is the average of the maximum limitation
on wages subject to social security tax for the preceding 35 calendar years.
62
<PAGE> 66
CERTAIN BENEFICIAL OWNERS
AMM Holdings, LLC owns all the outstanding capital stock of Holdings, which
owns all the outstanding capital stock of Anchor Holdings, which owns all the
outstanding capital stock of the Company. The following sets forth certain
information regarding the beneficial ownership of the membership interests of
AMM Holdings, LLC, which consist of Capital Units and Profit Units (each as
defined in the LLC Agreement and, together the "Units") as of October 31, 1998
by (i) each person who, to the knowledge of Holdings, beneficially owns more
than 5% of each of the outstanding Capital Units and the outstanding Profit
Units; (ii) the directors of Holdings; (iii) certain executive officers of
Holdings; and (iv) all directors and executive officers of Holdings as a group.
None of the Capital Units and the Profit Units are presently listed or traded on
any securities exchange or securities market. The principal business address of
Anchor Holdings is 1111 Northshore Drive, Suite N-600, Knoxville, Tennessee
37919-4048, and its telephone number is (423) 450-5300.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
NUMBER OF CAPITAL CAPITAL UNITS NUMBER OF PROFIT PROFIT UNITS
UNITS BENEFICIALLY BENEFICIALLY UNITS BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED
<S> <C> <C> <C> <C>
George T. Votis(1)........ 475 4.7% 1,075 10.8%
MPI(2).................... 7,564 75.6 6,934 69.3
Charles B. Schiele........ 2 0.02 250 2.5
Richard P. Fackler........ 600 6.0 600 6.0
Montero, Inc. ............ 1,355 13.5 531 5.3
Directors and Officers of
Holdings as a group (10
persons)................ 479 4.7 1,325 13.3
</TABLE>
- ------------------------------
(1) Subject to the provisions of Section 15 of the LLC Agreement ("Section 15")
(discussed below), under Section 11 of the LLC Agreement each Member (as
defined in the LLC Agreement) has agreed, at Mr. Votis' request, to
transfer, pursuant to a bona fide sale to a person or entity, other than Mr.
Votis or an Affiliate (as defined in the LLC Agreement) or member of the
immediate family of Mr. Votis, the same proportion of its holdings of each
class, series or type of interests in AMH Holdings, LLC as Mr. Votis
transfers of his holdings of each class, series or type of interests in AMM
Holdings, LLC in such transaction. Subject to the provisions of Section 15,
under Section 10 of the LLC Agreement, if Mr. Votis determines to transfer,
all or a portion of his interests in AMM Holdings, LLC, other than, among
other things, a transfer after which Mr. Votis will continue to hold
beneficially a majority of the outstanding Units, each Member has the right
to include in such transfer the same proportion of its holdings of each
class, series or type of interests in AMM Holdings, LLC as Mr. Votis
transfers of his holdings of each class, series or type of interests in AMM
Holdings, LLC in such transaction. Section 15 provides that, except as
provided in, inter alia, Sections 10 and 11 of the LLC Agreement, other than
Permitted Transfers (as defined in the LLC Agreement), no Member may sell,
assign, give, pledge, hypothecate, encumber or otherwise transfer,
including, without limitation, any assignment or transfer by operation of
law or by order of court, such Member's interest in AMM Holdings, LLC or any
part thereof, or in all or any part of the assets of AMM Holdings, LLC,
without the consent of the Manager (currently Mr. Votis), which consent may
be given or withheld in the Manager's sole discretion, and any purported
assignment without such consent shall be null and void and of no effect
whatsoever. As a result of the foregoing provisions of the LLC Agreement,
Mr. Votis may be deemed to beneficially own the Units owned by the other
Members. However, Mr. Votis disclaims beneficial ownership of such Units,
other than the Units owned by MPI.
(2) George T. Votis owns all the outstanding capital stock of MPI and,
therefore, beneficially owns all the Capital Units and Profit Units owned by
MPI.
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<PAGE> 67
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1997, Moll had a note receivable of $390,000 from an
individual with ownership interest in certain entities that were partners of
Moll. The note is payable in three equal annual installments beginning February
1, 1999 and bears interest at 9%.
Moll paid management fees to certain related companies which are limited in
amount under Moll's debt agreements. Management fee expense was approximately
$1,363,000, $1,346,000 and $1,553,000 for 1995, 1996 and 1997, respectively. Of
this amount, approximately $150,000 was recorded as an accrued liability at
December 31, 1997.
The Company leases land and buildings in Germany from an entity owned by
certain entities that were partners of Moll. The lease expires on August 7,
1998, contains three automatic one year extensions and accrues rent at a rate of
790,000 Deutsche Marks ($439,000 per year based on the December 31, 1997
exchange rate). The Company recognized rent expense of $176,000 in 1997, which
is included in accounts payable at December 31, 1997.
From time to time, the Company leases warehouse space from Jack C. Lail, a
former Director and Executive Vice President of Anchor, near its facilities in
Seagrove, North Carolina. The Company paid a total of $64,000 for such warehouse
space in 1997.
Immediately prior to the Merger, Moll distributed its 69% Class B limited
partnership interest in Reliance Products to certain of Moll's limited partners.
NationsBanc Montgomery Securities LLC is an affiliate of NationsBank, N.A.,
which is Agent and a lender to the Company under the Revolving Credit Facility.
As a lender under the Company's Revolving Credit Facility which was refinanced
in connection with the Transactions, NationsBank, N.A. received a portion of the
proceeds from the Offering. See "Plan of Distribution."
In connection with the acquisition by Mr. Votis of Anchor, Mr. Geoffrey A.
de Rohan was granted a discretionary bonus of $400,000 by the Company in April
1998, $150,000 of which was paid to Mr. de Rohan in April 1998 and the remainder
of which is expected to be paid over 12 months starting April 1998.
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<PAGE> 68
DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued pursuant to an Indenture (the "Indenture")
between the Company and State Street Bank and Trust Company, as trustee (the
"Trustee") copies of which are filed as exhibits to the Registration Statement
of which this Prospectus constitutes a part. The New Notes are identical in all
material respects to the terms of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes and except for
certain provisions providing for an increase in the interest rate on the Old
Notes under certain circumstances relating to the timing of the Exchange Offer.
See "-- Registration Rights; Liquidated Damages." The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof. The following is a summary
of the material provisions of the Indenture. Copies of the Indenture and
Registration Rights Agreement are available as set forth below under
"--Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions." For
purposes of this summary, the term "Company" refers only to Moll Industries,
Inc. and not to any of its Subsidiaries.
The Old Notes are, and the New Notes will be, general unsecured obligations
of the Company, the Old Notes rank and the New Notes will rank, subordinate in
right of payment to all Senior Debt and the Old Notes rank and the New Notes
will rank, senior or pari passu in right of payment to all existing and future
subordinated indebtedness of the Company. The Old Notes are, and the New Notes
will be, effectively subordinated to all liabilities, including trade payables,
of the Company's subsidiaries. As of October 3, 1998, the Notes were
subordinated to $123.5 million of Senior Debt and effectively subordinated to
$42.6 million of liabilities of the Company's subsidiaries (other than Senior
Debt). Subject to certain conditions at October 3, 1998, approximately $48.8
million of capacity was available for borrowing under the Revolving Credit
Facility. However, after giving effect to the most restrictive covenants
contained in the Company's loan documents, as of October 3, 1998, the maximum
amount of Senior Debt that could be incurred by the Company in addition to
$123.5 million of Senior Debt outstanding on such date was approximately $24
million.
Any Old Notes that remain outstanding after the consummation of the
Exchange Offer, together with the New Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. As of the date of the Indenture, all of the Company's subsidiaries are
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate current or future subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $200.0 million,
of which $130.0 million of Old Notes were issued in the Offering, and will
mature on July 1, 2008. Interest on the Notes will accrue at the rate of 10 1/2%
per annum and will be payable semi-annually in arrears on January 1 and July 1,
commencing on January 1, 1999, to Holders of record on the immediately preceding
December 15 and June 15. Additional Notes may be issued from time to time after
the Offering, subject to the provisions of the Indenture described below under
the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock." The Notes and any additional Notes subsequently issued under
the Indenture would be treated as a single class for all purposes under the
Indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. Interest on the Notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium and Liquidated Damages, if
any, and interest on the Notes will be payable at the office or agency of the
Company
65
<PAGE> 69
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided that all payments of principal, premium and
Liquidated Damages, if any, and interest with respect to Notes the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
SUBORDINATION
The payment of principal of, premium and Liquidated Damages, if any, and
interest on the Old Note are, and the New Notes will be, subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full of all
Senior Debt, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt whether or not such interest is allowed as a claim in
such proceeding) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, and until all Obligations with respect to
Senior Debt are paid in full, any distribution to which the Holders of Notes
would be entitled shall be made to the holders of Senior Debt (except that
Holders of Notes may receive and retain Permitted Junior Securities and payments
made from the trust described under "--Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(a "Payment Blockage") (except in Permitted Junior Securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on, or other
Obligation with respect to, Designated Senior Debt occurs and is continuing
beyond any applicable period of grace or (ii) any other default occurs and is
continuing with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the holders of any Designated Senior Debt. Payments on the Notes
may and shall be resumed (a) in the case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of Payment Blockage may be commenced unless and until
(i) 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, and interest on the Notes that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default. As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to July 1,
2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the applicable
66
<PAGE> 70
redemption date, if redeemed during the twelve-month period beginning on July 1
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003........................................................ 105.25%
2004........................................................ 103.50%
2005........................................................ 101.75%
2006 and thereafter......................................... 100.00%
</TABLE>
Notwithstanding the foregoing, at any time prior to July 1, 2001, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of Notes originally issued in the Offering at a redemption
price of 110.5% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net cash proceeds of one or more Public Equity Offerings; provided that at
least 65% of the original aggregate principal amount of Notes remains
outstanding immediately after the occurrence of each such redemption (excluding
Notes held by the Company and its subsidiaries); and provided, further, that
each such redemption shall occur within 90 days of the date of the closing of
such Public Equity Offering.
SELECTION AND NOTICE
If less than all the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 in principal amount or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). The Indenture provides that prior to the mailing
of the notice referred to below, but in any event within 90 days following a
Change of Control, the Company will covenant to either repay in full all
outstanding Senior Debt or obtain the requisite consents, if any, under the
agreements governing outstanding Senior Debt to permit the repurchase of Notes
as provided below. The Company shall first comply with the covenant in the
immediate preceding sentence before it shall be required to repurchase Notes
pursuant to the provisions described below. The Company's failure to comply with
this covenant shall constitute an Event of Default described in clause (iv) and
not in clause (iii) under "--Events of Default" below.
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Within 30 calendar days following any Change of Control, the Company will
mail a notice to each Holder stating: (i) that the Change of Control Offer is
being made pursuant to the covenant entitled "Change of Control" and that all
Notes tendered will be accepted for payment; (ii) the purchase price and the
purchase date, which will be no earlier than 30 calendar days nor later than 60
calendar days from the date such notice is mailed (the "Change of Control
Payment Date"); (iii) that any Note not tendered will continue to accrue
interest; (iv) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest after the Change of Control Payment
Date; (v) that Holders electing to have any Notes purchased pursuant to a Change
of Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing such Holder's election to have such Notes purchased; and (vii) that
Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction. Finally, the Company's ability to pay cash to the Holders
of Notes upon a repurchase may be limited by the Company's then existing
financial resources. See "Risk Factors--Limitations on Ability to Make Change of
Control Payment."
The Revolving Credit Facility prohibits the Company from purchasing any
Notes prior to repaying all borrowings under the Revolving Credit Facility, and
also provides that certain change of control events with respect to the Company
would constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consent of its lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the Revolving
Credit Facility. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the
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requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) (a)
any transaction (including a merger or consolidation) the result of which is
that any "person" or "group" (each within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the total voting
power of all Capital Stock of the Company, Holdings or a successor entity
normally entitled to vote in the election of directors, managers or trustees, as
applicable, calculated on a fully diluted basis, and (b) as a result of the
consummation of such transaction, any "person" or "group" (each as defined
above) becomes the "beneficial owner" (as defined above), directly or
indirectly, of more of the voting stock of the Company or Holdings than is at
the time "beneficially owned" (as defined above) by the Principals, or (ii) the
first day on which a majority of the members of the Board of Directors are not
Continuing Directors, or (iii) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole or Holdings and its Subsidiaries
taken as a whole, in each case, to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Principals or their Related
Parties. For purposes of this definition, any transfer of an Equity Interest of
an entity that was formed for the purpose of acquiring voting stock of the
Company or Holdings shall be deemed to be a transfer of such percentage of such
voting stock as corresponds to the percentage of the equity of such entity that
has been so transferred.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole or Holdings
and its Subsidiaries taken as a whole. Although there is a developing body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a Holder of Notes to require the Company to repurchase such Notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company and its Subsidiaries taken as a whole or
Holdings and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with the approval of either (a) a majority of the Continuing
Directors who were members of such Board of Directors at the time of such
nomination or election or (b) a majority in interest of the Principals. For
purposes of the foregoing, a "majority in interest of the Principals" shall mean
any group of Principals who beneficially own in the aggregate more than 50% of
the Capital Stock of Holdings held by all of the Principals.
"Principals" means Mr. George T. Votis and Mr. Anastasios Votis.
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) any trust
(including any related trustee), corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (i).
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee with respect to any Asset Sale
involving in excess of $1.0 million) of the assets or Equity Interests issued or
sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents; provided that the amount of (x) any liabilities (as
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shown on the Company's or such Restricted Subsidiary's most recent balance
sheet) of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes or
any guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or its Restricted Subsidiary, as the case may be, may apply such Net
Proceeds from such Asset Sale to permanently reduce Senior Debt either in
accordance with its terms, if applicable, or on terms more favorable to the
Company than such terms or, to the extent not required to be applied thereunder,
may, at its option, apply such Net Proceeds to repayment of Indebtedness of a
Restricted Subsidiary (in the case of Net Proceeds from an Asset Sale effected
by a Restricted Subsidiary) or to an investment in a Restricted Subsidiary or in
another business or capital expenditure or other long-term/tangible assets, in
each case, in the same or a similar line of business as the Company or any of
its Restricted Subsidiaries were engaged in on the date of the Indenture or in
businesses reasonably related thereto. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Indebtedness under the
Revolving Credit Facility or otherwise invest such Net Proceeds in any manner
that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that
are not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $5.0 million, the Company will be required to make an
offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of purchase, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or such Restricted Subsidiary or dividends or
distributions payable to the Company or any Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Affiliate of the Company that is not a
Subsidiary (other than any such Equity Interests owned by the Company or any
Wholly Owned Restricted Subsidiary of the Company); (iii) make any principal
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value prior to a scheduled mandatory sinking fund payment date or
final maturity date any Indebtedness that is pari passu with or subordinated to
the Notes (other than the Notes); or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
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(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clause (ii) of the next succeeding paragraph), is less than
the sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the first full fiscal quarter
after the date of the Indenture to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii) 100% of
the aggregate net cash proceeds received by the Company from the issue or
sale since the date of the Indenture of Equity Interests of the Company
(other than Disqualified Stock) or of Disqualified Stock or debt securities
of the Company that have been converted into such Equity Interests (other
than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Restricted Subsidiary of the Company and other than
Disqualified Stock or convertible debt securities that have been converted
into Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
or distribution within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the net cash proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of, other Equity Interests of the Company
(other than any Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (iii) the defeasance, redemption, repurchase or other
acquisition of pari passu or subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of Equity Interests of the Company (other than Disqualified Stock);
(iv) the purchase, redemption or other acquisition prior to the stated maturity
thereof of Indebtedness that is subordinated to the Notes in exchange for or out
of the net cash proceeds of a substantially concurrent issue and sale (other
than to the Company or any of its Restricted Subsidiaries) of new Indebtedness;
provided that (x) the principal amount of such new Indebtedness shall not exceed
the principal amount of Indebtedness so refinanced (plus the amount of such
reasonable expenses incurred in connection therewith), (y) such new Indebtedness
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced, and (z)
the new Indebtedness shall be subordinate in right of payment to the Notes; (v)
the repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of Holdings or the Company held by any member of Holdings' or
the Company's (or any of their Restricted Subsidiaries') management pursuant to
any management equity subscription agreement or stock option agreement or in
connection with the termination of employment of any employees or management of
Holdings or the Company or their Restricted Subsidiaries; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $2.0 million in the aggregate plus the
aggregate cash proceeds received by Holdings or the Company after the date of
the Indenture from any reissuance of Equity Interests by Holdings or the Company
to members of management of Holdings or the Company and their Restricted
Subsidiaries and no Default or Event of Default shall have occurred and be
continuing immediately after any such transaction; (vi) Investments received by
the Company and its Restricted Subsidiaries as non-cash consideration from Asset
Sales to the extent permitted by the covenant described under the caption
"--Repurchase at the Option of Holders--Asset Sales;" (vii) the payment of any
dividend or distribution by a Subsidiary of the Company to the holders of its
Common Equity
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Interests on a pro rata basis; (viii) payments to Holdings pursuant to the Tax
Sharing Agreement; (ix) the payment of any dividend or distribution by the
Company to Holdings in an aggregate amount not to exceed the Capital
Contribution, provided that the Capital Contribution shall be excluded from
clause (c)(ii) of the preceding paragraph, (x) other Restricted Payments not to
exceed $3.0 million in the aggregate, and (xi) distributions to the former
partners of Moll for tax liabilities of such partners for periods prior to the
date of the Indenture in an amount not to exceed the product of (A) the taxable
income of Moll for the related period and (B) the maximum combined federal,
state and local income tax rates applicable to a resident of New York City.
The amount of all Restricted Payments (other than cash or Cash Equivalents)
shall be the fair market value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) on the
date of the Restricted Payment of the asset(s) proposed to be transferred or
issued by the Company or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.0 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the Revolving Credit Facility; provided that the
aggregate principal amount of all revolving credit Indebtedness and letters
of credit of the Company and its Subsidiaries outstanding under all Credit
Facilities after giving effect to such incurrence (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company and its Subsidiaries thereunder) does not exceed
the greater of (x) $50.0 million or (y) the amount of the Borrowing Base as
of the date of such incurrence;
(ii) Guarantees of the Indebtedness under the Revolving Credit
Facility required by the Revolving Credit Facility and Guarantees permitted
under or required by the Indenture;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company of Indebtedness represented by (a)
the Notes and the Indenture and the incurrence by Restricted Subsidiaries
of Guarantees required or permitted to be incurred under the Indenture and
(b) the Senior Notes and the indenture governing the Senior Notes and the
incurrence by Restricted Subsidiaries of Guarantees required or permitted
to be incurred under such indenture;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Subsidiary, in an aggregate principal amount not to exceed $10.0 million at
any time outstanding;
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(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets
or a new Subsidiary; provided that such Indebtedness was incurred by the
prior owner of such assets or such Subsidiary prior to such acquisition by
the Company or one of its Restricted Subsidiaries and was not incurred in
connection with, or in contemplation of, such acquisition by the Company or
one of its Restricted Subsidiaries; and provided, further that the
principal amount (or accreted value, as applicable) of such Indebtedness,
together with any other outstanding Indebtedness incurred pursuant to this
clause (vi), does not exceed $5.0 million;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted by the Indenture to be incurred;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
(i) if the Company is the obligor on such Indebtedness, such Indebtedness
is expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of Revolving Credit Facility or
the Indenture to be outstanding; and
(x) the Guarantee by the Company of Indebtedness of a Restricted
Subsidiary of the Company that was permitted to be incurred by another
provision of this covenant.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories described in clauses (i) through (x) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
No Senior Subordinated Debt
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes provided, however, that no Indebtedness
of the Company shall be deemed to be contractually subordinated to any other
Indebtedness of the Company solely by virtue of being unsecured.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien (other than Permitted Liens) upon any of their
property or assets, now owned or hereafter acquired, unless all payments due
under the Indenture and the Notes are secured on an equal and ratable basis with
the obligations so secured until such time as such obligations are no longer
secured by a Lien.
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Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to: (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Revolving Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Revolving
Credit Facility as in effect on the date of the Indenture, (c) the Indenture and
the Notes, (d) applicable law, (e) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred; (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations or Capital Lease Obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, (h)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, (i) customary restrictions imposed on the transfer of
copyrighted or patented materials and customary provisions in agreements that
restrict the assignees of such agreements or any rights thereunder; (j)
restrictions with respect to a Subsidiary of the Company imposed pursuant to a
binding agreement which has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Subsidiary; or (k)
any restriction on the ability of the Company or any Restricted Subsidiary to
transfer any property or assets on account of a Permitted Lien.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (i) the Company is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
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above under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock." The Indenture also provides that the Company may not, directly or
indirectly, lease all or substantially all of its properties or assets, in one
or more related transactions, to any other Person. The provisions of this
covenant will not be applicable to a sale, assignment, transfer, conveyance or
other disposition of assets between or among the Company and its Wholly Owned
Subsidiaries.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to or enter into any
other transaction with, or for the benefit of, any Affiliate of the Company
(each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (v) any leases
relating to real property in Germany between the Company and any of the
Principals, as in effect on the date of the Indenture, (w) any employment
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (x) transactions between or among the
Company and/or its Restricted Subsidiaries, (y) investment banking and
management fees in an aggregate amount no greater than $200,000 per annum plus
reimbursement of expenses to be paid by the Company to Galt Industries, Inc. or
its successors and assigns, and (z) Restricted Payments that are permitted by
the provisions of the Indenture described above under the caption "--Restricted
Payments," in each case, shall not be deemed Affiliate Transactions.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of such
Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption "--Asset Sales," and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary of the Company.
Limitations on Guarantees of Company Indebtedness by Restricted Subsidiaries
The Indenture provides that in the event that any Restricted Subsidiary,
directly or indirectly, guarantees any Indebtedness of the Company other than
the Notes (the "Other Indebtedness"), the Company shall cause such Restricted
Subsidiary to deliver to the Trustee a supplemental indenture pursuant to which
such Restricted Subsidiary shall concurrently guarantee the Company's
Obligations under the Indenture and the Notes to the same extent that such
Restricted Subsidiary guaranteed the Company's Obligations under the Other
Indebtedness (including waiver of subrogation, if any) and such Additional
Guarantee shall be on the same terms and subject to the same conditions as the
initial Guarantee given by Holdings under the Indenture unless such Other
Indebtedness is Senior Debt, in which case the Guarantee of the Notes may be
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subordinated to the Guarantee of such Senior Debt to the same extent as the
Notes are subordinated to such Senior Debt. Each Additional Guarantee shall by
its terms provide that the Additional Guarantor making such Additional Guarantee
will be automatically and unconditionally released and discharged from its
obligations under such Additional Guarantee upon the release or discharge of the
guarantee of the Other Indebtedness that resulted in the creation of such
Additional Guarantee, except a discharge or release by, or as a result of, any
payment under the guarantee of such Other Indebtedness by such Additional
Guarantor.
Additional Guarantees
The Indenture provides that (i) if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, transfer or cause to be
transferred, including by way of any Investment, in one or a series of
transactions (whether or not related), any assets, businesses, divisions, real
property or equipment having an aggregate fair market value (as determined in
good faith by the Board of Directors) in excess of $1.0 million to any
Restricted Subsidiary that is not a Guarantor, (ii) if the Company or any of its
Restricted Subsidiaries shall acquire another Restricted Subsidiary having total
assets with a fair market value (as determined in good faith by the Board of
Directors) in excess of $1.0 million, or (iii) if any Restricted Subsidiary
shall incur Acquired Debt, then the Company shall, at the time of such transfer,
acquisition or incurrence, (i) cause such transferee, acquired Restricted
Subsidiary or Restricted Subsidiary incurring Acquired Debt (if not then a
Guarantor) to execute a Guarantee (which by its terms will be subordinated to
the Senior Debt of such Guarantor on the same basis as the Notes are
subordinated to Senior Debt of the Company) of the Obligations of the Company
under the Notes and the Indenture in the form set forth in the Indenture and
(ii) deliver to the Trustee an Opinion of Counsel, in form reasonably
satisfactory to the Trustee, that such Guarantee is a valid, binding and
enforceable obligation of such transferee, acquired Restricted Subsidiary or
Restricted Subsidiary incurring Acquired Debt, subject to customary exceptions
for bankruptcy and equitable principles. Notwithstanding the foregoing, the
Company or any of its Restricted Subsidiaries may make a Restricted Investment
in any Wholly Owned Restricted Subsidiary of the Company without compliance with
this covenant provided that such Restricted Investment is permitted by the
covenant described under the caption, "Restricted Payments."
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Company to comply with the provisions
described under the captions "--Change of Control," "--Asset Sales,"
"--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock" (whether or not prohibited by the subordination provisions of
the Indenture); (iv) failure by the Company for 60 days after notice to comply
with any of its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or
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evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, if such (a) default
results in the acceleration of such Indebtedness prior to its express maturity
or shall constitute a default in the payment of such Indebtedness at final
maturity of such Indebtedness, and (b) the principal amount of any such
Indebtedness that has been accelerated or not paid at maturity, when added to
the aggregate principal amount of all other Indebtedness that has been
accelerated or not paid at maturity, exceeds $5.0 million; (vi) failure by the
Company or any of its Restricted Subsidiaries to pay final judgments aggregating
in excess of $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Restricted Subsidiaries; and (viii) except
as permitted by the Indenture, if any Note Guarantee is issued by a Restricted
Subsidiary, such Note Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor or any Person acting on behalf of any Guarantor shall
deny or disaffirm its obligations under its Note Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, that so long
as any Indebtedness permitted to be incurred pursuant to the Revolving Credit
Facility shall be outstanding, such acceleration shall not be effective until
the earlier of (i) an acceleration of any such Indebtedness under the Revolving
Credit Facility or (ii) five business days after receipt by the Company of
written notice of such acceleration. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to the Company or any Restricted Subsidiary that is a Significant
Subsidiary, the principal of, and premium and Liquidated Damages, if any, and
any accrued and unpaid interest on all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. In the event of
a declaration of acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (v) of the preceding paragraph, the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
Indebtedness described in clause (v) have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration and if (a) the annulment of the acceleration of the Notes would not
conflict with any judgment or decree of a court of competent jurisdiction, and
(b) all existing Events of Default, except nonpayment of principal or interest
on the Notes that became due solely because of the acceleration of the Notes,
have been cured or waived.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to July
1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, premium, if any, or interest on the Notes.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws, and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Cash
Equivalents, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
con-firming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party
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or by which the Company or any of its Subsidiaries is bound; (vi) the Company
must have delivered to the Trustee an opinion of counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company must deliver to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents, and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"), or (viii) make any change in
the foregoing amendment and waiver provisions. In addition, (a) any amendment to
the provisions of Article 10 of the Indenture (which relate to subordination)
will require the consent of the Holders of at least 75% in aggregate principal
amount of the Notes then outstanding if such amendment would adversely affect
the rights of Holders of Notes, and (b) any amendment to the provisions of
Article 10 of the Indenture or to a requirement that no legal defeasance or
covenant defeasant shall be permitted that would constitute a default under any
material agreement shall not be permitted without the consent of the holders of
the Designated Senior Debt.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make
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any change that would provide any additional rights or benefits to the Holders
of Notes (including providing for additional Note Guarantees pursuant to the
covenant entitled "Limitations on Guarantees of Company Indebtedness by
Restricted Subsidiaries" and "Additional Guarantees") or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company or any Affiliate of the Company, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Moll Industries, Inc., 1111 Northshore Drive, Suite
N-600, Knoxville, Tennessee 37919, Attention: Chief Financial Officer.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form
of one or more registered Notes in global form without coupons (each a "Global
Note"). Each Global Note will be deposited with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC, or will remain in the
custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve System, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participation (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with an interest in the Global Note and
(ii) ownership of the Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interest of Participants), the Participants and the Indirect
Participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interest in negotiable instruments can
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only be perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes or to pledge the Notes as collateral
will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities (the "Certificated Securities"), and will
not be considered the owners or Holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant would authorize holders owning through such Participants to take
such action or would otherwise act upon the instruction of such holders. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such Notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of interest in the Global Note (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of DTC. Payments by the Participants and the Indirect Participants to
the beneficial owners of interests in the Global Note will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
Certificated Securities
If (i) DTC notifies the Company in writing that it is no longer willing or
able to act as a depository or DTC ceases to be registered as a clearing agency
under the Exchange Act and the Company is unable to locate a qualified successor
within 90 days, (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Notes in definitive form under the
Indenture or (iii) upon the occurrence of certain other events, then, upon
surrender by DTC of its Global Notes, Certificated Securities will be issued to
each person that DTC identifies as the beneficial owner of the Notes represented
by the Global Notes. Upon any such issuance, the Trustee is required to register
such Certificated Securities in the name of such person or persons (or the
nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
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Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The Company expects that secondary
trading in the Certificated Notes will also be settled in immediately available
funds.
Registration Rights; Liquidated Damages
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on the Closing Date. In the Registration Rights Agreement, the Company
has agreed to file the Exchange Offer Registration Statement with the Commission
within 45 days of the Closing Date, and use its best efforts to have it declared
effective at the earliest possible time. The Company has also agreed to use its
best efforts to cause the Exchange Offer Registration Statement to be effective
continuously, to keep the Exchange Offer open for a period of not less than 20
business days and cause the Exchange Offer to be consummated no later than the
30th business day after it is declared effective by the Commission. Pursuant to
the Exchange Offer, certain Holders of Notes which constitute Transfer
Restricted Securities (as defined below) may exchange their Transfer Restricted
Securities for registered Exchange Notes. To participate in the Exchange Offer,
each Holder must represent that it is not an affiliate of the Company, it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Notes that are issued in the Exchange Offer, and that it is acquiring the
Exchange Notes in the Exchange Offer in its ordinary course of business.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Notes which are Transfer Restricted Securities
notifies the Company prior to the 20th business day following the consummation
of the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer, (b) it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus, and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by it, or (c) it is a
broker-dealer and holds Notes acquired directly from the Company or any of the
Company's affiliates, the Company will file with the Commission a Shelf
Registration Statement to register for public resale the Transfer Restricted
Securities held by any such Holder who provide, the Company with certain
information for inclusion in the Shelf Registration Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each (A) Note, until the earliest to occur of (i) the date on
which such Note is exchanged in the Exchange Offer for an Exchange Note which is
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Securities Act, (ii) the date on
which such Note has been disposed of in accordance with a Shelf Registration
Statement (and purchasers thereof have been issued Exchange Notes) or (iii) the
date on which such Note is distributed to the public pursuant to Rule 144 under
the Securities Act and each (B) Exchange Note held by a Broker Dealer until the
date on which such Exchange Note is disposed of by a Broker Dealer pursuant to
the "Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including the delivery of the Prospectus contained therein).
The Registration Rights Agreement provides that (i) if the Company fails to
file an Exchange Offer Registration Statement with the Commission on or prior to
the 45th day after the Closing Date, (ii) if the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior to the 180th
day after the Closing Date, (iii) if the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement is
declared effective (iv) if obligated to file the Shelf Registration Statement
and the Company fails to file the Shelf Registration Statement with the
Commission on or prior to the 60th day after such filing obligation arises, (v)
if obligated to file a Shelf Registration
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Statement and the Shelf Registration Statement is not declared effective on or
prior to the 90th day after the obligation to file a Shelf Registration
Statement arises, or (vi) if the Exchange Offer Registration Statement or the
Shelf Registration Statement, as the case may be, is declared effective but
thereafter ceases to be effective or useable in connection with resales of the
Transfer Restricted Securities, for such time of non-effectiveness or
non-usability (each such event being a Registration Default), the Company agrees
to pay to each Holder of Transfer Restricted Securities affected thereby
Liquidated Damages in an amount equal to $0.05 per week per $1,000 in principal
amount of Transfer Restricted Securities held by such Holder for each week or
portion thereof that the Registration Default continues for the first 90 day
period immediately following the occurrence of such Registration Default. The
amount of the Liquidated Damages shall increase by an additional $0.05 per week
per $1,000 in principal amount of Transfer Restricted Securities with respect to
each subsequent 90 day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages of $0.50 per week per $1,000 in
principal amount of Transfer Restricted Securities. The Company shall not be
required to pay Liquidated Damages for more than one Registration Default at any
given time. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
All accrued Liquidated Damages shall be paid by the Company to Holders
entitled thereto by wire transfer to the accounts specified by them or by
mailing checks to their registered address if no such accounts have been
specified
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Guarantee" means any guarantee of the Company's obligations
under the Indenture and the Notes issued after the Issue Date as described in
"--Certain Covenants--Limitations on Guarantees of Company Indebtedness by
Restricted Subsidiaries" and "--Certain Covenants--Additional Guarantees."
"Additional Guarantor" means any Subsidiary of the Company that guarantees
the Company's obligations under the Indenture and the Notes issued after the
Issue Date as described in "--Certain Covenants--Limitations on Guarantees of
Company Indebtedness by Restricted Subsidiaries" and "--Certain
Covenants--Additional Guarantees."
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control'
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause (i)
or (ii), whether in a
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single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii)
an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, and (iii) a Restricted
Payment that is permitted by the covenant described above under the caption
"--Restricted Payments" will not be deemed to be Asset Sales.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and its
Restricted Subsidiaries as of such date that are not more than 90 days past due,
plus (b) 50% of the book value of all inventory (excluding work in progress)
owned by the Company and its Restricted Subsidiaries as of such date, plus (c)
25% of the book value of all inventory owned by the Company and its Restricted
Subsidiaries as of such date that is work in progress, all calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable or inventory or trade
payables as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Borrowing Base.
"Business Day" means any day that is not a Legal Holiday.
"Capital Contribution" means the contribution (including the purchase of
Capital Stock that is not Disqualified Stock) by Holdings to the Company of up
to all of the gross proceeds from the sale by Holdings of its 13 1/2% Senior
Discount Notes due 2009.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of
"B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation, a division of the McGraw-Hill Companies, Inc., and in each case
maturing within six months after the date of acquisition.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to
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the extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period and deferred finance charges) and other non-cash
charges of such Person and its Restricted Subsidiaries for such period
(excluding any such non-cash charges to the extent that it represents an accrual
of or reserve for cash charges in any future period or amortization of a prepaid
cash charges that was paid in a prior period) to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income. Notwithstanding the foregoing, the provision for
taxes on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to the Company by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Restricted Subsidiary
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
Company or any of its Wholly Owned Restricted Subsidiaries, (ii) the Net Income
of any Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (y) all investments as of such date in unconsolidated Restricted
Subsidiaries and in Persons that are not Restricted Subsidiaries (except, in
each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Revolving Credit Facility) or
commercial paper facilities, in each case with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Revolving Credit Facility and (ii) after the Revolving Credit Facility has been
terminated, any other Senior Debt permitted under the
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Indenture the principal amount of which is $25 million or more and that has been
designated by the Company in writing to the Trustee as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Existing Indebtedness" means up to $21.7 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Revolving Credit Facility) in existence on the date of
the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
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"GAAP" means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each Subsidiary of the Company, if any, that executes a
Guarantee of the obligations of the Company under the Indenture and the Notes in
accordance with the covenants described under the captions "--Certain
Covenants--Limitations on Guarantees of Company Indebtedness by Restricted
Subsidiaries" and "--Certain Covenants--Additional Guarantees," and their
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holdings" means AMM Holdings, Inc., a Delaware corporation, and any
successor thereto.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness. Indebtedness shall include interest accruing after the filing of
any bankruptcy petition whether or not the claim for such interest is admitted
as a claim after such filing in such proceeding.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Restricted Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not sold
or disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Restricted Payments."
"Legal Holiday" means a Saturday, a Sunday or a day on which commercial
banks in the City of New York or at a place of payment are authorized or
required by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means the additional amounts (if any) payable by the
Company in the event of a Registration Default under, and as defined in, the
Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Revolving Credit Facility) secured by a Lien
on the asset or assets that were the subject of such Asset Sale and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender, and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities (including any
amounts payable in respect of obligations to register securities of the Company
under the Securities Act) payable under the documentation governing any
Indebtedness.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer, or the principal
accounting officer of the Company, that meets the requirements of the Indenture.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of the Indenture. The
counsel may be an employee of or counsel to the Company (or any Guarantor, if
applicable), any Subsidiary of the Company or the Trustee.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company that is engaged in the same or a similar
line of business as the Company and its Restricted Subsidiaries were engaged in
on the date of the Indenture; (b) any Investment in Cash Equivalents; (c) any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company that is engaged in the same or a similar line of
business as the Company and its Subsidiaries were engaged in on the date of the
Indenture or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all
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of its assets to, or is liquidated into, the Company or a Restricted Subsidiary
of the Company that is engaged in the same or a similar line of business as the
Company and its Restricted Subsidiaries were engaged in on the date of the
Indenture; (d) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales"; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; and (f) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (f) that are at the time
outstanding, not to exceed $5.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt pursuant to
Article 10 of the Indenture.
"Permitted Liens" means
(i) any Lien existing on property of the Company or any Subsidiary on
the date of the Indenture securing Indebtedness outstanding on such date;
(ii) any Lien securing obligations under Senior Debt and any Guarantee
thereof, which obligations or Guarantee are permitted by the terms of the
Indenture to be incurred and outstanding;
(iii) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or which are
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP are being maintained;
(iv) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of
business which are not delinquent or which are being contested in good
faith and by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto;
(v) Liens (other than any Lien imposed by ERISA) consisting of pledges
or deposits required in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security
legislation;
(vi) Liens on property of the Company or any Subsidiary securing (a)
the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases and statutory obligations, (b) surety bonds
(excluding appeal bonds and bonds posted in connection with court
proceedings or judgments) and (c) other non-delinquent obligations of a
like nature, including pledges or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security legislation, in each case, incurred in
the ordinary course of business;
(vii) Liens consisting of judgment or judicial attachment Liens and
Liens securing contingent obligations on appeal bonds and other bonds
posted in connection with court proceedings or judgments; provided that the
enforcement of such Liens is effectively stayed and all such Liens in the
aggregate at any time outstanding for the Company and its Subsidiaries do
not exceed $3.0 million;
(viii) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the businesses of the Company and
its Subsidiaries taken as a whole;
(ix) purchase money security interests on any property acquired by the
Company or any Subsidiary in the ordinary course of business, securing
Indebtedness incurred or assumed for the purpose of financing all or any
part of the cost of acquiring such property; provided that (a) any such
Lien attaches to such property concurrently with or within 90 days after
the acquisition thereof, (b) such Lien attaches solely to
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the property so acquired in such transaction, (c) the principal amount of
the Indebtedness secured thereby does not exceed 100% of the cost of such
property and (d) the principal amount of the Indebtedness secured by all
such purchase money security interests shall not at any time exceed $5.0
million;
(x) Liens securing obligations in respect of Capital Lease Obligations
on assets subject to such leases, provided that such Capital Lease
Obligations are otherwise permitted hereunder;
(xi) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights
and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; provided that (a) such deposit account is
not a dedicated cash collateral account and is not subject to restrictions
against access by the Company in excess of those set forth by regulations
promulgated by the Federal Reserve Board, and (b) such deposit account is
not intended by the Company or any Subsidiary to provide collateral to the
depository institution;
(xii) Liens in favor of the Company or any Wholly Owned Restricted
Subsidiary;
(xiii) Liens on property of a Person existing at the time such Person
becomes a Restricted Subsidiary or such Person is merged into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of
such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with the Company;
(xiv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company; provided that such
Liens were in existence prior to the contemplation of such acquisition;
(xv) extensions, renewals and replacements of Liens referred to in
clauses (i) through (xiv) above; provided that any such extension, renewal
or replacement Lien is limited to the property or assets covered by the
Lien extended, renewed or replaced and does not secure any Indebtedness in
addition to that secured immediately prior to such extension, renewal or
replacement; and
(xvi) Liens securing other Indebtedness of the Company and its
Subsidiaries not expressly permitted by clauses (i) through (xv) above;
provided that the aggregate amount of the Indebtedness secured by Liens
permitted pursuant to this clause (xvi) does not exceed $3.0 million in the
aggregate and provided, further, that such Indebtedness was permitted to be
incurred by the terms of the Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness outstanding or available to be borrowed of the Company or any of
its Restricted Subsidiaries; provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness outstanding or available to be borrowed so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness outstanding or
available to be borrowed being extended, refinanced, renewed, replaced, defeased
or refunded; (iii) if the Indebtedness outstanding or available to be borrowed
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness outstanding or available to be borrowed being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness outstanding or available to be borrowed
being extended, refinanced, renewed, replaced, defeased or refunded.
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"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of (i) the Company or (ii) Holdings, to the extent the
net proceeds thereof are contributed to the Company as a capital contribution to
capital stock, in each case, resulting in cash proceeds to the Company of at
least $25 million.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any subsidiary of the Company on the date of
this Indenture that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means the credit facility among the Company,
Anchor Holdings, the lenders party thereto in their capacities as lenders
thereunder and NationsBank, N.A., as agent, together with the related documents
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by the covenant described under "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock") all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Senior Debt" means (i) all Indebtedness outstanding under the Revolving
Credit Facility and all Hedging Obligations with respect thereto, (ii) any other
Indebtedness permitted to be incurred by the Company or any Restricted
Subsidiary under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes or any Guarantee of the Notes by a
Restricted Subsidiary and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (w) any liability for federal, state, local or other taxes owed or owing
by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries
or other Affiliates, (y) any trade payables or (z) any Indebtedness that is
incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary of the
Company than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
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foregoing conditions and was permitted by the covenant described under the
caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," and (ii) no Default or Event of Default would be in
existence following such designation.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Sharing Agreement" means any tax allocation agreement between the
Company or any of its Restricted Subsidiaries with the Company or any direct or
indirect shareholder of the Company with respect to consolidated or combined tax
returns including the Company or any of its Restricted Subsidiaries, but, in
each case, only to the extent that amounts payable from time to time by the
Company or any such Restricted Subsidiary under any such agreement do not exceed
the corresponding tax payments that the Company or such Restricted Subsidiary
would have been required to make to any relevant taxing authority had the
Company or such Restricted Subsidiary not joined in such consolidated or
combined returns, but instead had filed returns including only the Company and
its Restricted Subsidiaries.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such
Person.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of certain indebtedness of the Company is subject to
and qualified in its entirety by reference to the detailed provisions of the
agreements and instruments to which the summary relates. Copies of such
agreements and instruments are available upon request.
SENIOR NOTES
On March 27,1997, Anchor issued $100 million principal amount of 11 3/4%
Senior Notes due 2004 (the "Original Senior Notes") pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. Anchor consummated an
exchange offer registered under the Securities Act to exchange the Original
Senior Notes for the Senior Notes, which have terms substantially identical in
all material respects to the Original Senior Notes. Interest is payable
semiannually on each April 1 and October 1. Immediately after the consummation
of the Merger, the Senior Notes have become unsecured obligations of the Company
senior to all subordinated debt of the Company and rank pari passu with all
other existing and future senior debt of the Company and mature on April 1,
2004. The Senior Notes are guaranteed on a senior basis (the "Senior Note
Guarantee") by Anchor Holdings (the "Senior Notes Guarantor"). The Senior Note
Guarantee is an unconditional obligation of the Senior Notes Guarantor. Pursuant
to the Senior Notes Indenture, the Senior Notes have also been guaranteed by
certain Restricted Subsidiaries (as defined in the Senior Notes Indenture) of
the Company. Such guarantees are unconditional obligations of such Restricted
Subsidiaries.
The Senior Notes may be redeemed at the option of the Company in whole or
in part at any time on or after April 1, 2001 in cash at the redemption prices
set forth in the Senior Notes Indenture, plus accrued and unpaid interest and
Liquidated Damages (as defined in the Senior Notes Indenture), if any, thereon
to the date of redemption. In addition, at any time prior to April 1, 2000, the
Company may on any one or more occasions redeem up to 35% of the initially
outstanding aggregate principal amount of the Senior Notes at a redemption price
equal to 110.75% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net proceeds of one or more Public Equity Offerings (as defined in the
Senior Notes Indenture); provided that, in each case, at least 65% of the
initially outstanding aggregate principal amount of the Senior Notes remains
outstanding immediately after the occurrence of any such redemption.
The Senior Notes Indenture contains various restrictive covenants that
limit, among other things, the ability of the Company to: (i) pay dividends,
redeem capital stock or make certain other restricted payments or investments,
(ii) incur additional indebtedness or issue preferred equity interests, (iii)
merge, consolidate or sell all or substantially all of its assets, (iv) create
liens on assets and (v) enter into certain transactions with affiliates or
related persons.
Events of default under the Senior Notes Indenture include, among other
things, (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Senior Notes; (iii) failure by the Company to comply with the
covenants contained in the Senior Notes Indenture, subject in certain instances
to grace periods; (iv) failure by the Company or the Senior Notes Guarantor for
60 days after notice to comply with any of its other agreements in the Senior
Notes Indenture, the Senior Notes or the Senior Note Guarantee; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness (as defined in the
Senior Notes Indenture) for money borrowed by the Company or any of its
Restricted Subsidiaries (as defined in the Senior Notes Indenture) (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Senior Notes Indenture, if such (a) default results in the
acceleration of such Indebtedness prior to its express maturity or shall
constitute a default in the payment of such Indebtedness at final maturity of
such Indebtedness, and (b) the principal amount of any such Indebtedness that
has been accelerated or not paid at maturity, when added to the aggregate
principal amount of all other Indebtedness that has been accelerated or not paid
at maturity, exceeds $5.0 million; (vi) failure by the Company or any of its
Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are
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not paid, discharged or stayed for a period of 60 days; (vii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries; and (viii) except as permitted by the Senior Notes Indenture, any
Senior Note Guarantee issued by a Senior Notes Guarantor shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Senior Notes Guarantor or any Person
acting on behalf of any Senior Notes Guarantor shall deny or disaffirm its
obligations under its Senior Note Guarantee.
CONNECTICUT NOTES AND GRANT
The Company has issued a series of notes (the "Connecticut Notes") to the
Connecticut Development Authority in the aggregate principal amount of $605,000.
Each such note has a maturity of six years and bears interest at a rate of 5%
per annum. The Company has also received a grant of $1,000,000 from the State of
Connecticut, Department of Economic Development. Such grant is subject to
certain requirements, among other things, that the Company: (i) retain
operations in Connecticut for no less than 10 years and (ii) fund at least 50%
of the entire project. Failure to meet these conditions would require immediate
repayment of all amounts advanced to the Company ($1,479,928 as of December 31,
1997) and further, such failure would constitute an event of default under the
Connecticut Notes.
REVOLVING CREDIT FACILITY
General. Concurrently with the Offering, the Company amended its then
existing credit facility (as amended, the "Revolving Credit Facility") with
NationsBank, N.A., as Agent and sole lender. The Revolving Credit Facility
provides for revolving loans to the Company in an aggregate amount not to exceed
$50.0 million, with a $10.0 million sublimit for the issuance of standby and
commercial letters of credit and a $20.0 million sublimit for the making of
foreign currency loans. It is anticipated that the Revolving Credit Facility
will be syndicated.
Availability. Borrowings under the Revolving Credit Facility are subject
to a borrowing base equal to the sum of (a) 85% of "eligible receivables", (b)
50% of "eligible inventory" which is not work-in-process inventory and (c) the
lesser of $5,000,000 and 25% of "eligible inventory" which is work-in-process
inventory (as such terms are defined in the Revolving Credit Facility), where
such inventory is valued at the lesser of book value or fair market value.
Security. The Revolving Credit Facility is secured by (i) a first priority
perfected security interest in (a) 100% of the equity interests in all domestic
subsidiaries of the Company, (b) in the event that any foreign subsidiary of the
Company which is a direct foreign subsidiary of the Company or any of its
domestic subsidiaries shall have 5% or more of consolidated total assets or
consolidated EBITDA, 65% of the equity interests in such foreign subsidiary, and
(c) all of the inventory, trademarks, trademark licenses, accounts receivable,
cash and cash equivalents maintained on deposit with the Agent and books and
records relating to the foregoing, of the Company and its domestic subsidiaries,
which assets shall not be subject to any other lien or encumbrance, except for
liens permitted under the Revolving Credit Facility, and (ii) a negative pledge
(subject to certain carve-outs) upon all other present and future assets and
properties of the Company and all of the domestic and foreign subsidiaries of
the Company (including, without limitation, accounts receivable, inventory, real
property, machinery, equipment, contracts, trademarks, copyrights, patents,
license agreements, and general intangibles).
The foregoing security shall ratably secure the Revolving Credit Facility
and any interest rate swap/foreign currency swap or similar agreements with a
lender (or any affiliate of a lender) under the Revolving Credit Facility.
Guarantees. Anchor Holdings has guaranteed the Company's obligations under
the Revolving Credit Facility. Additionally, in the event that any person
becomes Designated Subsidiary (defined in the Revolving Credit Facility as, at
any time, any direct or indirect subsidiary of the Company having at such time
any outstanding guarantee obligations in respect to any Funded Indebtedness (as
defined in the Revolving Credit Facility) of the Company other than the
indebtedness arising under the Senior Notes Indenture and the Senior Notes) of
the Company, the Company shall cause such person to execute a Joinder Agreement
(as
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defined in the Revolving Credit Facility) by which such person shall be deemed
to be a party to the Revolving Credit Facility, and shall have all of the
obligations of a Guarantor (as defined in the Revolving Credit Facility),
provided, however, if such Designated Subsidiary is a foreign subsidiary of the
Company, such Joinder Agreement shall provide that the obligations of such
person under the Revolving Credit Facility shall be limited to the extent
necessary to cause such obligations to be in compliance with the laws of such
person's jurisdiction of incorporation.
Maturity. The Revolving Credit Facility will mature on June 30, 2003.
Interest Rate. The Revolving Credit Facility bears interest at a rate
equal to IBOR plus an applicable margin, which initially is 200 basis points or
the Base Rate (defined as the higher of (i) the prime rate of NationsBank, N.A.
and (ii) the Federal Funds rate plus 1/2%) plus an applicable margin, which
initially is 100 basis points. The Company may select interest periods of one,
two, three or six months for IBOR loans, subject to availability. A penalty rate
shall apply on all loans in the event of default at a rate per annum of 2% above
the applicable interest rate.
Covenants. The Revolving Credit Facility contains covenants customary for
working capital financings, including, without limitation: (i) restrictions on
capital expenditures, incurrence of additional indebtedness, dividends and
redemptions; and (ii) restrictions on mergers, acquisitions and sales of assets.
Additionally, the Revolving Credit Facility contains the following three
financial covenants:
(a) the Interest Coverage Ratio (EBITDA to cash interest expense), as
of the last day of each fiscal quarter of the Consolidated Parties (being
Anchor Holdings and its subsidiaries) calculated on a twelve month rolling
basis, shall be greater than or equal to (i) for the period from June 26,
1998 to and including the next to last day of the fiscal quarter of the
Company ending in December, 2000, 2.00 to 1.00, (ii) for the period from
the last day of the fiscal quarter of the Company ending in December, 2000
to and including the next to last day of the fiscal quarter of the Company
ending in December, 2001, 2.15 to 1.00, and (iii) for the period from the
last day of the fiscal quarter of the Company ending in December, 2001 and
at all times thereafter, 2.50 to 1.00;
(b) the Leverage Ratio (funded indebtedness net of cash and cash
equivalents to EBITDA), as of the last day of each fiscal quarter of the
Consolidated Parties, shall be less than or equal to (i) for the period
from June 26, 1998 to and including the next to last day of the fiscal
quarter of the Company ending in December, 1998, 4.75 to 1.00, (ii) for the
period from the last day of the fiscal quarter of the Company ending in
December, 1998 to and including the next to last day of the fiscal quarter
of the Company ending in December, 2000, 4.50 to 1.00, and (iii) for the
period from the last day of the fiscal quarter of the Company ending in
December, 2000 and at all times thereafter, 4.00 to 1.00; and
(c) at all times Consolidated Net Worth (Deficit) (shareholders'
equity or net worth) shall be greater than or equal to the sum of
($6,000,000), increased on a cumulative basis by an amount equal to (i) as
of the end of each fiscal quarter of the Company, commencing with the
fiscal quarter of the Company ending in September, 1998, 50% of
Consolidated Net Income (as defined in the Revolving Credit Facility) (to
the extent positive) for the fiscal quarter then ended and (ii) as of the
date of any Equity Issuance (as defined in the Revolving Credit Facility),
100% of the Net Proceeds (as defined in the Senior Note Indenture and the
Indenture) of any Equity Issuance.
Events of Default. The Revolving Credit Facility contains events of
default customary for working capital facilities, including, without limitation:
(i) non payment of principal, interest, fees or other amounts, (ii) violation of
covenants, and (iii) inaccuracy of representations and warranties.
95
<PAGE> 99
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal income tax
consequences relevant to the purchase, ownership, and disposition of Notes by an
initial purchaser of Notes that, for United States Federal income tax purposes,
is not a "United States person" as defined below (a "Non-U.S. Holder"). This
summary is based upon existing United States Federal income tax law, which is
subject to change, possibly retroactively. This summary does not discuss all
aspects of United States Federal income taxation which may be important to
particular Non-U.S. Holders in light of their individual investment
circumstances, such as Notes held by investors subject to special tax rules
(e.g., financial institutions, insurance companies, broker-dealers, and tax-
exempt organizations) or to persons that will hold the Notes as a part of a
straddle, hedge, or synthetic security transaction for United States Federal
income tax purposes or that have a functional currency other than the United
States dollar, all of whom may be subject to tax rules that differ significantly
from those summarized below. In addition, this summary does not discuss any
foreign, state, or local tax considerations. This summary assumes that investors
will hold their Notes as "capital assets" (generally, property held for
investment) under the United States Internal Revenue Code of 1986, as amended
(the "Code"). Prospective investors are urged to consult their tax advisors
regarding the United States Federal, state, local, and foreign income and other
tax considerations of the purchase, ownership, and disposition of the Notes.
For purposes of this summary, a "United States person" is (i) an individual
who is a citizen or resident of the United States, (ii) a corporation,
partnership, or other entity created or organized under the laws of the United
States or any state or political subdivision thereof, (iii) an estate that is
subject to United States Federal income taxation without regard to the source of
its income, or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions of the
trust.
PAYMENTS OF INTEREST
Interest paid by the Company to Non-U.S. Holders will not be subject to
United States Federal income or withholding tax if the requirements of section
871(h) or 881(c) of the Code are satisfied as described below under the heading
"Owners Statement Requirement," and provided that (i) such holder does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote, and (ii) such holder is
not a controlled foreign corporation that is related to the Company through
stock ownership, a foreign tax-exempt organization or foreign private foundation
for United States Federal income tax purposes. Notwithstanding the above, a
Non-U.S. Holder that is engaged in the conduct of a United States trade or
business will be subject to (i) United States Federal income tax on interest
that is effectively connected with the conduct of such trade or business and
(ii) if the Non-U.S. Holder is a corporation, a United States branch profits tax
equal to 30% of its "effectively connected earnings and profits" as adjusted for
the taxable year, unless the holder qualifies for an exemption from such tax or
a lower tax rate under an applicable treaty.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to United States Federal
income tax on gain recognized on a sale, redemption, or other disposition of a
Note unless (i) the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder or (ii) in the case of
a Non-U.S. Holder who is a nonresident alien individual, such holder is present
in the United States for 183 or more days during the taxable year and certain
other requirements are met. Any such gain that is effectively connected with the
conduct of a United States trade or business by a Non-U.S. Holder will be
subject to United States Federal income tax on a net income basis in the same
manner as if such holder were a United States person and, if such Non-U.S.
Holder is a corporation, such gain may also be subject to the 30% United States
branch profits tax described above.
96
<PAGE> 100
FEDERAL ESTATE TAXES
A Note held by an individual who at the time of death is not a citizen or
resident of the United States will not be subject to United States Federal
estate tax as a result of such individual's death, provided that (i) the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
and (ii) the interest accrued on the Note was not effectively connected with the
conduct of a United States trade or business.
OWNER'S STATEMENT REQUIREMENT
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a Note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution") and that holds a Note on behalf of such
owner file a statement with the Company or its agent to the effect that the
beneficial owner is not a United States person in order to avoid withholding of
United States Federal income tax. Under current regulations, this requirement
will be satisfied if the Company or its agent receives (i) a statement (an
"Owner's Statement") from the beneficial owner of a Note in which such owner
certifies, under penalties of perjury, that such owner is not a United States
person and provides such owner's name and address or (ii) a statement from the
Financial Institution holding the Note on behalf of the beneficial owner in
which the Financial Institution certifies, under penalties of perjury, that it
has received the Owner's Statement together with a copy of the Owner's
Statement. The beneficial owner must inform the Company or its agent (or, in the
case of a statement described in clause (ii) of the immediately preceding
sentence, the Financial Institution) within 30 days of any change in information
on the Owner's Statement. The foregoing certifications may be made on Internal
Revenue Service Form W-8.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Current United States Federal income tax law provides that in the case of
payments of interest to Non-U.S. Holders, the 31% backup withholding tax will
not apply to payments made outside the United States by the Company or a paying
agent on a Note if an Owner's Statement is received or an exemption has
otherwise been established; provided in each case that the Company or the paying
agent, as the case may be, does not have actual knowledge that the payee is a
United States person.
Under current Treasury Regulations, payments of the proceeds of the sale of
a Note to or through a foreign office of a "broker" will not be subject to
backup withholding but will be subject to information reporting if the broker is
a United States person, a controlled foreign corporation for United States
Federal income tax purposes, or a foreign person 50% or more of whose gross
income is from a United States trade or business for a specified three-year
period, unless the broker has in its records documentary evidence that the
holder is not a United States person and certain conditions are met or the
holder otherwise establishes an exemption. Payment of the proceeds of a sale to
or through the United States office of a broker is subject to backup withholding
and information reporting unless the holder certifies its non-United States
status under penalties of perjury or otherwise establishes an exemption.
Recently, the Treasury Department has promulgated final regulations (the
"Final Regulations") regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not significantly alter
the substantive withholding and information reporting requirements but unify
current certification procedures and forms and clarify reliance standards. Under
the Final Regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The Final Regulations are generally effective for
payments made after December 31, 1998, subject to certain transition rules.
97
<PAGE> 101
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of one year from
the Consummation Deadline (as defined in the Registration Rights Agreement) or
such shorter period as will terminate when all Old Notes covered by the
Registration Statement of which this Prospectus forms a part have been said
pursuant thereto (such period being hereinafter referred to as the "Prospectus
Delivery Period"), it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
During the Prospectus Delivery Period, the Company will promptly send
additional copies of the Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such document. The Company has
agreed to pay all expenses incident to the Exchange Offer other than commissions
or concessions of any brokers or dealers and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
New Notes will be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom LLP, New York, New York, which has acted as counsel for the Company in
connection with the Exchange Offer.
EXPERTS
The audited consolidated financial statements included in this Prospectus
and elsewhere in the Registration Statement of which this Prospectus forms a
part of Anchor Holdings, Inc. for the years ended December 31, 1995, 1996 and
1997, have been audited by PricewaterhouseCoopers LLP, independent accountants,
as stated in their report with respect thereto, and are being included herein in
reliance upon authority of said firm as experts in giving said reports.
The audited consolidated financial statements included in the Prospectus
and elsewhere in the Registration Statement of which this Prospectus forms a
part of Moll PlastiCrafters Limited Partnership for the years ended December 31,
1995, 1996 and 1997, and the audited combined financial statements included in
the Prospectus and elsewhere in the Registration Statement of which this
Prospectus forms a part of The Hanning Companies for the years ended December
31, 1995 and 1996, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
98
<PAGE> 102
The audited consolidated financial statements included in this Prospectus
and elsewhere in the Registration Statement of which this Prospectus forms a
part of Somomeca Industries for the years ended August 31, 1995, 1996 and 1997
and the four month period ended December 31, 1997, have been audited by Barbier,
Frinault & Associes, Member Firm of Andersen Worldwide, independent public
accountants, as stated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
Change in Accountants
On July 6, 1998, the Company appointed Arthur Andersen LLP ("Andersen") to
replace PricewaterhouseCoopers LLP ("PwC") as independent auditors of the
Company, and PwC was dismissed as the Company's auditor on the same date.
Andersen was serving as the independent auditors of Moll at the time of the
Merger. Moll is considered the accounting acquiror in the Merger.
The report of PwC on the Company's consolidated financial statements for
the years ended December 31, 1997 and 1996 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principle.
The decision to engage Andersen as the Company's independent auditors was
approved by the Company's board of directors.
In connection with the audits for the years ended December 31, 1997 and
1996, and through the interim period ended July 6, 1998, there were no
disagreements or "reportable events" with PwC as described in Items
304(a)(1)(iv) and (v) of Regulation S-K under the Securities Act ("Regulation
S-K") on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PwC would have caused it to make reference thereto in its
report on the consolidated financial statements for 1997 and 1996.
PwC has been authorized by the Company to respond to any and all inquiries
by the successor auditors and PwC has provided to the Company a letter addressed
to the Securities and Exchange Commission stating that it has reviewed the
disclosure provided in this Registration Statement and has no disagreement with
the relevant portions of this disclosure, pursuant to the requirements of Item
304(a)(3) of Regulation S-K. A copy of such letter, dated August 3, 1998, is
filed as Exhibit 16.1 to this Registration Statement.
Andersen, serving in its existing capacity as independent auditor to Moll
has provided advice to the Company and Moll regarding the accounting for the
Merger, the acquisitions of Hanning, Somomeca and Gemini Plastic and the
Offering.
99
<PAGE> 103
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Basis of Presentation....................................... P-2
Unaudited Pro Forma Consolidated Statement of Operations for
the Year
Ended December 31, 1997................................... P-3
Unaudited Pro Forma Consolidated Statement of Operations for
the Thirty-nine Weeks
Ended October 3, 1998..................................... P-4
Notes to Unaudited Pro Forma Consolidated Financial
Statements................................................ P-5
</TABLE>
P-1
<PAGE> 104
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements of the
Company give effect to the contribution of the interests in Moll PlastiCrafters
Limited Partnership ("Moll") to AMM Holdings, Inc. ("AMM Holdings") in exchange
for common shares of AMM Holdings, and the subsequent merger of Moll into Anchor
Advanced Products, Inc. ("Anchor") (the "Merger"). AMM Holdings is the indirect
parent and Anchor Holdings, Inc. ("Anchor Holdings") is the direct parent of
Anchor. Anchor Advanced Products, Inc. was renamed Moll Industries, Inc. upon
completion of the Merger. The Merger occurred immediately prior to the
consummation of the offering of Moll Industries, Inc. senior subordinated notes
(the "Offering"). As the partners of Moll own a majority of the outstanding
shares of AMM Holdings subsequent to the Merger, Moll is considered the
accounting acquiror in the Merger and will utilize purchase accounting to
account for the Merger.
In addition, the unaudited pro forma consolidated financial statements of
the Company also give effect to the following:
X the August 1997 purchase acquisition of the Hanning companies ("Hanning")
by Moll,
X the January 1998 purchase acquisition of Somomeca Industries ("Somomeca")
by Moll,
X the June 1998 distribution of Moll's investment in Reliance Products,
L.P. ("Reliance"), to certain of Moll's limited partners, and
X the June 1998 purchase acquisition of Gemini Plastic Services, Inc.
("Gemini") by the Company.
Collectively, these acquisitions are referred to as the "Acquisitions" and
the combined companies are referred to as the "Company". The Acquisitions,
Merger and Offering are collectively referred to as the "Transactions".
Concurrently with the Offering, AMM Holdings offered approximately $35.3
million aggregate gross proceeds of its 13 1/2% Senior Discount Notes due 2009.
The unaudited pro forma consolidated financial statements of the Company do not
reflect the offering of these notes by AMM Holdings except for the $2 million
capital contribution.
The unaudited pro forma consolidated statement of income of the Company for
the year ended December 31, 1997 and for the thirty-nine weeks ended October 3,
1998 gives effect to these transactions as if they had occurred on January 1,
1997.
The Company has identified certain savings which are expected to occur as a
result of the Merger. These savings have been reflected in the unaudited pro
forma consolidated financial statements of the Company. The Company has
preliminarily analyzed certain additional savings that it expects to be realized
by consolidating other operational and general and administrative functions as a
result of the Merger. The Company has not and cannot quantify these savings
until completion of the Merger. Accordingly, these additional anticipated
savings have not been included in the unaudited pro forma consolidated financial
statements of the Company.
The pro forma adjustments are based on preliminary estimates of (1) the
amount of goodwill (and related amortization) to be created by the Transactions
and 2) tax expense to be incurred by the Company once it becomes taxable)
available information and certain assumptions and may be revised as additional
information becomes available. These estimates will be finalized over the next
twelve months; however, the adjustments, if any, are not expected to have a
material impact on the pro forma financial statements. The pro forma financial
data does not purport to represent what the Company's financial position or
results of operations would actually have been if such transactions in fact had
occurred on those dates or to project the Company's financial position or
results of operations for any future period. Since the combined companies were
not under common control or management, historical combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
consolidated financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
See "Risk Factors" included elsewhere herein.
P-2
<PAGE> 105
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------------
MOLL ANCHOR(A) GEMINI(B) SOMOMECA(D) HANNING(E)
-------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $116,947 $161,161 $20,980 $88,502 $29,640
Cost of sales.......................... 97,086 135,974 16,237 77,943 28,342
-------- -------- ------- ------- -------
Gross profit.......................... 19,861 25,187 4,743 10,559 1,298
Selling, general and administrative
expenses.............................. 10,758 12,497 3,580 5,469 2,597
Management fee to related parties...... 1,653 180 -- -- 127
Tooling income, net.................... (1,912) -- -- -- (1,114)
Loss on closure of facility............ 1,176 -- -- -- --
-------- -------- ------- ------- -------
Operating income (loss)................ 8,186 12,510 1,163 5,090 (312)
Interest expense....................... 3,431 11,165 221 2,654 291
Interest income........................ (25) -- (11) (263) (62)
Other (income) expense................. (299) (287) 11 320 (294)
Minority interest in income (loss) of
subsidiary............................ 435 -- -- (95) --
-------- -------- ------- ------- -------
Income (loss) before taxes and
extraordinary item.................... 4,644 1,632 942 2,474 (247)
Income tax expense..................... 82 794 372 1,036 383
-------- -------- ------- ------- -------
Income (loss) before extraordinary
item.................................. $ 4,562 $ 838 $ 570 $ 1,438 $ (630)
======== ======== ======= ======= =======
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------ PRO FORMA
RELIANCE(C) MOLL INDUSTRIES, INC.
-------------- ---------------------
<S> <C> <C> <C> <C>
Net sales.............................. $(17,383) $(4,116) (f) $414,630
18,899 (l)
Cost of sales.......................... (13,293) 15,976 (l) 354,582
808 (m)
(547) (j)
(4,193) (f)
249 (n)
-------- ------------- ---------------------
Gross profit.......................... (4,090) 60,048
Selling, general and administrative
expenses.............................. (2,278) 655 (o) 29,493
(2,326) (h)
(1,103) (i)
(356) (f)
Management fee to related parties...... (261) (1,499) (k) 200
Tooling income, net.................... -- 2,923 (l) --
103 (f)
Loss on closure of facility............ -- (1,176) (g) --
-------- ------- --- --------
Operating income (loss)................ (1,551) 30,355
Interest expense....................... (510) 5,254 (q) 27,367
4,861 (r)
Interest income........................ -- (361)
Other (income) expense................. (149) (172) (f) (870)
Minority interest in income (loss) of
subsidiary............................ -- (340) (p) --
-------- --------
Income (loss) before taxes and
extraordinary item.................... (892) 4,219
Income tax expense..................... -- 928 (s) 3,595
-------- --------
Income (loss) before extraordinary
item.................................. $ (892) $ 624
======== ========
</TABLE>
P-3
<PAGE> 106
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 3, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------------- PRO FORMA
MOLL ANCHOR(A) GEMINI(B) RELIANCE(C) MOLL INDUSTRIES, INC.
-------- --------- --------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $221,585 $75,810 $10,023 $(11,165) $296,253
Cost of sales....................... 188,874 69,232 8,307 (8,437) $ (411) (j) 257,775
210 (m)
-------- ------- ------- -------- --------
Gross profit.................... 32,711 6,578 1,716 (2,728) 38,478
Selling, general and administrative
expenses.......................... 17,861 7,066 1,695 (1,737) 224 (o) 22,483
(1,798) (h)
(828) (i)
Management fee to related parties... 907 -- -- (168) (589) (k) 150
-------- ------- ------- -------- --------
Operating income (loss)............. 13,943 (488) 21 (823) 15,845
Interest expense, net............... 11,785 6,026 119 (167) 874 (q)
2,110 (r) 20,747
Other (income) expense.............. (59) 102 -- (182) (139)
Minority interest in income (loss)
of subsidiary..................... 239 -- -- -- (239) (p) --
-------- ------- ------- -------- --------
Income (loss) before taxes and
extraordinary item................ 1,978 (6,616) (98) (474) (4,763)
Income tax expense (benefit)........ 358 (2,400) 11 -- 311 (s) (1,720)
-------- ------- ------- -------- --------
Income (loss) before extraordinary
item.............................. $ 1,620 $(4,216) $ (109) $ (474) $ (3,043)
======== ======= ======= ======== ========
</TABLE>
P-4
<PAGE> 107
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------
<TABLE>
<S> <C>
Pro Forma Adjustments
(a) Adjustment to include the Anchor Holdings historical
operating activity for the periods prior to the merger in
the unaudited pro forma financial statements. Included in
the historical results of Anchor is a $2,225,000 charge for
losses incurred in connection with a decision in June 1998
to terminate a relationship with a customer. The losses
relate to inventory (raw materials and finished goods) which
were maintained by the Company exclusively for this
customer. Under the relationship the Company manufactured
proprietary items for the customer based on anticipated
requirements. The Company has no further obligations related
to this customer.
(b) Adjustment to include the Gemini historical operating
activity for the periods prior to the acquisition in the
unaudited pro forma financial statements.
(c) Adjustment to eliminate the Reliance historical operating
activity as reflected in its financial statements for the
periods prior to the divestiture from the unaudited pro
forma financial statements.
(d) Adjustment to include the Somomeca historical operating
activity for the period of January 1 through December 31,
1997 in the unaudited pro forma financial statements.
(e) Adjustment to include the Hanning historical operating
activity for the period of January 1 through August 7, 1997
in the unaudited pro forma financial statements.
(f) Adjustment to eliminate the operating results of the El Paso
facility, as it was closed in September 1997. All employees
and assets directly associated with the El Paso facility
were terminated or disposed of in conjunction with the
closure. The operating results eliminated were obtained from
the El Paso division financial statements exclusive of the
impact of corporate allocations.
(g) Adjustment to eliminate non-recurring costs, consisting
primarily of future rental payments ($561,000) and losses on
equipment ($473,000) and inventory ($142,000), incurred by
Moll in the September 1997 closure of its El Paso facility.
These costs were based on the contractual commitments of the
Company and actual losses incurred on equipment and
inventory due to the closure.
(h) Adjustment to record the reduction of personnel at AMM
Holdings and Gemini. The reductions were made in duplicate
executive management and certain overhead functions at AMM
Holdings and management of Gemini. The elimination of the
services of the personnel terminated would not materially
change the historical results of the Company due to the
duplicate nature of the functions following consummation of
the Transactions.
(i) Adjustment to reflect the freezing by the Company of certain
AMM Holdings retirement plans which occurred on June 3,
1998. The estimated savings were based on historical costs
as compared to anticipated future costs which were
actuarially determined.
(j) Adjustment to eliminate the rent expense associated with the
building which houses the Gemini operation as the Company
purchased the building.
(k) Adjustment to reflect the future management fee of $200,000
per year. The reduction of the management fee is partially
offset by an increase in SG&A expenses which is included in
adjustment (h). The reduction in the management fee would
not materially change the historical results of the Company.
(l) Adjustment to conform accounting policies regarding the
classification of revenues and expenses for tooling built
for and sold to consumers. Moll has historically recorded
the net amount it has received for arranging the production
of tooling for its customers as an offset against operating
expenses. For future reporting purposes, the Company plans
to reflect the gross revenues as a component of net sales
and expenses as cost of sales.
(m) Adjustment to record depreciation expense (i) for the
adjustment of property, plant and equipment to fair market
value in the acquisitions of Hanning, Somomeca, AMM Holdings
and Gemini of $6,300,000 which is being depreciated over
seven to ten years, and (ii) the purchase of the Gemini
building for $3,500,000 which is being depreciated over 30
years.
</TABLE>
P-5
<PAGE> 108
<TABLE>
<S> <C>
(n) Adjustment to reflect rent expense for the period of January
1 through August 7, 1997 to be paid on land and buildings in
Germany distributed to the owners of Moll in August 1997.
(o) Adjustment to record amortization of additional goodwill
generated in the acquisitions of Somomeca, AMM Holdings and
Gemini. Goodwill amortization following the transaction will
approximate $1,803,000 per year. Related to previous
transactions, Anchor's and Somomeca's historical financial
statements include $1,148,000 of goodwill amortization. The
registrant evaluates the impairment of goodwill based on the
cash flows of the entity which generated the asset. The
goodwill is being amortized over 20 years. The Registrant
determined 20 years was the appropriate useful life related
to these transactions due to the mature, long-term nature of
the industry, and the benefits of an international company
in the industry.
(p) Adjustment to eliminate the minority interest's portion of
the earnings of Somomeca and Reliance as the minority
interest of Somomeca was purchased in connection with Moll's
purchase of Somomeca and Reliance is no longer reflected as
a consolidated subsidiary of the Company.
(q) Adjustment to record interest expense incurred on the
increase in debt resulting from the acquisitions of Hanning,
Somomeca, AMM Holdings and Gemini. The Registrant incurred
$42 million of debt in these transactions at an assumed
interest rate of 9.5%. Additionally, it assumed debt of
Anchor totaling $100 million which Anchor refinanced in
April 1997. This adjustment includes approximately $1.2
million of additional interest expense which is not included
in Anchor's historical financial statements to reflect this
refinancing.
(r) Adjustment to reflect interest on the net additional debt
incurred in connection with the Offering (approximately $30
million) and to reflect the difference in interest rates
between the current debt instruments (approximately 8.5%)
and the Notes sold pursuant to the Offering.
(s) Adjustment to reflect the tax impact of the pro forma
adjustments and to reflect Moll as a taxable entity using an
estimated effective tax rate of 40%.
</TABLE>
Note: The unaudited pro forma consolidated statements of income for the year
ended December 31, 1997 and the thirty-nine weeks ended October 3, 1998,
do not include the extraordinary losses of $1,210,000 and $1,971,000,
respectively, related to the extinguishment of debt.
P-6
<PAGE> 109
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.,
THE REGISTRANT
Consolidated Balance Sheet as of October 3, 1998
(unaudited)............................................ F-2
Consolidated Statements of Operations for the Thirty-nine
Weeks Ended September 30, 1997 and October 3, 1998
(unaudited)............................................ F-3
Consolidated Statements of Comprehensive Income for the
Thirty-nine Weeks Ended September 30, 1997 and October
3, 1998 (unaudited).................................... F-4
Consolidated Statements of Cash Flows for the Thirty-nine
Weeks Ended September 30, 1997 and October 3, 1998
(unaudited)............................................ F-5
Notes to Consolidated Financial Statements................ F-7
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES,
THE REGISTRANT
Report of Independent Public Accountants.................. F-13
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-14
Consolidated Statements of Income for the Three Years
Ended December 31, 1997................................ F-15
Consolidated Statements of Comprehensive Income for the
Three Years Ended December 31, 1997.................... F-16
Consolidated Statements of Partners' Capital for the Three
Years Ended December 31, 1997.......................... F-17
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1997................................ F-18
Notes to Consolidated Financial Statements................ F-20
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES, ACQUIRED COMPANY
Report of Independent Accountants......................... F-32
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-33
Consolidated Statements of Operations for the Three Years
Ended December 31, 1997, and the Twenty-six Weeks Ended
June 28, 1997 and June 26, 1998........................ F-34
Consolidated Statements of Comprehensive Income for the
Three Years Ended December 31, 1997 and the Twenty-six
Weeks Ended June 28, 1997 and June 26, 1998............ F-35
Consolidated Statements of Stockholders' Equity (Deficit)
for the Three Years Ended December 31, 1997............ F-36
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1997 and the Twenty-six Weeks Ended
June 28, 1997 and June 26, 1998........................ F-37
Notes to Consolidated Financial Statements................ F-38
SOMOMECA INDUSTRIES AND SUBSIDIARIES, ACQUIRED COMPANY
Report of Independent Public Accountants.................. F-53
Consolidated Balance Sheets as of August 31, 1996 and 1997
and as of December 31, 1997............................ F-54
Consolidated Statements of Operations for the Three Years
Ended August 31, 1997 and the Four Month Period Ended
December 31, 1997...................................... F-55
Consolidated Statements of Stockholders' Equity for the
Three Years Ended August 31, 1997 and the Four Month
Period Ended December 31, 1997......................... F-56
Consolidated Statements of Cash Flows for the Three Years
Ended August 31, 1997 and the Four Month Period Ended
December 31, 1997...................................... F-57
Notes to Consolidated Financial Statements................ F-58
THE HANNING COMPANIES, ACQUIRED COMPANY
Report of Independent Public Accountants.................. F-68
Combined Balance Sheets as of December 31, 1995 and
1996................................................... F-69
Combined Statements of Operations for the Years Ended
December 31, 1995 and 1996 and the Seven Months and
Seven Days Ended August 7, 1996 and 1997............... F-70
Combined Statements of Equity (Deficit) for the Years
Ended December 31, 1995 and 1996....................... F-71
Combined Statements of Cash Flows for the Years Ended
December 31, 1995 and 1996 and the Seven Months and
Seven Days Ended August 7, 1996 and 1997............... F-72
Notes to Financial Statements............................. F-73
</TABLE>
F-1
<PAGE> 110
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 3,
1998
----------
(DOLLARS IN
THOUSANDS
AND UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 19,972
Accounts receivable, net of reserves for doubtful accounts
of $1,808.............................................. 72,860
Inventories, net.......................................... 44,082
Deposits on tooling....................................... 8,219
Other current assets...................................... 9,465
--------
Total current assets.............................. 154,598
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 123,039
RECEIVABLE FROM AFFILIATES.................................. 390
GOODWILL, NET............................................... 40,661
OTHER INTANGIBLE AND NON-CURRENT ASSETS, NET................ 21,820
--------
Total assets...................................... $340,508
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks drawn in excess of cash on deposit................. $ 989
Customer deposits on tooling.............................. 6,160
Current portion of other long-term obligations............ 7,448
Accounts payable.......................................... 33,260
Accrued liabilities....................................... 28,602
--------
Total current liabilities......................... 76,459
--------
NOTES PAYABLE............................................... 230,000
--------
OTHER LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION......... 16,079
--------
DEFERRED INCOME TAXES....................................... 7,918
--------
OTHER NON-CURRENT LIABILITIES............................... 6,951
--------
COMMITMENTS AND CONTINGENCIES............................... --
--------
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 2,000,000 shares authorized,
1,551,000 shares issued and outstanding)............... 15
Additional contributed capital............................ 2,372
Retained deficit.......................................... (2,167)
Accumulated other comprehensive income.................... 2,881
--------
Total stockholders' equity........................ 3,101
--------
Total liabilities and stockholders' equity... $340,508
========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-2
<PAGE> 111
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------------
SEPTEMBER 30, OCTOBER 3,
1997 1998
-------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS AND
UNAUDITED)
<S> <C> <C>
NET SALES................................................... $ 85,248 $221,585
COST OF GOODS SOLD.......................................... 69,031 188,874
-------- --------
Gross profit.............................................. 16,217 32,711
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 6,428 17,861
MANAGEMENT AND CONSULTING FEE TO RELATED PARTIES............ 1,254 907
-------- --------
Operating income.......................................... 8,535 13,943
-------- --------
OTHER EXPENSES:
Interest expense, net..................................... 2,463 11,785
Minority interest in subsidiary income.................... 398 239
Other, net................................................ 933 (59)
-------- --------
3,794 11,965
-------- --------
Income before income taxes and extraordinary item......... 4,741 1,978
PROVISION FOR INCOME TAXES.................................. -- 358
-------- --------
Income before extraordinary item.......................... 4,741 1,620
EXTRAORDINARY ITEM--LOSS ON EARLY EXTINGUISHMENT OF DEBT.... -- 1,971
-------- --------
Net income (loss)......................................... $ 4,741 $ (351)
======== ========
EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM................ $ 3.06 $ 1.04
======== ========
EARNINGS PER SHARE.......................................... $ 3.06 $ (.23)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 1,551 1,551
======== ========
PRO FORMA INFORMATION:
Provision for income taxes................................ $ 1,992 $ 412
======== ========
Net income................................................ $ 2,749 $ (405)
======== ========
Earnings per share........................................ $ 1.77 $ (.26)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-3
<PAGE> 112
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------------
SEPTEMBER 30, OCTOBER 3,
1997 1998
------------- ----------
(IN THOUSANDS AND UNAUDITED)
<S> <C> <C>
NET INCOME (LOSS)........................................... $4,741 $ (351)
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment................... (74) 3,206
------ ------
COMPREHENSIVE INCOME........................................ $4,667 $2,855
====== ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-4
<PAGE> 113
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------------
SEPTEMBER 30, OCTOBER 3,
1997 1998
------------- ----------
(IN THOUSANDS AND UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 4,741 $ (351)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 3,871 9,790
Loss on early extinguishment of debt................... -- 1,971
Gain on disposal of fixed assets....................... (100) (132)
Deferred income taxes.................................. -- 1,266
Minority interest in subsidiary income................. 398 239
Changes in assets and liabilities, net of assets
purchased and liabilities assumed:
Accounts receivable.................................. (8,520) (11,193)
Receivable from affiliates........................... -- 74
Inventories.......................................... (540) (196)
Other current assets................................. 2 (1,438)
Deposits on tooling.................................. 1,499 1,211
Other assets......................................... (83) (2,674)
Accounts payable..................................... 1,884 3,673
Accrued liabilities.................................. 647 1,420
Customer deposits on tooling......................... (2,235) (1,400)
Checks drawn in excess of cash on deposit............ (282) 846
------- --------
Total adjustments................................. (3,459) 3,457
------- --------
Net cash provided by operating activities............ 1,282 3,106
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (2,961) (12,150)
Proceeds on disposal of fixed assets...................... 169 601
Purchase of Hanning....................................... (7,182) --
Purchase of Somomeca...................................... -- (11,737)
Purchase of Anchor........................................ -- (328)
Purchase of Gemini........................................ -- (9,954)
------- --------
Net cash used in investing activities................ (9,974) (33,568)
------- --------
</TABLE>
(continued)
F-5
<PAGE> 114
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------------
SEPTEMBER 30, OCTOBER 3,
1997 1998
------------- ----------
(IN THOUSANDS AND UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) revolving loan facility... $ 7,579 $ (22,161)
Proceeds from issuance of long-term obligations........... 8,764 187,218
Principal payments on long-term obligations............... (3,506) (105,604)
Financing costs........................................... -- (7,950)
Capital contribution from parent.......................... -- 2,000
Distributions............................................. (3,321) (4,795)
Distributions to minority partners of Reliance............ (4) (643)
------- ---------
Net cash provided by financing activities.............. 9,512 48,065
------- ---------
EFFECT OF EXCHANGE RATE CHANGES IN CASH..................... 13 640
------- ---------
NET CHANGE IN CASH.......................................... 833 18,243
BALANCE AT BEGINNING OF PERIOD.............................. 878 1,729
------- ---------
BALANCE AT END OF PERIOD.................................... $ 1,711 $ 19,972
======= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 2,591 $ 10,778
======= =========
Cash paid for taxes....................................... $ -- $ 259
======= =========
</TABLE>
NON-CASH TRANSACTIONS:
In June 1997, the Company terminated a capital lease that resulted in a
reduction of debt by $2,503 and a reduction in fixed assets by $1,205.
In June 1998, the Company distributed its investment in Reliance L.P. of
$3,135 to its partners. Reliance had a cash balance of $543 at the time of the
distribution.
See accompanying notes to consolidated financial statements (unaudited).
F-6
<PAGE> 115
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS AND UNAUDITED)
Anchor Holdings, Inc. ("Holdings") was incorporated March 9, 1990, under
the laws of the State of Delaware. Holdings is the wholly-owned subsidiary of
AMM Holdings, Inc. ("AMM Holdings", formerly known as Anchor Acquisition Co.),
which is not consolidated herein. Holdings owns Moll Industries, Inc. (the
"Company", formerly known as Anchor Advanced Products, Inc.) through which,
including its subsidiaries, it designs and manufactures custom molded products
and assembled plastic components for a broad variety of customers throughout
North America and Europe. The Company's products are sold to a wide range of
end-markets, including end markets for consumer products,
telecommunications/business equipment, household appliances, automobile and
medical devices. The Company's manufacturing facilities are located primarily in
the United States, France, Germany, Mexico and the United Kingdom.
1. MERGER WITH MOLL PLASTICRAFTERS LIMITED PARTNERSHIP
Effective June 26, 1998, the owners of Moll PlastiCrafters Limited
Partnership ("Moll") contributed their interest in Moll to AMM Holdings in
exchange for common shares of AMM Holdings. AMM Holdings contributed these
interests in Moll to Holdings and ultimately to Anchor Advanced Products, Inc.
("Anchor"). Moll was merged into Anchor (the "Merger") at which time the name of
Anchor was changed to Moll Industries, Inc. As the owners of Moll own a majority
of the outstanding shares of AMM Holdings subsequent to the Merger, Moll is
considered the accounting acquiror in the Merger; therefore, the consolidated
financial statements presented for all periods herein are those of Moll, and
exclude those of Anchor prior to June 26, 1998. Moll utilized purchase
accounting to account for the Merger; accordingly, the assets and liabilities
acquired in the Merger, which primarily relate to Anchor, were adjusted to their
estimated fair values which are as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 43,790
Property, plant and equipment............................... 56,122
Goodwill.................................................... 23,796
Other assets................................................ 8,286
Current liabilities......................................... (17,671)
Notes payable............................................... (100,000)
Other non-current liabilities............................... (14,323)
</TABLE>
An evaluation of the assets acquired and liabilities assumed is in process.
Upon completion of the evaluation, net additions or restrictions, if any, in the
fair values currently assigned will result in a corresponding change in
goodwill.
2. BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of Moll,
as it is the accounting acquiror in the Merger discussed in Note 1, and its
subsidiaries. All significant results of operations of companies acquired
utilizing the purchase method of accounting have been included in the
consolidated financial statements since the effective date of the acquisition
(the Hanning Companies--August 8, 1997, Somomeca Industries, Inc.--January 8,
1998, Anchor--June 26, 1998 and Gemini Plastic Services, Inc.--June 26, 1998).
The results of Reliance Products have been excluded from these consolidated
financial statements since June 26, 1998 (see Note 4). All significant
intercompany balances have been eliminated in consolidation. The interim
consolidated financial statements have been prepared, without audit, in
accordance with generally accepted accounting principles, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, the interim consolidated financial statements include all
adjustments which are necessary for a fair presentation of the financial
position and results of operations for the interim periods presented, such
adjustments being of a normal, recurring nature. Certain information and
footnote disclosures have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these interim consolidated financial
statements and notes thereto are read in conjunction with the
F-7
<PAGE> 116
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consolidated financial statements and notes thereto for the year ended December
31, 1997. Results of operations in interim periods are not necessarily
indicative of results to be expected for a full year.
In connection with the Merger, Moll changed its financial reporting period
from one based on calendar month ends to four thirteen week periods. As a
result, Moll changed its third quarter period end from September 30 to October
3.
Earnings per share for all periods presented have been computed on a basis
assuming the number of common shares outstanding subsequent to the Merger were
outstanding for all periods presented. There are no potentially dilutive
securities currently outstanding.
RECENT ACCOUNTING PRONOUNCEMENTS
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement requires that derivatives and hedges be
valued at their fair value and establishes standards for the recognition of
changes in fair value. The Statement is effective for periods beginning after
June 15, 1999. The Company is evaluating SFAS No. 133 to determine the impact,
if any, on its reporting and disclosure requirements.
3. ACQUISITIONS
Effective June 26, 1998, the Company acquired the stock of Gemini Plastic
Services, Inc. ("Gemini") for cash of $10,186. The acquisition has been
accounted for using the purchase method with the purchase price allocated based
on the estimated fair values of the assets purchased and liabilities assumed, as
follows:
<TABLE>
<S> <C>
Current assets............................................. $ 4,384
Property, plant and equipment.............................. 4,571
Goodwill................................................... 6,677
Other assets............................................... 23
Current liabilities........................................ (2,818)
Non-current liabilities.................................... (2,651)
-------
$10,186
=======
</TABLE>
Effective January 8, 1998, the Company acquired Somomeca Industries, Inc.
("Somomeca"). In April 1998, the Company entered into an agreement with the
former owners of Somomeca under which the former owners will receive additional
consideration of 9,000 French Francs in lieu of consideration for the operating
results of Somomeca for the twelve months ended August 31, 1998 as required per
the purchase agreement. The additional consideration is payable in three equal
installments the first of which was paid on August 31, 1998 with the remaining
payments due on January 31, 1999 and 2000. The additional consideration has been
reflected as goodwill in the accompanying October 3, 1998 consolidated balance
sheet. Total cash consideration, including the additional consideration and
expenses was $15,988.
Effective August 8, 1997, the Company acquired the Hanning Companies, a
group of companies which had previously been under common control for total cash
consideration, including expenses, of $10,482.
An evaluation of the assets acquired and liabilities assumed is in process.
Upon completion of the evaluation, net additions or reductions, if any, in the
fair values currently assigned will result in a corresponding change in
goodwill.
4. DISTRIBUTION OF INTEREST IN RELIANCE PRODUCTS, L.P.
Effective immediately prior to the Merger discussed in Note 1, Moll
distributed its interest in Reliance Products, L.P. to its owners. The total
amount of such distribution was $3,135.
F-8
<PAGE> 117
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE
On June 26, 1998, the Company issued $130,000 of 10 1/2% Senior
Subordinated Notes due in 2008. These notes are unsecured and subordinate to
substantially all of the Company's indebtedness. The proceeds of these notes
were used primarily to repay existing indebtedness, acquire Gemini and fund
other corporate purposes.
In conjunction with the Merger, the Company assumed $100,000 of 11 3/4%
Senior Notes due 2004 originally issued by Anchor. These notes are unsecured but
are guaranteed by Holdings and certain subsidiaries of the Company.
6. TAXES
Effective June 26, 1998, the Company became a taxable entity. Prior to June
26, 1998, the Company was a partnership; accordingly, the earnings of the
Company, including the earnings of foreign subsidiaries attributable to the
Company for United States tax purposes, were included in the tax returns of the
partners. Therefore, the consolidated financial statements prior to June 26,
1998 contain no provision for federal or state income taxes related to those
earnings.
Certain of the Company's foreign subsidiaries and, subsequent to June 26,
1998, the Company are taxable entities. The Company has accounted for income
taxes for taxable entities using the liability method which requires recognition
of deferred tax assets and liabilities for the expected future consequences of
events that have been included in the financial statements or income tax
returns.
Included in the accompanying consolidated statements of operations is a pro
forma tax provision which was calculated as if the Company, including all of its
subsidiaries, was taxable for the entire period presented.
7. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES
All material subsidiaries of the Company, each of which are wholly-owned,
has fully, unconditionally, jointly and severally guaranteed the otherwise
unsecured $100,000 of 11 3/4% Senior Notes due 2004 issued by Anchor and assumed
by the Company in the Merger. The subsidiaries which have not guaranteed the
debt only participate in intercompany transactions with the parent, which are
eliminated in the consolidated financial statements of the Company. The
guarantor subsidiaries are subject to the reporting requirements under Section
13 or 15(d) of the Securities Exchange Act of 1934. Management has determined
that separate financial statements for the guarantor subsidiaries are not
material to holders of the notes. Combined financial information relating to
these entities since the date of their acquisition is presented herein in
accordance with Staff Accounting Bulletin No. 53 as an addition to the notes of
the consolidated financial statements of the Company.
F-9
<PAGE> 118
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Condensed consolidating financial information for the Company for the
thirty-nine weeks ended October 3, 1998 is as follows:
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS BALANCE
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................. $ 11,658 $ 8,269 $ 45 $ $ 19,972
Accounts Receivable.................. 37,673 35,187 -- 72,860
Inventories.......................... 30,441 13,641 -- 44,082
Other Current Assets................. 12,743 4,678 263 17,684
--------- -------- ------ -------- ---------
Total Current Assets....... 92,515 61,775 308 -- 154,598
Fixed Assets......................... 86,887 33,002 3,150 123,039
Goodwill............................. 32,490 8,171 -- 40,661
Intercompany Receivables............. 52,015 687 -- (52,702) --
Other Assets......................... 15,489 6,721 -- 22,210
--------- -------- ------ -------- ---------
$ 279,396 $110,356 $3,458 $(52,702) $ 340,508
========= ======== ====== ======== =========
Accounts Payable..................... $ 12,010 $ 21,183 $ 67 $ $ 33,260
Accrued Liabilities.................. 12,231 15,592 779 28,602
Other Current Liabilities............ 7,640 6,505 452 14,597
--------- -------- ------ -------- ---------
Total Current
Liabilities.............. 31,881 43,280 1,298 -- 76,459
Long Term Debt....................... 236,179 9,900 -- 246,079
Other Debt........................... 11,302 3,567 -- 14,869
Intercompany Payables................ -- 49,994 -- (49,994) --
--------- -------- ------ -------- ---------
Total Liabilities.......... 279,362 106,741 1,298 (49,994) 337,407
Equity............................... 34 3,615 2,160 (2,708) 3,101
--------- -------- ------ -------- ---------
$ 279,696 $110,356 $3,458 $(52,702) $ 340,508
========= ======== ====== ======== =========
STATEMENT OF INCOME DATA:
Net Sales............................ $ 127,804 $ 93,781 $6,550 $ (6,550) $ 221,585
Cost of Sales........................ 106,972 81,978 6,474 (6,550) 188,874
--------- -------- ------ -------- ---------
Gross Profit............... 20,832 11,803 76 -- 32,711
Selling, General & Administrative
Expense............................ 11,565 7,192 11 18,768
--------- -------- ------ -------- ---------
Operating Income........... 9,267 4,611 65 -- 13,943
Interest Expense, net................ 7,941 3,844 -- 11,785
Other (Income) Expense............... 13 (226) -- 393 180
--------- -------- ------ -------- ---------
Income Before Taxes and
Extraordinary Item....... 1,313 993 65 (393) 1,978
Income Tax Expense (Benefit)......... (307) 665 -- 358
--------- -------- ------ -------- ---------
Net Income Before
Extraordinary Item....... 1,620 328 65 (393) 1,620
Loss from Extinguishment of Debt..... (1,971) -- -- (1,971)
--------- -------- ------ -------- ---------
Net Income (Loss).......... $ (351) $ 328 $ 65 $ (393) $ (351)
========= ======== ====== ======== =========
</TABLE>
F-10
<PAGE> 119
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS BALANCE
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Net Income (Loss).................... $ (351) $ 328 $ 65 $ (393) $ (351)
Depreciation and Amortization........ 6,542 3,106 142 9,790
Change in Assets and Liabilities..... (8,394) (1,097) (186) (9,677)
Other................................ 2,078 1,266 -- 3,344
--------- -------- ------ -------- ---------
Cash Flows from Operating
Activities............... (125) 3,603 21 (393) 3,106
--------- -------- ------ -------- ---------
Capital Expenditures................. (10,268) (1,882) -- (12,150)
Investments in Subsidiaries.......... (52,705) 2,167 -- 28,519 (22,019)
Other................................ 601 -- -- 601
--------- -------- ------ -------- ---------
Cash Used in Investing
Activities............... (62,372) 285 -- 28,519 (33,568)
--------- -------- ------ -------- ---------
Payments on Revolving Loan
Facility........................... -- (22,161) -- (22,161)
Proceeds from Issuance of Long-Term
Obligations........................ 187,218 28,126 -- (28,126) 187,218
Principle Payments on Long-Term
Obligations........................ (102,162) (3,442) -- (105,604)
Financing Costs...................... (7,950) -- -- (7,950)
Distributions........................ (4,795) -- -- (4,795)
Other................................ 1,357 -- -- 1,357
--------- -------- ------ -------- ---------
Cash Flows from Financing
Activities............... 73,668 2,523 -- (28,126) 48,065
--------- -------- ------ -------- ---------
Effect of Exchange Rate Changes in
Cash............................... -- 640 -- 640
--------- -------- ------ -------- ---------
Net Change in Cash................... 11,171 7,051 21 18,243
Balance at Beginning of Period....... 487 1,218 24 1,729
--------- -------- ------ -------- ---------
Balance at End of Period............. $ 11,658 $ 8,269 $ 45 $ -- $ 19,972
========= ======== ====== ======== =========
</TABLE>
The financial information of Anchor Holdings is identical to that of the
Company. Therefore, summarized financial information of the Company is not
required.
F-11
<PAGE> 120
ANCHOR HOLDINGS, INC. AND SUBSIDIARY, MOLL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. OTHER COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, which requires the reporting of
comprehensive income in addition to net income. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
Information with respect to the accumulated other comprehensive income
balance is as follows:
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------
SEPTEMBER 30, OCTOBER 3,
1997 1998
------------- ----------
<S> <C> <C>
Beginning balance.................................... $ -- $ 2
Current period change in foreign currency
translation........................................ (74) 3,206
Accumulated foreign currency translation associated
with distributed interest.......................... -- 194
Deferred compensation assumed in Merger.............. -- (521)
---- ------
$(74) $2,881
==== ======
</TABLE>
9. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statement of operations data gives effect
to the Merger and the acquisition of Gemini as if they had occurred at the
beginning of the period.
<TABLE>
<CAPTION>
THIRTY-NINE
WEEKS ENDED
OCTOBER 3, 1998
---------------
<S> <C>
Net sales................................................... $296,253
Operating income............................................ 16,091
Income (loss) before taxes and extraordinary item........... (4,517)
</TABLE>
F-12
<PAGE> 121
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Moll PlastiCrafters Limited Partnership:
We have audited the accompanying consolidated balance sheets of MOLL
PLASTICRAFTERS LIMITED PARTNERSHIP (A DELAWARE LIMITED PARTNERSHIP) AND
SUBSIDIARIES as of December 31, 1996 and 1997, and the related consolidated
statements of income, comprehensive income, partners' capital and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Moll PlastiCrafters Limited
Partnership and Subsidiaries as of December 31, 1996 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As explained in Note 16 to the consolidated financial statements, the
Company has given retroactive effect to the change in accounting for other
comprehensive income.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 19, 1998 (except with respect to the information in Notes 15 and 17,
as to which the date is June 26, 1998).
F-13
<PAGE> 122
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 877,893 $ 1,729,061
Accounts receivable, net of reserves for doubtful accounts
of $561,000 and $579,000, respectively................. 8,787,703 22,483,782
Inventories, net.......................................... 10,541,739 15,579,655
Deposits on tooling....................................... 2,720,730 6,877,297
Equipment held for sale................................... -- 416,700
Other current assets...................................... 565,363 392,357
------------ ------------
Total current assets.............................. 23,493,428 47,478,852
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 377,242 1,624,443
Buildings................................................. 7,293,782 9,512,209
Machinery and equipment................................... 34,265,843 37,732,863
Less: accumulated depreciation............................ (12,950,756) (13,451,227)
------------ ------------
Property, plant and equipment, net..................... 28,986,111 35,418,288
------------ ------------
RECEIVABLE FROM AFFILIATES.................................. 390,000 464,451
------------ ------------
INTANGIBLE AND OTHER ASSETS, NET............................ 1,031,256 3,562,964
------------ ------------
Total assets...................................... $ 53,900,795 $ 86,924,555
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Checks drawn in excess of cash on deposit................. $ 644,864 $ 143,272
Customer deposits on tooling.............................. 3,141,118 7,411,548
Current portion of long-term obligations.................. 6,026,626 5,059,450
Accounts payable.......................................... 4,231,673 16,587,519
Accrued liabilities....................................... 3,976,622 5,505,943
------------ ------------
Total current liabilities......................... 18,020,903 34,707,732
------------ ------------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION............... 27,614,197 42,872,953
------------ ------------
DEFERRED INCOME TAXES....................................... -- 10,377
------------ ------------
DEFERRED GAIN............................................... -- 1,157,358
------------ ------------
COMMITMENTS AND CONTINGENCIES............................... -- --
MINORITY INTEREST........................................... 1,849,755 2,212,675
------------ ------------
PARTNERS' CAPITAL:
General partner........................................... 1,026,260 648,116
Limited partners.......................................... 5,389,680 5,312,848
Accumulated other comprehensive income.................... -- 2,496
------------ ------------
Total partners' capital........................... 6,415,940 5,963,460
------------ ------------
Total liabilities and partners' capital........... $ 53,900,795 $ 86,924,555
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-14
<PAGE> 123
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
NET SALES................................................... $90,875,746 $89,463,883 $116,947,000
COST OF SALES............................................... 73,909,450 72,961,380 97,086,199
----------- ----------- ------------
Gross profit.............................................. 16,966,296 16,502,503 19,860,801
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 8,300,503 7,189,649 10,757,773
TOOLING INCOME, NET......................................... (1,716,091) (706,947) (1,911,871)
MANAGEMENT AND CONSULTING FEE TO RELATED PARTIES............ 1,363,135 1,446,143 1,652,933
LOSS INCURRED ON CLOSURE OF FACILITY........................ -- -- 1,176,172
----------- ----------- ------------
Operating income.......................................... 9,018,749 8,573,658 8,185,794
INTEREST EXPENSE, NET....................................... 2,413,607 2,518,005 3,405,386
OTHER (INCOME) EXPENSE...................................... 119,727 50,307 (299,338)
MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARY............ -- (31,224) 434,555
----------- ----------- ------------
INCOME BEFORE TAXES......................................... 6,485,415 6,036,570 4,645,191
----------- ----------- ------------
PROVISION FOR INCOME TAXES
Current................................................... -- -- 72,279
Deferred.................................................. -- -- 10,343
----------- ----------- ------------
-- -- 82,622
----------- ----------- ------------
NET INCOME.................................................. $ 6,485,415 $ 6,036,570 $ 4,562,569
=========== =========== ============
PRO FORMA INFORMATION (UNAUDITED)
Provision for income taxes................................ $ 2,594,000 $ 2,415,000 $ 2,531,000
=========== =========== ============
Net income................................................ $ 3,891,415 $ 3,621,570 $ 2,114,191
=========== =========== ============
Earnings per share........................................ $ 2.51 $ 2.33 $ 1.36
=========== =========== ============
Weighted average number of shares outstanding............. 1,551,000 1,551,000 1,551,000
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 124
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET INCOME............................................. $6,485,415 $6,036,570 $4,562,569
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment.............. -- -- 2,496
---------- ---------- ----------
COMPREHENSIVE INCOME................................... $6,485,415 $6,036,570 $4,565,065
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 125
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
ACCUMULATED
OTHER COMPREHENSIVE
GENERAL PARTNER LIMITED PARTNERS INCOME TOTAL
--------------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994......... $ 2,105,043 $ 10,609,508 $ -- $ 12,714,551
Net income....................... 1,755,001 4,730,414 -- 6,485,415
Distributions.................... (3,773,869) (12,537,593) -- (16,311,462)
----------- ------------ ------- ------------
BALANCE, DECEMBER 31, 1995......... 86,175 2,802,329 -- 2,888,504
Net income....................... 1,671,224 4,365,346 -- 6,036,570
Distributions.................... (731,139) (1,777,995) -- (2,509,134)
----------- ------------ ------- ------------
BALANCE, DECEMBER 31, 1996......... 1,026,260 5,389,680 -- 6,415,940
Net income....................... 1,263,831 3,298,738 -- 4,562,569
Distributions.................... (1,641,975) (3,375,570) -- (5,017,545)
Translation adjustment........... -- -- 2,496 2,496
----------- ------------ ------- ------------
BALANCE, DECEMBER 31, 1997......... $ 648,116 $ 5,312,848 $ 2,496 $ 5,963,460
=========== ============ ======= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 126
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 6,485,415 $ 6,036,570 $ 4,562,569
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,417,590 4,148,148 5,399,573
Write-off of investment in affiliate.................... 300,000 -- --
(Gain) loss on disposal of fixed assets................. 119,727 50,307 (35,661)
Accrued loss on closure of facility..................... -- -- 1,060,604
Deferred income taxes................................... -- -- 10,343
Minority interest in subsidiary income (loss)........... -- (31,224) 434,555
Changes in assets and liabilities, net of assets
purchased:
Accounts receivable................................... (1,318,658) 3,300,726 (8,347,044)
Receivable from affiliates............................ (390,000) -- (74,451)
Inventories........................................... (350,539) 672,096 527,008
Other current assets.................................. (781,941) 938,771 181,065
Deposits on tooling................................... (3,245,354) 3,830,300 1,095,033
Other assets.......................................... -- (251,035) (359,124)
Accounts payable...................................... (924,669) (2,559,947) 3,805,343
Accrued liabilities................................... 1,535,307 (1,268,403) 84,746
Customer deposits on tooling.......................... 3,894,672 (4,066,305) (2,337,203)
Checks drawn in excess of cash on deposit............. (32,370) 2,261 (501,592)
------------ ------------ ------------
Total adjustments.................................. 3,223,765 4,765,695 (943,195)
------------ ------------ ------------
Net cash provided by (used in) operating activities... 9,709,180 10,802,265 5,505,764
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (2,775,589) (1,387,297) (6,561,692)
Proceeds on disposal of fixed assets...................... 222,947 57,765 267,530
Due from Lawson Mardon Packaging, Inc. ................... -- (110,609) 110,609
Purchase of assets of the Reliance division of Lawson
Mardon Packaging, Inc. ................................. -- (10,151,754) --
Purchase of Hanning....................................... -- -- (7,181,785)
Purchase of Somomeca, net of cash received................ -- -- (850,000)
------------ ------------ ------------
Net cash used in investing activities................. (2,552,642) (11,591,895) (14,215,338)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) revolving loan facility... $ (1,388,269) $ 200,375 $ 10,170,694
Proceeds from issuance of long-term obligations........... 14,267,877 9,597,130 12,513,382
Principal payments on long-term obligations............... (3,540,330) (7,581,902) (7,168,396)
Distributions............................................. (16,311,462) (2,509,134) (5,017,545)
Financing costs........................................... -- (251,032) (842,705)
Minority partner contributions to Reliance................ -- 1,880,979 --
Distributions to minority partners of Reliance............ -- -- (60,760)
------------ ------------ ------------
Net cash provided by (used in) financing activities... (6,972,184) 1,336,416 9,594,670
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES IN CASH..................... -- -- (33,928)
------------ ------------ ------------
NET CHANGE IN CASH.......................................... 184,354 546,786 851,168
------------ ------------ ------------
</TABLE>
(Continued)
F-18
<PAGE> 127
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD.............................. 146,753 331,107 877,893
------------ ------------ ------------
BALANCE AT END OF PERIOD.................................... $ 331,107 $ 877,893 $ 1,729,061
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 2,225,115 $ 2,822,910 $ 3,414,407
============ ============ ============
Cash paid for income taxes................................ $ -- $ -- $ 21,590
============ ============ ============
</TABLE>
Non-cash transaction:
During 1997, the Partnership incurred a payable to the former owners of
Hanning of $1,500,000 for the purchase of Hanning.
During 1997, the Partnership terminated a capital lease which resulted in a
reduction of debt by $2,503,226 and reduction of fixed assets by $1,205,254.
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
F-19
<PAGE> 128
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Moll PlastiCrafters Limited Partnership ("Moll" or the "Partnership") was
formed in July 1991 for the purpose of manufacturing and selling injection
molded plastic parts. Under the partnership agreement, the partnership is
scheduled to terminate on December 31, 2012. Moll operates manufacturing
facilities in the United States, Canada, Germany and the United Kingdom.
At December 31, 1997, Moll maintained investments in three wholly-owned
subsidiaries (Moll Industries, LLC; Moll PlastiCrafters UK, Ltd.; and Moll
PlastiCrafters, LLC) as well as a 69% ownership interest in Reliance Products
Limited Partnership.
Moll Industries, LLC ("Industries") was formed on December 30, 1997. At
December 31, 1997, Industries contained no operating activities.
Moll PlastiCrafters UK, Ltd. ("Moll UK") was formed in 1997 and contains
the United Kingdom operations of Hanning purchased in 1997 (see Note 3).
Moll PlastiCrafters, LLC ("Moll Germany") was formed in 1997 and contains
the German operations of Hanning purchased in 1997 (see Note 3).
Reliance Products Limited Partnership ("Reliance") was formed in 1996. Moll
owns a 69% limited partnership interest in Reliance through its holdings of
Class B partnership units (see Note 3). The minority partners of Reliance
contributed $1,880,979 to Reliance upon its formation. Reliance operates a
production facility in Canada. The Reliance partnership agreement establishes
priorities for allocations of income, as follows: first, to the holders of Class
A partnership units until each has received a 19.5% return on its unreturned
capital; second, to Moll and the general partner until each has received a 30%
return on its unreturned capital contribution; third, to the remaining holders
of Class B partnership units until each has received a 30% return on its
unreturned capital contribution and fourth, to each of the Class B partnership
unit holders in proportion to the number of units held (see Note 17).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Moll and its
majority owned subsidiaries (collectively, the "Partnership"). All significant
intercompany transactions and balances have been eliminated.
REVENUES AND ACCOUNTS RECEIVABLE
The Partnership's customers operate primarily in the home appliance,
business equipment and electronics industries. The Partnership generally grants
credit to customers on an unsecured basis. Revenues from sales are recognized at
the time products are shipped.
TOOLING
The Partnership enters into agreements with its customers to design and
produce certain customer owned plastic injection tooling (primarily molds).
Monies paid or received by the Partnership in connection with tooling that
remains undelivered at the end of an accounting period are included as Deposits
on Tooling or Customer Deposits on Tooling, respectively, in the accompanying
consolidated balance sheet. At the time of delivery of completed tooling, the
excess of revenues over costs incurred are recognized in the accompanying
consolidated statements of income as tooling revenue, net.
F-20
<PAGE> 129
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out (FIFO)
method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is valued at cost or allocated fair value at
time of acquisition. Depreciation is computed using the straight-line and
declining balance methods over the estimated useful lives of the assets, which
are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and building improvements................... 25
Machinery and equipment............................... 3-10
Furniture and fixtures................................ 10
Computer hardware and software........................ 3-10
Automobiles........................................... 3
</TABLE>
INTANGIBLE ASSETS
Loan costs are amortized over the term of the related loan using the
straight-line method. Organizational costs are amortized over five years using
the straight-line method. Covenants not to compete are amortized over the life
of the agreements using the straight-line method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership estimates the fair value of financial instruments using
quoted or estimated market prices based upon the current interest rate
environment and the remaining term to maturity. At December 31, 1997, there were
no material differences in the book values of the Partnership's financial
instruments and their related fair values.
INCOME TAXES
As Moll is a partnership, the earnings of Moll, including the earnings of
foreign subsidiaries attributable to Moll for United States income tax purposes,
are included in the tax returns of its partners. Accordingly, the consolidated
financial statements contain no provision for federal or state income taxes
related to these earnings.
Certain of the Partnership's subsidiaries formed in 1997 are taxable
entities. The Partnership has accounted for income taxes for these subsidiaries
using the liability method which requires recognition of deferred tax assets and
liabilities for the expected future consequences of events that have been
included in the financial statements or income tax returns.
The Partnership's taxable subsidiaries have no significant differences
between its financial reporting and tax basis except for its property, plant and
equipment, for which a deferred tax liability has been reflected in the
accompanying consolidated balance sheet. The Partnership's taxable subsidiaries
incurred current foreign income tax expense of $72,279 in 1997.
Included in the accompanying consolidated statements of income is a pro
forma tax provision which was calculated as if the Partnership, including all of
its subsidiaries, was taxable for the entire period presented.
PARTNER'S CAPITAL
The income of the Partnership is allocated to the partners based on their
respective ownership percentages. Amounts classified as partners' capital are
subject to distribution at the discretion of the partners; however, the amount
of distributions is subject to limitations under certain of the Partnerships'
debt agreements (See Note 6).
F-21
<PAGE> 130
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Partnership's foreign subsidiaries are
translated to U.S. dollars at current exchange rates, while revenues and
expenses are translated at the average exchange rate prevailing during the
period. Translation adjustments are recorded as a component of partners'
capital.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCRUED CLAIMS AND LITIGATION
The Partnership is partially self-insured for claims arising from public
liability, property damage, workers' compensation, and employee health benefits.
Excess insurance coverage is maintained for per-incident and cumulative
liability losses for these risks in amounts management considers adequate.
Amounts are accrued currently for the estimated cost of claims incurred,
including related expenses. Management considers the accrued liabilities for
unsettled claims to be adequate; however, there is no assurance that the amounts
accrued will not vary from the ultimate amounts incurred upon final disposition
of all outstanding claims. As a result, periodic adjustments to the reserves
will be made as events occur which indicate that changes are necessary.
LONG-LIVED ASSETS
When factors are present which indicate the cost of assets may not be
recovered, the Partnership evaluates the realizability of its long-lived assets,
based upon the anticipated future cash flows generated by the asset.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share for all periods presented have been computed
on a basis assuming the number of common shares outstanding subsequent to the
Merger were outstanding for all periods presented. There are no potentially
dilutive securities currently outstanding.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement is
effective for fiscal years beginning after December 15, 1997. The Partnership is
evaluating SFAS No. 131 to determine the impact, if any, on its reporting and
disclosure requirements.
F-22
<PAGE> 131
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
RELIANCE
Effective December 12, 1996, Reliance purchased the net assets of the
Reliance Division of Lawson Mardon Packaging, Inc. for cash of $10,151,754,
whose operations are located in Canada. The transaction has been accounted for
by the purchase method with the purchase price allocated based on the fair
values of the assets purchased and liabilities assumed, as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 2,153,935
Inventories................................................. 2,823,970
Prepaid expenses............................................ 68,495
Equipment................................................... 7,255,970
Liabilities assumed......................................... (2,150,616)
-----------
$10,151,754
===========
</TABLE>
HANNING
Effective August 8, 1997, Moll acquired a group of companies that had
previously been under common ownership ("Hanning"). The companies acquired, the
type of acquisition and the country of operations are as follows:
<TABLE>
<CAPTION>
TYPE OF COUNTRY OF
COMPANY ACQUISITION OPERATIONS
------- -------------------- --------------
<S> <C> <C>
Hanning Corporation............................ Assets United States
Hanning-Kunststoffe Beteilingungs-GmbH......... Stock Germany
Hanning-Kunststoffe GmbH & Co. ................ Partnership Interest Germany
Hanning Plastics, Ltd. ........................ Assets United Kingdom
Hanning Property Associates.................... Assets United States
PB Hanning GmbH & Co. ......................... Stock Germany
PB Hanning GmbH & Co. Handelsgesellschaft...... Partnership Interest Germany
</TABLE>
Moll paid $7,582,000 in cash and agreed to pay the sellers $1,500,000 over
four years. Additionally, Moll incurred expenses totaling approximately
$1,400,000 in connection with this acquisition. The purchase price is subject to
adjustment based on an evaluation of the assets purchased and liabilities
assumed which is currently in process. However, the purchase price, excluding
expenses, may not exceed $10,000,000.
F-23
<PAGE> 132
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition was accounted for using the purchase method of accounting.
The purchase price has been allocated to the assets acquired (net of $1,800,000
of assets which were distributed to partners of Moll) and liabilities assumed
based on information currently available as to their fair values as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 5,369,000
Inventories................................................. 5,790,000
Deposits on tooling......................................... 5,177,000
Prepaid expenses............................................ 140,000
Property, plant and equipment............................... 11,180,000
Other assets................................................ 21,000
Accounts payable............................................ (6,343,000)
Accrued liabilities and other current liabilities........... (2,270,000)
Customer deposits on tooling................................ (6,536,000)
Noncurrent liabilities...................................... (3,846,000)
-----------
$ 8,682,000
===========
</TABLE>
An evaluation of the acquired assets and liabilities is in progress. Upon
completion of the evaluation, net additions or reductions, if any, in the fair
values currently assigned will be credited or charged against long-term assets.
The results of operations of Reliance and Hanning have been included in the
consolidated financial statements since the effective date of each acquisition.
See Note 17 for unaudited pro forma information.
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets of the Partnership at December 31, 1996 and
1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Covenants not to compete................................... $ 1,740,678 $1,344,199
Acquisition costs on pending transactions.................. -- 1,065,778
Deposit on purchase of Somomeca............................ -- 850,000
Loan costs................................................. 455,060 842,705
Organization costs......................................... 327,108 --
Other...................................................... 226,055 456,513
----------- ----------
2,748,901 4,559,195
Less: accumulated amortization........................... (1,717,645) (996,231)
----------- ----------
$ 1,031,256 $3,562,964
=========== ==========
</TABLE>
5. INVENTORIES
Inventories of the Partnership at December 31, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Raw materials............................................. $ 4,696,804 $ 7,718,780
Work-in-progress.......................................... 999,307 1,413,502
Finished goods............................................ 5,656,377 7,614,110
Less: reserve for excess and obsolete inventory........... (810,749) (1,166,737)
----------- -----------
$10,541,739 $15,579,655
=========== ===========
</TABLE>
F-24
<PAGE> 133
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM OBLIGATIONS
Long-term obligations of the Partnership at December 31, 1996 and 1997
consist of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revolving loan facility with a bank that provided for
borrowings up to the lesser of $10,950,000 or the sum of
85% of eligible accounts receivable and 50% of eligible
inventories. Interest was payable monthly at the bank's
reference rate plus 0.5% (9.25% at December 31, 1997).
This revolving loan facility was refinanced on January 8,
1998...................................................... $ 200,375 $10,720,543
Revolving credit agreement under which the Partnership can
obtain up to $12,300,000 (Canadian dollars, approximately
$8,600,000 U.S. dollars at December 31, 1997) in loans.
Loans bear interest at either the lender's floating rate
plus 0.5% or at a IBOR based rate at the option of the
Partnership (5.98% at December 31, 1997). The available
loan amount decreases by approximately $73,000 monthly and
expires on December 11, 1999.............................. 6,448,021 5,809,071
Term note payable to a bank. Interest payable monthly at a
range of LIBOR plus 2% (7.94% at December 31, 1997) to
8.75%. This note was refinanced on January 8, 1998. ...... 20,941,652 24,598,000
Industrial Development Revenue Bonds, payable in annual
principal installments of $190,000 to $220,000 through
December 1, 1999. Interest is payable bi-annually at 8.25%
to 8.625%. ............................................... 635,000 440,000
Note payable to former owner of Quality Plastics Company,
Inc. in annual installments of $448,569 beginning October
7, 1996 with the remaining balance due October 7, 1999.
Interest is payable semi-annually at 9%. This note was
refinanced on January 8, 1998. ........................... 1,794,228 1,345,708
Payable to former owners of Hanning. The payable is
denominated in Deutsche Marks. Principle is payable in
three equal annual payments beginning August 1999.
Interest is due annually at 8%. .......................... -- 1,500,000
Mortgage payable in monthly installments of $28,486. The
mortgage expires on December 1, 2012. Interest is payable
at 8.40%. ................................................ -- 2,901,884
----------- -----------
Total long-term debt.............................. 30,019,276 47,315,206
----------- -----------
Capitalized equipment sublease obligation, interest on the
sublease is 9.5%. The debt was extinguished in June
1997...................................................... 2,806,133 --
Other capitalized equipment leases.......................... 815,414 617,197
----------- -----------
Total capitalized lease obligations (see Note
7)............................................. 3,621,547 617,197
----------- -----------
Total long-term obligations............................... 33,640,823 47,932,403
Less current portion...................................... (6,026,626) (5,059,450)
----------- -----------
$27,614,197 $42,872,953
=========== ===========
</TABLE>
F-25
<PAGE> 134
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amounts of all long-term obligations, excluding capital leases, to be
repaid for the years following December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................ $ 4,745,504
1999............................................ 10,239,904
2000............................................ 5,920,511
2001............................................ 5,931,032
2002............................................ 7,442,473
Thereafter...................................... 13,035,782
-----------
$47,315,206
===========
</TABLE>
DEBT REFINANCING
On January 8, 1997, the Partnership entered into a credit agreement
("Credit Agreement") with a group of lenders ("Lenders"), in which the Lenders
agreed to loan the Partnership $60,000,000 in term debt (under two equal
tranches) and make available a revolving credit facility of up to $10,000,000,
based on the level of eligible accounts receivable and inventory. The debt under
the Credit Agreement earns interest at a variable rate depending upon the market
rate and certain financial ratios of the Partnership. The effective interest
rate would have been approximately 8.25% if the debt had been outstanding at
December 31, 1997. Substantially all assets of the Partnership are pledged as
collateral on the Credit Agreement.
Tranche A and the revolving credit facility expire on December 31, 2003.
Tranche B expires on December 31, 2005. The term loans require varying,
quarterly principal payments beginning in 1998. These requirements have been
reflected in the debt maturities included above. Additionally, the Credit
Agreement requires prepayment of a portion of the term loans should the
Partnership generate a specified level of cash flows as defined in the Credit
Agreement. Any outstanding balance under the revolving credit facility is due at
expiration.
The Credit Agreement contains restrictions on the payment of dividends and
distributions, transactions with affiliated parties, purchase and sale of fixed
assets and limitations on the level of advances that can be made to certain
subsidiaries, among others. Additionally, it contains various financial
covenants, all of which the Partnership was in compliance with as of December
31, 1997.
The Partnership had deferred costs of $671,000 at December 31, 1997 related
to the previous credit agreement which will be expensed in 1998 in connection
with the refinancing.
LEASE RENEGOTIATION
On June 15, 1997, the Partnership renegotiated an agreement for the lease
of equipment. The terms of the original agreement required the lease to be
accounted for as a capital lease. However, the terms of the new agreement result
in the lease being accounted for as an operating lease. At the date of the
renegotiation, the difference between the net book value of the assets and the
related debt under the capital lease, $1,297,972, was reflected as a deferred
gain in the accompanying consolidated balance sheets at December 31, 1997.
F-26
<PAGE> 135
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS
The aggregate future minimum fixed lease obligations for the Partnership as
of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES - OPERATING
EQUIPMENT LEASES
---------------- ----------
<S> <C> <C>
1998..................................................... $362,732 $3,243,318
1999..................................................... 269,916 2,043,698
2000..................................................... 34,498 1,680,386
2001..................................................... 14,476 1,450,466
2002..................................................... 4,557 552,571
Thereafter............................................... -- 66,201
-------- ----------
Total minimum lease payments............................. 686,179 $9,036,640
==========
Less amounts representing interest....................... 68,982
--------
Present value of minimum capital lease payments.......... $617,197
========
</TABLE>
Total rent expense for the Partnership's operating leases was approximately
$1,375,000, $1,780,000 and $2,835,000 for 1995, 1996 and 1997, respectively.
8. RETIREMENT PLANS
The Partnership maintains profit-sharing plans covering substantially all
employees in the United States and Canada meeting the service requirements
defined in the plan. Under the provisions of the plans, employees may contribute
from 2% to 15% of their wages. The Partnership may make matching contributions
equal to a discretionary percentage, to be determined by the Partnership.
Matching contributions are subject to certain vesting requirements. The
Partnership contributed approximately $143,000, $165,000 and $233,000 to the
plans in 1995, 1996 and 1997, respectively.
9. RELATED PARTIES
At December 31, 1997, the Partnership has a note receivable of $390,000
from an individual with ownership interest in certain partners of Moll. The note
is payable in three equal annual installments beginning February 1, 1998 and
bears interest at 9%.
The Partnership pays management fees to certain related companies which are
limited in amount under the Partnership's debt agreements. Management fee
expense was approximately $1,363,000, $1,346,000 and $1,553,000 for 1995, 1996
and 1997, respectively. Of this amount, approximately $150,000 was recorded as
an accrued liability at December 31, 1997.
Under the terms of Moll's Partnership Agreement, effective September 1995,
Moll committed to pay consultant fees to a partner as defined in the Partnership
Agreement not to exceed $100,000 per year. The arrangement was for two years and
terminated in September 1997. Payments made in 1996 and 1997 were $100,000 per
year.
The Partnership leases land and buildings in Germany from an entity owned
by certain partners of the Partnership. The lease expires on August 7, 1998,
contains three automatic one year extensions and accrues rent at a rate of
790,000 Deutsche Marks ($439,000 per year based on the December 31, 1997
exchange rate). Payment of the accrued rent is subject to restrictions as
defined in the Credit Agreement (see Note 6). The Partnership recognized rent
expense of $176,000 in 1997, which is included in accounts payable at December
31, 1997.
F-27
<PAGE> 136
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. FACILITY CLOSURE
In September 1997, the Partnership closed its El Paso facility. The
expenses incurred in closing the facility are reflected as "Loss Incurred on
Closure of Facility" in the accompanying consolidated statements of income.
Liabilities and reserves of $1,061,000 are included in the accompanying December
31, 1997 consolidated balance sheet for anticipated future expenditures
primarily for lease payments and losses on equipment and inventory related to
the closure. These losses are expected to be realized within twelve months of
the closure and were determined based on the terms of contracts to which the
Partnership is a party. Equipment from the El Paso facility that was disposed of
in February 1998 is included in the accompanying consolidated balance sheets as
"Equipment Held for Sale" at its net realized value.
11. MAJOR CUSTOMERS
Customers which represented in excess of 10% of sales were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A............................................ 46% 50% 35%
Customer B............................................ N/A N/A 10%
</TABLE>
In addition, approximately 49% and 61% of the Partnership's total accounts
receivable at December 31, 1996 and 1997 were from these customers. Management
believes the credit risk associated with these customers is minimal.
12. CONTINGENCIES
The Partnership is a party to various lawsuits and claims in the normal
course of business. While the outcome of the lawsuits and claims against the
Partnership cannot be predicted with certainty, management believes that the
ultimate resolution of the matters will not have a material effect on the
financial position or results of operations of the Partnership.
13. SEGMENT INFORMATION
The Partnership operates in one industry segment. The following table
presents sales and other financial information by geographic region for the
years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net sales:
United States............................ $90,875,746 $89,035,929 $ 87,584,479
Canada................................... -- 427,954 17,383,250
Europe................................... -- -- 11,979,271
----------- ----------- ------------
Total net sales.................. $90,875,746 $89,463,883 $116,947,000
=========== =========== ============
Operating income:
United States............................ $ 9,018,749 $ 8,626,800 $ 8,306,464
Canada................................... -- (53,142) 1,551,115
Europe................................... -- -- (1,671,785)
----------- ----------- ------------
Total operating income........... $ 9,018,749 $ 8,573,658 $ 8,185,794
=========== =========== ============
</TABLE>
F-28
<PAGE> 137
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Identifiable assets:
United States............................ $51,287,835 $41,502,714 $ 60,529,356
Canada................................... -- 12,590,288 12,353,975
Europe................................... -- -- 15,146,654
Eliminations............................. -- (192,207) (1,105,430)
----------- ----------- ------------
Total assets..................... $51,287,835 $53,900,795 $ 86,924,555
=========== =========== ============
Depreciation and amortization:
United States............................ $ 4,417,590 $ 4,087,803 $ 3,819,324
Canada................................... -- 60,345 1,158,082
Europe................................... -- -- 422,167
----------- ----------- ------------
Total............................ $ 4,417,590 $ 4,148,148 $ 5,399,573
=========== =========== ============
Capital expenditures:
United States............................ $ 2,775,589 $ 1,387,297 $ 5,965,381
Canada................................... -- -- 531,633
Europe................................... -- -- 64,678
----------- ----------- ------------
Total............................ $ 2,775,589 $ 1,387,297 $ 6,561,692
=========== =========== ============
</TABLE>
14. SOMOMECA ACQUISITION
Effective January 8, 1998, Industries, through its subsidiaries, purchased
100% of the outstanding shares of Somomeca Industries S.A.R.L. ("Somomeca").
Somomeca's operations are located primarily in France. Somomeca incurred a net
loss before taxes of $363,000 on revenues of $84,926,000 in their fiscal year
ended August 31, 1997. The Partnership paid $12,587,000 net of cash received and
assumed $68,377,000 of liabilities in the acquisition. The stock purchase
agreement allows for a reduction of the purchase price if the stockholders'
equity of Somomeca at the closing date is less than the similar amount on
February 28, 1997. An evaluation of the stockholders' equity at the closing date
is currently in process. Additionally, the stock purchase agreement requires the
payment of additional consideration of up to 13,000,000 French Franc ($2,135,000
at December 31, 1997 exchange rates) should Somomeca achieve specified operating
results for the twelve months ending August 31, 1998. See Note 17 for unaudited
pro forma information.
As discussed in Note 1, during 1997 and at December 31, 1997, Industries
did not contain any assets, liabilities, or operations. In the future, the
members of Industries, excluding Moll, are entitled to all distributions made by
Industries which are attributable to a) any distribution received by Industries
from any direct or indirect subsidiary organized under the laws of France (the
"French Companies") and b) proceeds from the sale or other disposition of the
equity interests in any of the French Companies.
Secondly, a member of Industries is entitled to a distribution equal to 5%
of the debt service paid to Industries by the French Companies on the initial
acquisition loan (agreed to be $13,000,000). However, no amount shall be paid
unless the manager of Industries concludes that the liquidation of Industries
would result in aggregate distributions to Moll that are in excess of the
acquisition debt amount.
Thirdly, a member of Industries is entitled to a distribution if
indebtedness of the French Companies to Industries exceeds $40 million. The
amount of the distribution equals 5% of the debt service on the indebtedness in
excess of $40 million.
Moll is entitled to all other distributions of Industries.
F-29
<PAGE> 138
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES
The Partnership's subsidiaries, Moll Industries Germany GmbH and Moll
Industries UK, Limited (formerly companies in the Hanning Companies), are each
wholly-owned subsidiaries of the Partnership. Each of these entities has fully,
unconditionally, jointly and severally guaranteed the otherwise unsecured
$100,000,000 of 11 3/4% Senior Notes due 2004 issued by Anchor Advanced
Products, Inc. ("Anchor") and assumed by the Partnership (See Note 17). As such,
these entities are subject to the reporting requirements under Section 13 or
15(d) of the Securities Act of 1934. Management has determined that separate
financial statements for the guarantor subsidiaries are not material to the
holders of the notes. Combined financial information relating to these entities
since the date of their acquisition is presented herein in accordance with Staff
Accounting Bulletin No. 53 as an addition to the notes to the consolidated
financial statements of the Partnership. Summarized combined financial
information for the Partnership's subsidiaries is as follows:
Statement of Income Data:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net sales................................................... $11,979,000
Gross margin................................................ (740,000)
Income (loss) from operations............................... (1,671,000)
Net loss.................................................... (1,607,000)
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Current assets.............................................. $ 9,528,000
Total assets................................................ 17,591,000
Current liabilities......................................... 19,054,000
Total liabilities........................................... 19,089,000
Partners' deficit........................................... (1,498,000)
</TABLE>
16. OTHER COMPREHENSIVE INCOME
The Partnership has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, which requires the reporting of
comprehensive income in addition to net income. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
Information with respect to the accumulated other comprehensive income
balance is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Beginning balance........................................... $ -- $ -- $ --
Current period change in foreign currency translation....... 2,496
------ ------ ------
$ -- $ -- $2,496
====== ====== ======
</TABLE>
F-30
<PAGE> 139
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SUBSEQUENT EVENT AND PRO FORMA INFORMATION
Effective June 26, 1998, the Partnership completed a series of transactions
as follows:
(i) the distribution by the Partnership of its 69% Class B limited
partnership interest in Reliance to certain of Moll's limited partners,
(ii) the merger of Moll into Anchor in exchange for common shares of
AMM Holdings, Inc. ("Holdings"--Anchor's parent), to form Moll Industries,
Inc.,
(iii) the issuance by Moll Industries, Inc. of $130,000,000 of 10.5%
Senior Subordinated Notes due 2008,
(iv) the acquisition of Gemini Plastic Services, Inc. for cash of
$10,186,000, and
(v) a capital contribution by AMM Holdings Inc. into Moll Industries,
Inc. of $2,000,000.
The following unaudited statement of income data gives effect to these
transactions as well as the acquisitions of Hanning and Somomeca as if they had
occurred at the beginning of the respective periods.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Net sales............................................... $421,683,000 $414,630,000
------------ ------------
Operating income........................................ $ 30,538,000 $ 30,458,000
------------ ------------
Income before taxes and extraordinary item.............. $ 3,668,000 $ 4,322,000
------------ ------------
</TABLE>
F-31
<PAGE> 140
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Anchor Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Anchor
Holdings, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, comprehensive income,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Anchor
Holdings, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 20, 1998
F-32
<PAGE> 141
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 26,
-------------------- -----------
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 1,578 $ 6,914 $ 287
Accounts receivable, less allowance for doubtful
accounts, allowances, and returns of $998 in 1996 and
$900 in 1997......................................... 21,400 15,574 14,120
Inventories............................................. 20,411 23,292 24,242
Prepaid expenses and other assets....................... 198 195 407
Refundable federal income taxes......................... 448 1,232 1,146
Deferred income taxes................................... 2,023 2,080 3,588
-------- -------- --------
Total current assets............................ 46,058 49,287 43,790
Property, plant, and equipment, net....................... 52,723 53,202 53,328
Goodwill, net............................................. 10,395 9,569 9,156
Other assets, net......................................... 6,087 8,781 11,055
-------- -------- --------
$115,263 $120,839 $117,329
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term liabilities............. $ 6,000 $ 832 $ 764
Current maturities of obligations under capital
leases............................................... 480 382 195
Accounts payable........................................ 6,120 6,119 7,276
Other accrued expenses and current liabilities.......... 5,995 8,059 7,840
-------- -------- --------
Total current liabilities....................... 18,595 15,392 16,075
Long-term debt, less current maturities................... 44,702 100,000 100,000
Related party long-term debt.............................. 21,000 -- --
Accrued pension liability................................. 4,957 6,019 6,019
Deferred income taxes..................................... 2,906 1,542 1,596
Other long-term liabilities............................... 2,286 725 694
-------- -------- --------
Total liabilities............................... 94,446 123,678 124,384
-------- -------- --------
Commitments and contingencies (Notes 6, 7, 10, and 12)
Stockholders' equity (deficit):
Common stock--par value $.01 per share; authorized 2,000
shares; shares issued 1,018 and 1,551,
respectively......................................... 10 15 15
Additional paid-in capital.............................. 10,240 -- --
Retained earnings (deficit)............................. 11,145 (2,323) (6,539)
Additional pension liability, net of tax of $348 in 1996
and $319 in 1997..................................... (568) (521) (521)
Treasury stock at cost.................................. (10) (10) (10)
-------- -------- --------
Total stockholders' equity (deficit)............ 20,817 (2,839) (7,055)
-------- -------- --------
$115,263 $120,839 $117,329
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 142
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, TWENTY-SIX WEEKS ENDED
-------------------------------- JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $149,366 $156,858 $161,161 $84,745 $75,810
Cost of goods sold................ 125,028 129,221 135,974 71,321 69,232
-------- -------- -------- ------- -------
Gross profit...................... 24,338 27,637 25,187 13,424 6,578
Amortization expense.............. 1,662 1,530 1,698 665 729
Selling, general and
administrative expense.......... 9,409 11,358 10,979 5,490 6,337
-------- -------- -------- ------- -------
Operating income (loss)........... 13,267 14,749 12,510 7,269 (488)
-------- -------- -------- ------- -------
Other income (expense):
Gain (loss) on disposal of fixed
assets....................... 23 (123) (62) (49) (45)
Interest expense, net........... (5,463) (4,931) (10,098) (4,982) (6,026)
Interest expense, related
party........................ (3,153) (3,193) (1,067) --
Other, net...................... (997) (285) 349 (38) (57)
-------- -------- -------- ------- -------
Total other expense,
net................... (9,590) (8,532) (10,878) (5,069) (6,128)
-------- -------- -------- ------- -------
Income (loss) before income taxes
and extraordinary item.......... 3,677 6,217 1,632 2,200 (6,616)
Provision (benefit) for income
taxes........................... 1,239 2,591 794 800 (2,400)
-------- -------- -------- ------- -------
Income (loss) before extraordinary
item............................ 2,438 3,626 838 1,400 (4,216)
Extraordinary item--loss on early
extinguishment of debt, net of
tax benefit of $742............. -- -- (1,210) (1,210) --
-------- -------- -------- ------- -------
Net income (loss)............ $ 2,438 $ 3,626 $ (372) $ 190 $(4,216)
======== ======== ======== ======= =======
Earnings per share:
Basic Income (loss) before
extraordinary item........... $ 2.39 $ 3.56 $ 0.59 $ 1.09 $ (2.72)
Extraordinary item........... 0.00 0.00 (0.85) (.94) --
-------- -------- -------- ------- -------
Income (loss)................ $ 2.39 $ 3.56 $ (0.26) $ .15 $ (2.72)
======== ======== ======== ======= =======
Weighted average common
shares outstanding......... 1,018 1,018 1,418 1,280 1,551
======== ======== ======== ======= =======
Diluted Income (loss) before
extraordinary item........... $ 1.87 $ 2.65 $ 0.59 $ 1.09 $ (2.72)
Extraordinary item........... 0.00 0.00 (0.85) (.94) --
-------- -------- -------- ------- -------
Income (loss)................ $ 1.87 $ 2.65 $ (0.26) $ .15 $ (2.72)
======== ======== ======== ======= =======
Weighted average common shares
and assumed conversions
outstanding.................. 1,306 1,370 1,418 1,280 1,551
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 143
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
YEAR ENDED DECEMBER 31, --------------------------
------------------------- JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
------ ------ ----- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS)..................... $2,438 $3,626 $(372) $190 $(4,216)
OTHER COMPREHENSIVE INCOME:
Additional Pension Liability........ (96) (72) 47 -- --
------ ------ ----- ---- -------
COMPREHENSIVE INCOME (LOSS)........... $2,342 $3,550 $(325) $190 $(4,216)
====== ====== ===== ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 144
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL RETAINED ADDITIONAL
SHARES PAID-IN EARNINGS TREASURY PENSION
ISSUED AMOUNT CAPITAL (DEFICIT) STOCK LIABILITY TOTAL
------ ------ ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994...... 1,018 $10 $ 10,240 $ 5,081 $ -- $(400) $ 14,931
Net income.................... -- -- -- 2,438 -- -- 2,438
Additional pension
liability.................. -- -- -- -- -- (96) (96)
Treasury stock acquired,
242.13 shares.............. -- -- -- -- (10) -- (10)
----- --- -------- -------- ---- ----- --------
BALANCE, December 31, 1995...... 1,018 10 10,240 7,519 (10) (496) 17,263
Net income.................... -- -- -- 3,626 -- -- 3,626
Additional pension
liability.................. -- -- -- -- -- (72) (72)
----- --- -------- -------- ---- ----- --------
BALANCE, December 31, 1996...... 1,018 10 10,240 11,145 (10) (568) 20,817
Net loss...................... -- -- -- (372) -- -- (372)
Exercise of warrants and
options.................... 533 5 5,061 -- -- -- 5,066
Dividend paid................. -- -- (15,301) (14,203) -- -- (29,504)
Tax benefit of exercise of
warrants and options....... -- -- -- 1,107 -- -- 1,107
Reduction of pension
liability.................. -- -- -- -- -- 47 47
----- --- -------- -------- ---- ----- --------
BALANCE, December 31, 1997...... 1,551 $15 $ -- $ (2,323) $(10) $(521) $ (2,839)
===== === ======== ======== ==== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 145
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDING
YEARS ENDED DECEMBER 31, -------------------------
------------------------------ JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ 2,438 $ 3,626 $ (372) $ 190 $(4,216)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Deferred income taxes................. 60 296 (1,421) 358 (955)
Depreciation and amortization......... 9,768 9,605 9,891 4,734 5,254
Provision for doubtful accounts....... 356 20 (98) 92 96
Provision for inventory
obsolescence........................ 450 (266) 287 125 28
(Gain) loss from disposal of fixed
assets.............................. (23) 123 62 49 62
Write off of debt issue costs -- -- 701 701 --
Changes in assets and liabilities:
Accounts receivable................. (1,361) 337 5,924 1,017 1,358
Inventories......................... (3,909) 794 (3,169) (446) 2,483
Prepaid and other assets............ (1,634) (1,798) 3 1,306 283
Refundable federal income taxes..... 154 (32) (784) (654) (918)
Accounts payable, accrued expense
and other liabilities............ 2,523 371 5,013 (1,595) (2,110)
-------- -------- -------- -------- -------
Net cash provided by (used in)
operating activities........... 8,822 13,076 16,037 5,877 1,365
-------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment............................. (6,932) (8,028) (8,413) (3,481) (4,416)
Proceeds from sale of fixed assets....... 479 14 -- -- --
Purchase of other long-term assets....... -- -- (434) -- --
Payments made for Parent Company......... -- -- -- -- (2,769)
-------- -------- -------- -------- -------
Net cash used in investing
activities..................... (6,453) (8,014) (8,847) (3,481) (7,185)
-------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt............. 9,886 8,647 101,529 101,529 --
Principal payments on long-term debt..... (12,569) (12,435) (73,231) (73,231) (101)
Principal payments on capital lease
obligations........................... (588) (480) (623) (265) (154)
Exercise of options and warrants......... -- -- 5,066 5,066 --
Payments of dividends.................... -- -- (29,504) (29,504) --
Proceeds (payments) from other long-term
liabilities........................... 1,016 -- (939) -- (32)
Shares acquired in treasury.............. (10) -- -- -- --
Payment of bond issue costs.............. -- -- (4,152) (3,839) --
Checks written in excess of bank
balances.............................. -- -- -- -- 287
Payments on other liabilities............ -- -- -- -- --
-------- -------- -------- -------- -------
Net cash (used in) provided by
financing activities........... (2,265) (4,268) (1,854) (244) --
NET INCREASE (DECREASE) IN CASH............ 104 794 5,336 2,152 (5,820)
CASH AT BEGINNING OF PERIOD................ 680 784 1,578 1,578 6,914
-------- -------- -------- -------- -------
CASH AT END OF PERIOD...................... $ 784 $ 1,578 $ 6,914 $ 3,730 $ 1,094
======== ======== ======== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refund received)...... $ 1,243 $ 1,945 $ 661 $ 609 $ (968)
Interest paid............................ $ 8,172 $ 7,799 $ 9,701 $ 4,751 $ 5,944
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE> 146
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
Anchor Holdings, Inc. (the "Company") was incorporated March 9, 1990, under
the laws of the State of Delaware. The Company's subsidiaries manufacture and
sell: brushes used in medical and dental applications; plastic and metal
packaging for the cosmetics industry; and molded plastics products, including
assembly of plastic parts and construction of molds used in the injection
molding business. Substantially all sales are made on credit without collateral.
The Company manufactures dental products in the Morristown, Tennessee facility
and cosmetics products in three facilities: Matamoros, Mexico; Morristown,
Tennessee; and Waterbury, Connecticut. The majority of the cosmetics goods are
produced in a Matamoros facility. Molded plastics products are produced in four
separate plants in Seagrove, North Carolina as well as in a facility in Round
Rock, Texas. In addition to the manufacturing facilities, the Company operates
mold technology centers in Elk Grove, Illinois and Sanford, North Carolina.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company and its
subsidiaries in the presentation of their consolidated financial statements are
summarized below:
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Anchor Holdings, Inc. the
parent holding company, its wholly owned subsidiaries Anchor Advanced Products
Foreign Sales Corporation and Anchor Advanced Products, Inc., and its Mexican
subsidiary, Cepillos de Matamoros, S.A. de C.V. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers investments with a maturity 90 days or less when
purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using standard costs which approximate the first-in, first-out method. Valuation
allowances are provided for adjustments related to carrying costs in excess of
estimated market value and potential obsolescence.
PROPERTY, PLANT, EQUIPMENT, AND DEPRECIATION
Property, plant, and equipment are recorded at cost. Assets under capital
leases are stated at the present value of minimum lease payments at the
inception of the lease. Depreciation and amortization are provided on the
straight-line basis over the estimated useful lives of the various properties as
follows:
<TABLE>
<S> <C>
Building and improvements....................... 30 years
Machinery and equipment......................... 10 years
Furniture and fixtures.......................... 10 years
Other........................................... 4-6 years
</TABLE>
INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets represent goodwill, organizational expenses, loan costs,
and costs allocated to noncompete agreements arising principally from the
acquisition of the Company in 1990, and the acquisition of the assets of
Mid-State Plastics, Inc. in 1994. These assets are carried at cost and amortized
on a straight-line basis over their estimated useful lives ranging between two
and fifteen years.
F-38
<PAGE> 147
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PENSION PLANS
Pension costs for defined benefit plans are determined in accordance with
Statement of Financial Accounting Standard No. 87, and include current costs
plus the amortization of transition assets over a period of 21 years. The
Company funds pension costs in accordance with the plans and legal requirements.
The Company also has a defined contribution savings plan for all domestic
employees for which it matches one-half of employee contributions up to six
percent of employee compensation.
INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between the financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
EARNINGS (LOSS) PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share. The standard replaces the
presentation of primary EPS with a presentation of basic EPS and replaces the
presentation of fully diluted EPS with diluted EPS. Basic income per share is
computed by dividing net income by the weighted average number of shares of
common stock outstanding. Diluted income per share is computed by dividing net
income by the weighted average number of shares of common stock and, dilutive
securities outstanding during the respective periods. Dilutive securities
represented by options and warrants outstanding have been included in the
computation. The Company uses the treasury stock method for calculating the
dilutive effect of options and warrants.
RECLASSIFICATIONS
Reclassifications have been made to certain previously reported amounts in
order to conform with the current year's presentations.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Significant estimates of the Company include the allowance
for doubtful accounts, inventory obsolescence reserves and certain self-insured
retained risks. Actual results could differ from these estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, which i) requires that long-lived assets to be held and used be
reviewed for impairment whenever events or circumstances indicate that the
carrying value of an asset may not be recoverable, ii) requires that long-lived
assets to be disposed of be reported at the lower of the carrying amount or the
fair value less costs to sell, and iii) provides guidelines and procedures for
measuring impairment losses that are different from previously existing
guidelines and procedures.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective December 31, 1997, the Company implemented Statement of Financial
Accounting Standards No. 129, Disclosure of Information about Capital Structure.
The Statement consolidates disclosures required
F-39
<PAGE> 148
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
by several existing pronouncements regarding an entity's capital structure. The
Company's disclosures are already in compliance with such pronouncements and,
accordingly, SFAS No. 129 does not require any change to existing disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement is
effective for fiscal years beginning after December 31, 1997. In the initial
year of application, comparative information for earlier years is to be
restated. The Company is evaluating SFAS No. 131 to determine the impact, if
any, on its reporting and disclosure requirements.
During February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. The Statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The Statement is effective
for fiscal years beginning after December 15, 1997. Restatement of disclosures
for earlier periods for comparative purposes is required. The Company is
evaluating SFAS No. 132 to determine the impact on its reporting and disclosure
requirements.
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement required that derivatives and hedges be
valued at their fair value and established standards for the recognition of
changes in fair value. The Statement is effective for periods beginning after
June 15, 1999. The Company is evaluating SFAS No. 133 to determine the impact,
if any, on its reporting and disclosure requirements.
2. INVENTORIES
Inventories at December 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials................................ $ 9,508 $12,026
Work in process.............................. 6,254 6,306
Finished goods............................... 5,954 6,553
------- -------
21,716 24,885
Less valuation allowances.................... (1,305) (1,593)
------- -------
$20,411 $23,292
======= =======
</TABLE>
F-40
<PAGE> 149
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Land..................................................... $ 1,254 $ 1,254
Buildings and improvements............................... 17,019 17,906
Machinery and equipment.................................. 70,383 74,406
Furniture and fixtures................................... 3,331 3,997
Leasehold improvements................................... 938 132
Vehicles................................................. 140 119
------- -------
93,066 97,814
Less accumulated depreciation and amortization........... (40,737) (48,343)
------- -------
52,329 49,471
Construction in progress................................. 394 3,731
------- -------
$52,723 $53,202
======= =======
</TABLE>
Depreciation and amortization of property, plant and equipment was $7,787,
$7,756 and $7,875 for the years ended December 31, 1995, 1996 and 1997,
respectively.
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets at December 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1996 1997
------------ ------- -------
<S> <C> <C> <C>
Intangible assets:
Grant fees........................................ 3 years $ 87 $ 87
Organizational expenses........................... 5-10 years 1,539 1,539
Loan costs........................................ 5 years 1,596 1,596
Noncompete agreement.............................. 3-5 years 1,250 250
Supply contract................................... 65 months 1,000 1,000
Acquisition costs................................. 5 years 1,043 1,043
Goodwill.......................................... 15 years 12,392 12,392
Intangible pension asset.......................... 37 years 2,004 2,004
Bond issue costs.................................. 7 years -- 4,152
------- -------
20,911 24,063
Less accumulated amortization..................... (6,551) (8,383)
------- -------
14,360 15,680
Other assets:
Cash value of life insurance...................... 2,105 2,670
Other assets...................................... 17 --
------- -------
$16,482 $18,350
======= =======
</TABLE>
Amortization expense related to intangibles totaled $1,662, $1,530 and
$2,398 for the years ended December 31, 1995, 1996 and 1997, respectively. The
1997 amortization expense includes a write-off of $700 associated with loan
costs which is included in the extraordinary loss and also includes a write-off
of $49
F-41
<PAGE> 150
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
associated with a noncompete agreement. Amortization of loan fees that were
charged to interest expense totaled $319, $319 and $319 for the years ended
December 31, 1995, 1996 and 1997, respectively.
The intangible pension asset represents prior service cost related to the
supplemental executive retirement plan and relates to the unrecognized net
obligation at the date of initial application as described in Note 7.
5. LONG-TERM DEBT
On April 2, 1997, Anchor Advanced Products, Inc. issued $100,000 of 11 3/4%
Senior Notes due 2004 (the "Senior Notes"). The Company has guaranteed the
Senior Notes fully and unconditionally. The net proceeds from the sale of the
Senior Notes was $96.6 million (after deducting discounts, commissions, fees and
expenses thereof) and were used: (i) to repay in full $51.5 million in
borrowings under the Revolving Credit and Term Loan Agreement, including all
accrued interest and fees payable upon such prepayment, (ii) to pay $22.3
million to redeem $9.0 million aggregate principal amount of Senior Subordinated
Notes and $12.0 million aggregate principal amount of Junior Subordinated Notes,
each due April 30, 2000, and (iii) to pay $22.8 million of a $29.5 million
dividend on the Company's common stock. All of the outstanding 380,000 warrants
and 153,300 options were exercised prior to the payment of the dividend. The
Company also entered into a credit facility which provided for revolving loans
not to exceed $15.0 million. The proceeds from the exercise of the warrants and
options and an additional borrowing of $1.5 million under the credit facility
were used to supplement the total dividend payment. The Company had no
outstanding debt under the credit facility as of December 31, 1997.
Long-term debt at December 31, 1996 and 1997, consists of:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Borrowings under revolving credit agreement; floating rates
(a)....................................................... $15,952 $ --
Term note; floating rates(b)................................ 34,750 --
Senior subordinated notes, due April 30, 2000(c)............ 9,000 --
Junior subordinated notes due April 30, 2000(c)............. 12,000 --
Senior notes due April 1, 2004(d)........................... -- 100,000
------- --------
71,702 100,000
Less current maturities..................................... (6,000) --
------- --------
$65,702 $100,000
======= ========
</TABLE>
- ------------------------------
(a) This revolving credit agreement provided a number of options for variable
rate borrowings subject to potential limitations based on percentages of
inventories, receivables and outstanding letters of credit. The agreement
was paid in full during 1997.
(b) This term note was paid in full during 1997.
(c) This senior and junior subordinated debt was payable to certain stockholders
and was paid in full during 1997.
(d) This debt is payable to note holders, subsequent to a public debt offering
in 1997. Interest is paid semiannually on April 1 and October 1 at a fixed
rate of 11.75%. The Senior Notes mature on April 1, 2004, at which time the
full principal amount is due.
The Senior Notes contain restrictions on, among other things, change of
controlling interest or sale of the Company, payment of cash dividends,
redemption of capital stock, creation of liens on assets, acquisition or sale of
subsidiaries, issuance of additional debt, purchases of investments,
consolidating or selling substantially all assets, transaction with related
parties and so-called "junior" payments. The Company was in compliance with
these covenants at December 31, 1997.
F-42
<PAGE> 151
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES
The Company leases a warehouse, land, and certain equipment under capital
leases that expire on various dates through December 2000. The net book value of
buildings, land, and equipment recorded under capital leases at December 31,
1996 and 1997, was $1,594 and $1,240, respectively. Amortization of assets held
under capital leases is included with depreciation expense.
The Company also has a noncancellable operating lease for two facilities
which requires the Company to pay all executory costs such as maintenance,
taxes, and insurance.
Future minimum lease payments under noncancellable operating leases with
initial or remaining lease terms in excess of one year and the present value of
future minimum capital lease payments as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending December 31:
1998...................................................... $ 438 $279
1999...................................................... 47 199
2000...................................................... -- 115
2001...................................................... -- 57
Thereafter.................................................. -- --
----- ----
Total minimum lease payments...................... 485 $650
====
Less amounts representing interest (at rates ranging from
10% to 11.7%)............................................. 62
-----
Present value of net minimum capital lease payments....... 423
Less current maturities of obligations under capital
leases.................................................... 382
-----
Obligations under capital leases excluding current
installments........................................... $ 41
=====
</TABLE>
Total rent expense for operating leases for the years ended December 31,
1995, 1996 and 1997 was $1,201, $1,779 and $943, respectively.
7. EMPLOYEE BENEFIT PLANS
The Company sponsors pension plans covering substantially all domestic
employees. Plans covering domestic salaried employees provide benefits that are
based on an employee's years of service and compensation during the five-year
period prior to retirement. The plan covering domestic hourly employees provides
benefits of stated amounts based on an employee's years of service. Annually,
the Company contributes to the plans covering domestic employees such amounts
which are actuarially determined to provide the plans with sufficient assets to
meet future benefit payment requirements. Foreign executives and employees are
covered by fully funded programs as legally required.
F-43
<PAGE> 152
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status of the Company's domestic
defined benefit pension plans and related amounts recognized in the Company's
consolidated balance sheets at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
SALARY HOURLY SALARY HOURLY
------ ------ ------ ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Benefit obligations:
Vested........................................ $ 987 $1,901 $1,192 $2,194
Nonvested..................................... 58 41 72 105
------ ------ ------ ------
Accumulated benefit obligation................ $1,045 $1,942 $1,264 $2,299
====== ====== ====== ======
Projected benefit obligation for service rendered
to date.......................................... $1,756 $1,942 $2,142 $2,299
Plan assets at estimated fair value................ 1,419 1,732 1,782 2,296
------ ------ ------ ------
Excess of projected benefit obligation over plan
assets........................................... (337) (210) (360) (3)
Unrecognized transition amount..................... 488 7 458 6
Unrecognized prior service cost.................... -- 110 -- 104
Unrecognized net (gain) loss....................... (523) 916 (531) 841
Unrecognized net obligation........................ -- (1,033) -- (951)
------ ------ ------ ------
Accrued (prepaid) pension cost................ $ (372) $ 210 $ (433) $ 3
====== ====== ====== ======
</TABLE>
Plan assets consist of cash and temporary investments.
Net pension cost for the years ended December 31, 1995, 1996 and 1997
included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
SALARY HOURLY SALARY HOURLY SALARY HOURLY
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during
the period........................... $184 $168 $199 $182 $209 $197
Interest cost on projected benefit
obligation........................... 106 109 130 131 170 155
Estimated/actual return on plan
assets............................... (87) (111) (158) 14 (148) (266)
Net amortization and deferral.......... 22 38 84 (99) 12 150
---- ---- ---- ---- ---- ----
Net pension cost..................... $225 $204 $255 $228 $243 $236
==== ==== ==== ==== ==== ====
</TABLE>
Assumptions used in accounting for the pension plans as of December 31,
1995, 1996 and 1997 were:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
SALARY HOURLY SALARY HOURLY SALARY HOURLY
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Discount rate.......................... 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Rate of increase in compensation
levels............................... 4.0% N/A 3.9% N/A 3.9% N/A
Expected long-term rate of return on
assets............................... 8.0% 9.0% 8.0% 9.0% 8.0% 8.0%
</TABLE>
In 1991, the Company entered into agreements with certain key executive
officers, providing for supplemental payments upon retirement, disability, or
death. The Company purchased life insurance policies to fund the liability under
these agreements, which also provide death benefits to the Company. The
following
F-44
<PAGE> 153
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
table sets forth the status of the supplemental executive retirement plan (SERP)
and related amounts recognized in the Company's consolidated balance sheets at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit
obligation--nonvested.................................. $ 4,263 $ 5,069
======= =======
Projected benefit obligation for services rendered to
date................................................... $ 7,401 $ 7,993
Plan assets.............................................. -- --
------- -------
Excess of projected benefit obligations over plan
assets.............................................. (7,401) (7,993)
Unrecognized transition amount........................... 4,746 4,401
Unrecognized net obligation at date of initial
application............................................ (1,608) (1,477)
------- -------
Accrued pension cost................................... $(4,263) $(5,069)
======= =======
</TABLE>
The Company intends to fund the plan through Company-owned life insurance,
which has a cash value of $2,670 at December 31, 1997; however, the insurance
policies are not considered plan assets for accounting purposes.
Net pension cost for the SERP for the years ended December 31, 1995, 1996
and 1997 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the period............. $221 $431 $465
Interest cost on projected benefit obligations.............. 246 284 341
Net amortization............................................ 131 130 131
---- ---- ----
$598 $845 $937
==== ==== ====
</TABLE>
The Company also sponsors defined contribution savings plans for
substantially all domestic employees. Contributions for the years ended December
31, 1995, 1996 and 1997, approximated $456, $492 and $532, respectively.
Pension costs for the foreign subsidiary amounted to approximately $582,
$654 and $599 for the years ended December 31, 1995, 1996 and 1997,
respectively.
8. INCOME TAXES
The provision for income taxes for the years ended December 31, 1995, 1996
and 1997 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Federal tax:
Current................................................ $ 939 $2,065 $1,284
Deferred............................................... 57 197 (985)
State:
Current................................................ 32 52 197
Deferred............................................... 3 99 (212)
Foreign tax.............................................. 208 178 510
------ ------ ------
Total tax expense attributable to continuing
operations............................................. $1,239 $2,591 $ 794
====== ====== ======
</TABLE>
F-45
<PAGE> 154
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense varies from the amount computed by applying the federal
corporate income tax rate of 34% to income before income taxes as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ----
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit)........... $1,250 $2,144 $555
Increase (decrease) in income taxes resulting from:
Foreign sales corporation income......................... (190) (99) (119)
State income taxes, net of federal tax effect............ 23 99 (15)
Nondeductible portion of meals and entertainment......... 69 48 73
Foreign income taxes..................................... 208 178 510
Write off charitable contribution deferred asset......... -- 75 --
Other, net............................................... (121) 146 (210)
------ ------ ----
Actual income tax provision attributable to continuing
operations.......................................... $1,239 $2,591 $794
====== ====== ====
</TABLE>
The components of the net deferred income tax assets and liabilities as of
December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
--------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Estimate for doubtful accounts and returns....... $ 404 $ -- $ 310 $ --
Inventory allowances............................. 667 -- 796 --
Accrued expenses................................. 860 -- 793 --
Additional pension liability..................... -- 834 -- 1,228
Contributions carryforward....................... -- -- 73 --
Net operating loss carryforward.................. 46 -- -- 598
Alternative minimum tax credits.................. -- 1,332 -- 1,377
Other............................................ 46 495 162 1,157
------ ------- ------ -------
Total deferred tax assets................ 2,023 2,661 2,134 4,360
------ ------- ------ -------
Deferred tax liabilities:
Property, plant and equipment.................... -- 5,567 -- 5,902
Other............................................ -- -- 54 --
------ ------- ------ -------
Total deferred tax liabilities........... -- 5,567 54 5,902
------ ------- ------ -------
Net deferred tax asset (liability)....... $2,023 $(2,906) $2,080 $(1,542)
====== ======= ====== =======
</TABLE>
The Company has at December 31, 1997, $2,088 of federal and state net
operating losses available to either carryback or carryforward. Net operating
losses of approximately $1,466 remain to be carried forward to offset future
state taxable income. Approximately $1,332 of alternative minimum tax credits
may be carried forward indefinitely. The amount of unrecognized deferred tax
liability for temporary differences related to investments in foreign
subsidiaries that are essentially permanent in duration were $1,430 and $1,388
for the years ending December 31, 1996 and 1997, respectively.
9. EMPLOYEE STOCK OPTIONS, WARRANTS, AND INCENTIVES
On October 29, 1990, the Company adopted the 1990 Time Accelerated
Restricted Stock Option Plan, as amended effective April 1, 1996 (the "1990
Plan"). A maximum of 163.3 thousand shares of the Company's common stock may be
issued pursuant to the 1990 Plan upon the exercise of options. Under the 1990
Plan,
F-46
<PAGE> 155
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
nonqualified stock options may be granted to members of senior management of the
Company and its subsidiaries. As of December 31, 1996, options to purchase 163.3
thousand shares of the Company's common stock at exercise prices of
$9.50--$30.00 per share had been granted. The 153 thousand vested options had
been exercised as of December 31, 1997, at an exercise price of $9.50 per share.
On June 11, 1996, the Company adopted the 1995 Time Accelerated Restricted
Stock Option Plan (the "1995 Plan"). A maximum of twenty-five thousand shares of
the Company's common stock may be issued pursuant to the 1995 Plan upon the
exercise of options. Under the 1995 Plan, nonqualified stock options may be
granted to members of senior management of the Company and its subsidiaries who
were formerly employed by Mid-State and who, at the time of adoption of the 1995
Plan, were employed in the Company's Mid-State Plastics Division. As of December
31, 1997, all twenty-five thousand options previously granted had been forfeited
under the terms of the agreement.
Both plans are administered by the Board of Directors of the Company or a
Committee consisting of three or more directors. Subject to the provisions of
each Plan, the Board of Directors of the Company has the authority to select
optionees and determine the terms of the options granted, including (i) the
number of shares subject to such option, (ii) when the option becomes
exercisable and (iii) the exercise price of the option; provided, however, that
no option may have a term in excess of ten years and six months from the date of
grant.
The terms and conditions of an option grant are set forth in a related
option agreement. An option is not transferable by the optionee except by will
or by the laws of descent and distribution. Options granted under either plan
will terminated upon the earliest to occur of (a) ten years and six months have
elapsed since the date of the grant of the option, (b) 30 days following an
optionee's voluntary termination or termination for cause of employment with the
Company or any of its subsidiaries, or (c) 180 days following an optionee's
termination of employment without cause or due to death or disability of the
optionee.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (SFAS 123). As
permitted by SFAS 123, the Company has chosen to apply APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its Plans. No compensation expense is recognized for the granting
of options during 1996 or 1997, as calculated under APB 25. Had compensation
cost for the Company's Plans been determined based on the fair value at the
grant dates for awards under the Plans consistent with the method of SFAS 123,
the Company's net income (loss) and net income (loss) per diluted share would
have been reduced to the pro forma amounts of $3,594 and $2.53, respectively,
for 1996 and $(391) and $(0.26), respectively, for 1997. The fair value of each
option grant is estimated using the Minimum Value Method with the following
assumptions used for the 1990 and 1995 plans; risk-free interest rates of 6.46%
and 6.04%, respectively, and expected lives of ten years.
F-47
<PAGE> 156
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's 1990 Plan as of December 31, 1995,
1996 and 1997, and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year..................... 153 $9.50 153 $ 9.50 163 $10.76
Granted.................... -- 10 $30.00 -- --
Exercised.................. -- -- 153 9.50
Forfeited.................. -- -- --
--- ------ ---
Outstanding, end of year... 153 $9.50 163 $10.76 10 $30.00
=== ====== ===
Options exercisable at
year-end................. 153 153 --
Fair value of options
granted during the
year..................... $11.96
======
</TABLE>
A summary of the status of the Company's 1995 Plan as of December 31, 1996,
and changes during the year ending on that date is presented below:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year...................... -- 25 $41.30 25 $41.30
Granted..................... 25 $41.30 -- --
Exercised................... -- -- --
Forfeited................... -- -- 25 41.30
----- --- --
Outstanding, end of year.... 25 $41.30 25 41.30 --
===== === ==
Options exercisable at
year-end.................. -- --
Fair value of options
granted during the year... $5.03
=====
</TABLE>
The following table summarizes information about the Plan's stock options
at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICE AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$30.00 10 10 $30.00 -- --
</TABLE>
The Company had issued to the ML-Lee Funds warrants to purchase 380
thousand shares of common stock exercisable at $9.50 per share. All of these
warrants had been exercised as of December 31, 1997. Affiliates of the ML-Lee
Funds comprise the majority holders of the Company's common stock.
10. CUSTOMER SUPPLY AGREEMENTS
On January 11, 1991, the Company entered into an agreement with a major
customer to supply product at certain agreed-upon levels through December 1992,
with an option for the customer to extend the contract for three additional one
year periods. The customer has extended the agreement through December 31, 1999.
The agreement guarantees certain gross margin percentages in varying amounts
over the term of the agreement based upon variable labor, material and overhead
costs. The agreement is cancellable by the customer; however, if such
cancellation occurs, the customer agrees to absorb a portion of the Company's
capital investment associated with the agreement in decreasing amounts over the
term of the contract.
F-48
<PAGE> 157
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On July 1, 1993, the Company entered into an agreement with another major
customer to supply product at certain agreed-upon levels through December 1997,
with an option for the customer to extend the contract for three additional one
year periods. The customer has extended the agreement through December 31, 1999.
The agreement guarantees certain gross margin percentages in varying amounts
over the term of the agreement based upon variable labor, material and overhead
costs. The agreement is cancellable by the customer; however, if such
cancellation occurs, the customer agrees to absorb a portion of the Company's
capital investment associated with the agreement in decreasing amounts over the
term of the contract.
In connection with the purchase of Mid-State Plastics, Inc., the Company
assumed a contract with a customer to maintain a manufacturing facility in Texas
for the production of injection molded plastic parts. The customer has the
exclusive right, unless otherwise agreed, to purchase the manufacturing capacity
of the facility. The agreement is effective until July 2000, with the customer
having the right to renew on a yearly basis. The customer guarantees the Company
80% of capacity and if not utilized, reimburses the Company based on a
predetermined rate. In the event that production exceeds the guarantee, the
Company owes the customer an amount computed at one-half the predetermined rate.
11. BUSINESS AND CREDIT CONCENTRATIONS
The Company's sales are generally made on account without collateral.
Repayment terms vary based on certain conditions. The Company maintains reserves
which management believes are adequate to provide for potential credit losses.
The majority of the Company's customer base spans the United States.
The Company had two customers at December 31, 1996, and three customers at
December 31, 1997, which individually had accounts receivable balances in excess
of 10% of the total accounts receivable balance. Management believes the total
accounts receivable due from these customers, which was approximately $6,748 and
$4,662 at December 31, 1996 and 1997, respectively, is fully collectible. The
respective percentage for each customer with sales in excess of 10% of the years
ended December 31, 1995, 1996 and 1997, was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A.............................................. 29% 24% 18%
Customer B.............................................. 14% 19% 24%
Customer C.............................................. 13% 10% 11%
</TABLE>
12. CONTINGENCIES
The Company is subject to claims, normally employment related, in the
ordinary course of business. Management does not believe the resolution of any
such claims will result in a material adverse effect on the future financial
condition, results of operations or cash flows of the Company.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair values of its financial instruments:
CURRENT ASSET AND LIABILITIES
The carrying value of the Company's cash, accounts receivable, accounts
payable and accrued expenses approximate fair value because of the short
maturity of these instruments.
F-49
<PAGE> 158
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NONCURRENT LIABILITIES
The Company estimates that the fair value of the Senior Notes at December
31, 1997 is approximately $106,500, compared to the carrying value of $100,000.
In making such assessments, the Company utilized quoted market prices.
14. RELATED PARTY TRANSACTIONS
Transactions involving related parties not otherwise disclosed herein are
as follows:
Management fees of $180 each year have been paid to Thomas H. Lee Company
during 1995, 1996 and 1997, respectively, for management and other consulting
services provided to the Company. Affiliates of the Thomas H. Lee Company
comprise the majority holders of the Company's common stock.
The Company leases warehouse space (near its facilities in Seagrove, North
Carolina) from Jack C. Lail, a shareholder during 1997. The lease terms are
month-to-month, and rent paid under the lease totaled $64 in 1997.
15. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
The Company has significant operations in Mexico as well as the United
States. The operations in Mexico do not involve sales to unaffiliated customers.
All sales for the Mexican subsidiary are to the U.S. Company and are marked up
based on a contract price, which at December 31, 1997 was 6.83%. These sales
were $6,418, $6,081 and $9,363, respectively, for the years ending December 31,
1995, 1996 and 1997 and were eliminated in consolidation.
Identifiable assets in Mexico were $14,823 and $15,128, respectively, at
December 31, 1996 and 1997. These amounts include intercompany
receivables/payables of $835 and $1,586, which were eliminated in consolidation.
The Company had sales to customers in foreign countries of $11,249, $13,148
and $19,256 for the years ending December 31, 1995, 1996 and 1997.
16. ANCHOR ADVANCED PRODUCTS, INC. SEPARATE COMPANY FINANCIAL STATEMENTS
As described in footnote 5, Anchor Advanced Products, Inc. issued $100,000
of 11 3/4% Senior Notes due 2004. These notes have been guaranteed fully and
unconditionally by the parent company, Anchor Holdings, Inc. The separate
financial statements of Anchor Advanced Products, Inc. are not included herein
because management has determined that they are not materially different from
those of Anchor Holdings, Inc. Summarized financial information of Anchor
Advanced Products, Inc. is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current assets..................................... $ 45,680 $ 47,502 $ 49,087
Noncurrent assets.................................. 70,416 69,192 71,544
Current liabilities................................ 19,689 20,023 15,368
Noncurrent liabilities............................. 79,577 75,851 108,286
Equity............................................. 16,830 20,820 (3,023)
</TABLE>
F-50
<PAGE> 159
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
YEARS ENDED DECEMBER 31, --------------------
------------------------------ JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales........................ $149,366 $156,858 $161,161 $84,745 $75,810
Gross profit..................... 24,338 27,637 25,187 13,424 6,578
Income from operations before
extraordinary items............ 2,189 3,417 583 1,290 (6,731)
Net income (loss)................ 2,189 3,417 (627) 80 (4,331)
</TABLE>
17. EARNINGS PER SHARE
The following table sets forth for the periods indicated the calculation of
earnings (loss) per share included in the Company's Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
YEAR ENDED DECEMBER 31, -------------------------
------------------------- JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
------ ------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss) before
extraordinary item............ $2,438 $3,626 $ 838 $ 1,400 $(3,233)
Extraordinary item............... -- -- (1,210) (1,210) --
------ ------ ------- ------- -------
Numerator for basic and diluted
earnings per share............... $2,438 $3,626 $ (372) $ 190 $(3,233)
====== ====== ======= ======= =======
Denominator:
Denominator for basic earnings
per share-- weighted-average
shares........................ 1,018 1,018 1,418 1,551 1,551
Potentially dilutive common
shares........................ 288 352 -- -- --
------ ------ ------- ------- -------
Denominator for diluted earnings
per share--adjusted
weighted-average shares and
dilutive shares.................. 1,306 1,370 1,418 1,551 1,551
====== ====== ======= ======= =======
BASIC
Income before extraordinary
item.......................... $ 2.39 $ 3.56 $ 0.59 $ 0.90 $ (2.08)
Extraordinary item............... -- -- (0.85) (0.78) --
------ ------ ------- ------- -------
Net income....................... $ 2.39 $ 3.56 $ (0.26) $ 0.12 $ (2.08)
====== ====== ======= ======= =======
DILUTED
Income before extraordinary
item.......................... $ 1.87 $ 2.65 $ 0.59 $ 0.90 $ (2.08)
Extraordinary item............... -- -- (0.85) (0.78) --
------ ------ ------- ------- -------
Net income....................... $ 1.87 $ 2.65 $ (0.26) $ 0.12 $ (2.08)
====== ====== ======= ======= =======
</TABLE>
18. OTHER COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, which requires the reporting of
comprehensive income in addition to net income. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
F-51
<PAGE> 160
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information with respect to the accumulated other comprehensive income
balance is as follows:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
YEAR ENDED DECEMBER 31, --------------------------
----------------------- JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
----- ----- ----- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Beginning balance......................... $(400) $(496) $(568) $(568) $(521)
Current period change in additional
pension liability....................... (96) (72) 47 -- --
----- ----- ----- ----- -----
$(496) $(568) $(521) $(568) $(521)
===== ===== ===== ===== =====
</TABLE>
19. INTERIM BASIS OF PRESENTATION (UNAUDITED)
The quarterly condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. Anchor Acquisition
Co. (see Note 20) is not consolidated and push down accounting has not been
applied since the Company had outstanding public debt at the time of
acquisition. All significant intercompany balances and transactions have been
eliminated in consolidation. The quarterly consolidated financial statements
have been prepared, without audit, in accordance with generally accepted
accounting principles, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the quarterly
consolidated financial statements include all adjustments which are necessary
for a fair presentation of the financial position and results of operations for
the interim periods presented, such adjustments being of a normal recurring
nature. Certain information and footnote disclosures have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
quarterly consolidated financial statements and notes thereto be read in
conjunction with the full consolidated financial statements and notes thereto
for the year ended December 31, 1997. Results of operations in interim periods
are not necessarily indicative of results to be expected for a full year.
20. RECENT DEVELOPMENTS (UNAUDITED)
On March 19, 1998 Anchor Acquisition Co., a Delaware corporation
("Purchaser"), entered into a Stock Purchase Agreement (the "Purchase
Agreement") with ML-Lee Acquisition Fund II, L.P., ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P. and Thomas H. Lee Equity Partners, L.P. The
closing of the transactions contemplated by the Purchase Agreement occurred
concurrent with the signing of the Purchase Agreement (the "Closing"). Pursuant
to the terms and conditions of the Purchase Agreement, at the Closing the
Purchaser acquired all of the issued and outstanding shares of capital stock of
Anchor Holdings, Inc., whose wholly owned subsidiary is Anchor Advanced
Products, Inc.
The purchase price was $4.00 per share, of which 1,551,217.66 shares of
common stock, $.01 par value per share, were issued and outstanding, for a total
purchase price of $6,204,870.04. Additionally, the Company paid $2,769 on behalf
of Anchor Acquisition Co. to the holders of the Senior Notes for their consent
to the transaction and to other parties for expenses in regards to the
transaction.
Upon the Closing, the officers and directors of Anchor Holdings, Inc. and
Anchor Advanced Products, Inc. resigned and the Purchaser caused new officers
and a new director of each of those entities to be elected.
On June 3, 1998, the Company froze the benefit accruals for the Anchor
Advanced Products, Inc. Hourly Pension Plan and the Anchor Advanced Products,
Inc. Salaried Pension Plan.
F-52
<PAGE> 161
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Somomeca Industries:
We have audited the accompanying consolidated balance sheets of SOMOMECA
INDUSTRIES (a French corporation) and subsidiaries as of December 31, 1997 and
as of August 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the four month period ended
December 31, 1997 and for each of the three years in the period ended August 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audits.
We conducted our audits in accordance with the generally accepted auditing
standards of France which are substantially similar to the generally accepted
auditing standards of the 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SOMOMECA INDUSTRIES and subsidiaries as of December 31, 1997 and as of August
31, 1997 and 1996, and the results of their operations and their cash flows for
the four month period ended December 31, 1997 and for each of the three years in
the period ended August 31, 1997, in conformity with generally accepted
accounting principles in the United States.
BARBIER, FRINAULT & ASSOCIES
Member Firm of Andersen Worldwide
February 17, 1998
Paris, France
F-53
<PAGE> 162
SOMOMECA INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS--NOTE 2)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 851 $ 804 $ 428
Trade receivables, net of allowance of $91, $213 and
$104 respectively.................................... 21,223 25,752 26,623
Other receivables....................................... 1,235 1,667 1,193
Inventories............................................. 8,976 7,862 7,806
Prepaid expenses........................................ 1,030 502 730
Deferred tax assets..................................... 684 828 617
------- ------- -------
Total current assets............................ 33,999 37,415 37,397
------- ------- -------
PROPERTY, PLANT AND EQUIPMENT, NET........................ 23,676 21,304 22,438
------- ------- -------
OTHER ASSETS.............................................. 7,204 5,928 6,029
------- ------- -------
Total assets.................................... $64,879 $64,647 $65,864
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving lines of credit............................... $ 9,111 $17,841 $16,005
Current portion of long-term obligations................ 5,110 4,328 4,026
Accounts payable........................................ 17,764 16,459 18,221
Accrued liabilities..................................... 9,922 7,121 7,778
------- ------- -------
Total current liabilities....................... 41,907 45,749 46,030
------- ------- -------
DEFERRED INCOME TAXES..................................... 1,192 1,046 1,399
------- ------- -------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION............. 13,286 11,349 10,523
------- ------- -------
MINORITY INTEREST......................................... 2,065 1,430 1,513
------- ------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock (par value of $9.89; 500,000 shares
authorized and outstanding).......................... 4,943 4,943 4,943
Additional paid-in capital.............................. 1,848 1,848 1,848
Retained earnings (deficit)............................. (614) (775) 352
Accumulated foreign currency translation adjustment..... 252 (943) (744)
------- ------- -------
Total stockholders' equity...................... 6,429 5,073 6,399
------- ------- -------
Total liabilities and stockholders' equity...... $64,879 $64,647 $65,864
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 163
SOMOMECA INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF US DOLLARS--NOTE 2)
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED
----------------------------- DECEMBER 31,
1995 1996 1997 1997
------- ------- ------- ------------
<S> <C> <C> <C> <C>
NET SALES....................................... $64,533 $81,983 $84,926 $32,414
COST OF SALES................................... 54,747 70,353 75,807 27,506
------- ------- ------- -------
Gross profit............................. 9,786 11,630 9,119 4,908
OPERATING EXPENSES
Selling and marketing......................... 1,494 1,403 1,690 394
General and administrative.................... 3,317 4,322 4,853 1,337
Other income (expense) net.................... (366) (121) (341) 244
------- ------- ------- -------
Total operating expenses.............. 5,177 5,846 6,884 1,975
------- ------- ------- -------
Operating income...................... 4,609 5,784 2,235 2,933
INTEREST INCOME (EXPENSE)
Interest income............................... 445 37 50 1
Interest expense.............................. (3,042) (3,189) (2,648) (806)
------- ------- ------- -------
Total interest income (expense)....... (2,597) (3,152) (2,598) (805)
------- ------- ------- -------
Income (loss) before income taxes..... 2,012 2,632 (363) 2,128
INCOME TAX (EXPENSE) BENEFIT
Current income tax............................ (679) (995) (74) (373)
Deferred income tax........................... (301) (178) 218 (563)
------- ------- ------- -------
Total income tax (expense) benefit.... (980) (1,173) 144 (936)
------- ------- ------- -------
Income (loss) before minority interest........ 1,032 1,459 (219) 1,192
MINORITY INTEREST............................... (108) (265) 272 (65)
------- ------- ------- -------
NET INCOME...................................... $ 924 $ 1,194 $ 53 $ 1,127
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 164
SOMOMECA INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA--NOTE 2)
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL RETAINED CURRENCY TOTAL
----------------- PAID-IN EARNINGS TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT EQUITY
------- ------ ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE
AUGUST 31, 1994......... 500,000 $4,943 $1,848 $(2,693) $ -- $ 4,098
Net income................ -- -- -- 924 -- 924
Foreign currency
translation
adjustment.............. -- -- -- -- 348 348
------- ------ ------ ------- ------- -------
BALANCE
AUGUST 31, 1995......... 500,000 4,943 1,848 (1,769) 348 5,370
Dividends................. -- -- -- (39) -- (39)
Net income................ -- -- -- 1,194 -- 1,194
Foreign currency
translation
adjustment.............. -- -- -- -- (96) (96)
------- ------ ------ ------- ------- -------
BALANCE
AUGUST 31, 1996......... 500,000 4,943 1,848 (614) 252 6,429
Dividends................. -- -- -- (214) -- (214)
Net income................ -- -- -- 53 -- 53
Foreign currency
translation
adjustment.............. -- -- -- -- (1,195) (1,195)
------- ------ ------ ------- ------- -------
BALANCE
AUGUST 31, 1997......... 500,000 4,943 1,848 (775) (943) 5,073
Net income................ -- -- -- 1,127 -- 1,127
Foreign currency
translation
adjustment.............. -- -- -- -- 199 199
------- ------ ------ ------- ------- -------
BALANCE
DECEMBER 31, 1997....... 500,000 $4,943 $1,848 $ 352 $ (744) $ 6,399
======= ====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 165
SOMOMECA INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF US DOLLARS--NOTE 2)
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED
------------------------------ DECEMBER 31,
1995 1996 1997 1997
------- ------- -------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 924 $ 1,194 $ 53 $ 1,127
Adjustments to reconcile net income to net cash
provided by operating activities.............
Depreciation and amortization.................. 3,324 5,693 6,386 1,971
Loss (gain) on sale of assets.................. (76) (244) (47) 24
Changes in operating assets and liabilities:
(Increase) decrease in inventories........... (80) (3,248) (603) 346
(Increase) decrease in trade and other
receivables............................... (5,164) (7,348) (11,235) 262
(Increase) decrease in other assets.......... 2,451 (1,944) 9 248
Increase (decrease) in accounts payable...... (984) 8,252 2,192 1,180
Increase (decrease) in other liabilities..... 5,177 (1,550) (814) 115
Minority interest............................ (28) (135) (282) 31
------- ------- -------- -------
Net cash provided by (used in) operating
activities........................... 5,544 670 (4,341) 5,304
------- ------- -------- -------
INVESTING ACTIVITIES
Purchase of additional ownership in
subsidiaries................................. -- (297) -- --
Purchase of property, plant and equipment...... (4,115) (6,956) (6,117) (1,771)
Proceeds from sales of property, plant and
equipment.................................... 547 1,728 495 --
------- ------- -------- -------
Net cash used in investing activities..... (3,568) (5,525) (5,622) (1,771)
------- ------- -------- -------
FINANCING ACTIVITIES
Proceeds from (repayment of) short-term
borrowings................................... 1,260 6,972 11,566 (2,512)
Repayment of capital lease obligations......... (4,446) (3,005) (3,085) (824)
Proceeds from issuance of long-term debt....... 2,333 1,656 3,750 --
Repayment of principal of long-term debt....... (773) (806) (1,903) (637)
Dividends...................................... -- (39) (214) --
------- ------- -------- -------
Net cash provided by (used in) financing
activities........................... (1,626) 4,778 10,114 (3,973)
------- ------- -------- -------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON
CASH......................................... 51 17 (198) 64
------- ------- -------- -------
NET INCREASE (DECREASE) IN CASH................ 401 (60) (47) (376)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 510 911 851 804
------- ------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 911 $ 851 $ 804 $ 428
======= ======= ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest..................................... $ 2,995 $ 3,044 $ 2,577 $ 769
------- ------- -------- -------
Income taxes................................. $ 374 $ 1,304 $ 777 $ --
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 166
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA--NOTE 2)
1. BASIS OF PRESENTATION
The SOMOMECA INDUSTRIES and subsidiaries (the Company) consolidated
financial statements include the following entities:
<TABLE>
<CAPTION>
CONSOLIDATED ENTITIES % OWNED BUSINESS
<S> <C> <C>
SOMOMECA INDUSTRIES................. Holdings
SOMOMECA INDUSTRIES owned
subsidiaries:
SAPI (SARL)....................... 100 Manufacturing and selling of
injection molded plastic parts
SOMOPLAST Lorraine................ 100 Manufacturing and selling of
injection molded plastic parts
BBI............................... 100 Manufacturing and selling of
injection molded plastic parts
SCI Bonnevalaise.................. 100 Building ownership
FINANCIERE SOMOMECA............... 73.7 Holdings
FINANCIERE SOMOMECA owned
subsidiaries:
STAPHANE.......................... 100 Manufacturing and selling of molds
for plastic injection
SERIM............................. 100 Manufacturing and selling of molds
for plastic injection and of
injection molded plastic parts
SOMOPLAST......................... 100 Manufacturing and selling of
injection molded plastic parts
SEMIP............................. 100 Manufacturing and selling of molds
for plastic injection
PROMOLDE.......................... 100 Manufacturing and selling of molds
for plastic injection
SCI TERREAU BRENOT................ 95 Building ownership
</TABLE>
The entities listed above were acquired on January 8, 1998 by Moll
PlastiCrafters Limited Partnership.
F-58
<PAGE> 167
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Before September 1995, the legal organization of the various companies
forming SOMOMECA INDUSTRIES was as follows:
<TABLE>
<CAPTION>
% OWNED
<S> <C>
SAPI
SAPI owned subsidiaries:
SCI Bonnevalaise.......................................... 100
BBI....................................................... 100
FINANCIERE SOMOMECA....................................... 16
SCP Staphane
FINANCIERE SOMOMECA....................................... 52
FINANCIERE SOMOMECA owned subsidiaries:
STAPHANE.................................................. 100
SOMOPLAST................................................. 100
SERIM..................................................... 100
SEMIP..................................................... 100
PROMOLDE.................................................. 100
SCI Terreau Brenot........................................ 95
</TABLE>
In September 1995, SAPI and SCP Staphane completed a restructuring which
led to the SOMOMECA INDUSTRIES current structure, as follows:
- SAPI and SCP STAPHANE were merged, to form SOMOMECA INDUSTRIES, holding
company owned by two individuals (the Staphane family).
- The molding activity of SAPI was contributed to a new company, SAPI
(SARL).
- The number of authorized common shares was set at 500,000, with a par
value of $9.89.
As the previous separate entities and newly formed entity were all under
common control, the restructuring has been reflected as if it occurred at
September 1, 1994, similar to a pooling of interest.
As of August 31, 1994, FINANCIERE SOMOMECA was partly directly held by the
two individuals. During the year ended August 31, 1995, the shares of FINANCIERE
SOMOMECA held by the Staphane family were contributed to the Company.
Accordingly, the investment of this family in FINANCIERE SOMOMECA has been
reflected in the position of stockholders' equity at August 31, 1994, as the
Companies were under common control.
SOMOPLAST LORRAINE (100% owned by SOMOMECA INDUSTRIES) was incorporated
during the year ended August 31, 1996. During the same year, SOMOMECA INDUSTRIES
acquired 5.7% of FINANCIERE SOMOMECA shares from CENTREST (a French company).
SOMOMECA INDUSTRIES and its subsidiaries manufacture and sell molds or
injection molded plastic parts to the automotive industry (car manufacturers and
equipment suppliers) and to other industries.
All companies, except PROMOLDE (Portugal), are located in France.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, after elimination of intercompany balances
and transactions.
F-59
<PAGE> 168
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GOODWILL
Goodwill, arising from the difference between the investment cost in
certain subsidiaries and their net assets value at the date of the acquisition,
are being amortized, from the acquisition date, over 20 years. The Company
evaluates on a continual basis, the realizability of goodwill using measurements
of earnings before amortization, as well as operating cash flows for the
respective acquired operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation and
amortization are provided over the following estimated useful lives, using the
straight-line method:
<TABLE>
<S> <C>
Buildings........................................ 20 years
Leasehold improvements........................... 5-10 years
Production equipment............................. 3-7 years
Other equipment.................................. 3-10 years
</TABLE>
REVENUE RECOGNITION
Revenue from sales is recognized at the time products are shipped or at the
time of the first use for molds sold to certain customers and used for
outsourced plastic parts production.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ form those estimates.
INVENTORIES
Inventories are valued at the lower of cost (using the weighted average
cost method) or market.
RETIREMENT INDEMNITIES OBLIGATIONS
Company personnel are granted payments, defined by law, at the time they
retire. The related retirement indemnities obligation has been accrued under the
criteria set forth by Statement of Financial Accounting Standards No. 87.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the company to
concentrations of credit risk consist principally of cash investments and trade
receivables. The Company has cash investment policies that limit investments to
short-term low risk instruments.
With respect to trade receivables, one customer accounted for approximately
17% of SOMOMECA Industries and subsidiaries sales in the four month period ended
December 31, 1997 (24% in 1997, 26% in 1996 and 30% in 1995). In addition,
approximately 18% of total trade receivables as of December 31, 1997 (28% as of
August 31, 1997, and 36% as of August 31, 1996) were from that customer.
Management believes the credit risk associated with this customer is minimal.
F-60
<PAGE> 169
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION
The Company's functional currency is the French Franc. In the accompanying
financial statements, assets and liabilities are translated into US Dollars at
the current exchange rate as of the applicable balance sheet dates. Revenues and
expenses are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation into US Dollars are
reported in a separate component of stockholders' equity.
The functional currency for the Company's only foreign subsidiary (in
Portugal) is its local currency. Accordingly, all the assets and liabilities of
the subsidiary are translated into French Francs at the current exchange rate as
of the applicable balance sheet date. Revenues and expenses are translated at
the average exchange rate prevailing during the period. Gains and losses
resulting from the translation of the subsidiary financial statements were
insignificant as of December 31, 1997.
INCOME TAXES
Deferred taxes are provided utilizing the liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss carryforwards, and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------- DECEMBER 31,
1996 1997 1997
-------- -------- ------------
<S> <C> <C> <C>
Land............................................. $ 845 $ 666 $ 690
Buildings and leasehold improvements............. 14,968 11,973 12,403
Production equipment............................. 30,077 30,910 34,122
Other equipment.................................. 4,412 3,946 3,863
-------- -------- --------
Total cost....................................... 50,302 47,495 51,078
Less--accumulated depreciation................... (26,626) (26,191) (28,640)
-------- -------- --------
$ 23,676 $ 21,304 $ 22,438
======== ======== ========
</TABLE>
4. INVENTORIES
Inventories include the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Raw materials...................................... $ 3,350 $ 2,868 $ 3,294
Work in progress................................... 2,571 2,987 2,841
Finished products.................................. 3,055 2,007 1,671
------- ------- -------
$ 8,976 $ 7,862 $ 7,806
======= ======= =======
</TABLE>
F-61
<PAGE> 170
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. OTHER ASSETS
Other assets include the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Acquisition goodwill............................... $ 8,281 $ 6,753 $ 6,998
Less--amortization................................. (2,325) (2,232) (2,430)
------- ------- -------
5,956 4,521 4,568
Other assets....................................... 1,248 1,407 1,461
------- ------- -------
$ 7,204 $ 5,928 $ 6,029
======= ======= =======
</TABLE>
6. REVOLVING LINES OF CREDIT
Short term financing facilities include the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Authorized lines of credit......................... $31,620 $28,274 $29,314
======= ======= =======
Outstanding amounts under lines of credit.......... $ 9,111 $17,841 $16,005
======= ======= =======
Maximum balances outstanding....................... $20,751 $20,483 $24,247
======= ======= =======
Average balances outstanding....................... $18,355 $18,710 $20,903
======= ======= =======
</TABLE>
Interest rates on these lines of credit are generally based on reference
market rates (such as PIBOR 3 month) plus 1.5% (5% at December 31, 1997).
Lines of credit are secured by substantially all of the Company's assets.
7. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Long-term borrowings............................... $ 6,869 $ 7,033 $ 6,093
Capital leases..................................... 11,005 8,126 7,887
Retirement indemnities obligations................. 522 518 569
------- ------- -------
18,396 15,677 14,549
Less--current portion.............................. (5,110) (4,328) (4,026)
------- ------- -------
$13,286 $11,349 $10,523
======= ======= =======
</TABLE>
Long-term borrowings are secured by substantially all of the Company's
assets. These long-term borrowings did not include any individual loan of
significant amount for each of the periods.
F-62
<PAGE> 171
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest rates on long-term borrowings and capital leases can be summarized
as follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
RANGE OF INTEREST RATES 1996 1997 1997
------------------------- ------- ------- ------------
<S> <C> <C> <C> <C>
Fixed rate loans:
Loans.................... 6.31% to 12.75% $ 6,869 $ 7,033 $ 6,093
Capital leases........... 4.68% to 15.35% 8,472 6,441 6,736
Variable rate loans:
Capital leases........... TAM to TAM + 1.5% 2,533 1,685 1,151
------- ------- -------
$17,874 $15,159 $13,980
======= ======= =======
</TABLE>
Future payments on long-term loans are due as follows:
<TABLE>
<S> <C>
1998................................................ $2,021
1999................................................ 1,767
2000................................................ 1,168
2001................................................ 767
2002................................................ 200
Thereafter.......................................... 170
------
$6,093
======
</TABLE>
The Company leases certain equipment under capital leases which expire on
various dates through 2004. Future payments on capital leases are due as
follows:
<TABLE>
<S> <C>
1998............................................... $ 2,517
1999............................................... 1,999
2000............................................... 1,381
2001............................................... 834
2002............................................... 663
Thereafter......................................... 2,007
Less amount representing interest.................. (1,514)
-------
$ 7,887
=======
</TABLE>
8. RETIREMENT INDEMNITIES OBLIGATIONS
The Company maintains defined unfunded retirement indemnity plans which
cover substantially all of their employees.
In order to comply with US GAAP, the Company has applied SFAS No. 87
"Employers' Accounting for Pensions" and SFAS No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" as follows:
- the transition obligation or fund excess has been determined as of
September 1, 1994 as being the difference between the liabilities
accounted for under prior years' accounting policies and the funded
status of the plans resulting from actuarial calculations; the transition
obligation or fund excess, as determined at September 1, 1994 has been
deducted from retained earnings as if the Company had always applied SFAS
No. 87. Amortization of a transition obligation would have led to
expenses not significantly different from what has been accounted for;
F-63
<PAGE> 172
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- the actuarial method used is the projected unit credit method. However,
when the benefit formulas attribute more benefits to senior employees or
when the plans are integrated with social security systems or multi
employer plans, the Company has elected to apply the projected unit
credit service pro-rata method to avoid delayed recognition of pension
costs.
The status of pension plans determined in accordance with U.S. GAAP is as
follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $ -- $ -- $ --
Non-vested benefit obligation......................... 393 390 428
---- ---- ----
Accumulated benefit obligation.......................... 393 390 428
Effect of projected future salary increases............. 129 128 141
---- ---- ----
Projected benefit obligation............................ $522 $518 $569
==== ==== ====
</TABLE>
The pension liability is included in the accompanying balance sheets as a
component of long-term obligations.
The net periodic pension cost of the Company's retirement indemnity plans,
determined in accordance with US GAAP, includes the following components:
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED
------------------------------ DECEMBER 31,
1995 1996 1997 1997
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Service cost............................... $ 40 $ 46 $ 42 $14
Interest cost on projected benefit
obligation............................... 38 33 31 10
Net amortization and deferrals............. 23 30 28 9
---- ---- ---- ---
Net pension cost........................... $101 $109 $101 $33
==== ==== ==== ===
</TABLE>
Average assumptions used in accounting for the Company's retirement
indemnities obligations under US GAAP are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
<S> <C> <C> <C>
Discount rate............................................. 6.0% 6.0% 6.0%
Rate of increase in compensation levels................... 2.5% 2.0% 2.0%
</TABLE>
9. OPERATING LEASES
The Company leases certain equipment under operating leases. Rent expense
was $261, $290, $155, and $37 for each of the years ended August 31, 1995, 1996
and 1997 and for the four month period ended December 31, 1997 respectively.
Future payments on operating leases were due as follows:
<TABLE>
<S> <C>
1998................................................... $64
1999................................................... 20
2000................................................... 2
---
$86
===
</TABLE>
F-64
<PAGE> 173
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
From time to time the Company is involved in certain legal actions arising
in the ordinary course of business. In the opinion of management, the outcome of
such actions will not have a material adverse effect on the Company's financial
position or results of operations.
11. INCOME TAXES
For income tax purposes, SOMOMECA INDUSTRIES and its subsidiaries formed
two distinct tax consolidation groups. The (provision) benefit for income taxes
consists of the following:
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED
------------------------------ DECEMBER 31,
1995 1996 1997 1997
------- --------- ------ ------------
<S> <C> <C> <C> <C>
Current income tax.......................... $(679) $ (995) $(74) $(373)
Deferred income tax......................... (301) (178) 218 (563)
----- ------- ---- -----
Total (provision) benefit................... $(980) $(1,173) $144 $(936)
===== ======= ==== =====
</TABLE>
The reconciliation of the statutory income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOUR
AUGUST 31, MONTHS ENDED
-------------------- DECEMBER 31,
1995 1996 1997 1997
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Statutory income tax rate........................ 33.3% 36.6% 36.6% 41.6%
Non-deductible expenses.......................... 15.4% 7.5% 3.1% 1.3%
Effect of the variation of statutory income tax
rate........................................... -- 0.4% -- 2.0%
---- ---- ---- -----
48.7% 44.5% 39.7% 44.9%
==== ==== ==== =====
</TABLE>
F-65
<PAGE> 174
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the deferred tax asset (liability) consisted of the
following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Current deferred tax asset
Temporary timing differences....................... $ 279 $ 221 $ 310
Other temporary differences between tax reporting
and US GAAP financial reporting:
--inventory pricing.............................. 171 337 139
--reserve for doubtful accounts.................. 33 78 43
--subsidies income recognition................... 59 89 --
--other, net..................................... 142 103 125
------- ------- -------
684 828 617
------- ------- -------
Non-current deferred tax asset (liability)
Net operating loss carry forward................... 119 178 --
Other temporary differences between tax reporting
and US GAAP financial reporting:
--retirement indemnities......................... 191 189 183
--capital leases................................. (1,092) (896) (861)
--accumulated engineering costs expensed in tax
reporting..................................... (410) (517) (721)
------- ------- -------
(1,192) (1,046) (1,399)
------- ------- -------
Net deferred tax liability......................... $ (508) $ (218) $ (782)
======= ======= =======
</TABLE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments is made in
accordance with the requirements of SFAS No. 107, Disclosures about Fair Value
of Financial Instruments. The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation
methodologies.
CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.
LONG-TERM DEBT
The carrying amount of the revolving lines of credit approximates fair
value as the interest rate fluctuates with changes in market conditions. It is
estimated that the fair value of the long-term debt is $15,516.
F-66
<PAGE> 175
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SALES GEOGRAPHICAL DATA
Sales to foreign countries represented 8%, 10%, 12% and 10% of Company
sales for the years ended August 31, 1995, 1996 and 1997 and for the four-month
period ended December 31, 1997 respectively, as follows:
<TABLE>
<CAPTION>
FOR THE FOUR
MONTHS ENDED
FOR THE YEAR ENDED AUGUST 31, DECEMBER 31,
-------------------------------------------------- --------------
1995 % 1996 % 1997 % 1997 %
------- --- ------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
France............... $59,370 92 $73,784 90 $74,734 88 $29,173 90
Other EEC
countries.......... 5,163 8 8,199 10 10,192 12 3,241 10
------- --- ------- --- ------- --- ------- ---
Total...... $64,533 100 $81,983 100 $84,926 100 $32,414 100
======= === ======= === ======= === ======= ===
</TABLE>
F-67
<PAGE> 176
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Hanning Companies:
We have audited the accompanying combined balance sheets of the HANNING
COMPANIES (see Note 1) as of December 31, 1995 and 1996, and the related
combined statements of operations, equity (deficit) and cash flows for the years
then ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Hanning
Companies as of December 31, 1995 and 1996, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
May 19, 1998
F-68
<PAGE> 177
THE HANNING COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 112,408 $ 371,518
Accounts receivable, net of reserves for doubtful accounts
of $34,000 and $29,000, respectively................... 6,971,529 4,795,473
Inventories, net.......................................... 7,343,295 5,748,393
Deposits on tooling....................................... 3,183,587 3,227,968
Other receivables......................................... 159,274 45,225
Other assets.............................................. 460,350 262,871
----------- -----------
Total current assets.............................. 18,230,443 14,451,448
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 626,337 520,653
Buildings................................................. 5,166,315 3,665,318
Machinery and equipment................................... 6,172,294 6,968,976
Less: accumulated depreciation............................ (5,186,735) (6,116,331)
----------- -----------
Property, plant and equipment, net................ 6,778,211 5,038,616
DUE FROM AFFILIATES, NET.................................... 3,353,088 2,314,405
OTHER ASSETS................................................ 65,294 24,478
----------- -----------
Total assets...................................... $28,427,036 $21,828,947
=========== ===========
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Checks drawn in excess of cash on deposit................. $ 170,858 $ 321,070
Accounts payable.......................................... 10,419,740 8,986,502
Customer deposits on tooling.............................. 4,049,770 3,016,117
Short-term borrowings..................................... 953,343 1,597,777
Current portion of stockholder debt....................... 2,097,103 1,250,766
Current portion of long-term obligations.................. 1,065,374 1,907,866
Accrued liabilities....................................... 3,048,800 3,195,179
----------- -----------
Total current liabilities......................... 21,804,988 20,275,277
----------- -----------
STOCKHOLDER DEBT, NET OF CURRENT PORTION.................... 906,683 259,615
----------- -----------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION............... 3,650,201 1,573,441
----------- -----------
COMMITMENTS AND CONTINGENCIES
EQUITY (DEFICIT):
Capital................................................... 1,405,280 1,420,640
Additional paid-in capital................................ 6,269,319 7,599,372
Receivable from partners.................................. -- (1,000,000)
Translation adjustment.................................... 109,762 38,393
Retained deficit.......................................... (5,719,197) (8,337,791)
----------- -----------
Total equity (deficit)............................ 2,065,164 (279,386)
----------- -----------
Total liabilities and equity (deficit)............ $28,427,036 $21,828,947
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-69
<PAGE> 178
THE HANNING COMPANIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN MONTHS AND SEVEN DAYS
FOR THE YEAR ENDED DECEMBER 31, ENDED AUGUST 7,
-------------------------------- ----------------------------
1995 1996 1996 1997
-------------- -------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES............................. $57,298,730 $54,062,809 $33,075,375 $29,640,348
COST OF SALES......................... 55,447,691 51,456,915 31,526,552 28,342,440
----------- ----------- ----------- -----------
Gross profit........................ 1,851,039 2,605,894 1,548,823 1,297,908
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 4,804,885 5,775,080 3,270,550 2,723,412
TOOLING REVENUE, NET.................. 348,795 957,467 540,610 1,113,673
----------- ----------- ----------- -----------
Operating loss...................... (2,605,051) (2,211,719) (1,181,117) (311,831)
INTEREST INCOME....................... 290,421 209,728 123,800 61,490
INTEREST EXPENSE...................... 727,899 570,847 409,604 290,623
OTHER (INCOME) EXPENSE................ 194,271 (171,104) (141,500) (293,432)
----------- ----------- ----------- -----------
Loss before income tax expense...... (3,236,800) (2,401,734) (1,325,421) (247,532)
----------- ----------- ----------- -----------
INCOME TAX EXPENSE.................... 18,578 216,860 126,545 382,192
----------- ----------- ----------- -----------
Net Loss............................ $(3,255,378) $(2,618,594) $(1,451,966) $ (629,724)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-70
<PAGE> 179
THE HANNING COMPANIES
COMBINED STATEMENTS OF EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RECEIVABLE
PAID-IN FROM TRANSLATION RETAINED
CAPITAL CAPITAL PARTNER ADJUSTMENT DEFICIT TOTAL
---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994.................. $1,405,280 $3,130,806 $ -- $ -- $(2,463,819) $ 2,072,267
Translation
adjustments........... -- -- -- 109,762 -- 109,762
Capital contribution.... -- 3,138,513 -- -- -- 3,138,513
Net loss................ -- -- -- -- (3,255,378) (3,255,378)
---------- ---------- ----------- -------- ----------- -----------
BALANCE, DECEMBER 31,
1995.................. 1,405,280 6,269,319 -- 109,762 (5,719,197) 2,065,164
Translation
adjustment............ -- -- -- (71,369) -- (71,369)
Receivable from
Partner............... -- -- (1,000,000) -- -- (1,000,000)
Capital contribution.... 15,360 1,330,053 -- -- -- 1,345,413
Net loss................ -- -- -- -- (2,618,594) (2,618,594)
---------- ---------- ----------- -------- ----------- -----------
BALANCE, DECEMBER 31,
1996.................. $1,420,640 $7,599,372 $(1,000,000) $ 38,393 $(8,337,791) $ (279,386)
========== ========== =========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-71
<PAGE> 180
THE HANNING COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEVEN MONTHS AND SEVEN DAYS
DECEMBER 31, ENDED AUGUST 7,
-------------------------- ----------------------------
1995 1996 1996 1997
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $(3,255,378) $(2,618,594) $(1,451,966) $ (629,724)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 1,653,439 1,347,843 883,205 640,714
Gain on disposal of fixed assets......... (174,711) (62,397) -- (23,999)
Changes in assets and liabilities:
Accounts receivable.................... (1,112,144) 1,837,848 933,877 (1,235,372)
Due from affiliates, net............... (3,119) 25,714 (97,703) 2,782,953
Inventories............................ 1,082,034 1,285,704 546,713 (739,036)
Deposits on tooling.................... (3,140,865) (146,677) 1,131,761 (4,299,084)
Other assets........................... (203,848) 218,472 (218,012) (148,967)
Other receivables...................... (11,720) 114,049 154,472 3,474
Accounts payable....................... 1,884,153 (938,846) (3,825,510) (1,992,673)
Accrued liabilities.................... (424,178) 339,433 1,301,398 (155,610)
Checks drawn in excess of cash on
deposit............................. (184,328) 150,212 610,906 (321,070)
Customer deposits on tooling........... 3,836,908 (926,547) 302,495 5,822,111
----------- ----------- ----------- -----------
Total adjustments................. 3,201,621 3,244,808 1,723,602 333,441
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities............ (53,757) 626,214 271,636 (296,283)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment.............................. (945,461) (1,029,359) (438,201) (544,845)
Proceeds on disposal of fixed assets..... 174,711 1,248,344 1,163,812 23,999
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities............ (770,750) 218,985 725,611 (520,846)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings...... 800,133 731,628 300,451 (1,387,662)
Partner contributions.................... 3,138,513 1,345,413 15,308 --
Receivable from partner.................. -- (1,000,000) (1,000,000) --
Net change in stockholder debt........... (2,533,096) (1,466,937) (9,495) 2,790,838
Principal payments on long-term
obligations............................ (569,951) (199,102) -- (705,343)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............ 835,599 (588,998) (693,736) 697,833
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE.................... 575 2,909 2,744 (3,839)
----------- ----------- ----------- -----------
NET CHANGE IN CASH......................... 11,667 259,110 306,255 (123,135)
BALANCE AT BEGINNING OF PERIOD............. 100,741 112,408 112,408 371,518
----------- ----------- ----------- -----------
BALANCE AT END OF PERIOD................... $ 112,408 $ 371,518 $ 418,663 $ 248,383
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................... $ 539,854 $ 465,585 $ 172,497 $ 241,773
=========== =========== =========== ===========
Cash paid for income taxes............... $ 19,078 $ 23,661 $ 14,000 $ 258,518
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-72
<PAGE> 181
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Hanning Companies (the "Company") consists of the following entities
which are under common ownership.
<TABLE>
<CAPTION>
TYPE OF COUNTRY OF
COMPANY ENTITY OPERATIONS
<S> <C> <C>
Hanning Corporation......................................... Corporation United States
Moll Industries Paderborn Beteilingungs-GmbH................ Corporation Germany
Moll Industries Paderborn GmbH & Co. ....................... Partnership Germany
Hanning Plastics, Ltd. ..................................... Corporation United Kingdom
Hanning Property Associates................................. Corporation United States
PB Hanning GmbH & Co. ...................................... Corporation Germany
PB Hanning GmbH & Co. Handelsgesellschaft................... Partnership Germany
</TABLE>
The entities listed above were acquired through either asset or stock
purchases on August 8, 1997, by Moll PlastiCrafters Limited Partnership. The
Company manufactures custom injection molded parts which it sells primarily to
customers in the office equipment, home appliance and automotive industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the combined
companies. All significant inter-company balances and transactions have been
eliminated in combination.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from sales of injection molded plastic parts is recognized at the
time products are shipped.
TOOLING
The Company enters into agreements with its major customers to design and
produce certain customer owned plastic injection tooling (primarily molds).
Amounts paid or received by the Company in connection with this activity related
to tooling that remains undelivered at the end of an accounting period are
included as Deposits on Tooling or Customer Deposits on Tooling, respectively,
in the accompanying combined balance sheet. At the time of delivery of completed
tooling, the excess of revenues over costs are recognized in the accompanying
combined statements of operations as tooling revenue, net.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out (FIFO)
method) or market.
F-73
<PAGE> 182
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is valued at cost. Depreciation is computed
using straight-line and accelerated methods over the estimated useful lives of
the assets, as follows:
<TABLE>
<S> <C>
Buildings..................................... 40 to 50 years
Machinery and equipment....................... 3 to 10 years
</TABLE>
INCOME TAXES
Certain of the entities included in the Company are partnerships. The
earnings of the partnerships are included in the tax returns of its partners.
Accordingly, the combined financial statements contained no provision for
federal or state income taxes related to these earnings.
Certain of the entities included in the Company are taxable entities. As
such the Company has accounted for income taxes using the liability method which
requires recognition of deferred tax assets and liabilities for the expected
future consequences of events that have been included in the combined financial
statements or income tax returns.
Certain of the Company's incurred costs were not deductible for income tax
purposes. As a result, the Company incurred current income tax expense. At
December 31, 1996, the Company had net operating loss carryforwards available to
offset future taxable income. However, due to the Company's historical operating
results, it has not recognized a deferred tax asset in the accompanying combined
financial statements.
LONG-LIVED ASSETS
When factors are present which indicate the cost of long-lived assets may
not be recovered, the Company evaluates the realizability of its long-lived
assets, based upon the anticipated future cash flows generated by the asset.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company are translated to United States
dollars at current exchange rates, while revenues and expenses are translated at
the average rate prevailing during the period. Gains and losses resulting from
translation since January 1, 1995 are accumulated in a separate component of
equity (deficit).
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited, interim financial
statements have been prepared on a basis consistent with the audited financial
statements and contain all adjustments necessary to present fairly the Company's
results of operations and cash flows for the seven months and seven days ended
August 7, 1996 and 1997.
F-74
<PAGE> 183
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Raw materials............................................... $4,341,883 $3,325,107
Work-in-process............................................. 1,137,132 694,188
Finished goods.............................................. 2,368,651 2,327,113
Reserve..................................................... (504,371) (598,015)
---------- ----------
$7,343,295 $5,748,393
========== ==========
</TABLE>
4. RELATED PARTIES
The Company has certain transactions with companies that are affiliated
through common ownership. At December 31, 1996, the Company has a net receivable
from these affiliated parties totaling $2,314,405 related to these transactions.
The Company pays management fees to a related company. Management fee
expense was approximately $262,000 and $264,000 for 1995 and 1996, respectively.
5. STOCKHOLDER DEBT
Stockholder debt consists of the following:
A note bearing interest at 7.5% per annum, payable semiannually (interest
expense totaled $155,868 and $83,428 in 1995 and 1996, respectively.) The note
matures on June 30, 1998 and requires repayment in Deutsche Marks. The
outstanding balance was DM 2,200,507 and DM 1,400,507 at December 31, 1995 and
1996, respectively ($1,534,079 and $908,123, respectively). Principle payments,
in U.S. dollars and stated at current exchange rates, are due as follows:
1997--$648,508 and 1998--$259,615. The note is unsecured and may be repaid at
any time without penalty.
A note bearing interest at a prime rate plus 1%, payable quarterly
(interest expense totaled $18,738 in 1996). The outstanding balance was $312,728
at December 31, 1996.
Additionally, the Company has payables to the stockholders totaling DM
2,108,295 and DM 337,174 at December 31, 1995 and 1996, respectively ($1,469,707
and $289,530, respectively). These payables do not bear interest and are due on
demand.
6. SHORT-TERM BORROWINGS
The Company has the following revolving loan facilities:
Facility with a bank which provides for borrowings up to DM 2,000,000
($1,300,000 at December 31, 1996). The Company had a balance outstanding of DM
1,080,672 and DM 2,458,499 at December 31, 1995 and 1996, respectively ($753,343
and $1,597,777, respectively). Interest is payable quarterly at a variable rate
(6.55% at December 31, 1996). The facility is secured by land and an office
building in Germany.
Facility with a bank which provides for borrowings up to $250,000. The
Company had a balance outstanding of $200,000 and $0 at December 31, 1995 and
1996, respectively. Interest is payable monthly at prime (8.25% at December 31,
1996). The facility is secured by all assets of the Company located in the
United States.
F-75
<PAGE> 184
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM OBLIGATIONS
The Company has the following long-term debt obligations:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Term loan payable to a bank, denominated in Deutsche
Marks, payable in annual installments of DM 1,200,000
($779,879 at December 31, 1996 exchange rates), matures
May 10, 1999. Interest payable quarterly at 6.92%.
Secured by land and office building in Germany. ........ $ 3,346,113 $ 2,339,463
Term loan payable to a bank, payable in annual
installments of $181,173 in addition to a balloon
payment of $920,000 due on December 15, 1997. Interest
is payable at the banks base rate plus 1% (9.25% at
December 31, 1996). .................................... 1,300,275 1,101,173
Capital lease obligations (see Note 8).................... 69,187 40,671
----------- -----------
4,715,575 3,481,307
Less current portion...................................... (1,065,374) (1,907,866)
----------- -----------
$ 3,650,201 $ 1,573,441
=========== ===========
</TABLE>
The amounts of all long-term obligations, excluding capital leases, to be
repaid for the years following December 31, 1996 are as follows:
<TABLE>
<S> <C> <C>
1997...................................................... $ 1,881,052
1998...................................................... 779,879
1999...................................................... 779,705
-----------
$ 3,440,636
===========
</TABLE>
8. LEASE COMMITMENTS
The aggregate future minimum fixed lease obligations for the Company as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASES LEASES
-------------- ---------
<S> <C> <C>
1997........................................................ $28,181 $212,541
1998........................................................ 10,509 285,670
1999........................................................ 4,618 35,287
2000........................................................ 385 --
------- --------
Total minimum lease payments................................ 43,693 $533,498
========
Less amounts representing interest.......................... 3,022
-------
Present value of minimum capital lease payments............. $40,671
=======
</TABLE>
Total rent expense for the Company's operating leases for the years ended
December 31, 1995 and 1996 was approximately $180,839 and $654,354.
F-76
<PAGE> 185
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. RETIREMENT PLAN
The Company has a 401(k) deferred compensation plan covering substantially
all U.S. employees meeting the service requirements defined in the plan. Under
the provisions of the plan, employees may elect to contribute up to 15% of their
wages. The Company may make matching contributions equal to a discretionary
percentage, to be determined by the Company. The Company made no contributions
to the plan for the years ended December 31, 1995 and 1996.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments is disclosed
in accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.
Cash, accounts receivable, and accounts payable
The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.
Short-term borrowings
The carrying amounts of the short-term borrowings approximates fair value
as the interest rates reflect market rates.
Long-term obligations
The fair value of the variable rate obligation approximates its fair value
since the interest rate reflects market rates. The fair value of the fixed rate
obligation is estimated to be $1,987,550 as compared to its carrying amount of
$2,339,463. The Company estimated the fair value based on estimated borrowing
rates for similar obligations with similar terms.
Note payable to stockholder
The carrying amount of the note payable approximates fair value based upon
current market rates and the remaining term to maturity.
11. CONTINGENCIES
The Company is a party to various lawsuits and claims in the normal course
of business. While the outcome of the lawsuits and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of these matters will not have a material effect on the Company. The
Company is undergoing a tax audit covering the years 1993 to 1996. Management is
currently not able to determine the effects on the financial statements, if any.
12. MAJOR CUSTOMERS
Two customers accounted for approximately 86% and 91% of the Company's net
sales in 1995 and 1996, respectively. In addition, approximately 86% and 81% of
the Company's total accounts receivable at December 31, 1995 and 1996,
respectively, were from these customers. Management believes the credit risk
associated with these customers to be minimal.
F-77
<PAGE> 186
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. SEGMENT INFORMATION
The Company operates in one industry segment. The following table presents
sales and other financial information by geographic region for the years ended
December 31, 1995 and 1996.
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net sales:
United States........................................... $ 8,599,770 $11,641,318
Europe.................................................. 48,698,960 42,421,491
----------- -----------
Total net sales................................. $57,298,730 $54,062,809
=========== ===========
Operating loss:
United States........................................... $ (322,310) $ 475,000
Europe.................................................. (2,616,741) (2,686,719)
Eliminations............................................ 334,000 --
----------- -----------
Total operating loss............................ $(2,605,051) $(2,211,719)
=========== ===========
Identifiable assets:
United States........................................... $ 8,882,549 $ 7,222,715
Europe.................................................. 20,018,870 16,236,720
Eliminations............................................ (474,383) (1,630,488)
----------- -----------
Total assets.................................... $28,427,036 $21,828,947
=========== ===========
Depreciation and amortization:
United States........................................... $ 618,297 $ 494,497
Europe.................................................. 1,035,142 853,346
----------- -----------
Total........................................... $ 1,653,439 $ 1,347,843
=========== ===========
Capital Expenditures:
United States........................................... $ 516,959 $ 474,874
Europe.................................................. 428,502 554,485
----------- -----------
Total........................................... $ 945,461 $ 1,029,359
=========== ===========
</TABLE>
F-78
<PAGE> 187
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................ i
Prospectus Summary........................... 1
Risk Factors................................. 13
The Company.................................. 20
The Transactions............................. 22
Use of Proceeds.............................. 25
Capitalization............................... 26
Selected Unaudited Pro Forma and Historical
Consolidated Financial Data................ 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 31
The Exchange Offer........................... 42
Business..................................... 49
Management................................... 59
Certain Beneficial Owners.................... 63
Certain Relationships and Related
Transactions............................... 64
Description of Notes......................... 65
Description of Certain Indebtedness.......... 93
Certain Federal Income Tax Considerations.... 96
Plan of Distribution......................... 98
Legal Matters................................ 98
Experts...................................... 98
Index to Unaudited Pro Forma Consolidated
Financial Statements....................... P-1
Index to Financial Statements................ F-1
</TABLE>
UNTIL , 1998 (90 DAYS FOLLOWING THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTIVE TRANSACTIONS IN THE NEW NOTES WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS OBLIGATION IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$130,000,000
[MOLLCORP LOGO]
10 1/2% SENIOR
SUBORDINATED NOTES
DUE 2008
------------------------
PROSPECTUS
------------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL"), as amended,
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL, as amended, empowers a Delaware corporation to
indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
such officer or director acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests, and, for
criminal proceedings, had no reasonable cause to believe his conduct was
unlawful. A Delaware corporation may indemnify officers and directors against
expenses (including attorneys' fees) in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
Restated Certificate of Incorporation
Article Eighth of the Restated Certificate of Incorporation of the Company
provides in relevant part as follows:
No director shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any provision of law imposing such liability; provided, however,
that, to the extent provided by applicable law, this provision shall not
eliminate the liability of a director (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law of Delaware, or
(iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
By-laws
Article 10 of the By-laws of the Company provides as follows:
ARTICLE 10
INDEMNIFICATION
Section 10.1 Third Party Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation,
II-1
<PAGE> 189
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 10.2 Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnify for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 10.3 Expenses. To the extent that a Director, officer, employee or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 10.1 and 10.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 10.4 Authorization. Any indemnification under Sections 10.1 and
10.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 10.1 and 10.2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested Directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.
10.5 Advance Payment of Expenses. Expenses incurred by an officer or
Director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of such officer or Director to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article 10. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
Section 10.6 Non-Exclusiveness. The indemnification provided by this
Article 10 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 10.7 Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the
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<PAGE> 190
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article 10.
Section 10.8 Constituent Corporations. The Corporation shall have power to
indemnify any person who is or was a director, officer, employee or agent of a
constituent corporation absorbed in a consolidation or merger with this
Corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in the same manner as hereinabove
provided for any person who is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
Section 10.9 Additional Indemnification. In addition to the foregoing
provisions of this Article 10, the Corporation shall have the power, to the full
extent provided by law, to indemnify any person for any act or omission of such
person against all loss, cost, damage and expense (including attorney's fees) if
such person is determined (in the manner prescribed in Section 10.4 hereof) to
have acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interest of the Corporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed as a part of this
Registration Statement:
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation of Moll Industries,
Inc. (formerly known as Anchor Advanced Products, Inc.)*
3.2 By-Laws of Moll Industries, Inc.*
4.1 Indenture dated as of June 26, 1998 by and between Moll
Industries, Inc. and State Street Bank and Trust Company, as
trustee*
4.2 Form of 10 1/2% Senior Subordinated Note due 2008 (included
in Exhibit 4.1)*
4.3 Form of Connecticut Development Authority Note*
4.4 Amended and Restated Credit Agreement dated as of June 26,
1998 by and among Moll Industries, Inc., the guarantors from
time party thereto, the lenders from time to time party
thereto and NationsBank, N.A., as agent*
4.5 Pledge Agreement dated as of June 26, 1998 by and among
NationsBank, N.A., Moll Plastics, LLC and Moll Industries,
LLC (English translation)*
4.6 Registration Rights Agreement dated as June 26, 1998 by and
among Moll Industries, Inc. Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities
LLC*
4.7 Indenture dated as of April 2, 1997 by and among between
Anchor Advanced Products, Inc., Anchor Holdings, Inc. and
Fleet National Bank, as trustee*
4.8 First Supplemental Indenture dated as of March 18, 1998 by
and among Anchor Advanced Products, Inc., Anchor Holdings,
Inc. and State Street Bank and Trust Company (as successor
to Fleet National Bank), as trustee*
4.9 Note Guarantee dated as of June 26, 1998*
4.10 Substitute Note Guarantee dated as of June 26, 1998 of Moll
Industries, LLC and Moll Plastics, LLC*
4.11 Substitute Note Guarantee dated as of June 26, 1998 of Moll
PlastiCrafters GmbH, Hanning-Kunststoffe Beteilingungs-GmbH,
Hanning-Kunststoffe GmbH & Co., "PB" Hanning GmbH, and PB
Hanning GmbH & Co. Handelsgesellschaft*
4.12 Substitute Note Guarantee dated as of June 26, 1998 of Moll
Industries UK, Limited*
4.13 Substitute Note Guarantee dated as of June 26, 1998 of Moll
S.P.R.L.*
4.14 Substitute Note Guarantee dated as of June 26, 1998 of Moll
Plastics SARL, 2BI SARL, Somoplast SARL, Semip SARL,
Somomeca Industries SARL, Serim SARL, Staphane SARL, SAPI
SARL and Somoplast Lorraine SARL*
</TABLE>
II-3
<PAGE> 191
<TABLE>
<S> <C>
4.15 Security Agreement dated as of June 26, 1998 by and among
Moll Industries, Inc., the subsidiary guarantors from time
party thereto, Moll Industries, LLC, Moll Plastics LLC and
NationsBank, N.A., as agent for the lenders from time to
time party thereto*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
10.1 Purchase Agreement dated as June 26, 1998 by and among Moll
Industries, Inc. Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities LLC*
10.2 Stock Purchase Agreement dated as of June 4, 1998 by and
among Anchor Advanced Products, Inc., and the Selling
Stockholders of Gemini Plastic Services, Inc.*
10.3 Purchase and Sale Agreement dated as of June 4, 1998 by and
among Anchor Advanced Products, Inc., and the Robert S.
Hayberg and Linda Hayberg*
10.4 Stock Purchase Agreement dated as of March 19, 1998 by and
among Anchor Acquisition Co., Anchor Holdings, Inc. and the
Selling Stockholders of Anchor Holdings, Inc. together with
Exhibits and Schedules*
10.5 Form of Employment Agreement*
10.6 Form of Supplemental Executive Retirement Benefit Agreement
and Side Letter*
10.7 Letter Agreement dated March 19, 1998 between Thomas H. Lee
Company and Anchor Acquisition Co.*
10.8 Employment and Consulting Agreement dated as of June 9, 1998
by and among George T. Votis, Richard P. Fackler, Anchor
Advanced Products, Inc. and Moll PlastiCrafters Limited
Partnerships*
10.9 Combined Share and Asset Purchase Agreement dated August 7,
1997 (the "Combined Purchase Agreement"), by and among the
Sellers and Buyers named therein.*
10.10 Amendment to the Combined Purchase Agreement dated September
23, 1997.*
10.11 Stock Purchase Agreement dated October 28, 1997 by and among
Roland Staphane and Angele Staphane and Moll Plastics SARL.*
12.1 Computation of Ratio of Earnings to Fixed Charges, Ratio of
Earnings to Cash Interest Expense and Ratio of Net Debt to
EBITDA*
16.1 Letter of PricewaterhouseCoopers LLP dated August 3, 1998*
21.1 List of Subsidiaries of Moll Industries, Inc.*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney for Moll Industries, Inc. (contained on
the signature pages of this Registration Statement)*
25.1 Statement of Eligibility and Qualification on Form T-1 of
Trustee*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Clients*
99.4 Form of Letter to Brokers, Dealers, Trust Companies and
Other Nominees*
99.5 Exchange Agent Agreement between Moll Industries, Inc. and
State Street Bank and Trust Company*
</TABLE>
- ------------------------------
* Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by them together represent
the same agreement.
(2) That every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with
II-4
<PAGE> 192
an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first-class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-5
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Tennessee, on
December 23, 1998.
MOLL INDUSTRIES, INC.
By: /s/ GEORGE T. VOTIS
------------------------------------
Name: George T. Votis
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE T. VOTIS Chairman and Chief December 23, 1998
- ----------------------------------------------------- Executive Officer
George T. Votis
* President and Director December 23, 1998
- -----------------------------------------------------
Charles B. Schiele
/s/ PHYLLIS C. BEST Chief Financial Officer December 23, 1998
- -----------------------------------------------------
Phyllis C. Best
*By: /s/ PHYLLIS C. BEST Attorney-in-Fact December 23, 1998
------------------------------------------------
Phyllis C. Best
</TABLE>
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<PAGE> 194
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of Moll Industries,
Inc. (formerly known as Anchor Advanced Products, Inc.)*
3.2 By-Laws of Moll Industries, Inc.*
4.1 Indenture dated as of June 26, 1998 by and between Moll
Industries, Inc. and State Street Bank and Trust Company, as
trustee *
4.2 Form of 10 1/2% Senior Subordinated Note due 2008 (included
in Exhibit 4.1)*
4.3 Form of Connecticut Development Authority Note*
4.4 Amended and Restated Credit Agreement dated as of June 26,
1998 by and among Moll Industries, Inc., the guarantors from
time party thereto, the lenders from time to time party
thereto and NationsBank, N.A., as agent*
4.5 Pledge Agreement dated as of June 26, 1998 by and among
NationsBank, N.A., Moll Plastics, LLC and Moll Industries,
LLC (English translation)*
4.6 Registration Rights Agreement dated as June 26, 1998 by and
among Moll Industries, Inc. Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities
LLC*
4.7 Indenture dated as of April 2, 1997 by and among between
Anchor Advanced Products, Inc., Anchor Holdings, Inc. and
Fleet National Bank, as trustee*
4.8 First Supplemental Indenture dated as of March 18, 1998 by
and among Anchor Advanced Products, Inc., Anchor Holdings,
Inc. and State Street Bank and Trust Company (as successor
to Fleet National Bank), as trustee*
4.9 Note Guarantee dated as of June 26, 1998*
4.10 Substitute Note Guarantee dated as of June 26, 1998 of Moll
Industries, LLC and Moll Plastics, LLC*
4.11 Substitute Note Guarantee dated as of June 26, 1998 of Moll
PlastiCrafters GmbH, Hanning-Kunststoffe Beteilingungs-GmbH,
Hanning-Kunststoffe GmbH & Co., "PB" Hanning GmbH, and PB
Hanning GmbH & Co. Handelsgesellschaft*
4.12 Substitute Note Guarantee dated as of June 26, 1998 of Moll
Industries UK, Limited*
4.13 Substitute Note Guarantee dated as of June 26, 1998 of Moll
S.P.R.L.*
4.14 Substitute Note Guarantee dated as of June 26, 1998 of Moll
Plastics SARL, 2BI SARL, Somoplast SARL, Semip SARL,
Somomeca Industries SARL, Serim SARL, Staphane SARL, SAPI
SARL and Somoplast Lorraine SARL*
4.15 Security Agreement dated as of June 26, 1998 by and among
Moll Industries, Inc., the subsidiary guarantors from time
party thereto, Moll Industries, LLC, Moll Plastics LLC and
NationsBank, N.A., as agent for the lenders from time to
time party thereto*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
10.1 Purchase Agreement dated as June 26, 1998 by and among Moll
Industries, Inc. Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities LLC*
10.2 Stock Purchase Agreement dated as of June 4, 1998 by and
among Anchor Advanced Products, Inc., and the Selling
Stockholders of Gemini Plastic Services, Inc.*
10.3 Purchase and Sale Agreement dated as of June 4, 1998 by and
among Anchor Advanced Products, Inc., and the Robert S.
Hayberg and Linda Hayberg*
10.4 Stock Purchase Agreement dated as of March 19, 1998 by and
among Anchor Acquisition Co., Anchor Holdings, Inc. and the
Selling Stockholders of Anchor Holdings, Inc. together with
Exhibits and Schedules*
10.5 Form of Employment Agreement*
10.6 Form of Supplemental Executive Retirement Benefit Agreement
and Side Letter*
10.7 Letter Agreement dated March 19, 1998 between Thomas H. Lee
Company and Anchor Acquisition Co.*
</TABLE>
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.8 Employment and Consulting Agreement dated as of June 9, 1998
by and among George T. Votis, Richard P. Fackler, Anchor
Advanced Products, Inc. and Moll PlastiCrafters Limited
Partnerships*
10.9 Combined Share and Asset Purchase Agreement dated August 7,
1997 (the "Combined Purchase Agreement"), by and among the
Sellers and Buyers named therein.*
10.10 Amendment to the Combined Purchase Agreement dated September
23, 1997.*
10.11 Stock Purchase Agreement dated October 28, 1997 by and among
Roland Staphane and Angele Staphane and Moll Plastics SARL.*
12.1 Computation of Ratio of Earnings to Fixed Charges, Ratio of
Earnings to Cash Interest Expense and Ratio of Net Debt to
EBITDA.*
16.1 Letter of PricewaterhouseCoopers LLP dated August 3, 1998*
21.1 List of Subsidiaries of Moll Industries, Inc.*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney for Moll Industries, Inc. (contained on
the signature pages of this Registration Statement)*
25.1 Statement of Eligibility and Qualification on Form T-1 of
Trustee*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Clients*
99.4 Form of Letter to Brokers, Dealers, Trust Companies and
Other Nominees*
99.5 Exchange Agent Agreement between Moll Industries, Inc. and
State Street Bank and Trust Company*
</TABLE>
- ------------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to inclusion in the Prospectus constituting part of this
Amendment No. 4 to the Registration Statement on Form S-4 (File No. 333-60857)
of Moll Industries, Inc. of our report dated February 20, 1998, relating to the
financial statements of Anchor Holdings, Inc., which report appears in such
Prospectus. We also consent to the references to us under the heading "Experts"
in the Prospectus.
PricewaterhouseCoopers LLP
Knoxville, Tennessee
December 23, 1998
<PAGE> 1
EXHIBIT 23.2
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the financial statements of Moll PlastiCrafters Limited Partnership, The
Hanning Companies and Somomeca Industries, and to all references to our firm
included in or made a part of this registration statement of Moll Industries,
Inc., relating to the registration if its 10.5% Senior Subordinated Notes due
2008.
/s/ Arthur Andersen LLP
Nashville, Tennessee
December 22, 1998
