<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-32041
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRECISE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1205268
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
and subsidiary guarantors
PRECISE TECHNOLOGY OF DELAWARE, INC.
PRECISE TECHNOLOGY OF ILLINOIS, INC.
PRECISE TMP, INC.
PRECISE POLESTAR, INC.
MASSIE TOOL, MOLD & DIE, INC.
(Exact name of registrants as specified in their respective charters)
DELAWARE 51-0351451
DELAWARE 36-4068725
VIRGINIA 54-1253743
VIRGINIA 54-1675114
FLORIDA 54-1683716
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3089
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
------------------------
<TABLE>
<S> <C>
JOHN R. WEEKS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRECISE TECHNOLOGY, INC.
501 MOSSIDE BLVD. 501 MOSSIDE BLVD.
NORTH VERSAILLES, PENNSYLVANIA 15137-2553 NORTH VERSAILLES, PENNSYLVANIA 15137-2553
(412) 823-2100 (412) 823-2100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER,
EXECUTIVE OFFICE) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
COPY TO:
ROBERT W. ERICSON
WINSTON & STRAWN
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 294-6741
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the Securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
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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<PAGE>
PRECISE TECHNOLOGY, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- ------ ------------------------------------------ --------------------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other
Information............................. Summary; Risk Factors; Selected Financial Data; Pro Forma
Financial Data
4. Terms of the Transaction.................. Outside Front Cover Page; Summary; Description of Notes; The
Exchange Offer; Certain U.S. Federal Income Tax
Considerations
5. Pro Forma Financial Information........... Pro Forma Financial Data
6. Material Contracts with the Company Being
Acquired................................ Inapplicable
7. Additional Information Required........... Inapplicable
8. Interests of Named Experts and
Counsel................................. Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Inapplicable
10. Information with Respect to S-3
Registrants............................. Inapplicable
11. Incorporation of Certain Information by
Reference............................... Inapplicable
12. Information with Respect to S-3 or S-2
Registrants............................. Inapplicable
13. Incorporation of Certain Information by
Reference............................... Inapplicable
14. Information with Respect to Registrants
other than S-3 or S-2 Registrants....... Outside Front Cover Page; Summary; Risk Factors;
Capitalization; Pro Forma Financial Data; Selected Financial
Data; Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business; Management;
Certain Transactions; Principal Stockholders; Description of
Certain Indebtedness; Description of Notes
15. Information with Respect to S-3
Companies............................... Inapplicable
16. Information with Respect to S-3 or S-2
Companies............................... Inapplicable
17. Information with Respect to Companies
Other than S-3 or S-2 Companies......... Inapplicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... Inapplicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................. Management; Principal Stockholders; Certain Transactions
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
PROSPECTUS
PRECISE TECHNOLOGY, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
SERIES B 11 1/8% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
11 1/8% SENIOR SUBORDINATED NOTES DUE 2007,
OF WHICH $75,000,000 PRINCIPAL AMOUNT IS OUTSTANDING
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
------------------------
Precise Technology, Inc., a Delaware corporation ('Precise,' and together
with its direct and indirect subsidiaries, the 'Company,' unless the context
otherwise requires), hereby offers (the 'Exchange Offer'), upon the terms and
conditions set forth in this Prospectus (the 'Prospectus') and the accompanying
Letter of Transmittal (the 'Letter of Transmittal'), to exchange $1,000
principal amount of its Series B 11 1/8% Senior Subordinated Notes due 2007 (the
'New Notes'), registered under the Securities Act of 1933, as amended (the
'Securities Act'), pursuant to a Registration Statement of which this Prospectus
is a part, for each $1,000 principal amount of its outstanding 11 1/8% Senior
Subordinated Notes due 2007 (the 'Old Notes'), of which $75,000,000 principal
amount is outstanding. The form and terms of the New Notes are the same as the
form and terms of the Old Notes (which they replace), except that the New Notes
will bear a Series B designation and will have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions relating to the payment of Liquidated
Damages (as defined herein) which were included in the terms of the Old Notes in
certain circumstances relating to the timing of the Exchange Offer. The New
Notes will evidence the same debt as the Old Notes (which they replace) and will
be issued under and be entitled to the benefits of the Indenture, dated as of
June 13, 1997 (the 'Indenture'), among Precise, the Guarantors (as defined
herein) and Marine Midland Bank, as trustee (the 'Trustee'). The Old Notes and
the New Notes are sometimes referred to herein collectively as the 'Notes.' See
'The Exchange Offer' and 'Description of Notes.'
The New Notes will be general unsecured obligations of Precise,
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company, including all obligations of the Company under
the New Credit Agreement (as defined herein), and senior to or pari passu with
all existing and future subordinated indebtedness of the Company. PRECISE'S
PAYMENT OBLIGATIONS UNDER THE NEW NOTES WILL BE JOINTLY AND SEVERALLY, FULLY AND
UNCONDITIONALLY GUARANTEED, ON A SENIOR SUBORDINATED BASIS, BY ALL OF PRECISE'S
EXISTING SUBSIDIARIES (AS DEFINED HEREIN) (PRECISE TECHNOLOGY OF DELAWARE, INC.,
PRECISE TECHNOLOGY OF ILLINOIS, INC., PRECISE TMP, INC., PRECISE POLESTAR, INC.,
AND MASSIE TOOL, MOLD & DIE, INC.) AND CERTAIN FUTURE RESTRICTED SUBSIDIARIES
(AS DEFINED HEREIN) (COLLECTIVELY, THE 'GUARANTORS'). See 'Description of
Notes--Subsidiary Guarantees.' As of August 31, 1997, Precise and the Guarantors
had outstanding approximately $86.7 million and $11.7 million of total
consolidated indebtedness and consolidated Senior Debt, respectively. See
'Description of Notes--Subordination' and 'Capitalization.' The Indenture (as
defined herein) pursuant to which the New Notes will be issued permits Precise
and the guarantors to incur additional indebtedness, including Senior Debt,
subject to certain limitations. See 'Description of Notes--Certain Covenants.'
(Continued on Next Page)
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
------------------------
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 COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
(Continued from Cover Page)
Interest on the Notes will be paid in cash semi-annually on June 15 and
December 15 of each year, commencing on December 15, 1997. The Notes will mature
on June 15, 2007 and are not subject to any sinking fund requirement. The Notes
are redeemable at the option of Precise, in whole or in part, at any time on or
after June 15, 2002, at the redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
redemption. Notwithstanding the foregoing, Precise, at its option, may redeem in
the aggregate up to 33 1/3% of the original principal amount of the Notes at any
time and from time to time prior to June 15, 2000 at 111.125% of the aggregate
principal amount so redeemed, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the Net Proceeds (as
defined herein) of one or more Public Equity Offerings (as defined herein),
provided that at least 66 2/3% of the aggregate principal amount of the Notes
originally issued remain outstanding immediately after the occurrence of any
such redemption and that any such redemption occurs within 90 days following the
closing of any such Public Equity Offering. In addition, at any time prior to
June 15, 2002, Precise may, at its option, redeem the Notes, in whole or in
part, at a redemption price equal to 100% of the principal amount thereof plus
the applicable Make-Whole Premium (as defined herein). See 'Description of
Notes--Optional Redemption.'
Upon a Change of Control (as defined herein), each holder of the Notes will
be entitled to require Precise to repurchase such holder's Notes at 101% of the
principal amount thereof plus accrued and unpaid interest to the repurchase
date. See 'Description of Notes--Repurchase at the Option of Holders--Change of
Control.' In addition, Precise is obligated in certain instances to make an
offer to repurchase the Notes at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest to the date of
repurchase with the net cash proceeds of certain asset sales. See 'Description
of Notes--Certain Covenants--Merger, Consolidation or Sale of Assets.'
Precise will accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time on , 1997,
unless extended by Precise in its sole discretion (the 'Expiration Date').
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Old Notes were sold in an aggregate principal amount of $75.0 million
by Precise on June 13, 1997 to Bear, Stearns & Co. Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the 'Initial Purchasers') in a transaction
not registered under the Securities Act in reliance upon the private offering
exemption under Section 4(2) of the Securities Act (the 'Initial Offering'). The
Initial Purchasers subsequently placed the Old Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred
in the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The New Notes are being offered hereunder in order to satisfy the
obligations of Precise and the Guarantors under the Registration Rights
Agreement (as defined herein) entered into by Precise and the Guarantors in
connection with the Initial Offering. See 'The Exchange Offer.'
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the 'Commission') to third parties, Precise believes the
New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an 'affiliate' of Precise 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 or understanding with any person to participate in the distribution
of such New Notes. See 'The Exchange Offer--Resale of the New Notes.' Each
broker-dealer (a 'Participating 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
Participating 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 Participating
Broker-Dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such Participating Broker-Dealer
as a result of marketmaking activities or other trading activities. The Company
has agreed that, for a period of one year after the Exchange Offer Effectiveness
2
<PAGE>
(Continued from Cover Page)
Date (as defined), it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See 'Plan of
Distribution.'
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. Precise will
pay all the expenses incurred by it incident to the Exchange Offer. See 'The
Exchange Offer.'
There has not previously been any public market for the Old Notes or the
New Notes. Precise does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the New Notes will
develop. See 'Risk Factors--Absence of a Public Market.' Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
The New Notes will be available initially only in book-entry form and
Precise expects that the New Notes issued pursuant to the Exchange Offer will be
issued in the form of a Global Note (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company ('DTC') and registered in
its name or in the name of Cede & Co., its nominee. Beneficial interests in the
Global Note representing the New Notes will be shown on, and transfers thereof
will be effected through, records maintained by DTC and its participants. After
the initial issuance of the Global Note, New Notes in certificated form will be
issued in exchange for the Global Note only under the limited circumstances set
forth in the Indenture. See 'Description of Notes--Book-Entry, Delivery and
Form.'
3
<PAGE>
AVAILABLE INFORMATION
Precise and the Guarantors have filed with the Commission a Registration
Statement on Form S-4 (the 'Exchange Offer Registration Statement,' which term
shall encompass all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the New Notes being offered hereby. This Prospectus does
not contain all the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Company and the Exchange
Offer, reference is made to the Exchange Offer Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Exchange Offer
Registration Statement, including the exhibits thereto, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional Offices of
the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048 and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, Precise and the Guarantors will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The obligation of
Precise and the Guarantors to file periodic reports and other information with
the Commission will be suspended if the Notes are held of record by fewer than
300 holders as of the beginning of any fiscal year of Precise and the Guarantors
other than the fiscal year in which the Exchange Offer Registration Statement is
declared effective. Precise 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 a filing with the Commission on Forms 10-Q and 10-K if Precise 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 Precise's independent auditors and
(ii) all current reports that would be required to be filed with the Commission
on Form 8-K if Precise were required to file such reports.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN 'FORWARD-LOOKING STATEMENTS' CONCERNING
THE COMPANY'S OPERATIONS, OPERATING PERFORMANCE AND FINANCIAL CONDITION, WHICH
ARE SUBJECT TO INHERENT UNCERTAINTIES AND RISKS, INCLUDING THIS IDENTIFIED UNDER
'RISK FACTORS.' ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THIS PROSPECTUS. WHEN USED IN THIS PROSPECTUS, THE WORDS 'ESTIMATE,' 'PROJECT,'
'ANTICIPATE,' 'EXPECT,' 'INTEND,' 'BELIEVE' AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by the more detailed information and
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used in this Prospectus, 'Precise' refers to
Precise Technology, Inc. and the 'Company' refers to Precise and its direct and
indirect subsidiaries, unless the context otherwise requires. The Company
acquired Unity Mold Corporation (the 'Unity Acquisition') and Tredegar Molded
Products Company (the 'Tredegar Acquisition') in January and March of 1996,
respectively. All references to 'Tredegar' in this Prospectus are to Tredegar
Molded Products Company. Unless otherwise specified, pro forma information
contained in this Prospectus gives effect to (i) the Unity Acquisition and the
Tredegar Acquisition as if such acquisitions (the 'Acquisitions') had occurred
on January 1, 1996, (ii) the Initial Offering and the application of the net
proceeds therefrom and (iii) the consummation of the New Credit Agreement and
the incurrence of $8.2 million of indebtedness thereunder to partially fund the
transactions described under '--The Initial Offering--Notes.' The Initial
Offering, the application of the net proceeds therefrom, the consummation of the
New Credit Agreement and the incurrence of $8.2 million of indebtedness
thereunder upon the closing of the Initial Offering are referred to collectively
herein as the 'Refinancing Transactions.' Combined financial data for 1995
included in this Prospectus reflects the combined operations of the Company,
Unity Mold Corporation and Tredegar Molded Products Company for the entire
period, without giving effect to pro forma acquisition adjustments.
THE COMPANY
The Company is a leading full-service, custom injection molder of precision
plastic products, focusing on three broad markets: healthcare, packaging and
consumer/industrial products. These markets are characterized by high volume
requirements, long product life cycles, limited vulnerability to recessionary
trends and relatively low susceptibility to off-shore competition. The Company
differentiates itself by providing total project management, including
value-added services, for the manufacture of highly engineered, close tolerance
products, such as disposable medical devices, thin-wall consumer product
containers and electrical connectors. The Company currently serves a diverse
base of original equipment manufacturers ('OEMs'), including Fortune 500
companies such as Abbott Laboratories ('Abbott Labs'), The Gillette Company
('Gillette') and The Procter & Gamble Company ('Procter & Gamble'). The Company
is the sole or primary source supplier of the products that it manufactures for
many of its customers. The Company generated net sales and EBITDA (as defined)
of $93.3 million and $13.6 million, respectively, in the year ended December 31,
1996. See Note (5) to 'Selected Financial Data' for further information
regarding EBITDA.
The Company operates approximately 185 molding machines in nine
strategically located facilities throughout the eastern and midwestern United
States, three of which have advanced mold making capabilities. Precise has both
injection molding and mold making operations independent of its subsidiaries.
Precise Technology of Illinois, Inc. and Precise TMP, Inc. have both injection
molding and mold making operations, Precise Technology of Delaware, Inc. and
Precise Polestar, Inc. have injection molding operations only, and Massie Tool,
Mold & Die, Inc. currently has no significant operations. The Company is capable
of providing its customers with comprehensive custom manufacturing services,
including extensive product design and prototype development, mold design and
manufacturing, close tolerance injection molding and value-added finishing
services such as packaging, assembly and decoration. The Company's
technologically advanced, computer-aided manufacturing facilities and equipment
enable it to engineer custom solutions to technically demanding customer
requirements, which are generally characterized by close tolerances and high
speed, volume and durability parameters. The high level of automation in many of
the Company's manufacturing facilities minimizes both direct labor input and
scrap loss. The Company believes that its leading technical capabilities and
reputation for high quality products, on-time deliveries and reliability have
enabled it to both obtain new customers and further penetrate existing
customers.
Precise was acquired in 1990 by an entity managed by Mentmore Holdings
Corporation ('Mentmore'), a privately-held investment and management company.
Mentmore recruited an experienced management team beginning in 1990 to implement
several key strategic initiatives aimed at improving the Company's competitive
standing and profitability, as well as promoting internal and external growth.
As a result of these initiatives, the Company's net sales and EBITDA increased
from $22.8 million and $(129,000), respectively, in 1991 to
5
<PAGE>
$33.5 million and $4.5 million, respectively, in 1995 (prior to the
Acquisitions). In addition, during the same period, the Company's EBITDA margin
improved from (0.6)% to 13.3%. See Note (5) to 'Selected Financial Data' for
further information regarding EBITDA.
In 1996, the Company acquired Tredegar Molded Products Company
('Tredegar'), a full-service plastics injection molder supplying OEMs primarily
in the healthcare, packaging and consumer/industrial markets, and Unity Mold
Corporation ('Unity'), a plastics injection molder specializing in medical
diagnostic products and precision valves. The Acquisitions more than tripled the
Company's net sales on a pro forma basis, making it one of the larger custom
injection molders in the United States. Management believes that the
Acquisitions also significantly enhanced the Company's prospects for future
growth by expanding its manufacturing and technological capabilities, enlarging
its customer base, strengthening its relationships with certain existing
customers and broadening its geographic presence. In addition, the Acquisitions
provided the Company with significant opportunities for economies of scale in
raw material purchasing and reductions in manufacturing and administrative
costs. As a result of operating improvements implemented by the Company since
the Acquisitions were completed, the Company's EBITDA and EBITDA margin
increased from $12.7 million and 9.8%, respectively, on a combined basis in 1995
to $16.3 million and 14.2%, respectively, on a pro forma basis in the year ended
December 31, 1996. See Note (5) to 'Selected Financial Data' for further
information regarding EBITDA.
Injection molding is one of the most widely used plastic processing methods
in the world. According to The Freedonia Group, Inc. ('The Freedonia Group'), an
independent market research firm, annual shipments of injection molded plastic
products have increased from approximately 7 billion pounds in 1985 to
approximately 11 billion pounds in 1994, and are expected to exceed 13 billion
pounds by the year 2000. This growth is driven by the relative design and
production versatility offered by injection molding versus other manufacturing
processes and the continued substitution of plastic for materials such as metal,
glass and paper. The Company believes that this substitution is primarily the
result of plastic's unique physical product attributes such as recyclability,
durability, cosmetic appeal, flexibility of form and cost and weight advantages.
The United States plastics injection molding industry is comprised of over
7,000 molders, the substantial majority of which are small operators or captive
divisions of larger companies. Management believes that larger injection molders
such as the Company will benefit from continued industry consolidation and the
trend by OEMs to outsource their injection molding needs to larger, full-service
independent molders that are able to provide total project management. High
volume OEMs are increasingly implementing rigorous programs for evaluating and
rating suppliers, which encompass quality, cost control, reliability, new
technology implementation and overall management. Management believes that a
limited number of injection molders are capable of providing the breadth of
services increasingly being demanded by high volume OEMs. As a result,
management believes that full-service, multiple plant suppliers, such as the
Company, are becoming increasingly important to large OEMs who are looking to
form long-term alliances with key suppliers.
COMPETITIVE STRENGTHS
Management believes that the Company is well positioned to capitalize on
the favorable trends in the plastics injection molding industry and to enhance
its position in its target markets. The following are, in management's view, the
Company's principal competitive strengths:
FULL-SERVICE CAPABILITIES. The Company offers comprehensive services
ranging from product design, product development and mold making through
molding, decorating and assembly. As one of a limited number of injection
molders in the United States capable of offering such comprehensive services,
management believes that the Company is well positioned to benefit from the
consolidation currently taking place in the injection molding industry and the
trend among high volume OEMs to increasingly rely upon custom injection molders
for total project management.
ADVANCED MANUFACTURING CAPABILITIES. The Company uses state-of-the-art
computer-aided design/computer-aided manufacturing ('CAD/CAM') technology in the
design and manufacture of its molds and subjects each mold to extensive testing
to ensure that it meets high quality standards. The Company has also made
substantial investments in advanced high speed molding machines and
significantly expanded its use of
6
<PAGE>
automation and robotics in its manufacturing and assembly operations. As a
result of its efforts, the Company has received numerous quality awards,
including Gillette's OmniMark Award, the Lexmark International Prestige Supplier
Award and the bioMerieux Vitek World Class Supplier Award. In addition, the
Company has achieved 'ship-to-stock' status with many of its customers, whereby
the Company's products are not subject to quality inspections by such customers
prior to being stocked. Management believes that the Company's mold making
capabilities and the high quality of its molding have been integral in the
Company's strategy of focusing on highly engineered products.
LOW COST PRODUCTION. The Company has been successful in reducing costs by
improving manufacturing efficiency, introducing advanced molding technology and
realigning facilities and production to increase facility utilization. In
addition, as one of the largest manufacturers in the plastics injection molding
industry, the Company is able to realize significant economies of scale in raw
material purchasing. Management believes that by being one of the industry's low
cost producers, the Company enjoys a significant advantage over many of its
competitors in obtaining new business.
MULTIPLE PLANT LOCATIONS. Management believes that the Company's nine
plants, located throughout the eastern and midwestern United States, provide it
with the opportunity to effectively compete for new product contracts that
require large volume runs and multiple distribution points. The Company's
multiple plant locations enable it to 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 provides its customers with a broad range of
injection molding capabilities and better service through improved
responsiveness, timely delivery and reduced freight costs. In addition, by
operating numerous plants, the Company can mitigate customer sourcing risks
associated with single facility production.
EXPERIENCED MANAGEMENT. The six members of the Company's senior management
team have, on average, approximately 19 years of experience in the plastics
injection molding industry. The members of the management team, most of whom
were recruited by Mentmore in 1990 and 1991 from other leading plastics
companies, are largely responsible for the substantial growth and improved
operating performance that the Company has experienced over the past five years.
BUSINESS STRATEGY
The Company's objective is to become the leading supplier of plastic molded
products to leading OEMs in the healthcare, packaging and consumer/industrial
markets. The key elements of the Company's business strategy to achieve this
objective are as follows:
FOCUS ON TARGET MARKETS. The Company focuses its marketing efforts on high
margin accounts in the healthcare, packaging and consumer/industrial markets.
These markets are characterized by high volume requirements, long product life
cycles, limited vulnerability to recessionary trends and relatively low
susceptibility to off-shore competition. By focusing on high volume, long run
manufacturing for products in these markets, management believes that the
Company will be able to maximize its profitability and best utilize its
resources.
FURTHER PENETRATE EXISTING CUSTOMER BASE. As OEMs continue to reduce their
supplier base and outsource their injection molding needs, the Company has the
opportunity to increase sales to its existing customers and participate in their
domestic and international growth. The Company seeks to capitalize on these
favorable industry trends and growth opportunities by expanding its sales force,
emphasizing its full-service capabilities and developing close working
relationships with its customers.
INVEST IN TECHNOLOGY AND QUALITY IMPROVEMENTS. The Company continues to
improve productivity through an on-going program of upgrading equipment and
facilities and investing in automation, robotics and other technological
improvements. Management believes that these initiatives, as well as a focus on
quality in all aspects of manufacturing and customer service, will further
enable the Company to increase sales to its existing customers, develop new
customer relationships and improve its profit margins through increased
efficiencies.
REDUCE COSTS AND INCREASE PRODUCTIVITY. The Company focuses on
simultaneously reducing costs while meeting the high quality standards of its
customers. Through aggressive asset management, the use of total
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quality management techniques and extensive employee training and incentive
programs, the Company strives to reduce costs and increase productivity. As a
result, the Company's net sales per employee increased from $87,000 in 1991 to
$127,000, on a pro forma basis, in 1996, and the Company's EBITDA margin
improved from (0.6)% to 14.2% during the same period. The Company intends to
continue to implement measures that minimize costs, increase margins and result
in competitive prices for its customers. See Note (5) to 'Selected Financial
Data' for further information regarding EBITDA.
DEVELOP PARTNERSHIPS WITH KEY CUSTOMERS. In response to customers'
increasing focus on outsourcing non-core activities such as injection molding,
management continues to pursue customer partnerships that involve sole or
primary source production and total project management under long-term
contracts. For example, the Company's 51,000 square foot, state-of-the-art
Customer-Aligned-Production ('CAP') facility in Newark, Delaware (the 'Delaware
CAP Facility') is specifically designed to serve the needs of Procter & Gamble
and other customers in the thin-wall packaging market segment. Through this
facility, the Company currently is the sole source manufacturer of polypropylene
containers for Baby Fresh(Trademark) baby wipes for Procter & Gamble and
Softkins(Trademark) moist tissues for Kimberly-Clark Corporation
('Kimberly-Clark'), producing approximately 18 million units in 1996. Because of
its highly automated manufacturing process, the Delaware CAP Facility's direct
labor costs as a percentage of net sales in 1996 were 1.9%, compared to what
management believes to be an industry average of approximately 10.0%. The
Company intends to continue to pursue CAP facilities and similar partnerships
with other customers.
SELECTIVELY PURSUE ACQUISITION OPPORTUNITIES. 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's recent acquisitions have expanded its customer base, complemented
its existing technological and manufacturing capabilities, presented substantial
cost savings opportunities and provided significant growth opportunities. The
Company will consider future acquisition opportunities that are attractively
priced and that it believes will strengthen its customer base, broaden its
geographic presence, enhance its production capabilities and/or provide
significant operating synergies.
------------------------
The Company's principal executive offices are located at 501 Mosside
Boulevard, North Versailles, Pennsylvania 15137. Its telephone number at that
location is (412) 823-2100. Precise was incorporated in Delaware on August 14,
1969.
THE INITIAL OFFERING
Notes
Pursuant to a Purchase Agreement dated as of June 10, 1997 (the 'Purchase
Agreement'), Precise sold Old Notes in an aggregate principal amount of $75.0
million to the Initial Purchasers on June 13, 1997. The Initial Purchasers
subsequently resold the Old Notes purchased from Precise to qualified
institutional buyers pursuant to Rule 144A under the Securities Act. A
substantial portion of the net proceeds from the Initial Offering, estimated to
have been approximately $70.1 million after deducting discounts and commissions
to the Initial Purchasers and estimated expenses relating to the consummation of
the Refinancing Transactions, together with initial borrowings under the New
Credit Agreement, were used to refinance indebtedness and redeem preferred stock
issued in connection with the Tredegar Acquisition. Specifically, the Company
used a portion of the net proceeds from the Initial Offering to repay
$37,007,000 of principal, $250,000 of accrued interest and $221,000 of early
termination fees outstanding under that certain Credit Agreement dated as of
March 28, 1996 (the 'Prior Credit Agreement') among Parent, Precise and the
lenders named therein, under which borrowings bore interest at an average rate
of 8.81% as of June 13, 1997. In addition, the Company used a portion of the net
proceeds from the Initial Offering to (i) repay $20,000,000 of principal
(including $1,744,000 of unamortized original issue discount) and pay a
$2,178,000 prepayment premium under the Company's 12.25% Senior Subordinated
Notes due 2006 (the 'Retired Notes'), (ii) redeem (A) 575 shares of Exchangeable
Preferred Stock (as defined) with a liquidation preference of $10,000 per share
and (B) 250 shares of Seller Preferred Stock with a liquidation preference of
$10,000 per share that were issued by Precise in connection with the Tredegar
Acquisition and (iii) repurchase from Parent 124 shares of Common Stock of
Precise ('Common Stock') previously issued to Parent at the time the Parent
Preferred Stock was issued in exchange for certain preferred stock of Precise
for $3,315,000, the
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proceeds of which were used to redeem 331.46 shares of Parent's 9.5% Preferred
Stock (the 'Parent Preferred Stock') held by Hamilton Holdings Ltd. Corporation,
an entity whose principal officers are Richard L. Kramer and William L. Remley,
executive officers and directors of Precise. See 'Certain Transactions--Tredegar
Financing Transactions' and, in connection with (ii) and (iii) above, Notes 2
and 13 to the audited consolidated financial statements of the Company included
elsewhere in this Prospectus, respectively. The Company also used a portion of
the net proceeds from the Initial Offering to make a $6,441,000 distribution to
Parent. The foregoing transactions were specifically permitted under the terms
of the Indenture and the Notes.
Registration Rights Agreement
Pursuant to the Purchase Agreement, Precise, the Guarantors and the Initial
Purchasers entered into a Registration Rights Agreement, dated as of June 13,
1997 (the 'Registration Rights Agreement'), which grants the holders of the Old
Notes certain exchange and registration rights. The Exchange Offer is intended
to satisfy such exchange rights which terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
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Securities Offered........................ $75,000,000 aggregate principal amount of 11 1/8% Senior Subordinated
Notes due 2007 of Precise.
The Exchange Offer........................ $1,000 principal amount of New Notes in exchange for each $1,000
principal amount of Old Notes. As of the date hereof, $75,000,000
aggregate principal amount of Old Notes are outstanding. Precise will
issue the New Notes to holders on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the Commission set forth
in no-action letters issued to third parties, Precise 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
any holder thereof (other than any such holder which is an
'affiliate' of the Company within the meaning of Rule 405 under the
Securities Act or a broker-dealer who purchases such securities
directly from the Company to resell pursuant to Rule 144A or any
other available exception under the Securities Act or a person
participating in the distribution of such securities) 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 that such holder
does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution of
such New Notes. Each holder accepting the Exchange Offer is required
to represent to Precise in the Letter of Transmittal that, among
other things, the New Notes will be acquired by the holder in the
ordinary course of business and the holder does not intend to
participate and has no arrangement or understanding with any person
to participate in the distribution of such New Notes.
Any Participating Broker-Dealer that acquired Old Notes for its own
account as a result of market-making activities or other trading
activities may be a statutory underwriter. Each Participating 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 Participating Broker-Dealer will not be deemed to
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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 Participating Broker-Dealer in
connection with resale of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of one
year after the Exchange Offer Effectiveness Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See 'Plan of Distribution.'
Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution
of the New Notes will not be able to rely on the position of the
staff of the Commission enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply with the registration
and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Failure to comply with such
requirements in such instance may result in such holder incurring
liability under the Securities Act for which the holder is not
indemnified by the Company.
Minimum Condition......................... The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered or accepted for
exchange.
Expiration Date........................... 5:00 p.m., New York City time, on , 1997 unless the
Exchange Offer is extended, in which case the term 'Expiration Date'
means the latest date and time to which the Exchange Offer is
extended.
Accrued Interest on the New Notes and the
Old Notes............................... Each New Note will bear interest from its issuance date. Holders of
Old Notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the issuance date of
the New Notes. Such interest will be paid with the first interest
payment on the New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes.
Conditions to the Exchange Offer.......... The Exchange Offer is subject to certain customary conditions, which
may be waived by Precise. See 'The Exchange Offer-- Conditions.'
Precise reserves the right to terminate or amend the Exchange Offer
at any time prior to the Expiration Date upon the occurrence of any
such condition.
Procedures for Tendering Old Notes........ Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, or an Agent's Message (as defined) in
connection with a book-entry transfer, together with the Old Notes
and other required documentation to the Exchange Agent (as defined)
at the address set forth herein. By executing the Letter of
Transmittal, each holder will represent to Precise that, among other
things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
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business of the person receiving such New Notes, whether or not such
person is the holder, that neither the holder nor any such other
person (i) has any arrangement or understanding with any person to
participate in the distribution of such New Notes, (ii) is engaging
or intends to engage in the distribution of such New Notes, or (iii)
is an 'affiliate,' as defined under Rule 405 of the Securities Act,
of Precise. See 'The Exchange Offer--Purpose and Effect of the
Exchange Offer' and 'The Exchange Offer--Procedures for Tendering.'
Untendered Old Notes...................... Following the consummation of the Exchange Offer, holders of Old
Notes eligible to participate but who do not tender their Old Notes
will not have any further exchange rights and such Old Notes will
continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be
adversely affected.
Consequences of Failure to Exchange....... The Old Notes that are not exchanged pursuant to the Exchange Offer
will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to Precise, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some other exemption under
the Securities Act, (iii) outside the United States to a non-U.S.
person pursuant to the requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective registration statement under
the Securities Act. See 'The Exchange Offer-- Consequences of Failure
to Exchange.'
Shelf Registration Statement.............. If (i) Precise and the Guarantors are not required to file the
Exchange Offer Registration Statement or permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any Holder of Transfer
Restricted Securities (as defined) notifies Precise prior to the 20th
day following consummation of the Exchange Offer that (A) it is
prohibited by law or Commission policy from participating in the
Exchange Offer or (B) that it may not resell the New 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 or (C) that it is a broker-dealer and owns Notes acquired
directly from Precise or an affiliate of Precise, Precise and the
Guarantors will file with the Commission a Shelf Registration
Statement (the 'Shelf Registration Statement') to cover resales of
the Notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. Precise and the Guarantors will use their
best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. A
holder of the Old Notes that sells such Old Notes pursuant to the
Shelf Registration Statement generally would be required to be named
as a selling security holder in the related prospectus and to deliver
a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations).
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Special Procedures for Beneficial
Owners.................................. Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder promptly
and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering its Old Notes,
either make appropriate arrangements to register ownership of the Old
Notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may
take considerable time. Precise will keep the Exchange Offer open for
not less than twenty business days in order to provide for the
transfer of registered ownership.
Guaranteed Delivery Procedures............ Holders of Old Notes who wish to tender their Old Notes and whose Old
Notes are not immediately available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent (or comply with the
procedures for book-entry transfer) prior to the Expiration Date must
tender their Old Notes according to the guaranteed delivery
procedures set forth in 'The Exchange Offer-- Guaranteed Delivery
Procedures.'
Withdrawal Rights......................... Tenders may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
Acceptance of Old Notes and Delivery of
New Notes............................... Precise will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered promptly following the
Expiration Date. See 'The Exchange Offer--Terms of the Exchange
Offer.'
Federal Income Tax Consequences........... The exchange of Old Notes for New Notes by tendering holders will not
be a taxable exchange for federal income tax purposes, and such
holders should not recognize any taxable gain or loss or any interest
income as a result of such exchange.
Use of Proceeds........................... There will be no cash proceeds to Precise from the exchange pursuant
to the Exchange Offer.
Exchange Agent............................ Marine Midland Bank.
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THE NEW NOTES
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GENERAL............................... The form and terms of the New Notes are the same as the form and terms of
the Old Notes (which they replace) except that (i) the New Notes bear a
Series B designation, (ii) the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of New Notes will not be entitled
to certain rights under the Registration Rights Agreement, including the
provisions providing for the payment of Liquidated Damages in certain
circumstances relating to the timing of the Exchange Offer, which rights
will terminate when the Exchange Offer is consummated. See 'The Exchange
Offer--Purpose and Effect of the Exchange Offer.' The New Notes will
evidence the same debt as the Old Notes and will be entitled to the
benefits of the Indenture. See 'Description of the Notes.' The Old Notes
and the New Notes are referred to collectively herein as the 'Notes.'
ISSUER................................ Precise Technology, Inc.
SECURITIES OFFERED.................... $75.0 million in aggregate principal amount of Series B 11 1/8% Senior
Subordinated Notes due 2007.
MATURITY.............................. June 15, 2007.
INTEREST.............................. Interest on the New Notes will accrue at the rate of 11 1/8% per annum
from the date of issuance (the 'Issue Date') and will be payable semi-
annually in arrears on June 15 and December 15 of each year, commencing
December 15, 1997.
GUARANTEES............................ Precise's payment obligations under the New Notes will be jointly and
severally guaranteed (the 'Subsidiary Guarantees'), on a senior
subordinated basis, by the Guarantors. The Subsidiary Guarantee of each
Guarantor will be subordinated to the prior payment in full of all Senior
Debt of such Guarantor. The New Notes will initially be guaranteed by
Precise Technology of Delaware, Inc., Precise Technology of Illinois,
Inc., Precise TMP, Inc., Precise Polestar, Inc., and Massie Tool, Mold &
Die, Inc., which constitute all of the Company's existing Subsidiaries. In
addition, the indenture pursuant to which the New Notes will be issued
(the 'Indenture') provides that any Subsidiary of the Company that
executes a Subsidiary Guarantee will become a Guarantor and that all
Restricted Subsidiaries (as defined in the Indenture) of the Company
having either assets or stockholders' equity in excess of $50,000,
whenever created or acquired, shall enter into Subsidiary Guarantees and
thereby become Guarantors. See 'Description of Notes--Subsidiary
Guarantees' and 'Description of Notes--Certain Definitions--'Restricted
Subsidiary.' '
RANKING............................... The New Notes will be general unsecured obligations of Precise,
subordinated in right of payment to all existing and future Senior Debt of
the Company, including all obligations of the Company under the New Credit
Agreement, and senior to or pari passu with all existing and future
subordinated indebtedness of the Company. As of June 30, 1997, Precise and
the Guarantors had outstanding approximately $13.5 million of consolidated
Senior Debt. See 'Capitalization' and 'Description of
Notes--Subordination.'
OPTIONAL REDEMPTION................... The Notes will be redeemable at the option of Precise, in whole or in
part, at any time on or after June 15, 2002, at the redemption prices set
forth herein,
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plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of redemption. Notwithstanding the foregoing, on or prior to
June 15, 2000, Precise may redeem at any time or from time to time up to
33 1/3% of the aggregate principal amount of the Notes issued at a
redemption price of 111.125% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
redemption, with the net cash proceeds of one of more Public Equity
Offerings; provided, however, that at least 66 2/3% of the aggregate
principal amount of the Notes originally issued remain outstanding
immediately after the occurrence of such redemption and that any such
redemption occurs within 90 days following the closing of any such Public
Equity Offering. In addition, at any time prior to June 15, 2002, Precise
may, at its option, redeem the Notes, in whole or in part, at a redemption
price equal to 100% of the principal amount thereof plus the applicable
Make-Whole Premium. See 'Description of Notes--Optional Redemption.'
CHANGE OF CONTROL..................... Upon the occurrence of a Change of Control, Precise will be required to
make an offer to repurchase all or any part of the Notes at a 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
repurchase. There can be no assurance that Precise will have sufficient
funds available or will be permitted by its other debt agreements to
repurchase the Notes upon the occurrence of a Change of Control. See
'Description of Notes--Repurchase at the Option of Holders--Change of
Control.'
CERTAIN COVENANTS..................... The Indenture contains covenants, including covenants with respect to the
following matters: (i) limitations on the incurrence of indebtedness and
the issuance of preferred stock; (ii) limitations on certain payments,
including dividends, repurchases of Precise's capital stock, repurchases
of subordinated obligations, and the making of certain investments; (iii)
limitations on liens; (iv) limitations on dividend and other payment
restrictions affecting Restricted Subsidiaries; (v) limitations on
mergers, consolidations, or the sale of substantially all assets; (vi)
limitations on transactions with affiliates; (vii) limitations on
issuances and sales of capital stock of wholly owned Restricted
Subsidiaries; (viii) limitations on layering debt; and (ix) limitations on
asset sales. See 'Description of Notes--Certain Covenants.'
REGISTRATION RIGHTS................... Pursuant to a registration rights agreement (the 'Registration Rights
Agreement') between Precise, the Guarantors and the Initial Purchasers,
Precise and the Guarantors agreed to file a registration statement (the
'Exchange Offer Registration Statement') with respect to an offer to
exchange the Old Notes for New Notes of Precise having substantially
identical terms. If (i) the Exchange Offer is not permitted by applicable
law or (ii) any holder of Transfer Restricted Securities notifies Precise
that (a) it is prohibited by law or Commission policy from participating
in the Exchange Offer, (b) it may not resell a New Note acquired by it in
an Exchange Offer to the public without delivering a prospectus and that
the prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resale or (c) it is a broker-dealer
and holds Notes acquired directly from Precise or an affiliate of Precise,
Precise and the Guarantors will be required to file a shelf registration
statement (the 'Shelf Registration Statement') to cover resales of the
Notes by the holders thereof. If Precise and the Guarantors fail to
satisfy
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these or certain other registration obligations, Precise and the
Guarantors will be required to pay Liquidated Damages to the holders of
the Notes under certain circumstances. See 'The Exchange Offer.'
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RISK FACTORS
Before tendering their Old Notes for the New Notes offered hereby, holders
of the Old Notes should consider carefully the information set forth under the
caption 'Risk Factors,' which includes discussions of investment risks
associated with 'Substantial Leverage,' 'Subordination of the Notes and
Subsidiary Guarantees; Unsecured Status of the Notes,' 'Restrictions under Debt
Agreements,' 'Holding Company Structure; Effects of Asset Encumbrances,'
'Reliance on Key Customers and Supply Agreements,' 'Volatility of Customer
Demand,' 'Exposure to Fluctuations in Resin Cost and Supply,' 'Company Growth
and Risks Related to Future Acquisitions,' 'Competition,' 'Controlling
Stockholder,' 'Dependence on Key Personnel,' 'Environmental Matters,' 'Change of
Control Offer,' 'Fraudulent Conveyance,' 'Absence of Public Market; Restrictions
on Transfer' and 'Consequences of Failure to Exchange Old Notes,' and all other
information set forth in this Prospectus.
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SUMMARY FINANCIAL DATA
The following table sets forth (i) summary historical consolidated
financial data of the Company for the five-year period ended December 31, 1996
and for the six months ended June 30, 1996 and 1997, (ii) pro forma consolidated
statement of income and other financial data of the Company for the year ended
December 31, 1996 and the six months ended June 30, 1997 which give effect to
the Acquisitions and the Refinancing Transactions, as if such events had
occurred on January 1, 1996 and (iii) summary historical balance sheet data of
the Company as of June 30, 1997. The summary historical consolidated financial
data for the five-year period ended December 31, 1996 were derived from audited
consolidated financial statements of the Company. The audited consolidated
financial statements of the Company for each of the years in the three-year
period ended December 31, 1996 are included elsewhere in this Prospectus
together with the reports of Ernst & Young, LLP, independent accountants, for
the years ended December 31, 1996 and 1995, and Grant Thornton, LLP, independent
accountants, for the year ended December 31, 1994. The summary historical
consolidated financial data for the years ended December 31, 1993 and 1992 were
derived from audited consolidated financial statements of the Company that are
not included herein. The summary historical consolidated financial data for the
six months ended June 30, 1996 and 1997 were derived from unaudited financial
statements of the Company, which, in the opinion of management, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The results of
operations for the six months ended June 30, 1997 are not necessarily indicative
of the results that may be expected for the full year. The pro forma financial
data and the adjusted balance sheet data are provided for informational purposes
only, are unaudited and are not necessarily indicative of future results or what
the operating results or financial condition of the Company would have been had
the Refinancing Transactions and the Acquisitions actually been consummated on
the dates assumed. The following table should be read in conjunction with
'Capitalization,' 'Selected Financial Data,' 'Pro Forma Financial Data,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the historical financial statements of the Company and Tredegar,
and the accompanying notes thereto, included elsewhere in this Prospectus.
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UNAUDITED PRO FORMA(2)
------------------------
UNAUDITED SIX
SIX MONTHS ENDED MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, YEAR ENDED ENDED
---------------------------------------------------- ------------------- DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996(1) 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- -------- ------------ ---------
(DOLLARS IN THOUSANDS)
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STATEMENT OF INCOME DATA:
Net sales................ $ 27,673 $ 24,161 $ 33,157 $ 33,542 $ 93,289 $ 37,343 $ 51,795 $114,658 $ 51,795
Cost of sales............ 22,908 19,536 26,807 25,877 76,477 30,757 42,868 94,841 42,868
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit............. 4,765 4,625 6,350 7,665 16,812 6,586 8,927 19,817 8,927
Selling, general and
administrative......... 3,390 3,373 3,916 4,454 7,262 3,161 4,272 8,272 4,272
Plant closure costs...... -- -- -- -- 671 -- -- 671 --
Amortization of
intangible assets...... 219 -- 26 37 1,042 375 608 1,250 608
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income......... 1,156 1,252 2,408 3,174 7,837 3,050 4,047 9,624 4,047
Interest expense......... 703 706 956 810 6,131 2,160 3,875 10,405 5,448
Other (income) expense... 44 59 (72) 148 (25) 5 892(4) (25)(3) 37 (3)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... 409 487 1,524 2,216 1,731 885 (720) (756) (1,438)
Provision for income
taxes (5).............. -- 66 574 941 1,265 641 614 169 322
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary item..... 409 421 950 1,275 466 244 (1,334) (925)(6) (1,760)(6)
Extraordinary item, net
of tax................. -- -- -- -- -- -- (4,841)(7) -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)........ $ 409 $ 421 $ 950 $ 1,275 $ 466 $ 244 $ (6,175) $ (925) $ (1,760)
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
CASH FLOW DATA:
Net cash provided by
operating activities... $ 1,167 $ 1,463 $ 1,327 $ 3,170 $ 9,602 $ 5,906 $ 4,117 -- --
Net cash used in
investing activities
(excluding
Acquisitions) (8)...... (383) (309) (1,968) (998) (1,829) (889) (414) -- --
Net cash (used in)
provided by financing
activities............. (893) (1,161) 650 (2,202) 57,313 60,784 (3,373) -- --
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, 1997
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................................................... $93,757
Long-term debt, including current maturities................................................................... 88,536
Redeemable preferred stock..................................................................................... --
Total stockholder's deficit.................................................................................... (9,351)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA(2)
------------------------
UNAUDITED SIX
SIX MONTHS ENDED MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, YEAR ENDED ENDED
---------------------------------------------------- ------------------- DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996(1) 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- -------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA (9)............... $ 2,043 $ 1,837 $ 3,542 $ 4,472 $ 13,638 $ 5,139 $ 6,456 $ 16,304 $ 7,311
EBITDA margin (9)........ 7.4% 7.6% 10.7% 13.3% 14.6% 13.8% 12.5% 14.2% 14.1%
Depreciation and
amortization........... $ 931 $ 644 $ 1,062 $ 1,446 $ 5,353 $ 2,094 $ 3,301 $ 6,232 $ 3,301
Capital expenditures
(10)................... 412 2,445 4,403 1,582 6,376 3,012 2,459 7,604 2,459
Ratio of earnings to
fixed
charges (11)........... 1.5x 1.6x 2.4x 3.4x 1.3x 1.4x -- -- --
Pro forma ratio of EBITDA
to interest expense.... -- -- -- -- -- -- -- 1.6x 1.3x
Pro forma ratio of total
debt to EBITDA......... -- -- -- -- -- -- -- 5.4x --
</TABLE>
- ------------------------------
(1) The statement of income data, cash flow data and other financial data for
1996 reflect the results of operations of Unity and Tredegar since they
were acquired by the Company on January 25, 1996 and March 29, 1996,
respectively.
(2) The unaudited pro forma statement of income data and other financial data
of the Company give effect to the Acquisitions and the Refinancing
Transactions as if they had occurred on January 1, 1996.
(3) Excludes (i) a non-recurring charge of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore and (ii) a
$300,000 charge representing legal fees paid to the law firm of Michael D.
Schenker Co., LPA, whose principal is an officer of Mentmore. Both charges
were related to the Refinancing Transactions. See 'Certain
Transactions--Management Agreement with Mentmore.'
(4) Includes (i) a non-recurring charge of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore and (ii) a
$300,000 charge representing legal fees paid to the law firm of Michael D.
Schenker Co. LPA, whose principal is an officer of Mentmore. Both charges
were related to the Refinancing Transactions.
(5) The provision for income taxes for the unaudited pro forma statement of
income data for 1996 and for the six months ended June 30, 1997 is computed
by applying the statutory rate of 39%, excluding the impact of
non-deductible goodwill amortization.
(6) Excludes an extraordinary loss on the early extinguishment of indebtedness,
net of tax effect, of $4,841,000.
(7) The Company recorded an extraordinary loss of $4.8 million, net of tax
benefits, for the six months ended June 30, 1997, due to the early
extinguishment of indebtedness resulting from the repayment of the Retired
Notes and the termination of the Prior Credit Agreement in connection with
the Refinancing Transactions.
(8) Net cash used in the Unity Acquisition was $3,308,000 and net cash used in
the Tredegar Acquisition was $60,493,000.
(9) 'EBITDA' represents net income plus income taxes, interest expense,
depreciation and amortization and certain non-recurring, non-cash charges.
Non-recurring, non-cash charges for the year ended December 31, 1996 and
for the pro forma year ended December 31, 1996 include plant closure costs
($301,000) and the elimination of pension costs associated with a
terminated defined benefit plan ($122,000). The Company has not adjusted
EBITDA to include cash charges which the Company believes are non-recurring
in nature. Non-recurring cash charges for the year ended December 31, 1996
include operating losses (excluding depreciation expense) of the Company's
Graham, North Carolina facility which was closed in September 1996
($510,000) and plant closure costs ($370,000). Non-recurring cash charges
for the pro forma year ended December 31, 1996 include operating losses
(excluding depreciation expense) of the Company's Graham, North Carolina
facility which was closed in September 1996 ($580,000) and plant closure
costs ($370,000). If the Company had included non-recurring cash charges in
its calculation of EBITDA, EBITDA would have been $14,518,000 for the year
ended December 31, 1996 and $17,254,000 for the pro forma year ended
December 31, 1996. 'EBITDA margin' is defined as EBITDA divided by net
sales. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA
should not be considered an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity. Since all companies and analysts do not necessarily calculate
EBITDA in the same fashion, EBITDA as presented in this Prospectus may not
be comparable to similarly titled measures reported by other companies.
(10) Includes capital expenditures financed through capital leases of $0 in
1992, $1,896,000 in 1993, $2,328,000 in 1994, $536,000 in 1995 and
$4,201,000 in 1996 and $2,210,000 and $730,000 in the six months ended June
30, 1996 and 1997, respectively. Also includes capital expenditures
financed through capital leases of $4,201,000 and $730,000 for the pro
forma year ended December 31, 1996 and the pro forma six months ended June
30, 1997, respectively.
(11) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing costs, whether expensed or
capitalized, plus the portion of operating lease expense attributable to
interest. For the pro forma year ended December 31, 1996, the Company's
earnings were inadequate to cover fixed charges by $754,000. Adjusted to
eliminate non-cash charges of depreciation and amortization of $6,232,000
for the pro forma year ended December 31, 1996, such earnings would have
exceeded fixed charges by $5,478,000. For the six months and the pro forma
six months ended June 30, 1997, the Company's earnings were inadequate to
cover fixed charges by $720,000 and $1,438,000, respectively. Adjusted to
eliminate non-cash charges of depreciation and amortization of $3,301,000
for the six months and the pro forma six months ended June 30, 1997, such
earnings would have exceeded fixed charges by $2,581,000 and $1,863,000,
respectively.
17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Notes for the New Notes offered hereby, holders of the Old
Notes should consider carefully the following factors, which may be generally
applicable to the Old Notes as well as the New Notes.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. At June 30, 1997, the Company's total
consolidated indebtedness was $88.5 million, and the Company had an additional
$23 million of undrawn commitments under the New Credit Agreement. The Company
had a stockholder's deficit on such date of $9.4 million. In addition, subject
to certain restrictions set forth in the New Credit Agreement and the Indenture,
the Company may incur additional indebtedness, including Senior Debt, in the
future for acquisitions, capital expenditures, working capital and other
corporate purposes. For the six months ended June 30, 1997, the Company's
earnings were inadequate to cover fixed charges by $720,000, and for the six
months ended June 30, 1997, the Company's pro forma earnings were inadequate to
cover fixed charges by $1,438,000.
The Company's ability to make scheduled payments of the principal of, or
interest on, or to refinance its indebtedness (including the Notes) depends on
its future operating performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. The
Company believes that, based on its current level of operations and anticipated
growth, its cash flow from operations, together with borrowings under the New
Credit Agreement, will be adequate to meet its anticipated requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments over the next several years. The Company's anticipated cash flow from
operations in 1997 is expected to be insufficient to cover the Company's cash
requirements during such period. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources.'
The Company, however, intends to continue to enter into capital leases to fund a
portion of its capital expenditures. There can be no assurance that any such
lease financings will be available on commercially reasonable terms or at all.
In addition, there can be no assurance that the Company's business will generate
cash flow at or above expected levels. If the Company is unable to generate
sufficient cash flow from operations in the future to service its indebtedness
and make necessary capital expenditures, or if its future earnings are
insufficient to make all required principal payments out of internally generated
funds, the Company may be required to refinance all or a portion of its existing
indebtedness, sell assets or obtain additional financing. There can be no
assurance that any such refinancing or asset sales would be possible or that any
additional financing could be obtained on terms acceptable to the Company or at
all, particularly in view of the Company's high level of indebtedness.
The Company's high level of indebtedness will have several important
effects on its future operations, including the following: (a) the Company will
have significant cash requirements to service indebtedness, reducing funds
available for working capital, acquisitions, capital expenditures and other
corporate purposes and increasing the Company's vulnerability to adverse general
economic and industry conditions and (b) the financial covenants and other
restrictions contained in the New Credit Agreement, the Indenture and other
agreements relating to the Company's indebtedness require the Company to meet
certain financial tests, restrict its ability to borrow additional funds and
impose limitations on the disposition of assets. In addition, although
management believes that capital expenditures above maintenance levels can be
deferred to address cash flow or other constraints, such initiatives cannot be
deferred for extended periods without adverse effects on the Company's business,
results of operations and financial position. The Company's continued growth
depends, in part, on its ability to maintain its facilities, and, therefore, to
the extent it is unable to do so with internally generated cash, its inability
to finance capital expenditures through borrowed funds could have a material
adverse effect on the Company's future operations.
SUBORDINATION OF THE NOTES AND SUBSIDIARY GUARANTEES; UNSECURED STATUS OF THE
NOTES
Subordination
The payment of principal of, premium and interest on, and any other amounts
owing in respect of, the Notes is subordinated to the prior payment in full of
all existing and future Senior Debt of Precise, including indebtedness under the
New Credit Agreement. Similarly, the Subsidiary Guarantees of the Guarantors
will be
18
<PAGE>
subordinated in right of payment to all Senior Debt of the respective
Guarantors. At June 30, 1997, Precise and the Guarantors had an aggregate of
approximately $13.5 million of consolidated Senior Debt outstanding and $23.0
million of undrawn commitments under the New Credit Agreement. The Indenture
limits, but does not prohibit, the incurrence by the Company of additional
indebtedness which may constitute Senior Debt. In the event of the bankruptcy,
liquidation, dissolution, reorganization or other winding up of Precise, the
assets of Precise and the Guarantors will be available to pay obligations on the
Notes only after all Senior Debt has been paid in full in cash, and there may
not be sufficient assets remaining to pay amounts due on any or all of the
Notes. In addition, under certain circumstances, the Company may not pay
principal of, premium or interest on, or any other amounts owing in respect of,
the Notes, or purchase, redeem or otherwise retire the Notes, if a payment
default or a non-payment default exists with respect to certain Senior Debt,
and, in the case of a non-payment default, a payment blockage notice has been
received by the Trustee (as defined). See 'Description of Notes--Subordination.'
Unsecured Status of the Notes and Subsidiary Guarantees
The Notes and Subsidiary Guarantees are unsecured obligations of Precise
and the Guarantors, respectively. The Indenture permits the Company to incur
certain secured indebtedness, including indebtedness under the New Credit
Agreement, which is secured by a lien on substantially all of the assets of
Precise and the Guarantors. 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 New Credit Agreement, the lenders thereunder would be entitled to foreclose
on the assets of Precise and the Guarantors. In such event, the assets of
Precise and the Guarantors remaining after repayment of such secured
indebtedness may be insufficient to satisfy the obligations of Precise and the
Guarantors with respect to the Notes. See 'Description of Certain
Indebtedness--New Credit Agreement.'
RESTRICTIONS UNDER DEBT AGREEMENTS
The Indenture contains covenants that, among other things, limit the
ability of Precise and its Restricted Subsidiaries to incur additional
indebtedness, incur liens, pay dividends and make certain other restricted
payments, make investments, consummate certain asset sales, enter into certain
transactions with affiliates, issue subsidiary stock, consolidate or merge with
any other person or transfer all or substantially all of the assets of the
Company. In addition, the New Credit Agreement contains restrictive covenants
which, generally, are more restrictive than those contained in the Indenture,
and limit, among other things, the Company's ability to prepay its subordinated
indebtedness (including the Notes) and capital expenditures. The New Credit
Agreement also requires the Company to maintain specified consolidated financial
ratios, such as senior and total funded indebtedness to consolidated EBITDA
ratios, a fixed charge coverage ratio and an interest coverage ratio, and
satisfy certain consolidated financial tests. The Company's ability to meet
those financial ratios and financial tests can be affected by events beyond its
control, and there can be no assurance that the Company will meet those ratios
and tests. A breach of any of the covenants under the New Credit Agreement or
the Indenture could result in a default under the New Credit Agreement and/or
the Indenture. If an event of default occurs under the New Credit Agreement, the
lenders could elect to declare all amounts outstanding thereunder, together with
accrued and unpaid interest, to be immediately due and payable. If the Company
is unable to repay those amounts, the lenders could proceed against the
collateral granted to them to secure that indebtedness. See 'Description of
Notes' and 'Description of Certain Indebtedness--New Credit Agreement.'
HOLDING COMPANY STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
A substantial portion of Precise's consolidated gross profit is generated
by its subsidiaries. Precise's subsidiaries generated 76.3% of the Company's
consolidated gross profit for the six months ended June 30, 1997. As a result,
Precise will depend significantly on the earnings and cash flow of, and
dividends and distributions or advances from, its subsidiaries to provide the
funds necessary to meet its debt service obligations, including the payment of
principal of and interest on the Notes. There can be no assurance that Precise's
subsidiaries will generate sufficient cash flow to dividend, distribute or
advance funds to Precise. Should Precise fail to satisfy any payment obligation
under the Notes, the holders thereof would have a direct claim therefor against
the Guarantors pursuant to the Subsidiary Guarantees. However, substantially all
of the assets of the Guarantors are pledged to secure the obligations of Precise
and such subsidiaries under the New Credit Agreement and other secured
19
<PAGE>
obligations. The Indenture limits, but does not prohibit, the ability of Precise
and its Restricted Subsidiaries to incur additional secured indebtedness. In the
event of a default under the New Credit Agreement (or any other secured
indebtedness), the lenders thereunder would be entitled to a claim on the assets
securing such indebtedness which is prior to any claim of the holders of the
Notes. Accordingly, there may be insufficient assets remaining after payment of
prior secured claims (including claims of lenders under the New Credit
Agreement) to pay amounts due on the Notes. See '--Substantial Leverage' and
'--Subordination of the Notes and Subsidiary Guarantees; Unsecured Status of the
Notes.'
RELIANCE ON KEY CUSTOMERS AND SUPPLY AGREEMENTS
The Company's business is substantially dependent on a limited number of
customers. In 1996, the Company's ten largest customers accounted for
approximately 57.3% of its pro forma net sales. The Company's largest customers
are Procter & Gamble, Gillette, AMP Incorporated ('AMP') and Lexmark
International Group, Inc. ('Lexmark'), which represented approximately 12.3%,
10.7%, 5.2% and 5.1%, respectively, of the Company's pro forma net sales in
1996. The loss of a substantial customer, or a significant reduction in sales
generated from a substantial customer, could have a material adverse effect on
the Company's business, financial condition and results of operations. Sales to
each of the Company's customers are dependent on the Company's ability to
manufacture products of acceptable quality, at acceptable prices, that meet the
customer's specifications and to deliver such products on a timely basis.
Approximately 25% of the Company's pro forma net sales in 1996 were made
pursuant to multiple year supply agreements. Generally, these agreements are
terminable by the customer at any time upon notice. While the Company has no
reason to believe that any of its existing supply agreements will be cancelled
by a customer and anticipates that, upon expiration, it will be able to extend
or renew its existing supply agreements with its customers on terms no less
favorable to the Company, no assurance can be given in this regard. See
'Business--Customers.'
VOLATILITY OF CUSTOMER DEMAND
The demand for the Company's services and products is subject to
substantial volatility and other factors beyond its control. Several of the
Company's largest customers, including Gillette and AMP, have significant
plastics injection molding capabilities and may periodically insource a portion
of production being manufactured by the Company as a result of underutilization
of their own facilities. Such insourcing could result in a material loss of
sales to the Company during particular fiscal periods. In December 1996, for
example, AMP began to insource a portion of its electrical connector production
that was formerly manufactured by the Company. As a result, the Company has
experienced a significant loss of sales to AMP, and management believes the
Company may suffer further losses of sales to AMP in the future. Demand for the
Company's products is also dependent upon the demand for its customers'
products. Disappointing market acceptance or obsolescence of a customer's
product can have a material adverse effect on the Company's sales to such
customer. Additionally, a customer may move the location at which a product is
being manufactured, which may cause the Company to no longer be able to supply
such customer efficiently and result in a loss of sales. Finally, the making of
particular molds is non-recurring in nature, and, therefore, the Company's mold
making sales are volatile. Although management does not expect the Company to
lose or suffer a significant reduction in business in the foreseeable future,
there can be no assurance that the factors described above, or other competitive
factors affecting the Company's business, will not result in a significant loss
or reduction of sales in future periods.
EXPOSURE TO FLUCTUATIONS IN RESIN COST AND SUPPLY
The Company uses various plastic resins in the manufacture of its products.
In 1996, on a pro forma basis, the aggregate cost for plastic resins was $34.2
million, or 36.3% of the Company's total cost of goods sold. Pursuant to the
terms of multiple-year supply agreements and purchase orders, the Company
historically has had the ability to pass on a significant portion of increases
in resin prices (as well as decreases in resin prices) to its customers through
price adjustments. Because plastic resins are the principal components in the
Company's products, the Company's financial performance is materially dependent
on its ability to pass resin price increases on to its customers through
contractual arrangements or otherwise. Plastic resin prices are subject to
fluctuations due, in part, to industry capacity, consumption levels, supply
shortages and changes in the prices of natural gas, crude oil and other
petrochemical intermediates from which plastic resins are produced. For example,
during the past four years, the resin market has been volatile due to increased
demand and irregular producer capacity.
20
<PAGE>
Although the Company will continue to have the benefit of resin price
pass-through provisions under its existing customer agreements for so long as
such agreements remain in effect, there can be no assurance that it will
continue to be able to effect such a pass-through under contractual agreements
or otherwise in the future. In addition, there can be no assurance that a
significant increase in resin prices would not negatively impact the Company's
existing business or future business opportunities, including those relating to
the potential conversion from glass, metal and composite containers to rigid
plastic, and thereby have a material adverse effect on the Company's business,
financial condition and results of operations. See 'Business--Raw Materials and
Suppliers.'
During 1996, the Company purchased, on a pro forma basis, approximately
26.2% and 17.3% of its total plastic resin requirements (in dollars) from
Huntsman Chemical Corporation ('Huntsman') and the General Polymers Division of
Ashland Chemical Company ('General Polymers'), respectively, pursuant to
purchase orders delivered from time to time by the Company. The Company has
long-standing relationships with Huntsman and General Polymers, and has worked
closely with them to develop plastic resins which yield maximum performance from
the Company's equipment. Although the Company believes its relationships with
Huntsman and General Polymers are mutually beneficial, no assurance can be given
that Huntsman and General Polymers will continue to be suppliers to the Company
in the future.
The Company believes that alternative sources are available for its plastic
resin requirements. However, should any of the Company's resin suppliers fail to
deliver under their arrangements, the Company would be forced to purchase resins
in the open market, and no assurance can be given that it would be able to make
such purchases at prices which would allow it to remain competitive.
COMPANY GROWTH AND RISKS RELATED TO FUTURE ACQUISITIONS
The Company's ability to increase net sales and operating cash flow over
time depends, in part, on its success in consummating future acquisitions upon
satisfactory terms and successfully integrating the acquired companies or assets
into the Company's operations. There can be no assurance that acquisition
opportunities will continue to be available or that if available, such
acquisitions could be consummated on terms acceptable to the Company, or that
the Company would be able to obtain financing on terms that it deems acceptable
to consummate any potential acquisition. In addition, future acquisitions would
place increasing demands on the Company's management and operational resources.
The Company's future performance will depend, in part, on its ability to manage
expanding operations and to adapt its operational systems to such expansions.
The failure of the Company to effectively manage its growth or successfully
integrate acquired companies or assets into the Company's operations could have
a material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
Most of the Company's products are sold in highly competitive markets in
the United States. In addition, the markets for certain of the Company's
products are characterized by low costs of entry and competition based primarily
on price. 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. A number of the Company's competitors have financial and other
resources that are substantially greater than those of the Company. Competitive
pressures or other factors could cause the Company to lose existing business or
opportunities to generate new business or could result in significant price
erosion, all of which would have a material adverse effect on the Company's
business, financial condition and results of operations. See
'Business--Competition.'
CONTROLLING STOCKHOLDER
Precise is a wholly-owned subsidiary of Precise Holding Corporation
('Parent'). Sunderland Industrial Holdings Corporation ('Sunderland') held
approximately 80.4% of the outstanding shares of Common Stock of Parent ('Parent
Common Stock'), on a fully-diluted basis, as of June 30, 1997. The outstanding
capital stock of Sunderland is owned by trusts established for the benefit of
certain relatives of Richard L. Kramer and William L. Remley. Messrs. Kramer and
Remley are executive officers and directors of Sunderland, Mentmore, Parent
21
<PAGE>
and Precise. The interests of Sunderland, Mentmore and their affiliates may
differ from the interests of holders of the Notes.
DEPENDENCE ON KEY PERSONNEL
The continued success of the Company is largely dependent on the personal
efforts and abilities of senior management, particularly John R. Weeks,
President and Chief Executive Officer, and Michael M. Farrell, Vice President,
Marketing & Sales. The loss of services of key personnel could have a material
adverse effect on the Company. The Company has no long-term employment
agreements with, or key-man life insurance for, any of its executive officers or
key employees. See 'Management.'
ENVIRONMENTAL MATTERS
Federal, state and local governments or regulatory agencies 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 manufactured by the Company. If 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's business, financial condition and results of
operations. In addition, the past and present operations of the Company and the
past and present ownership and operations of real property by the Company are
subject to extensive and changing federal, state and local environmental laws
and regulations pertaining to the discharge of materials into the environment,
the treatment, storage and disposal of solid and hazardous wastes or otherwise
relating to the protection of the environment. While the Company has not been
required historically to make significant capital expenditures in order to
comply with applicable environmental laws and regulations, in the future the
Company may have to make capital expenditures in excess of current estimates
because of continually changing compliance standards and environmental
technology. Furthermore, unknown contamination of sites currently or formerly
owned or operated by the Company (including contamination caused by prior owners
and operators of such sites) and off-site disposal of hazardous substances may
give rise to unanticipated remediation and compliance costs. The Company does
not currently have specific insurance coverage for environmental liabilities and
does not anticipate obtaining such coverage in the future. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Matters' and 'Business--Regulation and Legislation.'
CHANGE OF CONTROL OFFER
Upon a Change of Control, Precise will be required to offer to repurchase
all of the outstanding Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of repurchase. There can be no assurance that Precise will have sufficient funds
available or will be permitted by its other debt agreements to repurchase the
Notes upon the occurrence of a Change of Control. The New Credit Agreement
currently prohibits the Company from repurchasing any Notes 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 repurchasing Notes, the
Company could seek the consent of its lenders to the repurchase of Notes or
could attempt to refinance or repay 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 repurchasing Notes. In such
case, the Company's failure to make a Change of Control Offer (as defined) or
repurchase tendered Notes would constitute an Event of Default (as defined)
under the Indenture which would, in turn, constitute a default under the New
Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of the Notes. See
'Description of Notes--Subordination' and 'Description of Notes--Repurchase at
the Option of Holders--Change of Control.'
22
<PAGE>
FRAUDULENT CONVEYANCE
The incurrence by Precise of indebtedness such as the Notes may be subject
to review under relevant state and federal fraudulent conveyance laws if a
bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of
Precise. Under these laws, if a court were to find that, after giving effect to
the sale of the Notes and the application of the net proceeds therefrom, either
(a) Precise incurred such indebtedness with the intent of hindering, delaying or
defrauding creditors or contemplated insolvency with a design to prefer one or
more creditors to the exclusion in whole or in part of others or (b) Precise
received less than reasonably equivalent value or consideration for incurring
such indebtedness and (i) was insolvent or rendered insolvent by reason of such
transaction, (ii) was engaged in a business or transaction for which the assets
remaining with Precise constituted unreasonably small capital or (iii) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, such court may subordinate such indebtedness to presently
existing and future indebtedness of Precise, avoid the issuance of such
indebtedness and direct the repayment of any amounts paid thereunder to
Precise's creditors or take other action detrimental to the holders of such
indebtedness.
Precise's obligations under the Notes are guaranteed by the Guarantors. The
incurrence by a Guarantor of a Subsidiary Guarantee may be subject to review
under relevant state and federal fraudulent conveyance laws if a bankruptcy case
or lawsuit is commenced by or on behalf of unpaid creditors of such Guarantor.
Under these laws, if a court were to find that either (a) a Subsidiary Guarantee
was incurred by a Guarantor with the intent of hindering, delaying or defrauding
creditors or such Guarantor contemplated insolvency with a design to prefer one
or more creditors to the exclusion in whole or in part of others or (b) such
Guarantor received less than reasonably equivalent value or consideration for
incurring such Subsidiary Guarantee and (i) was insolvent or rendered insolvent
by reason of such transaction, (ii) was engaged in a business or transaction for
which the assets remaining with such Guarantor constituted unreasonably small
capital or (iii) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, such court may subordinate
such Subsidiary Guarantee to presently existing and future indebtedness of such
Guarantor, avoid the issuance of such Subsidiary Guarantee and direct the
repayment of any amounts paid thereunder to such Guarantor's creditors or take
other action detrimental to the holders of such Subsidiary Guarantee. A legal
challenge of a Subsidiary Guarantee on fraudulent conveyance grounds, may, among
other things, focus on the benefits, if any, realized by the Guarantor as a
result of the issuance by Precise of the Notes.
To the extent any Subsidiary Guarantee was avoided as a fraudulent
conveyance or held unenforceable for any other reason, holders of the Notes
would cease to have any claim in respect of such Guarantor and would be
creditors solely of Precise and any Guarantor whose Subsidiary Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
applicable Notes against the issuer of an invalid Subsidiary Guarantee would be
subject to the prior payment of all liabilities and preferred stock claims of
such Guarantor. There can be no assurance that, after providing for all prior
claims and preferred stock interests, if any, there would be sufficient assets
to satisfy the claims of the holders of the applicable Notes relating to any
voided portions of any of the Subsidiary Guarantees.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
Based upon financial and other information currently available to it,
management believes that the indebtedness retired with the proceeds of the
Initial Offering and the indebtedness evidenced by the Notes and the Subsidiary
Guarantees was incurred for proper purposes and in good faith and that at the
time the Company incurred the indebtedness retired with the proceeds of the
Initial Offering and Precise and the Guarantors incurred the indebtedness
evidenced by the Notes and the Subsidiary Guarantees, Precise and each
Guarantor, as the case may be, was, (i) neither insolvent nor rendered insolvent
thereby, (ii) in possession of sufficient capital to run its business
effectively and (iii) incurring debts within its ability to pay as the same
mature or become due. See 'Management's Discussions and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources.' In
reaching these conclusions, the Company has relied upon various valuations and
estimates of future cash flow that necessarily involve a number of assumptions
and choices of methodology. No
23
<PAGE>
assurance can be given, however, that the assumptions and methodologies chosen
by the Company would be adopted by a court or that a court would concur with the
Company's conclusions.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for New Notes by
holders who are entitled to participate in the Exchange Offer. The holders of
Old Notes (other than any such holder that is an 'affiliate' of the Company
within the meaning of Rule 405 under the Securities Act) who are not eligible to
participate in the Exchange Offer are entitled to certain registration rights,
and the Company and the Guarantors are required to file a Shelf Registration
Statement with respect to such Old Notes. The New Notes will constitute a new
issue of securities with no established trading market. The Company does not
intend to list the New Notes on any national securities exchange or seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. The Initial Purchasers have advised the Company that
they currently intend to make a market in the New Notes, but they are not
obligated to do so and may discontinue such market making at any time. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer and the pendency of the Shelf Registration Statement. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Notes or as to the liquidity of the trading market for the New Notes. If
a trading market does not develop or is not maintained, holders of the New Notes
may experience difficulty in reselling the New Notes or may be unable to sell
them at all. If a market for the New Notes develops, any such market may be
discontinued at any time.
If a public trading market develops for the New Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the New Notes may trade at a discount from their
principal amount.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of the Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to 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 and applicable state
securities laws, or pursuant to an exemption therefrom. Except under certain
limited circumstances, the Company does not intend to register the Old Notes
under the Securities Act. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the New
Notes may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. To the extent Old
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for the Old Notes not so tendered could be adversely affected. See 'The
Exchange Offer.'
24
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
capitalization of the Company at June 30, 1997, and should be read in
conjunction with 'Selected Financial Data,' 'Pro Forma Financial Data,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' and the Company's consolidated financial statements and the
accompanying notes thereto, which information is included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
UNAUDITED
AS OF JUNE 30, 1997
-------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash and cash equivalents..................................................................... $ 1,641
--------
--------
Long-term debt, including current maturities (1):
New Credit Agreement (2).................................................................... $ 7,000
11 1/8% Senior Subordinated Notes due 2007.................................................. 75,000
Other debt.................................................................................. 457
Capital lease obligations................................................................... 6,079
--------
Total long-term debt, including current maturities..................................... 88,536
Stockholder's deficit:
Common Stock, no par value, 1,000 shares authorized and 1 share issued and outstanding as of
June 30, 1997............................................................................. 1
Additional paid-in capital.................................................................. 3,555
Retained deficit............................................................................ (12,907)
--------
Total stockholder's deficit............................................................ (9,351)
--------
Total capitalization............................................................... $79,185
--------
--------
</TABLE>
- ------------------------------
(1) For a description of the Company's long-term debt, see Note 7 to the audited
consolidated financial statements of the Company included elsewhere in this
Prospectus.
(2) In connection with the consummation of the Initial Offering, Precise entered
into the New Credit Agreement, which provides for borrowings in an
outstanding principal amount of up to $30,000,000.
25
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth (i) selected historical consolidated
financial data of the Company for the five-year period ended December 31, 1996
and for the six months ended June 30, 1996 and 1997 and (ii) selected historical
balance sheet data of the Company as of June 30, 1997. The selected historical
consolidated financial data for the five-year period ended December 31, 1996
were derived from audited consolidated financial statements of the Company. The
audited consolidated financial statements of the Company for each of the years
in the three-year period ended December 31, 1996 are included elsewhere in this
Prospectus together with the reports of Ernst & Young, LLP, independent
accountants, for the years ended December 31, 1996 and 1995, and Grant Thornton,
LLP, independent accountants, for the year ended December 31, 1994. The selected
historical consolidated financial data for the years ended December 31, 1993 and
1992 were derived from audited consolidated financial statements of the Company
that are not included herein. The selected historical consolidated financial
data for the six months ended June 30, 1996 and 1997 were derived from unaudited
financial statements of the Company, which, in the opinion of management,
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the information set forth therein. The
results of operations for the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the full year. The June 30,
1997 balance sheet data are provided for informational purposes only, are
unaudited and are not necessarily indicative of future results or what the
operating results or financial condition of the Company would have been had the
Refinancing Transactions and the Acquisitions actually been consummated on the
dates assumed. The following table should be read in conjunction with
'Capitalization,' 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the historical financial statements of the
Company and Tredegar, and the accompanying notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996(1) 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................................... $27,673 $24,161 $33,157 $33,542 $93,289 $37,343 $51,795
Cost of sales................................... 22,908 19,536 26,807 25,877 76,477 30,757 42,868
------- ------- ------- ------- ------- ------- -------
Gross profit.................................... 4,765 4,625 6,350 7,665 16,812 6,586 8,927
Selling, general and administrative............. 3,390 3,373 3,916 4,454 7,262 3,161 4,272
Plant closure costs............................. -- -- -- -- 671 -- --
Amortization of intangible assets............... 219 -- 26 37 1,042 375 608
------- ------- ------- ------- ------- ------- -------
Operating income................................ 1,156 1,252 2,408 3,174 7,837 3,050 4,047
Interest expense................................ 703 706 956 810 6,131 2,160 3,875
Other (income) expense.......................... 44 59 (72) 148 (25) 5 892(2)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item........................ 409 487 1,524 2,216 1,731 885 (720)
Provision for income taxes...................... -- 66 574 941 1,265 641 614
------- ------- ------- ------- ------- ------- -------
Net income (loss) before extraordinary item..... 409 421 950 1,275 466 244 (1,334)
Extraordinary item, net of tax.................. -- -- -- -- -- -- (4,841)(3)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................... $ 409 $ 421 $ 950 $ 1,275 $ 466 $ 244 $(6,175)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
CASH FLOW DATA:
Net cash provided by operating activities....... $ 1,167 $ 1,463 $ 1,327 $ 3,170 $ 9,602 $ 5,906 $ 4,117
Net cash used in investing activities (excluding
Acquisitions) (4)............................. (383) (309) (1,968) (998) (1,829) (889) (414)
Net cash provided by (used in) financing
activities.................................... (893) (1,161) 650 (2,202) 57,313 60,784 (3,373)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------- UNAUDITED
1992 1993 1994 1995 1996 JUNE 30, 1997
------- ------- ------- ------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................ $13,283 $15,412 $20,358 $18,863 $99,059 $93,757
Long-term debt, including current maturities............ 8,245 9,277 9,164 7,538 64,512 88,536
Redeemable preferred stock.............................. -- -- -- -- 8,250 --
Total stockholder's equity (deficit).................... 70 295 4,395 5,400 6,953 (9,351)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996(1) 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA (5)...................................... $ 2,043 $ 1,837 $ 3,542 $ 4,472 $13,638 $ 5,139 $ 6,456
EBITDA margin (5)............................... 7.4% 7.6% 10.7% 13.3% 14.6% 13.8% 12.5%
Depreciation and amortization................... $ 931 $ 644 $ 1,062 $ 1,446 $ 5,353 $ 2,094 $ 3,301
Capital expenditures (6)........................ 412 2,445 4,403 1,582 6,376 3,012 2,459
Ratio of earnings to fixed charges (7).......... 1.5x 1.6x 2.4x 3.4x 1.3x 1.4x --
</TABLE>
- ------------------------------
(1) The statement of income data, cash flow data and other financial data for
1996 reflect the results of operations of Unity and Tredegar since they
were acquired by the Company on January 25, 1996 and March 29, 1996,
respectively.
(2) Includes (i) a non-recurring charge of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore and (ii) a
$300,000 charge representing legal fees paid to the law firm of Michael D.
Schenker Co. LPA, whose principal is an officer of Mentmore. Both charges
were related to the Refinancing Transactions.
(3) The Company recorded an extraordinary loss of $4.8 million, net of tax
benefits, for the six months ended June 30, 1997, due to the early
extinguishment of indebtedness resulting from the repayment of the Retired
Notes and the termination of the Prior Credit Agreement in connection with
the Refinancing Transactions.
(4) Net cash used in the Unity Acquisition was $3,308,000 and net cash used in
the Tredegar Acquisition was $60,493,000.
(5) 'EBITDA' represents net income plus income taxes, interest expense,
depreciation and amortization and certain non-recurring, non-cash charges.
Non-recurring, non-cash charges for the year ended December 31, 1996
include plant closure costs ($301,000) and the elimination of pension costs
associated with a terminated defined benefit plan ($122,000). The Company
has not adjusted EBITDA to include cash charges which the Company believes
are non-recurring in nature. Non-recurring cash charges for the year ended
December 31, 1996 include operating losses (excluding depreciation expense)
of the Company's Graham, North Carolina facility which was closed in
September 1996 ($510,000) and plant closure costs ($370,000). If the
Company had included non-recurring cash charges in its calculation of
EBITDA, EBITDA would have been $14,518,000 for the year ended December 31,
1996. 'EBITDA margin' is defined as EBITDA divided by net sales. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service indebtedness. However, EBITDA should not be
considered an alternative to operating income or cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity. Since all companies and
analysts do not necessarily calculate EBITDA in the same fashion, EBITDA as
presented in this Prospectus may not be comparable to similarly titled
measures reported by other companies.
(6) Includes capital expenditures financed through capital leases of $0 in
1992, $1,896,000 in 1993, $2,328,000 in 1994, $536,000 in 1995 and
$4,201,000 in 1996 and $2,210,000 and $730,000 in the six months ended June
30, 1996 and 1997, respectively.
(7) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing costs, whether expensed or
capitalized, plus the portion of operating lease expense attributable to
interest. For the six months ended June 30, 1997, the Company's earnings
were inadequate to cover fixed charges by $720,000. Adjusted to eliminate
non-cash charges of depreciation and amortization of $3,301,000 for the six
months ended June 30, 1997, such earnings would have exceeded fixed charges
by $2,581,000.
27
<PAGE>
PRO FORMA FINANCIAL DATA
The following pro forma financial data have been derived by the application
of pro forma adjustments to the historical consolidated financial statements of
the Company for its fiscal year ended December 31, 1996 and for the six months
ended June 30, 1997 and those of Tredegar for the period from January 1, 1996 to
March 28, 1996 and Unity for the period from January 1, 1996 to January 24,
1996. The pro forma financial data presented below give effect to the
Acquisitions and the Refinancing Transactions as if such events had occurred on
January 1, 1996. The adjustments relating to the Acquisitions and the
Refinancing Transactions are described in the accompanying notes. The pro forma
financial data presented below should not be considered indicative of actual
results that would have been achieved had the Acquisitions and the Refinancing
Transactions been consummated on the date assumed and do not purport to indicate
results of operations as of any future date or for any future period. The pro
forma financial data presented below should be read in conjunction with the
Company's consolidated financial statements and the accompanying notes thereto,
'Summary Financial Data,' 'Capitalization,' 'Selected Financial Data' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' which information is included elsewhere in this Prospectus.
28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME AND OPERATING DATA
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TREDEGAR UNITY
PRECISE HISTORICAL HISTORICAL ACQUISITIONS PRO FORMA
HISTORICAL 1/1/96-3/28/96 1/1/96-1/24/96 ADJUSTMENTS FOR ACQUISITIONS
---------- -------------- -------------- ----------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................................... $ 93,289 $ 20,921 $448 $ -- $114,658
Cost of sales................................ 76,477 18,221 391 (248)(1) 94,841
---------- ------- ----- ----------- --------
Gross profit................................. 16,812 2,700 57 248 19,817
Selling, general and administrative.......... 7,262 993 17 -- 8,272
Plant closure costs.......................... 671 -- -- -- 671
Amortization of intangible assets............ 1,042 59 -- 149(2) 1,250
---------- ------- ----- ----------- --------
Operating income............................. 7,837 1,648 40 99 9,624
Interest expense............................. 6,131 -- 5 1,618(3) 7,754
Other (income) expense....................... (25) -- -- -- (25)
---------- ------- ----- ----------- --------
Income (loss) before income tax benefits..... 1,731 1,648 35 (1,519) 1,895
Provision (benefit) for income taxes......... 1,265 649 4 (715)(4) 1,203
---------- ------- ----- ----------- --------
Net income (loss)............................ $ 466 $ 999 $ 31 $ (804) $ 692
---------- ------- ----- ----------- --------
---------- ------- ----- ----------- --------
OTHER FINANCIAL DATA:
EBITDA (9)...................................
Depreciation and amortization................
Ratio of earnings to fixed charges (10)......
Ratio of EBITDA to interest expense..........
Ratio of total debt to EBITDA................
<CAPTION>
REFINANCING
TRANSACTIONS COMPANY
ADJUSTMENTS PRO FORMA
------------ ---------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................................... $ -- $114,658
Cost of sales................................ -- 94,841
------------ ---------
Gross profit................................. -- 19,817
Selling, general and administrative.......... -- 8,272
Plant closure costs.......................... -- 671
Amortization of intangible assets............ -- 1,250
------------ ---------
Operating income............................. -- 9,624
Interest expense............................. 2,651(5) 10,405
Other (income) expense....................... -- (25)(6)
------------ ---------
Income (loss) before income tax benefits..... (2,651) (756)
Provision (benefit) for income taxes......... (1,034)(4) 169
------------ ---------
Net income (loss)............................ $ (1,617) $ (925)(8)
------------ ---------
------------ ---------
OTHER FINANCIAL DATA:
EBITDA (9)................................... $ 16,304
Depreciation and amortization................ 6,232
Ratio of earnings to fixed charges (10)...... --
Ratio of EBITDA to interest expense.......... 1.6x
Ratio of total debt to EBITDA................ 5.4x
</TABLE>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
REFINANCING
PRECISE TRANSACTIONS COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................................................................... $ 51,795 $ -- $51,795
Cost of sales........................................................................... 42,868 -- 42,868
---------- ------------ ---------
Gross profit............................................................................ 8,927 8,927
Selling, general and administrative..................................................... 4,272 -- 4,272
Amortization of intangible assets....................................................... 608 -- 608
---------- ------------ ---------
Operating income........................................................................ 4,047 -- 4,047
Interest expense........................................................................ 3,875 1,573 (5) 5,448
Other (income) expense.................................................................. 892 (855)(7) 37
---------- ------------ ---------
Loss before income taxes................................................................ (720) (718) (1,438)
Provision (benefit) for income taxes.................................................... 614 (292)(4) 322
---------- ------------ ---------
Net (loss) (8).......................................................................... $ (1,334) $ (426) $(1,760)
---------- ------------ ---------
---------- ------------ ---------
OTHER FINANCIAL DATA:
EBITDA (9).............................................................................. $ 7,311
Depreciation and amortization........................................................... 3,301
Ratio of earnings to fixed charges (10)................................................. --
Ratio of EBITDA to interest expense..................................................... 1.3x
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statement of Income
and Operating Data.
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME AND OPERATING DATA
(1) Reflects the elimination of historical depreciation for the periods prior
to the respective acquisition dates and the addition of pro forma
depreciation in connection with the Acquisitions resulting from the
evaluation of asset values and useful lives as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pro forma depreciation............................................. $ 769 $ --
Historical depreciation............................................ (1,017) --
------- ------
Acquisitions adjustment.............................................. $ (248) $ --
------- ------
------- ------
</TABLE>
(2) Reflects the elimination of historical amortization and the addition of pro
forma amortization based on the amortization of noncompete agreements and
goodwill over useful lives ranging from 3 to 25 years as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pro forma amortization.......................................... $ 1,250 $ --
Historical amortization......................................... (1,101) --
------- ------
Acquisitions adjustment......................................... $ 149 $ --
------- ------
------- ------
</TABLE>
(3) Reflects the elimination of historical interest expense and the addition of
pro forma interest expense based on indebtedness incurred in connection
with the financing of the Acquisitions as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest on Prior Credit Agreement................................... $ 3,810 $ --
Interest on Retired Notes............................................ 2,578 --
Interest on other debt............................................... 35 --
Interest on capital lease obligations................................ 573 --
Deferred financing cost amortization................................. 758 --
Historical interest.................................................. (5,564) --
Historical financing cost amortization............................... (572) --
------- ------
Acquisitions adjustment.............................................. $ 1,618 $ --
------- ------
------- ------
</TABLE>
(4) The provision for income taxes is computed by applying the Company's
statutory rate of 39%, excluding the impact of non-deductible goodwill
amortization.
(5) Reflects the elimination of pro forma interest expense based on
indebtedness incurred in connection with the Acquisitions and the addition
of pro forma interest expense after giving effect to the Refinancing
Transactions as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest on New Credit Agreement................................ $ 886 $ 390
Interest on the Notes........................................... 8,344 4,172
Interest on Prior Credit Agreement.............................. (3,751) (1,606)
Interest on Retired Notes....................................... (2,578) (1,225)
------- -------
2,901 1,731
Amortization of deferred financing costs pro forma for the
Refinancing Transactions...................................... (758) (343)
Amortization of deferred financing costs pro forma for the
Acqusitions................................................... 508 185
------- -------
Refinancing Transactions adjustment............................. (250) (158)
------- -------
$ 2,651 $ 1,573
------- -------
------- -------
</TABLE>
(6) Excludes (i) a non-recurring charge of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore and (ii) $300,000
of legal fees paid to the law firm of Michael D. Schenker Co. LPA, whose
principal is an officer of Mentmore. Both charges were related to the
Refinancing Transactions. See 'Certain Transactions--Management Agreement
with Mentmore.'
(7) Reflects (i) a non-recurring charge of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore and (ii) $300,000
of legal fees paid to the law firm of Michael D. Schenker Co. LPA, whose
principal is an officer of Mentmore. Both charges were related to the
Refinancing Transactions.
30
<PAGE>
(8) Excludes an extraordinary loss from the early extinguishment of
indebtedness, net of tax benefit, of $4,841,000, resulting from the
repayment of the Retired Notes and the termination of the Prior Credit
Agreement in connection with the Refinancing Transactions.
(9) 'EBITDA' represents net income plus income taxes, interest expense,
depreciation and amortization and certain non-recurring, non-cash charges.
Non-recurring, non-cash charges for the pro forma year ended December 31,
1996 include plant closure costs ($301,000) and the elimination of pension
costs associated with a terminated defined benefit plan ($122,000). The
Company has not adjusted EBITDA to include cash charges which the Company
believes are non-recurring in nature. Non-recurring cash charges for the
pro forma year ended December 31, 1996 include operating losses (excluding
depreciation expense) of the Company's Graham, North Carolina facility
which was closed in September 1996 ($580,000) and plant closure costs
($370,000). If the Company had included non-recurring cash charges in its
calculation of EBITDA, EBITDA would have been $17,254,000 for the pro forma
year ended December 31, 1996. 'EBITDA margin' is defined as EBITDA divided
by net sales. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA
should not be considered an alternative to operating income or cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity. Since all companies and analysts do not necessarily calculate
EBITDA in the same fashion, EBITDA as presented in this Prospectus may not
be comparable to similarly titled measures reported by other companies.
(10) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before taxes (benefit) and extraordinary item plus fixed
charges. Fixed charges consist of interest expense and amortization of
deferred financing costs, whether expensed or capitalized, plus the portion
of operating lease expense attributable to interest. For the pro forma year
ended December 31, 1996, the Company's earnings were inadequate to cover
fixed charges by $754,000. Adjusted to eliminate non-cash charges of
depreciation and amortization of $6,232,000 for the pro forma year ended
December 31, 1996, such earnings would have exceeded fixed charges by
$5,478,000. For the six months and the pro forma six months ended June 30,
1997, the Company's earnings were inadequate to cover fixed charges by
$720,000 and $1,438,000, respectively. Adjusted to eliminate non-cash
charges of depreciation and amortization of $3,301,000 for the six months
and the pro forma six months ended June 30, 1997, such earnings would have
exceeded fixed charges by $2,581,000 and $1,863,000, respectively.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading full-service, custom injection molder of precision
plastic products, focusing on three broad markets: healthcare, packaging and
consumer/industrial products. The Company is capable of providing its customers
with comprehensive custom manufacturing services, including extensive product
design and prototype development, mold design and manufacturing, close tolerance
injection molding and value-added finishing services such as packaging, assembly
and decoration.
Precise was acquired in 1990 by an entity managed by Mentmore, a
privately-held investment management company. Mentmore recruited an experienced
management team to implement several key strategic initiatives aimed at
improving the Company's competitive standing and profitability and promoting
internal and external growth. In January and March of 1996, the Company
completed the acquisitions of Unity and Tredegar, respectively, more than
tripling the Company's net sales on a pro forma basis. Management believes that
the Acquisitions significantly enhanced the Company's prospects for future
growth by expanding its manufacturing and technological capabilities, enlarging
its customer base, strengthening its relationships with certain existing
customers and broadening its geographic presence.
Since the consummation of the Tredegar Acquisition, management has
implemented several strategic initiatives designed to improve Tredegar's
operating performance and integrate Tredegar's operations with those of the
Company. These initiatives have included improved raw material purchasing,
reductions in plant labor and administrative costs and the closure of Tredegar's
Graham, North Carolina facility. More specifically, following the Tredegar
Acquisition, the Company (i) eliminated 31 direct and indirect labor positions
and reduced payroll rates for certain Tredegar employees, resulting in an
annualized cost savings, based on actual costs incurred in 1996, of
approximately $2.0 million; (ii) consolidated Tredegar's corporate sales and
administrative functions with those of the Company, resulting in a net
annualized reduction in selling, general and administrative expenses, based on
actual expenses incurred in 1996, of approximately $1.0 million and (iii)
renegotiated Tredegar's resin supply agreements, which resulted in annualized
cost savings, based on actual costs incurred in 1996, of approximately $268,000
based on the volume of resin purchased in 1996 following the Tredegar
Acquisition. In addition, in September 1996 the Company closed the Graham
facility, which had pro forma operating losses (excluding depreciation expense)
of $580,000 in 1996, and transferred its equipment and business to other
facilities, primarily the Company's facility in St. Petersburg, Florida.
Management believes that these initiatives have significantly improved
Tredegar's operating profitability since its acquisition by the Company and that
further improvements are possible at the former Tredegar and Unity facilities.
Tredegar's gross margin increased from approximately 12.0% in 1995 to
approximately 15.0% in 1996. Management believes that it will be able to achieve
additional cost savings as a result of further improvements in operating
processes and material purchasing and reductions in selling, general and
administrative expenses.
The Company experienced a decrease in net sales and operating income during
the six months ended June 30, 1997 compared to the pro forma combined results of
operations for the comparable period in 1996. The 11.1% decrease in net sales to
$51.8 million for the six months ended June 30, 1997 from $58.3 million for the
pro forma combined six months ended June 30, 1996 was primarily caused by delays
in certain molding and mold making programs, lower than anticipated volume
requirements of certain customers' end-product lines due to an unsuccessful
consumer product launch and product line maturity, customer insourcing, the loss
of a molding program to a competitor with a closer customer 'ship-to' point and
the discontinuance of a low margin, proprietary manufacturing process.
Management believes that although certain of the losses described above are
temporary and that most program delays are expected to be remedied, the
Company's net sales will continue to be negatively impacted during the remainder
of the fiscal year. This downturn will not have a significant impact on cash
available for operating, investing and financing activities, as the Company had
approximately $23.0 million in borrowing availability under the New Credit
Agreement as of June 30, 1997 and management expects that the Company will have
significant borrowing availability thereunder during the remainder of the
current fiscal year. In response to the lower level of expected net sales, the
Company laid off 25 employees during April 1997, resulting in an annualized cost
savings, based on current compensation levels, of approximately $1.2 million
(excluding severance costs estimated to be $161,000). Management believes that
the prolonged and well publicized sale of Tredegar created customer uncertainty
in the period prior to the Tredegar
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Acquisition resulting in fewer new program awards in late 1995 and throughout
1996. Since the Tredegar Acquisition, the Company's management has focused on
reorganizing and strengthening its sales and marketing efforts to obtain new
business. The Company expects to begin to realize the benefit of these efforts
in the first half of 1998.
Operating income for the six months ended June 30, 1997 decreased from $5.6
million, to $4.1 million, or 26.8%, compared to the pro forma combined operating
income for the same period in the prior year. This decrease resulted primarily
from the overall decrease in net sales coupled with additional compensation
expense associated with the expansion of the Company's sales force.
The Company's operating data for fiscal years ended December 31, 1994, 1995
and 1996 and the three and six months ended June 30, 1996 and 1997 are set forth
below as percentages of net sales:
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS UNAUDITED
ENDED SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
-------------------------- ---------------- ----------------
1994 1995 1996 1996 1997 1996 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............ 80.8 77.1 82.0 83.5 83.5 82.4 82.8
------ ------ ------ ------ ------ ------ ------
Gross profit............. 19.2 22.9 18.0 16.5 16.5 17.6 17.2
Selling, general and
administrative......... 11.8 13.3 7.8 7.3 8.4 8.5 8.2
Plant closure costs...... 0.0 0.0 0.7 0.0 0.0 0.0 0.0
Amortization of
intangible assets...... 0.1 0.1 1.1 1.2 1.3 1.0 1.2
------ ------ ------ ------ ------ ------ ------
Operating income......... 7.3 9.5 8.4 8.0 6.8 8.1 7.8
Interest expense......... 2.9 2.5 6.5 6.7 8.0 5.8 7.5
Other (income) expense... (0.2) 0.4 0.0 0.0 3.5 0.0 1.7
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
extraordinary item..... 4.6 6.6 1.9 1.3 (4.7) 2.3 (1.4)
Provision for income
taxes.................. 1.7 2.8 1.4 1.0 1.3 1.7 1.2
------ ------ ------ ------ ------ ------ ------
Net income (loss) before
extraordinary item..... 2.9% 3.8% 0.5% 0.3 (6.0) 0.6% (2.6)
Extraordinary item, net
of tax................. 0.0 0.0 0.0 0.0 (19.0) 0.0 (9.3)
------ ------ ------ ----- ------ ------ ------
Net income (loss)........ 2.9% 3.8% 0.5% 0.3% (25.0)% 0.6% (11.9)%
------ ------ ------ ----- ------ ------ ------
------ ------ ------ ----- ------ ------ ------
EBITDA margin............ 10.7% 13.3% 14.6% 13.5% 14.1% 12.5% 12.5%
</TABLE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996
Net sales. The Company's net sales increased to $51.8 million for the six
months ended June 30, 1997, an increase of $14.5 million, or 38.9%, over the
comparable period in the prior year. The increase in net sales was almost
entirely attributable to the Tredegar Acquisition.
Gross profit. The Company's gross profit increased to $8.9 million for the
six months ended June 30, 1997, an increase of $2.3 million, or 34.8%, over the
comparable period in the prior year. The increase in gross profit was primarily
attributable to higher net sales volume resulting from the Tredegar Acquisition.
Gross profit margin declined to 17.2% for the six months ended June 30, 1997
from 17.6% in the comparable period in the prior year. The decrease in gross
profit margin was primarily attributable to the Tredegar Acquisition, as
Tredegar historically generated lower gross profit margins than the Company.
Selling, general and administration. Selling, general and administrative
expenses increased to $4.3 million for the six months ended June 30, 1997, an
increase of $1.1 million, or 34.4%, over the comparable period in the prior
year. The increase in selling, general and administrative expenses was primarily
attributable to incremental expenses related to the Tredegar Acquisition and to
the subsequent hiring of additional sales persons.
Amortization. The Company's amortization of intangible assets increased to
$608,000 for the six months ended June 30, 1997 from $375,000 in the comparable
period in the prior year. This increase resulted primarily from the amortization
of goodwill and non-compete agreements associated with the Tredegar Acquisition.
33
<PAGE>
Operating income. Operating income increased to $4.1 million for the six
months ended June 30, 1997, an increase of $1.0 million, or 32.3%, over the
comparable period in the prior year. Operating income as a percentage of net
sales declined to 7.8% for the six months ended June 30, 1997 from 8.1% in the
comparable period in the prior year due primarily to the lower gross profit
margin and the increase in amortization of intangible assets associated with the
Tredegar Acquisition.
Interest expense. Interest expense increased to $3.9 million for the six
months ended June 30, 1997 from $2.2 million in the comparable period in the
prior year due primarily to interest expense on indebtedness incurred to finance
the Tredegar Acquisition and in connection with the Refinancing Transactions.
Other expenses. Other expenses increased to $892,000 for the six months
ended June 30, 1997 from $5,000 in the comparable period in the prior year due
primarily to (i) non-recurring charges of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore and (ii) $300,000 of
legal fees paid to the law firm of Michael D. Schenker Co. LPA, whose principal
is an officer of Mentmore. Both of these charges were related to the Refinancing
Transactions.
Provision for income tax. The Company's effective tax rates differed from
the applicable statutory rates for the six months ended June 30, 1997 and 1996
primarily due to nondeductable goodwill amortization. In addition, the June 30,
1997 tax rate was effected by the expiration of certain state tax net operating
losses.
Extraordinary item. The Company recorded an extraordinary loss of $4.8
million, net of tax benefits, for the six months ended June 30, 1997, due to the
early extinguishment of indebtedness resulting from the repayment of the Retired
Notes and the termination of the Prior Credit Agreement in connection with the
Refinancing Transactions.
Three Months Ended June 30, 1997 compared to Three Months Ended June 30, 1996
Net sales. The Company's net sales decreased to $25.5 million for the
three months ended June 30, 1997, a decrease of $2.8 million, or 9.9%, from the
comparable period in the prior year. The decrease in net sales from the prior
period was primarily attributable to lower volume requirements of certain
customers' end-products, the discontinuance of a low margin proprietary
manufacturing process, and the loss of a molding program.
Gross profit. The Company's gross profit decreased to $4.2 million in the
three months ended June 30, 1997, a decrease of $0.5 million from the comparable
period in the prior year. This decrease in gross profit margin from the
comparable 1996 period was primarily attributable to lower sales volume and
severance costs of $161,000 associated with a lay-off at a mold manufacturing
facility.
Selling, general, and administrative. Selling, general, and administrative
expenses increased to $2.1 million, or 3.5% over the comparable period in the
prior year. This increase in selling, general, and administrative expenses was
primarily attributable to the hiring of additional sales persons in 1997, which
was substantially offset by the integration costs associated with the Tredegar
Acquisition during the second quarter of 1996.
Operating income. Operating income decreased to $1.8 million for the three
months ended June 30, 1997, a decrease of $0.5 million, or 38.5%, from the
comparable period in the prior year. The decrease in operating income from the
prior period was primarily attributable to lower sales volumes, severance costs
and slight increases in selling, general, and administrative and amortization
expenses.
Interest expense. Interest expense increased to $2.0 million for the three
months ended June 30, 1997 from $1.9 million in the comparable period in the
prior year due primarily to the Refinancing Transactions.
Other expenses. Other expenses increased to $896,000 for the three months
ended June 30, 1997 from $7,000 in the comparable period in the prior year due
primarily (i) to non-recurring charges of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore and (ii) $300,000 of
legal fees paid to the law firm of Michael D. Schenker Co. LPA, whose principal
is an officer of Mentmore. Both of these charges were related to the Refinancing
Transactions.
Provisions for income taxes. The Company's effective tax rates differed
from the applicable statutory rates for the three months ended June 30, 1997 and
1996 primarily due to nondeductable goodwill amortization. In addition, the June
30, 1997 tax rate was also effected by the expiration of certain state tax net
operating losses.
Extraordinary item. The Company recorded an extraordinary loss of $4.8
million, net of tax benefits, for the three months ended June 30, 1997 due to
the early extinguishment of indebtedness resulting from the
34
<PAGE>
repayment of the Retired Notes and the termination of the Prior Credit Agreement
in connection with the Refinancing Transactions.
Year Ended December 30, 1996 compared to Year Ended December 31, 1995
Net sales. The Company's net sales increased to $93.3 million in 1996, an
increase of $59.8 million, or 178.1%, over 1995. The increase in net sales was
primarily attributable to the Company's January 25, 1996 acquisition of Unity
and March 29, 1996 acquisition of Tredegar. Unity and Tredegar generated net
sales of approximately $4.9 million and $58.5 million, respectively, after they
were acquired by the Company. Excluding the net sales of Unity and Tredegar, the
Company's net sales totaled approximately $29.9 million, a decrease of $3.6
million from 1995. This decrease was primarily attributable to lower net sales
of thin-wall consumer product containers for Baby Fresh(Trademark) baby wipes
resulting from marketing discontinuities caused by the merger of Scott Paper
Company with Kimberly-Clark and the subsequent sale by Kimberly-Clark of the
Baby Fresh(Trademark) product line to Procter & Gamble. Also contributing to the
decline in net sales was a reduction in net sales to a customer which moved its
injection molding to another molder located near its largest distribution
center.
Gross profit. The Company's gross profit increased to $16.8 million in
1996, an increase of $9.1 million, or 119.3%, over fiscal year 1995. The
increase in gross profit was attributable to higher net sales volume resulting
from the Acquisitions. Gross profit margin declined to 18.0% in 1996 from 22.9%
in the prior year. The decrease in gross profit margin was primarily
attributable to the Acquisitions, as Unity and Tredegar had historically
generated lower gross profit margins than the Company.
Selling, general and administrative. Selling, general and administrative
expenses increased to $7.3 million in 1996, an increase of $2.8 million, or
63.0%, from 1995. The increase in selling, general and administrative expense
was due primarily to incremental selling, general and administrative expenses
related to the Acquisitions and an increase in management fees. Selling, general
and administrative expense as a percentage of net sales decreased to 7.8% in
1996 from 13.3% in 1995. This improvement was primarily attributable to the
consolidation of accounting, purchasing and other administrative functions
related to the Acquisitions.
Plant closure costs. In September 1996, the Company closed its Graham,
North Carolina manufacturing facility, which was acquired in the Tredegar
Acquisition. In December 1996, the Company decided to close its Rochester, New
York manufacturing facility, which was sold in May 1997. The Company recorded
plant closing costs in 1996 of $671,000. These costs include $110,000 of
expenses associated with the relocation of machinery and equipment from the
Graham facility to the Company's other facilities, $260,000 of expenses
associated with employee termination benefits which were accrued in connection
with the decision to close the Rochester facility, and an impairment loss of
$301,000 which represents the difference between the net book value of the
assets to be sold at the Rochester facility and the offer price for those assets
of $900,000.
Amortization. The Company's amortization of intangible assets increased to
$1.0 million in 1996 from $37,000 in 1995 due primarily to the amortization of
goodwill and non-compete agreements associated with the Acquisitions.
Operating income. Operating income increased to $7.8 million in 1996, an
increase of $4.6 million, or 143.8%, over 1995. Operating income as a percentage
of net sales declined to 8.4% in 1996 from 9.5% in the prior year due primarily
to the lower gross profit margin, the increase in amortization of intangible
assets associated with the Acquisitions and expenses associated with the closure
of the Graham and the decision to close the Rochester manufacturing facilities.
Interest expense. Interest expense increased to $6.1 million in 1996 from
$810,000 in 1995 due primarily to interest expense on indebtedness incurred to
finance the Acquisitions.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
Net sales. The Company's net sales increased to $33.5 million in 1995, an
increase of $385,000, or 1.2%, over 1994. The increase in net sales was
attributable to a full year of operations at the Delaware CAP Facility, which
contributed additional net sales of approximately $6.0 million in 1995, as well
as increased sales to existing customers of approximately $2.2 million. This
increase was partially offset by a decrease in mold making sales resulting from
the completion of a large mold making program ($3.9 million) as well as from a
reduction in net sales to certain of the Company's existing customers ($4.2
million).
35
<PAGE>
Gross profit. The Company's gross profit increased to $7.7 million in
1995, an increase of $1.3 million, or 20.7%, over fiscal year 1994. Gross profit
margin improved to 22.9% in 1995 from 19.2% in the prior year. Efficiencies
realized at the Delaware CAP Facility as operations at that facility
transitioned from a start-up phase in 1994 contributed to increases in both
gross profit and gross margin. The improvement in gross margin was also the
result of a reduction in 1995 of the Company's mold making sales, which
typically generate lower gross profit margins than the Company's molding sales.
Selling, general and administrative. Selling, general and administrative
expenses increased to $4.5 million in 1995, an increase of $539,000, or 13.8%,
from 1994, due primarily to increased incentive-based compensation expense,
travel expenses resulting from the transition of the Delaware CAP Facility from
a start-up phase and management fees. Selling, general and administrative
expense as a percentage of net sales increased to 13.3% in 1995 from 11.8% in
1994.
Amortization. The Company's amortization of intangible assets increased to
$37,000 in 1995 from $26,000 in 1994 due primarily to a full year's amortization
of deferred financing costs associated with the financing of the construction of
the Delaware CAP Facility.
Operating income. Operating income increased to $3.2 million in 1995, an
increase of $766,000, or 31.8%, over 1994. Operating income as a percentage of
net sales increased to 9.5% in 1995 from 7.3% in the prior year due primarily to
the improvement in gross profit margins resulting from the transition of the
Delaware CAP Facility from a start-up phase. This improvement was partially
offset by increased selling, general and administrative expenses.
Interest expense. Interest expense decreased to $810,000 in 1995 from
$956,000 in 1994 due primarily to the net repayment of approximately $1.7
million of long-term debt.
Provision for income taxes. The Company's provision for income taxes
increased to $941,000 in 1995 from $574,000 in 1994, representing effective tax
rates on reported taxable income of 42.5% and 37.7% in each of the two years,
respectively. The higher effective tax rate in 1995 was primarily due to higher
state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a significant refinancing in March 1996 in connection
with the Tredegar Acquisition. The purchase price for Tredegar, along with the
refinancing of certain existing debt and related transaction costs, was financed
through (i) the incurrence of approximately $44.0 million of indebtedness under
the Prior Credit Agreement, (ii) the issuance of the Retired Notes in an
aggregate principal amount of $20.0 million (including $1.9 million of original
issue discount), (iii) the issuance of $8.3 million of Redeemable Preferred
Stock (as defined) and (iv) a capital contribution of $0.8 million from Parent.
The Company permanently repaid all indebtedness outstanding under the Prior
Credit Agreement and the Retired Notes and redeemed the Redeemable Preferred
Stock in connection with the Refinancing Transactions. See 'Prospectus
Summary--The Initial Offering--Notes.'
The Company generated cash flows from operations totaling $1.3 million,
$3.2 million and $9.6 million in 1994, 1995 and 1996, respectively, and $5.9
million and $4.1 million in the six months ended June 30, 1996 and 1997,
respectively. The progressive increase in annual cash flows from operations over
the three-year period was driven primarily by the increased profitability of the
Company's existing business and an increase in net sales resulting from the
Acquisitions. Cash flows from operations were negatively impacted during 1996 as
a result of costs associated with the closure of the Company's plant in Graham,
North Carolina. During 1996, $0.5 million was expended to satisfy the cash
requirements for employee termination benefits, noncancellable operating lease
accruals, equipment relocation costs and other costs associated with the closure
of this facility. As of June 30, 1997, the balance of costs associated with
plant closures, including the closure of the Company's Rochester, New York plant
(which occurred in May 1997), are expected to require cash payouts of
approximately $0.5 million through March 2000. The decrease in cash flows from
operations during the six months ended June 30, 1997 compared to the same period
in the prior year resulted primarily from the lower sales volume.
The Company's cash flows used in investing activities totaled $2.0 million,
$1.0 million and $65.6 million, excluding capital lease agreements for equipment
totaling $2.3 million, $0.5 million and $4.2 million in 1994, 1995 and 1996,
respectively. The Company's cash flows used in investing activities totaled
$64.7 million and $0.4 million, excluding capital lease agreements for equipment
totaling $2.2 million and $0.7 million, for the six
36
<PAGE>
months ended June 30, 1996 and 1997, respectively. During 1994, the Company
completed leasehold improvements totaling $0.8 million and the purchase and
lease of several molding machines and related equipment totaling $3.2 million
for the Delaware CAP Facility. During 1996, the Company effected a replacement
program for molding machines in its Pittsburgh plant which involved capital
lease agreements for 17 machines totaling $2.8 million. Additionally, $63.8
million was attributed to the net cash used in the Acquisitions during the first
quarter of 1996. For the first six months of 1997, the Company has expended $1.7
million on cash capital expenditures which were primarily offset by proceeds
received from the sale of its Rochester, New York facility in the amount of $1.3
million, which proceeds were subsequently used to repay indebtedness outstanding
under the Prior Credit Agreement.
The Company's cash flows provided by (used in) financing activities totaled
$0.6 million, $(2.2) million and $57.3 million in 1994, 1995 and 1996,
respectively, and $60.8 million and $(3.4) million in the six months ended June
30, 1996 and 1997, respectively. During 1994, debt repayments were offset mainly
by the incurrence of a $1.3 million term loan to finance the purchase of
equipment for the Delaware CAP Facility. During 1995, cash flows were used to
repay indebtedness. During 1996, cash financing activities for the Tredegar
Acquisition, as described above, contributed significantly to resulting cash
provided. During the six months ended June 30, 1997 the Refinancing Transactions
contributed to the cash used in financing activities.
Since the consummation of the Refinancing Transactions, the Company's
liquidity requirements have consisted primarily of capital expenditures,
required debt service under the Notes, the New Credit Agreement and various
capital lease obligations and working capital needs. The Company estimates that
its cash requirements to service debt will total $1.2 million during the
remainder of the current fiscal year and $2.5 million and $1.8 million in each
of the next two fiscal years, respectively. The Company estimates that its
capital expenditures during 1997 will total $10.2 million, of which
approximately $5.6 million is expected to be in the form of capital leases.
Included in the amount of total projected capital expenditures for 1997 is $3.3
million of expenditures for building improvements, molding presses and ancillary
equipment for a significant new program expected to begin production by the end
of the year. Equipment refurbishment programs for 1997, which mainly relate to
Tredegar plants, are expected to cost $4.4 million. The Company is in a capital
intensive business and will have significant ongoing requirements for capital
which management believes will be satisfied through cash flow from operations,
borrowings under the New Credit Agreement and capital leases. Management
believes that due to the significance of capital expenditures anticipated for
1997, the Company will be required to incur additional indebtedness under the
New Credit Agreement or through capital leases. However, certain equipment
refurbishment programs could be delayed, if necessary. The New Credit Agreement
and the Indenture place significant restrictions on the Company's ability to,
among other things, incur additional indebtedness, grant liens or sell assets.
See 'Description of Notes--Certain Covenants,' 'Risk Factors--Substantial
Leverage' and 'Risk Factors--Restrictions under Debt Agreements.'
The New Credit Agreement provides for revolving loans to, and the issuance
of letters of credit on behalf of Precise, in an aggregate amount not to exceed
$30.0 million, of which approximately $7.0 million was outstanding on June 30,
1997. See 'Capitalization.' The New Credit Agreement matures in 2002, and
contains certain covenants customary for a financing of this nature. The New
Credit Agreement requires prepayments and concurrent reductions of the total
commitments thereunder in the amount of certain portions of the net proceeds
from certain asset sales, capital contributions or issuances of debt or equity.
See 'Description of Certain Indebtedness--New Credit Agreement.'
Capital leases are used extensively by the Company to finance new molding
presses and certain ancillary equipment. Capital lease obligations totaled $6.1
million as of June 30, 1997, and current maturities relating to these
obligations totaled $2.3 million.
Management believes that the Company's cash flow from operations, together
with borrowings under the New Credit Agreement and capital leases, provide it
with sufficient liquidity necessary to fund capital improvements, service
indebtedness and meet working capital requirements for the Company's existing
operations. However, the Company's anticipated cash flow from operations in 1997
is expected to be insufficient to cover the Company's cash requirements during
such period. In addition, the Company is highly leveraged and, as a result,
funds available for working capital, capital expenditures, acquisitions and
general corporate purposes may be limited or unavailable in the event the
Company does not generate cash flow at or above expected levels,
37
<PAGE>
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See 'Risk Factors--Substantial Leverage.'
INFLATION AND CHANGING PRICES
The Company's sales and costs are subject to inflation and price
fluctuations. However, because a significant portion of changes in the cost of
plastic resins, the Company's principal raw materials, are passed through to
customers, such changes historically have not, and in the future are not
expected to have, a material effect on the Company's results of operations.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a range of environmental
requirements in the various jurisdictions in which it operates. These
environmental requirements relate to, among other things, air emissions,
wastewater discharges and waste management. The Company can be expected to incur
capital and operating expenses to maintain compliance with applicable
environmental requirements and to meet new regulatory requirements. Based upon
the underlying facts giving rise to its environmental regulatory obligations and
technical reports prepared on the Company's facilities, the Company does not
anticipate that any such capital and operating expenses will have a material
adverse effect on the Company's results of operations. There can be no
assurance, however, that unanticipated, future regulatory programs or previously
unidentified environmental conditions will not impose material capital operating
expenses. See 'Risk Factors--Environmental Matters' and 'Business-- Regulation
and Legislation.'
The Company has been identified as one of the several hundred Potentially
Responsible Parties ('PRPs') in connection with the shipment of hazardous wastes
to the Envirotek II State Superfund site in Tonawanda, New York. Because of the
Company's status as a PRP at the Envirotek II site, the New York State
Department of Environmental Conservation ('NYSDEC') identified the Company as a
PRP at the related the Roblin Steel Complex, also a state cleanup site, which
surrounds the Envirotek II site. The Company has records of having shipped 20
drums of waste to Envirotek II and accordingly has participated in the various
proceedings at both of these sites as a de minimis party. The Company entered
into an Administrative Order on Consent with the United States Environmental
Protection Agency ('EPA') with respect to a removal action undertaken at
Envirotek II, and paid $7,700 to settle EPA's claims for removal costs. The
NYSDEC subsequently assumed the lead at both of these sites, now commonly
referred to as the Envirotech II/Roblin Steel Site. In July 1997, the Company
entered into a Consent Order with NYSDEC and a De Minimis Settlement Agreement
with the other PRPs, whereby the Company made an $11,626 lump-sum de minimis
'buyout' payment in exchange for a release from further liability for past costs
by the NYSDEC and an indemnity and covenant not to sue, from the other PRPs, for
future response costs at the Envirotech II/Roblin Steel site. Accordingly,
management believes that the Company will have no further liability at these
sites.
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BUSINESS
OVERVIEW
The Company is a leading full-service, custom injection molder of precision
plastic products, focusing on three broad markets: healthcare, packaging and
consumer/industrial products. These markets are characterized by high volume
requirements, long product life cycles, limited vulnerability to recessionary
trends and relatively low susceptibility to off-shore competition. The Company
differentiates itself by providing total project management, including
value-added services, for the manufacture of highly engineered, close tolerance
products, such as disposable medical devices, thin-wall consumer product
containers and electrical connectors. The Company currently serves a diverse
base of OEMs, including Fortune 500 companies such as Abbott Labs, Gillette and
Procter & Gamble. The Company is the sole or primary source supplier of the
products that it manufactures for many of its customers. On a pro forma basis,
after giving effect to the Acquisitions, the Company generated net sales and
EBITDA of $114.7 million and $16.3 million, respectively, in the year ended
December 31, 1996. See Note (5) to 'Selected Financial Data' for further
information regarding EBITDA.
The Company operates approximately 185 molding machines in nine
strategically located facilities throughout the eastern and midwestern United
States, three of which have advanced mold making capabilities. The Company is
capable of providing its customers with comprehensive custom manufacturing
services, including extensive product design and prototype development, mold
design and manufacturing, close tolerance injection molding and value-added
finishing services such as packaging, assembly and decoration. The Company's
technologically advanced, computer-aided manufacturing facilities and equipment
enable it to engineer custom solutions to technically demanding customer
requirements, which are generally characterized by close tolerances and high
speed, volume and durability parameters. The high level of automation in many of
the Company's manufacturing facilities minimizes both direct labor input and
scrap loss. The Company believes that its leading technical capabilities and
reputation for high quality products, on-time deliveries and reliability have
enabled it to both obtain new customers and further penetrate existing
customers.
Precise was acquired in 1990 by an entity managed by Mentmore, a
privately-held investment and management company. Mentmore recruited an
experienced management team beginning in 1990 to implement several key strategic
initiatives aimed at improving the Company's competitive standing and
profitability, as well as promoting internal and external growth. As a result of
these initiatives, the Company's net sales and EBITDA increased from $22.8
million and $(129,000), respectively, in 1991 to $33.5 million and $4.5 million,
respectively, in 1995 (prior to the Acquisitions). In addition, during the same
period, the Company's EBITDA margin improved from (0.6)% to 13.3%. See Note (5)
to 'Selected Financial Data' for further information regarding EBITDA.
In 1996, the Company acquired Tredegar Molded Products Company
('Tredegar'), a full-service plastics injection molder supplying OEMs primarily
in the healthcare, packaging and consumer/industrial markets, and Unity, a
plastics injection molder specializing in medical diagnostic products and
precision valves. The Acquisitions more than tripled the Company's net sales on
a pro forma basis, making it one of the larger custom injection molders in the
United States. Management believes that the Acquisitions also significantly
enhanced the Company's prospects for future growth by expanding its
manufacturing and technological capabilities, enlarging its customer base,
strengthening relationships with certain existing customers and broadening its
geographic presence. In addition, the Acquisitions provided the Company with
significant opportunities for economies of scale in raw material purchasing and
reductions in manufacturing and administrative costs. As a result of operating
improvements implemented by the Company since the Acquisitions were completed,
the Company's EBITDA and EBITDA margin increased from $12.7 million and 9.8%,
respectively, on a combined basis in 1995 to $16.3 million and 14.2%,
respectively, on a pro forma basis in the year ended December 31, 1996. See Note
(5) to 'Selected Financial Data' for further information regarding EBITDA.
COMPETITIVE STRENGTHS
Management believes that the Company is well positioned to capitalize on
the favorable trends in the plastics injection molding industry and to enhance
its position in its target markets. The following are, in management's view, the
Company's principal competitive strengths:
FULL-SERVICE CAPABILITIES. The Company offers comprehensive services
ranging from product design, product development and mold making through
molding, decorating and assembly. As one of a limited number
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of injection molders in the United States capable of offering such comprehensive
services, management believes that the Company is well positioned to benefit
from the consolidation currently taking place in the injection molding industry
and the trend among high volume OEMs to increasingly rely upon custom injection
molders for total project management.
ADVANCED MANUFACTURING CAPABILITIES. The Company uses state-of-the-art
CAD/CAM technology in the design and manufacture of its molds and subjects each
mold to extensive testing to ensure that it meets high quality standards. The
Company has also made substantial investments in advanced high speed molding
machines and significantly expanded its use of automation and robotics in its
manufacturing and assembly operations. As a result of its efforts, the Company
has received numerous quality awards, including Gillette's OmniMark Award, the
Lexmark International Prestige Supplier Award and the bioMerieux Vitek World
Class Supplier Award. In addition, the Company has achieved 'ship-to-stock'
status with many of its customers, whereby the Company's products are not
subject to quality inspections by such customers prior to being stocked.
Management believes that the Company's mold making capabilities and the high
quality of its molding have been integral in the Company's strategy of focusing
on highly engineered products.
LOW COST PRODUCTION. The Company has been successful in reducing costs by
improving manufacturing efficiency, introducing advanced molding technology and
realigning facilities and production to increase facility utilization. In
addition, as one of the largest manufacturers in the plastics injection molding
industry, the Company is able to realize significant economies of scale in raw
material purchasing. Management believes that by being one of the industry's low
cost producers, the Company enjoys a significant advantage over many of its
competitors in obtaining new business.
MULTIPLE PLANT LOCATIONS. Management believes that the Company's nine
plants, located throughout the eastern and midwestern United States, provide it
with the opportunity to effectively compete for new product contracts that
require large volume runs and multiple distribution points. The Company's
multiple plant locations enable it to 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 provides its customers with a broad range of
injection molding capabilities and better service through improved
responsiveness, timely delivery and reduced freight costs. In addition, by
operating numerous plants, the Company can mitigate customer sourcing risks
associated with single facility production.
EXPERIENCED MANAGEMENT. The six members of the Company's senior management
team have, on average, approximately 19 years of experience in the plastics
injection molding industry. The members of the management team, most of whom
were recruited by Mentmore in 1990 and 1991 from other leading plastics
companies, are largely responsible for the substantial growth and improved
operating performance that the Company has experienced over the past five years.
BUSINESS STRATEGY
The Company's objective is to become the leading supplier of plastic molded
products to leading OEMs in the healthcare, packaging and consumer/industrial
markets. The key elements of the Company's business strategy to achieve this
objective are as follows:
FOCUS ON TARGET MARKETS. The Company focuses its marketing efforts on high
margin accounts in the healthcare, packaging and consumer/industrial markets.
These markets are characterized by high volume requirements, long product life
cycles, limited vulnerability to recessionary trends, and relatively low
susceptibility to off-shore molding competition. By focusing on high volume,
long run manufacturing for products in these markets, management believes that
the Company will be able to maximize its profitability and best utilize its
resources.
FURTHER PENETRATE EXISTING CUSTOMER BASE. Substantially all of the
Company's sales are to major consumer product and healthcare companies. In most
cases, the Company manufactures plastic products for specific applications
required by one or more divisions of a single customer. The trend by OEMs to
reduce their supplier base and outsource their injection molding needs provides
the Company with the opportunity to increase sales to its existing customers and
participate in their domestic and international growth. The Company seeks to
capitalize on these favorable industry trends and growth opportunities by
expanding its sales force, emphasizing its full-service capabilities and
developing close working relationships with its customers by improving
communication and coordination between the Company's marketing, product design
and production personnel
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and its customers' counterpart employees. The Company has increased the size of
its sales force from nine sales persons as of August 31, 1996 to 18 sales
persons as of August 31, 1997. In addition, the Company plans to designate key
account specialists for each of its largest customers whose sole responsibility
will be to serve the diverse injection molding needs of that customer. By
pursuing these and other strategies, management believes that the Company can
capitalize on its full-service capabilities and customer relationships.
INVEST IN TECHNOLOGY AND QUALITY IMPROVEMENTS. The Company continues to
improve productivity through an on-going program of upgrading equipment and
facilities and investing in automation, robotics and other technological
improvements. Since 1991, the Company has made substantial investments in new
mold making equipment and injection molding machines which have led to improved
cycle times, lower operating expenses and higher quality products. In addition,
four of the Company's facilities are currently ISO 9000 registered, and the
Company is actively pursuing ISO certification of all of its remaining
facilities. Management believes that less than 10% of all molders in the United
States are ISO 9000 registered. Management also believes that by continuing to
invest in new technology and focusing on quality, the Company is well positioned
to increase sales to existing customers, develop new customer relationships and
improve its profit margins through increased operating efficiencies.
REDUCE COSTS AND INCREASE PRODUCTIVITY. The Company focuses on
simultaneously reducing costs while meeting the high quality standards of its
customers. Each of the Company's facilities utilizes total quality management
techniques, including the use of statistical process control and extensive
employee involvement. The Company's employees receive in excess of 30 hours of
training each year, designed to increase productivity, safety and manufacturing
quality and to foster the concept of 'continuous improvement.' Through an
innovative Performance Sharing Program, the Company's employees focus on cost of
goods sold and receive incentives to maximize gross margins by minimizing costs.
Management also continues to improve asset utilization and increase
manufacturing productivity by consolidating underperforming facilities and
streamlining the Company's workforce. These initiatives have resulted in an
increase in the Company's net sales per employee from $87,000 in 1991 to
$127,000, on a pro forma basis, in 1996. During the same period, the Company's
EBITDA margin improved from (0.6)% to 14.2%. The Company intends to continue to
implement measures that minimize costs, increase margins and result in
competitive prices for its customers. See Note (5) to 'Selected Financial Data'
for further information regarding EBITDA.
DEVELOP PARTNERSHIPS WITH KEY CUSTOMERS. In response to customers'
increasing focus on outsourcing non-core activities such as injection molding,
management continues to pursue customer partnerships that involve sole or
primary source production and total project management under long-term
contracts. Management believes that these partnerships enable suppliers and OEMs
to focus on long-term strategy and often result in faster product development,
design flexibility, lower costs and improved product quality. For example, the
Company's 51,000 square foot, state-of-the-art Delaware CAP Facility is
specifically designed to serve the needs of Procter & Gamble and other customers
in the thin-wall packaging market segment. At this facility, using
state-of-the-art molding machines, highly engineered stack molds and high speed
automation, the Company currently is the sole source manufacturer of
polypropylene containers for Baby Fresh(Trademark) baby wipes for Procter &
Gamble and Softkins(Trademark) moist tissues for Kimberly-Clark, producing
approximately 18 million units in 1996. Because of its highly automated
manufacturing process, the Delaware CAP Facility's direct labor costs as a
percentage of net sales in 1996 were 1.9%, compared to what management believes
to be an industry average of approximately 10.0%. The Company intends to
continue to pursue CAP facilities and similar partnerships with other customers.
SELECTIVELY PURSUE ACQUISITION OPPORTUNITIES. 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's recent acquisitions have expanded its OEM customer base,
complemented its existing technological and manufacturing capabilities,
presented substantial cost savings opportunities and provided significant growth
opportunities. The Company will consider future acquisition opportunities that
are attractively priced and that it believes will strengthen its customer base,
broaden its geographic presence, enhance its production capabilities and/or
provide significant operating synergies.
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INTEGRATION OF TREDEGAR AND UNITY
In 1996, the Company completed the acquisitions of Tredegar and Unity,
which significantly increased the size and geographic scope of the Company's
operations and, in management's view, enhanced the Company's prospects for
future growth.
Tredegar
Precise acquired all of the issued and outstanding common stock of Tredegar
in March 1996 for an aggregate purchase price of $60.0 million (plus $5.2
million of fees and expenses incurred in connection with the acquisition). At
the time of the acquisition, Tredegar was a full-service supplier to OEMs
primarily in the healthcare, packaging and consumer/industrial markets. It had
143 injection molding machines in six facilities, including a state-of-the-art
mold manufacturing facility in St. Petersburg, Florida. Tredegar generated net
sales and EBITDA of $90.7 million and $10.0 million, respectively, during the
year ended December 31, 1995. See Note (5) to 'Selected Financial Data' for
further information regarding EBITDA.
In addition to making the Company one of the larger custom plastic
injection molders in the United States, the Tredegar Acquisition expanded the
Company's manufacturing and technological capabilities, enlarged its customer
base, strengthened its relationships with certain existing customers and
broadened its geographic presence. By more than tripling the Company's net sales
on a pro forma basis, Tredegar also provided the Company with opportunities for
economies of scale in raw material purchasing and reductions in manufacturing
and administrative costs.
Since the consummation of the Tredegar Acquisition, management has
implemented several strategic initiatives designed to improve Tredegar's
operating performance and integrate Tredegar's operations with those of the
Company. These initiatives have included improved raw material purchasing,
reductions in plant labor and administrative costs and the closure of Tredegar's
Graham, North Carolina facility and the transfer of its equipment and business
to the Company's St. Petersburg, Florida facility. More specifically, following
the Tredegar Acquisition, the Company (i) eliminated 31 direct and indirect
labor positions and reduced payroll rates for certain Tredegar employees,
resulting in annualized cost savings, based on actual costs incurred in 1996, of
approximately $2.0 million; (ii) consolidated Tredegar's corporate sales and
administrative functions with those of the Company, resulting in a net
annualized reduction in selling, general and administrative expenses, based on
actual expenses incurred in 1996, of approximately $1.0 million; and (iii)
renegotiated Tredegar's resin supply agreements, which resulted in annualized
cost savings, based on actual costs incurred in 1996, of approximately $268,000
based on the volume of resin purchased in 1996 following the Tredegar
Acquistion. In addition, in September 1996, the Company closed Tredegar's
Graham, North Carolina manufacturing facility, which had pro forma operating
losses (excluding depreciation expense) of $580,000 in 1996, and transferred its
equipment and business to other facilities, primarily the Company's facility in
St. Petersburg, Florida. Management believes that these initiatives and other
operating improvements at Tredegar, many of which were successfully implemented
at Precise following its acquisition by Sunderland, have significantly improved
Tredegar's operating profitability since its acquisition by the Company and that
further improvements are possible. Tredegar's gross margin increased from
approximately 12.0% in 1995 to approximately 15.0% in 1996. Management believes
that it will be able to achieve additional cost savings at the former Tredegar
and Unity facilities as a result of further improvements in operating processes
and material purchasing and reductions in selling, general and administrative
expenses.
Unity
The Company acquired all of the issued and outstanding common stock of
Unity in January 1996 for an aggregate purchase price of $3.6 million (plus
$125,000 of fees and expenses incurred in connection with the acquisition).
Unity expanded the Company's presence in the Midwest and in the healthcare
market by fostering the Company's relationship with Abbott Labs, Unity's largest
customer. Unity also possessed a mold manufacturing facility which specialized
in close tolerance molds for producing medical diagnostic products, including
diagnostic disposables and intravenous components.
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INDUSTRY
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 The Freedonia Group, annual shipments of
injection molded plastic products, which have increased from approximately 7
billion pounds in 1985 to approximately 11 billion pounds in 1994, are expected
to exceed 13 billion pounds by the year 2000. Despite the increased demand for
plastic injection molded products, the United States injection molding industry
remains highly fragmented. The United States injection molding industry is
currently comprised of over 7,000 molders, a substantial majority of which are
small operators or captive divisions of larger companies. 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 advantages. By successfully substituting
plastic for other materials, manufacturers can significantly reduce the amount
of necessary parts, manufacturing 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 OEMs 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 OEMs 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.
In many cases, the combination of increasingly complex applications for plastic
molded parts, the limited number of qualified molders and the desire of OEMs to
reduce sourcing costs has resulted in the creation of partnerships between OEMs
and molders who have proven their ability to provide effective total project
management, high quality products and timely delivery. These partnerships enable
OEMs and molders to focus on long-range strategy and often result in faster
product development, greater design flexibility, lower costs and improved
product quality. Given that molders in these partnerships are involved in many
decisions that affect cost and prevent complications in production, they are
better able to preserve attractive margins.
The industry-wide trend toward OEM 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 breadth of services increasingly being demanded by high volume OEMs.
Furthermore, management believes that the trend among OEMs to develop closer
relationships with full-service injection molders mitigates the potential threat
of foreign competition. Inconsistent product quality, weak tooling capabilities
and significant distance from customers' manufacturing locations have
traditionally hindered foreign competitors from competing effectively for
projects that require full-service capabilities, outstanding quality and quick
response time.
MARKETS AND PRODUCTS
The Company is a leading supplier of plastic injection molded products for
the healthcare, packaging and consumer/industrial markets. The Company is also
one of the largest mold makers in the United States producing a wide variety of
products. The following is a description of the principal markets served by the
Company as well as the products the Company produces for those markets.
Healthcare
Plastic molded components for healthcare applications represented
approximately 19.7% of the Company's pro forma net sales in 1996. The Company's
primary healthcare products in 1996 included disposable diagnostic cards,
syringes, sample systems and surgical components. During 1996, the Company's
four largest healthcare market customers were Abbott Labs, bioMerieux Vitek,
Dade and Ethicon Endo-Surgery, a division of Johnson
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& Johnson ('Ethicon'), with bioMerieux Vitek and Dade having entered into sole
or primary source supply agreements with the Company.
Demand for plastic injection molded components within the healthcare market
is driven by both the aging population and the overall demand for new medical
products. In addition, heightened cost consciousness on the part of the United
States government and private insurers has increased demand for medical devices
and supplies that can reduce labor costs, improve productivity and/or facilitate
patient care in a more cost-effective manner. Plastics are being used more
widely in medical devices as customers increasingly recognize the value of
reduced breakage, the ability to manufacture consistent parts in a
cost-effective manner and the infection control benefits of disposable products.
According to The Freedonia Group, annual demand in the United States for
injection molded healthcare products is expected to increase by approximately
3.8% per year through 2000, reaching over 430 million pounds.
Packaging
Plastic molded components for packaging applications represented
approximately 30.4% of the Company's pro forma net sales in 1996. The Company's
primary packaging products in 1996 included moist tissue containers, caps and
cap liners, closures and packaging for shaving cream, deodorant and feminine
products. During 1996, the Company's four largest packaging market customers
were Carter Wallace, Inc., Chesebrough-Pond's USA Co., a division of Unilever
United States, Inc. ('Chesebrough-Pond's'), Gillette and Kimberly-Clark.
The Company's packaging sales are primarily related to personal care and
household products. Given the intense competition among consumer products
companies, consumer goods marketers are increasingly focusing on packaging as a
relatively inexpensive method of creating brand differentiation. According to
The Freedonia Group, annual demand in the United States for injection molded
packaging is expected to increase by approximately 3.8% per year through 2000,
reaching nearly 3.6 billion pounds. As a result of the continuing substitution
of plastic for alternative materials, such as metal, glass and paper, plastic
packaging has been the fastest growing sector within the packaging industry. See
'--Industry.'
In connection with the Tredegar Acquisition, the Company acquired
Tredegar's existing line of proprietary packaging products for the private label
market, which includes lip balm assemblies and dropper caps. The Company
believes that the private label market offers attractive growth opportunities
and will consider developing additional proprietary products in the future.
Consumer/Industrial
Plastic molded components for consumer/industrial applications represented
approximately 38.9% of the Company's pro forma net sales in 1996. The Company's
primary consumer/industrial products in 1996 included printer components,
electrical connectors and air freshener components. During 1996, the Company's
four largest consumer/industrial market customers were AMP, The Dial Corporation
('Dial'), Lexmark and Procter & Gamble. The Company has entered into sole or
primary source supply agreements with Procter & Gamble and Dial.
The consumer/industrial markets the Company serves primarily include
consumer containers and audio/electronics components. The consumer containers
market segment has been growing rapidly due in part to the conversion of many
products from metal, glass and paper to plastic. Plastic is the preferred
material for many applications due to its low cost, functional performance,
reusability and recyclability. Demand for plastic audio/electronic components is
driven by both the overall demand for audio/electronic products and the
percentage of those products composed of plastic. Strong projected growth for
increased use of plastics is fueled by long product life cycles and consumer
demand for more durable, lightweight and low-cost products. Based on information
contained in a recent report by The Freedonia Group, annual demand in the United
States for injection molded consumer/industrial products is expected to increase
approximately 2.7% per year through 2000, reaching nearly 4.0 billion pounds.
Annual demand in the United States for injection molded electrical components is
expected to increase by approximately 3.4% per year through 2000.
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Mold Making
Mold making operations represented approximately 11.0% of the Company's pro
forma net sales in 1996. Products produced with the molds manufactured by the
Company in 1996 included deodorant dispensers, personal care products, medical
disposables and containers. The Company performs, or expects to perform, the
injection molding for a majority of the products for which it make molds.
Plastic products for which the Company built the mold but which are not
injection molded by the Company are typically molded in-house by the customer.
During 1996, the Company's four largest mold making customers were Spalding and
Evenflo Companies, Inc., Gillette, Abbott Labs and Rubbermaid Incorporated.
The Company operates three facilities with mold making capabilities,
including one of the largest facilities in the United States. These facilities
offer a full range of services, including conceptual part and mold design,
building and testing. Management views the Company's mold designing and building
operations not simply as supportive of its manufacturing business, but as an
independent profit center.
CUSTOMERS
Substantially all of the Company's sales are made to major OEMs in the
healthcare, packaging and consumer/industrial markets. During 1996, the Company
produced a wide variety of products for over 100 customers, with the Company's
ten largest customers accounting for approximately 57.3% of its pro forma net
sales. The Company's largest customers are Procter & Gamble, Gillette, AMP and
Lexmark, which represented approximately 12.3%, 10.7%, 5.2% and 5.1%,
respectively, of the Company's pro forma net sales in 1996.
Approximately 25% of the Company's pro forma net sales in 1996 were made
pursuant to multiple year supply agreements, including sales to Procter &
Gamble, bioMerieux Vitek and Dade. The Company is the sole or primary source
supplier of the products that it manufacturers for many of its customers. The
Company may have individual contracts for specific products or, in certain
instances, separate contracts with one or more operating divisions of a single
customer. These contracts typically have resin price pass-through provisions and
range in term from three to five years. See 'Risk Factors--Reliance on Key
Customers and Supply Agreements.'
As one of a limited number of full-service injection molders increasingly
relied upon by OEMs to provide total project management, the Company seeks to
develop lasting relationships with its customers by working closely with them in
the early stages of product design and development. Management believes that the
Company's use of state-of-the-art CAD/CAM technology and robotics in mold making
and molding and its advanced facilities and equipment are integral to its
ability to meet customer requirements. While OEMs are generally reluctant to
change suppliers due to the high switching costs associated with reengineering,
requalifying and restarting production, the plastic injection molding industry
is highly competitive. Management believes that the Company's strong customer
base will provide it with the opportunity to anticipate and generate business
opportunities in the future.
SALES AND MARKETING
Substantially all of the Company's sales are made through the Company's
direct sales force, which consists of 18 employees located throughout the
regions in which the Company operates. The Company's sales and marketing team is
organized according to the Company's target markets: healthcare, packaging and
consumer/industrial. Management believes that organizing its sales and marketing
team by market segment is the most efficient and effective way to develop and
maintain customer relationships, stay abreast of technical and other
developments that may result in changing customer or consumer preferences and
take advantage of new business opportunities. Sales and marketing personnel
emphasize the Company's full-service injection molding capabilities to customers
and focus on improving communication and coordination between the Company's
marketing, production and product design personnel and customers' counterpart
employees to develop customized products that enhance customer product
differentiation and improve functional performance. The Company has added nine
sales representatives since August 31, 1996. The Company has also established
new business sales teams which are organized by geographic region and are
responsible solely for developing new business opportunities in the Company's
target markets. In addition, the Company plans to designate key account
specialists to serve its largest customers. By providing dedicated support, the
Company believes it can better serve these customers, who, in many cases, have a
variety of different product applications or production
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requirements in multiple locations. The Company's marketing approach will
continue to remain focused on meeting the integrated needs of OEMs that require
full-service injection molding capabilities.
Customer service is also a critical component of the Company's marketing
efforts. The Company's customers operate high speed, high volume production
lines. In order to operate their production lines efficiently and avoid costly
line stoppages, customers rely on the Company's ability to provide reliable,
on-time delivery of high quality products. Customer service representatives are
located at each of the Company's facilities. Management believes that this
decentralized approach, which provides primary support closer to the customer
and the production process, is efficient and best suited to serve customer
needs. In addition, a small staff of customer service personnel is located at
Company headquarters to provide additional support.
MANUFACTURING AND OPERATIONS
The Company differentiates itself in the marketplace by being a
full-service injection molder capable of meeting the integrated needs of leading
OEMs from product design, development and mold making through molding,
decorating and assembly. As one of a limited number of companies in the United
States capable of offering such comprehensive services, management believes that
the Company is well positioned to benefit from the consolidation currently
taking place in the injection molding industry. Large, high volume OEMs are
increasingly relying on custom injection molders for total project management to
reduce costs, streamline production processes and to ensure timely completion of
their new product launches.
Mold Making and Technical Capabilities
The Company's three facilities with mold making capabilities, which include
one of the largest facilities in the United States, offer a full range of
services, including conceptual part and mold design, building and testing. In
addition, the Company's mold manufacturing facilities provide mold and technical
consulting for troubleshooting, repair and preproduction evaluation of parts or
drawings. The Company's target markets, selected for their relatively long
product life cycles, demand durable molds which can be produced only with the
highest-quality mold making equipment. The Company's mold making and technical
operations serve this demand by combining craftsmanship with technologically
advanced computer-aided design and Computer Numerical Control ('CNC') machining.
As a result, the Company consistently delivers molds that are produced to the
proper specifications and delivered on-time. Management views the Company's mold
designing and building operations not simply as supportive of its manufacturing
business, but as an independent profit center.
The mold making process is generally initiated with the Company's engineers
analyzing a customer's production requirements. Based on that analysis, a design
is created or optimized for the part in question. This design is downloaded into
the Company's computer database and serves as the foundation for the mold that
will be built utilizing state-of-the-art CAD/CAM technology. The Company's mold
design database is linked via a data communications network to the production
floor, which allows for CNC machining of mold bases and components directly from
the original design. The use of CNC technology and constant in-process
monitoring enhances the Company's ability to create high-tolerance molds and
deliver its molds on time. Moreover, after final assembly each of the Company's
molds is tested for performance.
The Company's St. Petersburg, Florida mold manufacturing facility is one of
the largest and most technologically advanced in the injection molding industry.
The facility comprises 55,000 square feet and employs approximately 60 mold
makers with extensive experience in designing and manufacturing high cavitation
production molds and stack molds. The facility contains advanced mold testing
and design centers and has five injection molding presses to provide
qualification and testing of new molds. The Company's two other mold
manufacturing facilities, one of which is located at Company headquarters near
Pittsburgh, Pennsylvania and the other of which is located outside Chicago,
Illinois, are smaller than the St. Petersburg facility and specialize in molds
for smaller, close tolerance plastic parts. Each facility employs approximately
20 mold makers and has product design and testing capabilities.
Injection Molding
The Company manufactures its products using the plastic injection molding
process. The molding operation processes are comparable at each of the Company's
facilities. Raw material arrives at each facility where it is inventoried in
silos or boxes in the plant (depending upon the volume requirements). In
conventional and clean room molding, raw material in the form of pellets is
blended to ensure a homogenous mix, dried when necessary,
46
<PAGE>
and conveyed through a pneumatically controlled material handling system to the
molding presses. The raw material enters the heating chamber where it is melted
to a fluid state. Coloring agents are added as appropriate and a reciprocating
screw pushes the fluid raw material at high pressure through a nozzle into a
closed temperature-controlled mold. At the end of each molding cycle (five to
eighteen seconds), the mold opens and the finished parts are ejected from the
mold into automated handling systems from which they are packaged for further
processing or shipment.
The Company operates approximately 185 conventional injection molding
presses ranging in capacity from 44 to 750 tons. These presses are located in
nine strategically located plants, allowing production to be allocated so that
the customer's needs are met in a cost-effective and timely manner. The Company
also operates ten proprietary closure presses and five presses used in the
qualification and testing of new molds. The Company's molding operations also
include white room and Class 100,000 clean room environments that offer a
controlled manufacturing atmosphere for the molding of components used in
medical devices. The Company's molds and molding machines are continuously
monitored through process and manufacturing systems, which include a
preventative maintenance program. Molds in need of repair or scheduled for
maintenance are sent to the plant tool shop for cleaning and repairs. If
significant repairs are required, the molds are sent to one of the Company's
three mold making facilities.
In order to produce high quality products while containing costs, the
Company utilizes the most advanced molding capabilities available in the
industry. For example, the Company operates two-by-two 'stack' molds, which
allow twice the molding capacity of conventional molding systems. For customer
specific projects, the Company has developed engineering and automation systems
resulting in improved manufacturing efficiencies and lower costs. In addition to
its molding capabilities, the Company has significant experience with commodity
and engineered thermoplastic polymers.
Each of the Company's plants is managed by a local plant manager and is
treated as a profit center. The Company seeks to be a low-cost producer by using
high speed molding machines, modern multi-cavity hot runner, cold runner and
insulated runner molds and extensive material handling automation. Many of the
Company's products are packaged and delivered to OEMs in a manner which allows
them to be integrated directly into the production process, minimizing
inventories and fixed costs for both the Company and the customer. Each of the
Company's injection molding plants has complete tool maintenance capability to
support molding operations. As of June 30, 1997, the Company had invested
approximately $15.8 million, since 1991 on a pro forma basis, in new injection
molding machines and related plant and equipment improvements to further its
growth objectives, improve productivity and maintain competitive advantages.
The Company's 51,000 square foot, state-of-the-art facility in Newark,
Delaware demonstrates its injection molding capabilities as well as its
commitment to developing strategic partnerships with key customers. This
facility was specifically designed to produce Baby Fresh(Trademark)
polypropylene containers for Procter & Gamble and serve other customers in the
thin-wall packaging market. Using state-of-the-art molding machines, highly
engineered stack molds and high-speed automation, this facility produced
approximately 18 million units in 1996 and is able to maintain short cycle times
seven days a week. This type of production demands high levels of accuracy and
repeatability. To maintain this level of shot-to-shot consistency, the Company
uses in-line process control software to monitor critical molding parameters.
The success of the Delaware CAP Facility is enhanced through computerization and
close customer communication. A bar-coding system automatically tracks
inventories and shipments and provides product traceability. The Company's
investment in highly automated equipment enables the entire facility to be
operated by only 22 employees, keeping labor costs to a minimum. Because of its
highly automated manufacturing process, the Delaware CAP Facility's direct labor
costs as a percentage of net sales in 1996 were 1.9%, as compared to what
management believes to be an industry average of 10.0%.
Secondary Processes
The Company further differentiates itself in the market by offering a
variety of secondary processes at most plant facilities. These secondary
processes typically include assembly and the lining of caps, as well as other
services, including various decorating techniques, such as hot stamping, pad
printing and labeling. Additional complementary services are performed by
outside vendors on an as needed basis when a special application is required by
the customer, including screen printing, metalizing and offset printing.
47
<PAGE>
Quality Assurance Programs
A commitment to consistently producing high-quality products is critical to
the success of custom injection molders serving the Company's target markets.
With packaging playing an ever-increasing role in the functionality and
aesthetics of new product launches within the consumer products industry, OEMs
demand high quality products from their injection molding suppliers. Similarly,
given the applications for which their products are used, healthcare companies
demand the highest quality products from their suppliers.
In recognition of these customer demands, the Company has centered its
manufacturing philosophy on being the highest quality custom injection molder in
its targeted end markets. Each of the Company's facilities utilizes total
quality management techniques, including the use of statistical process control
and the extensive involvement of employees to increase productivity. As a
result, the Company is consistently recognized as a leading supplier of quality
injection molded parts to the majority of its key customers. The Company has
received numerous quality awards, including Gillette's OmniMark Award, the
Lexmark International Prestige Supplier Award and the bioMerieux Vitek World
Class Supplier Award. 'Ship-to-stock' status has been achieved with many
customers, including Ethicon, Warner Lambert, Swisher and Outer Circle Products.
In addition, four of the Company's facilities are ISO 9000 registered, and the
Company is actively pursuing ISO certification in all of its remaining
facilities. ISO 9000-series certification certifies compliance by a company with
a set of shipping, trading and technology standards promulgated by the
International Standardization Organization.
COMPETITION
The Company faces intense competition throughout its product lines from
numerous competitors, a number of whom have greater financial resources than the
Company. In addition, the markets for certain of the Company's products are
characterized by low costs of entry or competition based primarily on price.
Other important competitive factors include product quality, service and the
ability to supply products to customers in a timely manner. The Company faces
competition from well-established independent molders operating nationally,
smaller independent molders operating regionally and captive divisions of larger
companies. In most instances, small regional competitors lack the production and
technological capabilities to service national consumer product and healthcare
companies.
The plastic injection molding industry is highly fragmented. In all three
of its target markets the Company competes with Nypro, Inc., which is
headquartered in Clinton, Massachusetts, and The Tech Group, Inc. ('The Tech
Group'), which is headquartered in Scottsdale, Arizona. The Company competes
with Erie Plastics Corp. in both the consumer/industrial and the packaging
markets. In addition, in the healthcare market, the Company competes with Tenax
Corporation, a primary supplier of surgical devices, and Courtesy Corporation,
one of four major suppliers to Abbott Labs. In the packaging market, the Company
also competes with The West Company, Inc., which recently announced it was being
acquired by Owens-Illinois, Inc., and Plastek Industries Incorporated.
RAW MATERIALS AND SUPPLIERS
The principal raw materials utilized by the Company's molding processes are
commodity and engineered thermo-plastic polymers, primarily polypropylene,
polyethylene and polycarbonate. The selection of raw material is developed
between the customer and the Company and specified to provide optimum
processing, efficient handling, dimensional stability, end use and pricing
requirements. Raw materials are purchased either from distributors or directly
from polymer producers. Larger volumes are generally acquired from producers
while smaller volumes are secured from large distributors that carry a wide
variety of raw material types and manufacturers.
The Company's purchasing strategy is to deal with high quality, dependable
suppliers. With the acquisition of Tredegar, the Company has been able to
achieve larger volume discounts, rebates and overall better resin pricing
because of larger purchase quantities. The Company's largest resin suppliers in
1996 were Huntsman and General Polymers, two of the largest plastic resin
manufacturers in North America. In an effort to improve quality and reduce
costs, the Company has recently implemented a 'preferred supplier' program which
requires the Company's suppliers to adhere to strict performance criteria,
including satisfaction of high quality standards, commitment to continuous
improvement and participation in the Company's quality assurance and cost
improvement initiatives. The 'preferred supplier' program also requires supply
agreements to incorporate transactional reduction initiatives and include
extended and/or discounted payment terms, performance rebates
48
<PAGE>
and price protection provisions with respect to commodities that can be effected
by changing market conditions. The Company has agreements in place with its
primary suppliers pursuant to the program and will generally require that its
other suppliers achieve 'preferred supplier' status as a condition to future
orders.
The Company does not anticipate having any material difficulties obtaining
raw materials in the foreseeable future. However, over the past four years, the
raw material market has been volatile due to increased demand and irregular
producer capacity. With respect to raw material pricing, the Company has
experienced price escalation comparable to industry trends over the last 18
months. Pursuant to the terms of multi-year supply agreements and purchase
orders, the Company historically has had the ability to pass through resin price
increases. The Company does not otherwise hedge its exposure to increases in raw
material prices. See 'Risk Factors--Exposure to Fluctuations in Resin Cost and
Supply.'
REGULATION AND LEGISLATION
The past and present operations of the Company, including its past and
present ownership of real property, are subject to extensive and changing
federal, state and local environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposition of
wastes or otherwise relating to the protection of the environment. The Company
believes that it is in substantial compliance with applicable environmental laws
and regulations. However, the Company cannot predict with any certainty that it
will not in the future incur liability under environmental statutes and
regulations with respect to contamination of sites formerly or currently owned
or operated by the Company (including contamination caused by prior owners and
operators of such sites) and the off-site disposal of hazardous substances. See
'Risk Factors--Environmental Matters.'
Sampling in 1995 at Tredegar's South Grafton, Massachusetts facility
revealed the presence of contaminants in the soil and groundwater at the
facility. The concentration of certain substances in the soil exceeded minimum
reportable concentrations under Massachusetts environmental regulations; none of
the substances detected in groundwater exceeded minimum reportable
concentrations. In connection with the Tredegar Acquisition, the seller agreed,
at its cost, to determine the extent of the onsite and off-site contamination
resulting from these reportable releases and to perform the clean-up activities
necessary to achieve a permanent remediation under the applicable Massachusetts
regulations. In December 1996, the seller's consultant issued its final report,
which concluded that a condition of 'no significant risk' to safety, health,
public welfare or the environment had been achieved by remediation activities at
the site and stated that no further response actions were recommended for the
site. Remediation of the South Grafton site in accordance with the Massachusetts
program, however, will not necessarily ensure that the Company might not be
subject to further state or federal cleanup orders with respect to the site or
claims by adjacent landowners and/or other third parties allegedly impacted by
releases at the site, and no assurance can be given that the Company will not
incur or elect to assume any liabilities for such remediation as a result of
subsequent negotiations, by operation of law or otherwise.
The operations at the Company's facilities require permits and approvals
from certain federal, state and local authorities. In addition, the Company's
operations are heavily dependent upon its continued ability, under applicable
laws, regulations, policies, permits, licenses or contractual arrangements, to
operate its facilities, and otherwise to conduct its operations. The Company
believes it has all permits, licenses and approvals from governmental
authorities material to the operation of the facilities as currently configured.
In addition, the Company has not received any notice of material non-compliance
with permits, licenses or approvals necessary for the operation of its
properties. However, there can be no assurance that new applications of existing
laws, regulations and policies, or changes in such laws, regulations and
policies will not occur in a manner that could have such an effect, or that
important permits, licenses or agreements will not be canceled, non-renewed, or
renewed on terms materially less favorable to the Company. Although the Company
has no reason to believe that it will not be successful in implementing its
operations and development plans, no assurance can be given that necessary
permits and approvals will be obtained.
The plastics industry in general, and the Company in particular, is also
subject to existing and potential federal, state, local and foreign legislation
designed to reduce solid wastes by requiring, among other things, plastics to be
degradable in landfills, minimum levels of recycled content, various recycling
requirements, disposal fees and limits on the use of plastic products. In
addition, various consumer and special interest groups have lobbied from time to
time for the implementation of these and other similar measures. The principal
resin used in the Company's products, HDPE, is recyclable, and, accordingly, the
legislation promulgated to date and
49
<PAGE>
such consumer interest group initiatives to date have not had a material adverse
effect on the Company. There can be no assurance that any such future
legislative or regulatory efforts or future initiatives would not have a
material adverse effect on the Company.
EMPLOYEES
As of August 31, 1997, the Company employed 883 individuals, of which 188
were salaried and 695 were hourly. Approximately 34 employees at the Company's
Pittsburgh, Pennsylvania facility, or 4% of the Company's total employees, are
members of a union and are covered by a collective bargaining agreement which
expires in February 1998. The Company believes that its relationship with its
employees is generally good.
The Company's employees are given extensive training, in excess of 30 hours
each year, which is designed to increase productivity, safety and manufacturing
quality and to foster the concept of 'continuous improvement.' Through an
innovative Performance Sharing Program, the Company's employees focus on cost of
goods sold and are given incentives to maximize gross margins by minimizing
costs. Operational performance by plant is posted each month and quarterly
meetings are held with all employees to discuss performance outcomes. Plants
which exceed the budgeted gross margins receive a bonus based on hours of pay.
Rewards under the Performance Sharing Program are also dependent upon
attendance. Management believes that the Performance Sharing Program has been
successful in motivating employees to reduce costs and increase productivity.
PROPERTIES
The Company operates nine facilities located in the eastern and midwestern
United States. Management believes that these facilities are adequate for its
present needs. A summary of the Company's facilities is presented in the chart
below.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE OWNERSHIP MARKETS SERVED
- ------------------------------------------- -------------- --------- ------------------------
<S> <C> <C> <C>
North Versailles
(Pittsburgh), PA
(Headquarters)........................... 70,000 Owned Mold making, Healthcare,
Packaging
West Lafayette, IN......................... 35,000 Owned Healthcare,
Consumer/Industrial
Newark, DE................................. 51,000 Leased Packaging
Des Plaines, IL............................ 30,000 * Mold making, Healthcare,
Consumer/Industrial
St. Petersburg, FL......................... 136,000 Owned Mold making, Packaging,
Consumer/Industrial
South Grafton, MA.......................... 127,000 * Packaging,
Consumer/Industrial
Excelsior Springs, MO...................... 70,000 Owned Packaging,
Consumer/Industrial
State College, PA.......................... 31,000 Leased Healthcare,
Consumer/Industrial
Phillipsburg, PA........................... 32,000 Leased Healthcare,
Consumer/Industrial
</TABLE>
- ------------------------------
* This facility is partially owned and partially leased by the Company.
LEGAL PROCEEDINGS
The Company does not believe that it or any of its facilities are involved
in any litigation that will, individually or in the aggregate, have a material
adverse effect on its financial condition or future results of operations. The
Company maintains liability insurance that the Company considers adequate to
insure claims related to usual and customary risks associated with the operation
of its facilities.
50
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information with respect to the directors,
executive officers and other key employees of the Company. All directors and
executive officers of the Company hold office until the annual meeting of
stockholders next following their election, or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
YEARS IN
NAME AGE POSITION INDUSTRY
- ------------------------------------------- --- ---------------------------------------------------- --------
<S> <C> <C> <C>
Richard L. Kramer.......................... 48 Chairman, Secretary and Director 7
William L. Remley.......................... 46 Vice Chairman, Treasurer and Director 7
John R. Weeks.............................. 51 President and Chief Executive Officer 29
Michael M. Farrell......................... 42 Vice President, Marketing & Sales 15
Ronald A. Seegers.......................... 50 Vice President, Engineering 27
Clarence E. Stevens, Jr.................... 48 Vice President, Manufacturing 10
Michael D. Bornak.......................... 35 Controller 5
Raymond J. Veno............................ 46 Director of Continuous Improvement and Product 25
Development
Richard C. Hoffman......................... 49 Director 1
Elaine E. Healy............................ 35 Director --
</TABLE>
RICHARD L. KRAMER became the Chairman of the Board and a director of the
Company in April 1990 and Secretary of the Company in August 1991. Mr. Kramer is
also Chairman and a director of Mentmore Holdings Corporation, Texfi Industries
Inc., a textile and apparel manufacturing firm, CPT Holdings, Inc., a
manufacturer of specialty structural steel profiles, Weldotron Corporation, a
packaging equipment manufacturer, Orion Acquisition Corp. II, an investment
company, MC Equities, Inc., an insurance holding company, and Republic
Properties Corporation. Mr. Kramer is a director of J&L Structural, Inc.,
Precise Holding Corporation and Sunderland Industrial Holdings Corporation.
WILLIAM L. REMLEY became the Vice Chairman of the Board and a director of
the Company in April 1990 and Treasurer of the Company in August 1991. Mr.
Remley is also President, Chief Executive Officer and a director of Mentmore
Holdings Corporation and Weldotron Corporation, Vice-Chairman, Chief Executive
Officer and a director of Texfi Industries Inc., and President and a director of
CPT Holdings, Inc. Mr. Remley is a director of J&L Structural, Inc., MC
Equities, Inc., Orion Acquisition Corp. II, Republic Properties Corporation,
Precise Holding Corporation and Sunderland Industrial Holdings Corporation.
JOHN R. WEEKS became President and Chief Executive Officer of the Company
in August 1990. Prior to joining Precise, from 1986 to 1990 Mr. Weeks was
employed as a Vice President of Corporate Development for The Tech Group, a
custom molder for the medical, electronic, packaging and consumer product
markets. Previously, from 1977 to 1986 Mr. Weeks was Vice President of Sales
with Nypro Inc. Mr. Weeks began his career with Arco Polymers in 1968.
MICHAEL M. FARRELL became Vice President, Marketing & Sales of the Company
in 1991. Prior to joining Precise, from 1987 to 1991 Mr. Farrell was employed as
the Director of Sales for Medical Products for The Tech Group. Mr. Farrell began
his career at Nypro Inc. in 1984.
RONALD A. SEEGERS became Vice President, Engineering of the Company in
1993. Prior to joining Precise, from 1984 to 1993, Mr. Seegers was employed as
Director of New Business with The Tech Group. Prior to joining The Tech Group,
Mr. Seegers worked for 16 years at Major Tools in Chicago.
CLARENCE E. STEVENS, JR. became Vice President, Manufacturing of the
Company in 1994. Prior thereto, he served as Director of Continuous Improvement
of Precise since 1991. Prior to joining Precise, from 1988 to 1991, Mr. Stevens
was employed as Manager of Process Improvement for The Tech Group. Prior to
joining The Tech Group, Mr. Stevens worked at Carlisle Syntec, a synthetic
roofing company, as a plant manager for 10 years.
MICHAEL D. BORNAK became Controller of the Company in May 1992. Prior to
joining Precise, from 1986 to 1992 Mr. Bornak was employed in the accounting and
treasury departments of National Steel Corp. Prior to joining National Steel,
Mr. Bornak was a Senior Auditor with Ernst & Young. Mr. Bornak is a certified
public accountant.
51
<PAGE>
RAYMOND J. VENO became the Company's Director of Continuous Improvement and
Product Development in September 1996. Prior to joining Precise, from June 1986
to February 1995 Mr. Veno was employed as Manager of Plastics Technology and
Development Group for Digital Equipment Corporation. Prior to joining Digital
Equipment Corporation, Mr. Veno was employed at Nypro, Inc. as Business Manager
for seven years.
RICHARD C. HOFFMAN became a director of the Company in January 1996. Mr.
Hoffman has been President and Principal of Richard C. Hoffman, P.C., a law firm
with offices in Greenwich, Connecticut, since 1988. From January 1995 to March
1997, Mr. Hoffman served as Vice President and General Counsel of Mentmore
Holdings Corporation. From 1985 to 1992 Mr. Hoffman was a partner at Freytag,
LaForce, Rubinstein & Teofan, a law firm in Dallas, Texas. Mr. Hoffman is a
director of MC Equities, Inc., Orion Acquisition Corp. II, Texfi Industries,
Inc., Precise Holding Corporation and Weldotron Corporation.
ELAINE E. HEALY is currently a director of Precise Holding Corporation and
became a director of Precise upon consummation of the Refinancing Transactions.
Ms. Healy has been a Vice President of Pecks Management Partners Ltd., an
investment management firm, since May 1993. Prior to joining Pecks Management
Partners Ltd., Ms. Healy was a General Partner of Quantum Partners, Ltd., a
venture capital partnership with which she was associated for eight years.
During that time Ms. Healy also served as Vice President of The Revere Fund,
Inc., a public closed-end investment company. Ms. Healy is also a director of
Dolan Media Company, Inc.
DIRECTORS
Pursuant to the Warrant Purchase Agreement (as defined), the Pecks Funds
(as defined) are entitled to designate one member of the Company's board of
directors. See 'Certain Transactions--Tredegar Financing Transactions.' Ms.
Healy currently serves on the Company's board of directors as a designee of the
Pecks Funds.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation paid
during the Company's last completed fiscal year to the Chief Executive Officer
of the Company and each of the other four most highly compensated executive
officers of the Company as of December 31, 1996 (collectively, the 'Named
Executive Officers').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ---------------------
OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(A) OPTIONS/SARS ($) COMPENSATION ($)
- -------------------------------- ---- ---------- --------- ------------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John R. Weeks................... 1996 $ 239,400 $72,500 -- -- $ 18,580(b)
President and Chief Executive
Officer
Michael M. Farrell.............. 1996 123,200 32,400 -- -- 10,120(c)
Vice President, Marketing &
Sales
Ronald A. Seegers............... 1996 112,800 28,900 -- -- 9,220(d)
Vice President, Engineering
Clarence E. Stevens, Jr......... 1996 96,800 25,600 -- -- 7,920(e)
Vice President, Manufacturing
Michael D. Bornak............... 1996 75,700 39,500 -- -- 6,220(f)
Controller
</TABLE>
- ------------------------------
(a) Below amounts which would require disclosure under Commission rules and
regulations.
(b) Included in such amount is $12,300 representing an employer matching
contribution under the 401(k) Plan (as defined), $1,200 in net premiums for
a life insurance policy on behalf of Mr. Weeks and $5,080 representing a
profit sharing bonus.
(c) Included in such amount is $7,400 representing an employer matching
contribution under the 401(k) Plan and $2,720 representing a profit sharing
bonus.
(d) Included in such amount is $6,800 representing an employer matching
contribution under the 401(k) Plan and $2,420 representing a profit sharing
bonus.
(e) Included in such amount is $5,800 representing an employer matching
contribution under the 401(k) Plan and $2,120 representing a profit sharing
bonus.
(f) Included in such amount is $4,500 representing an employer matching
contribution under the 401(k) Plan and $1,720 representing a profit sharing
bonus.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation policies are determined and executive officer
compensation decisions are made by the Board of Directors. No member of the
Board of Directors received director fees in 1996.
401(K) PENSION PLAN
Precise sponsors a defined contribution savings plan (the '401(k) Plan')
whereby eligible employees of Precise or its subsidiaries may (under current
administrative rules) elect to defer a portion of their compensation each year
and may also make after-tax contributions to the 401(k) Plan. Employee and
Company contributions are paid by the Company to the trustee under the 401(k)
Plan. The Company has a policy of (i) making an annual discretionary
contribution on behalf of each eligible employee in an amount equal to 3.5% of
such employee's total annual compensation, regardless of such employee's actual
contribution to the 401(k) Plan, and (ii) making matching contributions equal to
50% of the first 5% of compensation deferred by employees. The Company's
contributions are subject to vesting and forfeiture. The Company's contributions
to the accounts of the Named Executive Officers during 1996 are included in the
Summary Compensation Table.
1997 STOCK OPTION PLAN
In April 1997, Sunderland established the Sunderland Industrial Holdings
Corporation 1997 Key Employee Nonqualified Stock Option Plan (the '1997 Stock
Option Plan') to provide incentives to, encourage stock ownership by and retain
the services of certain of, its key employees and those of its subsidiaries. The
Board of Directors of Sunderland (the 'Sunderland Board') administers the 1997
Stock Option Plan, which provides for the grant of options with respect to a
maximum of 15% of the issued and outstanding shares of common stock, par value
$0.01 per share, of Sunderland ('Sunderland Common Stock'). Each option granted
under the 1997 Stock Option Plan will be evidenced by a written option agreement
between the optionee and Sunderland, which agreement may contain additional
terms not inconsistent with the 1997 Stock Option Plan and as the Sunderland
Board may deem appropriate.
Under Nonqualified Stock Option Agreements (the 'Option Agreements')
entered into in April 1997 pursuant to the 1997 Stock Option Plan, John R.
Weeks, President and Chief Executive Officer of Precise, and Michael M. Farrell,
Vice President, Marketing & Sales of Precise, received options to purchase 1,200
and 400 shares of Sunderland Common Stock, respectively (the 'First Options'),
and additional options to purchase 225 and 75 shares of Sunderland Common Stock,
respectively (the 'Second Options,' and together with the First Options, the
'Options'). The Options are exercisable at a price of $1,500 per share of
Sunderland Common Stock. The First Options will become exercisable over a
three-year period following the grant date. The Second Options will become
exercisable in 25% increments upon the 90th day following each successful annual
determination by the Sunderland Board that Sunderland's EBITDA (as defined in
the Option Agreements) for the years ended December 31, 1997 through 2000
exceeded certain annual targets. In addition, the Options may be exercised
during the one year period following the optionee's retirement at or above age
65, or upon his or her death or disability, and all of the First Options and the
then exercisable portions of the Second Options may be exercised during the ten
business day period following notice of a Change of Control (as defined in the
Option Agreements). Once exercisable, the Options may be exercised at any time,
in whole or in part, prior to the earlier of (i) the termination of the
optionee's employment with Sunderland or any of its subsidiaries or (ii) January
31, 2005. It is intended that the Options shall not constitute 'incentive stock
options,' as that term is used in Section 422 of the Internal Revenue Code of
1986, as amended.
Pursuant to the Option Agreements, Sunderland has the right to repurchase
Sunderland Common Stock purchased pursuant to the Options upon the occurrence of
a Call Event (as defined in the Option Agreements) at a repurchase price of
either 75% or 100% of the Fair Market Value (as defined in the Option
Agreements) of such stock depending on the reason underlying the Call Event,
subject to adjustment under certain specified circumstances. In addition,
pursuant to the Option Agreements, Sunderland has a right of first refusal prior
to the sale to any third party of any Sunderland Common Stock purchased pursuant
to the Options.
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<PAGE>
CERTAIN TRANSACTIONS
TREDEGAR FINANCING TRANSACTIONS
In connection with the Tredegar Acquisition, (i) the Company and Parent
entered into a Securities Purchase Agreement dated March 29, 1996 (as amended,
the 'Securities Purchase Agreement') with Delaware State Employees' Retirement
Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc. and
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.
(each advised by Pecks Management Partners Ltd. and collectively referred to
herein as the 'Pecks Funds') pursuant to which the Pecks Funds purchased (a) 575
shares of the Company's Cumulative Exchangeable Preferred Stock having an
aggregate liquidation preference equal to $5,750,000 (the 'Exchangeable
Preferred Stock') for an aggregate consideration of $5,750,000 and (b) 250
shares of Parent Common Stock for an aggregate consideration of $750,000; (ii)
the Company entered into a Note Purchase Agreement dated March 29, 1996 (the
'Note Purchase Agreement') with John Hancock Mutual Life Insurance Company
('John Hancock') and Rice Partners II, L.P. ('Rice') pursuant to which John
Hancock and Rice purchased $20.0 million aggregate principal amount of the
Company's 12.25% Senior Subordinated Notes due 2006 (the 'Retired Notes'); (iii)
Parent entered into a Warrant Purchase Agreement dated March 29, 1996 (as
amended, the 'Warrant Purchase Agreement') with Rice, John Hancock and the Pecks
Funds pursuant to which, in connection with their purchase of the Retired Notes,
Rice and John Hancock each acquired warrants ('Warrants') to purchase 570 shares
of Parent Common Stock and, in connection with its purchase of the Exchangeable
Preferred Stock, the Pecks Funds acquired Warrants to purchase 575 shares of
Parent Common Stock; and (iv) Parent entered into a Shareholder Agreement dated
March 29, 1996 (as amended, the 'Shareholder Agreement') with Sunderland,
Hamilton Holdings Ltd. Corporation ('Hamilton Holdings'), the Pecks Funds, Rice
and John Hancock. In addition, Precise and Parent entered into the Prior Credit
Agreement, under which Precise incurred approximately $44.0 million of
indebtedness to finance the Tredegar Acquisition, and Precise issued 250 shares
of its Series B Cumulative Redeemable Preferred Stock (the 'Seller Preferred
Stock' and, together with the Exchangeable Preferred Stock, the 'Redeemable
Preferred Stock'), having a liquidation preference of $10,000 per share, to the
former owners of Tredegar. In connection with the consummation of the
Refinancing Transactions, the Company entered into certain consents and
amendments to the Securities Purchase Agreement, the Warrant Purchase Agreement
and the Shareholder Agreement to, among other things, approve the terms of the
Refinancing Transactions and to modify certain covenants contained therein.
The Warrants are exercisable, in whole or in part, at a per share price of
$0.01 at any time prior to March 29, 2006. The Warrant Purchase Agreement
contains customary anti-dilution protection, restrictions on the transfer of
Warrants and shares of Parent Common Stock issuable thereunder ('Warrant
Shares') and provisions requiring that Warrants and Warrant Shares be offered to
Parent prior to any sale to a third party. In addition, the Warrant Purchase
Agreement contains certain covenants pertaining to Parent and its subsidiaries
which, among other things, give the holders of Warrants the right to consent to
certain corporate actions, including certain sales of assets, acquisitions,
issuances of capital stock, amendments to corporate organizational documents,
affiliate transactions and investments. The Warrant Purchase Agreement also
provides Hancock and Rice with Parent Board of Director observation rights and
the Pecks Funds, for so long as the Pecks Funds own 15% or more of the sum of
all Warrant Shares and Parent Common Stock owned by the Pecks Funds on March 29,
1996, with the right to designate one member of the Board of Directors of each
of Parent and Precise.
Precise used a portion of the net proceeds from the Initial Offering to (i)
redeem the Exchangeable Preferred Stock and the Seller Preferred Stock and (ii)
repay the indebtedness outstanding under the Prior Credit Agreement and the
Retired Notes. In addition, Precise used a portion of the net proceeds from the
Initial Offering to repurchase 124 shares of Common Stock of Precise from Parent
for $3,315,000, the proceeds of which were used to redeem shares of Parent
Preferred Stock held by Hamilton Holdings. Richard L. Kramer and William L.
Remley are executive officers and directors of Hamilton Holdings, and the
holders of record of the capital stock of Hamilton Holdings are trusts
established for the benefit of certain relatives of Messrs. Kramer and Remley.
SHAREHOLDER AGREEMENT
In connection with the Tredegar Acquisition, Parent, Sunderland, Parent's
other shareholders (collectively, the 'Shareholders') and the holders of the
Warrants (collectively, the 'Warrantholders') entered into the Shareholder
Agreement. Pursuant to the Shareholder Agreement, the Warrantholders have the
right to require Parent to purchase (a 'Put Option') their Warrant Shares and
certain other shares of capital stock of Parent held by the Shareholders
(collectively, the 'Put Shares'), in whole or in part, at any time after March
29, 2001. In addition, the Warrantholders are entitled to sell their Put Shares
to Parent at any time prior to the occurrence of an
54
<PAGE>
Initial Public Offering (as defined in the Shareholder Agreement) in the event
of (i) a change in control (as defined in the Shareholder Agreement) of Parent,
(ii) a merger, consolidation, share exchange or similar transaction involving
Parent, (iii) a sale in one or more related transactions of all or a majority of
the assets, business or revenue or income generating operations of Parent or
(iv) any substantial change in the type of business conducted by Parent. The
Shareholder Agreement also provides Parent with an option to purchase (the 'Call
Option') all outstanding Warrants and Warrant Shares at any time on or after
April 1, 2002 and prior to an Initial Public Offering. The price to be paid to
the Warrantholders upon the exercise of the Put Option or the Call Option is to
be determined in accordance with a formula and procedures set forth in the
Shareholder Agreement. In the event Parent is unable to pay the purchase price
for the Put Shares in cash after exercise of the Put Option, it may be required
to execute and deliver a promissory note or notes to the Warrantholders in
satisfaction of all or part of its purchase price obligation. Such promissory
notes would mature on April 1, 2006 and bear interest at rates ranging from 14%
to 18% during the term of the notes.
The Shareholder Agreement further provides, under certain circumstances,
John Hancock, Rice and the Pecks Funds with certain co-sale rights upon the sale
or other transfer of capital stock of Parent by the Shareholders. In addition,
subject to certain conditions, if prior to an Initial Public Offering holders of
at least 66 2/3% of the issued and outstanding shares of Parent Common Stock and
Common Stock Equivalents (as defined in the Shareholder Agreement) elect to sell
their shares to a bona fide third party (other than in connection with a
registered offering under the Securities Act), then all holders shall be
obligated to sell any shares of Parent Common Stock and Common Stock Equivalents
then owned by such holders in such sale.
Pursuant to the Shareholder Agreement, John Hancock, Rice and the Pecks
Funds also have certain demand registration rights, which become effective after
the date Parent has consummated an Initial Public Offering, and incidental
registration rights. These rights are subject to customary cut-back provisions.
MANAGEMENT AGREEMENT WITH MENTMORE
Mentmore provides management services to Precise and its subsidiaries
pursuant to the Management Agreement dated March 15, 1996, as amended (the
'Management Agreement'), between Precise and Mentmore. Pursuant to the
Management Agreement, Mentmore provides the Company with general management,
advisory and consulting services with respect to Precise's business and with
respect to such other matters as Precise may reasonably request from time to
time, including, without limitation, strategic planning, financial planning,
business acquisition and general business development services. Under the terms
of the Management Agreement, the Company provides customary indemnification,
reimburses certain costs and pays Mentmore an annual management fee of $300,000
(subject to adjustment), which is payable monthly after the consummation of the
Offering. In addition, pursuant to the Management Agreement, Mentmore is
entitled to customary investment banking fees for services rendered in
connection with the Company's financing transactions and acquisitions. The
Management Agreement had an original term of ten years and is automatically
extended for one additional year on each April 1 during the term of the
agreement unless either party shall have previously notified the other in
writing of its desire not to further extend the term. In addition, Mentmore may
terminate the Management Agreement at any time upon 90 days prior written notice
to Precise, and Precise may terminate the Management Agreement 'for cause' (as
defined in the Management Agreement). The sole executive officers and directors
of Mentmore are Richard L. Kramer and William L. Remley. Payments under the
Management Agreement are subject to the restrictions set forth under
'Description of Notes--Certain Covenants--Transactions with Affiliates' as well
as certain limitations set forth in the Warrant Purchase Agreement.
The Company has paid Mentmore fees of $500,000, $450,000, $300,000 and
$150,000 in the six months ended June 30, 1997 and in 1996, 1995 and 1994,
respectively, for management and other advisory services and has reimbursed
Mentmore for certain expenses incurred in connection with the rendering of such
services. Mentmore received total fees of $500,000 and the reimbursement of
certain expenses in connection with financial advisory and other services
rendered to the Company in connection with the Refinancing Transactions.
FEES PAID TO RICHARD C. HOFFMAN
The Company paid the law firm of Richard C. Hoffman, P.C., whose principal
is a director of Precise, a total of approximately $257,500 in legal fees in
1996 and $5,000 in legal fees in the six months ended June 30, 1997. During this
period, Mr. Hoffman served as Vice President and General Counsel of Mentmore.
FEES PAID TO MICHAEL D. SCHENKER
The Company paid the law firm of Michael D. Schenker Co. L.P.A., whose
principal is an officer of Mentmore, a total of approximately $300,000 in legal
fees in connection with the Refinancing Transactions.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
Precise is a wholly owned subsidiary of Precise Holding Corporation. The
following table sets forth information concerning the beneficial ownership of
Parent Common Stock as of June 30, 1997 and after giving effect to the
Refinancing Transactions by (i) each person known to the Company to own
beneficially more than 5% of the outstanding Parent Common Stock, (ii) by each
Named Executive Officer and (iii) all directors and executive officers of the
Company as a group. All shares are owned with sole voting and investment power,
unless otherwise indicated.
<TABLE>
<CAPTION>
PARENT COMMON
STOCK BENEFICIALLY
OWNED
------------------
BENEFICIAL OWNER SHARES %
- ---------------------------------------------------------------------------------- -------- ----
<S> <C> <C>
Sunderland Industrial Holdings Corporation (1).................................... 8,035.00 97.0
John Hancock Mutual Life Insurance Company........................................ 570.00(2) 6.4
Rice Partners II, L.P............................................................. 570.00(2) 6.4
Delaware State Employees' Retirement Fund (3)..................................... 552.67(4) 6.4
Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.(3)......... 110.33(5) 1.4
Declaration of Trust for Defined Benefit Plans of
ICI American Holdings Inc. (3).................................................. 162.00(6) 2.0
Pecks Management Partners, Ltd. (3)............................................... 825.00(7) 9.3
Richard L. Kramer (8)............................................................. -- --
William L. Remley (9)............................................................. -- --
John R. Weeks..................................................................... -- --
Michael M. Farrell................................................................ -- --
Ronald A. Seegers................................................................. -- --
Clarence E. Stevens, Jr........................................................... -- --
Michael D. Bornak................................................................. -- --
Richard C. Hoffman................................................................ -- --
Elaine E. Healy (10).............................................................. -- --
Total Executive Officers and Directors as a Group................................. -- --
</TABLE>
- ------------------------------
(1) According to information supplied to the Company by Sunderland, Biscayne
Trust, The Sunderland I Trust and The Remley 1990 Trust own beneficially
72%, 18% and 10%, respectively, of the outstanding shares of common stock
of Sunderland. The beneficiaries of these trusts are certain relatives of
Richard L. Kramer and William L. Remley. The trustees of Biscayne Trust and
The Sunderland I Trust are Lewis H. Ferguson III and Gary R. Siegel. All
powers with respect to investment or voting of securities owned by Biscayne
Trust and The Sunderland I Trust are exercisable by Messrs. Ferguson and
Siegel jointly. The trustee of The Remley 1990 Trust is F. Richard Remley,
who exercises all voting and investment power with respect to securities
held by such trust. The business address of Sunderland, Biscayne Trust, The
Sunderland I Trust, The Remley 1990 Trust, Lewis H. Ferguson III, Gary R.
Siegel and F. Richard Remley is c/o Mentmore Holdings Corporation, 1430
Broadway, 13th Floor, New York, New York 10018-3308. Richard L. Kramer,
Chairman of the Board of Directors of the Company, and William L. Remley,
Vice Chairman of the Board of Directors of the Company, are directors and
executive officers of Parent and Sunderland. F. Richard Remley, the trustee
of The Remley 1990 Trust, is the brother of William L. Remley. Mentmore
provides management services to the Company. Messrs. Kramer and William L.
Remley are the sole executive officers and directors of Mentmore.
(2) Comprised of Warrants to purchase 570 shares of Parent Common Stock held by
each of John Hancock Mutual Life Insurance Company ('John Hancock') and
Rice Partners II, L.P. ('Rice'). The business address of John Hancock is
John Hancock Place, 200 Clarendon Street, Boston, Massachusetts 02117. The
business address of Rice is c/o Rice Capital Management, 5847 San Felipe,
Suite 4350, Houston, Texas 77057.
(3) Pecks Management Partners, Ltd. serves as the investment advisor to The
Delaware State Employees' Retirement Fund, the Declaration of Trust for
Defined Benefit Plans of Zeneca Holdings Inc. and the Declaration of Trust
for Defined Benefit Plans of ICI American Holdings Inc. (collectively, the
'Pecks Funds') and, in such capacity, exercises voting and investment
control with respect to the Parent Common Stock beneficially owned by the
Pecks Funds. The business address of Pecks Management Partners, Ltd. and
the Pecks Funds is One Rockefeller Plaza, New York, New York 10020.
(4) Comprised of 167.67 shares of Parent Common Stock and Warrants to purchase
385 shares of Parent Common Stock.
(5) Comprised of 33.33 shares of Parent Common Stock and Warrants to purchase
77 shares of Parent Common Stock.
(6) Comprised of 49 shares of Parent Common Stock and Warrants to purchase 113
shares of Parent Common Stock.
(footnotes continued on next page)
56
<PAGE>
(7) Comprised of 250 shares of Parent Common Stock and Warrants to purchase 575
shares of Parent Common Stock held of record by the Pecks Funds. Pecks
Management Partners, Ltd. disclaims beneficial ownership of the Parent
Common Stock and Warrants held of record by the Pecks Funds.
(8) Mr. Kramer is a director and executive officer of Parent and Sunderland.
See footnote (1) above. Mr. Kramer disclaims beneficial ownership of the
Parent Common Stock held of record by Sunderland.
(9) Mr. Remley is a director and executive officer of Parent and Sunderland.
See footnote (1) above. Mr. Remley disclaims beneficial ownership of the
Parent Common Stock held of record by Sunderland.
(10) Ms. Healy is a Vice President of Pecks Management Partners, Ltd. See
footnote (3) above. Ms. Healy disclaims beneficial ownership of the Parent
Common Stock and Warrants held of record by the Pecks Funds.
57
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT AGREEMENT
Upon consummation of the Initial Offering, the Company entered into a
revolving credit facility (the 'New Credit Agreement') with Fleet National Bank,
as administrative agent (the 'Agent'), for a syndicate of financial
institutions. The following summary, which sets forth the material terms of the
New Credit Agreement, does not purport to be complete and is subject to, and
qualified by reference to, all of the provisions of the New Credit Agreement,
including all of the definitions therein of terms not defined in this
Prospectus.
General. The New Credit Agreement provides for borrowings in a principal
amount of up to $30.0 million at any one time outstanding. Borrowings may be
used by the Company to fund the Company's working capital requirements, finance
certain permitted acquisitions and general corporate requirements of the Company
and pay related fees and expenses of the foregoing. Prior to making any advance
under the New Credit Agreement to fund an acquisition, the Company will be
required to be in compliance, on a pro forma basis after giving effect to such
acquisition, with the financial covenants described below. Up to $2.0 million of
the total commitment will be available for the issuance of standby letters of
credit. Borrowings under the New Credit Agreement are collectively referred to
herein as the 'Advances.' See 'Capitalization' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
Interest. For purposes of calculating interest, the Advances can be, at
the election of the Company, Base Rate Advances or Eurodollar Rate Advances or a
combination thereof. Subsequent to the Offering, Base Rate Advances will bear
interest at Fleet National Bank's base rate plus 1.5%, and Eurodollar Rate
Advances will bear interest at the Eurodollar Rate (adjusted for reserve
requirements) plus 2.5%.
Repayment. Subject to the provisions of the New Credit Agreement, the
Company may, from time to time, borrow, repay and reborrow under the New Credit
Agreement. The New Credit Agreement requires prepayments and concurrent
reductions of the total commitment in the amount of 100% of net proceeds from
certain asset sales, equity issuances and Extraordinary Receipts (as defined in
the New Credit Agreement) and 50% of the net proceeds from certain debt
issuances. The entire unpaid balance under the New Credit Agreement is payable
in 2002.
Guarantees. Precise's payment obligations under the New Credit Agreement
are jointly and severally guaranteed, on a senior secured basis, by Parent and
each of Precise's direct and indirect subsidiaries.
Security. Borrowings under the New Credit Agreement are secured by (i) a
first priority pledge to the Agent for the ratable benefit of the financial
institutions party to the New Credit Agreement of the Common Stock of Precise
owned by Parent and all of the notes and capital stock owned by Precise and its
direct and indirect subsidiaries and (ii) a grant of a first priority perfected
security interest in substantially all of the consolidated assets of Precise and
its direct and indirect subsidiaries.
Covenants. The New Credit Agreement contains financial covenants pursuant
to which Precise and its direct and indirect subsidiaries must, on a
consolidated basis:
(a) maintain a Total Leverage Ratio (as defined in the New Credit
Agreement) for each period set forth below of not more than the amount set
forth below for such period:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
- -------------------------------------------------------------------------- -------
<S> <C>
03/31/1998................................................................ 5.625:1
06/30/1998................................................................ 5.25:1
09/30/1998................................................................ 5.00:1
12/31/1998................................................................ 4.75:1
03/31/1999................................................................ 4.60:1
06/30/1999................................................................ 4.40:1
09/30/1999................................................................ 4.30:1
12/31/1999................................................................ 4.05:1
03/31/2000................................................................ 4.05:1
06/30/2000................................................................ 4.05:1
09/30/2000................................................................ 4.05:1
12/31/2000................................................................ 3.35:1
03/31/2001................................................................ 3.35:1
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
- -------------------------------------------------------------------------- -------
<S> <C>
06/30/2001................................................................ 3.35:1
09/30/2001................................................................ 3.35:1
12/31/2001 and thereafter................................................. 3.00:1
</TABLE>
(b) maintain a Senior Leverage Ratio (as defined in the New Credit
Agreement) at September 30, 1997 and December 31, 1997 of 1.80:1;
(c) maintain a Fixed Charge Coverage Ratio (as defined in the New
Credit Agreement) for each Rolling Period ('Rolling Period' meaning, with
respect to any month, the consecutive twelve month period ending on the
last day of such month) set forth below of not less than the amount set
forth below for such Rolling Period:
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------------------------------------------------------------- ------
<S> <C>
09/30/1997................................................................. 1.05:1
12/31/1997................................................................. 1.05:1
03/31/1998................................................................. 1.05:1
06/30/1998................................................................. 1.05:1
09/30/1998................................................................. 1.15:1
12/31/1998................................................................. 1.15:1
03/31/1999................................................................. 1.25:1
06/30/1999................................................................. 1.30:1
09/30/1999................................................................. 1.35:1
12/31/1999................................................................. 1.40:1
03/31/2000................................................................. 1.40:1
06/30/2000................................................................. 1.40:1
09/30/2000................................................................. 1.40:1
12/31/2000 and thereafter.................................................. 1.50:1
</TABLE>
(d) maintain an Interest Coverage Ratio (as defined in the New Credit
Agreement) for each Rolling Period set forth below of not less than the
amount set forth below for such Rolling Period:
<TABLE>
<CAPTION>
ROLLING PERIOD ENDING RATIO
- --------------------------------------------------------------------------- ------
<S> <C>
09/30/1997................................................................. 1.60:1
12/31/1997................................................................. 1.60:1
03/31/1998................................................................. 1.60:1
06/30/1998................................................................. 1.60:1
09/30/1998................................................................. 1.60:1
12/31/1998................................................................. 1.90:1
03/31/1999................................................................. 1.90:1
06/30/1999................................................................. 1.90:1
09/30/1999................................................................. 1.90:1
12/31/1999................................................................. 2.20:1
03/31/2000................................................................. 2.20:1
06/30/2000................................................................. 2.20:1
09/30/2000................................................................. 2.20:1
12/31/2000................................................................. 2.60:1
03/31/2001................................................................. 2.60:1
06/30/2001................................................................. 2.60:1
09/30/2001................................................................. 2.60:1
12/31/2001 and thereafter.................................................. 3.00:1
</TABLE>
(e) maintain at all times an excess of total assets over total
liabilities (excluding all subordinated Debt (as defined in the New Credit
Agreement) of Precise and its direct and indirect subsidiaries), in each
case, of Precise and its direct and indirect subsidiaries (on a
consolidated basis) not less than an aggregate amount of $54,000,000 on the
date of Initial Extension of Credit (as defined in the New Credit
Agreement), which amount is subject to increase at a rate of 80% of
consolidated net income of Precise and its direct and indirect
subsidiaries; and
59
<PAGE>
(f) not make any Capital Expenditures (as defined in the New Credit
Agreement) that would cause the aggregate of all such Capital Expenditures
made by Precise in any Fiscal Year (as defined in the New Credit Agreement)
set forth below to exceed the amount set forth below for such Fiscal Year:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ---------------------------------------------------------------------- ----------
<S> <C>
1997.................................................................. $5,000,000
1998.................................................................. $5,000,000
1999.................................................................. $2,000,000
2000.................................................................. $2,000,000
2001.................................................................. $2,000,000
</TABLE>
The New Credit Agreement also contains covenants pertaining to the
management and operation of Precise and its subsidiaries. These covenants
include, among others, requirements that the Company comply with applicable
laws, including environmental laws, and maintain adequate insurance coverage
with respect to its properties.
The New Credit Agreement places significant limitations on the Company's
ability to further pledge its assets and incur additional debt. Pursuant to the
New Credit Agreement, Precise and its direct and indirect subsidiaries may not
incur, assume or suffer to exist any liens other than, among others, (i) those
created in connection with the New Credit Agreement and related documents, (ii)
Permitted Liens (as defined in the New Credit Agreement), (iii) certain liens
existing on the date of the consummation of the New Credit Agreement, (iv)
certain liens arising in connection with capitalized leases, (v) certain
purchase money liens upon or in real property or equipment, and (vi) liens of
Precise permitted under the terms of the Indenture. Furthermore, pursuant to the
New Credit Agreement, Precise and its direct and indirect subsidiaries may not
create, incur or assume any Debt other than, among others, (i) Debt in respect
of Hedge Agreements (as defined in the New Credit Agreement), (ii) payment,
performance or other obligations under capitalized leases not in excess of the
aggregate principal amount of capitalized leases existing on the date of
consummation of the New Credit Agreement plus $15,000,000 at any time
outstanding, (iii) Debt secured by certain liens permitted under the New Credit
Agreement assumed or acquired in connection with an acquisition permitted under
the New Credit Agreement not in excess of $25,000,000 at any time outstanding,
(iv) Debt of Precise pursuant to the Notes not in excess of $75,000,000, (v)
Debt under the New Credit Agreement and related documents, (vi) certain
unsecured subordinated Debt of Precise not in excess of $25,000,000, (vii)
indorsements of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, (viii) Existing Debt (as
defined in the New Credit Agreement) and certain refinancings and renewals
thereof, (ix) certain intercompany Debt, (x) Debt consisting of accrued expenses
and trade payables incurred in the ordinary course of business, and (xi) Debt
not otherwise permitted in an aggregate principal amount not to exceed
$2,000,000 at any time outstanding.
The New Credit Agreement also places significant limitations on guarantees,
mergers, acquisitions, fundamental corporate changes, asset sales, leases,
investments, loans and advances, dividends and other stock payments,
transactions with affiliates, optional payments and modification of debt
instruments and issuances of stock. In addition, the New Credit Agreement
contains restrictive covenants pertaining to the management and operation of
Parent, including, among others, significant limitations on liens and mergers
and reorganizations.
Events of Default. The New Credit Agreement provides for events of default
customary in facilities of this type, including: (i) failure to make payments
when due; (ii) breach of covenants; (iii) breach of representations or
warranties in any material respect when made; (iv) default by Precise or any
Guarantor under any material agreement relating to debt for borrowed money or
for the lease or license of property; (v) bankruptcy defaults; (vi)
environmental defaults; and (vii) a Change of Control (as defined in the New
Credit Agreement).
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company to the Initial Purchasers
pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold
the Old Notes to qualified institutional buyers in reliance on Rule 144A under
the Securities Act. As a condition to the Purchase Agreement, the Company and
the Guarantors entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which the
60
<PAGE>
Company and the Guarantors have agreed, for the benefit of the holders of the
Old Notes, at the Company's cost, to (i) file the Exchange Offer Registration
Statement within 45 days after the date of the original issue of the Old Notes
with the Commission with respect to the Exchange Offer for the New Notes; (ii)
use their best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act within 150 days after the date of
the original issuance of the Old Notes and (iii) unless the Exchange Offer would
not be permitted by applicable law or Commission policy, commence the Exchange
Offer and use their best efforts to issue on or prior to 30 days after the date
on which the Exchange Offer Registration Statement was declared effective by the
Commission (the 'Exchange Offer Effectiveness Date') New Notes in exchange for
all Old Notes tendered prior thereto in the Exchange Offer. Upon the Exchange
Offer Registration Statement being declared effective, the Company will offer
the New Notes in exchange for surrender of the Old Notes. The Company will keep
the Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date on which notice of the Exchange Offer
is mailed to the holders of the Old Notes. For each Old Note surrendered to the
Company pursuant to the Exchange Offer, the holder of such Old Note will receive
a New Note having a principal amount equal to that of the surrendered Old Note.
Each New Note will bear interest from its issuance date. Holders of Old Notes
that are accepted for exchange will receive, in cash, accrued interest thereon
to, but not including, the issuance date of the New Notes. Such interest will be
paid with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the New Notes.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes will in general be
freely tradeable after the Exchange Offer without further registration under the
Securities Act. However, any purchaser of Old Notes who is an 'affiliate' of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing the New Notes (i) will not be able to rely on the interpretation of
the staff of the Commission, (ii) will not be able to tender its Old Notes in
the Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Old Notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging, and does not intend to engage, in distribution of the
New Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an 'affiliate' of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder or any such other person acknowledges that if such holder or any other
person participates in the Exchange Offer for the purpose of distributing the
New Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on those no-action letters. As indicated above, each
Participating Broker-Dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it (i) acquired the Old Notes for
its own account as a result of market-making activities or other trading
activities, (ii) has not entered into any arrangement or understanding with the
Company or any 'affiliate' of the Company (within the meaning of Rule 405 under
the Securities Act) to distribute the New Notes to be received in the Exchange
Offer and (iii) will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. For a
description of the procedures for resales by Participating Broker-Dealers, see
'Plan of Distribution.'
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the Holders of Transfer Restricted Securities who are able
to make certain representations the opportunity pursuant to the Exchange Offer
to exchange their Transfer Restricted Securities for New Notes. If (i) the
Company is not required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of Transfer
Restricted Securities notifies the Company prior to the 20th day following
consummation of the Exchange Offer that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) that it may
not resell the New 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
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available for such resales for (C) that it is a broker-dealer and owns Notes
acquired directly from the Company or an affiliate of the Company, the Company
will file with the Commission a Shelf Registration Statement to cover resales of
the Notes by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, 'Transfer Restricted Securities' means each Note
until (i) the date on which such Note has been exchanged by a person other than
a broker-dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for a New Note, the
date on which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iv) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Act.
The Company will, in the event of the filing of the Shelf Registration
Statement, provide to each holder of the Old Notes copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resale of the Old Notes. A
holder of the Old Notes that sells such Old Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations).
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer Regsitration Statement declared effective by the Commission
on or prior to 150 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, New Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Company will use its best efforts to file the
Shelf Registration Statement with the Commission on or prior to 30 days after
such filing obligation arises and to cause the Shelf Registration Statement to
be declared effective by the Commission on or prior to 90 days after such
obligation arises. If (a) the Company fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the 'Effectiveness Target Date'), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a 'Registration Default'), then the Company will pay
liquidated damages ('Liquidated Damages') to each Holder of Notes, with respect
to the first 90-day period immediately following the occurrence of the first
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Notes held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of 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 $.50 per week
per $1,000 principal amount of Notes. All accrued Liquidated Damages will be
paid by the Company on each Damages Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by wire transfer to the accounts specified by
them or by mailing checks to their registered addresses if no such accounts have
been specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease. Notwithstanding the foregoing, the Company may
issue a notice that the Shelf Registration Statement is unusable pending the
announcement of a material corporate transaction and may issue any notice
suspending the use of the Shelf Registration Statement required under applicable
securities laws to be issued and, in the event that the aggregate number of days
in any consecutive twelve-month period for which all such notices are issued
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and effective does not exceed 45 days in the aggregate, then Liquidated Damages
will not be payable as described above as a result of such suspension.
Holders of Old Notes will be required to make certain representations (as
described in the Registration Rights Agreement) in order to participate in the
Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Old Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement, which contains the material terms relating to the registration rights
and related obligations of Holders of Old Notes, does not purport to be complete
and is subject to, and is qualified in its entirety by, all the provisions of
the Registration Rights Agreement, a copy of which is filed as an exhibit to the
Exchange Offer Registration Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of Old Notes accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP number from the Old Notes, (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (iii) the holders of the New Notes will not be entitled
to certain rights under the Registration Rights Agreement, including the
provisions providing for the payment of Liquidated Damages in certain
circumstances relating to the timing of the Exchange Offer, all of which rights
will terminate when the Exchange Offer is terminated. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $75,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See '--Fees and Expenses.'
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company in its sole discretion extends the
Exchange Offer, in which case the term 'Expiration Date' shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will issue a notice of
such extension by press release or other public announcement prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
The Company reserves the right, in its sole discretion, prior to the
Expiration Date (i) to delay accepting any Old Notes, to extend the Exchange
Offer or to terminate the Exchange Offer if any of the conditions set forth
below under 'Conditions' shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(ii) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from their date of issuance. Holders of
Old Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the New Notes. Such
interest will be paid with the first interest payment on the New Notes on
December 15, 1997. Interest on the Old Notes accepted for exchange will cease to
accrue upon issuance of the New Notes.
Interest on the New Notes is payable semi-annually on each June 15 and
December 15, commencing on December 15, 1997.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal or an Agent's Message in connection with a
book-entry transfer and other required documents must be completed and received
by the Exchange Agent at the address set forth below under 'Exchange Agent'
prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the
Old Notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the Exchange Agent prior to the Expiration Date.
The term 'Agent's Message' means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry transfer, which states that such book-entry
transfer facility has received an express acknowledgment from the participant in
such book-entry transfer facility tendering the Notes that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal, each holder will make the
representations set forth above in the third paragraph under the heading
'--Purpose and Effect of the Exchange Offer.'
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALER, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS.
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Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See 'Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner' included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled 'Special Registration Instructions' or
'Special Delivery Instructions' on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. 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 guarantee must be by a member firm of the Medallion System (an
'Eligible Institution').
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedures for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent at its address set forth below on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to DTC does not constitute delivery to the Exchange Agent.
All questions as to the validity, form eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution,
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(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at DTC), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC), and
all other documents required by the Letter of Transmittal are received by
the Exchange Agent upon three New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
'Depositor'); (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the DTC to be credited); (iii) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, 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 purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
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 above under '--Procedures for Tendering' at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein prior to the
Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
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(c) any govemmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
above conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and retum all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see '--Withdrawal of Tenders') or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn.
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
MARINE MIDLAND BANK MARINE MIDLAND BANK
140 Broadway--Level A 140 Broadway--Level A
New York, New York 10005-1180 New York, New York 10005-1180
Attention: Corporate Trust Services Attention: Corporate Trust Services
(registered or certified mail recommended)
By Hand: Facsimile Transmission:
MARINE MIDLAND BANK (212) 658-2292
140 Broadway--Level A Confirm by Telephone:
New York, New York 10005-1180 (212) 658-5931
Attention: Corporate Trust Services
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a person
inside the
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United States whom the seller reasonably believes is a qualified institutional
buyer within the meaning of Rule 144A under the Securities Act in a transaction
meeting the requirements of Rule 144A, (iii) in accordance with Rule 144 under
the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company), (iv) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (v) pursuant to an effective registration under the
Securities Act, in each case in accordance with any applicable securities laws
of any state of the United States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an 'affiliate' of
the Company within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of business
and who is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of the New Notes, will be allowed to resell the New Notes to the public without
further registration under the Securities Act and without delivering to the
purchasers of the New Notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act. However, if any holder acquires New Notes in
the Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in such no-action letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, unless an exemption from registration is otherwise available.
Further, each Participating Broker-Dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating 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.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging, and does not intend to engage, in the distribution of
the New Notes, (iii) the holder of any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an 'affiliate' of
the Company within the meaning of Rule 405 under the Securities Act, and (v) the
holder of any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the New Notes
it most comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes and cannot rely on
those no-action letters. As indicated above, each Participating Broker-Dealer
that receives a New Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see 'Plan of Distribution.'
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DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued pursuant to an Indenture (the 'Indenture'),
dated as of June 13, 1997, between the Company, the Guarantors and Marine
Midland Bank, as trustee (the 'Trustee'). The terms of the New 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') as in effect on
the date of the Indenture. The form and terms of the New Notes are the same as
the form and terms of the Old Notes (which they replace) except that (i) the New
Notes bear a Series B designation, (ii) the New Notes have been registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of New Notes will not be entitled to
certain rights under the Registration Rights Agreement, including the provisions
providing for the payment of Liquidated Damages in certain circumstances
relating to the timing of the Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. The New Notes are subject to all such terms,
and holders of the New Notes are referred to the Indenture and the Trust
Indenture Act for a statement of them. This summary, which sets forth the
material terms and provisions of the New Notes, does not purport to be a
complete description of the New Notes and is subject to the detailed provisions
of, and qualified in its entirety by reference to, the New Notes and the
Indenture (including the definitions contained therein). A copy of the form of
Indenture has been filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part. See 'Available Information.'
Definitions relating to certain capitalized terms are set forth under '--
Certain Definitions' and throughout this description. Capitalized terms that are
used but not otherwise defined herein have the meanings assigned to them in the
Indenture and such definitions are incorporated herein by reference. The Old
Notes and the New Notes are sometimes referred to herein collectively as the
'Notes.' For purposes of this summary, the term 'Company' refers only to Precise
Technology, Inc. and not to any of its Subsidiaries.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Debt. As of
June 30, 1997, the Company and the Guarantors had consolidated Senior Debt of
approximately $13.5 million outstanding. The Indenture, subject to certain
limitations, permits the incurrence of additional Senior Debt in the future. As
of the Issue Date, all of the Company's Subsidiaries will be 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.
A significant portion of the operations of the Company are conducted
through its Subsidiaries and, therefore, the Company is dependent upon the cash
flow of its Subsidiaries to meet its obligations, including its obligations
under the Notes. The Notes will be effectively subordinated to all Indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of the Company's Subsidiaries. Any right of the Company to receive
assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company. As of June 30, 1997, the Company's Subsidiaries had approximately $2.3
million of Indebtedness (exclusive of the guarantees of the Credit Agreement and
the Subsidiary Guarantees) and $9.7 million of trade payables and other
liabilities outstanding. See 'Risk Factors--Holding Company Structure; Effects
of Asset Encumbrances.'
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $200.0 million,
of which $75.0 million in aggregate principal amount were issued in the Initial
Offering. Additional amounts may be issued in one or more series from time to
time subject to the limitations set forth under ' --Incurrence of Indebtedness
and Issuance of Preferred Stock' and restrictions contained in the Credit
Agreement. The Notes will mature on June 15, 2007. Interest on the Notes will
accrue at the rate of 11 1/8% per annum and will be payable semi-annually in
arrears on June 15 and December 15, commencing on December 15, 1997, to Holders
of record on the immediately preceding June 1 and December 1. 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, if any, and interest and
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Liquidated Damages, if any, on the Notes will be payable at the office or agency
of the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest and Liquidated Damages, if
any, 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, interest and Liquidated Damages, if any, 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.
SUBORDINATION
The payment (by set-off or otherwise) of principal of, premium, if any, and
interest and Liquidated Damages, if any, on the Notes (including with respect to
any repurchases of the Notes) will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full in cash, or at the option
of the holders of Senior Debt, in Cash Equivalents, of all Obligations in
respect of Senior Debt, whether outstanding on the date of the Indenture or
thereafter incurred.
Upon any distribution to creditors of the Company upon any total or partial
liquidation, dissolution or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, whether voluntary or involuntary, 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 in cash,
or at the option of the holders of Senior Debt, in Cash Equivalents, of all
Obligations due or to become 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) before the Holders of Notes will be entitled to
receive any payment of any kind or character with respect to the Notes, and
until all Obligations with respect to Senior Debt are paid in full in cash, or
at the option of the holders of Senior Debt, in Cash Equivalents, any
distribution of any kind or character 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 Permitted Junior Securities and payments made from the trust
described under '--Legal Defeasance and Covenant Defeasance').
The Company also shall not make, directly or indirectly, (x) any payment
upon or in respect of the Notes (except in Permitted Junior Securities or from
the trust described under '--Legal Defeasance and Covenant Defeasance') or (y)
acquire any of the Notes for cash or property or otherwise or make any other
distribution with respect to the Notes if (i) any default occurs and is
continuing (beyond any applicable grace period) in the payment when due, whether
at maturity, upon any redemption, by declaration or otherwise, of any principal
of, interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Designated Senior Debt 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 Company or 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 and Liquidated
Damages, if any, 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 Notice unless such nonpayment default shall have
been waived for a period of not less than 90 days (it being acknowledged that
any subsequent action, or any breach of any financial covenants for a period
commencing after the date of delivery of any Payment Blockage Notice which, in
either case, would give rise to a default pursuant to any provision under which
a default previously existed or was continuing shall constitute a new default
for this purpose). Each Holder by his acceptance of a Note irrevocably agrees
that if any payment or payments shall be made pursuant to the Indenture and the
amount or total amount of such payment or payments exceeds the amount, if any,
that such Holder would be entitled to receive upon the proper application of the
subordination provisions of the Indenture, the payment of such excess amount
shall be deemed null and void, and
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the Holder agrees that it will be obliged to return the amount of the excess
payment to the Company, as instructed in a written notice of such excess
payment, within ten days of receiving such notice.
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. The principal amount of
consolidated Senior Debt outstanding at June 30, 1997 was approximately $13.5
million. The Indenture limits, through certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Company and its
subsidiaries can incur. See '--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock.'
'Designated Senior Debt' means (i) any Indebtedness outstanding under the
Credit Agreement and (ii) any other Senior Debt, the principal amount of which
is $5.0 million or more and that has been designated by the Company as
'Designated Senior Debt.'
'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.
'Senior Debt' of any Person means (i) all Indebtedness of such Person under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest (including any interest accruing subsequent to the filing
of a petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law), reimbursement obligations under letters of credit, fees,
expenses and indemnities, and all Hedging Obligations with respect thereto,
whether outstanding on the date of the Indenture or thereafter incurred, (ii)
the principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other Obligations with respect
to, any other Indebtedness of such Person permitted to be incurred by such
Person under the terms of the Indenture, whether outstanding on the date of the
Indenture or thereafter incurred, 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 and (iii) all Obligations of such
Person 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 such Person, (x) any Indebtedness
of such Person to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of the Indenture.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed (the 'Subsidiary Guarantees') by the Guarantors. The Subsidiary
Guarantee of each Guarantor is subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full in cash or, at the option of holders
of Senior Debt, in Cash Equivalents, of all Senior Debt of such Guarantor, which
would include the amounts for which the Guarantors are liable under the
guarantees issued from time to time with respect to Senior Debt. The obligations
of each Guarantor under its Subsidiary Guarantee are limited so as not to
constitute a fraudulent conveyance under applicable law.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) is a corporation organized and existing under the laws of the United
States of America, any state thereof, or the District of Columbia and expressly
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee, under
the Notes and the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; and (iii) the Company would
be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such transaction (on a pro forma basis), to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant described below under the caption
'--Incurrence of Indebtedness and Issuance of Preferred Stock.'
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The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the Capital Stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See 'Repurchase at
the Option of Holders--Asset Sales.'
'Guarantors' means each of (i) the Company's existing and future Restricted
Subsidiaries (having either assets or stockholder's equity in excess of $50,000)
and (ii) any other subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture, and their respective successors and
assigns.
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at the
Company's option prior to June 15, 2002. 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
redemption date, if redeemed during the twelve-month period beginning on June 15
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- ----------
<S> <C>
2002.......................................................... 105.563%
2003.......................................................... 103.708%
2004.......................................................... 101.854%
2005 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to June 15, 2000, the Company
may on any one or more occasions redeem up to 33 1/3% of the aggregate principal
amount of Notes originally issued (including, for this purpose, one or more
series of notes issued under the Indenture after the date of the Indenture) at a
redemption price of 111.125% 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 66 2/3% of the aggregate principal amount of Notes originally issued
(including, for this purpose, one or more series of notes issued under the
Indenture after the date of the Indenture) remain outstanding immediately after
the occurrence of such redemption; and provided, further, that such redemption
shall occur within 60 days of the date of the closing of any such Public Equity
Offering.
In addition, at any time prior to June 15, 2002, the Company may, at its
option, redeem the Notes, in whole or in part, at a redemption price equal to
100% of the principal amount thereof plus the applicable Make-Whole Premium.
SELECTION AND NOTICE
If less than all of 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 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.
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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'). Prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full in cash all Indebtedness under the Credit
Agreement (and terminate all commitments thereunder) and all other Senior Debt
the terms of which require repayment upon a Change of Control or offer to repay
in full in cash all Indebtedness under the Credit Agreement (and terminate all
commitments thereunder) and all such other Senior Debt and to repay the
Indebtedness owed to (and terminate the commitments of) each lender which has
accepted such offer or (ii) obtain the requisite consents under the Credit
Agreement and all such other Senior Debt to permit the repurchase of the Notes
as provided below. The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase Notes
pursuant to the provisions described below. Within 30 days following any Change
of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the 'Change of Control Payment Date'), pursuant to the procedures
required by the Indenture and described in such notice. 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, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) 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 (3) 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.
The Credit Agreement currently prohibits the Company from repurchasing any
Notes 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 repurchasing Notes,
the Company could seek the consent of its lenders to the repurchase of Notes or
could attempt to refinance or repay 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 repurchasing Notes. In such
case, the Company's failure to repurchase tendered Notes would constitute an
Event of Default under the Indenture which would, in turn, constitute a default
under the Credit Agreement. In such circumstances, the subordination provisions
in the Indenture would likely restrict payments to the Holders of Notes.
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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 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) 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 Restricted Subsidiaries
taken as a whole 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 (as defined
below), (ii) the adoption of a plan relating to the liquidation or dissolution
of the Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
'person' (as defined above), other than the Principals and their Related
Parties, becomes the 'beneficial owner' (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to
have 'beneficial ownership' of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares) or (iv) the first day on which a majority of the members of
the Board of Directors of the Company are not Continuing Directors.
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 Restricted 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 to another Person or group may be
uncertain.
'Continuing Directors' means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated by the Principals
or a Related Party to serve on such Board of Directors.
'Principals' means Richard L. Kramer and/or William L. Remley.
'Related Parties' with respect to any Principal means (A) any spouse or
immediate family member of such Principal and any child or spouse of any spouse
or immediate family member of such Principal, (B) a trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding, directly or indirectly, a controlling interest
of which consist of any of such Principal and/or such other Persons referred to
in the immediately preceding clause (A) or (C) the trustees of any trust
referred to in clause (B).
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 and as set forth in
an Officers' Certificate delivered to the Trustee) 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; provided that the amount of (x) any liabilities (as 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 may apply such Net Proceeds, at its option, (a) to permanently
reduce (or, in the case of letters of credit or Eurodollar loans under the
Credit Agreement, cash collateralize) any Senior Debt (and to correspondingly
reduce commitments with respect thereto in the case of revolving borrowings), or
(b) to the acquisition of a controlling interest in another business, the making
of a capital expenditure or the acquisition of other long-term assets, in each
case, in the same line of
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business as the Company was engaged in on the date of the Indenture. Pending the
final application of any such Net Proceeds, the Company may 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 offer to
purchase, 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 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 dividends or distributions payable to the Company or any
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company or other Affiliate of
the Company (other than any such Equity Interests owned by the Company or any
Wholly Owned Subsidiary of the Company); (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes more than six months
prior to any scheduled maturity, mandatory redemption, scheduled principal
repayment or sinking fund payment date (other than regularly scheduled payments
of interest); 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; and
(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 above under 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 clauses (ii), (iii), (iv), (v), (vii) and (viii) 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 beginning of the first fiscal quarter commencing 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 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
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cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) (but only to
the extent not included in subclause (i) of this clause (c)), and (B) the
initial amount of such Restricted Investment, plus (iv) $5.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
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 subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a 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 subordinated Indebtedness with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
scheduled dividends on or the redemption, repurchase, retirement, defeasance or
other acquisition of, any Disqualified Stock issued after the date hereof in
compliance with the provisions of the Indenture; (v) after March 29, 2001, the
Permitted Warrant Put Payment; (vi) payments made with respect to the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company, the Parent, Sunderland or any Subsidiary of the
Company held by any member of the Company's (or any of its Restricted
Subsidiaries'), Parent's or Sunderland's management pursuant to any management
equity subscription agreement or stock option agreement in effect as of the date
of the Indenture (provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period); (vii) distributions to Parent in order
to enable Parent to pay franchise taxes and other ordinary course operating
expenses in an amount not to exceed $25,000 in any twelve-month period; and
(viii) the application of the proceeds of the Initial Offering in the manner
described in 'Prospectus Summary-- The Initial Offering--Notes' above; provided,
however, that at the time of, and after giving effect to, any Restricted Payment
permitted under clauses (i) through (vii) no Default or Event of Default shall
have occurred and be continuing. In addition, payments and transactions
permitted pursuant to clauses (r) through (y) under '--Transactions with
Affiliates' below shall not be deemed to be Restricted Payments.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (x) the net book value of such Investments at the time of such
designation and (y) the fair market value of such Investments at the time of
such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such 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 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 Subsidiaries to issue any shares of preferred stock
(other than to the Company or a Restricted Subsidiary of the Company); provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if:
(i) 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
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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; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro
forma basis to, such incurrence or issuance.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness or the issuance of
preferred stock or Disqualified Stock (collectively, 'Permitted Debt'):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
arising under or in connection with the Credit Agreement; provided that the
aggregate principal amount of all Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company and its Restricted Subsidiaries thereunder)
outstanding under the Credit Agreement after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (i), does not exceed an amount equal to the greater of $50.0
million or $30.0 million plus the Borrowing Base, in each case less the
aggregate amount of all Indebtedness permanently repaid with the Net
Proceeds of any Asset Sale;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by 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 Restricted Subsidiary, in an aggregate
principal amount not to exceed the principal amount of such Capital Lease
Obligations outstanding on the date hereof plus $15.0 million at any time
outstanding;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Acquired Debt in connection with the acquisition of assets
or a new Restricted Subsidiary; provided that such Acquired Debt was
incurred by the prior owner of such assets or such Restricted 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 aggregate principal amount, accreted value or
liquidation preference, as applicable, of such Acquired Debt, together with
any other outstanding Indebtedness or preferred stock incurred pursuant to
this clause (iv), does not exceed $5.0 million;
(v) 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;
(vi) 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
(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 (other than any pledge of such
Indebtedness to the lenders under the Credit Agreement) 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;
(vii) 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 this Indenture to be
outstanding, provided that the notional principal amount of any Hedging
Obligations does not significantly exceed the principal amount of
Indebtedness to which such agreement relates, or for the purpose of hedging
against fluctuations in currency values;
(viii) the Guarantee by the Company or any of the Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of
the Company that was permitted to be incurred by another provision of this
covenant;
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(ix) the issuance by the Company's Unrestricted Subsidiaries of
preferred stock or the incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary,
such event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company;
(x) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the Notes and the Subsidiary Guarantees as
described under '--Subsidiary Guarantees' and the Indenture; and
(xi) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) or the issuance of preferred stock with
an aggregate liquidation preference at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (xi), not to exceed
$10.0 million.
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 of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify or reclassify 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.
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 securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting 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 Credit Agreement
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, replacement or
refinancings are no more restrictive on a whole with respect to such dividend
and other payment restrictions than those contained in the Credit Agreement 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 (including any Subsidiary 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 and net
worth provisions in leases or other agreements entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
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 in Capital Lease
Obligations, security agreements or mortgages securing Indebtedness of the
Company or a Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such Capital
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Lease Obligations, security agreements or mortgages, (j) customary restrictions
with respect to an agreement that has been entered into for the sale or
disposition of assets or Capital Stock held by the Company or any Restricted
Subsidiary, (k) customary restrictions contained in any agreements or
documentation governing Indebtedness or preferred stock issued pursuant to
clause (xi) of the covenant described above under the caption '--Incurrence of
Indebtedness and Issuance of Preferred Stock' and (l) the Warrant Agreement and
the Shareholders Agreement.
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, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity 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 giving
effect to such transaction no Default or Event of Default exists; and (iv)
except in the case of a merger of the Company with or into a Wholly Owned
Subsidiary of the Company, 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
above under the caption '--Incurrence of Indebtedness and Issuance of Preferred
Stock.'
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 purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (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 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 (r) the application
of the proceeds of the Initial Offering and the transactions entered into in
connection therewith in the manner described in 'Certain Transactions' above,
(s) capital contributions, advances, loans or other investments made by Parent
to the Company or any of its Restricted Subsidiaries, (t) (I) payments under the
Management Agreement in an amount not to exceed $300,000 in any twelve-month
period and (II) after the first anniversary of the original issuance of the
Notes, additional payments under the Management Agreement in an amount not to
exceed $700,000 in any twelve-month period provided that the Company's 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 payment under the Management Agreement is made,
after giving pro forma effect to such payment, is equal to or greater than 2.25
to 1 (in each case, plus reasonable expenses incurred in connection with and
reimbursable under the Management Agreement), (u) payments by the Company or any
of its Restricted Subsidiaries to Mentmore and/or its Affiliates made for any
financial advisory, financing,
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underwriting or placement services or in respect of other investment banking
activities, including, without limitation, in connection with acquisitions or
divestitures, which payments are approved by a majority of the Board of
Directors of the Company in good faith, (v) payments under tax sharing
agreements to the extent such payments do not otherwise exceed the tax liability
the Company would have had were it not part of a consolidated group, (w) any
employment agreement, compensation agreement or employee benefit arrangement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business, (x) transactions between or among Parent, the
Company and/or its Restricted Subsidiaries, (y) any other payment or
reimbursement of reasonable and customary fees and expenses incurred by an
Affiliate for services rendered to the Company or any of its Subsidiaries not to
exceed $100,000 in any twelve-month period (without duplication for any amounts
paid pursuant to any other clause of this covenant) 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, issue, 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
issuance, transfer, conveyance, sale, lease or other disposition is of all the
Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the 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.
Limitation on Layering Debt
The Indenture provides that (A) the Company will not incur, create, issue,
assume, Guarantee or otherwise become liable for any Indebtedness that is by its
terms subordinate or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the Notes and (B) the Guarantors will not
incur, create, issue, assume, Guarantee or otherwise become liable for any
Indebtedness that is by its terms subordinate or junior in right of payment to
any Senior Debt and senior in any respect in right of payment to the Subsidiary
Guarantees.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Subsidiaries shall
acquire or create another Subsidiary after the date of the Indenture, then such
newly acquired or created Subsidiary (at any time such Subsidiary has net assets
or stockholder's equity in excess of $50,000) shall execute a Subsidiary
Guarantee and deliver an opinion of counsel, in accordance with the terms of the
Indenture; provided, however, that all Subsidiaries that have been properly
designated as Unrestricted Subsidiaries in accordance with the Indenture shall
not be subject to the preceding clause for so long as they continue to
constitute Unrestricted Subsidiaries.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
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
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a 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company) 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; provided, however, that the Company shall not be required to make
any such filings on or prior to the date on which the Company's quarterly report
on Form 10-Q for the fiscal quarter ended June 30, 1997 would have been required
to be filed if, at the time such filings would have been required to be made
with the Commission, either (i) the Company shall have provided to each Holder
the information that would have been required to be filed or (ii) the Exchange
Offer Registration Statement has been filed with the Commission but has not yet
been declared effective and copies of the Exchange Offer Registration Statement
and any amendments thereto (to the extent such registration statement and/or
amendments contain additional information not disclosed in the Offering
Memorandum that would have been the subject of a filing required to be made
under Section 13 or 15(d) of the Exchange Act) have been provided to each
Holder, provided that any exhibits to the Exchange Offer Registration Statement
(or any amendments thereto) need not be delivered to any Holder of the Notes,
but sufficient copies thereto shall be furnished to the Trustee as reasonably
requested to permit the Trustee to deliver any such exhibits to any Holder upon
request. 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. In addition, the Company and the
Guarantors have agreed that, for so long as any Notes remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
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, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due (whether payable at maturity, upon redemption or otherwise) 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' or '--Merger, Sale or Consolidation of Assets'; (iv) failure by
the Company for 30 days after written 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 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, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a 'Payment Default')
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any
of its Restricted Subsidiaries to pay final and non-appealable judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) except as permitted by the Indenture,
any Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid and such judgment has become final or non-appealable or
shall cease for any other 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 Subsidiary Guarantee; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries that are Restricted Subsidiaries.
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 by notice in
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writing to the Company and the Trustee; provided, that so long as any
Indebtedness permitted to be incurred pursuant to the Credit Agreement shall be
outstanding, such acceleration shall not be effective until the earlier of (i)
an acceleration of any such Indebtedness under the Credit Agreement or (ii) five
business days after receipt by the Company and the Agent 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, any Significant Subsidiary that is a Restricted Subsidiary or any
group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, 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. 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.
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.
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, the Notes.
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, 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
and Liquidated Damages, if any, 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 Government
Securities, 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 and Liquidated Damages,
if any, on the outstanding Notes on the stated maturity or on the applicable
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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 confirming 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 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 or 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,
without limitation, consents obtained in connection with a purchase of, or
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
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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.
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 any change that would provide any additional
rights or benefits to the Holders of Notes 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, 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.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes will initially be
issued in the form of one Global Note (the 'Global Note'). The Global Note will
be deposited upon issuance with, or on behalf of, The Depository Trust Company
(the 'Depositary') and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the 'Global Note Holder').
Notes that are issued as described below under '--Certificated Securities'
will be issued in the form of registered definitive certificates (the
'Certificated Securities'). Upon the transfer of Certificated Securities, such
Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the 'Participants'
or the 'Depositary's Participants') and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
'Indirect Participants' or the 'Depositary's Indirect Participants') that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Exchange Agent with portions of the
principal amount of the Global Note and (ii) ownership of the Notes evidenced by
the Global Note will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depositary (with respect to the
interests of the Depositary's Participants), the Depositary's Participants and
the Depositary's Indirect Participants. Some states require that certain persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Notes evidenced by the Global Note will be
limited to such extent.
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So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. 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 Notes. The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Notes in the form of Certificated Securities
under the Indenture, then, upon surrender by the Global Note Holder of its
Global Note, Notes in such form will be issued to each person that the Global
Note Holder and the Depositary identify as being the beneficial owner of the
related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Settlement and Payment
The Indenture will require that payments in respect of the Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available 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 Securities will also be settled in immediately available funds.
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 or preferred stock 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 or preferred stock 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.
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'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
issuance of Equity Interests in any Restricted Subsidiary or the sale of Equity
Interests in any of the Company's Restricted Subsidiaries, in the case of either
clause (i) or (ii), whether in a 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 or Equity Interests 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, (iii) the disposal of obsolete equipment and
machinery in the ordinary course of business and (iv) 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 trade receivables owned by the Company and its
Restricted Subsidiaries as of such date that are not more than 90 days past due,
less the allowance for doubtful accounts, each of the foregoing determined in
accordance with GAAP, and (b) 50% of the book value of all inventory owned by
the Company and its Restricted Subsidiaries as of such date, less any applicable
reserves, each of the foregoing determined in accordance with GAAP. To the
extent that information is not available as to the amount of trade receivables
or inventory as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Borrowing Base.
'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 one
year from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of $500 million,
(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, (v) commercial paper rated at least P-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition and (vi) investment
funds with total assets in excess of $500 million that invest at least 95% of
their assets in securities of the types described in clauses (i) through (v)
above.
'Consolidated Cash Flow' means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary, non-recurring or unusual loss plus any net loss
realized in connection with an asset sale (to the extent such losses were
deducted or otherwise
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excluded in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its 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 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 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 other non-cash
expenses (excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income, plus (v) an amount equal to all premiums on prepayments
of debt, minus (vi) non-cash items increasing such Consolidated Net Income for
such period, in each case, on a consolidated basis and determined in accordance
with GAAP. 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 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 Person that is not a
Restricted Subsidiary or 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 referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor and, for purposes of determining
Consolidated Cash Flow only, shall not exceed the consolidated net income of
such Person for such period, (ii) the Net Income of any 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 Restricted
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, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income of any Person
that is an Unrestricted Subsidiary shall be included only to the extent of the
amount of cash dividends or cash distributions paid to such Person or a
Restricted Subsidiary thereof.
'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 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 Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Restricted Subsidiaries and in
Persons that are not 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 Agreement' means that certain Credit Agreement, dated as of June
13, 1997, by and among Parent, the Company and each Subsidiary of the Company
and Fleet National Bank, as Agent, providing for up to $30.0
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million of revolving credit borrowings, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified (including any agreement
extending the maturity of, increasing the total commitment under or otherwise
restructuring all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement), renewed, refunded, replaced, restated,
supplemented or refinanced 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.
'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).
'Existing Indebtedness' means up to $6.8 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Agreement) in existence on the date of the
Indenture and set forth on a schedule thereto (including any refinancings
thereof), until such amounts are permanently repaid.
'Fixed Charges' means, with respect to any Person and its Restricted
Subsidiaries 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) all
dividend payments (including all dividend payments within 60 days of the
measurement date for any period), whether or not in cash, on any series of (A)
Disqualified Stock of such Person and (B) preferred stock of any Subsidiary of
such Person, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company and other than payments to such Person and its
Restricted Subsidiaries, in each case, on a consolidated basis and in accordance
with GAAP.
'Fixed Charge Coverage Ratio' means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person and its Restricted Subsidiaries 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 or redeems 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, and the application of the net proceeds thereof,
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
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Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
'GAAP' means generally accepted accounting principles set forth 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, which are in effect from time to time.
'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.
'Hedging Obligations' means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, currency 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 or currency values.
'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 (but only to the extent of the
fair market value of the assets subject to such Lien) (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.
'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, however, that if the sole consideration for any such investment is
Capital Stock of the Company or a Subsidiary that is not Disqualified Stock,
then such investment shall not be deemed an Investment for purposes of the
Indenture. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect 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.'
'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).
'Make-Whole Premium' means, with respect to a Note, an amount equal to the
greater of (i) 5.563% of the outstanding principal amount of such Note and (ii)
the excess of (a) the present value of the remaining interest, premium and
principal payments due on such Note as if such Note were redeemed on June 15,
2002, computed using a discount rate equal to the Treasury Rate plus 75 basis
points, over (b) the outstanding principal amount of such Note.
'Management Agreement' means the agreement, dated as of March 15, 1996,
between the Company and Mentmore, as amended from time to time.
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'Net Income' means, with respect to any Person for any period, 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 Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted 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
secured by a Lien on the asset or assets that were the subject of such Asset
Sale, any provision for permitted minority interests in any Restricted
Subsidiary as a result of such Asset Sale and any reserve established in
accordance with GAAP against any liabilities associated with the assets sold or
disposed of in such Asset Sale, including, without limitation, sales price
adjustments, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such Asset Sale or
provision for minority interest holders in any Restricted Subsidiary as a result
of such Asset Sale.
'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 in excess of $5.0 million to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
'Obligations' means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
'Parent' means Precise Holding Corporation, a Delaware corporation.
'Permitted Investments' means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (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 Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company; (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; (f) reasonable
and customary loans and advances made to employees in connection with their
relocation (including related travel expenses) not to exceed $250,000 in the
aggregate at any one time outstanding; (g) any Investment existing on the date
of the Indenture; (h) any Investment acquired by the Company or any of its
Restricted Subsidiaries (x) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in connection
with or as a result of a bankruptcy, workout, reorganization or recapitalization
of the issuer of such Investment or accounts receivable or (y) as the result of
a foreclosure by the Company or any of its Restricted Subsidiaries with respect
to any secured Investment or other transfer of title with respect to any secured
Investment in default; and (i) 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 (i) that are at the time
outstanding, not to exceed $5.0 million.
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'Permitted Liens' means (i) Liens securing Senior Debt that was permitted
by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company
or any Restricted Subsidiary; (iii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
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; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (v) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (iii) of the second paragraph of the covenant entitled
'--Incurrence of Indebtedness and Issuance of Preferred Stock' covering only the
assets acquired with such Indebtedness; (vi) Liens existing on the date of the
Indenture; (vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (viii) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries; (ix) statutory Liens or landlords', carriers', warehousemens',
mechanics', suppliers' or similar Liens incurred in the ordinary course of
business of the Company or any Subsidiary of the Company; (x) easements, minor
title defects, irregularities in title or other charges or encumbrances on
property not interfering in any material respect with the use of such property
by the Company or a Subsidiary of the Company; (xi) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (xii)
liens securing industrial revenue bonds or other tax-favored financing; (xiii)
deposit arrangements entered into in connection with acquisitions or in the
ordinary course of business; (xiv) other Liens securing obligations incurred in
the ordinary course of business which obligations do not exceed $5.0 million at
any one time outstanding; and (xv) any extensions, substitutions, replacements
or renewals of the foregoing.
'Permitted Refinancing Indebtedness' means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness 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
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses and prepayment premiums incurred in connection
therewith) (except to the extent such increase is a result of a simultaneous
incurrence of additional Indebtedness permitted to be incurred under the
Indenture); (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 being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness 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 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 being extended, refinanced, renewed, replaced, defeased or
refunded.
'Permitted Warrant Put Payment' means any payment or distribution (whether
in cash or securities of the Company) made after March 29, 2001 and in
accordance with the following sentence, by the Company or any of its Restricted
Subsidiaries to Parent in order to enable Parent to satisfy Parent's obligations
under the Warrant Agreement and/or the Shareholders Agreement to repurchase the
Put Shares (as defined in the Warrant Agreement) or to repay indebtedness
incurred by Parent to satisfy such obligations. If, after giving pro forma
effect to any Permitted Warrant Put Payment by the Company, 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 Permitted Warrant Put Payment is made is (i) greater than
2.50 to 1 and less than 2.75 to 1, then the Company will be permitted to make a
Permitted Warrant Put Payment in an amount not to exceed $5.0 million, (ii)
greater than or equal to 2.75 to 1 and less than 3.00 to 1, then the
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Company will be permitted to make a Permitted Warrant Put Payment in an amount
not to exceed $10.0 million and (iii) greater than or equal to 3.00 to 1, then
the Company will be permitted to make a Permitted Warrant Put Payment in an
amount not to exceed $15.0 million.
'Public Equity Offering' means a bona fide underwritten sale to the public
of common stock of Parent or the Company pursuant to a registration statement
(other than on Form S-8 or any other form relating to securities issuable under
any benefit plan of Parent or the Company) that is declared effective by the
Commission and results in aggregate gross equity proceeds to the Company of at
least $20.0 million.
'Restricted Investment' means an Investment other than a Permitted
Investment.
'Restricted Subsidiary' of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
'Shareholders Agreement' means the shareholders agreement, dated as of
March 29, 1996, as amended, among Parent, Sunderland, Hamilton Holdings Ltd.
Corporation, Delaware State Employees' Retirement Fund, Declaration of Trust for
Defined Benefit Plans of Zeneca Holdings Inc., Declaration of Trust for Defined
Benefit Plans of ICI American Holdings Inc., Rice Partners II, L.P. and John
Hancock Mutual Life Insurance Company, with respect to certain securities of
Parent.
'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.
'Stated Maturity' means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
'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).
'Sunderland' means Sunderland Industrial Holdings Corporation, a Delaware
corporation.
'Treasury Rate' means the yield to maturity at the time of the computation
of United States Treasury securities with a constant maturity (as compiled by
and published in the most recent Federal Reserve Statistical Release H.15(519)),
which has become publicly available at least two business days prior to the date
fixed for prepayment (or, if such Statistical Release is no longer published,
any publicly available source of similar market data) most nearly equal to the
then remaining average life to the first date on which the Notes are subject to
optional redemption by the Company; provided, however, that if the average life
of such Note is not equal to the constant maturity of the United States Treasury
security for which weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the average life of such Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
'Unrestricted Subsidiary' means (i) 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
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
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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
foregoing conditions and was permitted by the covenant described above under the
caption '--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 '--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 '--Incurrence of Indebtedness and
Issuance of Preferred Stock,' calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence following such
designation.
'Voting Stock' of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
'Warrant Agreement' means the warrant agreement, dated as of March 29,
1996, as amended, among Parent, Rice Partners II, L.P., John Hancock Mutual Life
Insurance Company, Delaware State Employees' Retirement Fund, Declaration of
Trust for Defined Benefit Plans of Zeneca Holdings Inc. and Declaration of Trust
for Defined Benefit Plans of ICI American Holdings Inc., with respect to certain
warrants of Parent.
'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 Restricted Subsidiaries
of such Person.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judical
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the 'IRS') will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judical or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Company recommends that
each holder consult such holder's own tax adviser as to the particular tax
consequences of exchanging such holder's Old Notes for New Notes, including the
applicability and effect of any state, local or foreign tax laws.
The Company believes that the exchange of Old Notes for New Notes pursuant
to the Exchange Offer will not be treated as an 'exchange' for federal income
tax purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer.
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PLAN OF DISTRIBUTION
Each Participating 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
Participating 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 after the Exchange Offer Effectiveness Date, it
will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until , 1997 (90 days after the commencement of the Exchange
Offer), all dealers effecting transactions in the New Notes, whether or not
participating in this distribution, may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the New Notes
by Participating Broker-Dealers. New Notes received by Participating
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 Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the 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 Participating Broker-Dealer
will not be deemed to admit that it is an 'underwriter' within the meaning of
the Securities Act.
LEGAL MATTERS
The validity of the issuance of the New Notes being offered hereby will be
passed upon for Precise and the Guarantors by Winston & Strawn, New York, New
York.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996
and 1995 and for each of the two years in the period ended December 31, 1996
appearing in this Prospectus have been audited by Ernst & Young LLP, independent
auditors, and the information under the captions 'Summary Financial Data' and
'Selected Financial Data' for each of the two years in the period ended December
31, 1996 appearing in this Prospectus have been derived from consolidated
financial statements audited by Ernst & Young LLP, as set forth in their report
thereon appearing elsewhere herein. Such consolidated financial statements,
summary financial data and selected financial data are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of the Company for the year ended December 31,
1994 included in this Prospectus have been audited by Grant Thornton, LLP,
independent auditors, as stated in their report appearing herein.
The financial statements of Tredegar Molded Products Company (adjusted for
certain allocations and assets retained and liabilities assumed by Tredegar
Industries, Inc.) as of December 31, 1995 and 1994 and for each of the two years
in the period ended December 31, 1995 included in this Prospectus have been
audited by Coopers & Lybrand, LLP, independent auditors, as stated in their
report appearing herein.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRECISE TECHNOLOGY, INC.
Report of Independent Auditors............................................................................ F-2
Report of Independent Certified Public Accountants........................................................ F-3
Consolidated Balance Sheets as of June 30, 1997 (unaudited) and
December 31, 1996 and 1995.............................................................................. F-4
Consolidated Statements of Income for the three and six months ended June 30, 1997
and 1996 (unaudited) and for the years ended December 31, 1996, 1995, and 1994.......................... F-5
Consolidated Statements of Stockholder's (Deficit) Equity for the six months ended June 30, 1997
(unaudited) and for the years ended December 31, 1996, 1995, and 1994................................... F-6
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996 (unaudited) and for
the years ended December 31, 1996, 1995, and 1994....................................................... F-7
Notes to the Consolidated Financial Statements............................................................ F-9
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
Report of Independent Accountants......................................................................... F-23
Consolidated Statements of Operations and Changes in Accumulated Deficit
for the years ended December 31, 1995 and 1994.......................................................... F-24
Consolidated Balance Sheets as of December 31, 1995 and 1994.............................................. F-25
Consolidated Statements of Cash Flows for the years ended December 31,
1995 and 1994........................................................................................... F-26
Notes to Consolidated Financial Statements................................................................ F-27
</TABLE>
F-1
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
Precise Technology, Inc.
We have audited the accompanying consolidated balance sheets of Precise
Technology, Inc. (a wholly owned subsidiary of Precise Holding Corporation) as
of December 31, 1996 and 1995, and the related consolidated statements of
income, stockholder's equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 Precise
Technology, Inc. as of December 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Precise Technology, Inc.
We have audited the accompanying consolidated statements of income,
stockholder's equity and cash flows of Precise Technology, Inc. and Subsidiaries
for the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Precise Technology, Inc. and Subsidiaries for the year ended December 31, 1994,
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Pittsburgh, Pennsylvania
February 10, 1995
F-3
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
JUNE 30, ----------- -----------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 1,640,566 $ 1,310,564 $ 25,676
Accounts receivable, net.......................................... 11,662,944 13,121,818 4,589,531
Inventories....................................................... 8,105,110 9,856,257 2,205,035
Prepaid expenses and other........................................ 258,558 440,356 113,574
Deferred income taxes............................................. 1,544,578 1,496,164 165,578
Assets held for sale.............................................. -- 900,000 --
----------- ----------- -----------
TOTAL CURRENT ASSETS........................................... 23,211,756 27,125,159 7,099,394
Property, plant, and equipment, net................................. 41,413,834 42,063,423 11,567,762
Intangible and other assets, net.................................... 29,131,476 29,870,714 195,931
----------- ----------- -----------
TOTAL ASSETS................................................... $93,757,066 $99,059,296 $18,863,087
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
CURRENT LIABILITIES:
Line of credit.................................................... $ -- $ 300,000 $ 2,284,247
Current maturities of long-term debt.............................. 4,496,418 7,641,105 1,083,410
Accounts payable.................................................. 5,220,004 6,896,159 2,900,023
Accrued liabilities............................................... 4,904,507 4,865,381 794,960
Tooling deposits.................................................. 2,212,857 2,063,833 631,899
----------- ----------- -----------
TOTAL CURRENT LIABILITIES...................................... 16,833,786 21,766,478 7,694,539
Long-term debt, less current maturities............................. 84,039,992 56,570,692 4,170,676
Deferred income taxes............................................... 2,234,296 5,189,259 1,388,059
Payable to Sunderland............................................... -- 330,000 210,000
COMMITMENTS AND CONTINGENCIES....................................... -- -- --
Redeemable preferred stock.......................................... -- 8,250,000 --
STOCKHOLDER'S (DEFICIT) EQUITY:
9- 1/2% preferred stock, $10,000 stated value;
500 shares authorized, 331.46 shares issued and
outstanding (retired March 29, 1996)........................... -- -- 3,314,617
Common stock, no par value; 1,000 shares authorized,
and 1 share, 125 shares and 1 share issued and outstanding at
June 30, 1997, December 31, 1996 and December 31, 1995,
respectively................................................... 1,000 3,315,617 1,000
Additional paid-in capital........................................ 3,554,711 3,554,711 1,649,000
Minimum pension liability......................................... -- -- (119,744)
Retained (deficit) earnings....................................... (12,906,719) 82,539 554,940
----------- ----------- -----------
TOTAL STOCKHOLDER'S (DEFICIT) EQUITY........................... (9,351,008) 6,952,867 5,399,813
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY........... $93,757,066 $99,059,296 $18,863,087
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes
F-4
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ------------------------- ---------------------------------------
1997 1996 1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $25,470,151 $28,253,341 $51,794,814 $37,342,818 $93,289,323 $33,542,305 $33,156,938
Cost of sales........... 21,254,890 23,600,848 42,867,874 30,756,987 76,477,016 25,876,623 26,807,339
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 4,215,261 4,652,493 8,926,940 6,585,831 16,812,307 7,665,682 6,349,599
Selling, general, and
administrative........ 2,133,774 2,060,738 4,272,119 3,160,738 7,262,187 4,454,271 3,915,469
Plant closure costs..... -- -- -- -- 670,600 -- --
Amortization of
intangible assets..... 319,875 332,937 608,255 375,438 1,042,533 37,013 26,073
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income........ 1,761,612 2,258,818 4,046,566 3,049,655 7,836,987 3,174,398 2,408,057
Other expense (income):
Interest expense...... 2,039,572 1,899,299 3,874,518 2,160,359 6,131,234 810,174 956,160
Other................. 895,709 6,971 891,870 4,578 (25,423) 147,866 (71,896)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) income before
income taxes and
extraordinary item.... (1,173,669) 352,548 (719,822) 884,718 1,731,176 2,216,358 1,523,793
Provision for income
taxes................. 328,413 281,471 614,619 640,718 1,264,854 941,426 573,778
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income before
extraordinary item.... (1,502,082) 71,077 (1,334,441) 244,000 466,322 1,274,932 950,015
Extraordinary item,
net of tax............ (4,840,500) -- (4,840,500) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income....... $(6,342,582) $ 71,077 $(6,174,941) $ 244,000 $ 466,322 $ 1,274,932 $ 950,015
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes
F-5
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
9 1/2% COMMON STOCK ADDITIONAL MINIMUM RETAINED
-------------------- ------------------- PAID-IN PENSION (DEFICIT)
SHARES AMOUNT SHARES AMOUNTS CAPITAL LIABILITY EARNINGS TOTAL
------ ----------- ------ ---------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... -- $ -- 1 $ 1,000 $1,649,000 $ -- $ (1,355,118) $ 294,882
Issuance of preferred
stock................ 331 3,314,617 -- -- -- -- -- 3,314,617
Minimum pension
liability............ -- -- -- -- -- (164,570 ) -- (164,570)
Net income............. -- -- -- -- -- -- 950,015 950,015
------ ----------- ------ ---------- ---------- --------- ------------ -----------
Balance at December 31,
1994................... 331 3,314,617 1 1,000 1,649,000 (164,570 ) (405,103) 4,394,944
Dividends.............. -- -- -- -- -- -- (314,889) (314,889)
Minimum pension
liability............ -- -- -- -- -- 44,826 -- 44,826
Net income............. -- -- -- -- -- -- 1,274,932 1,274,932
------ ----------- ------ ---------- ---------- --------- ------------ -----------
Balance at December 31,
1995................... 331 3,314,617 1 1,000 1,649,000 (119,744 ) 554,940 5,399,813
Capital contribution... -- -- -- -- 750,000 -- -- 750,000
Exchange of stock...... (331) (3,314,617) 124 3,314,617 -- -- -- --
Dividends.............. -- -- -- -- -- -- (938,723) (938,723)
Minimum pension
liability............ -- -- -- -- -- 119,744 -- 119,744
Discounts related to
warrants,
net of tax........... -- -- -- -- 1,155,711 -- -- 1,155,711
Net income............. -- -- -- -- -- -- 466,322 466,322
------ ----------- ------ ---------- ---------- --------- ------------ -----------
Balance at December 31,
1996................... -- -- 125 3,315,617 3,554,711 -- 82,539 6,952,867
Redemption of stock
(unaudited).......... -- -- (124) (3,314,617) -- -- -- (3,314,617)
Dividends
(unaudited).......... -- -- -- -- -- -- (6,814,317) (6,814,317)
Net loss (unaudited)... -- -- -- -- -- -- (6,174,941) (6,174,941)
------ ----------- ------ ---------- ---------- --------- ------------ -----------
Balance at June 30, 1997
(unaudited)............ -- $ -- 1 $ 1,000 $3,554,711 $ -- $(12,906,719) $(9,351,008)
------ ----------- ------ ---------- ---------- --------- ------------ -----------
------ ----------- ------ ---------- ---------- --------- ------------ -----------
</TABLE>
See accompanying notes
F-6
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.................. $ (6,174,941) $ 244,000 $ 466,322 $ 1,274,932 $ 950,015
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Extraordinary item, net of
tax.......................... 4,840,500 -- -- -- --
Depreciation and
amortization................. 3,300,974 2,093,801 5,353,253 1,445,953 1,061,628
Amortization of original issue
discount and financing
fees......................... 400,939 183,000 669,945 -- --
Loss (gain) on sale of
equipment.................... 42,119 5,498 (36,628) 140,637 (61,809)
Provision for loss on sale of
Rochester plant.............. -- -- 301,000 -- --
Deferred income taxes.......... (685,979) 113,574 348,388 527,426 368,061
Changes in assets and
liabilities:
Accounts receivable.......... 1,458,874 1,660,983 3,021,575 800,300 (1,785,531)
Inventories.................. 1,751,147 (85,673) (418,504) (79,888) 373,748
Other assets................. (106,386) (323,075) 367,405 265,428 (60,694)
Accounts payable............. (1,676,155) 1,120,388 (808,771) (460,851) 1,570,383
Tooling deposits............. 149,024 (2,989) 350,107 (213,853) (1,032,249)
Accrued liabilities.......... 816,594 896,362 (11,997) (530,181) (56,120)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities....................... 4,116,710 5,905,869 9,602,095 3,169,903 1,327,432
INVESTING ACTIVITIES
Capital expenditures............... (1,729,502) (955,063) (2,175,425) (1,045,756) (2,075,197)
Proceeds from sale of fixed
assets........................... 1,315,400 65,500 346,481 47,758 106,872
Net cash used in business
acquisitions..................... -- (63,801,356) (63,801,356) -- --
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities....................... (414,102) (64,690,919) (65,630,300) (997,998) (1,968,325)
FINANCING ACTIVITIES
Borrowings on revolving line of
credit........................... 11,800,000 4,600,276 25,941,687 34,981,655 32,563,998
Payments on revolving line of
credit........................... (5,100,000) (5,884,523) (27,925,934) (35,166,657) (31,919,296)
Proceeds from bond issuance........ 75,000,000 -- -- -- --
Repayment of long-term debt........ (60,207,032) (5,773,386) (7,605,189) (1,902,301) (1,226,699)
Prepayment of debt premiums........ (2,398,940) -- -- -- --
Payment of financing costs......... (4,087,700) (4,743,748) (4,743,748) -- (68,149)
Redemption of common stock......... (3,314,617) -- -- -- --
Redemption of preferred stock...... (8,250,000) -- -- -- --
Dividends paid on common and
preferred stock.................. (6,814,317) -- (938,723) (314,889) --
Proceeds from senior term notes.... -- 40,000,000 40,000,000 -- --
Proceeds from senior subordinated
notes............................ -- 20,000,000 20,000,000 -- --
Proceeds from issuance of preferred
stock............................ -- 8,250,000 8,250,000 -- --
Proceeds from term note............ -- 3,585,000 3,585,000 200,000 1,300,000
Capital contribution............... -- 750,000 750,000 -- --
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
financing activities............. (3,372,606) 60,783,619 57,313,093 (2,202,192) 649,854
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash.... 330,002 1,998,569 1,284,888 (30,287) 8,961
Cash at beginning of period........ 1,310,564 25,676 25,676 55,963 47,002
------------ ------------ ------------ ------------ ------------
Cash at end of period.............. $ 1,640,566 $ 2,024,245 $ 1,310,564 $ 25,676 $ 55,963
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes
F-7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------
1997 1996 1996 1995 1994
---------- ----------- ----------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest......................... $3,244,632 $ 1,038,822 $ 5,197,957 $828,857 $ 796,379
---------- ----------- ----------- -------- ----------
---------- ----------- ----------- -------- ----------
Income taxes..................... $ 339,323 $ 384,525 $ 773,528 $293,582 $ 41,016
---------- ----------- ----------- -------- ----------
---------- ----------- ----------- -------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES
Capital lease agreements for
equipment...................... $ 729,586 $ 2,209,982 $ 4,200,501 $535,812 $2,328,455
---------- ----------- ----------- -------- ----------
---------- ----------- ----------- -------- ----------
Assets acquired and liabilities
assumed in connection with
acquisitions
Fair value of assets
acquired..................... $ -- $81,200,112 $81,200,112 $ -- $ --
Liabilities assumed............ -- 12,248,954 12,248,954 -- --
---------- ----------- ----------- -------- ----------
Cash paid...................... -- 68,951,158 68,951,158 -- --
Less fees and expenses......... -- (4,743,748) (4,743,748) -- --
Less cash acquired............. -- (406,054) (406,054) -- --
---------- ----------- ----------- -------- ----------
Net cash paid for
acquisitions................. $ -- $63,801,356 $63,801,356 $ -- $ --
---------- ----------- ----------- -------- ----------
---------- ----------- ----------- -------- ----------
Issuance of preferred stock for
cancellation of debt
Note reduction................... $ -- $ -- $ -- $ -- $2,862,500
Accrued interest reduction....... -- -- -- -- 452,117
---------- ----------- ----------- -------- ----------
Preferred stock issued........... $ -- $ -- $ -- $ -- $3,314,617
---------- ----------- ----------- -------- ----------
---------- ----------- ----------- -------- ----------
</TABLE>
See accompanying notes
F-8
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND ACTIVITIES
The accompanying consolidated financial statements include the accounts of
Precise Technology, Inc. (Company) and its wholly owned subsidiaries.
Significant intercompany transactions have been eliminated.
The Company is a wholly owned subsidiary of Precise Holding Corporation (Precise
Holding) which is a majority-owned subsidiary of Sunderland Industrial Holdings
Corporation (Sunderland).
The Company is a full-service custom injection molder of highly engineered,
close tolerance, precision plastic products. The Company also has extensive mold
manufacturing capabilities. The Company's marketing focus is to service a
diverse base of original equipment manufacturers in the health care, packaging,
and consumer/industrial markets. The Company has nine facilities located
throughout the Eastern and Midwestern United States.
INTERIM FINANCIAL STATEMENTS
The financial statements of the Company for the three and six months ended June
30, 1997 and 1996 and the related footnote information are unaudited but, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments and accruals) which the Company considers necessary for a
fair presentation of the information set forth therein. Results of operations
for interim periods are not necessarily indicative of the results that may be
expected for the entire year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of 90 days
or less at the time of original purchase to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined on the
first-in, first-out (FIFO) method. Market is net realizable value.
REVENUE RECOGNITION
Finished Products--Revenue from product sales is recognized at the time products
are shipped.
Tooling and Dies--Cost of tooling and dies purchased or produced are included in
inventory. Tooling deposits represent progress billings related to the
manufacture of tools and dies for customers. Income from contracts for the
manufacture of customer tooling is accounted for under the completed-contract
method of accounting, which recognizes revenue upon completion of contracts.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Contracts are considered substantially
complete upon acceptance by the customer.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation is provided on the straight-line method based on
estimated useful lives, as follows:
Building and improvements 5-40 years
Machinery and equipment 3-10 years
F-9
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Leasehold improvements are amortized over the shorter of the useful life of the
asset or the term of the lease. Expenses for repairs, maintenance and renewals
are charged to operations as incurred. Expenditures which improve an asset or
extend its useful life are capitalized.
INTANGIBLES
Goodwill--Goodwill represents the excess of amounts paid and liabilities assumed
over the fair value of identifiable tangible and intangible assets acquired.
This amount is amortized using the straight-line method over a period of 25
years. The Company evaluates the carrying value of goodwill for potential
impairment on an ongoing basis. Such evaluation considers projected future
operating results, trends and other circumstances. When factors indicate that
goodwill could be impaired, the Company uses an estimate of the related
business' undiscounted future cash flows over the remaining life of the goodwill
in measuring whether the goodwill is recoverable. If such an analysis indicates
that impairment has occurred, the Company adjusts the book value of the goodwill
to fair value.
Deferred Financing Cost--Deferred financing costs relate to the costs of
obtaining financing. These costs are being amortized over the period the related
loans are outstanding.
Noncompete Agreements--Noncompete agreements relate to contracts executed in
conjunction with the acquisitions. Such agreements are being amortized over the
life of the contracts.
INCOME TAXES
The Company is a member of a controlled group of companies. As such, annual
elections are made to share credits and exemptions as allowed under federal
income tax laws. Deferred taxes are provided for the tax consequences of
temporary differences between financial statement carrying amounts and the tax
bases of assets and liabilities. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company adjusted their estimate for accrued workers' compensation expense as
of March 31, 1997 due to favorable claims experience. The adjustment increased
net income, by approximately $201,000 for the six months ended June 30, 1997.
RECLASSIFICATION
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
2. ACQUISITIONS
(A) UNITY MOLD CORPORATION (UNITY)
On January 25, 1996, the Company acquired all of the outstanding common stock of
Unity for $3,710,000 including transaction costs of approximately $125,000.
Unity operates in the same lines of business as the Company. The results of
operations for Unity are included in the consolidated statement of income from
the date of acquisition. The purchase price and transaction costs were primarily
funded through the issuance of a $3,585,000 term note. The acquisition was
accounted for using the purchase method of accounting and
F-10
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
(A) UNITY MOLD CORPORATION (UNITY) (CONTINUED)
accordingly, the purchase price and transaction costs were allocated to the
assets acquired and liabilities assumed based upon their relative fair values.
The Company recorded goodwill of approximately $1,610,000, in connection with
the acquisition which is being amortized on a straight-line basis over 25 years.
(B) TREDEGAR MOLDED PRODUCTS (TREDEGAR)
On March 29, 1996, the Company purchased all of the issued and outstanding
common stock of Tredegar and its wholly owned subsidiary, Polestar Plastics
Manufacturing Co., for $65,241,000 including transaction costs of approximately
$5,241,000. The results of operations for Tredegar are included in the
consolidated statement of income from the date of acquisition. The purchase
price and transaction costs were funded through the issuance of two senior term
notes of $22,500,000 and $17,500,000, $20,000,000 in senior subordinated notes,
$5,750,000 in Series A cumulative exchangeable preferred stock, $2,500,000 in
Series B cumulative redeemable preferred stock, and a $750,000 capital
contribution from Precise Holding. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price and
transaction costs were allocated to the assets acquired and liabilities assumed
based upon their relative fair values. The Company recorded goodwill of
approximately $24,400,000 in connection with the acquisition, which is being
amortized on a straight-line basis over 25 years.
The following table sets forth the pro forma unaudited results of operations for
each period in which acquisitions occurred and for the immediately preceding
period as if the above acquisitions were consummated at the beginning of the
immediately preceding period.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net sales.......................................... $114,658,000 $129,692,000
Net income (loss).................................. $ 692,000 $ (661,000)
</TABLE>
3. ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS
Accounts receivable are presented net of allowance for doubtful accounts of
$60,000, $60,000 and $100,000 as of June 30, 1997, December 31, 1996 and 1995,
respectively. Management continually evaluates its accounts receivable and
adjusts its allowance for doubtful accounts for changes in potential credit
risk. For the six months ended June 30, 1997, sales to one customer accounting
for 10% or more of net sales were $9,910,000. For the year ended December 31,
1996 sales to two customers accounting for 10% or more of net sales were
$14,085,000 and $12,263,000. For the years ended December 31, 1995 and 1994,
sales to two customers accounting for 10% or more of net sales were $10,106,000
and $3,643,000 in 1995 and $6,848,000 and $6,288,000 in 1994. The Company does
not require collateral for its trade accounts receivable and maintains an
allowance for doubtful accounts.
4. INVENTORIES
The major components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished products............................... $ 2,590,062 $ 2,971,774 $ 742,462
Raw materials................................... 3,205,023 4,208,211 773,149
Tooling and dies................................ 2,310,025 2,676,272 689,424
----------- ----------- -----------
$ 8,105,110 $ 9,856,257 $ 2,205,035
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-11
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................ $ 2,193,750 $ 2,193,750 $ 686,609
Buildings and leasehold improvements............ 9,067,575 10,229,961 5,214,301
Machinery and equipment......................... 39,715,312 37,503,277 9,866,999
----------- ----------- -----------
50,976,637 49,926,988 15,767,909
Accumulated depreciation and amortization....... (9,562,803) (7,863,565) (4,200,147)
----------- ----------- -----------
Net property, plant, and equipment.............. $41,413,834 $42,063,423 $11,567,762
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Depreciation and amortization expense on property, plant, and equipment was
approximately $2,667,000, $1,735,000, $4,213,000, $1,154,000, and $1,013,000 for
the six months ended June 30, 1997 and 1996 and for the years ended 1996, 1995,
and 1994, respectively.
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill........................................ $25,716,823 $26,010,395 $ --
Deferred financing costs........................ 4,087,700 4,743,748 68,148
Noncompete agreements........................... 556,666 556,666 --
Intangible pension asset and other.............. 393,850 147,235 161,528
----------- ----------- -----------
Total........................................... 30,755,039 31,458,044 229,676
Accumulated amortization........................ (1,623,563) (1,587,330) (33,745)
----------- ----------- -----------
Intangible and other assets, net................ $29,131,476 $29,870,714 $ 195,931
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
In connection with the Refinancing Transactions, the Company expensed
approximately $3,829,000 of unamortized deferred financing cost, related to the
Prior Credit Agreement and the Retired Notes. Such costs are included in the
Company's extraordinary loss, net of tax, for the six months ended June 30,
1997. Financing costs incurred in connection with obtaining the 11 1/8% Senior
Subordinated Notes (Notes) and the New Credit Agreement (NCA) of approximately
$4,088,000 have been deferred by the Company as of June 30, 1997 and will be
amortized over the period the Notes and the NCA are outstanding.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------
1997 1996 1995
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
11 1/8% Senior Subordinated Notes (a)............ $75,000,000 $ -- $ --
New Credit Agreement(b).......................... 7,000,000 -- --
Prior Credit Agreement (c):
Term Note A.................................... -- 21,562,500 --
Term Note B.................................... -- 17,500,000 --
Retired Notes (d)................................ -- 20,000,000 --
Other notes (e).................................. 457,040 585,261 1,803,936
Capitalized lease obligations (Note 11).......... 6,079,370 6,366,091 3,450,150
----------- ----------- ----------
88,536,410 66,013,852 5,254,086
Less:
Current maturities of long-term debt........... (4,496,418) (7,641,105) (1,083,410)
Unamortized discount on Retired Notes.......... -- (1,802,055) --
----------- ----------- ----------
$84,039,992 $56,570,692 $4,170,676
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
F-12
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
(A) 11 1/8% SENIOR SUBORDINATED NOTES DUE 2007 (NOTES)
On June 13, 1997, the Company issued $75,000,000 of Notes. The Company used the
net proceeds from the issuance of the Notes and approximately $8,200,000 of
borrowings under its New Credit Agreement to extinguish certain existing
indebtedness, redeem its redeemable preferred stock, repurchase certain shares
of its common stock, make a distribution to its Parent, and pay fees and
expenses related to these Refinancing Transactions. These Refinancing
Transactions resulted in the recording of an extraordinary loss during June 1997
of approximately $4,840,500, net of tax.
The Notes accrue interest at the rate of 11 1/8% per annum and are payable
semi-annually in arrears on June 15 and December 15, commencing on December 15,
1997.
The Notes are subordinated in right of payment to all existing and future senior
indebtedness of the Company and are guaranteed on a senior subordinated basis by
all of the Company's subsidiaries.
The Notes are redeemable at the option of the Company on and after June 15, 2002
at prices decreasing from 105.563% of the principal amount thereof to par on
June 15, 2005 and thereafter. The Company is required to redeem the outstanding
notes based upon certain events as described in the Note Indenture.
The Note Indenture requires the Company and its subsidiaries to comply with
certain restrictive covenants, including a restriction on dividends and
limitations on the incurrence of indebtedness and the issuance of preferred
stock.
(B) NEW CREDIT AGREEMENT (NCA)
On June 13, 1997, the Company entered into a $30,000,000 NCA with a financial
institution. Borrowings under the NCA may be used to fund the Company's working
capital requirements, finance certain permitted acquisitions and general
corporate requirements of the Company and pay fees and expenses related to the
foregoing. Up to $2,000,000 of the total NCA commitment is available for the
issuance of standby letters of credit, which borrowings reduce amounts available
under the NCA. The Company is required to pay a .50% fee on the average daily
unused portion of the NCA. The Company is also subject to mandatory prepayment
terms as described in the NCA. The NCA expires in 2002.
Borrowings under the NCA accrue interest, at the option of the Company, at
either LIBOR (5.69% at June 30, 1997) plus 2.5% or the financial institution's
prime rate (8.5% at June 30, 1997) plus 1.5%.
The Company has classified approximately $5,000,000 of borrowings under the NCA
as long-term as of June 30, 1997 due to its ability and intent to maintain such
borrowings on a long-term basis.
The NCA is guaranteed on a senior basis by the Company's Parent and by all of
the Company's subsidiaries and is collateralized by substantially all of the
Company's and its subsidiaries' assets. The NCA contains certain covenants which
require the Company to maintain leverage ratios, fixed charge and interest
coverage ratios, and minimum net worth. The NCA further limits capital
expenditures, declaration of dividends and other restricted payments, and
additional indebtedness. The NCA also restricts the sale or tranferring of the
Company's assets or capital stock.
F-13
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
(C) PRIOR CREDIT AGREEMENT (PCA)
On March 28, 1996, the Company entered into a $53,000,000 PCA with a financial
institution that was comprised of a $13,000,000 revolving line of credit and two
term notes (A and B) of $22,500,000 and $17,500,000, respectively.
The PCA obligations of $37,257,000, including accrued interest of $250,000, were
extinguished with the proceeds of the Notes and the NCA on June 13, 1997. The
extinguishment required a termination fee of approximately $221,000 which is
included in the Company's extraordinary loss, net of tax for the six months
ended June 30, 1997.
(D) RETIRED NOTE AGREEMENT (RNA)
On March 29, 1996, the Company issued two $10,000,000 subordinated notes under
the RNA. The RNA obligations of $20,000,000 were extinguished with the proceeds
of the Notes and the NCA on June 13, 1997. The extinguishment required
prepayment premiums of $2,178,000 which are included in extraordinary loss, net
of tax, for the six months ended June 30, 1997.
The subordinated note holders also entered into a Warrant Purchase Agreement
pursuant to which, in connection with their purchase of the subordinated notes,
one note holder acquired one warrant exercisable to purchase 570 shares of
Precise Holding common stock and the other note holder acquired two warrants
exercisable to purchase 371 and 199 shares of Precise Holding common stock,
respectively. The warrants can be exercised at any time up to March 29, 2006
for an exercise price of $.01 per share. The warrants were originally recorded
at fair value. The value ascribed to the warrants to purchase the Precise
Holding common stock resulted in a discount to the subordinated notes and an
addition to paid-in capital of approximately $1,900,000. The addition to
paid-in capital is net of tax of approximately $744,000. The discount was being
amortized over the life of the subordinated notes using the interest method
yielding an effective interest rate of 14.12%. The unamortized debt discount of
approximately $1,744,000 was expensed at June 13, 1997 in connection with the
RNA Extinguishment and is included in the Company's extraordinary loss, net of
tax, for the six months ended June 30, 1997.
(E) OTHER NOTES
The Company has various other notes of approximately $457,000 at June 30, 1997.
The notes are payable in monthly installments ranging from $3,756 to $7,697
commencing March 1, 1995 through March 2, 2000. The notes accrue interest at
rates varying from 4.8% to 8.15%.
Five-year maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DEBT OBLIGATIONS
----------------
<S> <C>
Six months ended December 31, 1997....................... $ 3,224,993
1998..................................................... 2,539,151
1999..................................................... 1,795,047
2000..................................................... 813,913
2001..................................................... 163,306
2002..................................................... 5,000,000
Thereafter............................................... 75,000,000
----------------
$ 88,536,410
----------------
----------------
</TABLE>
F-14
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents--The carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value.
Long-term debt--The carrying amounts of the Company's borrowings under its
short-term revolving credit agreements approximate their fair value. The fair
values of the Company's long-term debt are estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments at
June 30, 1997, December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------------------
1997 1996 1995
------------------------- ------------------------- -----------------------
(UNAUDITED)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents..... $ 1,640,566 $ 1,640,566 $ 1,310,564 $ 1,310,564 $ 25,676 $ 25,676
Line of credit................ $ -- $ -- $ 300,000 $ 300,000 $2,284,247 $2,284,247
Long-term debt................ $88,536,410 $88,536,410 $64,211,797 $64,211,797 $5,254,086 $5,254,086
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Prior to October 31, 1995, the Company sponsored two noncontributory defined
benefit pension plans covering substantially all union and tool shop employees.
Benefits were generally based on years of service and benefit rates stated in
the related plan agreements. The Company made annual contributions to these
plans of at least the minimum funding required by the Employee Retirement Income
Security Act of 1974. Pension costs were determined by an independent actuary
using the projected unit credit cost method. Effective October 31, 1995, the
Company amended the defined benefit pension plan covering tool shop employees to
curtail the plan. Each participant had the option of receiving either a lump-sum
distribution, or a direct distribution to another qualified plan. No gain or
loss occurred as a result of the curtailment. As of December 31, 1996, all plan
assets have been distributed to the tool shop employees. The union plan
continues to accrue benefits and has not been amended.
The plan's assets are held by independent trustees and are invested primarily in
guaranteed fixed income insurance contracts. The weighted average discount rate
used in determining the actuarial present value of the projected benefit
obligation was 8.1% and 8%, respectively, at December 31, 1996 and 1995. The
expected long-term rate of return on plan assets was 8.5% for both 1996 and
1995.
The Company's pension expense for its defined benefit pension plan consists of
the following components for the six months ended June 30, 1997 and for the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------
1997 1996 1995 1994
----------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Service cost for benefits earned during the year................ $ 16,232 $ 34,515 $ 48,665 $ 52,850
Interest cost on projected benefit obligation................... 44,146 82,964 112,397 103,587
Actual return on plan assets.................................... (47,876) (88,642) (126,099) (77,375)
Net amortization and deferral................................... 7,060 15,266 14,527 (18,567)
----------- -------- --------- --------
Net periodic pension cost $ 19,562 $ 44,103 $ 49,490 $ 60,495
----------- -------- --------- --------
----------- -------- --------- --------
</TABLE>
F-15
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following sets forth the funded status of the Company's defined benefit plan
and amounts recognized in the accompanying balance sheets as of December 31:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Vested benefit obligation......................................................... $1,056,958 $1,413,493
-------------- --------------
-------------- --------------
Accumulated benefit obligation (ABO).............................................. $1,113,079 $1,488,393
Plan assets at estimated fair value............................................... 1,119,555 1,524,796
-------------- --------------
Plan assets in excess of ABO...................................................... 6,476 36,403
Unrecognized net loss............................................................. 196,344 237,309
Unrecognized prior service cost................................................... 97,795 105,755
Minimum liability adjustment...................................................... -- (313,920)
-------------- --------------
Prepaid pension asset............................................................. $ 300,615 $ 65,547
-------------- --------------
-------------- --------------
</TABLE>
In addition, the Company sponsors a defined contribution 401(k) plan which
covers substantially all non-union employees at the Tredegar and Unity
facilities. Under the terms of the 401(k) plan, the Company matches 25% of
employees' contributions up to 6% of employees' salaries. Contributions made by
the Company to the defined contribution 401(k) plan were approximately $75,000,
$10,000 and $69,000 for the six months ended June 30, 1997 and 1996, and for the
year ended December 31, 1996, respectively.
The Company also sponsors a defined contribution 401(k) plan which covers
substantially all non-union employees at the other Company facilities. Under the
terms of the 401(k) plan, the Company matches 50% of employees' contributions up
to 5% of employee salary, and provides a discretionary contribution of 3.5% of
eligible employees' salaries to the plan, for a combined total of up to 6% of
eligible employees' earnings. Contributions made by the Company to the defined
contribution 401(k) plan were approximately $178,000, $161,000, $329,000,
$257,000 and $138,000 for the six months ended June 30, 1997 and 1996 and for
the years ended December 31, 1996, 1995 and 1994, respectively.
F-16
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Income tax expense consisted of the following for the six months ended June 30,
1997 and 1996 and for the years ended December 31:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996 1996 1995 1994
---------------- ---------------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................... $ 626,385 $ 294,730 $ 586,466 $275,000 $145,297
State................................. 278,821 166,587 330,000 139,000 60,420
---------------- ---------------- ---------- -------- --------
905,206 461,317 916,466 414,000 205,717
Deferred:
Federal............................... (253,332) 211,437 412,388 472,569 315,015
State................................. (37,255) (32,036) (64,000) 54,857 53,046
---------------- ---------------- ---------- -------- --------
(290,587) 179,401 348,388 527,426 368,061
---------------- ---------------- ---------- -------- --------
Total income taxes...................... $ 614,619 $ 640,718 $1,264,854 $941,426 $573,778
---------------- ---------------- ---------- -------- --------
---------------- ---------------- ---------- -------- --------
</TABLE>
A reconciliation of U.S. income tax computed at the statutory rate and actual
expense is as follows for the six months ended June 30, 1997 and 1996 and for
the years ending December 31:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
---------------------
1997 1996 1996 1995 1994
--------- -------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Amount computed at statutory rate......... $(245,000) $301,000 $ 589,000 $754,000 $518,000
State and local taxes less applicable
federal income tax...................... (38,000) 80,000 156,000 212,000 91,000
Goodwill and other amortization........... 241,000 246,000 367,000 -- --
Expiration of state tax net operating loss
carryforward............................ 346,000 -- -- -- --
Other..................................... 310,619 13,718 152,854 (24,574) (35,222)
--------- -------- ---------- -------- --------
$ 614,619 $640,718 $1,264,854 $941,426 $573,778
--------- -------- ---------- -------- --------
--------- -------- ---------- -------- --------
</TABLE>
The components of the net deferred tax asset and liability at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
JUNE 30, 1997 ---------- ----------
-------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Receivables................................................ $ 120,197 $ 111,271 $ 49,746
Inventory.................................................. 303,242 257,345 65,406
Accrued expenses........................................... 1,607,034 1,529,244 103,589
Related party financing costs.............................. 235,680 -- --
Plant closing costs........................................ 342,522 643,006 --
Federal net operating losses............................... 1,756,000 -- --
State net operating losses................................. 248,160 191,969 145,089
Pension.................................................... 169,297 142,519 100,896
AMT credit carryforward.................................... 33,436 33,433 56,109
------------- ---------- ----------
Total deferred tax assets.................................... 4,815,568 2,908,787 520,835
Deferred tax liabilities:
Inventory.................................................. 125,497 124,021 --
Property, plant, and equipment............................. 5,379,789 5,741,059 1,628,480
Pension.................................................... -- -- 114,836
Debt discount.............................................. -- 736,802 --
------------- ---------- ----------
Total deferred tax liabilities............................... 5,505,286 6,601,882 1,743,316
------------- ---------- ----------
Net deferred tax liabilities................................. $ 689,718 $3,693,095 $1,222,481
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
F-17
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The Company had net operating losses for state income tax purposes at June 30,
1997, December 31, 1996 and 1995 of approximately $4,700,000, $3,711,000 and
$1,557,000, respectively. The state net operating losses can be carried forward
and used to offset the Company's taxable income in certain states. The state
loss carryforwards are subject to limitations as to the amount and timing of
their use. For financial reporting purposes, a valuation allowance has not been
recognized to offset the deferred tax assets relating to those carryforwards at
June 30, 1997, December 31, 1996 and 1995. The state net operating loss
carryforwards will expire beginning in 1997 and ending in 2009.
The Company had minimum tax credit carryforwards for federal tax purposes at
June 30, 1997, December 31, 1996 and 1995 of approximately $33,000, $33,000 and
$56,000, respectively. The minimum tax credits can be carried forward
indefinitely.
The Company is included in the consolidated federal income tax return of
Sunderland. For financial statement purposes, the Company calculates and reports
its current and deferred income taxes as if a separate return was filed by the
Company. The Company's federal taxable income can be offset by Sunderland's
federal net operating losses. The Company reimburses Sunderland for the tax
benefit it receives from Sunderland's net operating losses. The payable to
Sunderland for the utilization of such tax benefit was $0, $330,000 and $210,000
as of June 30, 1997, December 31, 1996 and 1995, respectively.
11. COMMITMENTS AND CONTINGENCIES
(A) LEASE COMMITMENTS
The Company leases certain production and office equipment and vehicles. These
leases are subject to renewal options for varying periods. Future minimum
payments under capital leases and noncancelable operating leases with initial or
remaining terms of one year or more consisted of the following as of June 30,
1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
Six months ended December 31, 1997......................................... $ 1,378,564 $ 814,441
1998....................................................................... 2,708,902 1,241,548
1999....................................................................... 1,779,493 1,185,615
2000....................................................................... 872,192 854,197
2001....................................................................... 188,394 316,126
2002....................................................................... -- 103,106
Thereafter................................................................. -- --
----------- ----------
Total minimum lease payments $ 6,927,545 $4,515,033
----------
----------
Less amounts representing interest......................................... (848,174)
-----------
Present value of net minimum lease payments................................ 6,079,370
Less current maturities of capital lease obligations....................... (2,329,361)
-----------
Capital lease obligations.................................................. $ 3,750,010
-----------
-----------
</TABLE>
The Company has two leasing lines of credit in the amounts of $3,200,000 and
$5,000,000, which expire on June 30, 1997 and November 1, 1997, respectively.
These leasing lines of credit are available to support the Company's capital
expenditures for certain machinery and equipment. As of June 30, 1997, the
Company had approximately $1,544,000 of borrowings outstanding under the $3.2
million lease line, which was not extended beyond the June 30, 1997 expiration
date. The Company has incurred no borrowings under the $5 million lease line.
Operating lease expense under such arrangements was $669,000, $536,000,
$1,219,600, $412,700 and $497,300 for the six months ended June 30, 1997 and
1996 and for the years ended December 31, 1996, 1995 and 1994, respectively.
F-18
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(A) LEASE COMMITMENTS
Capitalized leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
JUNE 30, --------------- -----------
1997
------------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment............... $ 9,444,000 $ 8,656,000 $ 4,541,000
Leasehold improvements................ 225,000 799,000 799,000
------------------ --------------- -----------
9,669,000 9,455,000 5,340,000
Accumulated amortization.............. (2,034,000) (1,547,000) (1,010,000)
------------------ --------------- -----------
$ 7,635,000 $ 7,908,000 $ 4,330,000
------------------ --------------- -----------
------------------ --------------- -----------
</TABLE>
Amortization expense related to capitalized leases was approximately $497,000,
$324,000, $749,000, $576,000, and $383,000 for the six months ended June 30,
1997 and 1996 and for the years ended December 31, 1996, 1995, and 1994,
respectively.
(B) LITIGATION
The Company is involved from time to time in lawsuits that arise in the normal
course of business. The Company actively and vigorously defends all lawsuits.
Management believes that there are no lawsuits that will have a material affect
on the Company's financial position.
(C) COLLECTIVE BARGAINING AGREEMENT
Approximately 4% of the Company's employees are covered under a collective
bargaining agreement which expires in February 1998.
12. REDEEMABLE PREFERRED STOCK
Redeemable Preferred Stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
JUNE 30, ----------- -----------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Series A cumulative exchangeable preferred stock, no par value; 575
shares authorized, issued and outstanding $ -- $ 5,750,000 $ --
Series B cumulative redeemable preferred stock, $10,000 stated value;
250 shares authorized, issued and outstanding -- 2,500,000 --
----------- ----------- -----------
$ -- $ 8,250,000 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Effective March 29, 1996 in connection with the Tredegar acquisition, the
Company authorized and issued 575 shares of Series A cumulative exchangeable
preferred stock without par value (Series A preferred stock) for consideration
of $5,750,000 (liquidation preference $10,000 per share). The Series A preferred
stock was redeemed with the proceeds of the Notes and the NCA on June 13, 1997.
In connection with their purchase of Series A preferred stock, the stockholders
also purchased 250 shares of Precise Holding common stock and $.01 per share
warrants to acquire 575 shares of common stock for an aggregate consideration of
$750,000. The warrants can be exercised at any time through March 29, 2006. The
$750,000 was subsequently contributed to the Company as a capital contribution
by Precise Holding.
Effective March 29, 1996 in connection with the Tredegar acquisition, the
Company authorized and issued 250 shares of Series B cumulative redeemable
preferred stock (Series B stock) for consideration of $2,500,000 with a stated
value of $10,000 per share (liquidation preference) under a securities purchase
agreement. The Series B stock was redeemed with the proceeds of the Notes and
the NCA on June 13, 1997.
F-19
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. PREFERRED STOCK
On March 29, 1996, 331.46 shares of 9-1/2% preferred stock ('9-1/2% Preferred
Stock') in the Company was exchanged by its holder for like-kind preferred stock
in Precise Holding. Precise Holding simultaneously surrendered and retired the
9-1/2% Preferred Stock in the Company in exchange for an additional 124 shares
of common stock in the Company.
14. PLANT CLOSING COSTS
(A) GRAHAM, NORTH CAROLINA
In connection with the acquisition of Tredegar, the Company decided to close its
Graham, North Carolina plant and relocate the activities to other Company
facilities. The Company incurred approximately $1,400,000 of costs related to
the Graham closing for employee termination benefits, noncancellable operating
lease accruals, and certain other costs. The closing costs were allocated to the
acquisition purchase price. Approximately $528,000 of such closing costs have
been paid as of June 30, 1997.
Additionally, costs to relocate machinery and equipment from the Graham Plant to
the Company's other facilities of $109,600 were expensed during 1996 and are
included with the plant closure costs in the consolidated statement of income
for the fiscal year ended December 31, 1996.
(B) ROCHESTER, NEW YORK
During 1996, the Comany decided to sell its Rochester, New York facility. In
accordance with Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, the Company recorded an impairment loss of $301,000 which represents the
difference between the net book value of the assets to be sold and a preliminary
offer price of $900,000. Additionally, the Company has accrued approximately
$260,000 of employee termination benefits related to the Rochester Facility
sale. The impairment loss of $301,000 and the employee termination expense of
$260,000 are included with the plant closure costs in the consolidated statement
of income for the fiscal year ended December 31, 1996.
On May 23, 1997, the Company sold its Rochester, New York, facility including
the land, buildings, and certain additional machinery and equipment for
$1,250,000. The loss on sale approximated the impairment loss recorded in 1996.
15. RELATED PARTY TRANSACTION
The sole executive officers and directors of Mentmore are Richard L. Kramer and
William L. Remley who are also directors of the Company. Mentmore provides
management services to Precise and its subsidiaries pursuant to the Management
Agreement dated March 15, 1996, as amended (the 'Management Agreement'), between
Precise and Mentmore. Pursuant to the Mangement Agreement, Mentmore provides the
Company with general management, advisory and consulting services with respect
to the Company's business and with respect to such other matters as the Company
may reasonably request from time to time, including, without limitation,
strategic planning, financial planning, business acquisition and general
business development services. The Company paid Mentmore fees of $500,000,
$450,000, $450,000, $300,000 and $150,000 in the six months of 1997 and 1996 and
for the 12 months in 1996, 1995 and 1994, respectively, for management and other
advisory services and reimbursed Mentmore for certain expenses incurred in
connection with the rendering of such services.
The Company paid the law firm of Richard C. Hoffman, P.C., whose principal is a
director of the Company, approximately $5,000, $225,000 and $257,500 in legal
fees for the six months ended June 30, 1997 and 1996 and for the year ended
December 31, 1996. During this period, Mr. Hoffman served as Vice President and
General Counsel of Mentmore.
The Company paid the law firm of Michael D. Schenker, Co. L.P.A. whose principal
is an officer of Mentmore, a total of approximately $300,000 in legal fees for
the six months ended June 30, 1997.
In April of 1997, two of the Company's executive officers were granted options
to purchase an aggregate of 1,900 shares of Sunderland common stock at an
exercise price of $1,500 per share, pursuant to nonqualified stock option
agreements (the 'Option Agreements'). The exercise price was derived from a
formula based upon the fair market value of Sunderland's common stock at the
date of the grant. The majority of the options (1,600
F-20
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RELATED PARTY TRANSACTION (CONTINUED)
shares) are exercisable over a three-year period following the grant date. The
remainder of the options are exercisable in 25% increments based upon the
attainment of a certain annual operating target, as defined in the Option
Agreements, for Sunderland's year ended December 31, 1997 through 2000.
16. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
The Company's payment obligations under the Notes are fully and unconditionally
guaranteed on a joint and several basis (collectively, the 'Subsidiary
Guarantees') by Precise Technology of Delaware, Inc., Precise Technology of
Illinois, Inc., Precise TMP, Inc., Precise Polestar, Inc., and Massie Tool, Mold
and Die, Inc. each a direct or indirect wholly-owned subsidiary of the Company
and each a 'Guarantor.' These subsidiaries represent substantially all of the
operations of the Company conducted in the United States. In accordance with
previous positions taken by the Securities and Exchange Commission, the
following summarized financial information illustrates the composition of the
combined Guarantors. Separate complete financial statements of the respective
Guarantors are not presented because management has determined that they would
not provide additional material information that would be useful in assessing
the financial composition of the Guarantors. No single Guarantor has any
significant legal restrictions on the ability of investors or creditors to
obtain access to its assets in the event of a default on its Subsidiary
Guarantee other than its subordination to senior indebtedness described in
Note 7. The principal elimination entries eliminate investments in subsidiaries
and intercompany balances and transactions.
SUMMARIZED COMBINED FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets...................................... $ 6,565,652 $ 49,841,880 $(33,195,776) $ 23,211,756
Non-current assets.................................. 83,704,917 55,672,299 (68,831,906) 70,545,310
Current liabilities................................. 30,628,103 19,401,459 (33,195,776) 16,833,786
Non-current liabilities............................. 80,960,295 5,313,993 -- 86,274,288
Net sales........................................... 10,519,612 41,581,696 (306,494) 51,794,814
Gross profit........................................ 2,120,734 6,808,206 -- 8,926,940
(Loss) income from continuing operations before
extraordinary item................................ (6,247,146) 4,912,705 -- (1,334,441)
Net (loss) income................................... (8,072,804) 1,897,863 -- (6,174,941)
</TABLE>
SUMMARIZED COMBINED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets...................................... $ 7,819,929 $ 37,740,086 $(18,434,856) $ 27,125,159
Non-current assets.................................. 77,685,619 63,080,424 (68,831,906) 71,934,137
Current liabilities................................. 24,234,441 15,966,893 (18,434,856) 21,766,478
Non-current liabilities............................. 56,172,400 5,917,551 -- 62,089,951
Redeemable preferred stock.......................... 8,250,000 -- -- 8,250,000
Net sales........................................... 23,660,460 71,003,843 (1,374,980) 93,289,323
Gross profit........................................ 5,684,712 11,127,595 -- 16,812,307
Net (loss) income................................... (7,953,397) 8,419,719 -- 466,322
</TABLE>
F-21
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS (CONTINUED)
SUMMARIZED COMBINED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets......................................... $ 5,816,394 $ 1,283,000 $ -- $ 7,099,394
Non-current assets..................................... 8,410,693 3,691,000 (338,000) 11,763,693
Current liabilities.................................... 5,868,539 1,826,000 -- 7,694,539
Non-current liabilities................................ 4,105,735 1,663,000 -- 5,768,735
Net sales.............................................. 25,079,156 8,463,149 -- 33,542,305
Gross profit........................................... 5,351,248 2,314,434 -- 7,665,682
Net (loss) income...................................... (184,674) 1,459,606 -- 1,274,932
</TABLE>
SUMMARIZED COMBINED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.............................................. $26,312,797 $ 6,844,141 -- $ 33,156,938
Gross profit........................................... 5,557,768 791,831 -- 6,349,599
Net (loss) income...................................... 1,141,422 (191,407) -- 950,015
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Precise Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Tredegar Molded
Products Company and Subsidiary ('TMP') (a wholly-owned subsidiary of Tredegar
Industries, Inc. ('Tredegar')) as of December 31, 1995 and 1994 and the related
consolidated statements of operations and changes in accumulated deficit and
cash flows for each of the two years in the period ended December 31, 1995
(adjusted for certain allocations and assets to be retained and liabilities to
be assumed by Tredegar (Note 1)). These financial statements are the
responsibility of TMP'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 TMP as of December
31, 1995 and 1994 and the consolidated results of their operations and cash
flows for each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Richmond, Virginia
February 26, 1996
F-23
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND
CHANGES IN ACCUMULATED DEFICIT
(ADJUSTED FOR CERTAIN ALLOCATIONS (NOTE 1))
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales:
Plastics.............................................................................. $ 74,151 $ 66,931
Tooling............................................................................... 16,515 14,627
-------- --------
Total.............................................................................. 90,666 81,558
-------- --------
Costs and expenses:
Cost of goods sold--Plastics.......................................................... 65,164 62,472
Cost of goods sold--Tooling........................................................... 14,709 13,065
Selling, general and administrative................................................... 5,612 6,577
Amortization of goodwill and other intangibles........................................ 237 584
Unusual charges, net.................................................................. 1,799 8,042
-------- --------
Total.............................................................................. 87,521 90,740
-------- --------
Income (loss) before income taxes....................................................... 3,145 (9,182)
Income taxes............................................................................ 1,239 (3,345)
-------- --------
Net income (loss)....................................................................... 1,906 (5,837)
Accumulated deficit, beginning of year.................................................. (18,465) (12,628)
-------- --------
Accumulated deficit, end of year........................................................ $(16,559) $(18,465)
-------- --------
-------- --------
</TABLE>
See accompanying notes
F-24
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(ADJUSTED FOR CERTAIN ALLOCATIONS AND ASSETS TO BE RETAINED
AND LIABILITIES TO BE ASSUMED BY TREDEGAR (NOTE 1))
(IN THOUSANDS EXCEPT PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Accounts and notes receivable, net....................................................... $ 7,763 $ 7,516
Tooling contracts receivable............................................................. 1,590 3,264
Costs in excess of billings on uncompleted tooling contracts............................. 800 2,769
Inventories.............................................................................. 5,396 5,178
Deferred income taxes.................................................................... 1,315 1,640
Prepaid expenses and other............................................................... 56 128
-------- --------
Total current assets....................................................................... 16,920 20,495
Property, plant, and equipment, at cost.................................................... 64,643 62,701
Less accumulated depreciation.............................................................. 39,021 38,689
-------- --------
Net property, plant, and equipment......................................................... 25,622 24,012
Other assets and deferred charges.......................................................... - 18
Goodwill and other intangibles............................................................. 688 925
-------- --------
Total Assets........................................................................ $ 43,230 $ 45,450
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY AND INTERCOMPANY ACCOUNT
Current liabilities:
Accounts payable......................................................................... $ 2,547 $ 2,127
Accrued expenses......................................................................... 2,239 2,540
Billings in excess of costs on uncompleted tooling contracts............................. 458 3,074
Workers compensation, health care, and certain other employee
benefit liabilities allocated from Tredegar Industries, Inc........................... 1,570 1,819
-------- --------
Total current liabilities.................................................................. 6,814 9,560
Deferred income taxes...................................................................... 1,724 1,874
Other noncurrent liabilities............................................................... 460 735
-------- --------
Total Liabilities................................................................... 8,998 12,169
Shareholder's equity and intercompany account:
Due from Tredegar Industries, Inc. and affiliates........................................ (3,488) (2,533)
Common stock ($1 par value, 2,000 shares authorized
and 1,000 shares issued and outstanding............................................... 1 1
Additional paid-in capital............................................................... 54,278 54,278
Accumulated deficit...................................................................... (16,559) (18,465)
-------- --------
Total shareholder's equity and intercompany account........................................ 34,232 33,281
-------- --------
Total liabilities and shareholder's equity and intercompany account........................ $ 43,230 $ 45,450
-------- --------
-------- --------
</TABLE>
See accompanying notes
F-25
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ADJUSTED FOR CERTAIN ALLOCATIONS AND ASSETS TO BE RETAINED
AND LIABILITIES TO BE ASSUMED BY TREDEGAR (NOTE 1))
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................................................... $ 1,906 $(5,837)
Depreciation............................................................................... 4,819 5,373
Amortization of goodwill and other intangibles............................................. 237 584
Write-off of intangibles................................................................... - 4,873
Deferred income taxes...................................................................... 175 (2,612)
Loss on property, plant, and equipment:
Disposals............................................................................... 170 88
Transfers to Tredegar Industries, Inc. and affiliates................................... - 700
(Increase) decrease in:
Accounts and notes receivable, net...................................................... (247) (497)
Tooling contracts receivable............................................................ 1,674 (38)
Costs in excess of billings on uncompleted tooling contracts............................ 1,969 (1,317)
Inventories............................................................................. (218) (1,177)
Prepaid expenses and other.............................................................. 72 (59)
Other assets and deferred charges....................................................... 18 8
Increase (decrease) in:
Accounts payable........................................................................ 420 301
Accrued expenses........................................................................ (301) (18)
Billings in excess of costs on uncompleted tooling contracts............................ (2,616) 1,717
Workers compensation, health care, and certain other employee benefit accruals
allocated from Tredegar Industries, Inc................................................ (249) 274
Other noncurrent liabilities............................................................ (275) (536)
------- -------
Net cash provided by operating activities.................................................. 7,554 1,827
------- -------
Cash flows from investing activities:
Capital expenditures.................................................................... (6,553) (2,988)
Disposal of assets used in ongoing operations........................................... 73 75
Transfer of Alsip, Illinois and Anvil St. (St. Petersburg, FL) property, plant, and
equipment to Tredegar Industries, Inc. at estimated net realizable value............... - 1,022
Miscellaneous transfers of property, plant, and equipment with Tredegar Industries,
Inc. and affiliates, net............................................................... (119) -
Other - 77
------- -------
Net cash used in investing activities...................................................... (6,599) (1,814)
------- -------
Cash flows from financing activities:
Increase in due from Tredegar Industries, Inc. and affiliates........................... (955) (13)
------- -------
Net cash used in financing activities...................................................... (955) (13)
------- -------
Increase (decrease) in cash................................................................ - -
Cash at beginning of year.................................................................. - -
------- -------
Cash at end of year........................................................................ $ - $ -
------- -------
------- -------
</TABLE>
See accompanying notes
F-26
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BASIS OF PRESENTATION, AND RELATIONSHIP WITH TREDEGAR
INDUSTRIES, INC.
Tredegar Molded Products Company and its wholly owned subsidiary, Polestar
Plastics Manufacturing Company ('Polestar') (collectively referred to as 'TMP'),
manufactures injection-molded parts for packaging, industrial, medical, and
electronics products and produces injection molding tools for internal use and
for sale to other custom and captive molders. TMP has six molding plants
(including a new facility in Graham, North Carolina and excluding a plant in the
process of being closed in Alsip, Illinois), one mold-making plant, and 735
employees, all located in the United States.
TMP is an indirect, wholly owned subsidiary of Tredegar Industries, Inc.
('Tredegar'), a diversified manufacturer of plastics and metal products.
Tredegar, which was spun off from Ethyl Corporation on July 10, 1989, is a
public company listed on the New York Stock Exchange.
The consolidated financial statements include the accounts and operations of TMP
adjusted to reflect the immediate settlement of amounts due from or payable to
Tredegar and its affiliates (the 'Intercompany Account'). The Intercompany
Account has been adjusted to reflect: (i) the estimated realizable value of
assets held for sale (net of associated deferred income taxes), (ii) cash and
cash equivalents, (iii) net current income taxes payable or recoverable, and
(iv) an allocation of estimated workers compensation, health care, and certain
other employee benefit liabilities related to TMP's ongoing operations (net of
associated deferred income taxes). Items (i), (ii), and (iii) are expected to be
transferred to Tredegar, and the Intercompany Account is expected to be settled
immediately prior to any sale of TMP. Item (iv) is management's allocation from
Tredegar of estimated ongoing liabilities that TMP would have reflected in its
balance sheet on a stand-alone basis. Charges related to the liabilities
described in Item (iv) are included in TMP's results of operations in the year
incurred, and Tredegar would expect to retain such liabilities to the extent
they were incurred prior to the date of any sale.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of revenues, expenses, assets
and liabilities, and disclosure of contingent assets and liabilities at the date
of the financial statements. Actual results could differ from those estimates.
Except for Polestar, most of TMP's salaried and nonunion hourly employees
participate in Tredegar's Retirement Income Plan (the 'RIP'), and its salaried
employees also participate in Tredegar's postretirement health care and life
insurance plans. In addition, Tredegar sponsors a defined contribution plan (the
'Savings Plan') covering most employees at TMP except for Polestar, which
sponsors a separate plan for its participating employees.
Tredegar allocates the costs of the RIP and Tredegar's postretirement health
care and life insurance plans to each of its divisions. The total costs,
computed in accordance with Statement of Financial Accounting Standards ('SFAS')
No. 87, Employers' Accounting for Pensions, and SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, which are allocable
to TMP, are not considered material.
Historically, separate pension plans provided defined benefits to TMP's union
employees. As union facilities were shut down, these plans were merged (or will
be merged in the case of the Alsip, Illinois defined benefit pension plan) into
Tredegar's RIP. Net periodic pension cost for the Alsip plan (the only remaining
union plan in 1995 and 1994), computed in accordance with SFAS No. 87, was
approximately $81,000 in 1995 and $124,000 in 1994, and was included in TMP's
results of operations up through the date of shut-down.
The Savings Plan allows eligible employees to voluntarily contribute up to 10%
of their compensation with Tredegar matching 50% of such contributions (25% for
TMP's employees effective January 1, 1995) with shares of Tredegar's common
stock. Effective January 1, 1995, the matching contributions associated with
TMP's employees are limited to 1.5% of compensation. Matching contributions
charged to TMP for its employees were approximately $180,000 in 1995 and
$470,000 in 1994.
Polestar has a 401(k) profit sharing plan that allows eligible employees to
voluntarily contribute up to 15% of their compensation on a pretax basis.
Polestar matches 25% of such contributions up to a maximum of 1.5% of
F-27
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, BASIS OF PRESENTATION, AND RELATIONSHIP WITH TREDEGAR
INDUSTRIES, INC. (CONTINUED)
compensation. Matching contributions by Polestar were approximately $12,000 in
1995 and $12,000 in 1994. Optional contributions by Polestar were approximately
$94,000 in 1995 and $100,000 in 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TOOLING PROFIT RECOGNITION
Profit from the sale of injection molding tools is generally recognized under
the completed contract method whereby the contract is considered complete upon
acceptance of the tool by the customer.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost principally
(approximately 84% and 93% at December 31, 1995 and 1994, respectively)
determined on the last-in, first-out ('LIFO') basis. Cost elements included in
work-in-process and finished goods inventories are raw materials, direct labor,
and manufacturing overhead.
PROPERTY, PLANT, AND EQUIPMENT
Accounts include costs of assets constructed or purchased, related delivery and
installation costs and interest incurred on significant capital projects during
their construction periods. Expenditures for renewals and betterments also are
capitalized, but expenditures for repairs and maintenance are expensed as
incurred. The cost and accumulated depreciation applicable to assets retired or
sold are removed from the respective accounts, and gains or losses thereon are
included in income. Depreciation is computed primarily by the straight-line
method based on the estimated useful lives of the assets.
INCOME TAXES
TMP joins with Tredegar in filing a consolidated federal income tax return.
Income tax expense for TMP is calculated and recognized on a separate return
basis consistent with SFAS No. 109, 'Accounting for Income Taxes.' Deferred
income taxes arise from temporary differences between financial and income tax
reporting of various items, principally depreciation, certain goodwill and other
intangibles, inventories, and accruals for employee benefits.
Because TMP is included in Tredegar's consolidated federal income tax return,
its net operating losses were utilized by Tredegar; accordingly, TMP has no
reportable net operating loss or tax credit carryforwards on a separate company
basis.
GOODWILL AND OTHER INTANGIBLES
In connection with the Polestar acquisition, noncompetition intangibles of
$1,150,000 and goodwill of $194,000 were recognized and are being amortized for
accounting purposes over 5 years ($230,000 annually) and 15 years (approximately
$7,000 annually), respectively (each deductible for income tax purposes on a
straight-line basis over 15 years). In addition, incremental depreciation
expense in 1995 and 1994 of $660,000 and $786,000, respectively, was recognized
for the excess of the estimated fair value of property, plant, and equipment
acquired over its predecessor basis.
F-28
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. UNUSUAL ITEMS
The following unusual items (events or transactions that are unusual in nature
or occur infrequently and affect comparability of operating results between
years) were recognized during 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Start-up losses (negative gross profit) associated with new Graham, North
Carolina facility................................................................ $(1,971) $ -
Inventory adjustment related to prior year......................................... 155 -
Reversal of prior year accrued losses on equipment used in operations that was
expected to be disposed of....................................................... 145 -
Severance accrual.................................................................. (128) -
Write-off of goodwill associated with operating losses in certain lines of
business......................................................................... - (4,873)
Accrued loss and divestiture costs for Alsip, Illinois plant shut-down............. - (2,213)
Accrued losses on the expected disposal of equipment............................... - (656)
Accrued loss on disposal of technical facility in St. Petersburg, Florida.......... - (300)
------- -------
Total unusual charges, net......................................................... $(1,799) $(8,042)
------- -------
------- -------
</TABLE>
4. ACCOUNTS RECEIVABLE
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts and notes receivable........................................................ $7,949 $7,727
Allowance for doubtful accounts...................................................... (186) (211)
------ ------
Accounts and notes receivable, net................................................... $7,763 $7,516
------ ------
------ ------
</TABLE>
F-29
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. TOOLING CONTRACT RECEIVABLES AND COSTS AND BILLINGS ON UNCOMPLETED TOOLING
CONTRACTS
Tooling contract receivables and costs and billings on uncompleted contracts are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Tooling contracts receivable......................................................... $1,590 $3,264
------ ------
------ ------
Costs incurred on uncompleted contracts.............................................. $2,484 $5,114
Billings on uncompleted contracts.................................................... 2,142 5,419
------ ------
Net.................................................................................. $ 342 $ (305)
------ ------
------ ------
Costs and billings on uncompleted contracts included in the balance sheets:
Cost in excess of billings on uncompleted contracts.................................. $ 800 $2,769
Billings in excess of costs on uncompleted contracts................................. 458 3,074
------ ------
Net.................................................................................. $ 342 $ (305)
------ ------
------ ------
</TABLE>
6. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Inventories at FIFO cost:
Finished goods..................................................................... $2,229 $2,139
Work-in-process.................................................................... 626 596
Raw materials...................................................................... 3,563 3,404
Allowance for inventories carried on a LIFO basis.................................... (939) (906)
Allowance for inventory obsolescence................................................. (83) (55)
------ ------
Inventories, net..................................................................... $5,396 $5,178
------ ------
------ ------
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Payrolls, related taxes, vested vacation and other benefits.......................... $1,699 $1,730
Accrued losses for excess equipment and severance.................................... - 293
Current portion of noncompetition payable............................................ 230 230
Customer prepayments................................................................. 90 129
Other................................................................................ 220 158
------ ------
Total................................................................................ $2,239 $2,540
------ ------
------ ------
</TABLE>
F-30
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment cost components and accumulated depreciation at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements........................................................ $ 667 $ 667
Buildings......................................................................... 12,738 12,102
Machinery and equipment........................................................... 51,238 49,932
------- -------
Total property, plant, and equipment, at cost..................................... 64,643 62,701
Less accumulated depreciation..................................................... 39,021 38,689
------- -------
Net property, plant, and equipment................................................ $25,622 $24,012
------- -------
------- -------
</TABLE>
9. GOODWILL AND OTHER INTANGIBLES
Activity for goodwill and other intangibles for the two years ended December 31,
1995 is presented below:
<TABLE>
<CAPTION>
TOTAL
GOODWILL
NON- AND
COMPETITION OTHER
GOODWILL INTANGIBLES INTANGIBLES
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance December 31, 1994.......................................... $ 101 $ 824 $ 925
Amortization....................................................... (7) (230) (237)
-------- ----------- -----------
Balance December 31, 1995.......................................... $ 94 $ 594 $ 688
-------- ----------- -----------
-------- ----------- -----------
</TABLE>
F-31
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Income before income taxes and income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
(IN THOUSANDS)
Income (loss) before income taxes................................................... $3,145 $(9,182)
------ -------
------ -------
Current income tax (benefit):
Federal........................................................................... $ 896 $ (791)
State............................................................................. 168 58
------ -------
1,064 (733)
------ -------
Deferred income tax (benefit):
Federal........................................................................... 159 (2,179)
State............................................................................. 16 (433)
------ -------
175 (2,612)
------ -------
Total income tax (benefit)........................................................ $1,239 $(3,345)
------ -------
------ -------
</TABLE>
The provision for income taxes at the effective tax rate differed from the
provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
(IN THOUSANDS)
Income tax (benefit) at federal statutory rate...................................... $1,101 $(3,214)
State income taxes, net of federal benefit.......................................... 120 (244)
Write-off of nondeductible goodwill................................................. - 88
Other............................................................................... 18 25
------ -------
Total income tax (benefit).......................................................... $1,239 $(3,345)
------ -------
------ -------
</TABLE>
Deferred tax liabilities and deferred tax assets as of December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax liabilities:
Property, plant, and equipment cost and accumulated depreciation................... $1,868 $2,040
Goodwill........................................................................... - -
Other.............................................................................. - 9
------ ------
Total deferred tax liabilities..................................................... 1,868 2,049
------ ------
------ ------
Deferred tax assets:
Vested vacation pay................................................................ 299 353
Inventories........................................................................ 227 200
Goodwill and other intangibles..................................................... 144 -
Workers compensation, health care, and certain other employee benefit
liabilities allocated from Tredegar............................................. 601 709
Other.............................................................................. 188 553
------ ------
Total deferred tax assets.......................................................... 1,459 1,815
------ ------
Net deferred tax liability........................................................... $ 409 $ 234
------ ------
------ ------
Included in the balance sheet:
Noncurrent deferred tax liabilities in excess of assets............................ $1,724 $1,874
Current deferred tax assets in excess of liabilities............................... 1,315 1,640
------ ------
Net deferred tax liability $ 409 $ 234
------ ------
------ ------
</TABLE>
F-32
<PAGE>
TREDEGAR MOLDED PRODUCTS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RENTAL EXPENSE AND CONTRACTUAL COMMITMENTS
Rental expense was $837,000 in 1995 and $648,000 in 1994. Rental commitments
under all noncancelable operating leases as of December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.......................................................................... $ 819
1997.......................................................................... 703
1998.......................................................................... 491
1999.......................................................................... 479
2000.......................................................................... 484
Remainder..................................................................... 1,836
-------
$4,812
-------
-------
</TABLE>
Contractual obligations for plant construction and purchases of real property
and equipment amounted to approximately $1.1 million at December 31, 1995.
12. CONTINGENCIES
Management is not aware of any potential unrecorded liabilities at December 31,
1995 and 1994 that would have a material adverse effect on TMP's operations or
financial condition.
F-33
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON 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 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 THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information......................... 4
Prospectus Summary............................ 5
Risk Factors.................................. 18
Capitalization................................ 25
Selected Financial Data....................... 26
Pro Forma Financial Data...................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 32
Business...................................... 39
Management.................................... 51
Certain Transactions.......................... 54
Principal Stockholders........................ 56
Description of Certain Indebtedness........... 58
The Exchange Offer............................ 60
Description of Notes.......................... 69
Certain U.S. Federal Income Tax
Considerations.............................. 93
Plan of Distribution.......................... 94
Legal Matters................................. 94
Experts....................................... 94
Index to Consolidated Financial Statements.... F-1
</TABLE>
UNTIL , 1997 (90 DAYS AFTER THE COMMENCEMENT OF THE
EXCHANGE OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REGISTERED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT 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.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$75,000,000
[LOGO]
PRECISE TECHNOLOGY, INC.
OFFER TO EXCHANGE $1,000
IN PRINCIPAL AMOUNT OF ITS
SERIES B 11 1/8% SENIOR SUBORDINATED
NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT FOR EACH $1,000
IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
11 1/8% SENIOR SUBORDINATED
NOTES DUE 2007
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
MARINE MIDLAND BANK
BY FACSIMILE:
(212) 658-2292
CONFIRMATION BY TELEPHONE:
(212) 658-5931
BY MAIL, OVERNIGHT COURIER OR HAND DELIVERY:
140 BROADWAY--LEVEL A
NEW YORK, NEW YORK 10005-1180
ATTENTION: CORPORATE TRUST SERVICES
---------------------------------------------
PROSPECTUS
---------------------------------------------
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Precise Technology, Inc. and its subsidiaries, Precise Technology of
Delaware, Inc. and Precise Technology of Illinois, Inc. (collectively, the
'Delaware Subsidiaries'), are Delaware corporations. Section 145 ('Section 145')
of the General Corporation Law of the State of Delaware (the 'DGCL') provides
that a Delaware corporation may indemnify any persons who were, are or are
threatened to be made, parties 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 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 or 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 such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, were or are threatened
to be made, a party to any threatened, pending or completed action or suit by or
in the right of the corporation by reasons of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, provided that no indemnification is
permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director,
employee or agent 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 has actually and reasonably incurred.
The Certificate of Incorporation and/or Bylaws of each of Precise and the
Delaware Subsidiaries provide for the indemnification of persons under the
circumstances described in Section 145 of the DGCL.
Precise TMP, Inc. and Precise Polestar, Inc. are Virginia corporations.
Article 10 ('Article 10') of the Virginia Stock Corporation Act (Virginia Code
sections 13.1-601 et seq.) (the 'VSCA') allows, in general, for indemnification,
in certain circumstances, by a corporation of any person threatened with or made
a party to any action, suit or proceeding by reason of the fact that he or she
is, or was, a director, officer, employee or agent of such corporation.
Indemnification is also authorized under Article 10 with respect to a criminal
action or proceeding where the person had no reasonable cause to believe that
his conduct was unlawful. Article 9 ('Article 9') of the VSCA provides
limitations on damages payable by officers and directors, except in cases of
willful misconduct or knowing violation of criminal law or any federal or state
securities law. The Articles of Incorporation of each of Precise TMP, Inc. and
Precise Polestar, Inc. provide for the indemnification of persons under the
circumstances described in Article 10 of the VSCA.
Massie Tool, Mold & Die, Inc. is a Florida corporation. Section 607.0831
('Section 607.0831') of the Florida Business Corporation Act (the 'FBCA')
provides that a corporation's articles of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of duty of care or other
duty as a director. Section 607.0831 also provides, however, that such a
provision shall not eliminate or limit the liability of a director (i) for any
appropriation, in violation of his duties, of any business opportunity of the
corporation, (ii) for acts or omissions involving intentional misconduct or a
knowing violation of law, (iii) for certain other types of liability set forth
in the FBCA and (iv) for transactions from which the director derived an
improper personal benefit. In addition, Section 607.0850 ('Section 607.0850') of
the FBCA provides for indemnification of directors and officers of a corporation
for liability and expenses reasonably incurred by them in connection with any
civil, criminal,
II-1
<PAGE>
administrative or investigative action, suit or proceeding in which they may
become involved by reason of being a director or officer of the corporation.
Indemnification under Section 607.0850 is permitted if the director or officer
acted in a manner which he believed in good faith to be in or not opposed to the
best interests of the corporation and, with respect to any criminal actions, if
he had no reasonable cause to believe his conduct to be unlawful. The Articles
of Incorporation of Massie Tool, Mold & Die, Inc. provide for the
indemnification of persons under the circumstances described in Section 607.0831
and Section 607.0850 of the FBCA.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<S> <C> <C>
*3.1 -- Amended and Restated Certificate of Incorporation of Precise Technology, Inc.
*3.2 -- Bylaws of Precise Technology, Inc.
*3.3 -- Certificate of Incorporation of Precise Technology of Delaware, Inc.
*3.4 -- Bylaws of Precise Technology of Delaware, Inc.
*3.5 -- Certificate of Incorporation of Precise Technology of Illinois, Inc.
*3.6 -- Bylaws of Precise Technology of Illinois, Inc.
*3.7 -- Articles of Incorporation of Precise TMP, Inc.
*3.8 -- Amended and Restated Bylaws of Precise TMP, Inc.
*3.9 -- Certificate of Incorporation of Precise Polestar, Inc.
*3.10 -- Bylaws of Precise Polestar, Inc.
*3.11 -- Articles of Incorporation of Massie Tool, Mold & Die, Inc.
*3.12 -- Bylaws of Massie Tool, Mold & Die, Inc.
*4.1 -- Indenture dated as of March 18, 1997 by and among Precise Technology, Inc., as Issuer, Precise
Technology of Delaware, Inc., Precise Technology of Illinois, Inc., Precise TMP, Inc., Precise
Polestar, Inc. and Massie Tool, Mold & Die, Inc., as Subsidiary Guarantors, and Marine Midland Bank,
as trustee (including the form of 11 1/8% Senior Subordinated Note due 2007 and the form of
Subsidiary Guarantee).
*4.2 -- Registration Rights Agreement, dated as of June 13, 1997, by and among Precise Technology, Inc.,
Precise TMP, Inc., Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of
Delaware, Inc., Precise Technology of Illinois, Inc., Bear, Stearns & Co. Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
*4.3 -- Purchase Agreement dated June 10, 1997, by and among Precise Technology, Inc., Precise TMP, Inc.,
Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of Delaware, Inc., Precise
Technology of Illinois, Inc., Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
4.4 -- Form of Supplemental Indenture No. 1 to Indenture by and among Precise Technology, Inc. Precise TMP,
Inc. Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of Delaware, Inc.,
Precise Technology of Illinois, Inc. and Marine Midland Bank, as trustee.
*5.1 -- Opinion of Winston & Strawn.
II-2
<PAGE>
*10.1 -- Credit Agreement dated as of June 13, 1997, among Precise Holding Corporation, Precise Technology,
Inc., the subsidiary guarantors party thereto, the lenders party thereto and Fleet National Bank, as
Agent and Issuing Bank.
*10.2 -- Consent Agreement dated as of June 9, 1997 among Precise Technology, Inc., Precise Holding
Corporation, Sunderland Industrial Holdings Corporation, Hamilton Holdings Ltd. Corporation, John
Hancock Mutual Life Insurance Company, Rice Partners II, L.P., Delaware State Employees' Retirement
Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc., and Declaration of
Trust for Defined Benefit Plans of ICI American Holdings Inc.
</TABLE>
<TABLE>
<S> <C> <C>
*10.3 -- Securities Purchase Agreement dated March 29, 1996, among Precise Holding Corporation, Precise
Technology, Inc., Delaware State Employees' Retirement Fund, Declaration of Trust for Defined Benefit
Plans of Zeneca Holdings Inc., and Declaration of Trust for Defined Benefit Plans of ICI American
Holdings Inc.
*10.4 -- Note Purchase Agreement dated as of March 29, 1996, among Precise Technology, Inc., John Hancock
Mutual Life Insurance Company and Rice Partners II, L.P.
*10.5 -- Warrant Purchase Agreement dated as of March 29, 1996, among Precise Holding Corporation, Rice
Partners II, L.P., John Hancock Mutual Life Insurance Company, Delaware State Employees' Retirement
Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc., and Declaration of
Trust for Defined Benefit Plans of ICI American Holdings Inc.
*10.6 -- First Amendment to Warrant Purchase Agreement dated as of June 13, 1997, among Precise Holding
Corporation, Rice Partners II, L.P., John Hancock Mutual Life Insurance Company, Delaware State
Employees' Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.,
and Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.
*10.7 -- Shareholder Agreement dated as of March 29, 1996 among Precise Holding Corporation, Sunderland
Industrial Holdings Corporation, Hamilton Holdings Ltd. Corporation, Delaware State Employees'
Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc., Declaration
of Trust for Defined Benefit Plans of ICI American Holdings Inc., John Hancock Mutual Life Insurance
Company and Rice Partners II, L.P.
*10.8 -- First Amendment to Shareholder Agreement dated as of June 13, 1997 among Precise Holding Corporation,
Sunderland Industrial Holding Corporation, Hamilton Holdings Ltd. Corporation, Delaware State
Employees' Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.,
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc., Rice Partners II, L.P.
and John Hancock Mutual Life Insurance Company.
*10.9 -- Tax Allocation and Indemnity Agreement dated as of June 11, 1997 by and among Sunderland Industrial
Holdings Corporation, Precise Holding Corporation, and Precise Technology, Inc. and its direct and
indirect subsidiaries.
*10.10 -- Amended and Restated Management Agreement, dated as of June 13, 1997 between Precise Technology, Inc.
and Mentmore Holdings Corporation.
*10.11 -- Sunderland Industrial Holdings Corporation 1997 Key Employee Nonqualified Stock Option Plan dated as
of April 24, 1997.
*10.12 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial Holdings
Corporation and John R. Weeks.
*10.13 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial Holdings
Corporation and Michael M. Farrell.
+10.14 -- Memorandum of Agreement dated August 8, 1995 between The Procter & Gamble Manufacturing Company and
Tredegar Molded Products Company.
12.1 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
*21.1 -- Subsidiaries of the Registrants.
23.1 -- Consent of Ernst & Young LLP.
II-3
<PAGE>
23.2 -- Consent of Grant Thornton LLP.
23.3 -- Consent of Coopers & Lybrand L.L.P.
*23.4 -- Consent of Winston & Strawn (included in Exhibit 5.1).
*24.1 -- Powers of Attorney.
*25.1 -- Statement of Eligibility of Trustee.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
*27.1 -- Financial Data Schedule.
*99.1 -- Form of Letter of Transmittal.
*99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Form of Tender Instructions.
</TABLE>
- ------------------
* Previously filed.
+ Confidential treatment requested for a portion of this exhibit previously
filed.
(b) Financial Statement Schedules:
Precise Technology, Inc.
REPORT OF INDEPENDENT AUDITORS
Schedule II--Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS.
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424 (b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
'Calculation of Registration Fee' table in the effective
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
the time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) Each undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration
II-4
<PAGE>
statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the registrant
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of
the applicable form;
(5) Each registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the
Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of
<PAGE>
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;
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrants pursuant to the provisions
described under Item 20 or otherwise, the registrants have been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 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
registrants 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, each
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 Act and will be
governed by the final adjudication of such issue;
(7) Each undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into
the prospectus pursuant to Item 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; and
(8) Each undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of North
Versailles, State of Pennsylvania, as of October 10, 1997.
PRECISE TECHNOLOGY, INC.
By: /s/ JOHN R. WEEKS
----------------------------------
John R. Weeks
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD L. KRAMER Chairman of the Board of Directors October 10, 1997
- ------------------------------------------
Richard L. Kramer
/s/ WILLIAM L. REMLEY Vice Chairman, Vice President and Treasurer October 10, 1997
- ------------------------------------------
William L. Remley
/s/ RICHARD C. HOFFMAN Director October 10, 1997
- ------------------------------------------
Richard C. Hoffman
/s/ JOHN R. WEEKS President and Chief Executive Officer October 10, 1997
- ------------------------------------------
John R. Weeks
/s/ MICHAEL D. BORNAK Controller October 10, 1997
- ------------------------------------------ (principal financial and accounting
Michael D. Bornak officer)
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of North
Versailles, State of Pennsylvania, as of October 10, 1997.
PRECISE TECHNOLOGY OF DELAWARE, INC.
By: /s/ JOHN R. WEEKS
----------------------------------
John R. Weeks
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD L. KRAMER Chairman of the Board of Directors October 10, 1997
- ------------------------------------------
Richard L. Kramer
/s/ WILLIAM L. REMLEY Vice Chairman, Vice President and Treasurer October 10, 1997
- ------------------------------------------
William L. Remley
/s/ RICHARD C. HOFFMAN Director October 10, 1997
- ------------------------------------------
Richard C. Hoffman
/s/ JOHN R. WEEKS President and Chief Executive Officer October 10, 1997
- ------------------------------------------
John R. Weeks
/s/ MICHAEL D. BORNAK Controller October 10, 1997
- ------------------------------------------ (principal financial and accounting
Michael D. Bornak officer)
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of North
Versailles, State of Pennsylvania, as of October 10, 1997.
PRECISE TECHNOLOGY OF ILLINOIS, INC.
By: /s/ JOHN R. WEEKS
-----------------------------------
John R. Weeks
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD L. KRAMER Chairman of the Board of Directors October 10, 1997
- ------------------------------------------
Richard L. Kramer
/s/ WILLIAM L. REMLEY Vice Chairman, Vice President and Treasurer October 10, 1997
- ------------------------------------------
William L. Remley
/s/ RICHARD C. HOFFMAN Director October 10, 1997
- ------------------------------------------
Richard C. Hoffman
/s/ JOHN R. WEEKS President and Chief Executive Officer October 10, 1997
- ------------------------------------------
John R. Weeks
/s/ MICHAEL D. BORNAK Controller October 10, 1997
- ------------------------------------------ (principal financial and accounting
Michael D. Bornak officer)
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of North
Versailles, State of Pennsylvania, as of October 10, 1997.
PRECISE TMP, INC.
By: /s/ JOHN R. WEEKS
----------------------------------
John R. Weeks
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD L. KRAMER Chairman of the Board of Directors October 10, 1997
- ------------------------------------------
Richard L. Kramer
/s/ WILLIAM L. REMLEY Vice Chairman, Vice President and Treasurer October 10, 1997
- ------------------------------------------
William L. Remley
/s/ RICHARD C. HOFFMAN Director October 10, 1997
- ------------------------------------------
Richard C. Hoffman
/s/ JOHN R. WEEKS President and Chief Executive Officer October 10, 1997
- ------------------------------------------
John R. Weeks
/s/ MICHAEL D. BORNAK Controller October 10, 1997
- ------------------------------------------ (principal financial and accounting
Michael D. Bornak officer)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of North
Versailles, State of Pennsylvania, as of October 10, 1997.
PRECISE POLESTAR, INC.
By: /s/ JOHN R. WEEKS
----------------------------------
John R. Weeks
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD L. KRAMER Chairman of the Board of Directors October 10, 1997
- ------------------------------------------
Richard L. Kramer
/s/ WILLIAM L. REMLEY Vice Chairman, Vice President and Treasurer October 10, 1997
- ------------------------------------------
William L. Remley
/s/ RICHARD C. HOFFMAN Director October 10, 1997
- ------------------------------------------
Richard C. Hoffman
/s/ JOHN R. WEEKS President and Chief Executive Officer October 10, 1997
- ------------------------------------------
John R. Weeks
/s/ MICHAEL D. BORNAK Controller October 10, 1997
- ------------------------------------------ (principal financial and accounting
Michael D. Bornak officer)
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of North
Versailles, State of Pennsylvania, as of October 10, 1997.
MASSIE TOOL, MOLD & DIE, INC.
By: /S/ JOHN R. WEEKS
----------------------------------
John R. Weeks
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD L. KRAMER Chairman of the Board of Directors October 10, 1997
- ------------------------------------------
Richard L. Kramer
/s/ WILLIAM L. REMLEY Vice Chairman, Vice President and Treasurer October 10, 1997
- ------------------------------------------
William L. Remley
/s/ RICHARD C. HOFFMAN Director October 10, 1997
- ------------------------------------------
Richard C. Hoffman
/s/ JOHN R. WEEKS President and Chief Executive Officer October 10, 1997
- ------------------------------------------
John R. Weeks
/s/ MICHAEL D. BORNAK Controller October 10, 1997
- ------------------------------------------ (principal financial and accounting
Michael D. Bornak officer)
</TABLE>
II-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Precise Technology, Inc.
We have audited the consolidated financial statements of Precise Technology,
Inc. as of December 31, 1996 and 1995, and for each of the two years in the
period ended December 31, 1996, and have issued our report thereon dated March
14, 1997 included elsewhere in this Registration Statement. Our audits also
included the financial statement schedules listed in Item 21(b) of this
Registration Statement. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
S-1
<PAGE>
PRECISE TECHNOLOGY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------ ---------- --------------------- ----------- -------------
ADDITIONS
-----------------------------------
(1) (2)
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER
BEGINNING AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ------------------------------------------------ ---------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Six months ended June 30, 1997 (unaudited):
Deducted from asset accounts:
Allowance for doubtful accounts............... $ 60,000 $ -- $ -- $ -- $ 60,000
---------- -------- --------- ----------- -------------
---------- -------- --------- ----------- -------------
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts............... $ 100,000 $ -- $ -- $ (40,000)(1) $ 60,000
---------- -------- --------- ----------- -------------
---------- -------- --------- ----------- -------------
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts............... $ 148,000 $ -- $ -- $ (48,000)(2) $ 100,000
---------- -------- --------- ----------- -------------
---------- -------- --------- ----------- -------------
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts............... $ 128,000 $ 42,000 $ -- $ (22,000)(3) $ 148,000
---------- -------- --------- ----------- -------------
---------- -------- --------- ----------- -------------
</TABLE>
- ------------------
(1) Adjustment of allowance as a result of changing circumstances.
(2) Adjustment of allowance as a result of changing circumstances ($30,000) and
uncollectible accounts written off, net of recoveries ($18,000).
(3) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
*3.1 -- Amended and Restated Certificate of Incorporation of Precise Technology, Inc.
*3.2 -- Bylaws of Precise Technology, Inc.
*3.3 -- Certificate of Incorporation of Precise Technology of Delaware, Inc.
*3.4 -- Bylaws of Precise Technology of Delaware, Inc.
*3.5 -- Certificate of Incorporation of Precise Technology of Illinois, Inc.
*3.6 -- Bylaws of Precise Technology of Illinois, Inc.
*3.7 -- Articles of Incorporation of Precise TMP, Inc.
*3.8 -- Amended and Restated Bylaws of Precise TMP, Inc.
*3.9 -- Certificate of Incorporation of Precise Polestar, Inc.
*3.10 -- Bylaws of Precise Polestar, Inc.
*3.11 -- Articles of Incorporation of Massie Tool, Mold & Die, Inc.
*3.12 -- Bylaws of Massie Tool, Mold & Die, Inc.
*4.1 -- Indenture dated as of March 18, 1997 by and among Precise Technology, Inc., as Issuer, Precise
Technology of Delaware, Inc., Precise Technology of Illinois, Inc., Precise TMP, Inc., Precise
Polestar, Inc. and Massie Tool, Mold & Die, Inc., as Subsidiary Guarantors, and Marine Midland Bank,
as trustee (including the form of 11 1/8% Senior Subordinated Note due 2007 and the form of
Subsidiary Guarantee).
*4.2 -- Registration Rights Agreement, dated as of June 13, 1997, by and among Precise Technology, Inc.,
Precise TMP, Inc., Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of
Delaware, Inc., Precise Technology of Illinois, Inc., Bear, Stearns & Co. Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
*4.3 -- Purchase Agreement dated June 10, 1997, by and among Precise Technology, Inc., Precise TMP, Inc.,
Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of Delaware, Inc., Precise
Technology of Illinois, Inc., Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
4.4 -- Form of Supplemental Indenture No. 1 to Indenture by and among Precise Technology, Inc. Precise TMP, Inc.
Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of Delaware, Inc., Precise
Technology of Illinois, Inc. and Marine Midland Bank, as trustee.
*5.1 -- Opinion of Winston & Strawn.
*10.1 -- Credit Agreement dated as of June 13, 1997, among Precise Holding Corporation, Precise Technology,
Inc., the subsidiary guarantors party thereto, the lenders party thereto and Fleet National Bank, as
Agent and Issuing Bank.
*10.2 -- Consent Agreement dated as of June 9, 1997 among Precise Technology, Inc., Precise Holding
Corporation, Sunderland Industrial Holdings Corporation, Hamilton Holdings Ltd. Corporation, John
Hancock Mutual Life Insurance Company, Rice Partners II, L.P., Delaware State Employees' Retirement
Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc., and Declaration of
Trust for Defined Benefit Plans of ICI American Holdings Inc.
*10.3 -- Securities Purchase Agreement dated March 29, 1996, among Precise Holding Corporation, Precise
Technology, Inc., Delaware State Employees' Retirement Fund, Declaration of Trust for Defined Benefit
Plans of Zeneca Holdings Inc., and Declaration of Trust for Defined Benefit Plans of ICI American
Holdings Inc.
*10.4 -- Note Purchase Agreement dated as of March 29, 1996, among Precise Technology, Inc., John Hancock
Mutual Life Insurance Company and Rice Partners II, L.P.
*10.5 -- Warrant Purchase Agreement dated as of March 29, 1996, among Precise Holding Corporation, Rice
Partners II, L.P., John Hancock Mutual Life Insurance Company, Delaware State Employees' Retirement
Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc., and Declaration of
Trust for Defined Benefit Plans of ICI American Holdings Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
*10.6 -- First Amendment to Warrant Purchase Agreement dated as of June 13, 1997, among Precise Holding
Corporation, Rice Partners II, L.P., John Hancock Mutual Life Insurance Company, Delaware State
Employees' Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.,
and Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.
*10.7 -- Shareholder Agreement dated as of March 29, 1996 among Precise Holding Corporation, Sunderland
Industrial Holdings Corporation, Hamilton Holdings Ltd. Corporation, Delaware State Employees'
Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc., Declaration
of Trust for Defined Benefit Plans of ICI American Holdings Inc., John Hancock Mutual Life Insurance
Company and Rice Partners II, L.P.
*10.8 -- First Amendment to Shareholder Agreement dated as of June 13, 1997 among Precise Holding Corporation,
Sunderland Industrial Holding Corporation, Hamilton Holdings Ltd. Corporation, Delaware State
Employees' Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.,
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc., Rice Partners II, L.P.
and John Hancock Mutual Life Insurance Company.
*10.9 -- Tax Allocation and Indemnity Agreement dated as of June 11, 1997 by and among Sunderland Industrial
Holdings Corporation, Precise Holding Corporation, and Precise Technology, Inc. and its direct and
indirect subsidiaries.
*10.10 -- Amended and Restated Management Agreement, dated as of June 13, 1997 between Precise Technology, Inc.
and Mentmore Holdings Corporation.
*10.11 -- Sunderland Industrial Holdings Corporation 1997 Key Employee Nonqualified Stock Option Plan dated as
of April 24, 1997.
*10.12 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial Holdings
Corporation and John R. Weeks.
*10.13 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial Holdings
Corporation and Michael M. Farrell.
+10.14 -- Memorandum of Agreement dated August 8, 1995 between The Procter & Gamble Manufacturing Company and
Tredegar Molded Products Company.
12.1 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
*21.1 -- Subsidiaries of the Registrants.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Grant Thornton LLP.
23.3 -- Consent of Coopers & Lybrand L.L.P.
*23.4 -- Consent of Winston & Strawn (included in Exhibit 5.1).
*24.1 -- Powers of Attorney.
*25.1 -- Statement of Eligibility of Trustee.
*27.1 -- Financial Data Schedule.
*99.1 -- Form of Letter of Transmittal.
*99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Form of Tender Instructions.
</TABLE>
- ------------------
* Previously filed.
+ Confidential treatment requested for a portion of this exhibit previously
filed.
<PAGE>
================================================================================
Supplemental Indenture
No. 1
to
Indenture dated as of June 13, 1997
Re:
11 1/8% Senior Subordinated Notes due 2007
================================================================================
<PAGE>
This SUPPLEMENTAL INDENTURE NO. 1 to INDENTURE (the "Supplemental
Indenture") is entered into among Precise Technology, Inc., a Delaware
corporation (the "Company"), Precise TMP, Inc., a Virginia corporation ("Precise
TMP"), Massie Tool, Mold & Die, Inc., a Florida corporation ("Massie"), Precise
Polestar, Inc., a Virginia corporation ("Precise Polestar"), Precise Technology
of Delaware Inc., a Delaware corporation ("Precise Delaware"), and Precise
Technology of Illinois Inc., a Delaware corporation ("Precise Illinois") (each
of Precise TMP, Massie, Precise Polestar, Precise Delaware and Precise
Illinois a "Guarantor", and together with certain future Subsidiaries of
the Company as set forth herein, the "Guarantors") and Marine Midland
Bank, as trustee (the "Trustee").
RECITALS
WHEREAS, the Company, the Guarantors and the Trustee have entered into
that certain Indenture dated as of June 13, 1997 (the "Original Indenture")
providing for the issuance and delivery by the Company of its 11 1/8% Senior
Subordinated Notes due 2007;
WHEREAS, pursuant to Section 9.01(e) of the Original Indenture, the
Company, the Guarantors and the Trustee wish to amend and supplement the
Original Indenture to make a change that does not adversely affect the legal
rights thereunder of any Holder; and
WHEREAS, terms used herein and not otherwise defined shall have the
same meanings as specified in the Original Indenture.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. The Original Indenture is hereby amended as follows:
1.1 Section 1.01 of the Original Indenture is hereby amended to
insert the following definition:
"Adjusted Net Assets" of a Guarantor at any date
means the lesser of the amount by which (x) the fair value
of the property of such Guarantor exceeds the total amount
of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and
contingent liabilities), but excluding liabilities under
the Subsidiary Guarantee of such Guarantor at such date and
(y) the present fair salable value of the assets of such
Guarantor at such date exceeds the amount that will be
required to pay the probable liability of such Guarantor
on its debts (after giving effect to all other fixed and
contingent liabilities and after giving effect to any
collection from any Subsidiary of such Guarantor in respect
of the obligations
1
<PAGE>
of such Subsidiary under the Subsidiary Guarantee of such
Guarantor) excluding Indebtedness in respect of the
Subsidiary Guarantee of such Guarantor, as they become
absolute and matured.
1.2 Section 12.05 of the Original Indenture is hereby amended to read
in its entirety as follows:
The obligations of each Guarantor are limited to
the maximum amount as will, after giving effect to all other
contingent and fixed liabilites of such Guarantor and after
giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations
of such other Guarantor under its Subsidiary Guarantee or
pursuant to its contribution obligations under this Indenture,
result in the obligations of such Guarantor under its Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Guarantor that makes a
payment or distribution under its Subsidiary Guarantee shall be
entitled to a contribution from each other Guarantor in a pro
rata amount based on the Adjusted Net Assets of each Guarantor.
Section 2. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE.
Section 3. Except as amended hereby, the Original Indenture shall
remain in full force and effect and is hereby ratified and confirmed in all
respects.
Section 4. The parties may sign multiple counterparts of this
Supplemental Indenture. Each signed counterpart shall be deemed an original, but
all of them together represent one and the same agreement.
Section 5. Each provision of this Supplemental Indenture shall be
considered separable and if for any reason any provision which is not essential
to the effectuation of the basic purpose of this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 6. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of
2
<PAGE>
the recitals contained herein, all of which are made solely by the Company and
the Guarantors.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Supplemental
Indenture to be duly executed as of this day of October, 1997.
PRECISE TECHNOLOGY, INC.
PRECISE TMP, INC.
MASSIE TOOL, MOLD & DIE, INC.
PRECISE POLESTAR, INC.
PRECISE TECHNOLOGY OF DELAWARE INC.
PRECISE TECHNOLOGY OF ILLINOIS INC.
BY:
------------------------------------
Name:
Title:
MARINE MIDLAND BANK, as Trustee
BY:
------------------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 12.1
PRECISE TECHNOLOGY, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings before fixed charges:
Net income (loss) $ 409 $ 421 $ 950 $1,275 $ 466
Extraordinary item,
net of tax -- -- -- -- --
Provision for income taxes -- 66 574 941 1,265
------ ------ ------ ------ ------
Income before income taxes 409 487 1,524 2,216 1,731
Interest expense 703 706 956 810 6,131
Interest portion of rental
expenses 75 88 124 103 304
Current period interest
amortization of interest
capitalized in prior periods -- -- -- 2 2
------ ------ ------ ------ ------
Earnings before fixed charges 1,187 1,281 2,604 3,131 8,168
------ ------ ------ ------ ------
Fixed charges
Interest expense 703 706 956 810 6,131
Interest portion of rental
expenses 75 88 124 103 304
Interest capitalized during
the period -- -- 17 -- --
------ ------ ------ ------ ------
Total fixed charges 778 794 1,097 913 6,435
Excess (Deficiency) of earnings to
fixed charges $ 409 $ 487 $1,507 $2,218 $1,733
===== ====== ====== ====== ======
Ratio of Earnings to fixed
charges 1.5x 1.6x 2.4x 3.4x 1.3x
====== ====== ====== ===== ======
<CAPTION>
Unaudited Six
Months ended Unaudited Unaudited
June 30, Pro Forma Pro Forma
------------------ Year Ended Six Months Ended
December 31 June 30
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Earnings before fixed charges:
Net income (loss) $ 244 $(6,175) $ (925) $(1,760)
Extraordinary item,
net of tax -- 4,841 -- --
Provision for income taxes 641 614 169 322
------ ------ ------ ------
Income before income taxes 885 (720) (756) (1,438)
Interest expense 2,160 3,875 10,405 5,448
Interest portion of rental
expenses 168 143 304 143
Current period interest
amortization of interest
capitalized in prior periods -- -- 2 --
------ ------ ------ ------
Earnings before fixed charges 3,213 3,298 9,955 4,153
------ ------ ------ ------
Fixed charges
Interest expense 2,160 3,875 10,405 5,448
Interest portion of rental
expenses 168 143 304 143
Interest capitalized during
the period -- -- -- --
------ ------ ------ ------
Total fixed charges 2,328 4,018 10,709 5,591
Excess (Deficiency) of earnings to
fixed charges $ 885 $(720) $(754) $(1,438)
====== ====== ====== ======
Ratio of Earnings to fixed
charges 1.4x 0.8x .9x 0.7x
====== ====== ======= =======
</TABLE>
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 14, 1997, in the Registration Statement (Form S-4
No. 333-32041) and related Prospectus of Precise Technology, Inc. for the
registration of $75,000,000 of its Series B 11-1/8% Senior Subordinated Notes
due 2007.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
October 3, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated February 10, 1995 accompanying the December
31, 1994 consolidated statements of income, stockholder's equity and cash flows
of Precise Technology, Inc. and subsidiaries contained in the Registration
Statement on form S-4 and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus and to the
use of our name as it appears under the caption "Experts".
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Chicago, Illinois
October 3, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
Precise Technology, Inc. of our report dated February 26, 1996 on our audits of
the consolidated financial statements of Tredegar Molded Products Company and
Subsidiaries as of December 31, 1995 and 1994 and for each of the two years in
the period ended December 31, 1995. We also consent to the references to
our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Richmond, Virginia
October 3, 1997
