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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1998
Registration No. 333-60855
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AMM HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3089 52-2088661
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
1111 NORTHSHORE DRIVE, SUITE N-600
KNOXVILLE, TN 37919-4048
(423) 450-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PHYLLIS C. BEST
CHIEF FINANCIAL OFFICER
AMM HOLDINGS, INC.
1111 NORTHSHORE DRIVE, SUITE N-600
KNOXVILLE, TN 37919-4048
(423) 450-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
ROBERT M. CHILSTROM, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) NOTE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
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13 1/2% Senior Discount Notes due
2009.................................. $68,000,000 100% $68,000,000 $20,060(2)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION DATED NOVEMBER 2, 1998
PROSPECTUS
OFFER FOR ALL OUTSTANDING 13 1/2% SENIOR DISCOUNT NOTES DUE 2009
IN EXCHANGE FOR 13 1/2% SENIOR DISCOUNT NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OF
AMM HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT P.M., NEW YORK CITY TIME
ON , 1998, UNLESS EXTENDED.
AMM Holdings, Inc., a Delaware corporation ("Holdings"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $68,000,000 aggregate principal amount at maturity of
its 13 1/2% Senior Discount Notes due 2009 (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount at maturity of its issued and outstanding 13 1/2%
Senior Discount Notes due 2009 (the "Old Notes" and, together with the New
Notes, the "Notes") from the holders thereof. The terms of the New Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes and except for
certain provisions providing for an increase in the interest rate on the Old
Notes under certain circumstances relating to the timing of the Exchange Offer,
which rights will terminate upon consummation of the Exchange Offer.
The sale of the Old Notes generated gross proceeds to Holdings of
approximately $35.3 million. The Old Notes were issued pursuant to an offering
(the "Offering") which was exempt from the registration requirements of the
Securities Act and applicable state securities laws. See "Description of Notes"
and "Certain Federal Income Tax Considerations." Original issue discount on the
Notes will accrete at a rate of 13 1/2%, compounded semi-annually to an
aggregate principal amount of $68.0 million at July 1, 2003. Cash interest will
not accrue on the Notes prior to July 1, 2003. Commencing July 1, 2003, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum, and will be
payable semiannually in arrears on January 1 and July 1 of each year, commencing
January 1, 2004. The Notes will be redeemable at the option of Holdings, in
whole or in part, at any time on or after July 1, 2003 in cash at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated Damages
(as defined), if any, thereon to the date of redemption. In addition, at any
time prior to July 1, 2003, the Notes will be redeemable at the option of
Holdings, in whole but not in part, in cash at a redemption equal to 113.5% of
the Accreted Value thereof on the date of redemption plus Liquidated Damages (as
defined), if any, thereon to the date of redemption with the net cash proceeds
of a Public Equity Offering (as defined). See "Description of Notes--Optional
Redemption." In addition, upon the occurrence of a Change of Control (as
defined), each holder of Notes will have the right to require Holdings to
repurchase all or any part of such holder's Notes at an offer price in cash
equal to 101% of the Accreted Value thereof, plus Liquidated Damages, if any, to
the date of repurchase (if such date of repurchase is prior to July 1, 2003) or
101% of the aggregate principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of repurchase (if such date
of repurchase is on or after July 1, 2003). See "Description of
Notes--Repurchase at the Option of Holders--Change of Control." There can be no
assurance that, in the event of a Change of Control, Holdings would have
sufficient funds to purchase all Notes tendered. See "Risk Factors--Limitations
on Ability to Make Change of Control Payment." Subject to certain conditions, at
July 4, 1998 approximately $48.8 million of capacity was available for borrowing
by the Company under the Revolving Credit Facility (as defined), all of which
borrowings would effectively rank senior to the Notes.
The Old Notes are, and the New Notes will be general unsecured obligations of
Holdings, and the Old Notes rank, and the New Notes will rank, pari passu in
right of payment to all existing and future senior unsecured indebtedness of
Holdings and the Old Notes rank, and the New Notes will rank, senior in right of
payment to all existing and future subordinated indebtedness of Holdings. The
Old Notes are, and the New Notes will be effectively subordinated to all
indebtedness of the Company and its subsidiaries. As of July 4, 1998, Holdings'
subsidiaries had $337.5 million of outstanding liabilities (including trade
payables). See "Description of Certain Indebtedness."
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The Old Notes were issued at a substantial discount from
their principal amount at maturity. Original issue discount on the Notes will
accrete at a rate of 13 1/2%, compounded semi-annually to an aggregate principal
amount of $68.0 million at July 1, 2003. Cash interest will not accrue on the
Notes prior to July 1, 2003. Commencing July 1, 2003, cash interest on the Notes
will accrue at the rate of 13 1/2% per annum, and will be payable semiannually
in arrears on January 1 and July 1 of each year, commencing January 1, 2004, to
Holders of record on the immediately preceding May 15 and December 15. No cash
interest will be payable on the Notes prior to January 1, 2004. 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 July 1, 2003. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
The New Notes are being offered hereunder in order to satisfy certain
obligations of Holdings contained in the Registration Rights Agreement dated
June 26, 1998 among Holdings and the other signatories thereto (the
"Registration Rights Agreement"). Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission") as set forth in no-action
letters issued to third parties, Holdings believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of Holdings within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement with any person to participate in the distribution of such New
Notes. However, Holdings does not intend to request the Commission to consider,
and the Commission has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each holder (including, without limitation, any Holder that
is a broker-dealer) must acknowledge that (A) it is not an Affiliate (as defined
in Rule 144 of the Securities Act), (B) it is not engaged in, and does not
intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes, and (C) it is
acquiring the New Notes in its ordinary course of business. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. Holdings has agreed
that, during the Prospectus Delivery Period (as defined herein), it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
Holdings will not receive any proceeds from the Exchange Offer. Holdings will
pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event Holdings terminates the Exchange Offer and does
not accept for exchange any Old Notes, Holdings will promptly return the Old
Notes to the holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or the
ability of holders of the New Notes to sell their New Notes or the price at
which such holders may be able to sell their New Notes. Donaldson, Lufkin, &
Jenrette Securities Corporation (the "Initial Purchaser") has advised Holdings
that it currently intends to make a market in the New Notes. The Initial
Purchaser is not obligated to do so, however, and any market-making with respect
to the New Notes may be discontinued at any time without notice. Holdings does
not intend to apply for listing or quotation of the New Notes on any securities
exchange or stock market.
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SEE "RISK FACTORS" COMMENCING ON PAGE 15 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD
NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998.
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FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward-looking
statements". When used in this Prospectus, the words, "believe," "anticipate,"
"should," "intend," "plan," "will," "expects," "estimates," "projects,"
"positioned," "strategy," and similar expressions identify such forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from those contemplated or projected, forecast, estimated or budgeted in or
expressed or implied by such forward-looking statements. Such factors include,
among others, the risk and other factors set forth under "Risk Factors" as well
as the following: general economic and business conditions, industry trends, the
loss of major customers or suppliers, the timing of orders received from
customers, cost and availability of raw materials, changes in business strategy
or development plans, availability and quality of management, and availability,
terms and deployment of capital.
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AVAILABLE INFORMATION
Anchor Holdings, Inc., the direct, wholly owned subsidiary of Holdings and
the direct parent of the Company ("Anchor Holdings"), and the Company, are
currently subject to the periodic reporting and other informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information can be inspected and copied at the Public Reference Room maintained
by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained by mail from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the Commission at 1-800-SEC-0330. The Commission
maintains a Web site (http://www.sec.gov) that contains reports and information
statements and other information regarding registrants, such as the Company and
Anchor Holdings, that file electronically with the Commission.
Holdings 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 remains
outstanding, it will furnish to the holders of the Notes and file with the
Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in such a filing with the Commission on Forms 10-Q and 10-K if
Holdings 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 Holdings' certified
independent public accountants and (ii) all reports that would be required to be
filed with the Commission on Form 8-K if Holdings were required to file such
reports. In addition, for so long as any of the Notes remains outstanding,
Holdings has agreed to make available to any prospective purchaser of the Notes
or beneficial owner of the Notes in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act. This
Prospectus constitutes a part of a Registration Statement on Form S-4 filed by
Holdings with the Commission under the Securities Act. This Prospectus omits
certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to Holdings and the New
Notes offered hereby. Any statements contained herein concerning the provisions
of any document are not necessarily complete, and, in each instance, reference
is made to such copy filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
may by inspected without charge at the office of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be
obtained from the Commission at prescribed rates.
------------------------------
UNTIL , 1998 (90 DAYS FOLLOWING THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS OBLIGATION IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS ON SUBSCRIPTIONS.
i
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise indicates, the term (i) "Company" refers to Moll Industries,
Inc., the surviving entity of the merger (the "Merger") of Anchor and Moll (each
as defined below), and its direct and indirect subsidiaries, and to the business
formerly conducted by each of Anchor and Moll, (ii) "Anchor" refers to Anchor
Advanced Products, Inc., and its direct and indirect subsidiaries, prior to the
Merger, (iii) "Moll" refers to Moll PlastiCrafters Limited Partnership, and its
direct and indirect subsidiaries, prior to the Merger, (iv) "Anchor Holdings"
refers to Anchor Holdings, Inc., the direct parent of the Company, (v)
"Holdings" refers to AMM Holdings, Inc., the indirect parent of the Company and
the direct parent of Anchor Holdings, and (vi) "Gemini Plastic" refers to Gemini
Plastic Services, Inc. Each of Holdings' and the Company's fiscal years end on
December 31 of each year. Unless otherwise indicated, all references to pro
forma information give effect to the Transactions. See "The Transactions."
Certain market data used in this Prospectus reflect management estimates; while
such estimates are believed by Holdings to be reliable, no assurance can be
given that such data is accurate in all material respects.
HOLDINGS
Holdings is a holding company and does not have any material operations or
assets other than ownership of all the capital stock of Anchor Holdings, which
does not have any material operations or assets other than ownership of all the
capital stock of the Company. On a proforma basis after giving effect to the
Transactions, Holdings generated 1997 net sales, net loss and EBITDA of $414.6
million, $1.7 million and $54.8 million, respectively.
THE COMPANY
OVERVIEW
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company serves over 450
customers, including leading multinational companies such as Abbott
Laboratories, Colgate-Palmolive, Kimberly-Clark, L'Oreal, Maybelline, Motorola,
Procter & Gamble, Renault, Revlon, Siemens, Whirlpool and Xerox. Products using
the Company's plastic components are sold in a wide range of end markets,
including end markets for consumer products, telecommunications/business
equipment, household appliances, automobiles and medical devices. The Company
believes that the diversity of its customers, markets and geographic regions
creates a stable revenue base and reduces the Company's exposure to particular
market or regional economic cycles. On a pro forma basis after giving effect to
the Transactions, the Company generated 1997 net sales, net income and EBITDA of
$414.6 million, $.7 million and $54.8 million, respectively, making it the sixth
largest non-automotive plastic injection molding company in North America and
one of the largest plastic component suppliers in Europe.
The Company has 27 manufacturing facilities, with approximately 680 molding
machines throughout North America and Europe, including France, Germany, the
United Kingdom and Portugal. The Company is capable of providing its customers
with integrated design and prototype development, mold design and manufacturing,
advanced plastic injection molding capabilities, and value-added finishing
services, such as hot stamping, pad printing, assembly and complete product
testing, all of which enable it to provide "one-stop" shopping to customers
seeking a wide range of services. The Company's technologically advanced
manufacturing facilities and equipment enable it to provide customized solutions
to highly demanding customer specifications. For 1997, approximately 45% of the
Company's sales of molded products were covered by long term purchase and sale
contracts which stipulate anticipated volume requirements and pricing terms.
However, such contracts do not contain any minimum purchase requirements on the
part of the customer. Almost all such contracts can be terminated by the parties
thereto by mutual agreement and can also be terminated by either party giving
notice of termination upon certain occurrences, including, without limitation,
1
<PAGE> 5
disagreement on quality, quantity and pricing issues, insolvency or dissolution
of any party thereto and upon any material breach of such contracts by any party
thereto. Management believes that few competitors offer the scale, expertise,
reputation and range of services that the Company provides.
According to industry sources, demand for injection molded plastics in the
United States is projected to grow at 3.3% annually. Such growth is expected to
result from a number of key factors, including: (i) improved resins and
processing capabilities; (ii) versatility of the injection molding process; and
(iii) cost and performance advantages of plastic over substitute materials.
Despite the expected increase in demand for plastic injection molded products,
the U.S. molding industry remains highly fragmented, with over 2,500 injection
molders operating more than 10,000 plant locations. In addition to the growth
projected for the plastics industry as a whole, growth for full service,
multiple plant injection molders such as the Company is driven by industry
consolidation and the trend among customers to outsource their injection molding
needs. Management believes that larger injection molders such as the Company
will benefit from continued industry consolidation and the trend by original
equipment manufacturers ("OEMs") to outsource their injection molding needs to
larger, full-service independent molders that are able to provide total project
management.
Concurrently with the Offering, the Company was formed through the merger
of two leading plastic injection molders, Moll PlastiCrafters Limited
Partnership and Anchor Advanced Products, Inc., which were each controlled by
Mr. George Votis. Immediately prior to the Merger, Moll and Anchor were
independently operated entities. Mr. Votis acquired Moll's predecessor in 1989
and has since completed seven acquisitions, increasing Moll's revenues from
approximately $8 million in 1989 to approximately $232.4 million in 1997 on a
pro forma basis, excluding the acquisition of Anchor. Such acquisitions included
the acquisition in August 1997 of Hanning, a leading supplier of injection
molded plastic components for use in digital photocopiers with manufacturing
facilities located in the United States, the United Kingdom and Germany, which
had 1997 revenues of $49.6 million, and the acquisition in January 1998 of
Somomeca, a French injection molder which had 1997 revenues of $88.5 million. In
March 1998, Mr. Votis acquired Anchor, which had 1997 revenues of $161.2
million. See "The Company."
The Company has been formed to combine the manufacturing, marketing and
management resources of Moll and Anchor to create further opportunities for
growth and development. As a result of the Transactions, management believes
that the Company has become better positioned to benefit from the growth and
consolidation of the plastics industry. The Company also believes that
consummation of the Transactions has significantly enhanced its future growth
prospects and revenue stability by broadening its customer base, manufacturing
capabilities and geographic presence. Moreover, the Company expects to benefit
from its increased scale, ability to centralize certain key logistical functions
and attendant cost savings opportunities. Since March 1998, the Company has
eliminated approximately $2.8 million in annualized costs by reducing
duplicative administrative expenses, eliminating less profitable business lines
and streamlining manufacturing processes. The savings consist of $1.7 million in
payroll costs gained through the elimination of duplicate expenses and excessive
resources and $1.1 million in benefit costs gained through a revision of the
retirement benefits. The savings were calculated based on the salaries of the
positions eliminated and an actuarial estimation of the savings associated with
the change in the retirement plan.
MARKETS
The Company serves the following end markets:
CONSUMER PRODUCTS--The Company designs, manufactures and packages a broad
array of plastic components used for consumer end-products such as mascara
packages and lipstick containers for leading cosmetics manufacturers such as
L'Oreal, Maybelline, Revlon and Estee Lauder, and toothbrushes for
Colgate-Palmolive, Procter & Gamble, Cheseborough-Ponds and SmithKline Beecham.
The Company derived 27.6% of 1997 pro forma net sales from this end market.
TELECOMMUNICATIONS/BUSINESS EQUIPMENT--The Company is a leading
manufacturer of various plastic components and accessories for cellular phones,
photocopiers, computers and printers for telecommunications and business
equipment manufacturers such as Siemens, Motorola, 3M and Xerox. The Company
derived 18.9% of 1997 pro forma net sales from this end market.
2
<PAGE> 6
HOUSEHOLD APPLIANCES--The Company designs and manufactures plastic parts
for a wide variety of household appliances, including refrigerators (primarily
high end side-by-side refrigerators), ranges, room air conditioners, counter-top
appliances and televisions made by Whirlpool, Tefal, Electrolux and Daewoo. The
Company derived 17.6% of 1997 pro forma net sales from this end market.
AUTOMOTIVE--The Company designs and manufactures plastic parts such as door
handles, gear shift knobs, sunvisors and wheel covers for automobiles and light
trucks manufactured by major foreign and domestic automobile manufacturers,
including General Motors, Renault, BMW, Audi and Saab. The Company derived 12.3%
of 1997 pro forma net sales from this end market.
MEDICAL DEVICES--The Company manufactures various plastic medical devices,
including blood filtration devices, angiographic syringes, intravenous equipment
and in-vitro diagnostic kits for major medical product manufacturers, including
Abbott Laboratories, Johnson & Johnson, Baxter, Pfizer and 3M. The Company
derived 8.1% of 1997 pro forma net sales from this end market.
PACKAGING AND OTHER--The Company manufactures and assembles a broad range
of plastic components and end-products such as soap dispensing equipment and
packaging materials and closures for a number of large manufacturers, including
Kimberly-Clark, Electrolux, Seaquist and Tetrapak. The Company derived 15.5% of
1997 pro forma net sales from this end market.
COMPETITIVE STRENGTHS
Management believes that the Company has achieved its current position as a
market leader because of the following competitive strengths:
BROAD GEOGRAPHIC PRESENCE. The Company's multiple plant locations
throughout North America and Europe enable it to (i) compete effectively for
contracts that require large volume runs and multiple distribution points, (ii)
offer its customers multiple production locations and (iii) allocate production
to the facility best suited for a job in view of its relative capabilities and
proximity to the customer. As a result, the Company is able to provide its
customers with a broad range of manufacturing capabilities, improved
responsiveness, timely delivery, and reduced freight costs. In addition, by
operating geographically diverse plants, the Company can mitigate customer
sourcing risks associated with single facility production.
FULL SERVICE CAPABILITIES. The Company provides its customers with
comprehensive services ranging from product design, product development,
prototyping and mold making to molding, painting and other value-added services.
As a result, management believes that the Company is one of a limited number of
full service plastic injection molders in North America and Europe that is well
positioned to benefit from the trend of customers outsourcing total project
management to full service multiple plant suppliers.
STRONG CUSTOMER RELATIONSHIPS. The Company believes that its ability to
attract and retain customers is in part attributable to the high level of
customer service it provides. The Company also believes that frequent
interaction with its customers in the product development process helps it to
develop long-term relationships. Of the Company's top ten customers in 1997, two
have been with the Company for over fifty years, three have been with the
Company for over ten years and the remainder have been with the Company for over
four years. For many of its key customers, the Company is the sole supplier for
specific parts. The Company's emphasis on customer partnerships and its
long-standing customer relationships provide it with a significant competitive
advantage.
MANUFACTURING CAPABILITIES. The Company utilizes a wide range of advanced
manufacturing processes, such as gas assist molding, co-injection and two-shot
molding, automated assembly and testing, in-mold decorating, thin-wall molding
and in-mold bristling. The Company's manufacturing capabilities enable it to
provide innovative solutions and supply components in an integrated process. For
example, the Company worked closely with Renault to produce dashboard grilles
using a newly developed co-injection molding technology.
SUPERIOR PRODUCT QUALITY. The Company uses quality systems and operations
management techniques to meet the highest standards and to reduce costs. The
Company continually invests in technology and training to monitor and improve
quality. Included among such investments are effective management systems to
ensure real-time information and control, statistical process control systems,
failure mode and effect analysis systems, microprocessor-controlled molding
machines and automated assembly equipment. In addition, the
3
<PAGE> 7
Company has material and product testing equipment that monitor product
reliability to meet exacting quality standards.
BUSINESS STRATEGY
The Company seeks to further strengthen its leadership position in the
plastic molding industry and to maximize its financial performance by employing
the following strategies:
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The Company believes that the
Merger creates new opportunities to cross-sell products and services between
each of Anchor's and Moll's customer bases. For example, while Anchor's
operations prior to the Merger were confined to North America, many of its
customers are multinational firms with significant European operations.
Management believes that offering such customers access to the Company's
European operations, operated by Moll prior to the Merger, is a significant
growth opportunity. The Company has hired a new Senior Vice President, Marketing
to target and capitalize on such opportunities.
CENTRALIZE SALES AND MARKETING. The Company plans to centralize management
of its sales and marketing efforts to improve communication with customers,
better cross-sell services to customers and ensure uniform pricing and sales
strategies. While local sales and management staff will maintain direct
relationships with customers and production facilities, a centralized sales and
marketing effort will enable the Company to serve national and international
accounts more effectively and to pursue customers located outside an individual
plant's geographic service area. The Company's centralized sales and marketing
group will be responsible for identifying market trends and assisting customers
with new product ideas as well as promoting the Company through customer
presentations, advertising and trade shows.
EXPAND GLOBALLY. The Company believes that it is one of the largest North
American plastic injection molders with a significant European presence. Such
capabilities allow the Company to (i) penetrate new geographic regions with its
existing multinational customers, such as L'Oreal, Siemens, Whirlpool and Xerox,
and (ii) acquire complementary manufacturing facilities in strategic locations.
Continuing to pursue this strategy will enable the Company to effectively
provide a complete and integrated range of molding, manufacturing and
value-added services on a global basis.
REDUCE COSTS. The Company continually aims to improve its cost
effectiveness by increasing productivity and implementing operational
improvements. Since March 1998, the Company has eliminated approximately $2.8
million in annualized costs by reducing duplicative administrative expenses,
eliminating less profitable business lines and streamlining manufacturing
processes. The savings consist of $1.7 million in payroll costs gained through
the elimination of duplicate expenses and excessive resources and $1.1 million
in benefit costs gained through a revision of the retirement benefits. The
savings were calculated based on the salaries of the positions eliminated and an
actuarial estimation of the savings associated with the change in the retirement
plan. Management believes that the combination of Anchor, Moll and Gemini
Plastic will result in additional opportunities to reduce costs by: (i) reducing
overhead expenses through optimization of labor and equipment resources at each
of the Company's facilities; (ii) divesting or discontinuing less profitable
business lines; (iii) eliminating redundant administrative operations and
related personnel; and (iv) where appropriate, moving key management personnel
on-site to the Company's manufacturing plants in order to oversee expansion
and/or execution of cost control measures.
CONTINUE STRATEGIC ACQUISITIONS. Strategic acquisitions have been, and
management believes will continue to be, an important element in the Company's
growth and in its efforts to capitalize on favorable industry trends. The
Company will consider future acquisition opportunities that are attractively
priced and which the Company believes will strengthen its customer base, broaden
its geographic presence, enhance its production capabilities and provide
significant operating synergies. While the Company routinely enters into
discussions with potential acquisition candidates, no such discussions have
progressed beyond the preliminary stages.
4
<PAGE> 8
THE TRANSACTIONS
Concurrently with the consummation of the Offering, the following
transactions were consummated: (i) the Merger; (ii) the acquisition of Gemini
Plastic; (iii) the distribution of Moll's 69% limited partnership interest in
Reliance Products Limited Partnership, a Delaware limited partnership doing
business in Canada ("Reliance Products"), to certain of Moll's limited partners;
(iv) the entering into the Revolving Credit Facility and (v) the Company Notes
Offering (as defined). The net proceeds from the Offering will be used to fund
the Distribution and the Equity Contribution. The Company consummated the
acquisition of Gemini Plastic on June 30, 1998. See "The Transactions."
Holdings' principal executive offices are located at 1111 Northshore Drive,
Suite N-600, Knoxville, Tennessee 37919-4048, and its telephone number is (423)
450-5300.
5
<PAGE> 9
THE EXCHANGE OFFER
SECURITIES OFFERED............ Up to $68,000,000 aggregate principal amount of
maturity of 13 1/2% Senior Discount Notes Due
2009, which have been registered under the
Securities Act. The terms of the New Notes and
the Old Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights relating
to the Old Notes and except for certain
interest provisions relating to the Old Notes
described below under "--Summary Description of
the New Notes."
THE EXCHANGE OFFER............ The New Notes are being offered in exchange for
a like principal amount of Old Notes. The
issuance of the New Notes is intended to
satisfy obligations of Holdings contained in
the Registration Rights Agreement. For
procedures for tendering, see "The Exchange
Offer".
TENDERS, EXPIRATION DATE;
WITHDRAWAL.................... The Exchange Offer will expire at
p.m., New York City time, on ,
1998 or such later date and time to which it is
extended. The tender of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Note not
accepted for exchange for any reason will be
returned without expense to the tendering
Holder thereof as promptly as practicable after
the expiration or termination of the Exchange
Offer.
CERTAIN CONDITIONS TO EXCHANGE
OFFER......................... Holdings shall not be required to accept for
exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend
the Exchange Offer if at any time before the
acceptance of the Old Notes for exchange or the
exchange of the New Notes for such Old Notes
certain events have occurred, which, in the
reasonable judgment of Holdings, make it
inadvisable to proceed with the Exchange Offer
and/or with such acceptance for exchange or
with such exchange. Such events include (i) any
threatened, instituted or pending action
seeking to restrain or prohibit the Exchange
Offer, (ii) a general suspension of trading in
securities on any national securities exchange
or in the over-the-counter market, (iii) a
general banking moratorium, (iv) the
commencement of a war or armed hostilities
involving the United States and (v) a material
adverse change or development involving a
prospective material adverse change in
Holdings's business, properties, assets,
liabilities, financial condition, operations,
results of operations or prospects that may
affect the value of the Old Notes or the New
Notes. In addition, Holdings will not accept
for exchange any Old Notes tendered, and no New
Notes will be issued in exchange for any such
Old Notes, at any such time as any stop order
shall be threatened or in effect with respect
to the Registration Statement of which this
Prospectus constitutes a part or the
qualification of the Indentures under the Trust
Indenture Act of 1939. See "The Exchange
Offer--Certain Conditions to the Exchange
Offer."
6
<PAGE> 10
FEDERAL INCOME TAX
CONSEQUENCES.................. The exchange pursuant to the Exchange Offer
should not result in any income, gain or loss
to the holders or Holdings for federal income
tax purposes. See "Certain Federal Income Tax
Considerations."
USE OF PROCEEDS............... There will be no proceeds to Holdings from the
Exchange Offer.
EXCHANGE AGENT................ State Street Bank and Trust Company is serving
as Exchange Agent in connection with the
Exchange Offer.
SHELF REGISTRATION
STATEMENT..................... Under certain circumstances, certain holders of
Notes (including holders who are not permitted
to participate in the Exchange Offer or who may
not freely resell New Notes received in the
Exchange Offer) may require Holdings to file
and cause to become effective, a shelf
registration statement under the Securities
Act, which would cover resales of Notes by such
holders. See "Description of the
Notes--Registration rights; Liquidated
Damages".
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holdings does not currently anticipate that it
will register Old Notes under the Securities Act. See "Description of the
Notes--Registration Rights; Liquidated Damages." Based on interpretations by the
staff of the Commission, as set forth in no-action letters issued to third
parties, Holdings believes that New Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of Holdings within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, Holdings does not intend to request the Commission to consider,
and the Commission has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each holder (including, without limitation, any Holder that
is a broker-dealer) must acknowledge that (A) it is not an Affiliate (as defined
in Rule 144 of the Securities Act), (B) it is not engaged in, and does not
intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes, and (C) it is
acquiring the New Notes in its ordinary course of business. As a condition to
its participation in the Exchange Offer each Holder using the Exchange Offer to
participate in a distribution of the New Notes shall acknowledge and agree that,
if the resales are of New Notes obtained by such Holder in exchange for Old
Notes acquired directly from Holdings or an Affiliate thereof, it (i) could not
rely on the applicable interpretations of the staff of the Commission and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction and that such
a secondary resale transaction must be covered by an effective registration
statement containing the selling security holder information required by Item
507 or 508, as applicable, of Regulation S-K under the Securities Act. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." In addition, to
7
<PAGE> 11
comply with state securities laws, the New Notes may not be offered or sold in
any state unless they have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with. Holdings currently does not intend to register or qualify the sale of the
New Notes in any state where an exemption from registration or qualification is
required and not available.
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except for certain provisions providing for an
increase in the interest rates on the Old Notes under certain circumstances
relating to timing of the Exchange Offer, which rights will terminate upon
consummation of the Exchange Offer. The Old Notes were issued at a substantial
discount from their principal amount at maturity. Original issue discount on the
Notes will accrete at a rate of 13 1/2%, compounded semi-annually to an
aggregate principal amount of $68.0 million at July 1, 2003. Cash interest will
not accrue on the Notes prior to July 1, 2003. Commencing July 1, 2003, cash
interest on the Notes will accrue at the rate of 13 1/2% per annum, and will be
payable semiannually in arrears on January 1 and July 1 of each year, commencing
January 1, 2004, to Holders of record on the immediately preceding May 15 and
December 15. No cash interest will be payable on the Notes prior to January 1,
2004. 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 July 1, 2003.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
SECURITIES OFFERED............ Up to $68.0 million in principal amount at
maturity of Holdings' 13 1/2% Senior Discount
Notes due 2009, which have been registered
under the Securities Act.
MATURITY DATE................. July 1, 2009
ACCRETION..................... Original issue discount on the Notes will
accrete at a rate of 13 1/2% compounded
semi-annually to an aggregate principal amount
of $68.0 million at July 1, 2003.
INTEREST RATE................. Cash interest will not accrue on the Notes
prior to July 1, 2003. Commencing July 1, 2003,
cash interest on the Notes will accrue at the
rate of 13 1/2% per annum, and will be payable
semi-annually in arrears on January 1 and July
1 of each year, commencing January 1, 2004.
OPTIONAL REDEMPTION........... The Notes will be redeemable at the option of
Holdings, in whole or in part, at any time on
or after July 1, 2003 in cash at the redemption
prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages (as
defined), if any, thereon to the date of
redemption. In addition, at any time prior to
July 1, 2003, the Notes will be redeemable at
the option of Holdings, in whole or in part, in
cash at a redemption price equal to 113.5% of
the Accreted Value thereof on the date of
redemption, plus Liquidated Damages, if any,
thereon to the redemption date with the net
cash proceeds of a Public Equity Offering.
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control,
each holder of Notes will have the right to
require Holdings to repurchase all or any part
of such holder's Notes at an offer price in
cash equal to 101% of the Accreted Value
thereof, plus Liquidated Damages, if any, to
the date of repurchase (if such date of
repurchase is prior to July 1, 2003) or 101% of
the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
repurchase (if such date of repurchase is on or
after July 1, 2003). See "Description of
Notes--Repurchase at
8
<PAGE> 12
the Option of Holders--Change of Control."
There can be no assurance that, in the event of
a Change of Control, Holdings would have
sufficient funds to purchase all Notes
tendered. See "Risk Factors--Limitations on
Ability to Make Change of Control Payment."
RANKING....................... The Old Notes are, and the New Notes will be,
general unsecured obligations of Holdings, the
Old Notes rank, and the New Notes will rank,
pari passu in right of payment to all existing
and future senior unsecured indebtedness of
Holdings and the Old Notes rank, and the New
Notes will rank, senior in right of payment to
all existing and future subordinated
indebtedness of Holdings. However, the Old
Notes are, and the New Notes will be,
effectively subordinated to all indebtedness of
the Company and its subsidiaries. As of July 4,
1998, Holdings' subsidiaries had $337.5 million
of outstanding liabilities (including trade
payables). See "Description of Certain
Indebtedness." Subject to certain conditions,
at July 4, 1998 approximately $48.8 million of
capacity was available for borrowing by the
Company under the Revolving Credit Facility,
all of which borrowings would effectively rank
senior to the Notes. However, after giving
effect to the most restrictive covenants
contained in the Company's loan documents, as
of July 4, 1998, the maximum amount of Senior
Debt that could be incurred by the Company in
addition to the $122.6 million of Senior Debt
outstanding on such date was approximately $24
million.
ORIGINAL ISSUE DISCOUNT....... The Notes were issued with original issue
discount for U.S. federal income tax purposes.
Thus, although interest will not be payable on
the Notes prior to January 1, 2004, holders
will be required to include amounts in gross
income for U.S. federal income tax purposes in
advance of receipt of the cash payments to
which such income is attributable. See "Certain
Federal Income Tax Considerations."
CERTAIN COVENANTS............. The Indenture contains certain covenants that
limit, among other things, the ability of
Holdings to: (i) pay dividends, redeem capital
stock or make certain other restricted payments
or investments, (ii) incur additional
indebtedness or issue preferred equity
interests, (iii) merge, consolidate or sell all
or substantially all of its assets, (iv) create
liens on assets and (v) enter into certain
transactions with affiliates or related
persons. See "Description of Notes--Certain
Covenants."
USE OF PROCEEDS............... Holdings will not receive any proceeds from the
Exchange Offer. The gross proceeds from the
sale of the Old Notes were estimated to be
approximately $35.3 million and were used by
Holdings to fund the Distribution and the
Equity Contribution. The Company will pay all
of the fees and expenses related to the
Offering on behalf of Holdings. See "Use of
Proceeds" and "Certain Relationships and
Related Transactions."
EXCHANGE OFFER; REGISTRATION
RIGHTS........................ Holders of New Notes (other than as set forth
below) are not entitled to any registration
rights with respect to the New Notes. Pursuant
to the Registration Rights Agreement, Holdings
agreed, for the benefit of the Holders of Old
Notes, to file an Exchange
9
<PAGE> 13
Offer Registration Statement (as defined). The
Registration Statement of which this Prospectus
is a part constitutes the Exchange Offer
Registration Statement. Under certain
circumstances, certain Holders of Notes
(including Holders who may not participate in
the Exchange Offer or who may not freely resell
New Notes received in the Exchange Offer) may
require Holdings to file, and cause to become
effective, a shelf registration statement under
the Securities Act, which would cover resales
of Notes by such Holders. See "Description of
the Notes--Registration Rights; Liquidated
Damages."
RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate the
specific factors set forth under "Risk Factors" before making a decision to
tender their Old Notes in the Exchange Offer.
10
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary unaudited pro forma data for
Holdings, as well as summary historical financial data of each of Holdings (the
Registrant), Anchor Holdings (an acquired company) and Somomeca (an acquired
company) for the periods indicated. The summary historical financial data for
the years ended 1995, 1996 and 1997 for Holdings (See Note 4) and Anchor
Holdings were derived from the audited consolidated financial statements
contained elsewhere in this Prospectus. The summary historical data for the
years ended 1996 and 1997 for Somomeca were derived from unaudited financial
statements prepared by management. The summary unaudited interim balance sheet
data and the summary unaudited statements of operations and other data for the
first twenty-six weeks of 1997 and 1998 were derived from unaudited financial
statements contained elsewhere in this Prospectus. These unaudited financial
statements were prepared on the same basis as the annual financial statements
and, in the opinion of management, reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation. The unaudited pro
forma data were derived from the unaudited pro forma financial statements
contained elsewhere in this Prospectus and reflect the Transactions as if they
had occurred at the beginning of the period presented. Neither the summary
historical consolidated financial data nor the summary pro forma consolidated
financial data are necessarily indicative of either the future results of
operations or the results of operations that would have occurred if the
Transactions had been consummated on any date. The following table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the historical consolidated financial
statements of each of Holdings, Moll, Anchor Holdings and Somomeca, as well as
the unaudited pro forma financial statements of Holdings, including accompanying
notes thereto, included elsewhere in this Prospectus.
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX WEEKS
DECEMBER 31, 1997 1998
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................... $414,630 $199,185
Gross profit................................................ 60,048 28,691
Selling, general and administrative expenses................ 29,390 15,064
Operating income............................................ 30,458 13,527
Interest expense, net....................................... 31,019 16,372
Income (loss) before taxes and extraordinary item........... 308 (3,590)
Income (loss) before extraordinary item..................... (1,729) (2,536)
OTHER DATA:
EBITDA(1)................................................... $ 54,807 $ 23,269
Cash flows from operating activities........................ 8,943 4,674
Cash flows from investing activities........................ (29,764) (8,532)
Cash flows from financing activities........................ 18,209 772
Depreciation and amortization............................... 23,480 10,487
Capital expenditures........................................ 15,559 7,605
Cash interest expense, net(2)............................... 29,945 15,699
Ratio of EBITDA to cash interest expense, net............... 1.8x NA
Ratio of net debt to EBITDA(3).............................. 4.7x NA
</TABLE>
11
<PAGE> 15
SUMMARY UNAUDITED INTERIM BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT JULY 4, 1998
<S> <C>
Cash........................................................ $ 29,668
Working capital............................................. 89,730
Total assets................................................ 339,455
Total debt.................................................. 287,922
Stockholders' deficit....................................... (33,390)
</TABLE>
12
<PAGE> 16
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWENTY-SIX WEEKS
------------------------------ -------------------
AMM HOLDINGS, INC., THE REGISTRANT(4) 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................................ $90,876 $89,464 $116,947 $53,755 $123,169
Gross profit..................................... 16,966 16,502 19,861 11,888 21,073
Selling, general and administrative expenses..... 8,301 7,190 10,758 4,177 9,587
Operating income................................. 9,019 8,574 8,186 6,869 10,288
Interest expense, net............................ 2,414 2,518 3,405 1,423 4,979
Income before taxes and extraordinary item....... 6,485 6,037 4,645 4,956 4,532
Income before extraordinary item................. 6,485 6,037 4,563 4,956 3,788
PRO FORMA INFORMATION:
Provision for income taxes....................... $ 2,594 $ 2,415 $ 2,531 $ 1,982 $ 1,300
Income before extraordinary item................. 3,891 3,622 2,114 2,974 2,444
OTHER DATA:
EBITDA(1)........................................ $13,317 $12,703 $ 13,450 $ 8,736 $ 14,596
Cash flows from operating activities............. 9,709 10,802 5,506 1,472 2,725
Cash flows from investing activities............. (2,553) (11,592) (14,215) (1,347) (34,574)
Cash flows from financing activities............. (6,972) 1,336 9,595 772 59,512
Depreciation and amortization.................... 4,418 4,148 5,400 2,337 5,085
Capital expenditures............................. 2,776 1,387 6,562 1,447 6,983
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWENTY-SIX WEEKS
-------------------------------- ------------------
ANCHOR HOLDINGS, INC., ACQUIRED COMPANY(5) 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................................ $149,366 $156,858 $161,161 $84,745 $75,810
Gross profit..................................... 24,338 27,637 25,187 13,429 8,178
Selling, general and administrative.............. 9,409 11,358 10,979 5,490 5,946
Income from operations........................... 13,267 14,749 12,510 7,269 1,503
Interest expense, net............................ 8,616 8,124 11,165 4,982 6,026
Income (loss) before taxes and extraordinary
item........................................... 3,677 6,217 1,632 2,200 (4,625)
Income (loss) before extraordinary item.......... 2,438 3,626 838 1,400 (3,233)
OTHER DATA:
EBITDA(1)........................................ $ 21,742 $ 23,627 $ 22,370 $11,916 $ 6,652
Cash flows from operating activities............. 8,822 13,076 16,037 5,877 1,365
Cash flows from investing activities............. (6,453) (8,014) (8,847) (3,481) (7,185)
Cash flows from financing activities............. (2,265) (4,268) (1,854) (244) --
Depreciation and amortization.................... 9,449 9,286 9,573 4,734 5,251
Capital expenditures............................. 6,932 8,028 8,413 3,481 4,416
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
SOMOMECA INDUSTRIES, ACQUIRED COMPANY 1996 1997
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales....................................... $89,003 $ 88,502
Gross profit.................................... 12,055 10,559
Income from operations.......................... 5,104 5,090
Interest expense, net........................... 2,436 2,391
Income before taxes............................. 2,214 2,474
Net income...................................... 1,006 1,438
OTHER DATA:
EBITDA(1)....................................... $12,218 $ 10,923
Cash flows from operating activities............ (3,498) 8,627
Cash flows from investing activities............ (8,225) (4,623)
Cash flows from financing activities............ 11,718 (4,356)
Depreciation and amortization................... 7,568 6,058
Capital expenditures............................ 9,638 5,097
</TABLE>
- ------------------------------
(1) EBITDA represents income before taxes plus interest expenses, net,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income, net income or cash flows from operating
activities in analyzing the referenced company's operating performance,
financial position or cash flows, the referenced company has included EBITDA
because it is commonly used by certain
13
<PAGE> 17
investors and analysts to analyze and compare companies on the basis of
operating performance, leverage and liquidity and to determine a company's
ability to service debt. As all companies may not calculate EBITDA in the
same manner, these amounts may not be comparable to other companies.
(2) Cash interest expense, net represents interest expense minus amortization of
debt issuance costs.
(3) Net debt, as used in calculating this ratio, represents total debt at July
4, 1998 of $287,922 minus cash of $29,668. EBITDA, as used in this
calculation, represents EBITDA for the year ended December 31, 1997.
(4) The financial data presented here is derived from the financial statements
of Moll as Moll was the accounting acquiror in the Merger. At July 4, 1998
there were no significant differences between the operations and other data
of Moll Industries, Inc. and AMM Holdings, Inc. (the "Registrant").
(5) The consolidated financial statements of Anchor Holdings (acquired company)
do not differ significantly from those of Anchor. See Note 16 to the
historical consolidated financial statements of Anchor Holdings.
14
<PAGE> 18
RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate the
following risks before tendering their Old Notes in the Exchange Offer, although
the risk factors set forth below (other than "--Consequences of Failure to
Exchange") are generally applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act, and
applicable state securities laws. Holdings does not currently anticipate that it
will register the Old Notes under the Securities Act or under any applicable
state securities laws. See "The Exchange Offer--Consequences of Exchanging or
Failing to Exchange Old Notes."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
Holdings has substantial indebtedness and incurred additional indebtedness
in connection with the Offering. As of July 4, 1998, Holdings' total
indebtedness was $287.9 million and the Company had, subject to certain
conditions, at July 4, 1998 an additional $48.8 million of capacity available
for borrowing under the Revolving Credit Facility, all of which borrowings would
effectively rank senior to the Notes. For 1997, on a pro forma basis, the
Company's ratio of earnings to fixed charges would have been 1 to 1. As of July
4, 1998, the Company's annual debt service was $11,750 million in respect of the
Senior Notes (11 3/4%) and $13.7 million in respect of the Company Notes
(10 1/2%). The aggregate total amount of the Company's Senior Debt outstanding
as of July 4, 1998 consisted of $100 million of the Senior Notes and $22.6
million of equipment leases and other debt.
The degree to which Holdings is leveraged could have important consequences
for Holdings, including the following: (i) the ability of Holdings to obtain
additional financing for working capital, capital expenditures, acquisitions,
debt service requirements or other purposes may be impaired; (ii) a substantial
portion of the cash flow from operations will be required to pay Holdings'
interest expense and principal repayment obligations and will not be available
for its general corporate needs; (iii) the substantial indebtedness incurred by
Holdings coupled with the restrictive covenants to which Holdings is subject may
reduce the Company's flexibility to adjust to changing market conditions, and
its ability to compete against its less highly leveraged competitors; (iv) the
Company may be more vulnerable in the event of a downturn in its business; and
(v) to the extent that the Company incurs borrowings under the Revolving Credit
Facility at variable rates, it will be vulnerable to increases in interest
rates.
Holdings' ability to pay interest on the Notes, and perform on its
guarantee obligations under the Revolving Credit Facility, will depend on its
future performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond its control.
Holdings anticipates that operating cash flow from its subsidiaries, together
with borrowings by the Company under the Revolving Credit Facility, will be
sufficient to meet the Company's operating expenses and to service the Company's
debt requirements as they become due. Holdings also anticipates that it will be
able to access the operating cash flows of the Company, subject to compliance
with the dividend and restricted payment covenants in agreements governing the
Company's indebtedness, to service cash interest payable on the Notes when such
cash interest becomes payable in 2003 and to meet its operating expenses.
However, Holdings anticipates that such operating cash flows will not be
sufficient to repay the Notes at maturity and that, accordingly, it will be
required to refinance the Notes. No assurance can be given that Holdings will be
able to refinance the Notes. However, if Holdings is unable to service its
indebtedness, Holdings may be required to take action such as reducing or
delaying capital expenditures by the Company, selling assets, restructuring or
refinancing the Company's indebtedness or seeking additional equity capital.
There can be no assurance that any of these remedies can be effected on
satisfactory terms, if at all. Each of the Revolving Credit Facility, the
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Company Notes Indenture (as defined) and the Indenture contains, covenants that
restrict the ability of Holdings and the Company to take certain of the
foregoing actions, including selling assets and using the proceeds therefrom.
There can be no assurance as to the timing of such actions, the ability of
Holdings to consummate such actions under its existing financing agreements or
the proceeds that Holdings could realize therefrom, and there can be no
assurance that any such transactions would be feasible at the time or that such
proceeds would be adequate to meet the obligations then due. Furthermore, a
failure to comply with the obligations contained in the Revolving Credit
Facility or any agreements with respect to any future indebtedness could result
in an event of default under such agreements and the acceleration of the related
debt. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Description of Certain
Indebtedness" and "Description of Notes."
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION; ABSENCE OF GUARANTEES
Holdings is a holding company and does not have any material operations or
assets other than ownership of all of the capital stock of Anchor Holdings,
which does not have any material operations or assets other than ownership of
all the capital stock of the Company. Accordingly, the Old Notes are, and the
New Notes will be, effectively subordinated to all existing and future
liabilities of Holdings' subsidiaries, including indebtedness under each of the
Revolving Credit Facility and the Company Notes. As of July 4, 1998, Holdings'
subsidiaries had $337.5 million of outstanding liabilities (including trade
payables) to which holders of the Notes would be effectively subordinated.
Holdings and its subsidiaries may incur additional indebtedness in the future,
subject to certain limitations contained in the instruments governing their
indebtedness. The obligations of the Company under the Senior Notes are
guaranteed by Anchor Holdings and certain Restricted Subsidiaries (as defined in
the Senior Notes Indenture (defined below)) of the Company while the obligations
of the Company under the Company Notes and the Revolving Credit Facility are not
guaranteed by Anchor Holdings and such subsidiaries.
Any right of Holdings to participate in any distribution of assets of its
subsidiaries upon the liquidation, reorganization or insolvency of any such
subsidiary (and the consequent right of the holders of the Notes to participate
in the distribution of those assets) will be subject to the prior claims of the
respective subsidiary's creditors. See "Description of Certain Indebtedness."
LIMITATION ON THE PAYMENT OF FUNDS TO HOLDINGS BY ITS SUBSIDIARIES
Holdings' cash flow, and consequently its ability to service debt,
including its obligations under the Indenture, is dependent upon the cash flows
of its subsidiaries and the payment of funds by such subsidiaries to Holdings in
the form of loans, dividends or otherwise. Holdings' subsidiaries, including the
Company, have no obligations, contingent or otherwise, to pay any amounts due
pursuant to the Notes or to make any funds available therefor. In addition, each
of the indenture (the "Senior Notes Indenture") governing the Company's 11 3/4%
Senior Notes due 2004 (the "Senior Notes"), the Revolving Credit Facility and
the Company Notes Indenture imposes, and agreements entered into in the future
may impose, significant restrictions on the payment of dividends and the making
of loans by the Company and its subsidiaries to Holdings. Accordingly, repayment
of the Notes may depend upon the ability of Holdings to effect an equity
offering or to refinance the Notes.
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued at a substantial discount from their principal
amount. Consequently, the Old Notes were issued with "original issue discount"
for U.S. Federal income tax purposes, and purchasers of the Notes are required
to include amounts in gross income in advance of receipt of any cash payment on
the Notes to which the income is attributable. See "Certain Federal Income Tax
Considerations" for a more detailed discussion of the U.S. Federal income tax
consequences to the Holders of the Notes resulting from the purchase, ownership
or disposition thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Notes upon the occurrence of an Event of Default, the Holders of Notes may be
entitled to recover only the amount that may be declared due and payable
pursuant to the Indenture, which will be less than the principal amount at
maturity of such Notes. See "Description of Notes--Events of Default."
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If a bankruptcy case is commenced by or against Holdings under the United
States Bankruptcy Code (the "Bankruptcy Code"), the claim of a Holder of Notes
with respect to the principal amount thereof will likely be limited to an amount
equal to the sum of (i) the issue price of the Notes as of the date of issuance
of the Notes and (ii) that portion of the original issue discount that is not
deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code.
Accordingly, Holders of the Notes under such circumstances may, even if
sufficient funds are available, receive a lesser amount than they would be
entitled to under the express terms of the Indenture. In addition, there can be
no assurance that a bankruptcy court would compute the accrual of interest under
the same rules as those used for the calculation of original issue discount
under U.S. Federal income tax law and, accordingly, a Holder might be required
to recognize gain or loss in the event of a distribution related to such
bankruptcy case.
RELIANCE ON MAJOR CUSTOMERS
Approximately 55% of the Company's pro forma net sales in 1997 were derived
from its ten largest customers. Additionally, approximately 10.7% and 10.3% of
the Company's pro forma net sales in 1997 were derived from L'Oreal and
Whirlpool, respectively. The Company expects that it will continue to be
dependent upon a limited number of customers for a significant portion of its
net sales for future periods. Although the Company has ongoing supply
relationships with its principal customers, there can be no assurance that sales
to such customers will continue at the same level. As a result of this customer
concentration, the Company's businesses, operating results and financial
condition could be materially adversely affected by (i) the failure of
anticipated orders to materialize, (ii) deferrals or cancellations of orders or
(iii) increases by its largest customers of their in-house production of the
Company's products or selecting other manufacturers from whom to buy products.
There can be no assurance that in future periods the revenues from these
customers will be maintained at historic levels. In addition, certain of the
Company's agreements to produce parts are tied to specific models or product
lines of its customers. Accordingly, the Company's business, and estimates for
future business, are dependent upon consumer demand for the specific models and
product lines that incorporate parts manufactured by the Company. While
management believes that the Company's relationships with its customers are
mutually satisfactory, if any of these customers were to reduce substantially or
discontinue purchases from the Company, or if consumer demand for products
incorporating plastic parts manufactured by the Company were to significantly
decrease, the financial condition and results of operations of the Company would
be materially adversely affected.
COMPETITION
The markets in which the Company operates are highly competitive. The
Company competes with a significant number of companies of varying sizes,
including divisions or subsidiaries of larger companies, on the basis of price,
service, quality and the ability to supply products to customers in a timely
manner. Some of these competitors have, and new competitors may have, greater
financial and other resources than the Company. Additionally, each of Reliance
Products (which is controlled by the principal stockholders of the Company) and
the Company are engaged in the injection molded plastics business. The products
manufactured, and the markets served, by each of Reliance Products and the
Company are different, and Reliance Products and the Company have not competed,
and do not compete, with each other. However, no assurance can be given that
Reliance Products and the Company will not compete for the same business
opportunities in the future, which may present conflicts of interest.
Competitive pressures or other factors, including the vertical integration by
certain of the Company's major customers of manufacturing processes
traditionally outsourced to the Company, could cause the Company to lose market
share or could result in a significant price erosion with respect to the
Company's products, either of which could have a material adverse effect on the
Company's results of operations. Furthermore, the Company's customers operate in
highly competitive markets. To the extent the Company's major customers lose
market share in their respective markets, the Company's results of operations
and financial condition could be materially adversely affected. See
"Business--Competition."
MANAGING INTEGRATION AND GROWTH
The Company's ability to implement its growth strategy depends, in part, on
its success in integrating its acquisitions, into the Company's operations. The
Company has grown significantly over the past year and a
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half through acquisitions that represent a substantial increase in the scope of
the Company's business. The pursuit and integration of acquisitions, including
the integration of Anchor and Moll as part of the Transactions, will require
substantial attention from the Company's senior management, which will limit the
amount of time these individuals will have available to devote to the Company's
existing operations. Successful integration of each of their operations will
depend primarily on the Company's ability to manage such operations and to
integrate their respective managements. There can be no assurance that the
Company can successfully integrate such acquisitions into its business or
implement its plans without delay or substantial cost. In addition, future
acquisitions by the Company could result in the incurrence of debt and
contingent liabilities which could have a material adverse effect upon the
Company's financial condition and results of operations. Any failure or any
inability to effectively manage and integrate growth may have a material adverse
effect on the Company's financial condition and results of operations. See "The
Company."
RAW MATERIALS
The Company's primary raw materials are various plastic resins, nylon and
packaging materials. Raw material prices are subject to cyclical price
fluctuations, including those arising from supply shortages and as a result of
changes in the prices of natural gas, crude oil and other petrochemical
intermediates from which resin is derived. Accordingly, the Company's financial
performance is directly linked to its ability to pass along increased raw
material costs to its customers. Although the Company has historically been able
to pass on increased costs to its customers, there can be no assurance that it
will be able to do so in the future or that a significant price increase in raw
materials would not have a material adverse effect on the Company's financial
condition and results of operations. Although most of the raw materials used by
the Company are available from several suppliers, several of such raw materials
are currently obtained from single sources. The Company has no reason to believe
that there will not be an ample supply of its raw materials at prices
commercially acceptable to the Company for the reasonably foreseeable future,
but the Company cannot make any prediction as to the future price of such raw
materials. See "Business--Raw Materials."
INTERNATIONAL OPERATIONS
The Company derived approximately 33% of its 1997 pro forma net sales from
its operations in Europe. The Company's international operations are subject to
risks inherent in international business activities, including, in particular,
compliance with a variety of foreign laws and regulations, unexpected changes in
regulatory requirements, overlap of different tax structures, foreign currency
exchange rate fluctuations and general economic conditions.
The Company prices its products and incurs operating expenses in Europe in
the currency of the country in which the product is manufactured and sold and,
in the United States, in United States dollars. To the extent that costs and
prices are in the currency of the country in which the products are manufactured
and sold, the costs and prices of such products in dollars will vary as the
value of the dollar fluctuates against such currencies. There can be no
assurance that there will not be increases in the value of the dollar against
such currencies that will reduce the dollar return to the Company on the sale of
its products in such countries.
COMMON EUROPEAN CURRENCY
The Treaty on European Economic and Monetary Union provides for the
introduction of a single European currency, the Euro, in substitution for the
national currencies of the member states of the European Union that adopt the
Euro. In May 1998, the European Council determined (i) the 11 member states that
met the requirements for Monetary Union, and (ii) the currency exchange rates
among the currencies of the member states joining the Monetary Union. The
transitory period for the Monetary Union starts on January 1, 1999. According to
Council Resolution of July 7, 1997, the introduction of the Euro will be made in
three steps: (i) a transitory period from January 1, 1999 to December 31, 2001
in which current accounts may be opened and financial statements may be drawn in
Euros, and local currencies and Euros will coexist; (ii) from January 1, 2002 to
June 30, 2002, in which local currencies will be exchanged for Euros; and (iii)
from July 1, 2002 in which local currencies will disappear. Although there can
be no assurance that a single European currency will be adopted or, if adopted,
on what time schedule and with what success, substantial transition costs could
result as the Company redesigns its software systems to reflect the adoption of
the new currency.
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In addition, no assurance can be given as to the effect of the adoption of the
Euro on the Company's payment obligations under loan agreements for borrowings
in currencies to be replaced by the Euro or on the Company's commercial
agreements in such currencies.
CONCENTRATION OF CONTROL
AMM Holdings, LLC, a Delaware limited liability company ("AMM Holdings,
LLC"), owns all the capital stock of Holdings, which owns all the capital stock
of Anchor Holdings, which owns all the Company's outstanding capital stock. Moll
PlastiCrafters, Inc. (Del), a Delaware corporation ("MPI"), owns 75.6% of the
outstanding Capital Units (as defined) and 69.3% of the outstanding Profit Units
(as defined) of AMM Holdings, LLC. George T. Votis owns all the outstanding
capital stock of MPI as well as 4.8% of the outstanding Capital Units and 10.8%
of the outstanding Profit Units of AMM Holdings, LLC. Mr. Votis is the manager
of AMM Holdings, LLC and, pursuant to the Limited Liability Company Agreement,
dated as of June 26, 1998 (the "LLC Agreement") of AMM Holdings, LLC, has
exclusive power to manage the business and affairs of AMM Holdings, LLC.
Therefore, Mr. Votis will be able to indirectly control the business, policies
and affairs of Holdings and the Company, including the election of directors and
managers and major corporate transactions of Holdings and the Company.
Circumstances may occur in which the interests of Mr. Votis could be in conflict
with the interests of the holders of the Notes. For example, if Holdings or the
Company encounters financial difficulties or is unable to pay certain of its
debts as they mature, the interests of Mr. Votis might conflict with those of
the holders of Holdings' indebtedness, including the Notes. In addition, Mr.
Votis may have an interest in pursuing acquisitions, divestitures or other
transactions that, in his judgment, could enhance his equity investment, even
though such transactions might involve risks to the holders of Holdings'
indebtedness, including the Notes. See "Certain Beneficial Owners."
DEPENDENCE ON KEY PERSONNEL
The success of Holdings and the Company depends in large part on Holdings'
and the Company's senior management and its ability to attract and retain other
highly qualified management personnel. Holdings and the Company face competition
for such personnel from other companies and other organizations. There can be no
assurance that either Holdings or the Company will be successful in hiring or
retaining key personnel. In particular, Holdings and the Company believe that
they have benefitted substantially from the leadership of Mr. George T. Votis,
the Chairman and Chief Executive Officer of Holdings and the Company. The loss
of the services of Mr. Votis or other key personnel of Holdings or the Company
could have a material adverse effect on Holdings' or the Company's business and
each of their future operations. The Company does not maintain any key person
life insurance. Mr. Votis and Mr. Charles B. Schiele, President of Holdings and
the Company, devote a portion of their business time to other companies,
including Reliance Products. There can be no assurance that the inability of
either Mr. Votis or Mr. Schiele to devote their full time and resources to the
Company will not adversely affect the Company's business, financial condition
and results of operations. See "Management."
ENVIRONMENTAL MATTERS
Federal, state, local and foreign governments could enact laws or
regulations concerning environmental matters that increase the cost of
producing, or otherwise adversely affect the demand for, plastic products. The
Company is aware that certain local governments have adopted ordinances
prohibiting or restricting the use or disposal of certain plastic products that
are among the types of products produced by the Company. If such prohibitions or
restrictions were widely adopted, such regulatory and environmental measures or
a decline in consumer preference for plastic products due to environmental
considerations could have a material adverse effect upon the Company. In
addition, certain of the Company's operations are subject to Federal, state,
local and foreign environmental laws and regulations that impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous wastes. While the
Company has not been required historically, and does not currently expect, to
make significant capital expenditures in order to comply with applicable
environmental laws and regulations, the Company cannot predict with any
certainty its future capital expenditure requirements because of continually
changing compliance standards and environmental technology. The Company does not
have insurance coverage for
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environmental liabilities and does not anticipate obtaining such coverage in the
future. See "Business--Environmental Matters."
FRAUDULENT CONVEYANCE
Holdings believes that the indebtedness represented by the Notes has been
incurred for proper purposes and in good faith, and that, based on present
forecasts, asset valuations and other financial information, after the
consummation of the Transactions, Holdings is solvent, has sufficient capital
for carrying on its business and will be able to pay its debts as they mature.
See, however, "--Substantial Leverage; Ability to Service Debt" and
"--Limitation on the Payment of Funds to Holdings by its Subsidiaries."
Notwithstanding Holdings' belief, however, under federal or state fraudulent
transfer laws, if a court of competent jurisdiction in a suit by an unpaid
creditor or a representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time of the incurrence of such
indebtedness, Holdings was insolvent, was rendered insolvent by reason of such
occurrence, was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital, intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
or intended to hinder, delay or defraud its creditors, and that the indebtedness
was incurred for less than reasonably equivalent value, then such court could,
among other things, (a) void all or a portion of Holdings' obligations to the
Holders of the Notes, the effect of which would be that the Holders of the Notes
might not be repaid in full and/or (b) subordinate Holdings' obligations to the
Holders of the Notes to other existing and future indebtedness of Holdings to a
greater extent than would otherwise be the case, the effect of which would be to
entitle such other creditors to which the Notes were not previously subordinated
to be paid in full before any payment could be made on the Notes.
LIMITATIONS ON THE ABILITY TO MAKE CHANGE OF CONTROL PAYMENT
Pursuant to the Indenture, upon a Change of Control, Holdings is obligated
to make an offer to purchase all outstanding Notes at a price equal to 101% of
the Accreted Value thereof, plus Liquidated Damages, if any, to the date of
repurchase (if such date of repurchase is prior to June 1, 2003) or 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the date of repurchase (if such date of
repurchase is on or after June 1, 2003). In addition, any Change of Control
under the Indenture would also constitute a Change of Control under the
indenture governing the Company Notes (the "Company Notes Indenture") and the
Senior Notes Indenture. The Revolving Credit Facility prohibits Holdings from
purchasing any Notes and also provides that the occurrence of certain Change of
Control events with respect to Holdings would constitute a default thereunder.
In the event of a Change of Control, the Company would be required to repay all
borrowings under the Revolving Credit Facility or obtain the consent of its
lenders under the Revolving Credit Facility to make the purchase of the Notes,
the Company Notes and the Senior Notes. If Holdings or the Company does not
obtain such consent or repay such borrowings, Holdings and the Company will
remain prohibited from purchasing Notes, the Company Notes and the Senior Notes,
respectively. In such case, Holdings' failure to purchase tendered Notes would
constitute a default under the Indenture, which, in turn, would constitute a
default under the Revolving Credit Facility. Furthermore, there can be no
assurance that Holdings will have the financial ability to purchase the Notes
upon the occurrence of a Change of Control. See "Description of Notes--Change of
Control."
YEAR 2000
Historically, certain computerized systems have had two digits rather than
four digits to define the applicable year, which could result in recognizing a
date using "00" as the year 1900 rather than the year 2000. This could result in
major failures or miscalculations, and is generally referred to as the "Year
2000 issue." The Company recognizes that the impact of the Year 2000 issue
extends beyond traditional computer hardware and software to automated plant
systems and instrumentation, as well as to third parties. The Year 2000 issue is
being addressed within the Company by its individual business units, and
progress is reported periodically to management.
The Company has committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, plant systems and external parties. Information
technology includes telecommunications, as well as traditional computer software
and hardware
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in the mainframe, midrange and desktop environments. Plant systems include all
automation and embedded chips used in plant operations. External parties include
any third party with which the Company does business.
In the information technology area, inventory and assessment audits in the
mainframe and midrange environments were completed in third quarter 1998 with
corrective action scheduled for completion by the fourth quarter 1998, except
for business application software which is expected to be completed by the
second quarter 1999. Inventory and assessment audits for telecommunications were
completed in third quarter 1998 with corrective action expected to be completed
by the second quarter 1999. Finally, inventory and assessment audits in the
desktop environment were completed in third quarter 1998, with corrective action
expected to be completed by the third quarter 1999. The companies located in
Europe will begin installing systems in the fourth quarter 1998 that will be
Year 2000 ready.
In the plant systems area, 75% of the Company's business units have
completed their inventory and assessment audits; the remaining units are
expected to complete this work by the fourth quarter 1998. The Company is
relying on vendor testing and certification with validation through limited
internal testing and/or industry test results. Downtime for normally scheduled
plant maintenance will be used to conduct testing, with corrective action
expected to be completed by the second quarter 1999.
With respect to external parties, 65% of the Company's business units have
completed their inventory audit of critical external parties. The remaining
business units are expected to complete this work by the fourth quarter 1998.
Risk assessment is expected to be complete by the fourth quarter 1998, and
monitoring of risk in this area will continue into 1999, as many external
parties will not have completed their work.
The total cost of Year 2000 activities is not expected to be material to
the Company's operations, liquidity or capital resources. Costs are being
managed within each business unit. The total cost for the Company's Year 2000
work is estimated to be $2 million. 1997 costs were $500,000, and 1998 costs
through June 1998 were $300,000. Costs exclude expenditures for replacement
systems, which were previously scheduled.
There is still uncertainty around the scope of the Year 2000 issue. At this
time the Company cannot quantify the potential impact of these failures. There
can be no assurance that there will not be a delay in, or increased costs
associated with, the Company's efforts to address the Year 2000 issue, and the
Company's inability to implement the necessary changes could have an adverse
effect on the Company. The Company's year 2000 program and contingency plans are
being developed to address issues within the Company's control. The program
minimizes but does not eliminate the issues of external parties.
LACK OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued on June 26, 1998 to a small number of institutional investors
and institutional accredited investors and are eligible for trading in the
Private Offering, Resale and Trading through Automated Linkages (PORTAL) Market,
the National Association of Securities Dealers' screenbased, automated market
for trading of securities eligible for resale under Rule 144A. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for the remaining untendered Old Notes could be adversely affected. There
is no existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of holders of the New Notes to sell their New Notes or the price at which such
holders may be able to sell their New Notes. Although the Initial Purchaser has
informed Holdings that it currently intends to make a market in the New Notes,
it is not obligated to do so, and any such market-making may be discontinued at
any time without notice. As a result, the market price of the New Notes could be
adversely affected. Holdings does not intend to apply for listing or quotation
of the New Notes on any securities exchange or stock market.
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THE COMPANY
OVERVIEW
Holdings is a holding company and does not have any material operations or
assets other than ownership of all the capital stock of Anchor Holdings, which
does not have any material operations or assets other than ownership of all the
capital stock of the Company. On a proforma basis after giving effect to the
Transactions, Holdings generated 1997 net sales, net loss and EBITDA of $414.6
million, $1.7 million and $54.8 million, respectively.
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company's products are sold to
a wide range of end-markets, including end markets for consumer products,
telecommunications/business equipment, household appliances, automobiles and
medical devices. On a pro forma basis after giving effect to the Transactions,
the Company generated 1997 net sales, net income and EBITDA of $414.6 million,
$.7 million and $54.8 million, respectively, making it the sixth largest
non-automotive plastic injection molding company in North America and one of the
largest plastic component suppliers in Europe.
HISTORY
Anchor
Anchor began operations in 1941 as a manufacturer of cosmetic brushes for
Maybelline and, in 1958, began producing Pepsodent(R) toothbrushes for Lever
Brothers Company, Inc. Anchor was acquired in 1990 by affiliates of the Thomas
H. Lee Company and management. Since such acquisition, Anchor has pursued a
growth strategy designed to increase sales while diversifying its revenue base.
In the pursuit of this strategy, Anchor acquired Mid-State Plastics, Inc.
("Mid-State") in 1994, which served to expand Anchor's business into the medical
device and computer components markets. In March 1997, Anchor completed a
recapitalization and in connection therewith issued the Senior Notes. In March
1998, Mr. Votis, who controls Moll, acquired Anchor from affiliates of the
Thomas H. Lee Company. Since such time, Anchor has eliminated approximately $2.8
million in annualized costs by reducing duplicative administrative expenses,
eliminating less profitable business lines and streamlining manufacturing
processes. The savings consist of $1.7 million in payroll costs gained through
the elimination of duplicate expenses and excessive resources and $1.1 million
in benefit costs gained through a revision of the retirement benefits. The
savings were calculated based on the salaries of the positions eliminated and an
actuarial estimation of the savings associated with the change in the retirement
plan.
Moll
In July 1991, certain entities controlled by Mr. Votis and his partners
were merged to form Moll. Since 1991, Moll has grown significantly through
several strategic acquisitions in North America and Europe:
Textek Plastics, Inc. In December 1992, Moll acquired Textek Plastics,
Inc. ("Textek"), a plastic injection molding manufacturer with one facility in
each of San Antonio and Round Rock, Texas. Textek specialized in manufacturing
plastic components and end-products for the telecommunications and business
products markets. Textek had revenues of $14.2 million in 1992.
Advanced Custom Molders. In July 1993, Moll acquired Advanced Custom
Molders ("ACM"), based in Georgetown and El Paso, Texas. The acquisition of ACM
added two additional plants. ACM had revenues of $15.5 million in 1993.
Quality Plastics Company. In October 1994, Moll acquired Quality Plastics
Company, Inc. ("Quality"), based in Newberg, Oregon. The acquisition of Quality
added manufacturing capacity in the Pacific Northwest. Quality had revenues of
$13.3 million in 1994.
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Hanning. In August 1997, Moll acquired the Hanning group of companies
("Hanning"), with manufacturing facilities located in the United States, the
United Kingdom and Germany, Hanning is a leading supplier of injection molded
plastic components for use in digital photocopiers. The acquisition of Hanning:
(i) established the Company's geographic presence in Europe; and (ii) broadened
the Company's product offerings to include precision plastic components for the
business equipment and automotive markets. Hanning had revenues of $49.6 million
in 1997.
Somomeca Industries. In January 1998, Moll acquired Somomeca Industries
S.A.R.L. and its subsidiaries ("Somomeca"), a major French supplier of injection
molded plastic components and plastic injection molds. Somomeca has seven
operating facilities in France and one operating facility in Portugal. The
acquisition of Somomeca: (i) expanded the Company's geographic presence in
Europe, (ii) established the Company's mold-making capabilities, and (iii)
expanded the Company's presence in the automotive sector. Somomeca had revenues
of $88.5 million in 1997.
Gemini Plastic. The Company consummated the acquisition of Gemini Plastic
on June 30, 1998. Gemini Plastic had revenues of approximately $21 million in
1997.
23
<PAGE> 27
THE TRANSACTIONS
Concurrently with the consummation of the Offering, the following
transactions were consummated: (i) the Merger; (ii) the acquisition of Gemini
Plastic; (iii) the distribution of Moll's 69% limited partnership interest in
Reliance Products, a Delaware limited partnership doing business in Canada, to
certain of Moll's limited partners; (iv) the entering into the Revolving Credit
Facility and (v) the Company Notes Offering. All of the foregoing transactions,
including the Offering and the Company Notes Offering, are hereinafter
collectively referred to as the "Transactions."
THE MERGER
The Company was formed through the merger of Moll and Anchor. Immediately
before and as a condition precedent to the issuance of the Holdings Notes and
the Notes, and as part of the Merger, the Company succeeded to all the assets of
Moll. Such assets included all of the equity interests in Moll's foreign
subsidiaries, which operate in France, Germany, the United Kingdom and Portugal.
As a result of the Merger, all of the U.S. operating assets of Moll and Anchor
are held by the Company. As the successor corporation in the Merger, the Company
also succeeded to the debt and other obligations of Anchor and Moll, including
the Senior Notes. See the unaudited pro forma consolidated financial statements
of the Company for a discussion of the accounting treatment of the Merger.
[ORGANIZATIONAL CHART]
Note: Certain subsidiaries of Moll Industries, Inc. are held through one or
more intermediate holding companies for certain corporate and tax
considerations. However, such holding companies have not been
reflected on this chart.
ACQUISITION OF GEMINI PLASTIC
The Company consummated the acquisition of Gemini Plastic on June 30, 1998.
Gemini Plastic had revenues of approximately $21 million in 1997.
DISTRIBUTION OF MOLL'S INTEREST IN RELIANCE PRODUCTS
In 1996, Moll acquired Reliance Products, a Delaware limited partnership
doing business in Canada, which manufactures a proprietary line of camping
equipment and bulk storage containers. Immediately prior to the Merger, Moll
distributed its 69% Class B limited partnership interest in Reliance Products to
certain of Moll's limited partners. Reliance Products had revenues of $17.4
million in 1997.
24
<PAGE> 28
REVOLVING CREDIT FACILITY
General. Concurrently with the Offering, the Company amended its then
existing credit facility (as amended, the "Revolving Credit Facility") with
NationsBank, N.A., as Agent and sole lender. The Revolving Credit Facility
provides for revolving loans to the Company in an aggregate amount not to exceed
$50.0 million, with a $10.0 million sublimit for the issuance of standby and
commercial letters of credit and a $20.0 million sublimit for the making of
foreign currency loans. It is anticipated that the Revolving Credit Facility
will be syndicated.
Availability. Borrowings under the Revolving Credit Facility are subject
to a borrowing base equal to the sum of (a) 85% of "eligible receivables," (b)
50% of "eligible inventory" which is not work-in-process inventory and (c) the
lesser of $5,000,000 and 25% of "eligible inventory" which is work-in-process
inventory (as such terms are defined in the Revolving Credit Facility), where
such inventory is valued at the lesser of book value or fair market value.
Security. The Revolving Credit Facility is secured by (i) a first priority
perfected security interest in (a) 100% of the equity interests in all domestic
subsidiaries of the Company, (b) in the event that any foreign subsidiary of the
Company which is a direct foreign subsidiary of the Company or any of its
domestic subsidiaries shall have 5% or more of consolidated total assets or
consolidated EBITDA, 65% of the equity interests in such foreign subsidiary, and
(c) all of the inventory, trademarks, trademark licenses, accounts receivable,
cash and cash equivalents maintained on deposit with the Agent and books and
records relating to the foregoing, of the Company and its domestic subsidiaries,
which assets shall not be subject to any other lien or encumbrance, except for
liens permitted under the Revolving Credit Facility, and (ii) a negative pledge
(subject to certain carve-outs) upon all other present and future assets and
properties of the Company and all of the domestic and foreign subsidiaries of
the Company (including, without limitation, accounts receivable, inventory, real
property, machinery, equipment, contracts, trademarks, copyrights, patents,
license agreements, and general intangibles).
The foregoing security shall ratably secure the Revolving Credit Facility
and any interest rate swap/foreign currency swap or similar agreements with a
lender (or any affiliate of a lender) under the Revolving Credit Facility.
Guarantees. Anchor Holdings has guaranteed the Company's obligations under
the Revolving Credit Facility. Additionally, in the event that any person
becomes a Designated Subsidiary (defined in the Revolving Credit Facility as at
any time, any direct or indirect subsidiary of the Company having at such time
any outstanding guarantee obligations in respect to any Funded Indebtedness (as
defined in the Revolving Credit Facility) of the Company other than the
indebtedness arising under the Senior Notes Indenture and the Senior Notes) of
the Company, the Company shall cause such person to execute a Joinder Agreement
(as defined in the Revolving Credit Facility), by which such person shall be
deemed to be a party to the Revolving Credit Facility, and shall have all of the
obligations of a Guarantor (as defined in the Revolving Credit Facility),
provided, however, if such Designated Subsidiary is a foreign subsidiary of the
Company, such Joinder Agreement shall provide that the obligations of such
person under the Revolving Credit Facility shall be limited to the extent
necessary to cause such obligations to be in compliance with the laws of such
Person's jurisdiction of incorporation.
Maturity. The Revolving Credit Facility will mature on June 30, 2003.
Interest Rate. The Revolving Credit Facility bears interest at a rate
equal to IBOR plus an applicable margin, which initially is 200 basis points or
the Base Rate (defined as the higher of (i) the prime rate of NationsBank N.A.
and (ii) the Federal Funds rate plus 1/2%) plus an applicable margin, which
initially is 100 basis points. The Company may select interest periods of one,
two, three or six months for IBOR loans, subject to availability. A penalty rate
shall apply on all loans in the event of default at a rate per annum of 2% above
the applicable interest rate.
Covenants. The Revolving Credit Facility contains covenants customary for
working capital financings, including, without limitation: (i) restrictions on
capital expenditures, incurrence of additional indebtedness,
25
<PAGE> 29
dividends and redemptions; and (ii) restrictions on mergers, acquisitions and
sales of assets. Additionally, the Revolving Credit Facility contains the
following three financial covenants:
(a) the Interest Coverage Ratio (EBITDA to cash interest expense) as
of the last day of each fiscal quarter of the Consolidated Parties (being
Anchor Holdings and its subsidiaries) calculated on a twelve month rolling
basis, shall be greater than or equal to (i) for the period from June 26,
1998 to and including the next to last day of the fiscal quarter of the
Company ending in December, 2000, 2.00 to 1.00, (ii) for the period from
the last day of the fiscal quarter of the Company ending in December, 2000
to and including the next to last day of the fiscal quarter of the Company
ending in December, 2001, 2.15 to 1.00, and (iii) for the period from the
last day of the fiscal quarter of the Company ending in December, 2001 and
at all times thereafter, 2.50 to 1.00;
(b) the Leverage Ratio (funded indebtedness net of cash and cash
equivalents to EBITDA), as of the last day of each fiscal quarter of the
Consolidated Parties, shall be less than or equal to (i) for the period
from June 26, 1998 to and including the next to last day of the fiscal
quarter of the Company ending in December, 1998, 4.75 to 1.00, (ii) for the
period from the last day of the fiscal quarter of the Company ending in
December, 1998 to and including the next to last day of the fiscal quarter
of the Company ending in December, 2000, 4.50 to 1.00, and (iii) for the
period from the last day of the fiscal quarter of the Company ending in
December, 2000 and at all times thereafter, 4.00 to 1.00; and
(c) at all times Consolidated Net Worth (Deficit) (shareholders'
equity or net worth) shall be greater than or equal to the sum of
($6,000,000), increased on a cumulative basis by an amount equal to (i) as
of the end of each fiscal quarter of the Company, commencing with the
fiscal quarter of the Company ending in September 1998, 50% of Consolidated
Net Income (as defined in the Revolving Credit Facility) (to the extent
positive) for the fiscal quarter then ended and (ii) as of the date of any
Equity Issuance (as defined in the Revolving Credit Facility), 100% of the
Net Proceeds (as defined in the Senior Note Indenture and the Indenture) of
any Equity Issuance.
Events of Default. The Revolving Credit Facility contains events of
default customary for working capital facilities, including, without limitation:
(i) nonpayment of principal, interest, fees or other amounts, (ii) violation of
covenants, and (iii) inaccuracy of representations and warranties.
COMPANY NOTES OFFERING
Concurrently with the Offering, the Company consummated an offering (the
"Company Notes Offering") of $130.0 million aggregate gross proceeds of its
10 1/2% Senior Subordinated Notes due 2008 (the "Company Notes").
26
<PAGE> 30
USE OF PROCEEDS
Holdings will not receive any proceeds from the Exchange Offer. The gross
proceeds to Holdings from the Offering were approximately $35 million. Holdings
used the proceeds of the Offering to fund (i) the Distribution to Holdings
stockholders of approximately $33.3 million, of which $2.3 million was retained
by Holdings stockholders and the remainder was used (a) to repay approximately
$15.6 million of indebtedness held by Textek Plastics LLC which earned interest
at 7% and was to mature upon the redemption of shares of Textek Plastics, Inc.
held by Textek Plastics LLC, an affiliate of Holdings controlled by Mr. Votis,
and (b) purchase the equity interests of a former Moll partner for $15.4
million; and (ii) the Equity Contribution of approximately $2 million to Anchor
Holdings, which was contributed by Anchor Holdings to the Company. The Company
paid all of the fees and expenses of Holdings related to the Offering. See
"Certain Relationships and Related Transactions."
27
<PAGE> 31
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the actual cash and cash equivalents and
capitalization of Holdings at July 4, 1998. This table should be read in
conjunction with the historical consolidated financial statements of each of
Holdings, Moll and Anchor Holdings, including the notes thereto, and the
unaudited pro forma financial statements of Holdings, including the notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JULY 4, 1998
<S> <C>
Cash........................................................ $ 29,668
========
Total debt (including current maturities):
Revolving credit facility(1).............................. $ --
11 3/4% Senior Notes...................................... 100,000
Senior Subordinated Notes................................. 130,000
Senior Discount Notes..................................... 35,322
Other Somomeca long-term obligations...................... 12,437
Mortgage payable.......................................... 2,884
Payables to former owners................................. 1,500
Other debt................................................ 5,809
--------
Total long-term debt.............................. 287,922
--------
Stockholders' deficit....................................... (33,390)
--------
Total capitalization.............................. $254,532
========
</TABLE>
- ------------------------------
(1) Subject to certain conditions, at July 4, 1998 approximately $48.8 million
of capacity was available for borrowing by the Company under the Revolving
Credit Facility. See "Description of Certain Indebtedness--Revolving Credit
Facility."
28
<PAGE> 32
SELECTED UNAUDITED PRO FORMA AND
HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected unaudited pro forma date for
Holdings as well as selected historical financial data of Holdings (the
Registrant) and Anchor Holdings (the acquired company) for the periods
indicated. The selected historical financial data for the years ended 1995, 1996
and 1997 were derived from the audited consolidated financial statements of each
of Holdings (See Note 4) and Anchor Holdings contained elsewhere in this
Prospectus. The selected historical financial data for 1993 and 1994 were
derived from the audited consolidated financial statements of each company not
contained herein. The selected unaudited interim balance sheet and the selected
unaudited statements of operations and other data for the twenty-six weeks of
1997 and 1998 were derived from unaudited financial statements contained
elsewhere in this Prospectus. These unaudited financial statements were prepared
on the same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation. The unaudited pro forma data were derived
from the unaudited pro forma financial statements contained elsewhere in the
Prospectus and reflect the Transactions as if they had occurred at the beginning
of the period presented. Neither the selected historical consolidated financial
data nor the selected pro forma consolidated financial data are necessarily
indicative of either the future results of operations or the results of
operations that would have occurred if the Transactions had been consummated on
any date. The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the historical consolidated financial statements of each of Holdings, Moll and
Anchor Holdings, as well as the unaudited pro forma financial statements of
Holdings, including accompanying notes thereto, included elsewhere in this
Prospectus.
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX WEEKS
DECEMBER 31, 1997 1998
----------------- ----------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................... $414,630 $199,185
Gross profit................................................ 60,048 28,691
Selling, general and administrative expenses................ 29,390 15,064
Operating income............................................ 30,458 13,527
Interest expense, net....................................... 31,019 16,372
Income (loss) before taxes and extraordinary item........... 308 (3,590)
Income (loss) before extraordinary item..................... (1,729) (2,536)
OTHER DATA:
EBITDA(1)................................................... $ 54,807 $ 23,269
Cash flows from operating activities........................ 8,943 4,674
Cash flows from investing activities........................ (29,764) (8,532)
Cash flows from financing activities........................ 18,209 772
Depreciation and amortization............................... 23,480 10,487
Capital expenditures........................................ 15,559 7,605
Cash interest expense, net(2)............................... 29,945 15,699
Ratio of EBITDA to cash interest expense, net............... 1.8x NA
Ratio of net debt to EBITDA(3).............................. 4.7x NA
</TABLE>
29
<PAGE> 33
SELECTED UNAUDITED INTERIM BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT JULY 4, 1998
---------------
<S> <C>
Cash........................................................ $ 29,668
Working capital............................................. 89,730
Total assets................................................ 339,455
Total debt.................................................. 287,922
Stockholders' deficit....................................... (33,370)
</TABLE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
AMM HOLDINGS, INC., THE REGISTRANT(4)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWENTY-SIX WEEKS
---------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales................. $ 56,116 $ 78,066 $ 90,876 $ 89,464 $116,947 $33,755 $123,169
Gross profit.............. 9,685 15,218 16,966 16,502 19,861 11,888 21,073
Selling, general and
administrative
expenses................ 5,602 6,804 8,301 7,190 10,758 4,177 9,587
Operating income.......... 4,083 8,414 9,019 8,574 8,186 6,869 10,288
Other (income) expense.... -- -- 120 50 (299) 91 538
Interest expense, net..... 1,613 1,941 2,414 2,518 3,405 1,423 4,979
Income before taxes and
extraordinary item...... 2,470 6,473 6,485 6,037 4,645 4,956 4,532
Provision for income
taxes................... -- -- -- -- 83 -- 744
Extraordinary item(5)..... -- -- -- -- -- -- (1,971)
Net income................ 2,470 6,473 6,485 6,037 4,563 4,956 1,817
PRO FORMA INFORMATION:
Provision for income
taxes................... $ 988 $ 2,589 $ 2,594 $ 2,415 $ 2,531 $ 1,982 $ 1,300
Income before
extraordinary item...... 1,482 3,884 3,891 3,622 2,114 2,974 2,444
OTHER DATA:
EBITDA(1)................. $ 6,537 $ 11,932 $ 13,317 $ 12,703 $ 13,450 $ 8,736 $ 14,596
Cash flow from operating
activities.............. 2,062 11,110 9,709 10,802 5,506 1,472 2,725
Cash flows from investing
activities.............. (3,749) (7,507) (2,553) (11,592) (14,215) (1,347) (34,574)
Cash flows from financing
activities.............. 1,686 (3,457) (6,972) 1,336 9,595 772 59,512
Depreciation and
amortization............ 2,454 3,518 4,418 4,148 5,400 2,357 5,085
Capital expenditures...... 747 2,766 2,776 1,387 6,562 1,447 6,983
Ratio of earnings to fixed
charges(6).............. 2.3x 3.8x 3.3x 2.9x 2.1x 3.7x 1.8
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------- AT JULY 4,
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................. $ 33,067 $ 47,288 $ 51,287 $ 53,901 $86,925 $339,455
Long-term debt obligations... 13,777 19,739 30,466 33,640 47,932 287,922
</TABLE>
30
<PAGE> 34
ANCHOR HOLDINGS, INC., ACQUIRED COMPANY(7),
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWENTY-SIX WEEKS
---------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.................. $118,047 $118,267 $149,366 $156,858 $161,161 $84,745 $75,810
Gross profit............... 20,778 18,208 24,338 27,637 25,187 13,424 8,178
Selling, general and
administrative........... 9,096 7,634 9,409 11,358 10,979 5,490 5,946
Amortization............... 577 1,712 1,662 1,530 1,698 665 729
Income from operations..... 11,105 8,862 13,267 14,749 12,510 7,269 1,503
Other (income) expense..... (110) (739) 974 408 (287) 87 102
Interest expense, net...... 5,385 5,984 8,616 8,124 11,165 4,982 6,026
Income (loss) before taxes
and extraordinary item... 5,830 3,617 3,677 6,217 1,632 2,200 (4,625)
Provision (benefit) for
income taxes............. 1,606 1,507 1,239 2,591 794 800 (1,392)
Extraordinary item(5)...... -- (334) -- -- (1,210) (1,210) --
Net income (loss).......... 4,224 1,776 2,438 3,626 (372) 190 (3,233)
OTHER DATA:
EBITDA(1).................. $ 17,881 $ 18,439 $ 21,742 $ 23,627 $ 22,370 $11,916 $ 6,652
Cash flows from operating
activities............... 6,875 8,684 8,822 13,076 16,037 5,877 1,365
Cash flows from investing
activities............... (33,039) (6,711) (6,453) (8,014) (8,847) (3,481) (7,185)
Cash flows from financing
activities............... 26,844 (2,708) (2,265) (4,268) (1,854) (244) --
Depreciation and
amortization............. 6,666 8,838 9,449 9,286 9,573 4,734 5,251
Capital expenditures....... 6,729 5,724 6,932 8,028 8,413 3,481 4,416
Ratio of earnings to fixed
charges(6)............... 2.1x 1.6x 1.4x 1.7x 1.1x 1.4x 0.2x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................... $79,227 $115,065 $116,529 $115,263 $120,839
Long-term debt obligations..... 50,444 80,387 78,133 74,468 101,939
</TABLE>
- ------------------------------
(1) EBITDA represents income before taxes plus interest expenses, net,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income, net income or cash flows from operating
activities in analyzing the referenced company's operating performance,
financial position or cash flows, the referenced company has included EBITDA
because it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt. As all
companies may not calculate EBITDA in the same manner, these amounts may not
be comparable to other companies.
(2) Cash interest expense, net represents interest expense minus amortization of
debt issuance costs.
(3) Net debt, as used in calculating this ratio, represents total debt at July
4, 1998 of $287,922 minus cash of $29,668. EBITDA, as used in this
calculation, represents EBITDA for the year ended December 31, 1997.
(4) The financial data presented here is derived from the financial statements
of Moll as Moll was the accounting acquirer in the Merger. At July 4, 1998
there were no significant differences between the operations and other data
of Moll Industries, Inc. and AMM Holdings, Inc. (the Registrant).
31
<PAGE> 35
(5) With respect to Anchor Holdings in 1997, amount represents loss on
extinguishment of debt net of tax. With respect to AMM Holdings, amount
represents loss on extinguishment of debt.
(6) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income before income taxes and extraordinary item, plus fixed
charges. "Fixed charges" consist of interest expense, net, which includes
the amortization of deferred financing costs, and that portion of rental
expense representative of interests (deemed to be one-third of rental
expense).
(7) The consolidated financial statements of Anchor Holdings do not differ
significantly from those of Anchor. See historical consolidated financial
statements of Anchor Holdings.
32
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes forward-looking statements with respect to
Holdings' future financial performance. These forward-looking statements are
subject to various risks and uncertainties, including the factors described
under "Risk Factors" and elsewhere in this Prospectus, that could cause actual
results to differ materially from historical results or those currently
anticipated.
HOLDINGS
Holdings is a holding company and does not have any material operations or
assets other than ownership of all the capital stock of Anchor Holdings, which
does not have any material operations or assets other than ownership of all the
capital stock of the Company. On a proforma basis after giving effect to the
Transactions, Holdings generated 1997 net sales, net loss and EBITDA of $414.6
million, $1.7 million and $54.8 million, respectively
THE COMPANY
OVERVIEW
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company's products are sold to
a wide range of end-markets, including end markets for consumer products,
telecommunications/business equipment, household appliances, automobiles and
medical devices. On a pro forma basis after giving effect to the Transactions,
the Company generated 1997 net sales, net income and EBITDA of $414.6 million,
$.7 million and $54.8 million, respectively, making it the sixth largest
non-automotive plastic injection molding company in North America and one of the
largest plastic component suppliers in Europe.
Approximately 45% of the Company's 1997 pro forma net sales of molded
products was covered by long term purchase and sale contracts which stipulate
anticipated volume requirements and pricing terms. However, such contracts do
not contain any minimum purchase requirements on the part of the customer.
Almost all such contracts can be terminated by the parties thereto by mutual
agreement and can also be terminated by either party giving notice of
termination upon certain occurrences, including, without limitation,
disagreement on quality, quantity and pricing issues, insolvency or dissolution
of any party thereto and upon any material breach of such contracts by any party
thereto. The remainder of the Company's sales of molded products was sold on a
short-term basis with components ordered by customers to meet their pending
production requirements. See "Risk Factors -- Reliance on Major Customers."
The Company typically charges its customers a fixed price for each
component it manufactures, which component may consist of single or multiple
parts. Prices are quoted based on (i) the type of product, (ii) the type of
services provided (design, prototyping, molding, and other value-added
services), (iii) the complexity of manufacturing processes involved, and (iv)
the Company's estimates of part weight, resin costs, machine requirements and
parts produced per hour (cycle time). In many cases, the Company purchases the
raw materials on behalf of its customers. In such instances, the Company's
arrangements with most of its customers provide that price changes in such raw
materials are passed through to the customer by changes in the component prices
charged by the Company. As customers generally seek price reductions during the
product life cycle, the Company's ability to improve operating performance is
generally dependent on increasing manufacturing efficiency through improved
process control, increased automation, engineering changes to molds and reduced
operating and labor expenses. See "Business Strategy -- Reduce Costs."
During the product life cycle, components are ordered by the Company's
customers to meet their just-in-time production requirements. Typical lead times
range from two to six weeks. Traditionally, once a mold is
33
<PAGE> 37
awarded to a particular supplier and is in production, it is rarely moved to a
competitor. As of December 31, 1997, the Company maintained approximately 2,700
active molds for its customers. A majority of such molds are owned by the
customer but the Company is responsible for the general maintenance and safe
storage of the mold during its lifetime. Costs for maintenance of the mold are
expensed as incurred. Major tool modifications and renovations are charged to
the customer.
The Company has been formed by a number of acquisitions that have been
integrated through consolidation of manufacturing facilities, logistical
optimization and reduction of overhead. See "Business Strategy--Continue
Strategic Acquisitions." In July 1991, certain entities controlled by Mr. Votis
and his partners were merged to form Moll. Since 1991, Moll has grown
significantly through several strategic acquisitions in North America and
Europe. In December 1992, Moll acquired Textek, based in San Antonio and Round
Rock, Texas. In July 1993, Moll acquired ACM, based in Georgetown and El Paso,
Texas. In October 1994, Moll acquired Quality, based in Newberg, Oregon. See
"The Company."
In 1996, Moll acquired Reliance Products, a Delaware limited partnership
doing business in Canada, which manufactures a proprietary line of camping
equipment and bulk storage containers. Immediately prior to the Merger, Moll
distributed its 69% Class B limited partnership interest in Reliance Products to
certain of Moll's limited partners. In August 1997, Moll acquired Hanning, a
leading supplier of injection molded plastic components for use in digital
photocopiers, with manufacturing facilities located in the United States, the
United Kingdom and Germany. In January 1998, Moll acquired Somomeca, a major
French supplier of injection molded plastic components and plastic injection
molds. In March 1998, Mr. Votis, who controlled Moll, acquired Anchor from
affiliates of the Thomas H. Lee Company.
Concurrently with the Offering, the Company was formed through the merger
of two leading plastic injection molders, Moll and Anchor, which were each
controlled by Mr. George Votis. Immediately prior to the Merger, Moll and Anchor
were independently operated entities. The Company consummated the acquisition of
Gemini Plastic on June 30, 1998. See "The Company" and "The Transactions."
Since 1995, the Company has generally experienced strong, growing net sales
from its Cosmetics Division and Medical Products Division despite anticipated
declines in toothbrush net sales associated with the decision of certain
customers, including Colgate-Palmolive to move production "in-house." In early
1998, the Company made a strategic decision to discontinue production of certain
business product components at its Round Rock facility in favor of producing
medical end products and components which the Company believed to be more
profitable, stable and faster growing business. Since March 1998, the Company
has eliminated approximately $2.8 million in annualized costs by reducing
duplicative administrative expenses, eliminating less profitable business lines
and streamlining manufacturing processes. The savings consist of $1.7 million in
payroll costs gained through the elimination of duplicate expenses and excessive
resources and $1.1 million in benefit costs gained through the revision of the
retirement benefits. The savings were calculated based on the salaries of the
positions eliminated and an acturial estimation of the savings associated with
the change in the retirement plan.
Over the past three years, Moll experienced growth in net sales through
several strategic acquisitions and the addition of manufacturing facilities.
However, in 1997, such increases were offset by operating inefficiencies related
to such acquisitions, especially the Hanning acquisition and the closing of
Moll's El Paso facility. As a result of the acquisition of Somomeca which had
generated approximately $88.5 million of European sales in 1997, Moll enhanced
its international manufacturing capabilities.
34
<PAGE> 38
RESULTS OF OPERATIONS
ANCHOR HOLDINGS, INC. AND SUBSIDIARY,
MOLL INDUSTRIES, INC., THE REGISTRANT(1)
The following financial information presents certain historical financial
information of Moll expressed as a percentage of net sales, for 1995, 1996 and
1997 and for the twenty-six weeks of 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX WEEKS
----------------------- ----------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................... 18.7 18.4 17.0 22.1 17.1
Selling, general and administrative expenses....... 9.1 8.0 9.2 8.5 8.1
Tooling income, net................................ 1.9 0.8 1.6 0.7 0.3
Management fee..................................... 1.5 1.6 1.4 1.6 1.0
Loss incurred on closure of facility............... -- -- 1.0 -- --
Operating income................................... 9.9 9.6 7.0 12.7 8.3
Other (income) expense............................. 0.1 -- (0.3) 0.2 0.4
Interest expense, net.............................. 2.7 2.8 2.9 2.6 4.0
Income before taxes and extraordinary items........ 7.1 6.7 4.0 9.2 3.7
Provision for income taxes......................... -- -- 0.1 -- 0.6
Extraordinary item................................. -- -- -- -- 1.6
Net income......................................... 7.1 6.7 3.9 9.2 1.5
OTHER DATA:
EBITDA(2).......................................... 14.7% 14.2% 11.5% 16.3% 11.9%
Cash flows from operating activities............... 10.6 12.1 4.7 2.7 2.2
Cash flows from investing activities............... (2.8) (13.0) (12.2) (2.5) (28.1)
Cash flows from financing activities............... (7.7) 1.5 8.2 1.4 48.3
Depreciation and amortization...................... 4.9 4.6 4.6 4.4 4.1
Capital expenditures............................... 3.1 1.6 5.6 2.7 5.7
</TABLE>
- ------------------------------
(1) The financial data presented here is derived from the financial statements
of Moll as Moll was the accounting acquiror in the Merger. At July 4, 1998,
there were no differences between the financial statements of Moll
Industries Inc. and Anchor Holdings, Inc.
(2) EBITDA represents income before taxes plus interest expense, net,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income, net income or cash flows from operating
activities in analyzing Moll's operating performance, financial position or
cash flows, Moll has included EBITDA because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance, leverage and liquidity and to determine a company's
ability to service debt. As all companies may not calculate EBITDA in the
same manner, these amounts may not be comparable to other companies.
26 Weeks Ended July 4, 1998 compared to 26 Weeks Ended June 30, 1997
Net Sales. Net sales for the twenty-six weeks ended July 4, 1998 increased
$69.4 million, or 129.1%, to $123.2 million from $53.8 million for the
twenty-six week period ended June 30, 1997, due primarily to the Somomeca
acquisition in January 1998 which contributed net sales of $43.4 million (80.7%
of net sales of the comparable period in 1997) and the Hanning acquisition in
August 1997 which contributed net sales of $23.8 million (44.2% of net sales of
the comparable period in 1997). The closure of the El Paso, Texas facility in
September 1997 decreased sales in the first half of 1998 by $3.2 million.
Gross Profit. Gross profit increased $9.2 million, or 77.3%, in the first
half of 1998 to $21.1 million from $11.9 million in the first half of 1997, due
primarily to the Somomeca acquisition which contributed gross profit of $6.5
million (54.6% of gross profit of the comparable period in 1997) and the Hanning
acquisition which contributed gross profit of $1.9 million (16.0% of gross
profit of the comparable period in 1997). Increased utilization of plant
capacity caused a combined increase from remaining facilities of $0.8 million.
Gross profit as a percentage of net sales decreased 5.0% from 22.1% for the
twenty-six week period ended
35
<PAGE> 39
June 30, 1997 to 17.1% for the twenty-six weeks ended July 4, 1998, primarily as
a result of lower margins realized at the acquired companies than the Company
had historically realized.
Selling, General and Administrative. SG&A expenses increased $5.4 million,
or 128.6%, in the first half of 1998 to $9.6 million from $4.2 million for the
first half of 1997, primarily due to the Somomeca ($2.4 million) and Hanning
($2.2 million) acquisitions mentioned previously. Increases totaling $0.2
million were incurred for personnel, travel and computer system support in the
period ended July 4, 1998 over the period ended June 30, 1997.
Tooling Income, net. The Company acts as an agent in facilitating the
building of tools for its customers. Historically, the net earnings from such
service have been recognized as a net reduction in operating expenses. Following
consummation of the Transactions, the Company will build a majority of the tools
for its customers itself, rather than act as an agent in arranging their
construction; accordingly, it will begin recognizing sales and cost of sales
related to these activities. If the Company had classified these activities as
such, sales would be increased by $1.3 million and cost of sales would be
increased by $1.0 million for the twenty-six weeks ended July 4, 1998.
Management Fees. Management fees increased $0.4 million, or 42.3%, to $1.2
million in the first half of 1998 from $0.8 million in the first half of 1997,
primarily due to the increase in net sales. Historically, the Company paid
management fees as a fixed percentage of net sales. Commencing in the third
quarter of 1998, management fees will be $200,000 per year.
Operating Income. Operating income increased $3.4 million, or 49.8%, in
the first half of 1998 to $10.3 million from $6.9 million in the corresponding
period of 1997, due primarily to the acquisitions mentioned above.
Interest Expense. Interest expense increased $3.6 million, or 249.9%, in
the first half of 1998 to $5.0 million from $1.4 million in the same period for
1997, primarily due to the increase in debt acquired in connection with the
Somomeca and Hanning acquisitions mentioned above.
Provision for Income Taxes. Provision for income taxes in 1998 represents
foreign income taxes recorded in connection with the new corporate subsidiaries
in France, Portugal, Germany and the United Kingdom. Prior to the acquisition of
foreign subsidiaries no provision for income taxes was made on the Consolidated
Financial Statements as the Company's partnership tax status allowed for the
earnings of the Company to be taxed on the tax returns of the partners.
Extraordinary Loss. The extraordinary loss represents the write-off of
unamortized fees incurred in connection with debt which was repaid during the
period.
Net Income. Net income decreased $3.1 million, or 66.6%, to $1.8 million
for the first half of 1998 from $4.9 million for the first half of 1997 as a
result of the items listed above.
EBITDA. EBITDA increased by $5.8 million, or 67%, to $14.5 million for the
first half of 1998 from $8.7 million for the first half of 1997 as a result of
the above factors.
Fiscal 1997 Versus Fiscal 1996
Net Sales. Net sales increased $27.4 million, or 30.7%, in fiscal 1997 to
$116.9 million from $89.5 million in fiscal 1996, primarily due to the
inclusion, in fiscal 1997 results, of a full year of Reliance Products results
which contributed net sales of $17.4 million (19.4% of net sales in fiscal
1996), and Hanning results since August 7, 1997 which contributed net sales of
$19.8 million (22.1% of net sales in 1996.) Such increase was partially offset
by a decrease of $3.3 million in net sales due to the closing of Moll's El Paso
facility and a decrease of $4.8 million in net sales resulting from raw material
price adjustments and lower volumes of certain components.
Gross Profit. Gross profit increased $3.4 million, or 20.4%, in fiscal
1997 to $19.9 million from $16.5 million in fiscal 1996 primarily due to the
inclusion, in fiscal 1997 results, of a full year of Reliance Products results
which contributed gross profit of $4.1 million (24.8% of gross profit in fiscal
1996). Such increase was partially offset by decreased margin of $470,000 at the
El Paso facility and operating inefficiencies encountered in the acquired
Hanning facilities, which was also responsible for the gross margin decline to
17.0%, in 1997 from 18.4% in 1996.
36
<PAGE> 40
Selling, General and Administrative Expenses. SG&A expenses increased $3.6
million, or 49.6% in fiscal 1997 to $10.8 million from $7.2 million in fiscal
1996 primarily due to the inclusion, in fiscal 1997 results, of a full year of
Reliance Products results, and Hanning results since August 7, 1997.
Tooling Income, Net. Tooling income, net, increased $1.2 million, or
170.4%, in fiscal 1997 to $1.9 million from $0.7 million in fiscal 1996
primarily due to the completion of several projects completed by the acquired
Hanning companies.
Management Fee. Management fee increased $0.3 million, or 14.3%, in fiscal
1997 to $1.7 million from $1.4 million in fiscal 1996 primarily due to the
increase in net sales.
Operating Income. Operating income decreased $0.4 million, or 4.5%, in
fiscal 1997 to $8.2 million from $8.6 million in fiscal 1996 due to the loss
incurred on the closure of Moll's El Paso facility offset by factors listed
above.
Interest Expense. Interest expense increased $0.9 million, or 35.2%, in
fiscal 1997 to $3.4 million from $2.5 million in fiscal 1996 primarily due to
the debt acquired in connection with the acquisition of Reliance Products and an
increase in debt to complete the Hanning acquisition.
Provision for Income Taxes. The provision for income taxes in 1997
represents foreign income taxes recorded in connection with the new corporate
subsidiaries in Germany and the United Kingdom.
Net Income. Net income decreased $1.4 million, or 24.4% in fiscal 1997 to
$4.6 million from $6.0 million in fiscal 1996 as a result of the items discussed
above.
EBITDA. EBITDA increased $0.7 million, or 5.9%, to $13.4 million for
fiscal 1997 from $12.7 million for fiscal 1996 as a result of the above factors.
Fiscal 1996 Versus Fiscal 1995
Net Sales. Net sales for fiscal 1996 decreased by $1.4 million, or 1.6%,
to $89.5 million from $90.9 million for fiscal 1995, primarily due to raw
material price adjustments on certain components and the discontinuation of the
production of certain keyboard components at Moll's El Paso facility. Such
decrease was partially offset by increases in sales at Moll's other facilities.
Gross Profit. Gross profit for fiscal 1996 decreased by $0.5 million, or
2.7%, to $16.5 million from $17.0 million for fiscal 1995 primarily due to
unrecovered fixed costs incurred at Moll's El Paso facility.
Selling, General and Administrative Expenses. SG&A expenses decreased $1.1
million, or 13.4% to $7.2 million in fiscal 1996 from $8.3 million in fiscal
1995, primarily due to the integration of the Quality acquisition and staff
reductions in Moll's El Paso facility.
Tooling Income, Net. Tooling income, net decreased $1.0 million, or 58.8%,
in fiscal 1996 to $0.7 million from $1.7 million in fiscal 1995 primarily due to
the completion in 1995 of major tooling programs for two large customers. Such
programs are cyclical by nature.
Management Fee. Management fee remained relatively stable at $1.4 million
in fiscal 1996 and 1995 due to the relatively constant net sales.
Operating Income. Operating income decreased $0.4 million, or 4.9%, to
$8.6 million for fiscal 1996 from $9.0 million in fiscal 1995 due to the factors
listed above.
Interest Expense. Interest expense for fiscal 1996 increased by $0.1
million, or 4.3%, to $2.5 million from $2.4 million for fiscal 1995, primarily
due to increased debt issued in connection with the recapitalization of Moll in
September 1995.
Net Income. Net income for fiscal 1996 decreased by $0.5 million, or 6.9%,
to $6.0 million from $6.5 million for fiscal 1995 as a result of the items
listed above.
EBITDA. EBITDA decreased $0.6 million, or 4.6%, to $12.7 million in fiscal
1996 from $13.3 million for fiscal 1995 as a result of the above factors.
37
<PAGE> 41
ANCHOR HOLDINGS, INC., ACQUIRED COMPANY
The following financial information presents certain historical financial
information of Anchor Holdings, expressed as a percentage of net sales, for
1995, 1996 and 1997 and for the twenty-six weeks of 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX WEEKS
----------------------- ----------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................... 16.3 17.6 15.6 15.8 10.8
Selling, general and administrative................ 6.3 7.2 6.8 6.4 7.8
Amortization....................................... 1.1 1.0 1.1 0.8 1.0
Operating income................................... 8.9 9.4 7.8 8.6 2.0
Other (income) expense............................. 0.7 0.3 (0.2) 0.1 0.1
Interest expense, net.............................. 5.8 5.2 6.9 5.9 8.0
Income (loss) before taxes and extraordinary
items............................................ 2.5 3.9 1.0 2.6 (6.1)
Provision (benefit) for income taxes............... 0.8 1.7 0.5 1.0 (1.8)
Extraordinary item................................. -- -- -- 1.4 --
Net income (loss).................................. 1.6 2.3 (0.2) 0.2 (4.3)
OTHER DATA:
EBITDA(1).......................................... 14.6% 15.1% 13.9% 14.1 8.8%
Cash flows from operating activities............... 5.9 8.3 10.0 6.9 1.8
Cash flows from investing activities............... (4.3) (5.1) (5.5) (4.1) (9.5)
Cash flows from financing activities............... (1.5) (2.7) (1.2) (0.3) --
Depreciation and amortization...................... 6.3 5.9 5.9 5.6 6.9
Capital expenditures............................... 4.6 5.1 5.2 4.1 5.8
</TABLE>
- ------------------------------
(1) EBITDA represents income before taxes plus interest expense, net,
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income, net income or cash flows from operating
activities in analyzing Anchor Holdings' operating performance, financial
position or cash flows, Anchor Holdings has included EBITDA because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt. As all companies may not
calculate EBITDA in the same manner, these amounts may not be comparable to
other companies.
26 Weeks Ended July 4, 1998 ("Interim 98") Compared to 26 Weeks Ended June 28,
1997 ("Interim 97")
Net Sales. Net sales decreased by $8.9 million, or 10.5%, to $75.8 million
for Interim 98 from $84.7 million for Interim 97, mainly because of lower
toothbrush sales in the amount of $8.5 million to Colgate-Palmolive as a result
of in-house manufacturing by Colgate-Palmolive, partially offset by increased
sales to Anchor's Cosmetics Division customers. The transition to in-house
manufacturing by Colgate-Palmolive began in the third quarter of 1997;
accordingly, future periods are not expected to be further impacted by such
change.
Gross Profit. Gross Profit decreased by $5.2 million, or 39.1%, to $8.2
million for Interim 98 from $13.4 million for Interim 97, due to lower sales to
Colgate-Palmolive.
Selling, General and Administrative. SG&A expenses increased by $.5
million, or 9.1%, to $5.9 million for Interim 98 from $5.5 million for Interim
97, primarily due to selling expense associated with increased sales to Anchor's
Cosmetics Division customers and to salary and benefit increases for 1998.
Amortization. Goodwill amortization remained flat at $.7 million.
Operating Income. Operating income decreased by $5.8 million, or 79.3%, to
$1.5 million for Interim 98 from $7.3 million for Interim 97 for the reasons
listed above.
Other Expense. Other expense remained flat at $.1 million.
38
<PAGE> 42
Net Interest Expense. Net interest expense increased by $1.0 million, or
20.0%, to $6.0 million for Interim 98 from $5.0 million for Interim 97 due to
the issuance of the Senior Notes in April 1997.
Income Taxes. Income taxes decreased by $2.2 million, or 274.0%, to $(1.4)
million for Interim 98 from $.8 million for Interim 97 as a result of decreased
operating income.
Extraordinary Item. Extraordinary item decreased by $1.2 million, or
100.0%, from $1.2 million for Interim 97 due to the writeoff of $.4 million in
bank fees, and a $.8 million prepayment penalty associated with the retirement
of subordinated debt, all of which are net of tax.
Net Income. Net income decreased $3.4 million, to $(3.2) million for
Interim 98 from $.2 million for Interim 97 as a result of the above factors.
EBITDA. EBITDA decreased by $5.2 million, or 44.2%, to $6.7 million for
the first half of 1998 from $11.9 million for the first half of 1997 as a result
of the above factors.
Fiscal 1997 Versus Fiscal 1996
Net Sales. Net sales increased by $4.3 million, or 2.7%, to $161.2 million
for fiscal 1997 from $156.9 million for fiscal 1996, primarily due to the
continued strong sales to Anchor's Cosmetics Division customers and the
increased sales of medical devices. The increase in gross sales for this period
was partially reduced by the drop of $9.0 million in sales of toothbrushes to
Colgate-Palmolive as a result of in-house manufacturing by Colgate-Palmolive.
Gross Profit. Gross profit decreased by $2.4 million, or 8.7%, to $25.2
million for fiscal 1997 from $27.6 million for fiscal 1996, resulting from the
decline in sales of toothbrushes to Colgate-Palmolive, lower than expected
production volumes in the Round Rock facility, the addition of lower gross
margin Compaq sales, and a $0.6 million charge taken in the second quarter of
1997 for renegotiation of a Mexican labor contract.
Selling, General and Administrative. SG&A expenses decreased $0.4 million,
or 3.5%, to $11.0 million for fiscal 1997 from $11.4 million for fiscal 1996,
reflecting effective cost control measures.
Amortization. Goodwill and capitalized fees amortization increased by $0.2
million, or 13.3%, to $1.7 million for fiscal 1997 from $1.5 million for fiscal
1996, as a result of transaction fees incurred during the issuance of the Senior
Notes in April 1997.
Operating Income. Operating income decreased by $2.2 million, or 15.0%, to
$12.5 million for fiscal 1997 from $14.7 million for fiscal 1996 for the reasons
listed above.
Other Expense. Other expense decreased by $0.7 million, or 175.0%, to $0.3
million income for fiscal 1997 from $1.0 million expense for fiscal 1996
reflecting income from a one time legal settlement during the fourth quarter of
1997.
Net Interest Expense. Net interest expense increased by $3.1 million, or
38.3%, to $11.2 million for fiscal 1997 from $8.1 million for fiscal 1996 due to
the issuance of the Senior Notes in April 1997. Such increase was partially
offset by the retirement of bank debt of $50.7 million and $21.0 million of
subordinated debt.
Income Taxes. Income taxes decreased by $1.8 million, or 69.2%, to $0.8
million for fiscal 1997 from $2.6 million for fiscal 1996 as a result of
decreased operating income.
Extraordinary Item. Extraordinary item of $1.2 million, net of taxes, for
fiscal 1997 resulted from the writeoff of $0.4 million in bank fees, and a $0.8
million prepayment penalty associated with the retirement of bank debt and
subordinated debt.
Net Income. Net income decreased $4.0 million, or 111.1%, to $0.4 million
loss for fiscal 1997 from $3.6 million income for fiscal 1996 as a result of the
above factors.
EBITDA. EBITDA decreased $1.2 million, or 5.1%, to $22.4 million for
fiscal 1997, from $23.6 million for fiscal 1996 for the reasons listed above.
39
<PAGE> 43
Fiscal 1996 Versus Fiscal 1995
Net Sales. Net sales increased by $7.5 million, or 5.0%, to $156.9 million
for fiscal 1996 from $149.4 million for fiscal 1995, principally as a result of
inclusion of the first full year of point-of-purchase ("POP") display sales and
an increase in computer component sales. Such increase was partially offset by a
decrease in unit sales for toothbrushes as a result of general market
conditions.
Gross Profit. Gross profit increased by $3.3 million, or 13.6%, to $27.6
million for fiscal 1996 from $24.3 million for fiscal 1995, principally as a
result of increased net sales in the POP display and computer component markets
as well as higher gross margins. Such increase was partially offset by a decline
in gross profit for toothbrush sales. Gross margin increased to 17.6% for fiscal
1996 from 16.3% in fiscal 1995, primarily due to the realization of a full year
of efficiency gains in the Matamoros, Mexico manufacturing facility. Such
increase was partially offset by inefficiencies related to the start-up of the
manufacturing facility in Round Rock, Texas.
Selling, General and Administrative. SG&A expenses increased by $2.0
million, or 20.7%, to $11.4 million for fiscal 1996 from $9.4 million for fiscal
1995, principally as a result of professional expenses incurred in connection
with the formation of a possible joint venture in China, and costs associated
with a management information systems upgrade.
Amortization. Amortization expense decreased by $0.2 million, or 7.9%, to
$1.5 million for fiscal 1996 from $1.7 million for fiscal 1995, principally as a
result of the expiration of certain amortized fees and expenses incurred in the
1990 acquisition of Anchor by affiliates of the Thomas H. Lee Company.
Operating Income. Operating income increased by $1.4 million, or 11.2%, to
$14.7 million for fiscal 1996 from $13.3 million for fiscal 1995 as a result of
the items discussed above.
Other Expense. Other expense decreased by $0.6 million, or 58.1%, to $0.4
million for fiscal 1996 from $1.0 million for fiscal 1995, principally as a
result of expenses related to the relocation of the Matamoros, Mexico facility
in 1995 which were not repeated in 1996.
Net Interest Expense. Net interest expense decreased by $0.5 million, or
5.7%, to $8.1 million for fiscal 1996 from $8.6 million for fiscal 1995,
principally as a result of a $5.0 million pay down on a certain term loan
facility and greater use of LIBOR rates under such agreement.
Income Taxes. Income tax expense increased by $1.4 million, or 109.1%, to
$2.6 million for fiscal 1996 from $1.2 million for fiscal 1995.
Net Income. Net income increased by $1.2 million, or 48.7%, to $3.6
million for fiscal 1996 from $2.4 million for fiscal 1995 as a result of the
above factors.
EBITDA. EBITDA increased by $1.9 million, or 8.7%, to $23.6 million for
fiscal 1996 from $21.7 million for fiscal 1995 as a result of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
Moll
Historically, Moll funded its business with cash generated from operations
and borrowings under its revolving credit agreement and its term loan facility
with Bank of America, as Agent. In 1995, 1996 and 1997, Moll generated cash from
operating activities of $9.7 million, $10.8 million, and $5.5 million,
respectively. The decrease in cash from operating activities in 1997 resulted
from a substantial increase in accounts receivable due to a change in credit
terms with a large customer. Moll's capital expenditures for 1995, 1996 and 1997
were $2.8 million, $1.4 million and $6.6 million, respectively, principally for
additions to maintain or improve Moll's manufacturing capacity and efficiency.
The increase in capital expenditures in 1997 was primarily due to the
construction of a new facility in Austin, Texas. In 1996, Moll spent $10.2
million to purchase the assets of the Reliance division of Lawson Mardon
Packaging, Inc., and in 1997, Moll spent $7.2 million to purchase the Hanning
companies. In 1995, Moll received proceeds from the issuance of long-term debt
of $14.3 million to fund a recapitalization of Moll.
40
<PAGE> 44
Anchor Holdings
Anchor's liquidity requirements consisted primarily of working capital
needs and capital expenditures, required payments of principal and interest on
any borrowings under the Revolving Credit Facility (as it existed prior to the
Merger) and required payments of interest on the Senior Notes and principal at
maturity. The Revolving Credit Facility, prior to the Merger, provided for
revolving loans to, and the issuance of letters of credit on behalf of, Anchor
in an aggregate amount not to exceed $15.0 million, $13.8 of which was available
under the revolving loans, and $1.2 million of which was reserved under the
letters of credit, at December 31, 1997.
Cash generated by operations in 1997 was used to fund $13.0 million
purchases of property, plant and equipment, and other long-term assets. Anchor's
cash grew by $5.3 million to $6.9 million for 1997 from $1.6 million for 1996.
On April 2, 1997 Anchor issued the Senior Notes. Cash from this financing
activity allowed Anchor to retire $50.7 million in borrowings under a certain
revolving credit and term loan agreement, to redeem $21.0 million of certain
subordinated notes, and to pay $22.8 million of a $29.5 million dividend on the
common stock of Anchor Holdings, Inc.
Following the Transactions
Holdings is a holding company and does not have any material operations or
assets other than ownership of all the capital stock of Anchor Holdings, which
does not have any material operations or assets other than the ownership of all
the capital stock of the Company. The Company's liquidity requirements consist
primarily of working capital needs and capital expenditures, required payments
of principal and interest on any borrowings under the Revolving Credit Facility
and required payments of interest on the Senior Notes and the Company Notes. The
Company estimates that its capital expenditures in 1998 will total approximately
$12 million.
The Revolving Credit Facility provides for revolving loans to, and the
issuance of letters of credit on behalf of, the Company, in an aggregate amount
not to exceed $50.0 million, $48.8 million of which is available for borrowing
by the Company, subject to certain conditions. All borrowings under the
Revolving Credit Facility will effectively rank senior to the Notes. The
Revolving Credit Facility will mature in 2003 and contains certain covenants
customary for working capital financings (including restrictions on: capital
expenditures, incurrence of additional indebtedness, dividends and redemptions,
and mergers, acquisitions and sales of assets). See "Description of Certain
Indebtedness--Revolving Credit Facility."
The Company believes that cash flows from operating activities and its
ability to borrow under the Revolving Credit Facility will be adequate to meet
the Company's debt service obligations, working capital needs, and planned
capital expenditures at least through December 31, 1998. Holdings also
anticipates that it will be able to access the operating cash flows of the
Company, subject to compliance with the dividend and restricted payment
covenants in agreements governing the Company's indebtedness, to service cash
interest payable on the Notes when such cash interest becomes payable in 2003
and to meet its operating expenses. However, Holdings anticipates that such
operating cash flows will not be sufficient to repay the Notes at maturity and
that, accordingly, it will be required to refinance the Notes. No assurance can
be given that Holdings will be able to refinance the Notes. See "Risk
Factors--Substantial Leverage; Ability to Service Debt."
While the Company routinely enters into discussions with potential
acquisition candidates, no such discussions have progressed beyond the
preliminary stages. Management expects that funding for future acquisitions may
come from a variety of sources, depending on the size and nature of any such
acquisition. Potential sources of capital include cash generated from
operations, borrowings under the Revolving Credit Facility, additional equity
investments or other external debt or equity financings. There can be no
assurance that such additional capital sources will be available to the Company
on terms that the Company finds acceptable, or at all.
As a result of the Transactions, the Company is expected to incur an
increase in cash paid for interest expense of $6.5 million per year.
Additionally, the Company expects to incur an additional $4.7 million of
41
<PAGE> 45
accrued but not currently payable interest expense per year and $2.6 million of
depreciation and amortization expense per year related to the Transactions.
YEAR 2000
Historically, certain computerized systems have had two digits rather than
four digits to define the applicable year, which could result in recognizing the
date using "00" as the year 1900 rather than the year 2000. This could result in
major failures or miscalculations, and is generally referred to as the "Year
2000 issue."
The Company recognized that the impact of the Year 2000 issue extends
beyond traditional computer hardware and software to automated plant systems and
instrumentation, as well as to third parties. The Year 2000 issue is being
addressed within the Company by its individual business units, and progress is
reported periodically to management.
The Company has committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, plant systems and external parties. Information
technology includes telecommunications, as well as traditional computer software
and hardware in the mainframe, midrange and desktop environments. Plant systems
include all automation and embedded chips used in plant operations. External
parties include any third party with which the Company does business.
In the information technology area, inventory and assessment audits in the
mainframe and midrange environments were completed in third quarter 1998 with
corrective action scheduled for completion by the fourth quarter 1998, except
for business application software which is expected to be completed by the
second quarter 1999. Inventory and assessment audits for telecommunications were
completed in third quarter 1998 with corrective action expected to be completed
by the second quarter 1999. Finally, inventory and assessment audits in the
desktop environment were completed in third quarter 1998, with corrective action
expected to be completed by the third quarter 1999. The companies located in
Europe will begin installing systems in the fourth quarter 1998 that will be
Year 2000 ready.
In the plant systems area, 75% of the Company's business units have
completed their inventory and assessment audits; the remaining units are
expected to complete this work by the fourth quarter 1998. The Company is
relying on vendor testing and certification with validation through limited
internal testing and/or industry test results. Downtime for normally scheduled
plant maintenance will be used to conduct testing, with corrective action
expected to be completed by the second quarter 1999.
With respect to external parties, 65% of the Company's business units have
completed their inventory audit of critical external parties. The remaining
business units are expected to complete this work by the fourth quarter 1998.
Risk assessment is expected to be complete by the fourth quarter 1998, and
monitoring of risk in this area will continue into 1999, as many external
parties will not have completed their work.
The total cost of Year 2000 activities is not expected to be material to
the Company's operations, liquidity or capital resources. Costs are being
managed within each business unit. The total cost for the Company's Year 2000
work is estimated to be $2 million. 1997 costs were $500,000, and 1998 costs
through June 1998 were $300,000. Costs exclude expenditures for replacement
systems, which were previously scheduled.
There is still uncertainty around the scope of the Year 2000 issue. At this
time the Company cannot quantify the potential impact of these failures. There
can be no assurance, that there will not be a delay in, or increased costs
associated with, the Company's efforts to address the Year 2000 issue, and the
Company's inability to implement the necessary changes could have an adverse
effect on the Company. The Company's year 2000 program and contingency plans are
being developed to address issues within the Company's control. The program
minimizes but does not eliminate the issues of external parties. See "Risk
Factors -- Year 2000."
COMMON EUROPEAN CURRENCY
The Treaty on European Economic and Monetary Union provides for the
introduction of a single European currency, the Euro, in substitution for the
national currencies of the member states of the European Union that adopt the
Euro. In May 1998, the European Council determined (i) the 11 member states that
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<PAGE> 46
met the requirements for Monetary Union, and (ii) the currency exchange rates
among the currencies of the member states joining the Monetary Union. The
transitory period for the Monetary Union starts on January 1, 1999. According to
Council Resolution of July 7, 1997, the introduction of the Euro will be made in
three steps: (i) a transitory period from January 1, 1999 to December 31, 2001
in which current accounts may be opened and financial statements may be drawn in
Euros, and local currencies and Euros will coexist; (ii) from January 1, 2002 to
June 30, 2002, in which local currencies will be exchanged for Euros; and (iii)
from July 1, 2002 in which local currencies will disappear. Although there can
be no assurance that a single European currency will be adopted or, if adopted,
on what time schedule and with what success, substantial transition costs could
result as the Company redesigns its software systems to reflect the adoption of
the new currency. In addition, no assurance can be given as to the effect of the
adoption of the Euro on the Company's payment obligations under loan agreements
for borrowings in currencies to be replaced by the Euro or on the Company's
commercial agreements in such currencies. See "Risk Factors -- Common European
Currency."
SEASONALITY
Historically, shipments of the Company's components have been higher in the
first, second and third quarters as a result of increased demands for the
products manufactured by the Company's customers during such periods. As a
result, sales may vary from period to period solely dictated by the demand for
the products manufactured by the Company's customers. Also, many manufacturing
facilities in Europe, including those belonging to the Company, shut down during
certain parts of the months of August and December for the holidays, and as a
result there is no production at such facilities during such periods.
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<PAGE> 47
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), Holdings will accept for exchange Old Notes which are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted
below. As used herein, the term "Expiration Date" means p.m., New York
City time, on , 1998; provided, however, that if Holdings, in its
sole discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $68,000,000 aggregate principal amount
at maturity of the Old Notes was outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1998, to all
holders of Old Notes known to Holdings. The Company's obligation to accept Old
Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth below under "--Certain Conditions to the Exchange
Offer."
Holdings expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving oral or written notice
of such extension to the holders thereof as described below. During any such
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by Holdings. Any Old Notes not accepted
for exchange for any reason will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination of
the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
Holdings expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not therefore accepted for
exchange, upon the occurrence of any of the events specified below under
"--Certain Conditions to the Exchange Offer." Holdings will give oral or written
notice of any extension, amendment, non-acceptance or termination to the holders
of the Old Notes as promptly as practicable, such notice in the case of any
extension to be issued by means of a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to Holdings of Old Notes by a holder thereof as set forth below
and the acceptance thereof by Holdings will constitute a binding agreement
between the tendering holder and Holdings upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit either (i) a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to State Street Bank and Trust Company,
as Exchange Agent, at the address set forth below under "--Exchange Agent" on or
prior to the Expiration Date, or (ii) if such Old Notes are tendered pursuant to
the procedures for book-entry transfer set forth below, a holder tendering Old
Notes may transmit an Agent's Message (as defined herein) to the Exchange Agent
in lieu of the Letter of Transmittal on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if
such procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below, along with the Letter of Transmittal or an
Agent's Message, as the case may be, must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below. The term "Agent's Message" means
a message, transmitted to the Book-Entry Transfer Facility and received by the
Exchange Agent and forming a part of the Book-Entry Confirmation, which states
that the Book-Entry
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<PAGE> 48
Transfer Facility has received an express acknowledgment from the tendering
Participant (as defined herein) that such Participant has received and agrees to
be bound by the Letter of Transmittal and Holdings may enforce the Letter of
Transmittal against such Participant. THE METHOD OF DELIVERY OF OLD NOTES,
LETTERS OF TRANSMITTAL OR AGENT'S MESSAGES AND ALL OTHER REQUIRED DOCUMENTS IS
AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
HOLDINGS.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by Holdings in its sole
discretion, duly executed by, the registered Holder with the signature thereon
guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
Holdings in its sole discretion, which determination shall be final and binding.
Holdings reserves the absolute right to reject any and all tenders of any
particular Old Notes not properly tendered or to not accept any particular Old
Notes which acceptance might, in the judgment of Holdings or its counsel, be
unlawful. Holdings also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by Holdings
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as Holdings shall determine. Neither
Holdings, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Old Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
Holdings, proper evidence satisfactory to Holdings of their authority to so act
must be submitted.
By tendering, each holder will represent to Holdings that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, and that neither the holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. As a condition to its participation in the
Exchange Offer each Holder using the Exchange Offer to participate in a
distribution of the New Notes shall acknowledge and agree that, if the resales
are of New Notes obtained by such Holder in exchange for Old Notes acquired
directly from Holdings or an Affiliate thereof it (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration
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<PAGE> 49
and prospectus delivery requirements of the Securities Act in connection with
any secondary resale transaction and that such a secondary resale transaction
must be covered by an effective Registration Statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K under the Securities Act. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the terms and conditions to the
Exchange Offer, Holdings will accept, promptly after the Expiration Date, all
Old Notes properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes. See "--Certain Conditions to the Exchange Offer."
For purposes of the Exchange Offer, Holdings shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if Holdings has given oral
or written notice thereof to the Exchange Agent, with written confirmation of
any oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The Old Notes were issued at a substantial discount from
their principal amount at maturity. Original issue discount on the Notes will
accrete at a rate of 13 1/2%, compounded semi-annually to an aggregate principal
amount of $68.0 million at July 1, 2003. Cash interest will not accrue on the
Notes prior to July 1, 2003. Commencing July 1, 12003, cash interest on the
Notes will accrue at the rate of 13 1/2% per annum, and will be payable
semiannually in arrears on January 1 and July 1 of each year, commencing January
1, 2004, to Holders of record on the immediately preceding May 15 and December
15. No cash interest will be payable on the Notes prior to January 1, 2004.
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 July 1, 2003. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The Registration Rights Agreement provides that (i) if Holdings fails to
file an Exchange Offer Registration Statement with the Commission on or prior to
the 45th day after the Closing Date, (ii) if the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior to the 180th
day after the Closing Date, (iii) if the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement is
declared effective, (iv) if obligated to file the Shelf Registration Statement
and Holdings fails to file the Shelf Registration Statement with the Commission
on or prior to the 60th day after such filing obligation arises, (v) if
obligated to file a Shelf Registration Statement and the Shelf Registration
Statement is not declared effective on or prior to the 90th day after the
obligation to file a Shelf Registration Statement arises, or (vi) if the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is declared effective but thereafter ceases to be effective or
useable in connection with resales of the Old Notes, for such time of
non-effectiveness or non-usability (each, a "Registration Default"), Holdings
agrees to pay to each Holder of Old Notes affected thereby liquidated damages
("Liquidated Damages") in an amount equal to $0.05 per week per $1,000 in
principal amount of Old Notes held by such Holder for each week or portion
thereof that the Registration Default continues for the first 90 day period
immediately following the occurrence of such Registration Default. The amount of
the Liquidated Damages shall increase by an additional $0.05 per week per $1,000
in principal amount of Old Notes with respect to each subsequent 90 day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week per $1,000 in principal amount of Old
Notes. Holdings shall not be required to pay Liquidated Damages for more than
one Registration Default at any given time. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other
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<PAGE> 50
required documents or, in the case of a Book-Entry Confirmation, an Agent's
Message in lieu thereof. If any tendered Old Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount than the holder desired to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees, or an Agent's Message in lieu of a
Letter of Transmittal, and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at one of the addresses set
forth below under "--Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by Holdings (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must
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specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Old Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
Holdings, whose determination shall be final and binding on all parties. Any Old
Notes so withdrawn will be deemed not to have been validly tendered for exchange
for purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, Holdings shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order of decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of Holdings to accept for exchange or exchange some or all of the
Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation,
order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the reasonable judgment of
Holdings might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the reasonable judgment of
Holdings, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretation of the Commission referred to on the cover
page of this Prospectus, or would otherwise make it inadvisable to proceed
with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of Holdings to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of Holdings and its subsidiaries taken as a whole that, in the
reasonable judgment of Holdings, is or may be adverse to Holdings, or
Holdings shall have become aware of facts that, in the reasonable judgment
of Holdings, have or may have adverse significance with respect to the
value of the Old Notes or the New Notes;
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<PAGE> 52
which in the reasonable judgment of Holdings in any case, and regardless of the
circumstances (including any action by Holdings) giving rise to any event
described above, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of Holdings and may be
asserted by Holdings regardless of the circumstances giving rise to any such
condition or may be waived by Holdings in whole or in part at any time and from
time to time. The failure by Holdings at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, Holdings will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indentures under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal and Agent's
Messages should be directed to the Exchange Agent at one of the addresses set
forth below. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal or Agent's Message and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
Delivery To: State Street Bank and Trust Company, Exchange Agent
By Mail:
State Street Bank and Trust Company
P.O. Box 778
Boston, Massachusetts 02102
Attention: Corporate Trust Department
Kellie Mullen
By Overnight Courier or Hand:
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attention: Corporate Trust Department
Kellie Mullen
By Facsimile Transmission
(for Eligible Institutions only):
(617) 664-5290
Attention: Corporate Trust Department
Confirm by Telephone:
(617) 664-5587
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
Holdings will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by Holdings and are estimated in the aggregate to be
$[ ].
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
Holdings to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holdings does not currently anticipate that it
will register Old Notes under the Securities Act. See "Description of the
Notes--Registration Rights; Liquidated Damages." Based on interpretations by the
staff of the Commission, as set forth in no-action letters issued to third
parties, Holdings believes that New Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of Holdings within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, Holdings does not intend to request the Commission to consider,
and the Commission has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each holder (including, without limitation, any Holder that
is a broker-dealer) must acknowledge that (A) it is not an Affiliate (as defined
in Rule 144 of the Securities Act), (B) it is not engaged in, and does not
intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes, and (C) it is
acquiring the New Notes in its ordinary course of business. As a condition to
its participation in the Exchange Offer each Holder using the Exchange Offer to
participate in a distribution of the New Notes shall acknowledge and agree that,
if the resales are of New Notes obtained by such Holder in exchange for Old
Notes acquired directly from Holdings or an Affiliate thereof, it (i) could not
rely on the applicable interpretations of the staff of the Commission and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction and that such
a secondary resale transaction must be covered by an effective registration
statement containing the selling security holder information required by Item
507 or 508, as applicable, of Regulation S-K under the Securities Act. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." In addition, to comply with state securities laws, the
New Notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. Holdings currently does not
intend to register or qualify the sale of the New Notes in any state where an
exemption from registration or qualification is required and not available.
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BUSINESS
OVERVIEW
Holdings is a holding company and does not have any material operations or
assets other than ownership of all the capital stock of Anchor Holdings, which
does not have any material operations or assets other than ownership of all the
capital stock of the Company. On a proforma basis after giving effect to the
Transactions, Holdings generated 1997 net sales, net loss and EBITDA of $414.6
million, $1.7 million and $54.8 million, respectively.
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company serves over 450
customers, including leading multinational companies such as Abbott
Laboratories, Colgate-Palmolive, Kimberly-Clark, L'Oreal, Maybelline, Motorola,
Procter & Gamble, Renault, Revlon, Siemens, Whirlpool and Xerox. Products
utilizing the Company's plastic components are sold in a wide range of end
markets, including end markets for consumer products,
telecommunications/business equipment, household appliances, automobiles and
medical devices. The Company believes that the diversity of its customers,
markets and geographic regions creates a stable revenue base and reduces the
Company's exposure to particular market or regional economic cycles. On a pro
forma basis after giving effect to the Transactions, the Company generated 1997
net sales, net income and EBITDA of $414.6 million, $.7 million and $54.8
million, respectively, making it the sixth largest non-automotive plastic
injection molding company in North America and one of the largest plastic
component suppliers in Europe.
The Company has 27 manufacturing facilities with approximately 680 molding
machines throughout North America and Europe, including France, Germany, the
United Kingdom and Portugal. The Company is capable of providing its customers
with integrated design and prototype development, mold design and manufacturing,
advanced plastic injection molding capabilities, and value-added finishing
services, such as hot stamping, pad printing, assembly and complete product
testing, all of which enable it to provide "one-stop" shopping to customers
seeking a wide range of services. The Company's technologically advanced
manufacturing facilities and equipment enable it to provide customized solutions
to highly demanding customer specifications. For 1997, approximately 45% of the
Company's sales of molded products were covered by long term purchase and sale
contracts which stipulate anticipated volume requirements and pricing terms.
Management believes that few competitors offer the scale, expertise, reputation
and range of services that the Company provides.
The Company was formed through the merger of two leading plastic injection
molders, Moll PlastiCrafters Limited Partnership and Anchor Advanced Products,
Inc., which were each controlled by Mr. George Votis. Immediately prior to the
Merger, Moll and Anchor were independently operated entities. Mr. Votis acquired
Moll's predecessor in 1989 and has since completed seven acquisitions,
increasing Moll's revenues from approximately $8 million in 1989 to
approximately $232.4 million in 1997 on a pro forma basis excluding the
acquisition of Anchor. Such acquisitions included the acquisition in August 1997
of Hanning, a leading supplier of injection molded plastic components for use in
digital photocopiers with manufacturing facilities located in the United States,
the United Kingdom and Germany, which had 1997 revenues of $49.6 million, and
the acquisition in January 1998 of Somomeca, a French injection molder which had
1997 revenues of $88.5 million. In March 1998, Mr. Votis acquired Anchor which
had revenues of $161 million in 1997. See "The Company."
The Company has been formed to combine the manufacturing, marketing and
management resources of Moll and Anchor to create further opportunities for
growth and development. As a result of the Transactions, management believes
that the Company will become better positioned to benefit from the growth and
consolidation of the plastics industry. The Company also believes that the
consummation of the Transactions has significantly enhanced its future growth
prospects and revenue stability by broadening its customer base, manufacturing
capabilities and geographic presence. Moreover, the Company expects to benefit
from its increased scale, ability to centralize certain key logistical functions
and attendant cost savings opportunities. Since March 1998, the Company has
eliminated approximately $2.8 million in annualized costs by reducing
duplicative administrative expenses, eliminating less profitable business lines
and streamlining manufacturing
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processes. The savings consist of $1.7 million in payroll costs gained through
the elimination of duplicate expenses and excessive resources and $1.1 million
in benefit costs gained through a revision of the retirement benefits. The
savings were calculated based on the salaries of the positions eliminated and an
acturial estimation of the savings associated with the change in the retirement
plan.
COMPETITIVE STRENGTHS
Management believes that the Company has achieved its current position as a
market leader because of the following competitive strengths:
BROAD GEOGRAPHIC PRESENCE. The Company's multiple plant locations
throughout North America and Europe enable it to (i) compete effectively for
contracts that require large volume runs and multiple distribution points, (ii)
offer its customers multiple production locations and (iii) allocate production
to the facility best suited for a job in view of its relative capabilities and
proximity to the customer. As a result, the Company is able to provide its
customers with a broad range of manufacturing capabilities, improved
responsiveness, timely delivery, and reduced freight costs. In addition, by
operating geographically diverse plants, the Company can mitigate customer
sourcing risks associated with single facility production.
FULL SERVICE CAPABILITIES. The Company provides its customers with
comprehensive services ranging from product design, product development,
prototyping and mold making to molding, painting and other value-added services.
As a result, management believes that the Company is one of a limited number of
full service plastic injection molders in North America and Europe that is well
positioned to benefit from the trend of customers outsourcing total project
management to full service multiple plant suppliers.
STRONG CUSTOMER RELATIONSHIPS. The Company believes that its ability to
attract and retain customers is in part attributable to the high level of
customer service it provides. The Company also believes that frequent
interaction with its customers in the product development process helps it to
develop long-term relationships. Of the Company's top ten customers in 1997, two
have been with the Company for over fifty years, three have been with the
Company for over ten years and the remainder have been with the Company for over
four years. For many of its key customers, the Company is the sole supplier for
specific parts. The Company's emphasis on customer partnerships and its
long-standing customer relationships provide it with a significant competitive
advantage.
MANUFACTURING CAPABILITIES. The Company utilizes a wide range of advanced
manufacturing processes, such as gas assist molding, co-injection and two-shot
molding, automated assembly and testing, in-mold decorating, thin-wall molding
and in-mold bristling. The Company's manufacturing capabilities enable it to
provide innovative solutions and supply components in an integrated process. For
example, the Company worked closely with Renault to produce dashboard grilles
using a newly developed co-injection molding technology.
SUPERIOR PRODUCT QUALITY. The Company uses quality systems and operations
management techniques to meet the highest standards and to reduce costs. The
Company continually invests in technology and training to monitor and improve
quality. Included among such investments are effective management systems to
ensure real-time information and control, statistical process control systems,
failure mode and effect analysis systems, microprocessor-controlled molding
machines and automated assembly equipment. In addition, the Company has material
and product testing equipment that monitor product reliability to meet exacting
quality standards.
BUSINESS STRATEGY
The Company seeks to further strengthen its leadership position in the
plastic molding industry and to maximize its financial performance by employing
the following strategies:
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The Company believes that the
Merger creates new opportunities to cross-sell products and services between
each of Anchor's and Moll's customer bases. For example, while Anchor's
operations prior to the Merger were confined to North America, many of its
customers are multinational firms with significant European operations.
Management believes that offering such customers access to the Company's
European operations, operated by Moll prior to the Merger, is a
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significant growth opportunity. The Company has hired a new Senior Vice
President, Marketing to target and capitalize on such opportunities.
CENTRALIZE SALES AND MARKETING. The Company plans to centralize management
of its sales and marketing efforts to improve communication with customers,
better cross-sell services to customers and ensure uniform pricing and sales
strategies. While local sales and management staff will maintain direct
relationships with customers and production facilities, a centralized sales and
marketing effort will enable the Company to serve national and international
accounts more effectively and to pursue customers located outside an individual
plant's geographic service area. The Company's centralized sales and marketing
group will be responsible for identifying market trends and assisting customers
with new product ideas as well as promoting the Company through customer
presentations, advertising and trade shows.
EXPAND GLOBALLY. The Company believes that it is one of the largest North
American plastic injection molders with a significant European presence. Such
capabilities allow the Company to (i) penetrate new geographic regions with its
existing multinational customers, such as L'Oreal, Siemens, Whirlpool and Xerox,
and (ii) acquire complementary manufacturing facilities in strategic locations.
Continuing to pursue this strategy will enable the Company to effectively
provide a complete and integrated range of molding, manufacturing and
value-added services on a global basis.
REDUCE COSTS. The Company continually aims to improve its cost
effectiveness by increasing productivity and implementing operational
improvements. Since March 1998, Anchor has eliminated approximately $2.8 million
in annualized costs by reducing duplicative administrative expenses, eliminating
less profitable business lines and streamlining manufacturing processes. The
savings consist of $1.7 million in payroll costs gained through the elimination
of duplicate expenses and excessive resources and $1.1 million in benefit costs
gained through a revision of the retirement benefits. The savings were
calculated based on the salaries of the positions eliminated and an actuarial
estimation of the savings associated with the change in the retirement plan.
Management believes that the combination of Anchor, Moll and Gemini Plastic will
result in additional opportunities to reduce costs by: (i) reducing overhead
expenses through optimization of labor and equipment resources at each of the
Company's facilities; (ii) divesting or discontinuing less profitable business
lines; (iii) eliminating redundant administrative operations and related
personnel; and (iv) where appropriate, moving key management personnel on-site
to the Company's manufacturing plants in order to oversee expansion and/or
execution of cost control measures.
CONTINUE STRATEGIC ACQUISITIONS. Strategic acquisitions have been, and
management believes will continue to be, an important element in the Company's
growth and in its efforts to capitalize on favorable industry trends. The
Company will consider future acquisition opportunities that are attractively
priced and which the Company believes will strengthen its customer base, broaden
its geographic presence, enhance its production capabilities and provide
significant operating synergies. While the Company routinely enters into
discussions with potential acquisition candidates, no such discussions have
progressed beyond the preliminary stages.
INDUSTRY OVERVIEW AND TRENDS
Injection molding is one of the most widely used plastic processing methods
in the world due to the high-quality properties of the finished product and its
cost effectiveness. According to industry sources, demand for injection molded
plastics in the United States is projected to grow at 3.3% annually. Such growth
is expected to result from a number of key factors including: (i) improved
resins and processing capabilities; (ii) versatility of the injection molding
process; and (iii) cost and performance advantages of plastic over substitute
materials. Despite the expected increase in demand for plastic injection molded
products, the U.S. molding industry remains highly fragmented with over 2,500
injection molders operating more than 10,000 plant locations. The capabilities
of these molders vary widely, as do their end markets.
In recent years, plastic injection molders have benefited from technology
improvements that have enabled plastic to replace other materials (most notably
metal, glass and paper) in a variety of applications. Plastic has been
substituted for these materials primarily because of its disposability, ease of
manufacture, durability, aesthetic appeal, flexibility of form and weight.
Additionally, plastic often provides significant cost savings over
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other materials due to design and fabrication and raw material cost advantages.
By successfully substituting plastic for other materials, manufacturers can
significantly reduce the amount of necessary parts, 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 customers to outsource their injection molding
needs. Management believes that the consolidation of the highly fragmented
plastics injection molding industry has accelerated in recent years as a result
of customer preferences toward larger, full-service independent molders that are
able to provide total project management. As customers place increasing emphasis
on minimizing the "time to market" for their new products and ensuring that
their requirements for production, quality and timely delivery are satisfied,
they are increasingly relying on one full-service supplier for each new product
launch. Given that molders in these relationships are involved in many decisions
that affect cost and prevent complications in production, they are better able
to preserve attractive margins.
The trend toward customer consolidation of suppliers has created
significant opportunities for injection molders such as the Company who possess
full-service capabilities. Given the capital investment required to successfully
compete as a full-service injection molder, management believes that an
increasingly limited number of injection molders will be capable of providing
the quality and breadth of services demanded by high volume customers.
Furthermore, management believes that the trend among customers to develop
closer relationships with full-service injection molders mitigates the potential
threat of out-of-market competition. Inconsistent product quality, weak tooling
capabilities and significant distance from customers' manufacturing locations
have traditionally hindered limited service or out-of-market competitors from
competing effectively for projects that require full-service capabilities,
outstanding quality and quick response time.
MARKETS AND PRODUCTS
MARKETS
The following table sets forth the percentages of the Company's total net
sales for the periods presented that were derived from sales to its different
end markets:
<TABLE>
<CAPTION>
1996(1) 1997(1)
<S> <C> <C>
Consumer Products........................................... 26.6% 27.6%
Telecommunications/Business Equipment....................... 17.3 18.9
Household Appliances........................................ 16.2 17.6
Automotive.................................................. 15.2 12.3
Medical Devices............................................. 7.2 8.1
Packaging and Other......................................... 17.5 15.5
---- ----
Total............................................. 100% 100%
</TABLE>
- ------------------------------
(1) The information for 1996 and 1997 gives effect to the Transactions as if
they had occurred on the beginning of the periods presented.
CONSUMER PRODUCTS
Within the consumer products market, the Company has particular strength in
the cosmetics and oral care sectors. The Company manufactures and supplies
plastic components to the cosmetics industry in five major product categories:
mascara, nail applicators, compacts, closures and lipstick containers which
collectively account for more than 220 different mascara packages and 19
different lipstick containers. The Company enjoys substantial business with the
leading cosmetics companies, including Estee Lauder, L'Oreal, Maybelline, Mary
Kay, Revlon, Amway and Aveda, which produce products marketed under the brand
names Great Lash(R), Clinique and many others. The Company manufactures
toothbrushes for Colgate-Palmolive,
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Procter & Gamble, Cheseborough-Ponds and SmithKline Beecham, under such
well-known brand names as Crest(R), Colgate(R), Pepsodent(R) and Flexosaurus(R),
and electric toothbrush heads for Teledyne Water Pik, a division of Teledyne
Industries, Inc. Toothbrushes accounted for approximately 13.4% and 11.2% of pro
forma consolidated sales in 1996 and 1997, respectively. The Company also
manufactures and assembles POP displays for Maybelline. Approximately 10.7% of
the Company's pro forma net sales in 1997 were derived from L'Oreal The
Company's relationship with L'Oreal is governed by a letter agreement which will
expire on December 31, 2000. Such agreement does not contain any minimum
purchase requirements on the part of L'Oreal. Such agreement provides that if
long term quality and reliability is violated, such agreement will become null
and void.
The Company serves the eye and lip preparation and nail polish segments of
the domestic cosmetics market. Management estimates that in 1996, eye make-up,
lip make-up and nail care products accounted for approximately 24% ($662
million), 22% ($611 million), and 11% ($318 million), respectively, of the total
U.S. cosmetics market, which management estimates totaled $2.8 billion in 1996.
The Company is also a leading independent designer, manufacturer and packager of
toothbrushes in the United States with an estimated 1997 market share of
approximately 27% of all toothbrush manufacturing. Management estimates that the
domestic market for toothbrushes was 676 million units in 1996.
Management believes that the consumer products market is largest segment of
the injection molded plastic industry. In 1996, market demand for this end
market was approximately 35.8% of the total plastic injection market.
TELECOMMUNICATIONS/BUSINESS EQUIPMENT
The Company designs and manufactures plastic components for
telecommunications and business equipment in North America and Europe, including
complete multi-component assemblies for business telephones and cellular
telephone handsets manufactured by Siemens and Motorola, and electronic
telecommunications equipment and cellular tower construction hardware
manufactured by the 3M Corporation and Specialty Teleconstructers. The Company
also manufactures plastic components used in business equipment such as (i)
photocopiers and digital imaging systems manufactured by Xerox, (ii) printers
and computer assemblies manufactured by Tektronix, Ogden Atlantic, Lexmark and
Sequent and (iii) custom casings and assemblies for computers manufactured by
Compaq and IBM.
Management believes that this end market offers attractive growth
opportunities due to growth currently being experienced in the
telecommunications market, particularly with respect to cellular telephones and
other personal communications devices. In addition, many multinational business
equipment manufacturers have also enjoyed strong and steady market growth
through international expansion as international sales continue to strengthen
profits. Based on industry sources, management believes that computer and office
equipment shipments will grow at over 6% annually (in real inflation-adjusted
terms through the year 2001) from $135 billion in 1996 to $182 billion in 2001.
HOUSEHOLD APPLIANCES
The Company is a leading independent designer and manufacturer of plastic
components used in household appliances including (i) refrigerators (primarily
high end side-by-side refrigerators), room air conditioning systems and free
standing and built-in ranges manufactured by Whirlpool, (ii) countertop
appliances manufactured by Tefal, (iii) laundry washers and dryers manufactured
by Electrolux and (iv) televisions manufactured by Daewoo. Approximately 10.3%
of the Company's pro forma net sales in 1997 were derived from Whirlpool. The
Company's relationship with Whirlpool is governed by a written contract.
However, such contract does not contain any minimum purchase requirements on the
part of Whirlpool. The initial term of such contract expires on December 31,
2000, and, thereafter, such contract will be automatically renewed for one year
terms unless terminated in the manner provided therein. Such contract can be
terminated (i) by the parties by mutual agreement at any time; (ii) by either
party giving the other at least six months notice of termination upon (a) the
expiration of the initial term or upon the expiration of any calendar year
subsequent to the initial term and (b) the parties failing to agree to certain
price and quality specifications, and (iii) each party has the right to
unilaterally terminate such contract for cause, which includes, without
limitation, substantial default, dissolution of either party and insolvency of
either party.
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Management believes that this market offers attractive growth opportunities
due to steady growth in the household appliance market. Based on industry
sources, management believes that home appliance shipments will grow at over
2.3% annually (in real inflation-adjusted terms through the year 2001) from $223
billion in 1996 to $250 billion in 2001 driven by replacement demand as
appliances purchased in the 1980's are replaced with new products.
AUTOMOTIVE
The Company designs and manufactures plastic automotive components which
include (i) door handles, sun visors, wheel covers, intake grill manifolds for
Renault, (ii) gear shift knobs used in buses and trucks manufactured by General
Motors, (iii) motor scooter components for Peugeot, (iv) plastic components used
in turn signal and cruise control systems manufactured by Delphi, (v) interior
components used in vehicles manufactured by Audi, BMW and Freightliner and (vi)
insulating battery cases for Lydall.
Management believes that this market offers favorable growth opportunities
due to the steady growth in the automobile market in North America and Europe.
MEDICAL DEVICES
The Company manufactures products for the U.S. medical device market. The
Company manufactures various plastic medical devices, including blood filtration
devices, angiographic syringes, intravenous equipment, in-vitro diagnostic kits,
medical scrub brushes and cardiotomy reservoirs, as well as various internal and
external plastic components used in medical and dental equipment manufactured by
Adec, Acquson, Abbott Hospital Products Division and Alcon Medical.
Plastics are becoming more widely used in medical devices as the medical
field realizes the value of reduced breakage, the ability to manufacture
extremely consistent parts in a cost effective manner and the infection control
benefits of disposable products. Management believes that the medical device
market offers attractive growth opportunities.
PACKAGING AND OTHER
The Company manufactures and assembles a broad range of commercial and
industrial soap dispensing equipment for Kimberly-Clark. The Company also
manufactures hatch covers used in recreational boats manufactured by Tempress,
and plastic lawn and garden equipment for Electrolux Consumer Products. In
addition, the Company manufactures resealable "living hinge" plastic closures
for Tetrapak and dispensing closures for Seaquist.
GEOGRAPHIC MARKETS
The Company is a leading full service manufacturer and designer of custom
molded and assembled plastic components for a broad variety of customers and end
markets throughout North America and Europe. The Company has 27 manufacturing
facilities with approximately 680 molding machines throughout North America and
Europe, including France, Germany, the United Kingdom and Portugal. The Company
derived approximately 67% and 33% of its fiscal 1997 pro forma net sales in
North America and Europe, respectively. Through its recent acquisitions, the
Company's geographic presence has been strategically expanded into new regional,
national and international markets. While the Company believes its increased
global presence allows it to better service its numerous multinational
customers, the Company views its markets in North America and Europe as distinct
in terms of customer base and product requirements. Within each of these
markets, the Company places great emphasis on serving individual regional and
national markets separately from interna-tional markets and customers because
such regional and national customers often have specific requirements and
preferences. Overall, the Company believes that its expanded global presence has
improved international market penetration while facilitating more customized and
expedient service at the local and regional market level through proximity to
its customers.
CUSTOMER RELATIONSHIPS
The Company has built and maintained solid and long-term relationships with
its customers. In certain cases, such ongoing relationships are governed by long
term purchase and sale contracts. In 1997,
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approximately 45% of the Company's pro forma net sales of molded products was
covered by such contracts. However, such contracts do not contain any minimum
purchase requirements on the part of the customer. Almost all such contracts can
be terminated by the parties thereto by mutual agreement and can also be
terminated by either party giving notice of termination upon certain
occurrences, including, without limitation, disagreement on quality, quantity
and pricing issues, insolvency or dissolution of any party thereto and upon any
material breach of such contracts by any party thereto.
PRODUCTION
The Company utilizes a broad range of manufacturing processes and tool
making capabilities to service the needs of its diverse customer base. Using
such processes and capabilities, the Company can manufacture products ranging
from simple plastic parts to highly complex multi-component assemblies. The
Company's automated, high volume assembly and on-site testing capabilities
further broaden its manufacturing capabilities and provide it with a competitive
edge in obtaining and maintaining preferred supplier status with its customers.
The process for producing a plastic component can be divided into two
functions: (i) design and tooling and (ii) molding. These different functions
often are not performed by one supplier. Many customers have "in-house" design
departments for their plastic components. To manufacture the molds to design
specifications, such departments frequently use tooling companies that are
specialists in mold manufacturing but are not manufacturers of plastic
components. Such molds are owned by the customer who then provides them to the
suppliers for the purpose of manufacturing plastic components from such molds.
Unlike numerous plastic component manufacturers, the Company has the capability
to design and produce plastic components as well as the molds used to
manufacture such plastic components.
DESIGN AND TOOLING
The Company has three tooling facilities in the United States, three such
facilities in France and one such facility in Portugal.
The Company produces prototypes and molds to make plastic components for
customers without in-house tooling capabilities. The Company also sells
prototypes and molds to other plastic component manufacturers, as well as
manufacturing them for some of its own operations. The Company performs, or
expects to perform, the injection molding for a majority of the products for
which it makes molds. Plastic products for which the Company builds the mold but
which are not injection molded by the Company are typically molded in-house by
the customer.
The Company produces a broad range of injection mold prototypes and molds
weighing from 1,100 pounds to 88,000 pounds. Injection molds are used for the
mass production of plastic parts in amounts that can vary considerably depending
on the application, but that usually exceed one million parts over the life of
the mold. Each of the Company's mold making facilities offers a full range of
services, including conceptual part and tool design, building and testing, and
is staffed with engineers skilled in mold design and manufacture. The primary
areas of focus include product design, process improvement, enhancement of
product performance and maximization of aesthetics. Such engineers incorporate,
on an experimental basis, the expertise that is derived from having the
capabilities to design, build and run molds that incorporate the strategies of
the operating unit. Management views the Company's mold designing and building
operations primarily as supportive of its manufacturing business, and also as an
independent profit center.
MOLDING
The Company has 12 plants for manufacturing plastic components in the
United States, five such plants in France and one such plant in each of Mexico,
the United Kingdom and Germany. See "--Properties."
The Company manufactures a majority of its plastic components utilizing the
injection molding process of thermoplastic materials. This process requires
sophisticated injection molding machines and ancillary equipment and produces a
high quality engineered product at relatively high speed. In this process,
thermoplastic materials created from plastic resins and other raw materials are
specially prepared and treated, melted to a defined temperature, injected into a
mold under high pressure at relatively high speed, cooled by channels conveying
water throughout the mold and transformed into a plastic part that is
automatically
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removed when the mold opens. In some cases, additional finishing operations are
performed on the plastic part. The typical molding cycle falls into a range of 8
to 60 seconds and is dependent upon the material type, part design, mold design,
and the dimensional and aesthetic requirements established by the customer.
In addition to relatively common and established technology for injection
molding, the Company utilizes other newer technologies that employ advanced
manufacturing processes such as gas-assist molding, co-injection, two-shot
molding, insert molding and in-mold decorating.
While the Company has developed proprietary techniques and manufacturing
expertise for the manufacture of injection-molded plastic components, the
Company has no patents for these proprietary techniques and chooses to rely on
trade secret protection. The Company believes that although its proprietary
techniques and expertise are subject to misappropriation or obsolescence,
development of improved methods and processes and new techniques by the Company
will continue on an ongoing basis as dictated by the technological needs of the
business.
VALUE-ADDED SERVICES
The Company offers a broad range of value-added services, including
finishing and automated assembly services. These services include hot stamping,
painting, pad printing, silkscreening, ultrasonic welding and insertion, heat
staking, solvent bonding, painting and impulse welding. At a customer's request,
the Company also outsources additional value-added services such as
electromagnetic and radio frequency interference shielding.
The Company also provides a wide range of inventory management services and
logistical support to its customers. Moving beyond just-in-time delivery, the
Company assists its customers with planning and managing production
requirements; routing inventory to in-process, intermediate and final
distribution points; and adjusting to customers' inventory requirements on a
real time basis through the alignment of the Company's production capabilities
with a customer's production requirements through electronic data interchange.
RAW MATERIALS
The Company's primary raw materials are various plastic resins, nylon and
packaging materials. Raw material prices are subject to cyclical price
fluctuations, including those arising from supply shortages and as a result of
changes in the prices of natural gas, crude oil and other petrochemical
intermediates from which resin is derived. Accordingly, the Company's financial
performance is directly linked to its ability to pass along increased raw
material costs to its customers. Although the Company has historically been able
to pass on increased costs to its customers, there can be no assurance that it
will be able to do so in the future or that a significant price increase in raw
materials would not have a material adverse effect on the Company's financial
condition and results of operations. Although most of the raw materials used by
the Company are available from several suppliers, several of such raw materials
are currently obtained from single sources. The Company has no reason to believe
that there will not be an ample supply of its raw materials at prices
commercially acceptable to the Company for the reasonably foreseeable future,
but the Company cannot make any prediction as to the future price of such raw
materials. See "Risk Factors--Raw Materials."
MARKETING AND SALES
The Company seeks to increase its sales through cross-selling to its
existing customer base and by attracting new customers. The Company's primary
marketing strategy is to develop and maintain close working relationships with
the engineering, procurement, quality, tooling and manufacturing departments of
its customers. Several of the Company's largest customers are serviced by a
dedicated sales agent. The Company employs six sales agents and uses two
independent sales agents to service its customers. These relationships help
ensure close cooperation in product design and help the Company in gaining
repeat and new business with its existing customer base. The Company believes
that its design, engineering and tooling expertise, together with its ability to
service and cross sell to customers from multiple locations on a worldwide
basis, have enabled it to broaden its product lines, further penetrate its
existing customer base and attract new customers.
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COMPETITION
The markets in which the Company operates are highly competitive. The
Company competes with a significant number of companies of varying sizes,
including divisions or subsidiaries of larger companies and the in-house
departments of potential customers, on the basis of price, service, quality and
the ability to supply products to customers in a timely manner. Some of these
competitors have, and new competitors may have, greater financial and other
resources than the Company. Additionally, each of Reliance Products (which is
controlled by the principal stockholders of the Company) and the Company are
engaged in the injection molded plastics business. The products manufactured,
and the markets served, by each of Reliance Products and the Company are
different, and Reliance Products and the Company have not, and do not, compete
with each other. However, no assurance can be given that Reliance Products and
the Company will not compete for the same business opportunities in the future,
which may present conflicts of interest. Competitive pressures or other factors,
including the vertical integration by certain of the Company's major customers
of manufacturing processes traditionally outsourced to the Company, could cause
the Company to lose market share or could result in a significant price erosion
with respect to the Company's products, either of which could have a material
adverse effect on the Company's results of operations. Furthermore, the
Company's customers operate in highly competitive markets. To the extent the
Company's major customers lose market share in their respective markets, the
Company's results of operations and financial condition could be materially and
adversely affected. See "Risk Factors--Competition."
ENVIRONMENTAL MATTERS
Federal, state, local and foreign governments could enact laws or
regulations concerning environmental matters that increase the cost of
producing, or otherwise adversely affect the demand for, plastic products. The
Company is aware that certain local governments have adopted ordinances
prohibiting or restricting the use or disposal of certain plastic products that
are among the types of products produced by the Company. If such prohibitions or
restrictions were widely adopted, such regulatory and environmental measures or
a decline in consumer preference for plastic products due to environmental
considerations could have a material adverse effect upon the Company. In
addition, certain of the Company's operations are subject to Federal, state,
local and foreign environmental laws and regulations that impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous wastes. While the
Company has not been required historically, and does not currently expect, to
make significant capital expenditures in order to comply with applicable
environmental laws and regulations, the Company cannot predict with any
certainty its future capital expenditure requirements because of continually
changing compliance standards and environmental technology. The Company does not
have insurance coverage for environmental liabilities and does not anticipate
obtaining such coverage in the future. See "Risk Factors--Environmental
Matters."
EMPLOYEES
As of December 31, 1997, the Company had 3,776 employees, and approximately
40% of such employees were covered by collective bargaining agreements. The
Company's employees in the United States and the United Kingdom are neither
represented by a union nor covered by any collective bargaining agreement. In
Germany, the Company's plant workers are represented by a union, however, the
Company is not liable for any severance costs associated with any workforce
reductions at its German facilities. The Company's employees in Mexico are
covered by a collective bargaining agreement. The Company's employees in France
are covered by national and regional collective agreements for the plastics
industry and the steel and metal industry. Such collective agreements were not
negotiated between the Company and its employees, but rather were concluded by
representatives of all employers and employees in such industries. Some of the
collective agreements covering the Company and its employees have been extended
by the French Labor Ministry to have nationwide scope, while others apply
regionally only. Such collective agreements do not expire until the employers'
or employees' representatives give the other party prior notice.
The Company has historically enjoyed good employee relations.
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<PAGE> 63
PROPERTIES
As of July 4, 1998, the Company owned or leased 15 production facilities in
the United States, seven production facilities in France and one production
facility in each of Mexico, the United Kingdom, Germany and Portugal. The
Company believes that its facilities are well maintained and in good operating
condition and anticipates that, although substantial capital expenditures will
be required to meet the production requirements for new and developing product
lines, the facilities themselves will be sufficient to meet the Company's needs
for the next several years. There can be no assurance, however, that
unanticipated developments will not occur that would require the Company to add
or eliminate production facilities sooner than expected. The following table
indicates as at the date hereof the locations, the area, nature of ownership,
and principal use of the Company's land and related facilities.
<TABLE>
<CAPTION>
LOCATION AREA (SQ. FT.) OWNERSHIP USE
<S> <C> <C> <C>
North America
Austin, Texas............................. 79,000 Owned Manufacturing
Elk Grove, Illinois....................... 10,000 Leased Mold Shop/engineering
Evansville, Indiana....................... 5,000 Leased Engineering office
Fort Lauderdale, Florida.................. 85,000 Leased Manufacturing
Fort Smith, Arkansas...................... 143,000 Owned Manufacturing
Harlingen, Texas.......................... 45,000 Leased Warehouse
Knoxville, Tennessee...................... 12,000 Leased Office
Matamoros, Mexico......................... 118,000 Owned Manufacturing
Morristown, Tennessee..................... 90,000 Leased Warehouse
Morristown, Tennessee, Plant B............ 180,000 Owned Manufacturing
Morristown, Tennessee, Plant C............ 120,000 Owned Manufacturing
Nashville, Tennessee...................... 121,000 Owned Manufacturing
Newberg, Oregon........................... 108,000 Owned Manufacturing
Rochester, New York....................... 79,000 Owned Manufacturing
Round Rock, Texas......................... 71,300 Owned Manufacturing
San Antonio, Texas........................ 62,000 Leased Manufacturing
Sanford, North Carolina................... 12,500 Owned Mold Shop
Seagrove, North Carolina.................. 31,700 Leased Warehouse
Seagrove, North Carolina.................. 133,200 Owned Manufacturing
Waterbury, Connecticut.................... 120,000 Owned Manufacturing
Europe
Blanzy, France............................ 57,750 Leased Manufacturing
35,400 Leased Warehouse
Bonneval, France.......................... 19,800 Owned Manufacturing
26,080 Leased Mold shop/engineering
Chalon, France............................ 23,400 Owned Mold shop/engineering
16,200 Leased Mold shop
21,175 Leased Manufacturing
Marinha Grande, Portugal.................. 81,850 Owned Mold shop
Mitcheldean, United Kingdom............... 15,000 Leased Manufacturing
Paderborn, Germany........................ 160,000 Leased Manufacturing
Rouvray, France........................... 109,000 Leased Manufacturing
Saint-Vit, France......................... 12,320 Owned Mold shop
12,000 Leased Mold shop
Villers-La-Montagne, France............... 111,000 Owned Manufacturing
</TABLE>
To the extent any such properties are leased, the Company expects to be
able to renew such leases or lease comparable facilities on terms commercially
acceptable to the Company. Management believes that the Company's facilities are
suitable for its operations and provide sufficient capacity to meet the
Company's requirements for the foreseeable future.
LEGAL PROCEEDINGS
The Company believes that it is not presently a party to, or threatened
with, any litigation the outcome of which would have a material adverse effect
on its financial condition or results of operation.
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<PAGE> 64
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The current directors and officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
George T. Votis................................. 36 Chairman and Chief Executive Officer
Charles B. Schiele.............................. 56 President and Director
Phyllis C. Best................................. 52 Chief Financial Officer
Michael N. Red.................................. 51 Senior Vice President, Marketing
T. Michael Bauer................................ 48 Executive Vice President, Eastern Operations
and U.K.
Geoffrey A. de Rohan............................ 41 Executive Vice President, Cosmetics
Robert T. Parkey................................ 61 Executive Vice President, Oral Care
Jean-Jacques de Boissieu........................ 40 Executive Vice President, France and Portugal
Mogens Andersen................................. 47 Vice President, Germany
</TABLE>
George T. Votis. Mr. Votis serves as Chairman and Chief Executive Officer
of the Company and as Chairman and Chief Executive Officer of Galt Industries
which he founded in 1988. Prior to 1988, Mr. Votis was a Vice President and
Principal at Carlisle Capital in Boston, Massachusetts.
Charles B. Schiele. Mr. Schiele joined Anchor in March 1998 as President.
Prior to joining Anchor, Mr. Schiele served as Executive Vice President of
Alcoa's Closure Systems International Division, a global packaging company since
1994. Mr. Schiele served as President of HC Industries; Regional Manager for the
Americas, and Global Manager, Plastic Closures from 1984 to 1993.
Phyllis C. Best. Prior to becoming Chief Financial Officer of the Company
in 1998, Ms. Best was Senior Vice President, Finance and Controller of Anchor
since 1995 and Vice President and Controller of Anchor since 1990.
Michael N. Red. Mr. Red joined Anchor in May 1998 as Senior Vice
President, Marketing. Mr. Red has more than 10 years of experience in the
plastic industry, including seven years from 1988 to 1995 with Closure Systems
International as Vice President Global Sales since 1992 and two years from 1996
to 1997 with Soft Alloy Extrusion Division, Tifton, Georgia, as Vice President
of Sales and Marketing.
T. Michael Bauer. Prior to becoming Executive Vice President, Eastern
Operations and U.K. of the Company in 1998, Mr. Bauer joined Moll in October
1988 as General Manager of the Company's Fort Smith division. Mr. Bauer has more
than 23 years of experience in plastics industry, including three years from
1985 to 1988 with Michigan Plastics Company as Vice President of Manufacturing,
one year from 1984 to 1985 with Grote Manufacturing Company as Manager of
Manufacturing Engineering Services and ten years from 1974 to 1984 with Kusan
Manufacturing Company.
Geoffrey A. de Rohan. Prior to becoming Executive Vice President,
Cosmetics of the Company in 1998, Mr. de Rohan was a Director of Anchor and
General Manager of the Mid-State Plastics Division of Anchor since 1996 and
Executive Vice President of Anchor and General Manager of the Cosmetics Division
of Anchor since 1995. Prior to joining Anchor, Mr. de Rohan served as Vice
President and General Manager of Wheaton Injection Molding, President of Wheaton
Plastic Products, and Vice President of Development Health Care Market at
Wheaton, Inc. from 1986 to 1995.
Robert T. Parkey. Prior to becoming Executive Vice President, Oral Care of
the Company in 1998, Mr. Parkey was a Director and Executive Vice President of
Anchor and General Manager of the Brush Division of Anchor since 1992 and was
Senior Vice President of Anchor from 1990 to 1992. Mr. Parkey joined Anchor in
1975 and was promoted to Vice President, Healthcare Division in 1978. Prior to
joining Anchor, he was Vice President, Sales Manager with Husky Industries, a
division of Husky Oil Company.
Jean-Jacques de Boissieu. Mr. de Boissieu joined Moll as Executive Vice
President, France and Portugal in January 1998. Prior to joining Moll, Mr. de
Boissieu was a consultant at C.N.P.A. since 1996. Prior to such time, Mr. de
Boissieu served as Managing Director and General Manager US Filter Water
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<PAGE> 65
Treatment France from 1994 to 1996, and was Automotive Development Engineer
General Electric Plastics France, Product Manager Europe General Electric
Plastics Netherlands, Managing Director of General Electric Silicones France,
Spain and Portugal and Manager Europe of General Electric Silicones building and
construction, Netherlands from 1985 to 1994.
Mogens Andersen. Mr. Andersen is a Vice President, Germany of the Company.
Mr. Andersen joined Moll in August 1997. Prior to joining Moll, Mr. Andersen was
with Alcoa Closure Systems International Europe from 1995 to 1997 where he was
finance and procurement manager, with Treasure Craft from 1994 to 1995 as
controller and with Capella Com-Data from 1993 to 1994 as finance manager/vice
managing director controller.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to (i) the Company's Chairman and Chief Executive Officer during 1997, (ii)
and each of the Company's four most highly compensated executive officers (other
than the Chairman and Chief Executive Officer), and (iii) up to two additional
individuals, if any, for whom disclosures would have been provided pursuant to
clause (ii) above but for the fact that the individual was not serving as an
executive officer of the Company at the end of the last completed fiscal year
(the "Named Executive Officers") for 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
OTHER ANNUAL PAYOUTS(4) ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION LTIP PAYOUTS COMPENSATION
---------------------------- -------- -------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
George T. Votis................... $ 0 $ 0 $1,300,000(2) $ 0 $ 0
Chairman and Chief Executive
Officer(1)
T. Michael Bauer.................. 142,133 122,000 0 -- 267(5)
Executive Vice President
Robert T. Parkey.................. 167,175 71,300 19,823(3) 540,168 0
Executive Vice President
Geoffrey A. de Rohan.............. 162,916 68,400 9,268(3) -- 0
Executive Vice President
Richard P. Fackler................ 578,655 560,000 1,650,000(2) 0 167,589(5)
Francis H. Olmstead, Jr.(6)....... 259,896 380,000 38,821(3) 760,800 0
</TABLE>
- ------------------------------
(1) Mr. Votis has never received any salary or bonus from the Company. However,
in 1997, the Company paid approximately $650,000 and approximately $742,000
in management fees to Galt Management, Inc. and Galt Industries, Inc.,
respectively, each of which is a Delaware corporation wholly owned by Mr.
Votis. On a going forward basis he will receive an annual salary and will be
part of a bonus plan to be established for the senior management of the
Company.
(2) Amounts represent tax distributions paid due to the flow through tax status
of Moll prior to the Transactions.
(3) Amounts consisted of Company reimbursements of certain taxes paid by the
Named Executive Officers shown above (except Messrs. Votis, Fackler and
Bauer), which were as follows: Mr. Olmstead, $38,821; Mr. Parkey, $19,823;
and Mr. de Rohan, $9,268.
(4) Amounts represent (i) dividends on 28,400 shares of restricted stock of
Anchor Holdings that were purchased pursuant to an option by Mr. Parkey and
(ii) dividends on 40,000 shares of restricted stock of Anchor Holdings that
were purchased pursuant to an option by Mr. Olmstead.
(5) Consist of insurance premiums with respect to term life insurance.
(6) Mr. Olmstead retired from the Company in connection with the acquisition of
Holdings in March 1998 by Anchor Acquisition Co.
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<PAGE> 66
AGGREGATED OPTIONS EXERCISED IN FISCAL YEAR 1997
AND 1997 FISCAL YEAR OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 1997 YEAR END AT 1997 YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis H. Olmstead, Jr..... 40,000 $740,000 0 0 0 0
Robert T. Parkey............ 28,400 525,400 0 0 0 0
Geoffrey A. de Rohan........ 0 0 0 10,000(2) 0 0
</TABLE>
- ------------------------------
(1) None of Holdings' capital stock is publicly traded. Market value of the
options was calculated on the basis of the fair market value of the
underlying securities at December 31, 1997 of $4.00 per share as determined
by Holdings' Board of Directors.
(2) Such options were cancelled in conjunction with the acquisition of Holdings
in March 1998 by Anchor Acquisition Co.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements, effective as of April 1,
1996 (the "Agreements"), with each of Robert T. Parkey, Geoffrey A. de Rohan and
Phyllis C. Best (each an "Employee" and, collectively, the "Employees").
The initial employment terms, the base salaries and maximum bonus amounts
(as a percentage of base salary) are set forth below:
<TABLE>
<CAPTION>
MAXIMUM
EMPLOYEE INITIAL TERM BASE SALARY BONUS(1)
-------- ------------ ----------- --------
<S> <C> <C> <C>
Robert T. Parkey.................................. 12/31/98 $161,000 40.0%
Geoffrey A. de Rohan.............................. 12/31/98 $145,000 40.0%
Phyllis C. Best................................... 12/31/98 $125,000 40.0%
</TABLE>
- ------------------------------
(1) The bonus will be computed on the Company's financial and other results and
the overall performance of the Employee as determined in the sole discretion
of the Board of Directors. The bonus will be paid, if at all, in the year
following the year in which it is earned.
Upon a termination of employment due to death or disability of the
Employee, the Employee, or his estate, as the case may be, shall be entitled to
one year's base salary plus the amount of the last full-year bonus, pro-rated to
the effective date of termination. Upon a termination of employment by the
Employee for Cause (as defined in the Agreements) or termination by the Company
without Cause, the Employee shall be entitled to an amount equal to base salary
and bonus (the amount of the last full-year bonus), both computed to the end of
the term. Upon a termination of employment by the Employee without Cause or
termination by the Company with Cause, the Company may pay, at its sole
discretion, one-half of one year's base salary as consideration for a one-year
non-competition agreement with the Employee. Upon a termination of employment
due to expiration of the term of employment Anchor may pay, at its sole
discretion, one year's base salary as consideration for a one-year
non-competition agreement with the Employee. All severance payments pursuant to
this paragraph will be paid in quarterly installments. Further, if the Employee
obtains other employment during the period in which the Company is obligated to
make severance payments, the Company's obligation to make such payments will be
reduced by an amount equal to 75% of the total earnings such Employee makes from
such other employment.
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS AGREEMENTS
Each of the persons listed above as parties to Employment Agreements is
also party to a Supplemental Executive Retirement Benefits Agreement (the "SERB
Agreements") with the Company. Under these agreements, the above-mentioned
Employees are, upon retirement (as defined in the SERB Agreements),
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<PAGE> 67
entitled to a life-time annual retirement benefit (distributed monthly)
calculated based upon the higher of two separate formulas (see note (3) below).
The annual retirement benefits under one of these formulas are calculated based
upon years of credited service (as defined in the SERB Agreements) and earnings
(as defined in the SERB Agreements is set forth in the table below. The annual
retirement benefits are subject to a reduction for the employee's vested accrued
benefit under the North American Philips Plan and any defined benefit plan
maintained by the Company. The SERB Agreements also provide for spousal survival
benefit options and for death benefits under certain circumstances. Lastly, in
the event of the sale or exchange of substantially all the assets of the Company
or a merger, reorganization, consolidation or a change of control, the Employee
is entitled to a lump sum payment in an amount equal to the actuarial equivalent
of the Employee's normal retirement benefit unless the successor entity or
resulting controlling entity expressly assumes in writing the obligations under
the SERB Agreements.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
------------------------------------------------------
EARNINGS 15 20 25 30 35
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000.............................. $ 20,625 $ 27,500 $ 34,375 41,250 48,125
150,000.............................. 24,750 33,000 41,250 49,500 57,750
175,000.............................. 28,875 38,500 48,125 57,750 67,375
200,000.............................. 33,000 44,000 55,000 66,000 77,000
250,000.............................. 41,250 55,000 68,750 82,500 96,250
300,000.............................. 49,500 66,000 82,500 99,000 115,500
400,000.............................. 66,000 88,000 110,000 132,000 154,000
450,000.............................. 74,250 99,000 123,750 148,500 173,250
500,000.............................. 82,500 110,000 137,500 165,000 192,500
</TABLE>
- ------------------------------
(1) The compensation covered by this plan is the average of the employee's
highest five years, selected from the last ten calendar years, of earnings,
which are defined under this plan as the total cash compensation paid to the
employee during a calendar year includible in the employee's gross income
under the Internal Revenue Code, excluding any expense reimbursements,
deferred compensation payments, lump sum severance payments, stock options,
or any distributions from any long-term incentive plan, or any long-term key
employee compensation program.
(2) The credited years of service under this plan for each of the following
persons as of June 1998 (except for Messrs. Votis, Fackler and Bauer) are as
follows: Mr. Olmstead, 14.5833; Mr. Parkey, 13; Mr. de Rohan, 3.5; Ms. Best,
18.6667.
(3) The annual retirement benefit is the higher of (i) the product of (a) the
average of employee's highest five years of earnings; (b) years of credited
service under the plan (to a maximum of 43); and (c) 1.1% and (ii) the sum
of (a) the product of (1) the average of employee's highest five years of
earnings; (2) years of credited service under the plan (to maximum of 43);
and (3) 1.0%; and (b) the product of (1) the amount by which the average of
employee's highest five years of earnings exceeds the Average Social
Security Taxable Wage Base; (2) years of credited service under the plan (to
a maximum of 35); and (3) 0.6%. For purposes of this plan, the "Average
Social Security Taxable Wage Base" is the average of the maximum limitation
on wages subject to social security tax for the preceding 35 calendar years.
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<PAGE> 68
CERTAIN BENEFICIAL OWNERS
AMM Holding, LLC owns all the outstanding capital stock of Holdings, which
owns all the outstanding capital stock of Anchor Holdings, which owns all the
outstanding capital stock of the Company. The following sets forth certain
information regarding the beneficial ownership of the membership interests of
AMM Holdings, LLC, which consist of Capital Units and Profit Units (each as
defined in the LLC Agreement and, together the "Units"), as of July 31, 1998 by
(i) each person who, to the knowledge of Holdings, beneficially owns more than
5% of each of the outstanding Capital Units and the outstanding Project Units;
(ii) the directors of Holdings; (iii) certain executive officers of Holdings;
and (iv) all directors and executive officers of Holdings as a group. None of
the Capital Units and the Project Units are presently listed or traded on any
securities exchange on securities market. The principal business address of AMM
Holdings, LLC is c/o Galt Industries, Inc., 767 Fifth Avenue, Suite 506, New
York, New York 10153, and its telephone number is (212) 758-0770.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF CAPITAL OUTSTANDING CAPITAL NUMBER OF PROFIT OUTSTANDING PROFIT
UNITS BENEFICIALLY UNITS BENEFICIALLY UNITS BENEFICIALLY UNITS BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED
------------------------ ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
George T. Votis(1)................ 475 4.7% 1,075 10.8%
MPI(2)............................ 7,564 75.6 6,934 69.3
Charles B. Schiele................ 2 0.02 250 2.5
Richard Fackler................... 600 6.0 600 6.0
Montero, Inc...................... 1,355 13.5 531 5.3
Director and Officers of Holdings
as a group (10 persons)......... 479 4.7 1,325 13.3
</TABLE>
- ---------------
(1) Subject to the provisions of Section 15 of the LLC Agreement ("Section 15")
(discussed below), under Section 11 of the LLC Agreement each Member (as
defined in the LLC Agreement) has agreed, at Mr. Votis' request, to
transfer, pursuant to a bona fide sale to a person or entity, other than Mr.
Votis or an Affiliate (as defined in the LLC Agreement) or member of the
immediate family of Mr. Votis, the same proportion of its holdings of each
class, series or type of interests in AMM Holdings, LLC as Mr. Votis
transfers of his holdings of each class, series or type of interests in AMM
Holdings, LLC in such transaction. Subject to the provisions of Section 15,
under Section 10 of the LLC Agreement, if Mr. Votis determines to transfer,
all or a portion of his interests in AMM Holdings, LLC, other than, among
other things, a transfer after which Mr. Votis will continue to hold
beneficially a majority of the outstanding Units, each Member has the right
to include in such transfer the same proportion of its holdings of each
class, series or type of interests in AMM Holdings, LLC as Mr. Votis
transfers of his holdings of each class, series or type of interests in AMM
Holdings, LLC in such transaction. Section 15 provides that, except as
provided in, inter alia, Sections 10 and 11 of the LLC Agreement, other than
Permitted Transfers (as defined in the LLC Agreement), no Member may sell,
assign, give, pledge, hypothecate, encumber or otherwise transfer,
including, without limitation, any assignment or transfer by operation of
law or by order of court, such Member's interest in AMM Holdings, LLC or any
part thereof, or in all or any part of the assets of AMM Holdings, LLC,
without the consent of the Manager (currently Mr. Votis), which consent may
be given or withheld in the Manager's sole discretion, and any purported
assignment without such consent shall be null and void and of no effect
whatsoever. As a result of the foregoing provisions of the LLC Agreement,
Mr. Votis may be deemed to beneficially own the Units owned by the other
Members. However, Mr. Votis disclaims beneficial ownership of such Units,
other than the Units owned by MPI.
(2) George T. Votis owns all the outstanding capital stock of MPI and,
therefore, beneficially owns all the Capital Units and Profit Units owned by
MPI.
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<PAGE> 69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1997, Moll had a note receivable of $390,000 from an
individual with ownership interest in certain entities that were partners of
Moll. The note is payable in three equal annual installments beginning February
1, 1999 and bears interest at 9%.
Moll paid management fees to certain related companies which are limited in
amount under Moll's debt agreements. Management fee expense was approximately
$1,363,000, $1,346,000 and $1,553,000 for 1995, 1996 and 1997, respectively. Of
this amount, approximately $150,000 was recorded as an accrued liability at
December 31, 1997.
The Company leases land and buildings in Germany from an entity owned by
certain entities that were partners of Moll. The lease expires on August 7,
1998, contains three automatic one year extensions and accrues rent at a rate of
790,000 Deutsche Marks ($439,000 per year based on the December 31, 1997
exchange rate). The Company recognized rent expense of $176,000 in 1997, which
is included in accounts payable at December 31, 1997.
From time to time, the Company leases warehouse space from Jack C. Lail, a
former Director and Executive Vice President of Anchor, near its facilities in
Seagrove, North Carolina. The Company paid a total of $64,000 for such warehouse
space in 1997.
Immediately prior to the Merger, Moll distributed its 69% Class B limited
partnership interest in Reliance Products to certain of Moll's limited partners.
Holdings used the proceeds of the Offering to fund (i) the Distribution to
Holdings stockholders of approximately $33 million, of which $2 million was
retained by Holdings stockholders and the remainder was used (a) to repay
approximately $15.6 million of indebtedness held by Textek LLC, an affiliate of
Holdings controlled by Mr. Votis, and (b) purchase the equity interests of a
former Moll partner for $15.4 million, and (ii) the Equity Contribution to the
Company of approximately $2 million. The Company will pay all of the fees and
expenses related to the Offering.
In connection with the acquisition by Mr. Votis of Anchor, Mr. Geoffrey A.
de Rohan was granted a discretionary bonus of $400,000 by the Company in April
1998, $150,000 of which was paid to Mr. de Rohan in April 1998 and the remainder
of which is expected to be paid over 12 months starting April 1998.
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<PAGE> 70
DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued pursuant to an Indenture (the "Indenture")
between Holdings and State Street Bank and Trust Company, as trustee (the
"Trustee"), copies of which are filed as exhibits to the Registration Statement
of which this Prospectus constitutes a part. The New Notes are identical in all
material respects to the terms of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes and except for
certain provisions providing for an increase in the interest rate on the Old
Notes under certain circumstances relating to the timing of the Exchange Offer.
See "-- Registration Rights; Liquidated Damages." The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof. The following is a summary
of the material provisions of the Indenture. Copies of the Indenture and
Registration Rights Agreement are available as set forth below under
"--Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
The Old Notes are, and the New Notes will be, general unsecured obligations
of Holdings, the Old Notes rank and the New Notes will rank, pari passu in right
of payment with all existing and future senior unsecured Indebtedness of
Holdings and the Old Notes rank, and the New Notes will rank, senior in right of
payment to all existing and future subordinated Indebtedness of Holdings.
However, the Old Notes are, and the New Notes will be, (i) effectively
subordinated to all secured obligations of Holdings, to the extent of the assets
securing such obligations and (ii) structurally subordinated to all obligations
of Holdings' subsidiaries. As of July 4, 1998, Holdings' subsidiaries had $337.5
million of outstanding liabilities (including trade payables). Subject to
certain conditions, at July 4, 1998 approximately $48.8 million of capacity was
available for borrowing by the Company under the Revolving Credit Facility. The
Indenture permits the incurrence of additional Indebtedness in the future.
However, after giving effect to the most restrictive covenants contained in the
Company's loan documents, as of July 4, 1998, the maximum amount of Senior Debt
that could be incurred by the Company in addition to $122.6 million of Senior
Debt outstanding on such date was approximately $24 million.
Any Old Notes that remain outstanding after the consummation of the
Exchange Offer, together with the New Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
The operations of Holdings are conducted through its subsidiaries and,
therefore, Holdings is dependent upon the cash flow of such subsidiaries to meet
its obligations, including its obligations under the Notes. For each Old Note
accepted for exchange, the holder of such Old Note will receive a New Note
having a principal amount equal to that of the surrendered Old Note. As of the
date of the Indenture, all of Holdings' subsidiaries are Restricted
Subsidiaries. However, under certain circumstances, Holdings will be able to
designate current or future subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $68.0 million at
maturity and will mature on July 1, 2009. Original issue discount on the Notes
will accrete at a rate of 13 1/2%, compounded semi-annually to an aggregate
principal amount of $68.0 million at July 1, 2003. Cash interest will not accrue
on the Notes prior to July 1, 2003. Commencing July 1, 2003, cash interest on
the Notes will accrue at the rate of 13 1/2% per annum, and will be payable
semiannually in arrears on January 1 and July 1 of each year, commencing January
1, 2004, to Holders of record on the immediately preceding May 15 and December
15. No cash interest will be payable on the Notes prior to January 1, 2004.
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 July 1, 2003. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium and
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Liquidated Damages, if any, and interest on the Notes will be payable at the
office or agency of Holdings maintained for such purpose within the City and
State of New York or, at the option of Holdings, payment of interest may be made
by check mailed to the Holders of the Notes at their respective addresses set
forth in the register of Holders of Notes; provided that all payments of
principal, premium and Liquidated Damages, if any, and interest with respect to
Notes the Holders of which have given wire transfer instructions to Holdings
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
Holdings, Holdings' office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in denominations
of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
On or after July 1, 2003, the Notes will be subject to redemption at any
time at the option of Holdings, 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 July 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003........................................................ 106.750%
2004........................................................ 104.500%
2005........................................................ 102.250%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time prior to July 1, 2003, the Notes will be
redeemable at the option of Holdings, in whole but not in part, in cash at a
redemption price of 113.5% of the Accreted Value thereof (determined as of the
date of redemption), plus Liquidated Damages, if any, thereon to the redemption
date, with the net cash proceeds of a Public Equity Offering.
SELECTION AND NOTICE
If less than all the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 in principal amount or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders,"
Holdings 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 Holdings 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%
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of the Accreted Value thereof, plus Liquidated Damages, if any, to the date of
repurchase (if such date of repurchase is prior to July 1, 2003) or 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase (if such date of
repurchase is on or after July 1, 2003) (the "Change of Control Payment"). The
Indenture provides that prior to the mailing of the notice referred to below,
but in any event within 90 days following a Change of Control, Holdings will
covenant to repurchase the Notes pursuant to the provisions described below.
Holdings' failure to comply with this covenant shall constitute an Event of
Default described in clause (iv) and not in clause (iii) under "--Events of
Default" below.
Within 30 calendar days following any Change of Control, Holdings will mail
a notice to each Holder stating: (i) that the Change of Control Offer is being
made pursuant to the covenant entitled "Change of Control" and that all Notes
tendered will be accepted for payment; (ii) the purchase price and the purchase
date, which will be no earlier than 30 calendar days nor later than 60 calendar
days from the date such notice is mailed (the "Change of Control Payment Date");
(iii) that any Note not tendered will continue to accrue interest; (iv) that,
unless Holdings defaults in the payment of the Change of Control Payment, all
Notes accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control Payment Date; (v) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (vi) that Holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the second Business Day preceding the Change
of Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing such Holder's
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof.
Holdings 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, Holdings will, to the extent lawful,
(i) accept for payment all Notes or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Notes or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by
Holdings. 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. Holdings 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 Holdings
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction. Finally, Holdings' ability to pay cash to the Holders of
Notes upon a repurchase may be limited by Holdings' then existing financial
resources. See "Risk Factors -- Limitations on Ability to Make Change of Control
Payment."
Holdings 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 Holdings and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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"Change of Control" means the occurrence of any of the following: (i) (a)
any transaction (including a merger or consolidation) the result of which is
that any "person" or "group" (each within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the total voting
power of all Capital Stock of Holdings, or a successor entity normally entitled
to vote in the election of directors, managers or trustees, as applicable,
calculated on a fully diluted basis, and (b) as a result of the consummation of
such transaction, any "person" or "group" (each as defined above) becomes the
"beneficial owner" (as defined above), directly or indirectly, of more of the
voting stock of Holdings than is at the time "beneficially owned" (as defined
above) by the Principals, or (ii) the first day on which a majority of the
members of the Board of Directors are not Continuing Directors, or (iii) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Holdings and its 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. For purposes of this
definition, any transfer of an Equity Interest of an entity that was formed for
the purpose of acquiring voting stock of Holdings shall be deemed to be a
transfer of such percentage of such voting stock as corresponds to the
percentage of the equity of such entity that has been so transferred.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Holdings and its Subsidiaries taken as a whole. Although there
is a developing body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require Holdings to repurchase
such Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of Holdings and its Subsidiaries
taken as a whole to another Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with the approval of either (a) a majority of the Continuing
Directors who were members of such Board of Directors at the time of such
nomination or election or (b) a majority in interest of the Principals. For
purposes of the foregoing, a "majority in interest of the Principals" shall mean
any group of Principals who beneficially own in the aggregate more than 50% of
the Capital Stock of Holdings held by all of the Principals.
"Principals" means Mr. George T. Votis and Mr. Anastasios Votis.
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) any trust
(including any related trustee), corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (i).
Asset Sales
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) Holdings (or
the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee with respect to any Asset Sale involving in excess of
$1.0 million) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by
Holdings or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided that the amount of (x) any liabilities (as shown on
Holdings' or such Restricted Subsidiary's most recent balance sheet) of Holdings
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 Holdings or such Restricted Subsidiary from
further liability and (y) any securities, notes or other
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obligations received by Holdings or any such Restricted Subsidiary from such
transferee that are immediately converted by Holdings or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or its Restricted Subsidiary, as the case may be, may apply such Net
Proceeds from such Asset Sale to apply such Net Proceeds to repayment of
Indebtedness of a Restricted Subsidiary (in the case of Net Proceeds from an
Asset Sale effected by a Restricted Subsidiary) or to an investment in a
Restricted Subsidiary or in another business or capital expenditure or other
long-term/tangible assets, in each case, in the same or a similar line of
business as Holdings or any of its Restricted Subsidiaries were engaged in on
the date of the Indenture or in businesses reasonably related thereto. Pending
the final application of any such Net Proceeds, Holdings may temporarily reduce
Indebtedness under the Revolving Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $5.0 million, Holdings 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 (i) 100% of the
Accreted Value thereof, plus Liquidated Damages, if any, to the date of
repurchase (if such date of repurchase is prior to July 1, 2003) or (ii) 100% of
the aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase (if such date of
repurchase is prior to July 1, 2003), 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,
Holdings may use any remaining Excess Proceeds for general corporate purposes.
If the Accreted Value or aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that Holdings 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 Holdings' or
any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
Holdings) or to the direct or indirect holders of Holdings' 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 Holdings or such Restricted Subsidiary or dividends or distributions
payable to Holdings or any Restricted Subsidiary of Holdings); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of Holdings
or any Affiliate of Holdings that is not a Subsidiary (other than any such
Equity Interests owned by Holdings or any Wholly Owned Restricted Subsidiary of
Holdings); (iii) make any principal payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value prior to a scheduled
mandatory sinking fund payment date or final maturity date any Indebtedness that
is pari passu with or subordinated to the Notes (other than the Notes); or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) Holdings would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
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(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Holdings and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clause (ii) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of Holdings for the period (taken as one
accounting period) from the first full Fiscal quarter after the date of the
Indenture to the end of Holdings' 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 Holdings from the issue or sale since the date of
the Indenture of Equity Interests of Holdings (other than Disqualified
Stock) or of Disqualified Stock or debt securities of Holdings that have
been converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Restricted
Subsidiary of Holdings and other than Disqualified Stock or convertible
debt securities that have been converted into Disqualified Stock), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
or distribution within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of Holdings in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of Holdings) of, other Equity Interests of Holdings (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (iii) the defeasance, redemption, repurchase or other
acquisition of pari passu or subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Restricted Subsidiary of
Holdings) of Equity Interests of Holdings (other than Disqualified Stock); (iv)
the purchase, redemption or other acquisition prior to the stated maturity
thereof of Indebtedness that is subordinated to the Notes in exchange for or out
of the net cash proceeds of a substantially concurrent issue and sale (other
than to Holdings or any of its Restricted Subsidiaries) of new Indebtedness;
provided that (x) the principal amount of such new Indebtedness shall not exceed
the principal amount of Indebtedness so refinanced (plus the amount of such
reasonable expenses incurred in connection therewith), (y) such new Indebtedness
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced, and (z)
the new Indebtedness shall be subordinate in right of payment to the Notes; (v)
the repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of Holdings held by any member of Holdings' (or any of its
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement or in connection with the
termination of employment of any employees or management of Holdings or its
Restricted Subsidiaries; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$2.0 million in the aggregate plus the aggregate cash proceeds received by
Holdings after the date of the Indenture from any reissuance of Equity Interests
by Holdings to members of management of Holdings and its Restricted Subsidiaries
and no Default or Event of Default shall have occurred and be continuing
immediately after any such transaction; (vi) Investments received by Holdings
and its Restricted Subsidiaries as non-cash consideration from Asset Sales to
the extent permitted by the covenant described under the caption "--Repurchase
at the Option of Holders--Asset Sales;" (vii) the payment of any dividend or
distribution by a Subsidiary of Holdings to the holders of its Common Equity
Interests on a pro rata basis; (viii) other Restricted Payments not to exceed
$3.0 million in the aggregate, and (ix) distributions to the former partners of
Moll for tax liabilities of such partners for periods prior to the date of the
Indenture in an amount not to exceed the product of (A) the taxable income of
Moll for the related period and (B) the maximum combined federal, state and
local income tax rates applicable to a resident of New York City.
The amount of all Restricted Payments (other than cash or Cash Equivalents)
shall be the fair market value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the
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Trustee) on the date of the Restricted Payment of the asset(s) proposed to be
transferred or issued by Holdings or such Restricted Subsidiary, as the case may
be, pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, Holdings 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 Holdings will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that Holdings will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that Holdings may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for Holdings' most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 1.75 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by Holdings and its Restricted Subsidiaries of
Indebtedness under the Revolving Credit Facility; provided that the
aggregate principal amount of all revolving credit Indebtedness and letters
of credit of Holdings and its Subsidiaries outstanding under all Credit
Facilities after giving effect to such incurrence (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of Holdings and its Subsidiaries thereunder) does not exceed the
greater of (x) $50.0 million or (y) the amount of the Borrowing Base as of
the date of such incurrence;
(ii) Guarantees of the Indebtedness under the Revolving Credit
Facility required by the Revolving Credit Facility and Guarantees permitted
under or required by the Indenture, the Company Notes Indenture and the
Senior Notes Indenture;
(iii) the incurrence by Holdings and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by Holdings of Indebtedness represented by (a) the
Notes and the Indenture and the incurrence by Restricted Subsidiaries of
Guarantees permitted to be incurred under the Indenture, (b) the Company
Notes and the Company Notes Indenture and the incurrence by Restricted
Subsidiaries of Guarantees required or permitted to be incurred under the
Company Notes Indenture and (c) the Senior Notes and the Senior Notes
Indenture and the incurrence by Restricted Subsidiaries of Guarantees
required or permitted to be incurred under the Senior Notes Indenture;
(v) the incurrence by Holdings or any of its Restricted Subsidiaries
of Capital Lease Obligations, mortgage financings or purchase money
obligations, in each case incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of Holdings or such
Subsidiary, in an aggregate principal amount not to exceed $10.0 million at
any time outstanding;
(vi) the incurrence by Holdings or any of its Restricted Subsidiaries
of Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that such Indebtedness was incurred by the prior owner
of such assets or such Subsidiary prior to such acquisition by Holdings or
one of its Restricted Subsidiaries and was not incurred in connection with,
or in contemplation of, such acquisition by Holdings or one of its
Restricted Subsidiaries; and provided, further that the principal amount
(or accreted value, as applicable) of such Indebtedness, together with any
other outstanding Indebtedness incurred pursuant to this clause (vi), does
not exceed $5.0 million;
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(vii) the incurrence by Holdings or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness that was
permitted by the Indenture to be incurred;
(viii) the incurrence by Holdings or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Holdings and any
of its Wholly Owned Restricted Subsidiaries; provided, however, that (i) if
Holdings is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than Holdings or a Wholly Owned Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either Holdings or a Wholly Owned Restricted Subsidiary
shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by Holdings or such Restricted Subsidiary, as the case may be;
(ix) the incurrence by Holdings or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of Revolving Credit Facility or the
Indenture to be outstanding; and
(x) the Guarantee by Holdings of Indebtedness of a Restricted
Subsidiary of Holdings that was permitted to be incurred by another
provision of this covenant.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories described in clauses (i) through (x) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, Holdings shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
Liens
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) upon any of their property
or assets, now owned or hereafter acquired, unless all payments due under the
Indenture and the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer secured
by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that Holdings 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 Holdings 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 Holdings or any of
its Restricted Subsidiaries, (ii) make loans or advances to Holdings or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
Holdings or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the Revolving Credit Facility as in
effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Revolving Credit Facility as in
effect on the date of the Indenture, (c) the Indenture and the Notes, (d) the
Company Notes and the Company Notes Indenture and the Senior Notes and the
Senior Notes Indenture, (e) applicable law, (f) any instrument governing
Indebtedness or Capital Stock of a Person acquired by Holdings or any of its
Restricted Subsidiaries as in
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effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred; (g) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (h) purchase
money obligations or Capital Lease Obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, (i) 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,
(j) customary restrictions imposed on the transfer of copyrighted or patented
materials and customary provisions in agreements that restrict the assignees of
such agreements or any rights thereunder; (k) restrictions with respect to a
Subsidiary of Holdings imposed pursuant to a binding agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary; or (l) any restriction on the
ability of Holdings or any Restricted Subsidiary to transfer any property or
assets on account of a Permitted Lien.
Merger, Consolidation, or Sale of Assets
The Indenture provides that Holdings may not consolidate or merge with or
into (whether or not Holdings is the surviving corporation), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (i) Holdings is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than Holdings)
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 Holdings) 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 Holdings under the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of Default
exists; and (iv) Holdings or the entity or Person formed by or surviving any
such consolidation or merger (if other than Holdings), 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 Holdings 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." The
Indenture also provides that Holdings may not, directly or indirectly, lease all
or substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this covenant will not be
applicable to a sale, assignment, transfer, conveyance or other disposition of
assets between or among Holdings and its Wholly Owned Subsidiaries.
Transactions with Affiliates
The Indenture provides that Holdings will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to or enter into any other
transaction with, or for the benefit of, any Affiliate of Holdings (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are no less favorable to Holdings or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by Holdings or such Restricted Subsidiary with an unrelated Person and (ii)
Holdings 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
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Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (v) any leases
relating to real property in Germany between the Company and any of the
Principals, as in effect on the date of the Indenture, (w) any employment
agreement entered into by Holdings or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of Holdings or
such Restricted Subsidiary, (x) transactions between or among Holdings and/or
its Restricted Subsidiaries, (y) investment banking and management fees in an
aggregate amount no greater than $180,000 per annum plus reimbursement of
expenses to be paid by the Company to Galt Industries, Inc. or its successors
and assigns, and (z) Restricted Payments that are permitted by the provisions of
the Indenture described above under the caption "-- Restricted Payments," in
each case, shall not be deemed Affiliate Transactions.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries
The Indenture provides that Holdings (i) will not, and will not permit any
Wholly Owned Restricted Subsidiary of Holdings to, transfer, convey, sell, lease
or otherwise dispose of any Capital Stock of any Wholly Owned Restricted
Subsidiary of Holdings to any Person (other than Holdings or a Wholly Owned
Restricted Subsidiary of Holdings), unless (a) such transfer, conveyance, sale,
lease or other disposition is of all the Capital Stock of such Wholly Owned
Restricted Subsidiary and (b) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with the
covenant described above under the caption "-- Asset Sales," and (ii) will not
permit any Wholly Owned Restricted Subsidiary of Holdings 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 Holdings
or a Wholly Owned Restricted Subsidiary of Holdings.
Limitations on Business Activities of Anchor Holdings
Holdings will not permit Anchor Holdings to engage in any business or make
any Investments, other than such businesses or Investments that Anchor Holdings
is engaged in or has made as of the date of the Indenture; provided, however,
that the foregoing shall not affect the ability of any Subsidiary of Anchor
Holdings, including, without limitation, the Company, to engage in any business
or make any Investments.
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, Holdings 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 Holdings
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 Holdings' certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if Holdings were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, Holdings will file a copy of all such information and reports with
the Commission for public availability (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in payment when due of the principal of or premium, if any,
on the Notes; (iii) failure by Holdings to comply with the provisions described
under the captions "-- Change of Control," "-- Asset Sales," "-- Restricted
Payments" or "-- Incurrence of Indebtedness and Issuance of Preferred Stock";
(iv) failure by Holdings for 60 days after notice to comply with any of
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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
Holdings or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by Holdings or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, if such (a) default results in the acceleration of such Indebtedness
prior to its express maturity or shall constitute a default in the payment of
such Indebtedness at final maturity of such Indebtedness, and (b) the principal
amount of any such Indebtedness that has been accelerated or not paid at
maturity, when added to the aggregate principal amount of all other Indebtedness
that has been accelerated or not paid at maturity, exceeds $5.0 million; (vi)
failure by Holdings or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; and (vii) certain events of bankruptcy or
insolvency with respect to Holdings or any of its 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 provided, that so long
as any Indebtedness permitted to be incurred pursuant to the Revolving Credit
Facility shall be outstanding, such acceleration shall not be effective until
the earlier of (i) an acceleration of any such Indebtedness under the Revolving
Credit Facility or (ii) five business days after receipt by Holdings 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 Holdings or any Restricted Subsidiary that is a Significant
Subsidiary, the principal of, and premium and Liquidated Damages, if any, and
any accrued and unpaid interest on all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. In the event of
a declaration of acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (v) of the preceding paragraph, the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
Indebtedness described in clause (v) have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration and if (a) the annulment of the acceleration of the Notes would not
conflict with any judgment or decree of a court of competent jurisdiction, and
(b) all existing Events of Default, except nonpayment of principal or interest
on the Notes that became due solely because of the acceleration of the Notes,
have been cured or waived.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of Holdings with the
intention of avoiding payment of the premium that Holdings would have had to pay
if Holdings then had elected to redeem the Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to July 1, 2003
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of Holdings with the intention of avoiding the prohibition on redemption
of the Notes prior to such date, then the premium specified in the Indenture
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, premium, if any, or interest on the Notes.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
Holdings is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and Holdings 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.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Holdings, as
such, shall have any liability for any obligations of Holdings under the Notes
or the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws, and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Holdings may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
Holdings' 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 Holdings' obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, Holdings may, at its option
and at any time, elect to have the obligations of Holdings 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)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Cash Equivalents,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, and
Holdings must specify whether the Notes are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance, Holdings shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) Holdings 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, Holdings shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee con-firming that the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument (other
than the Indenture) to which Holdings or any of its Subsidiaries is a party or
by which Holdings or any of its Subsidiaries is bound; (vi) Holdings 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) Holdings 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
Holdings
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with the intent of defeating, hindering, delaying or defrauding creditors of
Holdings or others; and (viii) Holdings 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 Holdings may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. Holdings is not required to transfer or exchange any Note selected
for redemption. Also, Holdings is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"), or (viii) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
Holdings 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 Holdings' 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 Holdings or any Affiliate of Holdings, 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.
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The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to AM Holdings, Inc., 1111 Northshore Drive, Suite
N-600, Knoxville, Tennessee 37919, Attention: Chief Financial Officer.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form
of one or more registered Notes in global form without coupons (each a "Global
Note"). Each Global Note will be deposited with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC, or will remain in the
custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.
DTC has advised Holdings that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve System, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participation (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
Holdings expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchaser with an interest in the Global Note and (ii)
ownership of the Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
interest of Participants), the Participants and the Indirect Participants. The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interest in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer Notes or to
pledge the Notes as collateral will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities (the "Certificated Securities"), and will
not be considered the owners or Holders thereof under the Indenture for any
purpose, including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
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Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. Holdings understands that under existing industry
practice, in the event Holdings requests any action of holders of Notes or a
holder that is an owner of a beneficial interest in a Global Note desires to
take any action that DTC, as the holder of such Global Note, is entitled to
take, DTC would authorize the Participants to take such action and the
Participant would authorize holders owning through such Participants to take
such action or would otherwise act upon the instruction of such holders. Neither
Holdings nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such Notes under the Indenture. Under the terms of
the Indenture, Holdings and the Trustee may treat the persons in whose names the
Notes, including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payment and for any and all other purposes whatsoever.
Consequently, neither Holdings nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of interest in the Global Note (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of DTC. Payments by the Participants and the Indirect Participants to
the beneficial owners of interests in the Global Note will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
Certificated Securities
If (i) DTC notifies Holdings in writing that it is no longer willing or
able to act as a depository or DTC ceases to be registered as a clearing agency
under the Exchange Act and Holdings is unable to locate a qualified successor
within 90 days, (ii) Holdings, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Notes in definitive form under the
Indenture or (iii) upon the occurrence of certain other events, then, upon
surrender by DTC of its Global Notes, Certificated Securities will be issued to
each person that DTC identifies as the beneficial owner of the Notes represented
by the Global Notes. Upon any such issuance, the Trustee is required to register
such Certificated Securities in the name of such person or persons (or the
nominee of any thereof), and cause the same to be delivered thereto.
Neither Holdings nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, Holdings will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. Holdings expects that secondary trading
in the Certificated Notes will also be settled in immediately available funds.
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Registration Rights; Liquidated Damages
Holdings and the Initial Purchaser entered into the Registration Rights
Agreement on the Closing Date. In the Registration Rights Agreement, Holdings
has agreed to file the Exchange Offer Registration Statement with the Commission
within 45 days of the Closing Date, and use its best efforts to have it declared
effective at the earliest possible time. Holdings has also agreed to use its
best efforts to cause the Exchange Offer Registration Statement to be effective
continuously, to keep the Exchange Offer open for a period of not less than 20
business days and cause the Exchange Offer to be consummated no later than the
30th business day after it is declared effective by the Commission. Pursuant to
the Exchange Offer, certain Holders of Notes which constitute Transfer
Restricted Securities (as defined below) may exchange their Transfer Restricted
Securities for registered Exchange Notes. To participate in the Exchange Offer,
each Holder must represent that it is not an affiliate of Holdings, it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Notes that are issued in the Exchange Offer, and that it is acquiring the
Exchange Notes in the Exchange Offer in its ordinary course of business.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Notes which are Transfer Restricted Securities
notifies Holdings prior to the 20th business day following the consummation of
the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer, (b) it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus, and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by it, or (c) it is a
broker-dealer and holds Notes acquired directly from Holdings or any of
Holdings' affiliates, Holdings will file with the Commission a Shelf
Registration Statement to register for public resale the Transfer Restricted
Securities held by any such Holder who provide, Holdings with certain
information for inclusion in the Shelf Registration Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each (A) Note, until the earliest to occur of (i) the date on
which such Note is exchanged in the Exchange Offer for an Exchange Note which is
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Securities Act, (ii) the date on
which such Note has been disposed of in accordance with a Shelf Registration
Statement (and purchasers thereof have been issued Exchange Notes) or (iii) the
date on which such Note is distributed to the public pursuant to Rule 144 under
the Securities Act and each (B) Exchange Note held by a Broker Dealer until the
date on which such Exchange Note is disposed of by a Broker Dealer pursuant to
the "Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including the delivery of the Prospectus contained therein).
The Registration Rights Agreement provides that (i) if Holdings fails to
file an Exchange Offer Registration Statement with the Commission on or prior to
the 45th day after the Closing Date, (ii) if the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior to the 180th
day after the Closing Date, (iii) if the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement is
declared effective (iv) if obligated to file the Shelf Registration Statement
and Holdings fails to file the Shelf Registration Statement with the Commission
on or prior to the 60th day after such filing obligation arises, (v) if
obligated to file a Shelf Registration Statement and the Shelf Registration
Statement is not declared effective on or prior to the 90th day after the
obligation to file a Shelf Registration Statement arises, or (vi) if the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is declared effective but thereafter ceases to be effective or
useable in connection with resales of the Transfer Restricted Securities, for
such time of non-effectiveness or non-usability (each such event being a
Registration Default), Holdings agrees to pay to each Holder of Transfer
Restricted Securities affected thereby Liquidated Damages in an amount equal to
$0.05 per week per $1,000 in principal amount of Transfer Restricted Securities
held by such Holder for each week or portion thereof that the Registration
Default continues for the first 90 day period immediately following the
occurrence of such Registration Default. The amount of the Liquidated Damages
shall increase by an additional $0.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90 day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week per $1,000 in principal amount of Transfer
Restricted Securities.
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Holdings shall not be required to pay Liquidated Damages for more than one
Registration Default at any given time. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
All accrued Liquidated Damages shall be paid by Holdings to Holders
entitled thereto by wire transfer to the accounts specified by them or by
mailing checks to their registered address if no such accounts have been
specified
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accreted Value" means for each $1,000 of Notes, as of any date of
determination prior to July 1, 2003, the sum of (i) the initial offering price
of each Note and (ii) that portion of the excess of the principal amount of each
Note over such initial offering price which shall have been accreted thereon
through such date, such amount to be so accreted on a daily basis and compounded
semi-annually on each January 1 and July 1 at the rate of 13 1/2% per annum from
the date of issuance of the Notes through the date of determination.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"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.
"Anchor Holdings" means Anchor Holdings, Inc. and all successors thereto.
"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 Holdings and its
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by Holdings or any of its Restricted Subsidiaries of Equity
Interests of any of Holdings' 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 by Holdings to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to Holdings or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to Holdings or to another Wholly Owned Restricted Subsidiary, and
(iii) a Restricted Payment that is permitted by the covenant described above
under the caption "--Restricted Payments" will not be deemed to be Asset Sales.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and its
Restricted Subsidiaries as of such date that are not more than 90 days past due,
plus (b) 50% of the book value of all inventory (excluding work in progress)
owned by the Company and its Restricted Subsidiaries as of such date, plus (c)
25% of the book value of all inventory owned by the Company and its Restricted
Subsidiaries as of such date that is work in progress, all calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not
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available as to the amount of accounts receivable or inventory or trade payables
as of a specific date, the Company may utilize the most recent available
information for purposes of calculating the Borrowing Base.
"Business Day" means any day that is not a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of
"B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation, a division of the McGraw-Hill Companies, Inc., and in each case
maturing within six months after the date of acquisition.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior period
and deferred finance charges) and other non-cash charges of such Person and its
Restricted Subsidiaries for such period (excluding any such non-cash charges to
the extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash charges that was paid in a prior
period) to the extent that such depreciation, amortization and other non-cash
charges were deducted in computing such Consolidated Net Income. Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to Holdings by such
Subsidiary without prior governmental approval (that has not been obtained), and
without direct or indirect restriction pursuant to the terms of its charter and
all judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Restricted Subsidiary
that is
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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 Holdings or
any of its Wholly Owned Restricted Subsidiaries, (ii) the Net Income of any
Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (y) all investments as of such date in unconsolidated Restricted
Subsidiaries and in Persons that are not Restricted Subsidiaries (except, in
each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Credit Facilities" means, with respect to Holdings, one or more debt
facilities or commercial paper facilities (including the Revolving Credit
Facility), in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Existing Indebtedness" means up to $21.7 million in aggregate principal
amount of Indebtedness of Holdings and its Subsidiaries (other than Indebtedness
under the Revolving Credit Facility) in existence on the date of the Indenture,
until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest expense of such Person and its Restricted
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Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Restricted Subsidiaries or secured by a Lien on assets of such Person
or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of Holdings, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that Holdings
or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by Holdings or any of its Restricted Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash Flow for
such reference period shall be calculated without giving effect to clause (iii)
of the proviso set forth in the definition of Consolidated Net Income, and (ii)
the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current
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payments of interest, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness. Indebtedness shall include interest accruing after the filing of
any bankruptcy petition whether or not the claim for such interest is admitted
as a claim after such filing in such proceeding.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
Holdings for consideration consisting of common equity securities of Holdings
shall not be deemed to be an Investment. If Holdings or any Restricted
Subsidiary of Holdings sells or otherwise disposes of any Equity Interests of
any direct or indirect Restricted Subsidiary of Holdings such that, after giving
effect to any such sale or disposition, such Person is no longer a Restricted
Subsidiary of Holdings, Holdings shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Restricted Payments."
"Legal Holiday" means a Saturday, a Sunday or a day on which commercial
banks in the City of New York or at a place of payment are authorized or
required by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means the additional amounts (if any) payable by
Holdings in the event of a Registration Default under, and as defined in, the
Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by Holdings or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Revolving Credit Facility) secured by a Lien
on the asset or assets that were the subject of such Asset Sale and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither Holdings nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that
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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 Holdings
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities (including any
amounts payable in respect of obligations to register securities of Holdings
under the Securities Act) payable under the documentation governing any
Indebtedness.
"Officers' Certificate" means a certificate signed on behalf of Holdings by
two Officers of Holdings, one of whom must be the principal executive officer,
the principal financial officer, the treasurer, or the principal accounting
officer of Holdings, that meets the requirements of the Indenture.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of the Indenture. The
counsel may be an employee of or counsel to Holdings (or any Guarantor, if
applicable), any Subsidiary of Holdings or the Trustee.
"Permitted Investments" means (a) any Investment in Holdings or in a
Restricted Subsidiary of Holdings that is engaged in the same or a similar line
of business as Holdings and its Restricted Subsidiaries were engaged in on the
date of the Indenture; (b) any Investment in Cash Equivalents; (c) any
Investment by Holdings or any Restricted Subsidiary of Holdings in a Person, if
as a result of such Investment (i) such Person becomes a Restricted Subsidiary
of Holdings that is engaged in the same or a similar line of business as
Holdings and its Subsidiaries were engaged in on the date of the Indenture or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
Holdings or a Restricted Subsidiary of Holdings that is engaged in the same or a
similar line of business as Holdings and its Restricted Subsidiaries were
engaged in on the date of the Indenture; (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales"; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of Holdings; and (f) other Investments in any
Person having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (f)
that are at the time outstanding, not to exceed $5.0 million.
"Permitted Liens" means
(i) any Lien existing on property of Holdings or any Subsidiary on the
date of the Indenture securing Indebtedness outstanding on such date;
(ii) any Lien securing obligations under the Revolving Credit Facility
and any Guarantee thereof, which obligations or Guarantee are permitted by
the terms of the Indenture to be incurred and outstanding;
(iii) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or which are
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP are being maintained;
(iv) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of
business which are not delinquent or which are being contested in good
faith and by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto;
(v) Liens (other than any Lien imposed by ERISA) consisting of pledges
or deposits required in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security
legislation;
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(vi) Liens on property of Holdings or any Subsidiary securing (a) the
non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases and statutory obligations, (b) surety bonds
(excluding appeal bonds and bonds posted in connection with court
proceedings or judgments) and (c) other non-delinquent obligations of a
like nature, including pledges or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security legislation, in each case, incurred in
the ordinary course of business;
(vii) Liens consisting of judgment or judicial attachment Liens and
Liens securing contingent obligations on appeal bonds and other bonds
posted in connection with court proceedings or judgments; provided that the
enforcement of such Liens is effectively stayed and all such Liens in the
aggregate at any time outstanding for Holdings and its Subsidiaries do not
exceed $3.0 million;
(viii) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the businesses of Holdings and its
Subsidiaries taken as a whole;
(ix) purchase money security interests on any property acquired by
Holdings or any Subsidiary in the ordinary course of business, securing
Indebtedness incurred or assumed for the purpose of financing all or any
part of the cost of acquiring such property; provided that (a) any such
Lien attaches to such property concurrently with or within 90 days after
the acquisition thereof, (b) such Lien attaches solely to the property so
acquired in such transaction, (c) the principal amount of the Indebtedness
secured thereby does not exceed 100% of the cost of such property and (d)
the principal amount of the Indebtedness secured by all such purchase money
security interests shall not at any time exceed $5.0 million;
(x) Liens securing obligations in respect of Capital Lease Obligations
on assets subject to such leases, provided that such Capital Lease
Obligations are otherwise permitted hereunder;
(xi) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights
and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; provided that (a) such deposit account is
not a dedicated cash collateral account and is not subject to restrictions
against access by Holdings in excess of those set forth by regulations
promulgated by the Federal Reserve Board, and (b) such deposit account is
not intended by Holdings or any Subsidiary to provide collateral to the
depository institution;
(xii) Liens in favor of Holdings or any Wholly Owned Restricted
Subsidiary;
(xiii) Liens on property of a Person existing at the time such Person
becomes a Restricted Subsidiary or such Person is merged into or
consolidated with Holdings or any Restricted Subsidiary of Holdings;
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 Holdings;
(xiv) Liens on property existing at the time of acquisition thereof by
Holdings or any Restricted Subsidiary of Holdings; provided that such Liens
were in existence prior to the contemplation of such acquisition;
(xv) extensions, renewals and replacements of Liens referred to in
clauses (i) through (xiv) above; provided that any such extension, renewal
or replacement Lien is limited to the property or assets covered by the
Lien extended, renewed or replaced and does not secure any Indebtedness in
addition to that secured immediately prior to such extension, renewal or
replacement; and
(xvi) Liens securing other Indebtedness of Holdings and its
Subsidiaries not expressly permitted by clauses (i) through (xv) above;
provided that the aggregate amount of the Indebtedness secured by Liens
permitted pursuant to this clause (xvi) does not exceed $3.0 million in the
aggregate and provided, further that such Indebtedness was permitted to be
incurred by the terms of the Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of Holdings or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or
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refund other Indebtedness outstanding or available to be borrowed of Holdings or
any of its Restricted Subsidiaries; provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness outstanding or available to be borrowed so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness outstanding or
available to be borrowed being extended, refinanced, renewed, replaced, defeased
or refunded; (iii) if the Indebtedness outstanding or available to be borrowed
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness outstanding or available to be borrowed being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by Holdings or by the Restricted Subsidiary who
is the obligor on the Indebtedness outstanding or available to be borrowed being
extended, refinanced, renewed, replaced, defeased or refunded.
"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of Holdings resulting in cash proceeds to Holdings of
at least $25.0 million.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any subsidiary of Holdings on the date of
this Indenture that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means the credit facility among the Company,
Anchor Holdings, the lenders party thereto in their capacities as lenders
thereunder and NationsBank, N.A., as agent, together with the related documents
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by the covenant described under "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock")) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with Holdings or any Restricted Subsidiary of Holdings unless the
terms of any such agreement, contract, arrangement or understanding are no less
favorable to Holdings or such Restricted Subsidiary of Holdings than those that
might be obtained at the time from Persons who are not Affiliates of Holdings;
(c) is a Person with respect to which neither Holdings 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
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(d) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Holdings or any of its Restricted Subsidiaries.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described under the caption "--Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
Holdings as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," Holdings shall be in default of such covenant). The Board of Directors
of Holdings 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 Holdings of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," and (ii) no Default or Event of Default would be
in existence following such designation.
"Securities Act" means the Securities Act of 1933, as amended.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such
Person.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of certain indebtedness of Holdings is subject to and
qualified in its entirety by reference to the detailed provisions of the
agreements and instruments to which the summary relates. Copies of such
agreements and instruments are available upon request.
COMPANY NOTES
The Company issued $130 million principal amount of 10 1/2% Senior
Subordinated Notes due 2008 pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. Interest on the Company Notes is payable semiannually on
each January 1 and July 1. The Old Notes are, and the New Notes will be, general
unsecured obligations of the Company, the Old Notes rank, and the New Notes will
rank, subordinate in right of payment to all Senior Debt (as defined in the
Company Notes Indenture) and the Old Notes rank, and the New Notes will rank,
senior or pari passu in right of payment to all existing and future subordinated
indebtedness of the Company. The Old Notes are, and the New Notes will be,
effectively subordinated to all liabilities, including trade payables, of the
Company's subsidiaries.
The Company Notes may be redeemed at the option of the Company in whole or
in part at any time on or after July 1, 2003 in cash at the redemption prices
set forth in the Company Notes Indenture, plus accrued and unpaid interest and
Liquidated Damages (as defined in the Company Notes Indenture), if any, thereon
to the date of redemption. In addition, at any time prior to July 1, 2003, the
Company may on any one or more occasions redeem up to 35% of the initially
outstanding aggregate principal amount of the Company Notes at a redemption
price equal to 110.5% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net proceeds of one or more Public Equity Offerings (as defined in the
Company Notes Indenture); provided that, in each case, at least 65% of the
initially outstanding aggregate principal amount of the Company Notes remains
outstanding immediately after the occurrence of any such redemption.
The Company Notes Indenture contains various restrictive covenants that
limit, among other things, the ability of the Company to: (i) pay dividends,
redeem capital stock or make certain other restricted payments or investments,
(ii) incur additional indebtedness or issue preferred equity interests, (iii)
merge, consolidate or sell all or substantially all of its assets, (iv) create
liens on assets and (v) enter into certain transactions with affiliates or
related persons.
Events of default under the Company Notes Indenture include, among other
things, (i) default for 30 days in the payment when due of interest on the
Company Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Company Notes; (iii) failure by the Company to comply with the
covenants contained in the Company Notes Indenture, subject in certain instances
to grace periods; (iv) failure by the Company for 60 days after notice to comply
with any of its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness (as defined in the
Company Notes Indenture) for money borrowed by the Company or any of its
Restricted Subsidiaries (as defined in the Company Notes Indenture) (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Company Notes Indenture, if such (a) default results in
the acceleration of such Indebtedness prior to its express maturity or shall
constitute a default in the payment of such Indebtedness at final maturity of
such Indebtedness, and (b) the principal amount of any such Indebtedness that
has been accelerated or not paid at maturity, when added to the aggregate
principal amount of all other Indebtedness that has been accelerated or not paid
at maturity, exceeds $5.0 million; (vi) failure by the Company or any of its
Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries and (viii) except as permitted by
the Company Notes Indenture, any guarantee of the Company Notes issued by a
guarantor of such Company Notes shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any guarantor of the Company Notes or any Person acting on any such
guarantor shall deny or disaffirm its obligations under its quarantee.
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SENIOR NOTES
On March 27,1997, Anchor issued $100 million principal amount of 11 3/4%
Senior Notes due 2004 (the "Original Senior Notes") pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. Anchor consummated an
exchange offer registered under the Securities Act to exchange the Original
Senior Notes for the Senior Notes, which have terms substantially identical in
all material respects to the Original Senior Notes. Interest is payable
semiannually on each April 1 and October 1. Immediately after the consummation
of the Merger, the Senior Notes have become unsecured obligations of the Company
senior to all subordinated debt of the Company and rank pari passu with all
other existing and future senior debt of the Company and mature on April 1,
2004. The Senior Notes are guaranteed on a senior basis (the "Senior Note
Guarantee") by Anchor Holdings (the "Senior Notes Guarantor"). The Senior Note
Guarantee is an unconditional obligation of the Senior Notes Guarantor. Pursuant
to the Senior Notes Indenture, the Senior Notes have also been guaranteed by
certain Restricted Subsidiaries (as defined in the Senior Note Indenture) of the
Company. Such guarantees are unconditional obligations of such Restricted
Subsidiaries.
The Senior Notes may be redeemed at the option of the Company in whole or
in part at any time on or after April 1, 2001 in cash at the redemption prices
set forth in the Senior Notes Indenture, plus accrued and unpaid interest and
Liquidated Damages (as defined in the Senior Notes Indenture), if any, thereon
to the date of redemption. In addition, at any time prior to April 1, 2000, the
Company may on any one or more occasions redeem up to 35% of the initially
outstanding aggregate principal amount of the Senior Notes at a redemption price
equal to 110.75% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net proceeds of one or more Public Equity Offerings (as defined in the
Senior Notes Indenture); provided that, in each case, at least 65% of the
initially outstanding aggregate principal amount of the Senior Notes remains
outstanding immediately after the occurrence of any such redemption.
The Senior Notes Indenture contains various restrictive covenants that
limit, among other things, the ability of the Company to: (i) pay dividends,
redeem capital stock or make certain other restricted payments or investments,
(ii) incur additional indebtedness or issue preferred equity interests, (iii)
merge, consolidate or sell all or substantially all of its assets, (iv) create
liens on assets and (v) enter into certain transactions with affiliates or
related persons.
Events of default under the Senior Notes Indenture include, among other
things, (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Senior Notes; (iii) failure by the Company to comply with the
covenants contained in the Senior Notes Indenture, subject in certain instances
to grace periods; (iv) failure by the Company or the Senior Notes Guarantor for
60 days after notice to comply with any of its other agreements in the Senior
Notes Indenture, the Senior Notes or the Senior Note Guarantee; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness (as defined in the
Senior Notes Indenture) for money borrowed by the Company or any of its
Restricted Subsidiaries (as defined in the Senior Notes Indenture) (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Senior Notes Indenture, if such (a) default results in the
acceleration of such Indebtedness prior to its express maturity or shall
constitute a default in the payment of such Indebtedness at final maturity of
such Indebtedness, and (b) the principal amount of any such Indebtedness that
has been accelerated or not paid at maturity, when added to the aggregate
principal amount of all other Indebtedness that has been accelerated or not paid
at maturity, exceeds $5.0 million; (vi) failure by the Company or any of its
Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries; and (viii) except as permitted by
the Senior Notes Indenture, any Senior Note Guarantee issued by a Senior Notes
Guarantor shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Senior Notes Guarantor or any Person acting on behalf of any Senior Notes
Guarantor shall deny or disaffirm its obligations under its Senior Note
Guarantee.
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CONNECTICUT NOTES AND GRANT
The Company has issued a series of notes (the "Connecticut Notes") to the
Connecticut Development Authority in the aggregate principal amount of $605,000.
Each such note has a maturity of six years and bears interest at a rate of 5%
per annum. The Company has also received a grant of $1,000,000 from the State of
Connecticut, Department of Economic Development. Such grant is subject to
certain requirements, among other things, that the Company: (i) retain
operations in Connecticut for no less than 10 years and (ii) fund at least 50%
of the entire project. Failure to meet these conditions would require immediate
repayment of all amounts advanced to the Company ($1,479,928 as of December 31,
1997) and further, such failure would constitute an event of default under the
Connecticut Notes.
REVOLVING CREDIT FACILITY
General. Concurrently with the Offering, the Company amended its then
existing credit facility (as amended, the "Revolving Credit Facility") with
NationsBank, N.A., as Agent and sole lender. The Revolving Credit Facility
provides for revolving loans to the Company in an aggregate amount not to exceed
$50.0 million, with a $10.0 million sublimit for the issuance of standby and
commercial letters of credit and a $20.0 million sublimit for the making of
foreign currency loans. It is anticipated that the Revolving Credit Facility
will be syndicated.
Availability. Borrowings under the Revolving Credit Facility are subject
to a borrowing base equal to the sum of (a) 85% of "eligible receivables", (b)
50% of "eligible inventory" which is not work-in-process inventory and (c) the
lesser of $5,000,000 and 25% of "eligible inventory" which is work-in-process
inventory (as such terms are defined in the Revolving Credit Facility), where
such inventory is valued at the lesser of book value or fair market value.
Security. The Revolving Credit Facility is secured by (i) a first priority
perfected security interest in (a) 100% of the equity interests in all domestic
subsidiaries of the Company, (b) in the event that any foreign subsidiary of the
Company which is a direct foreign subsidiary of the Company or any of its
domestic subsidiaries shall have 5% or more of consolidated total assets or
consolidated EBITDA, 65% of the equity interests in such foreign subsidiary, and
(c) all of the inventory, trademarks, trademark licenses, accounts receivable,
cash and cash equivalents maintained on deposit with the Agent and books and
records relating to the foregoing, of the Company and its domestic subsidiaries,
which assets shall not be subject to any other lien or encumbrance, except for
liens permitted under the Revolving Credit Facility, and (ii) a negative pledge
(subject to certain carve-outs) upon all other present and future assets and
properties of the Company and all of the domestic and foreign subsidiaries of
the Company (including, without limitation, accounts receivable, inventory, real
property, machinery, equipment, contracts, trademarks, copyrights, patents,
license agreements, and general intangibles).
The foregoing security shall ratably secure the Revolving Credit Facility
and any interest rate swap/foreign currency swap or similar agreements with a
lender (or any affiliate of a lender) under the Revolving Credit Facility.
Guarantees. Anchor Holdings has guaranteed the Company's obligations under
the Revolving Credit Facility. Additionally, in the event that any person
becomes Designated Subsidiary (defined in the Revolving Credit Facility as, at
any time, any direct or indirect subsidiary of the Company having at such time
any outstanding guarantee obligations in respect of any Funded Indebtedness (as
defined in the Revolving Credit Facility) of the Company other than the
indebtedness arising under the Senior Notes Indenture and the Senior Notes) of
the Company, the Company shall cause such person to execute a Joinder Agreement
(as defined in the Revolving Credit Facility) by which such person shall be
deemed to be a party to the Revolving Credit Facility, and shall have all of the
obligations of a Guarantor (as defined in the Revolving Credit Facility),
provided, however, if such Designated Subsidiary is a foreign subsidiary of the
Company, such Joinder Agreement shall provide that the obligations of such
person under the Revolving Credit Facility shall be limited to the extent
necessary to cause such obligations to be in compliance with the laws of such
person's jurisdiction of incorporation.
Maturity. The Revolving Credit Facility will mature on June 30, 2003.
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Interest Rate. The Revolving Credit Facility bears interest at a rate
equal to IBOR plus an applicable margin, which initially is 200 basis points or
the Base Rate (defined as the higher of (i) the prime rate of NationsBank, N.A.
and (ii) the Federal Funds rate plus 1/2%) plus an applicable margin, which
initially is 100 basis points. The Company may select interest periods of one,
two, three or six months for IBOR loans, subject to availability. A penalty rate
shall apply on all loans in the event of default at a rate per annum of 2% above
the applicable interest rate.
Covenants. The Revolving Credit Facility contains covenants customary for
working capital financings, including, without limitation: (i) restrictions on
capital expenditures, incurrence of additional indebtedness, dividends and
redemptions; and (ii) restrictions on mergers, acquisitions and sales of assets.
Additionally, the Revolving Credit Facility contains the following three
financial covenants:
(a) the Interest Coverage Ratio (EBITDA to cash interest expense), as of
the last day of each fiscal quarter of the Consolidated Parties (being Anchor
Holdings and its subsidiaries) calculated on a twelve month rolling basis, shall
be greater than or equal to (i) for the period from June 26, 1998 to and
including the next to last day of the fiscal quarter of the Company ending in
December, 2000, 2.00 to 1.00, (ii) for the period from the last day of the
fiscal quarter of the Company ending in December, 2000 to and including the next
to last day of the fiscal quarter of the Company ending in December, 2001, 2.15
to 1.00, and (iii) for the period from the last day of the fiscal quarter of the
Company ending in December, 2001 and at all times thereafter, 2.50 to 1.00;
(b) the Leverage Ratio (funded indebtedness net of cash and cash
equivalents to EBITDA), as of the last day of each fiscal quarter of the
Consolidated Parties, shall be less than or equal to (i) for the period from
June 26, 1998 to and including the next to last day of the fiscal quarter of the
Company ending in December, 1998, 4.75 to 1.00, (ii) for the period from the
last day of the fiscal quarter of the Company ending in December, 1998 to and
including the next to last day of the fiscal quarter of the Company ending in
December, 2000, 4.50 to 1.00, and (iii) for the period from the last day of the
fiscal quarter of the Company ending in December, 2000 and at all times
thereafter, 4.00 to 1.00; and
(c) at all times Consolidated Net Worth (Deficit) (shareholders' equity or
net worth) shall be greater than or equal to the sum of ($6,000,000), increased
on a cumulative basis by an amount equal to (i) as of the end of each fiscal
quarter of the Company, commencing with the fiscal quarter of the Company ending
in September, 1998, 50% of Consolidated Net Income (as defined in the Revolving
Credit Facility) (to the extent positive) for the fiscal quarter then ended and
(ii) as of the date of any Equity Issuance (as defined in the Revolving Credit
Facility), 100% of the Net Proceeds (as defined in the Senior Note Indenture and
the Indenture) of any Equity Issuance.
Events of Default. The Revolving Credit Facility contains events of
default customary for working capital facilities, including, without limitation:
(i) non payment of principal, interest, fees or other amounts, (ii) violation of
covenants, and (iii) inaccuracy of representations and warranties.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal income tax
consequences relevant to the purchase, ownership, and disposition of Notes by an
initial purchaser of Notes. This summary is based upon existing United States
Federal income tax law, which is subject to change, possibly retroactively. This
summary does not discuss all aspects of United States Federal income taxation
which may be important to particular Holders in light of their individual
investment circumstances, such as Notes held by investors subject to special tax
rules (e.g., financial institutions, insurance companies, broker-dealers, and
tax-exempt organizations) or to persons that will hold the Notes as a part of a
straddle, hedge, or synthetic security transaction for United States Federal
income tax purposes or that have a functional currency other than the United
States dollar, all of whom may be subject to tax rules that differ significantly
from those summarized below. In addition, this summary does not discuss any
foreign, state, or local tax considerations. This summary assumes that investors
will hold their Notes as "capital assets" (generally, property held for
investment) under the United States Internal Revenue Code of 1986, as amended
(the "Code"). Prospective investors are urged to consult their tax advisors
regarding the United States Federal, state, local, and foreign income and other
tax considerations of the purchase, ownership, and disposition of the Notes.
For purposes of this summary, a "U.S. Holder" is (i) an individual who is a
citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created or organized under the laws of the United States or any
state or political subdivision thereof, (iii) an estate that is subject to
United States Federal income taxation without regard to the source of its
income, or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions of the
trust.
U.S. HOLDERS
The following discussion is limited to the federal income tax consequences
relevant to U.S. Holders. Certain federal income tax consequences relevant to a
Holder that, for United States Federal income tax purposes, is not a U.S. Holder
(a "Non-U.S. Holder") are discussed separately below. The federal income tax
consequences to Holders of the exchange of Notes for New Notes pursuant to the
Exchange Offer ("Tendering Holders") are also discussed separately below.
ORIGINAL ISSUE DISCOUNT
The Notes will be issued with original issue discount ("OID") for United
States Federal income tax purposes. All U.S. Holders will be required to include
OID in income as it accrues, regardless of such U.S. Holder's regular method of
accounting for federal income tax purposes, and in advance of the receipt of
cash attributable to that income. OID generally will be treated as interest
income to the U.S. Holder and will accrue on a yield-to-maturity basis over the
life of the Notes, as discussed below.
The amount of OID with respect to a Note will be an amount equal to the
excess of the "stated redemption price at maturity" of such Note over the "issue
price" of such Note. The issue price of a Note will be the initial price at
which a substantial portion of the Notes are sold (not including sales to bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers). Under applicable Treasury
regulations, all payments under a debt instrument are included in its stated
redemption price at maturity unless they are unconditionally required to be paid
at least annually at a single fixed rate over the term of the debt instrument.
Accordingly, because Holdings is not required to pay cash interest prior to July
1, 2003, all payments on the Notes will be included in the Notes' stated
redemption price at maturity, and the Notes will therefore bear significant OID.
The amount of OID accruing to a Holder with respect to any Note will be the
sum of the "daily portions" of OID with respect to such Note for each day during
the taxable year (or portion thereof) on which such Holder owns such Note
("accrued OID"). The daily portion is determined by allocating to each day in
any "accrual period" (in the case of the Notes, any six-month period, or longer
initial period, that ends on July 1 or January 1) the pro rata portion of the
OID allocable to that accrual period. The amount of OID accruing
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<PAGE> 100
during any full accrual period with respect to a Note will be equal to the
product of the "adjusted issue price" of such Note at the beginning of that
accrual period, and the "yield to maturity" of such Note (taking into account
the length of the accrual period). The adjusted issue price of a Note at the
beginning of its first accrual period will be equal to its issue price. The
adjusted issue price at the beginning of any subsequent accrual period will be
equal to (i) the adjusted issue price at the beginning of the preceding accrual
period, plus (ii) the amount of OID accrued during the preceding accrual period,
minus (iii) any payments made on the Notes during the preceding accrual period
and on the first day of such subsequent accrual period. The yield to maturity of
a Note is the discount rate that, when used in computing the present value of
all payments to be made on a Note, produces an amount equal to the issue price
of the Note.
The general effect of the OID rules is that U.S. Holders, including those
holders that use a cash-basis method of accounting, will be required to accrue
OID as interest income with respect to the Notes over their term based on the
Notes' yield to maturity (which will differ from their stated interest rate).
Cash payments on the Notes will not be separately included in a U.S. Holders's
income as interest, but rather will be treated first as payments of previously
accrued OID and then as payments of principal.
In the event of a Change of Control, the Holders of Notes will have the
right to require Holdings to purchase their Notes. The Treasury Regulations
provide that the right of Holders of the Notes to require redemption of the
Notes upon the occurrence of a Change of Control will not affect the yield or
maturity date of the Notes unless, based on all the facts and circumstances as
of the Issue Date, it is more likely than not that a Change of Control giving
rise to the redemption right will occur. Holdings does not intend to treat this
redemption provision of the Notes as affecting the computation of the yield to
maturity of the Notes.
Holdings may redeem the Notes at any time on or after a certain date, and,
in certain circumstances, may redeem or repurchase all or a portion of the Notes
any time prior to the maturity date. Under the Treasury Regulations, Holdings is
deemed to exercise any option to redeem if the exercise of such option would
lower the yield of the debt instrument. Holdings believes, and intends to take
the position, that it will not be treated as having exercised an option to
redeem under these rules.
In certain cases, in the event Holdings does not comply with certain
covenants set forth in the Registration Rights Agreement, Holdings will be
obligated to pay specified liquidated damages to the Holders of the Notes.
Holdings believes the contingency that Holdings will pay such additional amounts
is "remote and incidental" within the meaning of the applicable Treasury
Regulations. On that basis, Holdings believes that the possibility that such
additional amounts may be paid should not be taken into account in computing
OID.
Holdings will furnish annually to the Internal Revenue Service (the
"Service") and to U.S. Holders the amount of OID that accrued on the Notes for
that year. Such information will be based on the accruals of OID as if the
holder were the original holder of the Notes. Accordingly, subsequent holders
may be required to adjust the amount of OID, if any, they are required to
report.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
The Code provides rules that affect the tax treatment of certain high yield
discount instruments issued with "significant OID" ("AHYDOs"). As described
above, the Notes will bear significant OID and thus, will constitute AHYDOs
because their yield to maturity will exceed the applicable federal rate (the
"AFR") in effect for the calendar month in which they are issued plus five
percentage points. Under the AHYDO provisions, Holdings will not be entitled to
deduct OID that accrues with respect to the Notes and that is not attributable
to the "disqualified portion" (as described below), until amounts attributable
to such OID are paid in cash.
In addition, if the yield to maturity of the Notes exceeds the sum of the
relevant AFR plus six percentage points (such excess, the "Excess Yield"), then
(i) the disqualified portion of the OID accruing on the Notes will not be
deductible by Holdings, and may be treated as a dividend distribution for
purposes of the dividends received deduction with respect to U.S. Holders that
are corporations, and (ii) the remainder of the OID accruing on the Notes will
not be deductible by Holdings until paid in cash. In general, the disqualified
portion
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<PAGE> 101
of OID for any accrual period will equal the product of (a) a percentage
determined by dividing the Excess Yield by the yield to maturity and (b) the OID
for the accrual period.
Assuming a corporate U.S. Holder satisfies the requirements of Sections
243, 246 and 246A of the Code, such holder will be entitled to a dividends
received deduction with respect to any disqualified portion of the accrued OID
to the extent that Holdings has sufficient current or accumulated "earnings and
profits." To the extent that Holdings' earnings and profits are insufficient,
any portion of the OID that otherwise would be characterized as a dividend for
purposes of the dividends received deduction will be taxed as ordinary interest
income in accordance with the rules described in "-- Original Issue Discount."
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF THE NOTES
Gain or loss upon a sale or other disposition of a Note will be measured by
the difference between the amount of cash and the fair market value of property
received with respect to such sale and the U.S. Holder's adjusted tax basis in
such Note. A U.S. Holder's adjusted tax basis in a Note generally will be equal
to the cost of the Note (i.e., in the case of an initial purchaser, the Note's
issue price) increased by the amount of OID that is included in such holder's
income prior to the date of sale or disposition and reduced by all payments
received by the holder with respect to the Note as of the date of sale or other
taxable disposition. Such gain or loss generally will be capital gain or loss,
and will be long-term capital gain or loss if the U.S. Holder held the Note for
more than one year. In the case of an individual U.S. Holder of a note, the
maximum federal income tax rate applicable to net long-term capital gains is
twenty-eight percent (28%) if the Note was held for greater than one year but
less than eighteen months and twenty percent (20%) if the Note was held for more
than eighteen months.
EXCHANGE OFFER
The exchange of Notes for New Notes pursuant to the Exchange Offer should
not be treated as an "exchange" for federal income tax purposes because the New
Notes will not differ materially in kind or extent from the Notes and because
the exchange will occur by operation of the terms of the Notes. As a result,
there should be no federal income tax consequences to Tendering Holders
exchanging Notes for New Notes pursuant to the Exchange Offer.
LIQUIDATED DAMAGES
Holdings intends to take the position that any Liquidated Damages described
above under "Description of Notes -- Registration Rights; Liquidated Damages"
will be taxable to a Holder of a Note as ordinary income at the time such
amounts are received or accrued in accordance with the Holder's usual method of
accounting for federal income tax purposes. The Service may take a different
position, however, which could affect the timing of the Holder's income with
respect to Liquidated Damages.
BACKUP WITHHOLDING
A U.S. Holder of Notes may be subject to "backup withholding" at a rate of
31% with respect to certain "reportable payments" including interest payments
and, under certain circumstances, principal payments on the Notes. These backup
withholding rules apply if the U.S. Holder, among other things, (i) fails to
furnish a social security number or other taxpayer identification number ("TIN")
certified under penalties of perjury within a reasonable time after the request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly
interest, or (iv) under certain circumstances, fails to provide a certified
statement, signed under penalties of perjury, that the TIN furnished is the
correct number and that such U.S. Holder is not subject to backup withholding. A
U.S. Holder who does not provide Holdings with its correct TIN also may be
subject to penalties imposed by the Service. Any amount withheld from a payment
to a U.S. Holder under the backup withholding rules is creditable against the
U.S. Holder's federal income tax liability, provided the required information is
furnished to the Service. Backup withholding will not apply, however, with
respect to payments made to certain U.S. Holders, including corporations and
tax-exempt organizations, provided their exemption from backup withholding is
properly established.
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<PAGE> 102
Holdings will report to the U.S. Holders of Notes and to the Service the
amount of any "reportable payments" for each calendar year and the amount of tax
withheld, if any, with respect to such payments. U.S. Holders are advised to
consult their tax advisors regarding the applicability of the aforementioned
backup withholding rules to the U.S. Holder's particular situation.
NON-U.S. HOLDERS
PAYMENTS OF INTEREST
Interest (including OID) paid by Holdings to Non-U.S. Holders will not be
subject to United States Federal income or withholding tax if the requirements
of section 871(h) or 881(c) of the Code are satisfied as described below under
the heading "Owners Statement Requirement," and provided that (i) such holder
does not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of Holdings entitled to vote, and (ii) such holder
is not a controlled foreign corporation that is related to Holdings through
stock ownership, a foreign tax-exempt organization or foreign private foundation
for United States Federal income tax purposes. Notwithstanding the above, a
Non-U.S. Holder that is engaged in the conduct of a United States trade or
business will be subject to (i) United States Federal income tax on interest
that is effectively connected with the conduct of such trade or business and
(ii) if the Non-U.S. Holder is a corporation, a United States branch profits tax
equal to 30% of its "effectively connected earnings and profits" as adjusted for
the taxable year, unless the holder qualifies for an exemption from such tax or
a lower tax rate under an applicable treaty.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to United States Federal
income tax on gain recognized on a sale, redemption, or other disposition of a
Note unless (i) the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder or (ii) in the case of
a Non-U.S. Holder who is a nonresident alien individual, such holder is present
in the United States for 183 or more days during the taxable year and certain
other requirements are met. Any such gain that is effectively connected with the
conduct of a United States trade or business by a Non-U.S. Holder will be
subject to United States Federal income tax on a net income basis in the same
manner as if such holder were a United States person and, if such Non-U.S.
Holder is a corporation, such gain may also be subject to the 30% United States
branch profits tax described above.
FEDERAL ESTATE TAXES
A Note held by an individual who at the time of death is not a citizen or
resident of the United States will not be subject to United States Federal
estate tax as a result of such individual's death, provided that (i) the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of Holdings entitled to vote and
(ii) the interest accrued on the Note was not effectively connected with the
conduct of a United States trade or business.
OWNER'S STATEMENT REQUIREMENT
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a Note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution") and that holds a Note on behalf of such
owner file a statement with Holdings or its agent to the effect that the
beneficial owner is not a United States person in order to avoid withholding of
United States Federal income tax. Under current regulations, this requirement
will be satisfied if Holdings or its agent receives (i) a statement (an "Owner's
Statement") from the beneficial owner of a Note in which such owner certifies,
under penalties of perjury, that such owner is not a United States person and
provides such owner's name and address or (ii) a statement from the Financial
Institution holding the Note on behalf of the beneficial owner in which the
Financial Institution certifies, under penalties of perjury, that it has
received the Owner's Statement together with a copy of the Owner's Statement.
The
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<PAGE> 103
beneficial owner must inform Holdings or its agent (or, in the case of a
statement described in clause (ii) of the immediately preceding sentence, the
Financial Institution) within 30 days of any change in information on the
Owner's Statement. The foregoing certifications may be made on Internal Revenue
Service Form W-8.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Current United States Federal income tax law provides that in the case of
payments of interest to Non-U.S. Holders, the 31% backup withholding tax will
not apply to payments made outside the United States by Holdings or a paying
agent on a Note if an Owner's Statement is received or an exemption has
otherwise been established; provided in each case that Holdings or the paying
agent, as the case may be, does not have actual knowledge that the payee is a
United States person.
Under current Treasury Regulations, payments of the proceeds of the sale of
a Note to or through a foreign office of a "broker" will not be subject to
backup withholding but will be subject to information reporting if the broker is
a United States person, a controlled foreign corporation for United States
Federal income tax purposes, or a foreign person 50% or more of whose gross
income is from a United States trade or business for a specified three-year
period, unless the broker has in its records documentary evidence that the
holder is not a United States person and certain conditions are met or the
holder otherwise establishes an exemption. Payment of the proceeds of a sale to
or through the United States office of a broker is subject to backup withholding
and information reporting unless the holder certifies its non-United States
status under penalties of perjury or otherwise establishes an exemption.
Recently, the Treasury Department has promulgated final regulations (the
"Final Regulations") regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not significantly alter
the substantive withholding and information reporting requirements but unify
current certification procedures and forms and clarify reliance standards. Under
the Final Regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The Final Regulations are generally effective for
payments made after December 31, 1998, subject to certain transition rules.
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<PAGE> 104
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. Holdings has agreed that for a period one year from the
Consummation Deadline (as defined in the Registration Rights Agreement) or such
shorter period as will terminate when all Old Notes covered by the Registration
Statement of which this Prospectus forms a part have been said pursuant thereto
(such period being hereinafter referred to as the "Prospectus Delivery Period"),
it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
Holdings will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
During the Prospectus Delivery Period, Holdings will promptly send
additional copies of the Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such document. Holdings has agreed
to pay all expenses incident to the Exchange Offer other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
New Notes will be passed upon for Holdings by Skadden, Arps, Slate, Meagher &
Flom LLP, New York, New York, which has acted as counsel for the Company in
connection with the Exchange Offer.
EXPERTS
The audited consolidated financial statements included in this Prospectus
and elsewhere in the Registration Statement of which this Prospectus forms a
part of Anchor Holdings, Inc. for the years ended December 31, 1995, 1996 and
1997, have been audited by PricewaterhouseCoopers LLP, independent accountants,
as stated in their report with respect thereto, and are being included herein in
reliance upon authority of said firm as experts in giving said reports.
The audited consolidated financial statements included in the Prospectus
and elsewhere in the Registration Statement of which this Prospectus forms a
part of Moll PlastiCrafters Limited Partnership for the years ended December 31,
1995, 1996 and 1997, and the audited combined financial statements included in
the Prospectus and elsewhere in the Registration Statement of which this
Prospectus forms a part of The Hanning Companies for the years ended December
31, 1995 and 1996, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
The audited consolidated financial statements included in this Prospectus
and elsewhere in the Registration Statement of which this Prospectus forms a
part of Somomeca Industries for the years ended August 31, 1995, 1996 and 1997
and the four month period ended December 31, 1997, have been audited by Barbier,
Frinault & Associes, Member Firm of Andersen Worldwide, independent public
accountants, as stated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
Change in Accountants
On July 6, 1998, the Company appointed Arthur Andersen LLP ("Andersen") to
replace PricewaterhouseCoopers LLP ("PwC") as independent auditors of the
Company, and PwC was dismissed as the Company's auditor on the same date.
Andersen was serving as the independent auditors of Moll at the time of the
Merger. Moll is considered the accounting acquiror in the Merger.
The report of PwC on the Company's consolidated financial statements for
the years ended December 31, 1997 and 1996 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principle.
The decision to engage Andersen as the Company's independent auditors was
approved by the Company's board of directors.
In connection with the audits for the years ended December 31, 1997 and
1996, and through the interim period ended July 6, 1998, there were no
disagreements or "reportable events" with PwC as described in Items
304(a)(1)(iv) and (v) of Regulation S-K under the Securities Act ("Regulation
S-K") on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PwC would have caused it to make reference thereto in its
report on the consolidated financial statements for 1997 and 1996.
PwC has been authorized by the Company to respond to any and all inquiries
by the successor auditors and PwC has provided to the Company a letter addressed
to the Securities and Exchange Commission stating that it has reviewed the
disclosure provided in this Registration Statement and has no disagreement with
the relevant portions of this disclosure, pursuant to the requirements of Item
304(a)(3) of Regulation S-K. A copy of such letter, dated October 21, 1998, is
filed as Exhibit 16.1 to this Registration Statement.
Andersen, serving in its existing capacity as independent auditor to Moll
has provided advice to the Company and Moll regarding the accounting for the
Merger, the acquisitions of Hanning, Somomeca and Gemini Plastic and the
Offering.
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<PAGE> 107
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Basis of Presentation....................................... P-2
Unaudited Pro Forma Consolidated Statement of Income for the
Year Ended December 31, 1997.............................. P-3
Unaudited Pro Forma Consolidated Statement of Income for the
Twenty-six Weeks Ended July 4, 1998....................... P-4
Notes to Unaudited Pro Forma Consolidated Financial
Statements................................................ P-5
</TABLE>
P-1
<PAGE> 108
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements of AMM
Holdings, Inc. ("Holdings," the parent of Anchor Holdings, Inc. ("Anchor
Holdings") and the indirect parent of Anchor Advanced Products, Inc. ("Anchor"))
gives effect to the offering of Holdings' Senior Discount Notes ("Holdings
Offering"). They also give effect to the contribution of the interests in Moll
PlastiCrafters Limited Partnership ("Moll") to Holdings in exchange for common
shares of Holdings and subsequent merger of Moll into Anchor (the "Merger"). The
Merger occurred immediately prior to the consummation of the Holdings Offering
and the offering of Moll Industries, Inc. Senior Subordinated Notes (the
"Company Offering"). As the partners of Moll own a majority of the outstanding
shares of Holdings subsequent to the Merger, Moll is considered the accounting
acquiror in the Merger and will utilize purchase accounting to account for the
Merger.
In addition, the unaudited pro forma consolidated financial statements of
the Company also give effect to the following:
- the August 1997 purchase acquisition of the Hanning companies ("Hanning")
by Moll,
- the January 1998 purchase acquisition of Somomeca Industries ("Somomeca")
by Moll,
- the June 1998 the distribution of Moll's investment in Reliance Products,
L.P. ("Reliance"), to certain of Moll's limited partners, and
- the June 1998 purchase acquisition of Gemini Plastic Services, Inc.
("Gemini") by the Company.
Collectively, these acquisitions are referred to as the "Acquisitions" and
the combined companies are referred to as the "Company".
The unaudited pro forma consolidated statement of income of Holdings for
the year ended December 31, 1997 and for the twenty-six weeks ended July 4, 1998
gives effect to these transactions as if they had occurred on January 1, 1997.
Holdings has identified certain savings which are expected to occur as a
result of the Merger. These savings have been reflected in the unaudited pro
forma consolidated financial statements of Holdings. Holdings has preliminarily
analyzed certain additional savings that it expects to be realized by
consolidating other operational and general and administrative functions as a
result of the Merger. Holdings has not and cannot quantify these savings until
completion of the Merger. Accordingly, these additional anticipated savings have
not been included in the unaudited pro forma consolidated financial statements
of Holdings.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The pro forma financial data does not purport to represent
what Holdings' financial position or results of operations would actually have
been if such transactions in fact had occurred on those dates or to project
Holdings' financial position or results of operations for any future period.
Since the combined companies were not under common control or management,
historical combined results may not be comparable to, or indicative of, future
performance. The unaudited pro forma consolidated financial statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus. See "Risk Factors" included elsewhere
herein.
P-2
<PAGE> 109
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------------
MOLL ANCHOR(A) GEMINI(B) SOMOMECA(D) HANNING(E)
-------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $116,947 $161,161 $20,980 $88,502 $29,640
Cost of sales.......................... 97,086 135,974 16,237 77,943 28,342
-------- -------- ------- ------- -------
Gross profit.......................... 19,861 25,187 4,743 10,559 1,298
Selling, general and administrative
expenses.............................. 10,758 12,497 3,580 5,469 2,597
Management fee to related parties...... 1,653 180 -- -- 127
Tooling income, net.................... (1,912) -- -- -- (1,114)
Loss on closure of facility............ 1,176 -- -- -- --
-------- -------- ------- ------- -------
Operating income (loss)................ 8,186 12,510 1,163 5,090 (312)
Interest expense....................... 3,431 11,165 221 2,654 291
Interest income........................ (25) -- (11) (263) (62)
Other (income) expense................. (299) (287) 11 320 (294)
Minority interest in income (loss) of
subsidiary............................ 435 -- -- (95) --
-------- -------- ------- ------- -------
Income (loss) before taxes and
extraordinary item.................... 4,644 1,632 942 2,474 (247)
Income tax expense (benefit)........... 82 794 372 1,036 383
-------- -------- ------- ------- -------
Income (loss) before extraordinary
item.................................. $ 4,562 $ 838 $ 570 $ 1,438 $ (630)
======== ======== ======= ======= =======
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------ PRO FORMA
RELIANCE(C) AMM HOLDINGS, INC.
-------------- ------------------
<S> <C> <C> <C> <C>
Net sales.............................. $(17,383) $(4,116) (f) $414,630
18,899 (l)
Cost of sales.......................... (13,293) 15,976 (l) 354,582
808 (m)
(547) (j)
(4,193) (f)
249 (n)
-------- ------------- ------------------
Gross profit.......................... (4,090) 60,048
Selling, general and administrative
expenses.............................. (2,278) 655 (o) 29,390
(2,429) (h)
(1,103) (i)
(356) (f)
Management fee to related parties...... (261) (1,499) (k) 200
Tooling income, net.................... -- 2,923 (l) --
103 (f)
Loss on closure of facility............ -- (1,176) (g) --
-------- ------- --- --------
Operating income (loss)................ (1,551) 30,458
Interest expense....................... (510) 5,254 (q) 31,380
8,874 (r)
Interest income........................ -- (361)
Other (income) expense................. (149) (172) (f) (870)
Minority interest in income (loss) of
subsidiary............................ -- (340) (p) --
-------- --------
Income (loss) before taxes and
extraordinary item.................... (892) 309
Income tax expense (benefit)........... -- (629) (s) 2,038
-------- --------
Income (loss) before extraordinary
item.................................. $ (892) $ (1,729)
======== ========
</TABLE>
P-3
<PAGE> 110
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWENTY-SIX WEEKS ENDED JULY 4, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------------- PRO FORMA
MOLL ANCHOR(A) GEMINI(B) RELIANCE(C) AMM HOLDINGS, INC.
-------- --------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $123,169 $75,810 $10,023 $(11,165) $1,348 (l) $199,185
Cost of sales....................... 102,096 67,632 8,307 (8,437) (274) (j) 170,494
210 (m)
960 (l)
-------- ------- ------- -------- --------
Gross profit.................... 21,073 8,178 1,716 (2,728) 28,691
Selling, general and administrative
expenses.......................... 9,975 6,675 1,695 (1,737) 224 (o) 15,064
(1,216) (h)
(552) (i)
Management fee to related parties... 1,198 -- -- (168) (930) (k) 100
Tooling income, net................. (388) -- -- -- 388 (l) --
-------- ------- ------- -------- --------
Operating income.................... 10,288 1,503 21 (823) 13,527
Interest expense.................... 4,979 6,026 125 (167) 874 (q)
4,541 (r) 16,378
Interest income..................... -- -- (6) -- (6)
Other (income) expense.............. 538 102 -- 105 745
Minority interest in income (loss)
of subsidiary..................... 239 -- -- -- (239) (p) --
-------- ------- ------- -------- --------
Income (loss) before taxes and
extraordinary item................ 4,532 (4,625) (98) (761) (3,590)
Income tax expense (benefit)........ 744 (1,392) 11 -- (417) (s) (1,054)
-------- ------- ------- -------- --------
Income (loss) before extraordinary
item.............................. $ 3,788 $(3,233) $ (109) $ (761) $ (2,536)
======== ======= ======= ======== ========
</TABLE>
P-4
<PAGE> 111
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------
<TABLE>
<S> <C>
Pro Forma Adjustments
(a) Adjustment to include the Anchor Holdings historical
operating activity for the respective periods in the
unaudited pro forma financial statements.
(b) Adjustment to include the Gemini historical operating
activity for the respective periods in the unaudited pro
forma financial statements.
(c) Adjustment to eliminate the Reliance historical operating
activity as reflected in its financial statements for the
respective periods from the unaudited pro forma financial
statements.
(d) Adjustment to include the Somomeca historical operating
activity for the period of January 1 through December 31,
1997 in the unaudited pro forma financial statements.
(e) Adjustment to include the Hanning historical operating
activity for the period of January 1 through August 7, 1997
in the unaudited pro forma financial statements.
(f) Adjustment to eliminate the operating results of the El Paso
facility, as it was closed in September 1997. The operating
results eliminated were obtained from the El Paso division
financial statements exclusive of the impact of corporate
allocations.
(g) Adjustment to eliminate non-recurring costs, consisting
primarily of future rental payments and losses on equipment
and inventory, incurred by Moll in the September 1997
closure of its El Paso facility. These costs were based on
the contractual commitments of the Company and actual losses
incurred on equipment and inventory due to the closure.
(h) Adjustment to record the reduction of personnel at AMM
Holdings and Gemini. The reductions were made in executive
management and certain overhead functions at AMM Holdings
and management of Gemini.
(i) Adjustment to reflect the freezing by the Company of certain
AMM Holdings retirement plans which occurred on June 3,
1998. The estimated savings were based on historical costs
as compared to anticipated future costs which were
actuarially determined.
(j) Adjustment to eliminate the rent expense associated with the
building which houses the Gemini operation as the Company
purchased the building.
(k) Adjustment to reflect the future management fee of $200,000
per year.
(l) Adjustment to conform accounting policies regarding the
classification of revenues and expenses for tooling built
for and sold to consumers. Moll has historically recorded
the net amount it has received for arranging the production
of tooling for its customers as an offset against operating
expenses. For future reporting purposes, the Company plans
to reflect the gross revenues as a component of net sales
and expenses as cost of sales.
(m) Adjustment to record depreciation expense (i) for the
adjustment of property, plant and equipment to fair market
value in the acquisitions of Hanning, Somomeca, Holdings and
Gemini, of $6,300,000 which is being depreciated over seven
to ten years and (ii) the purchase of the Gemini building
for $3,500,000 which is being depreciated over 30 years.
(n) Adjustment to reflect rent expense for the period of January
1 through August 7, 1997 to be paid on land and buildings in
Germany distributed to the owners of Moll in August 1997.
(o) Adjustment to record amortization of additional goodwill
generated in the acquisitions of Somomeca, Holdings and
Gemini. Goodwill amortization following the transaction will
approximate $1,803,000 per year. Related to previous
transactions, Anchor's and Somomeca's historical financial
statements include $1,148,000 of goodwill amortization. The
Registrant evaluates the impairment of goodwill based on the
cash flows of the entity which generated the asset. The
goodwill is being amortized over 20 years. The Registrant
determined 20 years was the appropriate useful life related
to these transactions due to the mature, long-term nature of
the industry, and the benefits of an international company
in the industry.
</TABLE>
P-5
<PAGE> 112
<TABLE>
<S> <C>
(p) Adjustment to eliminate the minority interest's portion of
the earnings of Somomeca and Reliance as the minority
interest of Somomeca was purchased in connection with Moll's
purchase of Somomeca and Reliance is no longer reflected as
a consolidated subsidiary of the Company.
(q) Adjustment to record interest expense incurred on the
increase in debt resulting from the acquisitions of Hanning,
Somomeca, Holdings and Gemini. The Registrant incurred $42
million of debt in these transactions at an assumed interest
rate of 9.5%. Additionally, it assumed debt of Anchor
totaling $100 million which Anchor refinanced in April 1997.
This adjustment includes approximately $1.2 million of
additional interest expense which is not included in
Anchor's historical financial statements to reflect this
refinancing.
(r) Adjustment to reflect interest on the net additional debt
incurred in connection with the Company Offering
(approximately $30 million) and Holdings Offering
(approximately $35 million) and to reflect the difference in
interest rates between the current debt instruments
(approximately 8.5%) and the Notes sold pursuant to the
Company Offering and Holdings Offering.
(s) Adjustment to reflect the tax impact of the pro forma
adjustments and to reflect Moll as a taxable entity using an
estimated effective tax rate of 40%.
</TABLE>
Note: The unaudited pro forma consolidated statements of income for the year
ended December 31, 1997 and the twenty-six weeks ended July 4, 1998 do not
include the extraordinary losses of $1,210,000 and $1,971,000,
respectively, related to the extinguishment of debt.
P-6
<PAGE> 113
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AMM HOLDINGS, INC. AND SUBSIDIARY, THE REGISTRANT
Consolidated Balance Sheet as of July 4, 1998
(unaudited)............................................ F-3
Consolidated Statements of Income for the Twenty-six Weeks
Ended June 30, 1997 and July 4, 1998 (unaudited)....... F-4
Consolidated Statements of Comprehensive Income for the
Twenty-six Weeks Ended June 30, 1997 and July 4, 1998
(unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the Twenty-six
Weeks Ended June 30, 1997 and July 4, 1998
(unaudited)............................................ F-6
Notes to Consolidated Financial Statements................ F-8
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES,
THE REGISTRANT
Report of Independent Public Accountants.................. F-12
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-13
Consolidated Statements of Income for the Three Years
Ended December 31, 1997................................ F-14
Consolidated Statements of Comprehensive Income for the
Three Years Ended December 31, 1997.................... F-15
Consolidated Statements of Partners' Capital for the Three
Years Ended December 31, 1997.......................... F-16
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1997................................ F-17
Notes to Consolidated Financial Statements................ F-19
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES, ACQUIRED COMPANY
Report of Independent Accountants......................... F-31
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-32
Consolidated Statements of Operations for the Three Years
Ended December 31, 1997, and the Twenty-six Weeks Ended
June 28, 1997 and June 26, 1998........................ F-33
Consolidated Statements of Comprehensive Income for the
Three Years Ended December 31, 1997 and the Twenty-six
Weeks Ended June 28, 1997 and 1998..................... F-34
Consolidated Statements of Stockholders' Equity (Deficit)
for the Three Years Ended December 31, 1997............ F-35
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1997 and the Twenty-six Weeks Ended
June 28, 1997 and June 26, 1998........................ F-36
Notes to Consolidated Financial Statements................ F-37
SOMOMECA INDUSTRIES AND SUBSIDIARIES, ACQUIRED COMPANY
Report of Independent Public Accountants.................. F-52
Consolidated Balance Sheets as of August 31, 1996 and 1997
and as of December 31, 1997............................ F-53
Consolidated Statements of Operations for the Three Years
Ended August 31, 1997 and the Four Month Period Ended
December 31, 1997...................................... F-54
Consolidated Statements of Stockholders' Equity for the
Three Years Ended August 31, 1997 and the Four Month
Period Ended December 31, 1997......................... F-55
Consolidated Statements of Cash Flows for the Three Years
Ended August 31, 1997 and the Four Month Period Ended
December 31, 1997...................................... F-56
Notes to Consolidated Financial Statements................ F-57
</TABLE>
F-1
<PAGE> 114
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE HANNING COMPANIES, ACQUIRED COMPANY
Report of Independent Public Accountants.................. F-67
Combined Balance Sheets as of December 31, 1995 and
1996................................................... F-68
Combined Statements of Operations for the Years Ended
December 31, 1995 and 1996 and the Seven Months and
Seven Days Ended August 7, 1996 and 1997............... F-69
Combined Statements of Equity (Deficit) for the Years
Ended December 31, 1995 and 1996....................... F-70
Combined Statements of Cash Flows for the Years Ended
December 31, 1995 and 1996 and the Seven Months and
Seven Days Ended August 7, 1996 and 1997............... F-71
Notes to Financial Statements............................. F-72
</TABLE>
F-2
<PAGE> 115
AMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 4,
1998
-------
(DOLLARS IN
THOUSANDS AND
UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 29,668
Accounts receivable, net of reserves for doubtful accounts
of $2,037.............................................. 75,117
Inventories, net.......................................... 53,922
Deposits on tooling....................................... 4,551
Other current assets...................................... 4,257
--------
Total current assets.............................. 167,515
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 118,933
RECEIVABLE FROM AFFILIATES.................................. 390
GOODWILL, NET............................................... 36,411
OTHER INTANGIBLE AND NON-CURRENT ASSETS, NET................ 16,206
--------
Total assets...................................... $339,455
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Checks drawn in excess of cash on deposit................. $ 1,005
Customer deposits on tooling.............................. 4,669
Current portion of other long-term obligations............ 7,575
Accounts payable.......................................... 36,762
Accrued liabilities....................................... 27,774
--------
Total current liabilities......................... 77,785
--------
NOTES PAYABLE............................................... 265,322
OTHER LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION......... 15,025
--------
DEFERRED INCOME TAXES....................................... 6,972
--------
OTHER NON-CURRENT LIABILITIES............................... 7,741
--------
COMMITMENTS AND CONTINGENCIES............................... --
--------
STOCKHOLDERS' DEFICIT:
Common stock ($.01 par value, 2,000 shares authorized,
1,551 shares issued and outstanding)................... 15
Additional contributed capital............................ 2,372
Treasury stock at cost.................................... (10)
Retained deficit.......................................... (35,322)
Accumulated other comprehensive income.................... (445)
--------
Total stockholders' deficit....................... (33,390)
--------
Total liabilities and stockholders'
deficit...................................... $339,455
========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-3
<PAGE> 116
AMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
--------------------------
JUNE 30, JULY 4,
1997 1998
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS,
AND UNAUDITED)
<S> <C> <C>
NET SALES................................................... $ 53,755 $123,169
COST OF GOODS SOLD.......................................... 41,867 102,096
-------- --------
Gross profit.............................................. 11,888 21,073
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 4,177 9,587
MANAGEMENT AND CONSULTING FEE TO RELATED PARTIES............ 842 1,198
-------- --------
Operating income.......................................... 6,869 10,288
-------- --------
OTHER EXPENSES:
Interest expense, net..................................... 1,423 4,979
Minority interest in subsidiary income.................... 399 239
Other, net................................................ 91 538
-------- --------
1,913 5,756
-------- --------
Income before income taxes and extraordinary item......... 4,956 4,532
PROVISION FOR INCOME TAXES.................................. -- 744
-------- --------
Income before extraordinary item.......................... 4,956 3,788
EXTRAORDINARY ITEM--LOSS ON EARLY EXTINGUISHMENT OF DEBT.... -- (1,971)
-------- --------
Net income................................................ $ 4,956 $ 1,817
======== ========
EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM................ $ 3.20 $ 2.44
======== ========
EARNINGS PER SHARE.......................................... $ 3.20 $ 1.17
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 1,551 1,551
======== ========
PRO FORMA INFORMATION:
Provision for income taxes................................ $ 1,982 $ 1,300
======== ========
Net income................................................ $ 2,974 $ 1,261
======== ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-4
<PAGE> 117
AMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------------
JUNE 30, JULY 4,
1997 1998
---------- ---------
(IN THOUSANDS AND UNAUDITED)
<S> <C> <C>
NET INCOME.................................................. $4,956 $1,817
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment................... (68) (120)
------ ------
COMPREHENSIVE INCOME........................................ $4,888 $1,697
====== ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
F-5
<PAGE> 118
AMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------------
JUNE 30, JULY 4,
1997 1998
----------- ------------
(IN THOUSANDS AND UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 4,956 $ 1,817
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,357 5,086
Loss on early extinguishment of debt................... -- 1,971
Gain on disposal of fixed assets....................... (69) (134)
Deferred income taxes.................................. -- 199
Minority interest in subsidiary income................. 399 239
Changes in assets and liabilities, net of assets
purchased and liabilities assumed:
Accounts receivable.................................. (8,475) (5,073)
Receivable from affiliates........................... -- 74
Inventories.......................................... (579) (591)
Other current assets................................. (299) (964)
Deposits on tooling.................................. 367 2,773
Other assets......................................... 249 (1,300)
Accounts payable..................................... 1,552 (1,507)
Accrued liabilities.................................. 978 1,842
Customer deposits on tooling......................... (83) (2,856)
Checks drawn in excess of cash on deposit............ 119 1,149
------- --------
Total adjustments................................. (3,484) 908
------- --------
Net cash provided by operating activities............ 1,472 2,725
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,447) (6,983)
Proceeds on disposal of fixed assets...................... 100 553
Purchase of Somomeca...................................... -- (11,737)
Purchase of Anchor........................................ -- (6,453)
Purchase of Gemini........................................ -- (9,954)
------- --------
Net cash used in investing activities................ (1,347) (34,574)
------- --------
</TABLE>
(continued)
F-6
<PAGE> 119
AMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------------
JUNE 30, JULY 4,
1997 1998
----------- ------------
(IN THOUSANDS AND UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) revolving loan facility... $ 3,954 $ (10,594)
Proceeds from issuance of long-term obligations........... 1,232 222,540
Principal payments on long-term obligations............... (2,579) (106,157)
Financing costs........................................... -- (7,517)
Distributions............................................. (1,831) (38,117)
Distributions to minority partners of Reliance............ (4) (643)
------- ---------
Net cash provided by financing activities.............. 772 59,512
------- ---------
EFFECT OF EXCHANGE RATE CHANGES IN CASH..................... (13) 276
------- ---------
NET CHANGE IN CASH.......................................... 884 27,939
BALANCE AT BEGINNING OF PERIOD.............................. 878 1,729
------- ---------
BALANCE AT END OF PERIOD.................................... $ 1,762 $ 29,668
======= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 1,696 $ 4,674
======= =========
Cash paid for taxes....................................... $ -- $ 167
======= =========
</TABLE>
NON-CASH TRANSACTIONS:
In June 1997, the Company terminated a capital lease that resulted in a
reduction of debt by $2,503 and a reduction in fixed assets by $1,205.
In June 1998, the Company distributed its investment in Reliance L.P. of
$3,135 to its partners. Reliance had a cash balance of $543 at the time of the
distribution.
See accompanying notes to consolidated financial statements (unaudited).
F-7
<PAGE> 120
AMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS AND UNAUDITED)
AMM Holdings, Inc. ("AMM Holdings") was incorporated March 3, 1998, under
the laws of the State of Delaware. AMM Holdings owns Anchor Holdings, Inc.
("Holdings"). Holdings owns Moll Industries, Inc. (the "Company", formerly known
as Anchor Advanced Products, Inc.) through which, including its subsidiaries, it
designs and manufactures custom molded products and assembled plastic components
for a broad variety of customers throughout North America and Europe. The
Company's products are sold to a wide range of end-markets, including end
markets for consumer products, telecommunications/business equipment, household
appliances, automobile and medical devices. The Company's manufacturing
facilities are located primarily in the United States, France, Germany, Mexico
and the United Kingdom.
1. MERGER WITH MOLL PLASTICRAFTERS LIMITED PARTNERSHIP
Effective June 26, 1998, the owners of Moll PlastiCrafters Limited
Partnership ("Moll") contributed their interest in Moll to AMM Holdings in
exchange for common shares of AMM Holdings. AMM Holdings contributed these
interests in Moll to Holdings and ultimately to Anchor Advanced Products, Inc.
("Anchor"). Moll was merged into Anchor (the "Merger") at which time the name of
Anchor was changed to Moll Industries, Inc. As the owners of Moll own a majority
of the outstanding shares of AMM Holdings subsequent to the Merger, Moll is
considered the accounting acquiror in the Merger; therefore, the consolidated
financial statements presented for all periods prior to June 26, 1998 herein are
those of Moll, and exclude those of Anchor. Moll utilized purchase accounting to
account for the Merger; accordingly, the assets and liabilities acquired in the
Merger, which primarily relate to Anchor, were adjusted to their estimated fair
values which are as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 42,966
Property, plant and equipment............................... 56,122
Goodwill.................................................... 19,566
Other assets................................................ 9,563
Current liabilities......................................... (12,914)
Notes payable............................................... (100,000)
Other non-current liabilities............................... (15,303)
</TABLE>
An evaluation of the assets acquired and liabilities assumed is in process.
Upon completion of the evaluation, net additions or restrictions, if any, in the
fair values currently assigned will result in a corresponding change in
goodwill.
2. BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of Moll,
as it is the accounting acquiror in the Merger discussed in Note 1, and its
subsidiaries. All significant results of operations of companies acquired
utilizing the purchase method of accounting have been included in the
consolidated financial statements since the effective date of the acquisition
(the Hanning Companies--August 8, 1997, Somomeca Industries, Inc.--January 8,
1998, Anchor--June 26, 1998 and Gemini Plastic Services, Inc.--June 26, 1998).
The results of Reliance Products have been excluded from these consolidated
financial statements since June 26, 1998 (see Note 4). All significant
intercompany balances have been eliminated in consolidation. The interim
consolidated financial statements have been prepared, without audit, in
accordance with generally accepted accounting principles, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, the interim consolidated financial statements include all
adjustments which are necessary for a fair presentation of the financial
position and results of operations for the interim periods presented, such
adjustments being of a normal, recurring nature. Certain information and
footnote disclosures have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these interim consolidated financial
statements and notes thereto are read in conjunction with the
F-8
<PAGE> 121
AMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consolidated financial statements and notes thereto for the year ended December
31, 1997. Results of operations in interim periods are not necessarily
indicative of results to be expected for a full year.
In connection with the Merger, Moll changed its financial reporting period
from one based on calendar month ends to four thirteen week periods. As a
result, Moll changed its second quarter period end from June 30 to July 4.
Earnings per share for all periods presented have been computed on a basis
assuming the number of common shares outstanding subsequent to the Merger were
outstanding for all periods presented. There are no potentially dilutive
securities currently outstanding.
RECENT ACCOUNTING PRONOUNCEMENTS.
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement requires that derivatives and hedges be
valued at their fair value and establishes standards for the recognition of
changes in fair value. The Statement is effective for periods beginning after
June 15, 1999. The Company is evaluating SFAS No. 133 to determine the impact,
if any, on its reporting and disclosure requirements.
3. ACQUISITIONS
Effective June 26, 1998, the Company acquired the stock of Gemini Plastic
Services, Inc. ("Gemini") for cash of $10,186. The acquisition has been
accounted for using the purchase method with the purchase price allocated based
on the estimated fair values of the assets purchased and liabilities assumed, as
follows:
<TABLE>
<S> <C>
Current assets............................................. $ 4,534
Property, plant and equipment.............................. 4,571
Goodwill................................................... 6,527
Other assets............................................... 23
Current liabilities........................................ (2,818)
Non-current liabilities.................................... (2,651)
-------
$10,186
=======
</TABLE>
Effective January 8, 1998, the Company acquired Somomeca Industries, Inc.
("Somomeca"). In April 1998, the Company entered into an agreement with the
former owners of Somomeca under which the former owners will receive additional
consideration of 9,000 French Francs ($1,488 at July 4, 1998 exchange rates) in
lieu of consideration for the operating results of Somomeca for the twelve
months ended August 31, 1998 as required per the purchase agreement. The
additional consideration will be paid in three equal installments on August 31,
1998 and January 31, 1999 and 2000. The additional consideration has been
reflected as goodwill in the accompanying July 4, 1998 consolidated balance
sheet. Total cash consideration, including the additional consideration and
expenses was $15,988.
Effective August 8, 1997, the Company acquired the Hanning Companies, a
group of companies which had previously been under common control for total cash
consideration, including expenses, of $10,482.
An evaluation of the assets acquired and liabilities assumed is in process.
Upon completion of the evaluation, net additions or reductions, if any, in the
fair values currently assigned will result in a corresponding change in
goodwill.
4. DISTRIBUTION OF INTEREST IN RELIANCE PRODUCTS, L.P.
Effective immediately prior to the Merger discussed in Note 1, Moll
distributed its interest in Reliance Products, L.P. to its owners. The total
amount of such distribution was $3,135.
F-9
<PAGE> 122
AMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE
On June 26, 1998, the Company issued $130,000 of 10 1/2% Senior
Subordinated Notes due in 2008. These notes are unsecured and subordinate to
substantially all of the Company's indebtedness. The proceeds of these notes
were used primarily to repay existing indebtedness, acquire Gemini and fund
other corporate purposes.
On June 26, 1998, AMM Holdings issued $68,000 of 13 1/2% Senior Discount
Notes due in 2009. These Notes are unsecured and subordinate to substantially
all of the Company's indebtedness. The net proceeds of $35,332 of these notes
were used primarily to repay existing indebtedness and fund other corporate
purposes.
In conjunction with the Merger, the Company assumed $100,000 of 11 3/4%
Senior Notes due 2004 originally issued by Anchor Advanced Products, Inc.
("Anchor"). These notes are unsecured but are guaranteed by Holdings and the
foreign subsidiaries of the Company.
6. TAXES
Effective June 26, 1998, the Company became a taxable entity. Prior to June
26, 1998, the Company was a partnership; accordingly, the earnings of the
Company, including the earnings of foreign subsidiaries attributable to the
Company for United States tax purposes, were included in the tax returns of the
partners. Therefore, the consolidated financial statements contain no provision
for federal or state income taxes related to those earnings.
Certain of the Company's foreign subsidiaries and, subsequent to June 26,
1998, the Company are taxable entities. The Company has accounted for income
taxes for taxable entities using the liability method which requires recognition
of deferred tax assets and liabilities for the expected future consequences of
events that have been included in the financial statements or income tax
returns.
7. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES
The Company's foreign subsidiaries, Moll PlastiCrafters GmbH, Moll
Industries UK, Limited and Moll France SARL, are each wholly-owned subsidiaries
of the Company. Each of these entities has fully and unconditionally guaranteed
the otherwise unsecured $100,000 of 11 3/4% Senior Notes due 2004 issued by
Anchor and assumed by the Company in the Merger. As such, these entities are
subject to the reporting requirements under Section 13 or 15(d) of the
Securities Exchange Act of 1934. Combined financial information relating to
these entities since the date of their acquisition is presented herein in
accordance with Staff Accounting Bulletin No. 53 as an addition to the notes of
the consolidated financial statements of the Company. Summarized combined
financial information for the Company's foreign subsidiaries is as follows:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS
ENDED
JULY 4, 1998
------------
<S> <C>
Statement of Income Data:
Net sales................................................. $62,486
Gross margin.............................................. 8,370
Income from operations.................................... 4,279
Net income (loss)......................................... (418)
</TABLE>
F-10
<PAGE> 123
AMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JULY 4, 1998
------------
<S> <C>
Balance Sheet Data:
Current assets............................................ $63,531
Total assets.............................................. 103,961
Current liabilities....................................... 42,886
Total liabilities......................................... 104,762
Deficit................................................... (801)
</TABLE>
8. OTHER COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, which requires the reporting of
comprehensive income in addition to net income. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
Information with respect to the accumulated other comprehensive income
balance is as follows:
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
-------------------
JUNE 30, JULY 4,
1997 1998
-------- -------
<S> <C> <C>
Beginning balance.......................................... $ -- $ 2
Current period change in foreign currency translation...... (68) (120)
Accumulated foreign currency translation associated with
distributed interest..................................... -- 194
Deferred compensation assumed in Merger.................... -- (521)
---- -----
$(68) $(445)
==== =====
</TABLE>
9. PRO FORMA FINANCIAL INFORMATION
The historical statement of operations data for Anchor for the periods
prior to the Merger is as follows:
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 28, 1997 JULY 4, 1998
------------- ------------
<S> <C> <C>
Net sales.......................................... $84,745 $75,810
Gross margin....................................... 13,424 8,178
Income from operations............................. 7,269 1,503
Net income (loss).................................. 190 (3,233)
</TABLE>
The following unaudited pro forma statement of operations data gives effect
to the Merger and the acquisition of Gemini as if they had occurred at the
beginning of the period.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
JULY 4, 1998
------------
<S> <C>
Net sales................................................... $199,185
Operating income............................................ 13,527
Income (loss) before taxes and extraordinary item........... (3,590)
</TABLE>
F-11
<PAGE> 124
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Moll PlastiCrafters Limited Partnership:
We have audited the accompanying consolidated balance sheets of MOLL
PLASTICRAFTERS LIMITED PARTNERSHIP (A DELAWARE LIMITED PARTNERSHIP) AND
SUBSIDIARIES as of December 31, 1996 and 1997, and the related consolidated
statements of income, partners' capital and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Moll PlastiCrafters Limited
Partnership and Subsidiaries as of December 31, 1996 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As explained in Note 16 to the consolidated financial statements, the
Company has given retroactive effect to the change in accounting for other
comprehensive income.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 19, 1998 (except with respect to the information in Notes 15 and 17,
as to which the date is June 26, 1998).
F-12
<PAGE> 125
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 877,893 $ 1,729,061
Accounts receivable, net of reserves for doubtful accounts
of $561,000 and $579,000, respectively................. 8,787,703 22,483,782
Inventories, net.......................................... 10,541,739 15,579,655
Deposits on tooling....................................... 2,720,730 6,877,297
Equipment held for sale................................... -- 416,700
Other current assets...................................... 565,363 392,357
------------ ------------
Total current assets.............................. 23,493,428 47,478,852
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 377,242 1,624,443
Buildings................................................. 7,293,782 9,512,209
Machinery and equipment................................... 34,265,843 37,732,863
Less: accumulated depreciation............................ (12,950,756) (13,451,227)
------------ ------------
Property, plant and equipment, net..................... 28,986,111 35,418,288
------------ ------------
RECEIVABLE FROM AFFILIATES.................................. 390,000 464,451
------------ ------------
INTANGIBLE AND OTHER ASSETS, NET............................ 1,031,256 3,562,964
------------ ------------
Total assets...................................... $ 53,900,795 $ 86,924,555
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Checks drawn in excess of cash on deposit................. $ 644,864 $ 143,272
Customer deposits on tooling.............................. 3,141,118 7,411,548
Current portion of long-term obligations.................. 6,026,626 5,059,450
Accounts payable.......................................... 4,231,673 16,587,519
Accrued liabilities....................................... 3,976,622 5,505,943
------------ ------------
Total current liabilities......................... 18,020,903 34,707,732
------------ ------------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION............... 27,614,197 42,872,953
------------ ------------
DEFERRED INCOME TAXES....................................... -- 10,377
------------ ------------
DEFERRED GAIN............................................... -- 1,157,358
------------ ------------
COMMITMENTS AND CONTINGENCIES............................... -- --
MINORITY INTEREST........................................... 1,849,755 2,212,675
------------ ------------
PARTNERS' CAPITAL:
General partner........................................... 1,026,260 648,116
Limited partners.......................................... 5,389,680 5,312,848
Accumulated other comprehensive income.................... -- 2,496
------------ ------------
Total partners' capital........................... 6,415,940 5,963,460
------------ ------------
Total liabilities and partners' capital........... $ 53,900,795 $ 86,924,555
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-13
<PAGE> 126
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
NET SALES................................................... $90,875,746 $89,463,883 $116,947,000
COST OF SALES............................................... 73,909,450 72,961,380 97,086,199
----------- ----------- ------------
Gross profit.............................................. 16,966,296 16,502,503 19,860,801
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 8,300,503 7,189,649 10,757,773
TOOLING INCOME, NET......................................... (1,716,091) (706,947) (1,911,871)
MANAGEMENT AND CONSULTING FEE TO RELATED PARTIES............ 1,363,135 1,446,143 1,652,933
LOSS INCURRED ON CLOSURE OF FACILITY........................ -- -- 1,176,172
----------- ----------- ------------
Operating income.......................................... 9,018,749 8,573,658 8,185,794
INTEREST EXPENSE, NET....................................... 2,413,607 2,518,005 3,405,386
OTHER (INCOME) EXPENSE...................................... 119,727 50,307 (299,338)
MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARY............ -- (31,224) 434,555
----------- ----------- ------------
INCOME BEFORE TAXES......................................... 6,485,415 6,036,570 4,645,191
----------- ----------- ------------
PROVISION FOR INCOME TAXES
Current................................................... -- -- 72,279
Deferred.................................................. -- -- 10,343
----------- ----------- ------------
-- -- 82,622
----------- ----------- ------------
NET INCOME.................................................. $ 6,485,415 $ 6,036,570 $ 4,562,569
=========== =========== ============
PRO FORMA INFORMATION (UNAUDITED)
Provisions for Income Taxes............................... $ 2,594,000 $ 2,415,000 $ 2,531,000
Net Income................................................ $ 3,891,415 $ 3,621,570 $ 2,114,191
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 127
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET INCOME............................................. $6,485,415 $6,036,570 $4,562,569
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment.............. -- -- 2,496
---------- ---------- ----------
COMPREHENSIVE INCOME................................... $6,485,415 $6,036,570 $4,565,065
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 128
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
ACCUMULATED
OTHER COMPREHENSIVE
GENERAL PARTNER LIMITED PARTNERS INCOME TOTAL
--------------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994......... $ 2,105,043 $ 10,609,508 $ -- $ 12,714,551
Net income....................... 1,755,001 4,730,414 -- 6,485,415
Distributions.................... (3,773,869) (12,537,593) -- (16,311,462)
----------- ------------ ------- ------------
BALANCE, DECEMBER 31, 1995......... 86,175 2,802,329 -- 2,888,504
Net income....................... 1,671,224 4,365,346 -- 6,036,570
Distributions.................... (731,139) (1,777,995) -- (2,509,134)
----------- ------------ ------- ------------
BALANCE, DECEMBER 31, 1996......... 1,026,260 5,389,680 -- 6,415,940
Net income....................... 1,263,831 3,298,738 -- 4,562,569
Distributions.................... (1,641,975) (3,375,570) -- (5,017,545)
Translation adjustment........... -- -- 2,496 2,496
----------- ------------ ------- ------------
BALANCE, DECEMBER 31, 1997......... $ 648,116 $ 5,312,848 $ 2,496 $ 5,963,460
=========== ============ ======= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 129
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 6,485,415 $ 6,036,570 $ 4,562,569
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,417,590 4,148,148 5,399,573
Write-off of investment in affiliate.................... 300,000 -- --
(Gain) loss on disposal of fixed assets................. 119,727 50,307 (35,661)
Accrued loss on closure of facility..................... -- -- 1,060,604
Deferred income taxes................................... -- -- 10,343
Minority interest in subsidiary income (loss)........... -- (31,224) 434,555
Changes in assets and liabilities, net of assets
purchased:
Accounts receivable................................... (1,318,658) 3,300,726 (8,347,044)
Receivable from affiliates............................ (390,000) -- (74,451)
Inventories........................................... (350,539) 672,096 527,008
Other current assets.................................. (781,941) 938,771 181,065
Deposits on tooling................................... (3,245,354) 3,830,300 1,095,033
Other assets.......................................... -- (251,035) (359,124)
Accounts payable...................................... (924,669) (2,559,947) 3,805,343
Accrued liabilities................................... 1,535,307 (1,268,403) 84,746
Customer deposits on tooling.......................... 3,894,672 (4,066,305) (2,337,203)
Checks drawn in excess of cash on deposit............. (32,370) 2,261 (501,592)
------------ ------------ ------------
Total adjustments.................................. 3,223,765 4,765,695 (943,195)
------------ ------------ ------------
Net cash provided by (used in) operating activities... 9,709,180 10,802,265 5,505,764
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (2,775,589) (1,387,297) (6,561,692)
Proceeds on disposal of fixed assets...................... 222,947 57,765 267,530
Due from Lawson Mardon Packaging, Inc. ................... -- (110,609) 110,609
Purchase of assets of the Reliance division of Lawson
Mardon Packaging, Inc. ................................. -- (10,151,754) --
Purchase of Hanning....................................... -- -- (7,181,785)
Purchase of Somomeca, net of cash received................ -- -- (850,000)
------------ ------------ ------------
Net cash used in investing activities................. (2,552,642) (11,591,895) (14,215,338)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) revolving loan facility... $ (1,388,269) $ 200,375 $ 10,170,694
Proceeds from issuance of long-term obligations........... 14,267,877 9,597,130 12,513,382
Principal payments on long-term obligations............... (3,540,330) (7,581,902) (7,168,396)
Distributions............................................. (16,311,462) (2,509,134) (5,017,545)
Financing costs........................................... -- (251,032) (842,705)
Minority partner contributions to Reliance................ -- 1,880,979 --
Distributions to minority partners of Reliance............ -- -- (60,760)
------------ ------------ ------------
Net cash provided by (used in) financing activities... (6,972,184) 1,336,416 9,594,670
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES IN CASH..................... -- -- (33,928)
------------ ------------ ------------
NET CHANGE IN CASH.......................................... 184,354 546,786 851,168
------------ ------------ ------------
</TABLE>
(Continued)
F-17
<PAGE> 130
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD.............................. 146,753 331,107 877,893
------------ ------------ ------------
BALANCE AT END OF PERIOD.................................... $ 331,107 $ 877,893 $ 1,729,061
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 2,225,115 $ 2,822,910 $ 3,414,407
============ ============ ============
Cash paid for income taxes................................ $ -- $ -- $ 21,590
============ ============ ============
</TABLE>
Non-cash transaction:
During 1997, the Partnership incurred a payable to the former owners of
Hanning of $1,500,000 for the purchase of Hanning.
During 1997, the Partnership terminated a capital lease which resulted in a
reduction of debt by $2,503,226 and reduction of fixed assets by $1,205,254.
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
F-18
<PAGE> 131
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Moll PlastiCrafters Limited Partnership ("Moll" or the "Partnership") was
formed in July 1991 for the purpose of manufacturing and selling injection
molded plastic parts. Under the partnership agreement, the partnership is
scheduled to terminate on December 31, 2012. Moll operates manufacturing
facilities in the United States, Canada, Germany and the United Kingdom.
At December 31, 1997, Moll maintained investments in three wholly-owned
subsidiaries (Moll Industries, LLC; Moll PlastiCrafters UK, Ltd.; and Moll
PlastiCrafters, LLC) as well as a 69% ownership interest in Reliance Products
Limited Partnership.
Moll Industries, LLC ("Industries") was formed on December 30, 1997. At
December 31, 1997, Industries contained no operating activities.
Moll PlastiCrafters UK, Ltd. ("Moll UK") was formed in 1997 and contains
the United Kingdom operations of Hanning purchased in 1997 (see Note 3).
Moll PlastiCrafters, LLC ("Moll Germany") was formed in 1997 and contains
the German operations of Hanning purchased in 1997 (see Note 3).
Reliance Products Limited Partnership ("Reliance") was formed in 1996. Moll
owns a 69% limited partnership interest in Reliance through its holdings of
Class B partnership units (see Note 3). The minority partners of Reliance
contributed $1,880,979 to Reliance upon its formation. Reliance operates a
production facility in Canada. The Reliance partnership agreement establishes
priorities for allocations of income, as follows: first, to the holders of Class
A partnership units until each has received a 19.5% return on its unreturned
capital; second, to Moll and the general partner until each has received a 30%
return on its unreturned capital contribution; third, to the remaining holders
of Class B partnership units until each has received a 30% return on its
unreturned capital contribution and fourth, to each of the Class B partnership
unit holders in proportion to the number of units held (see Note 17).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Moll and its
majority owned subsidiaries (collectively, the "Partnership"). All significant
intercompany transactions and balances have been eliminated.
REVENUES AND ACCOUNTS RECEIVABLE
The Partnership's customers operate primarily in the home appliance,
business equipment and electronics industries. The Partnership generally grants
credit to customers on an unsecured basis. Revenues from sales are recognized at
the time products are shipped.
TOOLING
The Partnership enters into agreements with its customers to design and
produce certain customer owned plastic injection tooling (primarily molds).
Monies paid or received by the Partnership in connection with tooling that
remains undelivered at the end of an accounting period are included as Deposits
on Tooling or Customer Deposits on Tooling, respectively, in the accompanying
consolidated balance sheet. At the time of delivery of completed tooling, the
excess of revenues over costs incurred are recognized in the accompanying
consolidated statements of income as tooling revenue, net.
F-19
<PAGE> 132
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out (FIFO)
method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is valued at cost or allocated fair value at
time of acquisition. Depreciation is computed using the straight-line and
declining balance methods over the estimated useful lives of the assets, which
are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and building improvements................... 25
Machinery and equipment............................... 3-10
Furniture and fixtures................................ 10
Computer hardware and software........................ 3-10
Automobiles........................................... 3
</TABLE>
INTANGIBLE ASSETS
Loan costs are amortized over the term of the related loan using the
straight-line method. Organizational costs are amortized over five years using
the straight-line method. Covenants not to compete are amortized over the life
of the agreements using the straight-line method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership estimates the fair value of financial instruments using
quoted or estimated market prices based upon the current interest rate
environment and the remaining term to maturity. At December 31, 1997, there were
no material differences in the book values of the Partnership's financial
instruments and their related fair values.
INCOME TAXES
As Moll is a partnership, the earnings of Moll, including the earnings of
foreign subsidiaries attributable to Moll for United States income tax purposes,
are included in the tax returns of its partners. Accordingly, the consolidated
financial statements contain no provision for federal or state income taxes
related to these earnings.
The accompanying consolidated financial statements reflect provisions for
income taxes on a proforma basis as if the Partnership was liable for income
taxes as a corporate entity throughout the periods presented.
Certain of the Partnership's subsidiaries formed in 1997 are taxable
entities. The Partnership has accounted for income taxes for these subsidiaries
using the liability method which requires recognition of deferred tax assets and
liabilities for the expected future consequences of events that have been
included in the financial statements or income tax returns.
The Partnership's taxable subsidiaries have no significant differences
between its financial reporting and tax basis except for its property, plant and
equipment, for which a deferred tax liability has been reflected in the
accompanying consolidated balance sheet. The Partnership's taxable subsidiaries
incurred current foreign income tax expense of $72,279 in 1997.
PARTNER'S CAPITAL
The income of the Partnership is allocated to the partners based on their
respective ownership percentages. Amounts classified as partners' capital are
subject to distribution at the discretion of the partners;
F-20
<PAGE> 133
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
however, the amount of distributions is subject to limitations under certain of
the Partnerships' debt agreements (See Note 6).
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Partnership's foreign subsidiaries are
translated to U.S. dollars at current exchange rates, while revenues and
expenses are translated at the average exchange rate prevailing during the
period. Translation adjustments are recorded as a component of partners'
capital.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCRUED CLAIMS AND LITIGATION
The Partnership is partially self-insured for claims arising from public
liability, property damage, workers' compensation, and employee health benefits.
Excess insurance coverage is maintained for per-incident and cumulative
liability losses for these risks in amounts management considers adequate.
Amounts are accrued currently for the estimated cost of claims incurred,
including related expenses. Management considers the accrued liabilities for
unsettled claims to be adequate; however, there is no assurance that the amounts
accrued will not vary from the ultimate amounts incurred upon final disposition
of all outstanding claims. As a result, periodic adjustments to the reserves
will be made as events occur which indicate that changes are necessary.
LONG-LIVED ASSETS
When factors are present which indicate the cost of assets may not be
recovered, the Partnership evaluates the realizability of its long-lived assets,
based upon the anticipated future cash flows generated by the asset.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement is
effective for fiscal years beginning after December 15, 1997. The Partnership is
evaluating SFAS No. 131 to determine the impact, if any, on its reporting and
disclosure requirements.
F-21
<PAGE> 134
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
RELIANCE
Effective December 12, 1996, Reliance purchased the net assets of the
Reliance Division of Lawson Mardon Packaging, Inc. for cash of $10,151,754,
whose operations are located in Canada. The transaction has been accounted for
by the purchase method with the purchase price allocated based on the fair
values of the assets purchased and liabilities assumed, as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 2,153,935
Inventories................................................. 2,823,970
Prepaid expenses............................................ 68,495
Equipment................................................... 7,255,970
Liabilities assumed......................................... (2,150,616)
-----------
$10,151,754
===========
</TABLE>
HANNING
Effective August 8, 1997, Moll acquired a group of companies that had
previously been under common ownership ("Hanning"). The companies acquired, the
type of acquisition and the country of operations are as follows:
<TABLE>
<CAPTION>
TYPE OF COUNTRY OF
COMPANY ACQUISITION OPERATIONS
------- -------------------- --------------
<S> <C> <C>
Hanning Corporation............................ Assets United States
Hanning-Kunststoffe Beteilingungs-GmbH......... Stock Germany
Hanning-Kunststoffe GmbH & Co. ................ Partnership Interest Germany
Hanning Plastics, Ltd. ........................ Assets United Kingdom
Hanning Property Associates.................... Assets United States
PB Hanning GmbH & Co. ......................... Stock Germany
PB Hanning GmbH & Co. Handelsgesellschaft...... Partnership Interest Germany
</TABLE>
Moll paid $7,582,000 in cash and agreed to pay the sellers $1,500,000 over
four years. Additionally, Moll incurred expenses totaling approximately
$1,400,000 in connection with this acquisition. The purchase price is subject to
adjustment based on an evaluation of the assets purchased and liabilities
assumed which is currently in process. However, the purchase price, excluding
expenses, may not exceed $10,000,000.
F-22
<PAGE> 135
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition was accounted for using the purchase method of accounting.
The purchase price has been allocated to the assets acquired (net of $1,800,000
of assets which were distributed to partners of Moll) and liabilities assumed
based on information currently available as to their fair values as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 5,369,000
Inventories................................................. 5,790,000
Deposits on tooling......................................... 5,177,000
Prepaid expenses............................................ 140,000
Property, plant and equipment............................... 11,180,000
Other assets................................................ 21,000
Accounts payable............................................ (6,343,000)
Accrued liabilities and other current liabilities........... (2,270,000)
Customer deposits on tooling................................ (6,536,000)
Noncurrent liabilities...................................... (3,846,000)
-----------
$ 8,682,000
===========
</TABLE>
An evaluation of the acquired assets and liabilities is in progress. Upon
completion of the evaluation, net additions or reductions, if any, in the fair
values currently assigned will be credited or charged against long-term assets.
The results of operations of Reliance and Hanning have been included in the
consolidated financial statements since the effective date of each acquisition.
See Note 17 for unaudited pro forma information.
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets of the Partnership at December 31, 1996 and
1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Covenants not to compete................................... $ 1,740,678 $1,344,199
Acquisition costs on pending transactions.................. -- 1,065,778
Deposit on purchase of Somomeca............................ -- 850,000
Loan costs................................................. 455,060 842,705
Organization costs......................................... 327,108 --
Other...................................................... 226,055 456,513
----------- ----------
2,748,901 4,559,195
Less: accumulated amortization........................... (1,717,645) (996,231)
----------- ----------
$ 1,031,256 $3,562,964
=========== ==========
</TABLE>
5. INVENTORIES
Inventories of the Partnership at December 31, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Raw materials............................................. $ 4,696,804 $ 7,718,780
Work-in-progress.......................................... 999,307 1,413,502
Finished goods............................................ 5,656,377 7,614,110
Less: reserve for excess and obsolete inventory........... (810,749) (1,166,737)
----------- -----------
$10,541,739 $15,579,655
=========== ===========
</TABLE>
F-23
<PAGE> 136
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM OBLIGATIONS
Long-term obligations of the Partnership at December 31, 1996 and 1997
consist of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revolving loan facility with a bank that provided for
borrowings up to the lesser of $10,950,000 or the sum of
85% of eligible accounts receivable and 50% of eligible
inventories. Interest was payable monthly at the bank's
reference rate plus 0.5% (9.25% at December 31, 1997).
This revolving loan facility was refinanced on January 8,
1998...................................................... $ 200,375 $10,720,543
Revolving credit agreement under which the Partnership can
obtain up to $12,300,000 (Canadian dollars, approximately
$8,600,000 U.S. dollars at December 31, 1997) in loans.
Loans bear interest at either the lender's floating rate
plus 0.5% or at a IBOR based rate at the option of the
Partnership (5.98% at December 31, 1997). The available
loan amount decreases by approximately $73,000 monthly and
expires on December 11, 1999.............................. 6,448,021 5,809,071
Term note payable to a bank. Interest payable monthly at a
range of LIBOR plus 2% (7.94% at December 31, 1997) to
8.75%. This note was refinanced on January 8, 1998. ...... 20,941,652 24,598,000
Industrial Development Revenue Bonds, payable in annual
principal installments of $190,000 to $220,000 through
December 1, 1999. Interest is payable bi-annually at 8.25%
to 8.625%. ............................................... 635,000 440,000
Note payable to former owner of Quality Plastics Company,
Inc. in annual installments of $448,569 beginning October
7, 1996 with the remaining balance due October 7, 1999.
Interest is payable semi-annually at 9%. This note was
refinanced on January 8, 1998. ........................... 1,794,228 1,345,708
Payable to former owners of Hanning. The payable is
denominated in Deutsche Marks. Principle is payable in
three equal annual payments beginning August 1999.
Interest is due annually at 8%. .......................... -- 1,500,000
Mortgage payable in monthly installments of $28,486. The
mortgage expires on December 1, 2012. Interest is payable
at 8.40%. ................................................ -- 2,901,884
----------- -----------
Total long-term debt.............................. 30,019,276 47,315,206
----------- -----------
Capitalized equipment sublease obligation, interest on the
sublease is 9.5%. The debt was extinguished in June
1997...................................................... 2,806,133 --
Other capitalized equipment leases.......................... 815,414 617,197
----------- -----------
Total capitalized lease obligations (see Note
7)............................................. 3,621,547 617,197
----------- -----------
Total long-term obligations............................... 33,640,823 47,932,403
Less current portion...................................... (6,026,626) (5,059,450)
----------- -----------
$27,614,197 $42,872,953
=========== ===========
</TABLE>
F-24
<PAGE> 137
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amounts of all long-term obligations, excluding capital leases, to be
repaid for the years following December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................ $ 4,745,504
1999............................................ 10,239,904
2000............................................ 5,920,511
2001............................................ 5,931,032
2002............................................ 7,442,473
Thereafter...................................... 13,035,782
-----------
$47,315,206
===========
</TABLE>
DEBT REFINANCING
On January 8, 1997, the Partnership entered into a credit agreement
("Credit Agreement") with a group of lenders ("Lenders"), in which the Lenders
agreed to loan the Partnership $60,000,000 in term debt (under two equal
tranches) and make available a revolving credit facility of up to $10,000,000,
based on the level of eligible accounts receivable and inventory. The debt under
the Credit Agreement earns interest at a variable rate depending upon the market
rate and certain financial ratios of the Partnership. The effective interest
rate would have been approximately 8.25% if the debt had been outstanding at
December 31, 1997. Substantially all assets of the Partnership are pledged as
collateral on the Credit Agreement.
Tranche A and the revolving credit facility expire on December 31, 2003.
Tranche B expires on December 31, 2005. The term loans require varying,
quarterly principal payments beginning in 1998. These requirements have been
reflected in the debt maturities included above. Additionally, the Credit
Agreement requires prepayment of a portion of the term loans should the
Partnership generate a specified level of cash flows as defined in the Credit
Agreement. Any outstanding balance under the revolving credit facility is due at
expiration.
The Credit Agreement contains restrictions on the payment of dividends and
distributions, transactions with affiliated parties, purchase and sale of fixed
assets and limitations on the level of advances that can be made to certain
subsidiaries, among others. Additionally, it contains various financial
covenants, all of which the Partnership was in compliance with as of December
31, 1997.
The Partnership had deferred costs of $671,000 at December 31, 1997 related
to the previous credit agreement which will be expensed in 1998 in connection
with the refinancing.
LEASE RENEGOTIATION
On June 15, 1997, the Partnership renegotiated an agreement for the lease
of equipment. The terms of the original agreement required the lease to be
accounted for as a capital lease. However, the terms of the new agreement result
in the lease being accounted for as an operating lease. At the date of the
renegotiation, the difference between the net book value of the assets and the
related debt under the capital lease, $1,297,972, was reflected as a deferred
gain in the accompanying consolidated balance sheets at December 31, 1997.
F-25
<PAGE> 138
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS
The aggregate future minimum fixed lease obligations for the Partnership as
of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES - OPERATING
EQUIPMENT LEASES
---------------- ----------
<S> <C> <C>
1998..................................................... $362,732 $3,243,318
1999..................................................... 269,916 2,043,698
2000..................................................... 34,498 1,680,386
2001..................................................... 14,476 1,450,466
2002..................................................... 4,557 552,571
Thereafter............................................... -- 66,201
-------- ----------
Total minimum lease payments............................. 686,179 $9,036,640
==========
Less amounts representing interest....................... 68,982
--------
Present value of minimum capital lease payments.......... $617,197
========
</TABLE>
Total rent expense for the Partnership's operating leases was approximately
$1,375,000, $1,780,000 and $2,835,000 for 1995, 1996 and 1997, respectively.
8. RETIREMENT PLANS
The Partnership maintains profit-sharing plans covering substantially all
employees in the United States and Canada meeting the service requirements
defined in the plan. Under the provisions of the plans, employees may contribute
from 2% to 15% of their wages. The Partnership may make matching contributions
equal to a discretionary percentage, to be determined by the Partnership.
Matching contributions are subject to certain vesting requirements. The
Partnership contributed approximately $143,000, $165,000 and $233,000 to the
plans in 1995, 1996 and 1997, respectively.
9. RELATED PARTIES
At December 31, 1997, the Partnership has a note receivable of $390,000
from an individual with ownership interest in certain partners of Moll. The note
is payable in three equal annual installments beginning February 1, 1998 and
bears interest at 9%.
The Partnership pays management fees to certain related companies which are
limited in amount under the Partnership's debt agreements. Management fee
expense was approximately $1,363,000, $1,346,000 and $1,553,000 for 1995, 1996
and 1997, respectively. Of this amount, approximately $150,000 was recorded as
an accrued liability at December 31, 1997.
Under the terms of Moll's Partnership Agreement, effective September 1995,
Moll committed to pay consultant fees to a partner as defined in the Partnership
Agreement not to exceed $100,000 per year. The arrangement was for two years and
terminated in September 1997. Payments made in 1996 and 1997 were $100,000 per
year.
The Partnership leases land and buildings in Germany from an entity owned
by certain partners of the Partnership. The lease expires on August 7, 1998,
contains three automatic one year extensions and accrues rent at a rate of
790,000 Deutsche Marks ($439,000 per year based on the December 31, 1997
exchange rate). Payment of the accrued rent is subject to restrictions as
defined in the Credit Agreement (see Note 6). The Partnership recognized rent
expense of $176,000 in 1997, which is included in accounts payable at December
31, 1997.
F-26
<PAGE> 139
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. FACILITY CLOSURE
In September 1997, the Partnership closed its El Paso facility. The
expenses incurred in closing the facility are reflected as "Loss Incurred on
Closure of Facility" in the accompanying consolidated statements of income.
Liabilities and reserves of $1,061,000 are included in the accompanying December
31, 1997 consolidated balance sheet for anticipated future expenditures
primarily for lease payments and losses on equipment and inventory related to
the closure. These losses are expected to be realized within twelve months of
the closure and were determined based on the terms of contracts to which the
Partnership is a party. Equipment from the El Paso facility that was disposed of
in February 1998 is included in the accompanying consolidated balance sheets as
"Equipment Held for Sale" at its net realized value.
11. MAJOR CUSTOMERS
Customers which represented in excess of 10% of sales were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customers A................................................. 46% 50% 35%
Customers B................................................. N/A N/A 10%
</TABLE>
In addition, approximately 49% and 61% of the Partnership's total accounts
receivable at December 31, 1996 and 1997 were from these customers. Management
believes the credit risk associated with these customers is minimal.
12. CONTINGENCIES
The Partnership is a party to various lawsuits and claims in the normal
course of business. While the outcome of the lawsuits and claims against the
Partnership cannot be predicted with certainty, management believes that the
ultimate resolution of the matters will not have a material effect on the
financial position or results of operations of the Partnership.
13. SEGMENT INFORMATION
The Partnership operates in one industry segment. The following table
presents sales and other financial information by geographic region for the
years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net sales:
United States............................ $90,875,746 $89,035,929 $ 87,584,479
Canada................................... -- 427,954 17,383,250
Europe................................... -- -- 11,979,271
----------- ----------- ------------
Total net sales.................. $90,875,746 $89,463,883 $116,947,000
=========== =========== ============
Operating income:
United States............................ $ 9,018,749 $ 8,626,800 $ 8,306,464
Canada................................... -- (53,142) 1,551,115
Europe................................... -- -- (1,671,785)
----------- ----------- ------------
Total operating income........... $ 9,018,749 $ 8,573,658 $ 8,185,794
=========== =========== ============
</TABLE>
F-27
<PAGE> 140
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Identifiable assets:
United States............................ $51,287,835 $41,502,714 $ 60,529,356
Canada................................... -- 12,590,288 12,353,975
Europe................................... -- -- 15,146,654
Eliminations............................. -- (192,207) (1,105,430)
----------- ----------- ------------
Total assets..................... $51,287,835 $53,900,795 $ 86,924,555
=========== =========== ============
Depreciation and amortization:
United States............................ $ 4,417,590 $ 4,087,803 $ 3,819,324
Canada................................... -- 60,345 1,158,082
Europe................................... -- -- 422,167
----------- ----------- ------------
Total............................ $ 4,417,590 $ 4,148,148 $ 5,399,573
=========== =========== ============
Capital expenditures:
United States............................ $ 2,775,589 $ 1,387,297 $ 5,965,381
Canada................................... -- -- 531,633
Europe................................... -- -- 64,678
----------- ----------- ------------
Total............................ $ 2,775,589 $ 1,387,297 $ 6,561,692
=========== =========== ============
</TABLE>
14. SOMOMECA ACQUISITION
Effective January 8, 1998, Industries, through its subsidiaries, purchased
100% of the outstanding shares of Somomeca Industries S.A.R.L. ("Somomeca").
Somomeca's operations are located primarily in France. Somomeca incurred a net
loss before taxes of $363,000 on revenues of $84,926,000 in their fiscal year
ended August 31, 1997. The Partnership paid $12,587,000 net of cash received and
assumed $68,377,000 of liabilities in the acquisition. The stock purchase
agreement allows for a reduction of the purchase price if the stockholders'
equity of Somomeca at the closing date is less than the similar amount on
February 28, 1997. An evaluation of the stockholders' equity at the closing date
is currently in process. Additionally, the stock purchase agreement requires the
payment of additional consideration of up to 13,000,000 French Franc ($2,135,000
at December 31, 1997 exchange rates) should Somomeca achieve specified operating
results for the twelve months ending August 31, 1998. See Note 17 for unaudited
pro forma information.
As discussed in Note 1, during 1997 and at December 31, 1997, Industries
did not contain any assets, liabilities, or operations. In the future, the
members of Industries, excluding Moll, are entitled to all distributions made by
Industries which are attributable to a) any distribution received by Industries
from any direct or indirect subsidiary organized under the laws of France (the
"French Companies") and b) proceeds from the sale or other disposition of the
equity interests in any of the French Companies.
Secondly, a member of Industries is entitled to a distribution equal to 5%
of the debt service paid to Industries by the French Companies on the initial
acquisition loan (agreed to be $13,000,000). However, no amount shall be paid
unless the manager of Industries concludes that the liquidation of Industries
would result in aggregate distributions to Moll that are in excess of the
acquisition debt amount.
Thirdly, a member of Industries is entitled to a distribution if
indebtedness of the French Companies to Industries exceeds $40 million. The
amount of the distribution equals 5% of the debt service on the indebtedness in
excess of $40 million.
Moll is entitled to all other distributions of Industries.
F-28
<PAGE> 141
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES
The Partnership's foreign subsidiaries, Moll Industries Germany GmbH and
Moll Industries UK, Limited (formerly companies in the Hanning Companies), are
each wholly-owned subsidiaries of the Partnership. Each of these entities has
fully and unconditionally guaranteed the otherwise unsecured $100,000,000 of
11 3/4% Senior Notes due 2004 issued by Anchor Advanced Products, Inc.
("Anchor") and assumed by the Partnership (See Note 17). As such, these entities
are subject to the reporting requirements under Section 13 or 15(d) of the
Securities Act of 1934. Combined financial information relating to these
entities since the date of their acquisition is presented herein in accordance
with Staff Accounting Bulletin No. 53 as an addition to the notes to the
consolidated financial statements of the Partnership. Summarized combined
financial information for the Partnership's foreign subsidiaries is as follows:
Statement of Income Data:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net sales................................................... $11,979,000
Gross margin................................................ (740,000)
Income (loss) from operations............................... (1,671,000)
Net loss.................................................... (1,607,000)
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Current assets.............................................. $9,528,000
Total assets................................................ 17,591,000
Current liabilities......................................... 19,054,000
Total liabilities........................................... 19,089,000
Partners' deficit........................................... (1,498,000)
</TABLE>
16. OTHER COMPREHENSIVE INCOME
The Partnership has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, which requires the reporting of
comprehensive income in addition to net income. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
Information with respect to the accumulated other comprehensive income
balance is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Beginning balance........................................... $ -- $ -- $ --
Current period change in foreign currency translation....... -- -- 2,496
----- ----- ------
$ -- $ -- $2,496
===== ===== ======
</TABLE>
17. SUBSEQUENT EVENT AND PRO FORMA INFORMATION
Effective June 26, 1998, the Partnership completed a series of transactions
as follows:
(i) the distribution by the Partnership of its 69% Class B limited
partnership interest in Reliance to certain of Moll's limited partners,
F-29
<PAGE> 142
MOLL PLASTICRAFTERS LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ii) the merger of Moll into Anchor in exchange for common shares of
AMM Holdings, Inc. ("Holdings"--Anchor's parent), to form Moll Industries,
Inc.,
(iii) the issuance by Moll Industries, Inc. of $130,000,000 of 10.5%
Senior Subordinated Notes due 2008,
(iv) the acquisition of Gemini Plastic Services, Inc. for cash of
$10,186,000, and
(v) a capital contribution by AMM Holdings Inc. into Moll Industries,
Inc. of $2,000,000.
The following unaudited statement of income data gives effect to these
transactions as well as the acquisitions of Hanning and Somomeca as if they had
occurred at the beginning of the respective periods.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Net sales............................................... $421,683,000 $414,630,000
------------ ------------
Operating income........................................ $ 30,538,000 $ 30,458,000
------------ ------------
Income before taxes and extraordinary item.............. $ 3,668,000 $ 4,322,000
------------ ------------
</TABLE>
F-30
<PAGE> 143
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Anchor Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Anchor
Holdings, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Anchor
Holdings, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 20, 1998
F-31
<PAGE> 144
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,578 $ 6,914
Accounts receivable, less allowance for doubtful accounts,
allowances, and returns of $998 in 1996 and $900 in
1997................................................... 21,400 15,574
Inventories............................................... 20,411 23,292
Prepaid expenses and other assets......................... 198 195
Refundable federal income taxes........................... 448 1,232
Deferred income taxes..................................... 2,023 2,080
-------- --------
Total current assets.............................. 46,058 49,287
Property, plant, and equipment, net......................... 52,723 53,202
Goodwill, net............................................... 10,395 9,569
Other assets, net........................................... 6,087 8,781
-------- --------
$115,263 $120,839
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term liabilities............... $ 6,000 $ 832
Current maturities of obligations under capital leases.... 480 382
Accounts payable.......................................... 6,120 6,119
Other accrued expenses and current liabilities............ 5,995 8,059
-------- --------
Total current liabilities......................... 18,595 15,392
Long-term debt, less current maturities..................... 44,702 100,000
Related party long-term debt................................ 21,000 --
Accrued pension liability................................... 4,957 6,019
Deferred income taxes....................................... 2,906 1,542
Other long-term liabilities................................. 2,286 725
-------- --------
Total liabilities................................. 94,446 123,678
-------- --------
Commitments and contingencies (Notes 6, 7, 10, and 12)
Stockholders' equity (deficit):
Common stock--par value $.01 per share; authorized 2,000
shares; shares issued 1,018 and 1,551, respectively.... 10 15
Additional paid-in capital................................ 10,240 --
Retained earnings (deficit)............................... 11,145 (2,323)
Additional pension liability, net of tax of $348 in 1996
and $319 in 1997....................................... (568) (521)
Treasury stock at cost.................................... (10) (10)
-------- --------
Total stockholders' equity (deficit).............. 20,817 (2,839)
-------- --------
$115,263 $120,839
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 145
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, TWENTY-SIX WEEKS ENDED
-------------------------------- JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $149,366 $156,858 $161,161 $84,745 $75,810
Cost of goods sold................ 125,028 129,221 135,974 71,321 67,632
-------- -------- -------- ------- -------
Gross profit...................... 24,338 27,637 25,187 13,424 8,178
Amortization expense.............. 1,662 1,530 1,698 665 729
Selling, general and
administrative expense.......... 9,409 11,358 10,979 5,490 5,946
-------- -------- -------- ------- -------
Operating income.................. 13,267 14,749 12,510 7,269 1,503
-------- -------- -------- ------- -------
Other income (expense):
Gain (loss) on disposal of fixed
assets....................... 23 (123) (62) (49) (45)
Interest expense, net........... (5,463) (4,931) (10,098) (4,982) (6,026)
Interest expense, related
party........................ (3,153) (3,193) (1,067) --
Other, net...................... (997) (285) 349 (38) (57)
-------- -------- -------- ------- -------
Total other expense,
net................... (9,590) (8,532) (10,878) (5,069) (6,128)
-------- -------- -------- ------- -------
Income (loss) before income taxes
and extraordinary item.......... 3,677 6,217 1,632 2,200 (4,625)
Provision (benefit) for income
taxes........................... 1,239 2,591 794 800 (1,392)
-------- -------- -------- ------- -------
Income (loss) before extraordinary
item............................ 2,438 3,626 838 1,400 (3,253)
Extraordinary item--loss on early
extinguishment of debt, net of
tax benefit of $742............. -- -- (1,210) (1,210) --
-------- -------- -------- ------- -------
Net income (loss)............ $ 2,438 $ 3,626 $ (372) $ 190 $(3,253)
======== ======== ======== ======= =======
Earnings per share:
Basic Income (loss) before
extraordinary item........... $ 2.39 $ 3.56 $ 0.59 $ 1.09 $ (2.08)
Extraordinary item........... 0.00 0.00 (0.85) (0.94) --
-------- -------- -------- ------- -------
Income (loss)................ $ 2.39 $ 3.56 $ (0.26) $ 0.15 $ (2.08)
======== ======== ======== ======= =======
Weighted average common
shares outstanding......... 1,018 1,018 1,418 1,280 1,551
======== ======== ======== ======= =======
Diluted Income (loss) before
extraordinary item........... $ 1.87 $ 2.65 $ 0.59 $ 1.09 $ (2.08)
Extraordinary item........... 0.00 0.00 (0.85) (0.94) --
-------- -------- -------- ------- -------
Income (loss)................ $ 1.87 $ 2.65 $ (0.26) $ 0.15 $ (2.08)
======== ======== ======== ======= =======
Weighted average common shares
and assumed conversions
outstanding.................. 1,306 1,370 1,418 1,280 1,551
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 146
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
--------------------
JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
------ ------ ----- -------- --------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS)............................ $2,438 $3,626 $(372) $190 $(3,233)
OTHER COMPREHENSIVE INCOME
Additional Pension Liability............... (96) (72) 47 -- --
------ ------ ----- ---- -------
COMPREHENSIVE INCOME (LOSS).................. $2,342 $3,550 $(325) $190 $(3,233)
====== ====== ===== ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 147
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL RETAINED ADDITIONAL
SHARES PAID-IN EARNINGS TREASURY PENSION
ISSUED AMOUNT CAPITAL (DEFICIT) STOCK LIABILITY TOTAL
------ ------ ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994...... 1,018 $10 $ 10,240 $ 5,081 $ -- $(400) $ 14,931
Net income.................... -- -- -- 2,438 -- -- 2,438
Additional pension
liability.................. -- -- -- -- -- (96) (96)
Treasury stock acquired,
242.13 shares.............. -- -- -- -- (10) -- (10)
----- --- -------- -------- ---- ----- --------
BALANCE, December 31, 1995...... 1,018 10 10,240 7,519 (10) (496) 17,263
Net income.................... -- -- -- 3,626 -- -- 3,626
Additional pension
liability.................. -- -- -- -- -- (72) (72)
----- --- -------- -------- ---- ----- --------
BALANCE, December 31, 1996...... 1,018 10 10,240 11,145 (10) (568) 20,817
Net loss...................... -- -- -- (372) -- -- (372)
Exercise of warrants and
options.................... 533 5 5,061 -- -- -- 5,066
Dividend paid................. -- -- (15,301) (14,203) -- -- (29,504)
Tax benefit of exercise of
warrants and options....... -- -- -- 1,107 -- -- 1,107
Reduction of pension
liability.................. -- -- -- -- -- 47 47
----- --- -------- -------- ---- ----- --------
BALANCE, December 31, 1997...... 1,551 $15 $ -- $ (2,323) $(10) $(521) $ (2,839)
===== === ======== ======== ==== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 148
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDING
YEARS ENDED DECEMBER 31, -------------------------
------------------------------ JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ 2,438 $ 3,626 $ (372) $ 190 $(3,233)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Deferred income taxes................. 60 296 (1,421) 358 53
Depreciation and amortization......... 9,768 9,605 9,891 4,734 5,254
Provision for doubtful accounts....... 356 20 (98) 92 96
Provision for inventory
obsolescence........................ 450 (266) 287 125 28
(Gain) loss from disposal of fixed
assets.............................. (23) 123 62 49 62
Write off of debt issue costs -- -- 701 701 --
Changes in assets and liabilities:
Accounts receivable................. (1,361) 337 5,924 1,017 1,358
Inventories......................... (3,909) 794 (3,169) (446) 883
Prepaid and other assets............ (1,634) (1,798) 3 1,306 283
Refundable federal income taxes..... 154 (32) (784) (654) (918)
Accounts payable, accrued expense
and other liabilities............ 2,523 371 5,013 (1,595) (2,501)
-------- -------- -------- -------- -------
Net cash provided by (used in)
operating activities........... 8,822 13,076 16,037 5,877 1,365
-------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment............................. (6,932) (8,028) (8,413) (3,481) (4,416)
Proceeds from sale of fixed assets....... 479 14 -- -- --
Purchase of other long-term assets....... -- -- (434) -- --
Payments made for Parent Company......... -- -- -- -- (2,769)
-------- -------- -------- -------- -------
Net cash used in investing
activities..................... (6,453) (8,014) (8,847) (3,481) (7,185)
-------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt............. 9,886 8,647 101,529 101,529 --
Principal payments on long-term debt..... (12,569) (12,435) (73,231) (73,231) (101)
Principal payments on capital lease
obligations........................... (588) (480) (623) (265) (154)
Exercise of options and warrants......... -- -- 5,066 5,066 --
Payments of dividends.................... -- -- (29,504) (29,504) --
Proceeds (payments) from other long-term
liabilities........................... 1,016 -- (939) -- (32)
Shares acquired in treasury.............. (10) -- -- -- --
Payment of bond issue costs.............. -- -- (4,152) (3,839) --
Checks written in excess of bank
balances.............................. -- -- -- -- 287
Payments on other liabilities............ -- -- -- -- --
-------- -------- -------- -------- -------
Net cash (used in) provided by
financing activities........... (2,265) (4,268) (1,854) (244) --
NET INCREASE (DECREASE) IN CASH............ 104 794 5,336 2,152 (5,820)
CASH AT BEGINNING OF PERIOD................ 680 784 1,578 1,578 6,914
-------- -------- -------- -------- -------
CASH AT END OF PERIOD...................... $ 784 $ 1,578 $ 6,914 $ 3,730 $ 1,094
======== ======== ======== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refund received)...... $ 1,243 $ 1,945 $ 661 $ 609 $ (968)
Interest paid............................ $ 8,172 $ 7,799 $ 9,701 $ 4,751 $ 5,944
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 149
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
Anchor Holdings, Inc. (the "Company") was incorporated March 9, 1990, under
the laws of the State of Delaware. The Company's subsidiaries manufacture and
sell: brushes used in medical and dental applications; plastic and metal
packaging for the cosmetics industry; and molded plastics products, including
assembly of plastic parts and construction of molds used in the injection
molding business. Substantially all sales are made on credit without collateral.
The Company manufactures dental products in the Morristown, Tennessee facility
and cosmetics products in three facilities: Matamoros, Mexico; Morristown,
Tennessee; and Waterbury, Connecticut. The majority of the cosmetics goods are
produced in a Matamoros facility. Molded plastics products are produced in four
separate plants in Seagrove, North Carolina as well as in a facility in Round
Rock, Texas. In addition to the manufacturing facilities, the Company operates
mold technology centers in Elk Grove, Illinois and Sanford, North Carolina.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company and its
subsidiaries in the presentation of their consolidated financial statements are
summarized below:
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Anchor Holdings, Inc. the
parent holding company, its wholly owned subsidiaries Anchor Advanced Products
Foreign Sales Corporation and Anchor Advanced Products, Inc., and its Mexican
subsidiary, Cepillos de Matamoros, S.A. de C.V. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers investments with a maturity 90 days or less when
purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using standard costs which approximate the first-in, first-out method. Valuation
allowances are provided for adjustments related to carrying costs in excess of
estimated market value and potential obsolescence.
PROPERTY, PLANT, EQUIPMENT, AND DEPRECIATION
Property, plant, and equipment are recorded at cost. Assets under capital
leases are stated at the present value of minimum lease payments at the
inception of the lease. Depreciation and amortization are provided on the
straight-line basis over the estimated useful lives of the various properties as
follows:
<TABLE>
<S> <C>
Building and improvements....................... 30 years
Machinery and equipment......................... 10 years
Furniture and fixtures.......................... 10 years
Other........................................... 4-6 years
</TABLE>
INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets represent goodwill, organizational expenses, loan costs,
and costs allocated to noncompete agreements arising principally from the
acquisition of the Company in 1990, and the acquisition of the assets of
Mid-State Plastics, Inc. in 1994. These assets are carried at cost and amortized
on a straight-line basis over their estimated useful lives ranging between two
and fifteen years.
F-37
<PAGE> 150
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PENSION PLANS
Pension costs for defined benefit plans are determined in accordance with
Statement of Financial Accounting Standard No. 87, and include current costs
plus the amortization of transition assets over a period of 21 years. The
Company funds pension costs in accordance with the plans and legal requirements.
The Company also has a defined contribution savings plan for all domestic
employees for which it matches one-half of employee contributions up to six
percent of employee compensation.
INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between the financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
EARNINGS (LOSS) PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share. The standard replaces the
presentation of primary EPS with a presentation of basic EPS and replaces the
presentation of fully diluted EPS with diluted EPS. Basic income per share is
computed by dividing net income by the weighted average number of shares of
common stock outstanding. Diluted income per share is computed by dividing net
income by the weighted average number of shares of common stock and, dilutive
securities outstanding during the respective periods. Dilutive securities
represented by options and warrants outstanding have been included in the
computation. The Company uses the treasury stock method for calculating the
dilutive effect of options and warrants.
RECLASSIFICATIONS
Reclassifications have been made to certain previously reported amounts in
order to conform with the current year's presentations.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Significant estimates of the Company include the allowance
for doubtful accounts, inventory obsolescence reserves and certain self-insured
retained risks. Actual results could differ from these estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, which i) requires that long-lived assets to be held and used be
reviewed for impairment whenever events or circumstances indicate that the
carrying value of an asset may not be recoverable, ii) requires that long-lived
assets to be disposed of be reported at the lower of the carrying amount or the
fair value less costs to sell, and iii) provides guidelines and procedures for
measuring impairment losses that are different from previously existing
guidelines and procedures.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective December 31, 1997, the Company implemented Statement of Financial
Accounting Standards No. 129, Disclosure of Information about Capital Structure.
The Statement consolidates disclosures required
F-38
<PAGE> 151
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
by several existing pronouncements regarding an entity's capital structure. The
Company's disclosures are already in compliance with such pronouncements and,
accordingly, SFAS No. 129 does not require any change to existing disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement is
effective for fiscal years beginning after December 31, 1997. In the initial
year of application, comparative information for earlier years is to be
restated. The Company is evaluating SFAS No. 131 to determine the impact, if
any, on its reporting and disclosure requirements.
During February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. The Statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The Statement is effective
for fiscal years beginning after December 15, 1997. Restatement of disclosures
for earlier periods for comparative purposes is required. The Company is
evaluating SFAS No. 132 to determine the impact on its reporting and disclosure
requirements.
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement required that derivatives and hedges be
valued at their fair value and establishes standards for the recognition of
changes in fair value. The Statement is effective for periods beginning after
June 15, 1999. The Company is evaluating SFAS No. 133 to determine the impact,
if any, on its reporting and disclosure requirements.
2. INVENTORIES
Inventories at December 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................ $ 9,508 $12,026
Work in process.......................................... 6,254 6,306
Finished goods........................................... 5,954 6,553
------- -------
21,716 24,885
Less valuation allowances................................ (1,305) (1,593)
------- -------
$20,411 $23,292
======= =======
</TABLE>
F-39
<PAGE> 152
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Land..................................................... $ 1,254 $ 1,254
Buildings and improvements............................... 17,019 17,906
Machinery and equipment.................................. 70,383 74,406
Furniture and fixtures................................... 3,331 3,997
Leasehold improvements................................... 938 132
Vehicles................................................. 140 119
------- -------
93,066 97,814
Less accumulated depreciation and amortization........... (40,737) (48,343)
------- -------
52,329 49,471
Construction in progress................................. 394 3,731
------- -------
$52,723 $53,202
======= =======
</TABLE>
Depreciation and amortization of property, plant and equipment was $7,787,
$7,756 and $7,875 for the years ended December 31, 1995, 1996 and 1997,
respectively.
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets at December 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1996 1997
------------ ------- -------
<S> <C> <C> <C>
Intangible assets:
Grant fees........................................ 3 years $ 87 $ 87
Organizational expenses........................... 5-10 years 1,539 1,539
Loan costs........................................ 5 years 1,596 1,596
Noncompete agreement.............................. 3-5 years 1,250 250
Supply contract................................... 65 months 1,000 1,000
Acquisition costs................................. 5 years 1,043 1,043
Goodwill.......................................... 15 years 12,392 12,392
Intangible pension asset.......................... 37 years 2,004 2,004
Bond issue costs.................................. 7 years -- 4,152
------- -------
20,911 24,063
Less accumulated amortization..................... (6,551) (8,383)
------- -------
14,360 15,680
Other assets:
Cash value of life insurance...................... 2,105 2,670
Other assets...................................... 17 --
------- -------
$16,482 $18,350
======= =======
</TABLE>
Amortization expense related to intangibles totaled $1,662, $1,530 and
$2,398 for the years ended December 31, 1995, 1996 and 1997, respectively. The
1997 amortization expense includes a write-off of $700 associated with loan
costs which is included in the extraordinary loss and also includes a write-off
of $49
F-40
<PAGE> 153
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
associated with a noncompete agreement. Amortization of loan fees that were
charged to interest expense totaled $319, $319 and $319 for the years ended
December 31, 1995, 1996 and 1997, respectively.
The intangible pension asset represents prior service cost related to the
supplemental executive retirement plan and relates to the unrecognized net
obligation at the date of initial application as described in Note 7.
5. LONG-TERM DEBT
On April 2, 1997, Anchor Advanced Products, Inc. issued $100,000 of 11 3/4%
Senior Notes due 2004 (the "Senior Notes"). The Company has guaranteed the
Senior Notes fully and unconditionally. The net proceeds from the sale of the
Senior Notes was $96.6 million (after deducting discounts, commissions, fees and
expenses thereof) and were used: (i) to repay in full $51.5 million in
borrowings under the Revolving Credit and Term Loan Agreement, including all
accrued interest and fees payable upon such prepayment, (ii) to pay $22.3
million to redeem $9.0 million aggregate principal amount of Senior Subordinated
Notes and $12.0 million aggregate principal amount of Junior Subordinated Notes,
each due April 30, 2000, and (iii) to pay $22.8 million of a $29.5 million
dividend on the Company's common stock. All of the outstanding 380,000 warrants
and 153,300 options were exercised prior to the payment of the dividend. The
Company also entered into a credit facility which provided for revolving loans
not to exceed $15.0 million. The proceeds from the exercise of the warrants and
options and an additional borrowing of $1.5 million under the credit facility
were used to supplement the total dividend payment. The Company had no
outstanding debt under the credit facility as of December 31, 1997.
Long-term debt at December 31, 1996 and 1997, consists of:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Borrowings under revolving credit agreement; floating rates
(a)....................................................... $15,952 $ --
Term note; floating rates(b)................................ 34,750 --
Senior subordinated notes, due April 30, 2000(c)............ 9,000 --
Junior subordinated notes due April 30, 2000(c)............. 12,000 --
Senior notes due April 1, 2004(d)........................... -- 100,000
------- --------
71,702 100,000
Less current maturities..................................... (6,000) --
------- --------
$65,702 $100,000
======= ========
</TABLE>
- ------------------------------
(a) This revolving credit agreement provided a number of options for variable
rate borrowings subject to potential limitations based on percentages of
inventories, receivables and outstanding letters of credit. The agreement
was paid in full during 1997.
(b) This term note was paid in full during 1997.
(c) This senior and junior subordinated debt was payable to certain stockholders
and was paid in full during 1997.
(d) This debt is payable to note holders, subsequent to a public debt offering
in 1997. Interest is paid semiannually on April 1 and October 1 at a fixed
rate of 11.75%. The Senior Notes mature on April 1, 2004, at which time the
full principal amount is due.
The Senior Notes contain restrictions on, among other things, change of
controlling interest or sale of the Company, payment of cash dividends,
redemption of capital stock, creation of liens on assets, acquisition or sale of
subsidiaries, issuance of additional debt, purchases of investments,
consolidating or selling substantially all assets, transaction with related
parties and so-called "junior" payments. The Company was in compliance with
these covenants at December 31, 1997.
F-41
<PAGE> 154
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES
The Company leases a warehouse, land, and certain equipment under capital
leases that expire on various dates through December 2000. The net book value of
buildings, land, and equipment recorded under capital leases at December 31,
1996 and 1997, was $1,594 and $1,240, respectively. Amortization of assets held
under capital leases is included with depreciation expense.
The Company also has a noncancellable operating lease for two facilities
which requires the Company to pay all executory costs such as maintenance,
taxes, and insurance.
Future minimum lease payments under noncancellable operating leases with
initial or remaining lease terms in excess of one year and the present value of
future minimum capital lease payments as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending December 31:
1998...................................................... $ 438 $279
1999...................................................... 47 199
2000...................................................... -- 115
2001...................................................... -- 57
Thereafter.................................................. -- --
----- ----
Total minimum lease payments...................... 485 $650
====
Less amounts representing interest (at rates ranging from
10% to 11.7%)............................................. 62
-----
Present value of net minimum capital lease payments....... 423
Less current maturities of obligations under capital
leases.................................................... 382
-----
Obligations under capital leases excluding current
installments........................................... $ 41
=====
</TABLE>
Total rent expense for operating leases for the years ended December 31,
1995, 1996 and 1997 was $1,201, $1,779 and $943, respectively.
7. EMPLOYEE BENEFIT PLANS
The Company sponsors pension plans covering substantially all domestic
employees. Plans covering domestic salaried employees provide benefits that are
based on an employee's years of service and compensation during the five-year
period prior to retirement. The plan covering domestic hourly employees provides
benefits of stated amounts based on an employee's years of service. Annually,
the Company contributes to the plans covering domestic employees such amounts
which are actuarially determined to provide the plans with sufficient assets to
meet future benefit payment requirements. Foreign executives and employees are
covered by fully funded programs as legally required.
F-42
<PAGE> 155
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status of the Company's domestic
defined benefit pension plans and related amounts recognized in the Company's
consolidated balance sheets at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
SALARY HOURLY SALARY HOURLY
------ ------ ------ ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Benefit obligations:
Vested........................................ $ 987 $1,901 $1,192 $2,194
Nonvested..................................... 58 41 72 105
------ ------ ------ ------
Accumulated benefit obligation................ $1,045 $1,942 $1,264 $2,299
====== ====== ====== ======
Projected benefit obligation for service rendered
to date.......................................... $1,756 $1,942 $2,142 $2,299
Plan assets at estimated fair value................ 1,419 1,732 1,782 2,296
------ ------ ------ ------
Excess of projected benefit obligation over plan
assets........................................... (337) (210) (360) (3)
Unrecognized transition amount..................... 488 7 458 6
Unrecognized prior service cost.................... -- 110 -- 104
Unrecognized net (gain) loss....................... (523) 916 (531) 841
Unrecognized net obligation........................ -- (1,033) -- (951)
------ ------ ------ ------
Accrued (prepaid) pension cost................ $ (372) $ 210 $ (433) $ 3
====== ====== ====== ======
</TABLE>
Plan assets consist of cash and temporary investments.
Net pension cost for the years ended December 31, 1995, 1996 and 1997
included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
SALARY HOURLY SALARY HOURLY SALARY HOURLY
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during
the period........................... $184 $168 $199 $182 $209 $197
Interest cost on projected benefit
obligation........................... 106 109 130 131 170 155
Estimated/actual return on plan
assets............................... (87) (111) (158) 14 (148) (266)
Net amortization and deferral.......... 22 38 84 (99) 12 150
---- ---- ---- ---- ---- ----
Net pension cost..................... $225 $204 $255 $228 $243 $236
==== ==== ==== ==== ==== ====
</TABLE>
Assumptions used in accounting for the pension plans as of December 31,
1995, 1996 and 1997 were:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
SALARY HOURLY SALARY HOURLY SALARY HOURLY
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Discount rate.......................... 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Rate of increase in compensation
levels............................... 4.0% N/A 3.9% N/A 3.9% N/A
Expected long-term rate of return on
assets............................... 8.0% 9.0% 8.0% 9.0% 8.0% 8.0%
</TABLE>
In 1991, the Company entered into agreements with certain key executive
officers, providing for supplemental payments upon retirement, disability, or
death. The Company purchased life insurance policies to fund the liability under
these agreements, which also provide death benefits to the Company. The
following
F-43
<PAGE> 156
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
table sets forth the status of the supplemental executive retirement plan (SERP)
and related amounts recognized in the Company's consolidated balance sheets at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit
obligation--nonvested.................................. $ 4,263 $ 5,069
======= =======
Projected benefit obligation for services rendered to
date................................................... $ 7,401 $ 7,993
Plan assets.............................................. -- --
------- -------
Excess of projected benefit obligations over plan
assets.............................................. (7,401) (7,993)
Unrecognized transition amount........................... 4,746 4,401
Unrecognized net obligation at date of initial
application............................................ (1,608) (1,477)
------- -------
Accrued pension cost................................... $(4,263) $(5,069)
======= =======
</TABLE>
The Company intends to fund the plan through Company-owned life insurance,
which has a cash value of $2,670 at December 31, 1997; however, the insurance
policies are not considered plan assets for accounting purposes.
Net pension cost for the SERP for the years ended December 31, 1995, 1996
and 1997 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the period............. $221 $431 $465
Interest cost on projected benefit obligations.............. 246 284 341
Net amortization............................................ 131 130 131
---- ---- ----
$598 $845 $937
==== ==== ====
</TABLE>
The Company also sponsors defined contribution savings plans for
substantially all domestic employees. Contributions for the years ended December
31, 1995, 1996 and 1997, approximated $456, $492 and $532, respectively.
Pension costs for the foreign subsidiary amounted to approximately $582,
$654 and $599 for the years ended December 31, 1995, 1996 and 1997,
respectively.
8. INCOME TAXES
The provision for income taxes for the years ended December 31, 1995, 1996
and 1997 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Federal tax:
Current................................................ $ 939 $2,065 $1,284
Deferred............................................... 57 197 (985)
State:
Current................................................ 32 52 197
Deferred............................................... 3 99 (212)
Foreign tax.............................................. 208 178 510
------ ------ ------
Total tax expense attributable to continuing
operations............................................. $1,239 $2,591 $ 794
====== ====== ======
</TABLE>
F-44
<PAGE> 157
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense varies from the amount computed by applying the federal
corporate income tax rate of 34% to income before income taxes as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ----
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit)........... $1,250 $2,144 $555
Increase (decrease) in income taxes resulting from:
Foreign sales corporation income......................... (190) (99) (119)
State income taxes, net of federal tax effect............ 23 99 (15)
Nondeductible portion of meals and entertainment......... 69 48 73
Foreign income taxes..................................... 208 178 510
Write off charitable contribution deferred asset......... -- 75 --
Other, net............................................... (121) 146 (210)
------ ------ ----
Actual income tax provision attributable to continuing
operations.......................................... $1,239 $2,591 $794
====== ====== ====
</TABLE>
The components of the net deferred income tax assets and liabilities as of
December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
--------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Estimate for doubtful accounts and returns....... $ 404 $ -- $ 310 $ --
Inventory allowances............................. 667 -- 796 --
Accrued expenses................................. 860 -- 793 --
Additional pension liability..................... -- 834 -- 1,228
Contributions carryforward....................... -- -- 73 --
Net operating loss carryforward.................. 46 -- -- 598
Alternative minimum tax credits.................. -- 1,332 -- 1,377
Other............................................ 46 495 162 1,157
------ ------- ------ -------
Total deferred tax assets................ 2,023 2,661 2,134 4,360
------ ------- ------ -------
Deferred tax liabilities:
Property, plant and equipment.................... -- 5,567 -- 5,902
Other............................................ -- -- 54 --
------ ------- ------ -------
Total deferred tax liabilities........... -- 5,567 54 5,902
------ ------- ------ -------
Net deferred tax asset (liability)....... $2,023 $(2,906) $2,080 $(1,542)
====== ======= ====== =======
</TABLE>
The Company has at December 31, 1997, $2,088 of federal and state net
operating losses available to either carryback or carryforward. Net operating
losses of approximately $1,466 remain to be carried forward to offset future
state taxable income. Approximately $1,332 of alternative minimum tax credits
may be carried forward indefinitely. The amount of unrecognized deferred tax
liability for temporary differences related to investments in foreign
subsidiaries that are essentially permanent in duration were $1,430 and $1,388
for the years ending December 31, 1996 and 1997, respectively.
9. EMPLOYEE STOCK OPTIONS, WARRANTS, AND INCENTIVES
On October 29, 1990, the Company adopted the 1990 Time Accelerated
Restricted Stock Option Plan, as amended effective April 1, 1996 (the "1990
Plan"). A maximum of 163.3 thousand shares of the Company's common stock may be
issued pursuant to the 1990 Plan upon the exercise of options. Under the 1990
Plan,
F-45
<PAGE> 158
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
nonqualified stock options may be granted to members of senior management of the
Company and its subsidiaries. As of December 31, 1996, options to purchase 163.3
thousand shares of the Company's common stock at exercise prices of
$9.50--$30.00 per share had been granted. The 153 thousand vested options had
been exercised as of December 31, 1997, at an exercise price of $9.50 per share.
On June 11, 1996, the Company adopted the 1995 Time Accelerated Restricted
Stock Option Plan (the "1995 Plan"). A maximum of twenty-five thousand shares of
the Company's common stock may be issued pursuant to the 1995 Plan upon the
exercise of options. Under the 1995 Plan, nonqualified stock options may be
granted to members of senior management of the Company and its subsidiaries who
were formerly employed by Mid-State and who, at the time of adoption of the 1995
Plan, were employed in the Company's Mid-State Plastics Division. As of December
31, 1997, all twenty-five thousand options previously granted had been forfeited
under the terms of the agreement.
Both plans are administered by the Board of Directors of the Company or a
Committee consisting of three or more directors. Subject to the provisions of
each Plan, the Board of Directors of the Company has the authority to select
optionees and determine the terms of the options granted, including (i) the
number of shares subject to such option, (ii) when the option becomes
exercisable and (iii) the exercise price of the option; provided, however, that
no option may have a term in excess of ten years and six months from the date of
grant.
The terms and conditions of an option grant are set forth in a related
option agreement. An option is not transferable by the optionee except by will
or by the laws of descent and distribution. Options granted under either plan
will terminated upon the earliest to occur of (a) ten years and six months have
elapsed since the date of the grant of the option, (b) 30 days following an
optionee's voluntary termination or termination for cause of employment with the
Company or any of its subsidiaries, or (c) 180 days following an optionee's
termination of employment without cause or due to death or disability of the
optionee.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (SFAS 123). As
permitted by SFAS 123, the Company has chosen to apply APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its Plans. No compensation expense is recognized for the granting
of options during 1996 or 1997, as calculated under APB 25. Had compensation
cost for the Company's Plans been determined based on the fair value at the
grant dates for awards under the Plans consistent with the method of SFAS 123,
the Company's net income (loss) and net income (loss) per diluted share would
have been reduced to the pro forma amounts of $3,594 and $2.53, respectively,
for 1996 and $(391) and $(0.26), respectively, for 1997. The fair value of each
option grant is estimated using the Minimum Value Method with the following
assumptions used for the 1990 and 1995 plans; risk-free interest rates of 6.46%
and 6.04%, respectively, and expected lives of ten years.
F-46
<PAGE> 159
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's 1990 Plan as of December 31, 1995,
1996 and 1997, and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year..................... 153 $9.50 153 $ 9.50 163 $10.76
Granted.................... -- 10 $30.00 -- --
Exercised.................. -- -- 153 9.50
Forfeited.................. -- -- --
--- ------ ---
Outstanding, end of year... 153 $9.50 163 $10.76 10 $30.00
=== ====== ===
Options exercisable at
year-end................. 153 153 --
Fair value of options
granted during the
year..................... $11.96
======
</TABLE>
A summary of the status of the Company's 1995 Plan as of December 31, 1996,
and changes during the year ending on that date is presented below:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year...................... -- 25 $41.30 25 $41.30
Granted..................... 25 $41.30 -- --
Exercised................... -- -- --
Forfeited................... -- -- 25 41.30
----- --- --
Outstanding, end of year.... 25 $41.30 25 41.30 --
===== === ==
Options exercisable at
year-end.................. -- --
Fair value of options
granted during the year... $5.03
=====
</TABLE>
The following table summarizes information about the Plan's stock options
at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICE AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$30.00 10 10 $30.00 -- --
</TABLE>
The Company had issued to the ML-Lee Funds warrants to purchase 380
thousand shares of common stock exercisable at $9.50 per share. All of these
warrants had been exercised as of December 31, 1997. Affiliates of the ML-Lee
Funds comprise the majority holders of the Company's common stock.
10. CUSTOMER SUPPLY AGREEMENTS
On January 11, 1991, the Company entered into an agreement with a major
customer to supply product at certain agreed-upon levels through December 1992,
with an option for the customer to extend the contract for three additional one
year periods. The customer has extended the agreement through December 31, 1999.
The agreement guarantees certain gross margin percentages in varying amounts
over the term of the agreement based upon variable labor, material and overhead
costs. The agreement is cancellable by the customer; however, if such
cancellation occurs, the customer agrees to absorb a portion of the Company's
capital investment associated with the agreement in decreasing amounts over the
term of the contract.
F-47
<PAGE> 160
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On July 1, 1993, the Company entered into an agreement with another major
customer to supply product at certain agreed-upon levels through December 1997,
with an option for the customer to extend the contract for three additional one
year periods. The customer has extended the agreement through December 31, 1999.
The agreement guarantees certain gross margin percentages in varying amounts
over the term of the agreement based upon variable labor, material and overhead
costs. The agreement is cancellable by the customer; however, if such
cancellation occurs, the customer agrees to absorb a portion of the Company's
capital investment associated with the agreement in decreasing amounts over the
term of the contract.
In connection with the purchase of Mid-State Plastics, Inc., the Company
assumed a contract with a customer to maintain a manufacturing facility in Texas
for the production of injection molded plastic parts. The customer has the
exclusive right, unless otherwise agreed, to purchase the manufacturing capacity
of the facility. The agreement is effective until July 2000, with the customer
having the right to renew on a yearly basis. The customer guarantees the Company
80% of capacity and if not utilized, reimburses the Company based on a
predetermined rate. In the event that production exceeds the guarantee, the
Company owes the customer an amount computed at one-half the predetermined rate.
11. BUSINESS AND CREDIT CONCENTRATIONS
The Company's sales are generally made on account without collateral.
Repayment terms vary based on certain conditions. The Company maintains reserves
which management believes are adequate to provide for potential credit losses.
The majority of the Company's customer base spans the United States.
The Company had two customers at December 31, 1996, and three customers at
December 31, 1997, which individually had accounts receivable balances in excess
of 10% of the total accounts receivable balance. Management believes the total
accounts receivable due from these customers, which was approximately $6,748 and
$4,662 at December 31, 1996 and 1997, respectively, is fully collectible. The
respective percentage for each customer with sales in excess of 10% of the years
ended December 31, 1995, 1996 and 1997, was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A.............................................. 29% 24% 18%
Customer B.............................................. 14% 19% 24%
Customer C.............................................. 13% 10% 11%
</TABLE>
12. CONTINGENCIES
The Company is subject to claims, normally employment related, in the
ordinary course of business. Management does not believe the resolution of any
such claims will result in a material adverse effect on the future financial
condition, results of operations or cash flows of the Company.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair values of its financial instruments:
CURRENT ASSET AND LIABILITIES
The carrying value of the Company's cash, accounts receivable, accounts
payable and accrued expenses approximate fair value because of the short
maturity of these instruments.
F-48
<PAGE> 161
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NONCURRENT LIABILITIES
The Company estimates that the fair value of the Senior Notes at December
31, 1997 is approximately $106,500, compared to the carrying value of $100,000.
In making such assessments, the Company utilized quoted market prices.
14. RELATED PARTY TRANSACTIONS
Transactions involving related parties not otherwise disclosed herein are
as follows:
Management fees of $180 each year have been paid to Thomas H. Lee Company
during 1995, 1996 and 1997, respectively, for management and other consulting
services provided to the Company. Affiliates of the Thomas H. Lee Company
comprise the majority holders of the Company's common stock.
The Company leases warehouse space (near its facilities in Seagrove, North
Carolina) from Jack C. Lail, a shareholder during 1997. The lease terms are
month-to-month, and rent paid under the lease totaled $64 in 1997.
15. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
The Company has significant operations in Mexico as well as the United
States. The operations in Mexico do not involve sales to unaffiliated customers.
All sales for the Mexican subsidiary are to the U.S. Company and are marked up
based on a contract price, which at December 31, 1997 was 6.83%. These sales
were $6,418, $6,081 and $9,363, respectively, for the years ending December 31,
1995, 1996 and 1997 and were eliminated in consolidation.
Identifiable assets in Mexico were $14,823 and $15,128, respectively, at
December 31, 1996 and 1997. These amounts include intercompany
receivables/payables of $835 and $1,586, which were eliminated in consolidation.
The Company had sales to customers in foreign countries of $11,249, $13,148
and $19,256 for the years ending December 31, 1995, 1996 and 1997.
16. ANCHOR ADVANCED PRODUCTS, INC. SEPARATE COMPANY FINANCIAL STATEMENTS
As described in footnote 5, Anchor Advanced Products, Inc. issued $100,000
of 11 3/4% Senior Notes due 2004. These notes have been guaranteed fully and
unconditionally by the parent company, Anchor Holdings, Inc. The separate
financial statements of Anchor Advanced Products, Inc. are not included herein
because management has determined that they are not materially different from
those of Anchor Holdings, Inc. Summarized financial information of Anchor
Advanced Products, Inc. for the years ended December 31, 1995, 1996 and 1997,
are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current assets..................................... $ 45,680 $ 47,502 $ 49,087
Noncurrent assets.................................. 70,416 69,192 71,544
Current liabilities................................ 19,689 20,023 15,368
Noncurrent liabilities............................. 79,577 75,851 108,286
Equity............................................. 16,830 20,820 (3,023)
Net sales.......................................... 149,366 156,858 161,161
Gross profit....................................... 24,338 27,637 25,187
Income from operations before extraordinary
items............................................ 2,189 3,417 583
Net income (loss).................................. 2,189 3,417 (627)
</TABLE>
F-49
<PAGE> 162
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. EARNINGS PER SHARE
The following table sets forth for the periods indicated the calculation of
earnings (loss) per share included in the Company's Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
YEAR ENDED DECEMBER 31, -------------------------
------------------------- JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
------ ------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income before extraordinary
item.......................... $2,438 $3,626 $ 838 $ 1,400 $(3,233)
Extraordinary item............... -- -- (1,210) (1,210) --
------ ------ ------- ------- -------
Numerator for basic and diluted
earnings per share............... $2,438 $3,626 $ (372) $ 190 $(3,233)
====== ====== ======= ======= =======
Denominator:
Denominator for basic earnings
per share-- weighted-average
shares........................ 1,018 1,018 1,418 1,551 1,551
Potentially dilutive common
shares........................ 288 352 -- -- --
------ ------ ------- ------- -------
Denominator for diluted earnings
per share--adjusted
weighted-average shares and
dilutive shares.................. 1,306 1,370 1,418 1,551 1,551
====== ====== ======= ======= =======
BASIC
Income before extraordinary
item.......................... $ 2.39 $ 3.56 $ 0.59 $ 0.90 $ (2.08)
Extraordinary item............... -- -- (0.85) (0.78) --
------ ------ ------- ------- -------
Net income....................... $ 2.39 $ 3.56 $ (0.26) $ 0.12 $ (2.08)
====== ====== ======= ======= =======
DILUTED
Income before extraordinary
item.......................... $ 1.87 $ 2.65 $ 0.59 $ 0.90 $ (2.08)
Extraordinary item............... -- -- (0.85) (0.78) --
------ ------ ------- ------- -------
Net income....................... $ 1.87 $ 2.65 $ (0.26) $ 0.12 $ (2.08)
====== ====== ======= ======= =======
</TABLE>
18. OTHER COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, which requires the reporting of
comprehensive income in addition to net income. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
Information with respect to the accumulated other comprehensive income
balance is as follows:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
YEAR ENDED DECEMBER 31, --------------------------
----------------------- JUNE 28, JUNE 26,
1995 1996 1997 1997 1998
----- ----- ----- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Beginning balance......................... $(400) $(496) $(568) $(568) $(521)
Current period change in additional
pension liability....................... (96) (72) 47 -- --
----- ----- ----- ----- -----
$(496) $(568) $(521) $(568) $(521)
===== ===== ===== ===== =====
</TABLE>
F-50
<PAGE> 163
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. INTERIM BASIS OF PRESENTATION (UNAUDITED)
The quarterly condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. Anchor Acquisition
Co. (see Note 20) is not consolidated and push down accounting has not been
applied since the Company had outstanding public debt at the time of
acquisition. All significant intercompany balances and transactions have been
eliminated in consolidation. The quarterly consolidated financial statements
have been prepared, without audit, in accordance with generally accepted
accounting principles, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the quarterly
consolidated financial statements include all adjustments which are necessary
for a fair presentation of the financial position and results of operations for
the interim periods presented, such adjustments being of a normal recurring
nature. Certain information and footnote disclosures have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
quarterly consolidated financial statements and notes thereto be read in
conjunction with the full consolidated financial statements and notes thereto
for the year ended December 31, 1997. Results of operations in interim periods
are not necessarily indicative of results to be expected for a full year.
20. RECENT DEVELOPMENTS (UNAUDITED)
On March 19, 1998 Anchor Acquisition Co., a Delaware corporation
("Purchaser"), entered into a Stock Purchase Agreement (the "Purchase
Agreement") with ML-Lee Acquisition Fund II, L.P., ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P. and Thomas H. Lee Equity Partners, L.P. The
closing of the transactions contemplated by the Purchase Agreement occurred
concurrent with the signing of the Purchase Agreement (the "Closing"). Pursuant
to the terms and conditions of the Purchase Agreement, at the Closing the
Purchaser acquired all of the issued and outstanding shares of capital stock of
Anchor Holdings, Inc., whose wholly owned subsidiary is Anchor Advanced
Products, Inc.
The purchase price was $4.00 per share, of which 1,551,217.66 shares of
common stock, $.01 par value per share, were issued and outstanding, for a total
purchase price of $6,204,870.04. Additionally, the Company paid $2,769 on behalf
of Anchor Acquisition Co. to the holders of the Senior Notes for their consent
to the transaction and to other parties for expenses in regards to the
transaction.
Upon the Closing, the officers and directors of Anchor Holdings, Inc. and
Anchor Advanced Products, Inc. resigned and the Purchaser caused new officers
and a new director of each of those entities to be elected.
On June 3, 1998, the Company froze the benefit accruals for the Anchor
Advanced Products, Inc. Hourly Pension Plan and the Anchor Advanced Products,
Inc. Salaried Pension Plan.
F-51
<PAGE> 164
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Somomeca Industries:
We have audited the accompanying consolidated balance sheets of SOMOMECA
INDUSTRIES (a French corporation) and subsidiaries as of December 31, 1997 and
as of August 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the four month period ended
December 31, 1997 and for each of the three years in the period ended August 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SOMOMECA INDUSTRIES and subsidiaries as of December 31, 1997 and as of August
31, 1997 and 1996, and the results of their operations and their cash flows for
the four month period ended December 31, 1997 and for each of the three years in
the period ended August 31, 1997, in conformity with generally accepted
accounting principles in the United States.
BARBIER, FRINAULT & ASSOCIES
Member Firm of Andersen Worldwide
February 17, 1998
Paris, France
F-52
<PAGE> 165
SOMOMECA INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS--NOTE 2)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 851 $ 804 $ 428
Trade receivables, net of allowance of $91, $213 and
$104 respectively.................................... 21,223 25,752 26,623
Other receivables....................................... 1,235 1,667 1,193
Inventories............................................. 8,976 7,862 7,806
Prepaid expenses........................................ 1,030 502 730
Deferred tax assets..................................... 684 828 617
------- ------- -------
Total current assets............................ 33,999 37,415 37,397
------- ------- -------
PROPERTY, PLANT AND EQUIPMENT, NET........................ 23,676 21,304 22,438
------- ------- -------
OTHER ASSETS.............................................. 7,204 5,928 6,029
------- ------- -------
Total assets.................................... $64,879 $64,647 $65,864
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving lines of credit............................... $ 9,111 $17,841 $16,005
Current portion of long-term obligations................ 5,110 4,328 4,026
Accounts payable........................................ 17,764 16,459 18,221
Accrued liabilities..................................... 9,922 7,121 7,778
------- ------- -------
Total current liabilities....................... 41,907 45,749 46,030
------- ------- -------
DEFERRED INCOME TAXES..................................... 1,192 1,046 1,399
------- ------- -------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION............. 13,286 11,349 10,523
------- ------- -------
MINORITY INTEREST......................................... 2,065 1,430 1,513
------- ------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock (par value of $9.89; 500,000 shares
authorized and outstanding).......................... 4,943 4,943 4,943
Additional paid-in capital.............................. 1,848 1,848 1,848
Retained earnings (deficit)............................. (614) (775) 352
Accumulated foreign currency translation adjustment..... 252 (943) (744)
------- ------- -------
Total stockholders' equity...................... 6,429 5,073 6,399
------- ------- -------
Total liabilities and stockholders' equity...... $64,879 $64,647 $65,864
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 166
SOMOMECA INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF US DOLLARS--NOTE 2)
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED
----------------------------- DECEMBER 31,
1995 1996 1997 1997
------- ------- ------- ------------
<S> <C> <C> <C> <C>
NET SALES....................................... $64,533 $81,983 $84,926 $32,414
COST OF SALES................................... 54,747 70,353 75,807 27,506
------- ------- ------- -------
Gross profit............................. 9,786 11,630 9,119 4,908
OPERATING EXPENSES
Selling and marketing......................... 1,494 1,403 1,690 394
General and administrative.................... 3,317 4,322 4,853 1,337
Other income (expense) net.................... (366) (121) (341) 244
------- ------- ------- -------
Total operating expenses.............. 5,177 5,846 6,884 1,975
------- ------- ------- -------
Operating income...................... 4,609 5,784 2,235 2,933
INTEREST INCOME (EXPENSE)
Interest income............................... 445 37 50 1
Interest expense.............................. (3,042) (3,189) (2,648) (806)
------- ------- ------- -------
Total interest income (expense)....... (2,597) (3,152) (2,598) (805)
------- ------- ------- -------
Income (loss) before income taxes..... 2,012 2,632 (363) 2,128
INCOME TAX (EXPENSE) BENEFIT
Current income tax............................ (679) (995) (74) (373)
Deferred income tax........................... (301) (178) 218 (563)
------- ------- ------- -------
Total income tax (expense) benefit.... (980) (1,173) 144 (936)
------- ------- ------- -------
Income (loss) before minority interest........ 1,032 1,459 (219) 1,192
MINORITY INTEREST............................... (108) (265) 272 (65)
------- ------- ------- -------
NET INCOME...................................... $ 924 $ 1,194 $ 53 $ 1,127
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 167
SOMOMECA INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA--NOTE 2)
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL RETAINED CURRENCY TOTAL
----------------- PAID-IN EARNINGS TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT EQUITY
------- ------ ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE
AUGUST 31, 1994......... 500,000 $4,943 $1,848 $(2,693) $ -- $ 4,098
Net income................ -- -- -- 924 -- 924
Foreign currency
translation
adjustment.............. -- -- -- -- 348 348
------- ------ ------ ------- ------- -------
BALANCE
AUGUST 31, 1995......... 500,000 4,943 1,848 (1,769) 348 5,370
Dividends................. -- -- -- (39) -- (39)
Net income................ -- -- -- 1,194 -- 1,194
Foreign currency
translation
adjustment.............. -- -- -- -- (96) (96)
------- ------ ------ ------- ------- -------
BALANCE
AUGUST 31, 1996......... 500,000 4,943 1,848 (614) 252 6,429
Dividends................. -- -- -- (214) -- (214)
Net income................ -- -- -- 53 -- 53
Foreign currency
translation
adjustment.............. -- -- -- -- (1,195) (1,195)
------- ------ ------ ------- ------- -------
BALANCE
AUGUST 31, 1997......... 500,000 4,943 1,848 (775) (943) 5,073
Net income................ -- -- -- 1,127 -- 1,127
Foreign currency
translation
adjustment.............. -- -- -- -- 199 199
------- ------ ------ ------- ------- -------
BALANCE
DECEMBER 31, 1997....... 500,000 $4,943 $1,848 $ 352 $ (744) $ 6,399
======= ====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 168
SOMOMECA INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF US DOLLARS--NOTE 2)
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED
------------------------------ DECEMBER 31,
1995 1996 1997 1997
------- ------- -------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 924 $ 1,194 $ 53 $ 1,127
Adjustments to reconcile net income to net cash
provided by operating activities.............
Depreciation and amortization.................. 3,324 5,693 6,386 1,971
Loss (gain) on sale of assets.................. (76) (244) (47) 24
Changes in operating assets and liabilities:
(Increase) decrease in inventories........... (80) (3,248) (603) 346
(Increase) decrease in trade and other
receivables............................... (5,164) (7,348) (11,235) 262
(Increase) decrease in other assets.......... 2,451 (1,944) 9 248
Increase (decrease) in accounts payable...... (984) 8,252 2,192 1,180
Increase (decrease) in other liabilities..... 5,177 (1,550) (814) 115
Minority interest............................ (28) (135) (282) 31
------- ------- -------- -------
Net cash provided by (used in) operating
activities........................... 5,544 670 (4,341) 5,304
------- ------- -------- -------
INVESTING ACTIVITIES
Purchase of additional ownership in
subsidiaries................................. -- (297) -- --
Purchase of property, plant and equipment...... (4,115) (6,956) (6,117) (1,771)
Proceeds from sales of property, plant and
equipment.................................... 547 1,728 495 --
------- ------- -------- -------
Net cash used in investing activities..... (3,568) (5,525) (5,622) (1,771)
------- ------- -------- -------
FINANCING ACTIVITIES
Proceeds from (repayment of) short-term
borrowings................................... 1,260 6,972 11,566 (2,512)
Repayment of capital lease obligations......... (4,446) (3,005) (3,085) (824)
Proceeds from issuance of long-term debt....... 2,333 1,656 3,750 --
Repayment of principal of long-term debt....... (773) (806) (1,903) (637)
Dividends...................................... -- (39) (214) --
------- ------- -------- -------
Net cash provided by (used in) financing
activities........................... (1,626) 4,778 10,114 (3,973)
------- ------- -------- -------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON
CASH......................................... 51 17 (198) 64
------- ------- -------- -------
NET INCREASE (DECREASE) IN CASH................ 401 (60) (47) (376)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 510 911 851 804
------- ------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 911 $ 851 $ 804 $ 428
======= ======= ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest..................................... $ 2,995 $ 3,044 $ 2,577 $ 769
------- ------- -------- -------
Income taxes................................. $ 374 $ 1,304 $ 777 $ --
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 169
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA--NOTE 2)
1. BASIS OF PRESENTATION
The SOMOMECA INDUSTRIES and subsidiaries (the Company) consolidated
financial statements include the following entities:
<TABLE>
<CAPTION>
CONSOLIDATED ENTITIES % OWNED BUSINESS
<S> <C> <C>
SOMOMECA INDUSTRIES................. Holdings
SOMOMECA INDUSTRIES owned
subsidiaries:
SAPI (SARL)....................... 100 Manufacturing and selling of
injection molded plastic parts
SOMOPLAST Lorraine................ 100 Manufacturing and selling of
injection molded plastic parts
BBI............................... 100 Manufacturing and selling of
injection molded plastic parts
SCI Bonnevalaise.................. 100 Building ownership
FINANCIERE SOMOMECA............... 73.7 Holdings
FINANCIERE SOMOMECA owned
subsidiaries:
STAPHANE.......................... 100 Manufacturing and selling of molds
for plastic injection
SERIM............................. 100 Manufacturing and selling of molds
for plastic injection and of
injection molded plastic parts
SOMOPLAST......................... 100 Manufacturing and selling of
injection molded plastic parts
SEMIP............................. 100 Manufacturing and selling of molds
for plastic injection
PROMOLDE.......................... 100 Manufacturing and selling of molds
for plastic injection
SCI TERREAU BRENOT................ 95 Building ownership
</TABLE>
The entities listed above were acquired on January 8, 1998 by Moll
PlastiCrafters Limited Partnership.
F-57
<PAGE> 170
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Before September 1995, the legal organization of the various companies
forming SOMOMECA INDUSTRIES was as follows:
<TABLE>
<CAPTION>
% OWNED
<S> <C>
SAPI
SAPI owned subsidiaries:
SCI Bonnevalaise.......................................... 100
BBI....................................................... 100
FINANCIERE SOMOMECA....................................... 16
SCP Staphane
FINANCIERE SOMOMECA....................................... 52
FINANCIERE SOMOMECA owned subsidiaries:
STAPHANE.................................................. 100
SOMOPLAST................................................. 100
SERIM..................................................... 100
SEMIP..................................................... 100
PROMOLDE.................................................. 100
SCI Terreau Brenot........................................ 95
</TABLE>
In September 1995, SAPI and SCP Staphane completed a restructuring which
led to the SOMOMECA INDUSTRIES current structure, as follows:
- SAPI and SCP STAPHANE were merged, to form SOMOMECA INDUSTRIES, holding
company owned by two individuals (the Staphane family).
- The molding activity of SAPI was contributed to a new company, SAPI
(SARL).
- The number of authorized common shares was set at 500,000, with a par
value of $9.89.
As the previous separate entities and newly formed entity were all under
common control, the restructuring has been reflected as if it occurred at
September 1, 1994, similar to a pooling of interest.
As of August 31, 1994, FINANCIERE SOMOMECA was partly directly held by the
two individuals. During the year ended August 31, 1995, the shares of FINANCIERE
SOMOMECA held by the Staphane family were contributed to the Company.
Accordingly, the investment of this family in FINANCIERE SOMOMECA has been
reflected in the position of stockholders' equity at August 31, 1994, as the
Companies were under common control.
SOMOPLAST LORRAINE (100% owned by SOMOMECA INDUSTRIES) was incorporated
during the year ended August 31, 1996. During the same year, SOMOMECA INDUSTRIES
acquired 5.7% of FINANCIERE SOMOMECA shares from CENTREST (a French company).
SOMOMECA INDUSTRIES and its subsidiaries manufacture and sell molds or
injection molded plastic parts to the automotive industry (car manufacturers and
equipment suppliers) and to other industries.
All companies, except PROMOLDE (Portugal), are located in France.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, after elimination of intercompany balances
and transactions.
F-58
<PAGE> 171
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GOODWILL
Goodwill, arising from the difference between the investment cost in
certain subsidiaries and their net assets value at the date of the acquisition,
are being amortized, from the acquisition date, over 20 years. The Company
evaluates on a continual basis, the realizability of goodwill using measurements
of earnings before amortization, as well as operating cash flows for the
respective acquired operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation and
amortization are provided over the following estimated useful lives, using the
straight-line method:
<TABLE>
<S> <C>
Buildings........................................ 20 years
Leasehold improvements........................... 5-10 years
Production equipment............................. 3-7 years
Other equipment.................................. 3-10 years
</TABLE>
REVENUE RECOGNITION
Revenue from sales is recognized at the time products are shipped or at the
time of the first use for molds sold to certain customers and used for
outsourced plastic parts production.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ form those estimates.
INVENTORIES
Inventories are valued at the lower of cost (using the weighted average
cost method) or market.
RETIREMENT INDEMNITIES OBLIGATIONS
Company personnel are granted payments, defined by law, at the time they
retire. The related retirement indemnities obligation has been accrued under the
criteria set forth by Statement of Financial Accounting Standards No. 87.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the company to
concentrations of credit risk consist principally of cash investments and trade
receivables. The Company has cash investment policies that limit investments to
short-term low risk instruments.
With respect to trade receivables, one customer accounted for approximately
17% of SOMOMECA Industries and subsidiaries sales in the four month period ended
December 31, 1997 (24% in 1997, 26% in 1996 and 30% in 1995). In addition,
approximately 18% of total trade receivables as of December 31, 1997 (28% as of
August 31, 1997, and 36% as of August 31, 1996) were from that customer.
Management believes the credit risk associated with this customer is minimal.
F-59
<PAGE> 172
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION
The Company's functional currency is the French Franc. In the accompanying
financial statements, assets and liabilities are translated into US Dollars at
the current exchange rate as of the applicable balance sheet dates. Revenues and
expenses are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation into US Dollars are
reported in a separate component of stockholders' equity.
The functional currency for the Company's only foreign subsidiary (in
Portugal) is its local currency. Accordingly, all the assets and liabilities of
the subsidiary are translated into French Francs at the current exchange rate as
of the applicable balance sheet date. Revenues and expenses are translated at
the average exchange rate prevailing during the period. Gains and losses
resulting from the translation of the subsidiary financial statements were
insignificant as of December 31, 1997.
INCOME TAXES
Deferred taxes are provided utilizing the liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss carryforwards, and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------- DECEMBER 31,
1996 1997 1997
-------- -------- ------------
<S> <C> <C> <C>
Land............................................. $ 845 $ 666 $ 690
Buildings and leasehold improvements............. 14,968 11,973 12,403
Production equipment............................. 30,077 30,910 34,122
Other equipment.................................. 4,412 3,946 3,863
-------- -------- --------
Total cost....................................... 50,302 47,495 51,078
Less--accumulated depreciation................... (26,626) (26,191) (28,640)
-------- -------- --------
$ 23,676 $ 21,304 $ 22,438
======== ======== ========
</TABLE>
4. INVENTORIES
Inventories include the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Raw materials...................................... $ 3,350 $ 2,868 $ 3,294
Work in progress................................... 2,571 2,987 2,841
Finished products.................................. 3,055 2,007 1,671
------- ------- -------
$ 8,976 $ 7,862 $ 7,806
======= ======= =======
</TABLE>
F-60
<PAGE> 173
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. OTHER ASSETS
Other assets include the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Acquisition goodwill............................... $ 8,281 $ 6,753 $ 6,998
Less--amortization................................. (2,325) (2,232) (2,430)
------- ------- -------
5,956 4,521 4,568
Other assets....................................... 1,248 1,407 1,461
------- ------- -------
$ 7,204 $ 5,928 $ 6,029
======= ======= =======
</TABLE>
6. REVOLVING LINES OF CREDIT
Short term financing facilities include the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Authorized lines of credit......................... $31,620 $28,274 $29,314
======= ======= =======
Outstanding amounts under lines of credit.......... $ 9,111 $17,841 $16,005
======= ======= =======
Maximum balances outstanding....................... $20,751 $20,483 $24,247
======= ======= =======
Average balances outstanding....................... $18,355 $18,710 $20,903
======= ======= =======
</TABLE>
Interest rates on these lines of credit are generally based on reference
market rates (such as PIBOR 3 month) plus 1.5% (5% at December 31, 1997).
Lines of credit are secured by substantially all of the Company's assets.
7. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Long-term borrowings............................... $ 6,869 $ 7,033 $ 6,093
Capital leases..................................... 11,005 8,126 7,887
Retirement indemnities obligations................. 522 518 569
------- ------- -------
18,396 15,677 14,549
Less--current portion.............................. (5,110) (4,328) (4,026)
------- ------- -------
$13,286 $11,349 $10,523
======= ======= =======
</TABLE>
Long-term borrowings are secured by substantially all of the Company's
assets. These long-term borrowings did not include any individual loan of
significant amount for each of the periods.
F-61
<PAGE> 174
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest rates on long-term borrowings and capital leases can be summarized
as follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
RANGE OF INTEREST RATES 1996 1997 1997
------------------------- ------- ------- ------------
<S> <C> <C> <C> <C>
Fixed rate loans:
Loans.................... 6.31% to 12.75% $ 6,869 $ 7,033 $ 6,093
Capital leases........... 4.68% to 15.35% 8,472 6,441 6,736
Variable rate loans:
Capital leases........... TAM to TAM + 1.5% 2,533 1,685 1,151
------- ------- -------
$17,874 $15,159 $13,980
======= ======= =======
</TABLE>
Future payments on long-term loans are due as follows:
<TABLE>
<S> <C>
1998................................................ $2,021
1999................................................ 1,767
2000................................................ 1,168
2001................................................ 767
2002................................................ 200
Thereafter.......................................... 170
------
$6,093
======
</TABLE>
The Company leases certain equipment under capital leases which expire on
various dates through 2004. Future payments on capital leases are due as
follows:
<TABLE>
<S> <C>
1998............................................... $ 2,517
1999............................................... 1,999
2000............................................... 1,381
2001............................................... 834
2002............................................... 663
Thereafter......................................... 2,007
Less amount representing interest.................. (1,514)
-------
$ 7,887
=======
</TABLE>
8. RETIREMENT INDEMNITIES OBLIGATIONS
The Company maintains defined unfunded retirement indemnity plans which
cover substantially all of their employees.
In order to comply with US GAAP, the Company has applied SFAS No. 87
"Employers' Accounting for Pensions" and SFAS No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" as follows:
- the transition obligation or fund excess has been determined as of
September 1, 1994 as being the difference between the liabilities
accounted for under prior years' accounting policies and the funded
status of the plans resulting from actuarial calculations; the transition
obligation or fund excess, as determined at September 1, 1994 has been
deducted from retained earnings as if the Company had always applied SFAS
No. 87. Amortization of a transition obligation would have led to
expenses not significantly different from what has been accounted for;
F-62
<PAGE> 175
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- the actuarial method used is the projected unit credit method. However,
when the benefit formulas attribute more benefits to senior employees or
when the plans are integrated with social security systems or multi
employer plans, the Company has elected to apply the projected unit
credit service pro-rata method to avoid delayed recognition of pension
costs.
The status of pension plans determined in accordance with U.S. GAAP is as
follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $ -- $ -- $ --
Non-vested benefit obligation......................... 393 390 428
---- ---- ----
Accumulated benefit obligation.......................... 393 390 428
Effect of projected future salary increases............. 129 128 141
---- ---- ----
Projected benefit obligation............................ $522 $518 $569
==== ==== ====
</TABLE>
The pension liability is included in the accompanying balance sheets as a
component of long-term obligations.
The net periodic pension cost of the Company's retirement indemnity plans,
determined in accordance with US GAAP, includes the following components:
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED
------------------------------ DECEMBER 31,
1995 1996 1997 1997
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Service cost............................... $ 40 $ 46 $ 42 $14
Interest cost on projected benefit
obligation............................... 38 33 31 10
Net amortization and deferrals............. 23 30 28 9
---- ---- ---- ---
Net pension cost........................... $101 $109 $101 $33
==== ==== ==== ===
</TABLE>
Average assumptions used in accounting for the Company's retirement
indemnities obligations under US GAAP are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
<S> <C> <C> <C>
Discount rate............................................. 6.0% 6.0% 6.0%
Rate of increase in compensation levels................... 2.5% 2.0% 2.0%
</TABLE>
9. OPERATING LEASES
The Company leases certain equipment under operating leases. Rent expense
was $261, $290, $155, and $37 for each of the years ended August 31, 1995, 1996
and 1997 and for the four month period ended December 31, 1997 respectively.
Future payments on operating leases were due as follows:
<TABLE>
<S> <C>
1998................................................... $64
1999................................................... 20
2000................................................... 2
---
$86
===
</TABLE>
F-63
<PAGE> 176
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
From time to time the Company is involved in certain legal actions arising
in the ordinary course of business. In the opinion of management, the outcome of
such actions will not have a material adverse effect on the Company's financial
position or results of operations.
11. INCOME TAXES
For income tax purposes, SOMOMECA INDUSTRIES and its subsidiaries formed
two distinct tax consolidation groups. The (provision) benefit for income taxes
consists of the following:
<TABLE>
<CAPTION>
FOR THE FOUR
FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED
------------------------------ DECEMBER 31,
1995 1996 1997 1997
------- --------- ------ ------------
<S> <C> <C> <C> <C>
Current income tax.......................... $(679) $ (995) $(74) $(373)
Deferred income tax......................... (301) (178) 218 (563)
----- ------- ---- -----
Total (provision) benefit................... $(980) $(1,173) $144 $(936)
===== ======= ==== =====
</TABLE>
The reconciliation of the statutory income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOUR
AUGUST 31, MONTHS ENDED
-------------------- DECEMBER 31,
1995 1996 1997 1997
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Statutory income tax rate........................ 33.3% 36.6% 36.6% 41.6%
Non-deductible expenses.......................... 15.4% 7.5% 3.1% 1.3%
Effect of the variation of statutory income tax
rate........................................... -- 0.4% -- 2.0%
---- ---- ---- -----
48.7% 44.5% 39.7% 44.9%
==== ==== ==== =====
</TABLE>
F-64
<PAGE> 177
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the deferred tax asset (liability) consisted of the
following:
<TABLE>
<CAPTION>
AUGUST 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Current deferred tax asset
Temporary timing differences....................... $ 279 $ 221 $ 310
Other temporary differences between tax reporting
and US GAAP financial reporting:
--inventory pricing.............................. 171 337 139
--reserve for doubtful accounts.................. 33 78 43
--subsidies income recognition................... 59 89 --
--other, net..................................... 142 103 125
------- ------- -------
684 828 617
------- ------- -------
Non-current deferred tax asset (liability)
Net operating loss carry forward................... 119 178 --
Other temporary differences between tax reporting
and US GAAP financial reporting:
--retirement indemnities......................... 191 189 183
--capital leases................................. (1,092) (896) (861)
--accumulated engineering costs expensed in tax
reporting..................................... (410) (517) (721)
------- ------- -------
(1,192) (1,046) (1,399)
------- ------- -------
Net deferred tax liability......................... $ (508) $ (218) $ (782)
======= ======= =======
</TABLE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments is made in
accordance with the requirements of SFAS No. 107, Disclosures about Fair Value
of Financial Instruments. The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation
methodologies.
CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.
LONG-TERM DEBT
The carrying amount of the revolving lines of credit approximates fair
value as the interest rate fluctuates with changes in market conditions. It is
estimated that the fair value of the long-term debt is $15,516.
F-65
<PAGE> 178
SOMOMECA INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SALES GEOGRAPHICAL DATA
Sales to foreign countries represented 8%, 10%, 12% and 10% of Company
sales for the years ended August 31, 1995, 1996 and 1997 and for the four-month
period ended December 31, 1997 respectively, as follows:
<TABLE>
<CAPTION>
FOR THE FOUR
MONTHS ENDED
FOR THE YEAR ENDED AUGUST 31, DECEMBER 31,
-------------------------------------------------- --------------
1995 % 1996 % 1997 % 1997 %
------- --- ------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
France............... $59,370 92 $73,784 90 $74,734 88 $29,173 90
Other EEC
countries.......... 5,163 8 8,199 10 10,192 12 3,241 10
------- --- ------- --- ------- --- ------- ---
Total...... $64,533 100 $81,983 100 $84,926 100 $32,414 100
======= === ======= === ======= === ======= ===
</TABLE>
F-66
<PAGE> 179
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Hanning Companies:
We have audited the accompanying combined balance sheets of the HANNING
COMPANIES (see Note 1) as of December 31, 1995 and 1996, and the related
combined statements of operations, equity (deficit) and cash flows for the years
then ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Hanning
Companies as of December 31, 1995 and 1996, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
May 19, 1998
F-67
<PAGE> 180
THE HANNING COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 112,408 $ 371,518
Accounts receivable, net of reserves for doubtful accounts
of $34,000 and $29,000, respectively................... 6,971,529 4,795,473
Inventories, net.......................................... 7,343,295 5,748,393
Deposits on tooling....................................... 3,183,587 3,227,968
Other receivables......................................... 159,274 45,225
Other assets.............................................. 460,350 262,871
----------- -----------
Total current assets.............................. 18,230,443 14,451,448
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 626,337 520,653
Buildings................................................. 5,166,315 3,665,318
Machinery and equipment................................... 6,172,294 6,968,976
Less: accumulated depreciation............................ (5,186,735) (6,116,331)
----------- -----------
Property, plant and equipment, net................ 6,778,211 5,038,616
DUE FROM AFFILIATES, NET.................................... 3,353,088 2,314,405
OTHER ASSETS................................................ 65,294 24,478
----------- -----------
Total assets...................................... $28,427,036 $21,828,947
=========== ===========
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Checks drawn in excess of cash on deposit................. $ 170,858 $ 321,070
Accounts payable.......................................... 10,419,740 8,986,502
Customer deposits on tooling.............................. 4,049,770 3,016,117
Short-term borrowings..................................... 953,343 1,597,777
Current portion of stockholder debt....................... 2,097,103 1,250,766
Current portion of long-term obligations.................. 1,065,374 1,907,866
Accrued liabilities....................................... 3,048,800 3,195,179
----------- -----------
Total current liabilities......................... 21,804,988 20,275,277
----------- -----------
STOCKHOLDER DEBT, NET OF CURRENT PORTION.................... 906,683 259,615
----------- -----------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION............... 3,650,201 1,573,441
----------- -----------
COMMITMENTS AND CONTINGENCIES
EQUITY (DEFICIT):
Capital................................................... 1,405,280 1,420,640
Additional paid-in capital................................ 6,269,319 7,599,372
Receivable from partners.................................. -- (1,000,000)
Translation adjustment.................................... 109,762 38,393
Retained deficit.......................................... (5,719,197) (8,337,791)
----------- -----------
Total equity (deficit)............................ 2,065,164 (279,386)
----------- -----------
Total liabilities and equity (deficit)............ $28,427,036 $21,828,947
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-68
<PAGE> 181
THE HANNING COMPANIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN MONTHS AND SEVEN DAYS
FOR THE YEAR ENDED DECEMBER 31, ENDED AUGUST 7,
-------------------------------- ----------------------------
1995 1996 1996 1997
-------------- -------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES............................. $57,298,730 $54,062,809 $33,075,375 $29,640,348
COST OF SALES......................... 55,447,691 51,456,915 31,526,552 28,342,440
----------- ----------- ----------- -----------
Gross profit........................ 1,851,039 2,605,894 1,548,823 1,297,908
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 4,804,885 5,775,080 3,270,550 2,723,412
TOOLING REVENUE, NET.................. 348,795 957,467 540,610 1,113,673
----------- ----------- ----------- -----------
Operating loss...................... (2,605,051) (2,211,719) (1,181,117) (311,831)
INTEREST INCOME....................... 290,421 209,728 123,800 61,490
INTEREST EXPENSE...................... 727,899 570,847 409,604 290,623
OTHER (INCOME) EXPENSE................ 194,271 (171,104) (141,500) (293,432)
----------- ----------- ----------- -----------
Loss before income tax expense...... (3,236,800) (2,401,734) (1,325,421) (247,532)
----------- ----------- ----------- -----------
INCOME TAX EXPENSE.................... 18,578 216,860 126,545 382,192
----------- ----------- ----------- -----------
Net Loss............................ $(3,255,378) $(2,618,594) $(1,451,966) $ (629,724)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-69
<PAGE> 182
THE HANNING COMPANIES
COMBINED STATEMENTS OF EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RECEIVABLE
PAID-IN FROM TRANSLATION RETAINED
CAPITAL CAPITAL PARTNER ADJUSTMENT DEFICIT TOTAL
---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994.................. $1,405,280 $3,130,806 $ -- $ -- $(2,463,819) $ 2,072,267
Translation
adjustments........... -- -- -- 109,762 -- 109,762
Capital contribution.... -- 3,138,513 -- -- -- 3,138,513
Net loss................ -- -- -- -- (3,255,378) (3,255,378)
---------- ---------- ----------- -------- ----------- -----------
BALANCE, DECEMBER 31,
1995.................. 1,405,280 6,269,319 -- 109,762 (5,719,197) 2,065,164
Translation
adjustment............ -- -- -- (71,369) -- (71,369)
Receivable from
Partner............... -- -- (1,000,000) -- -- (1,000,000)
Capital contribution.... 15,360 1,330,053 -- -- -- 1,345,413
Net loss................ -- -- -- -- (2,618,594) (2,618,594)
---------- ---------- ----------- -------- ----------- -----------
BALANCE, DECEMBER 31,
1996.................. $1,420,640 $7,599,372 $(1,000,000) $ 38,393 $(8,337,791) $ (279,386)
========== ========== =========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-70
<PAGE> 183
THE HANNING COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEVEN MONTHS AND SEVEN DAYS
DECEMBER 31, ENDED AUGUST 7,
-------------------------- ----------------------------
1995 1996 1996 1997
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $(3,255,378) $(2,618,594) $(1,451,966) $ (629,724)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 1,653,439 1,347,843 883,205 640,714
Gain on disposal of fixed assets......... (174,711) (62,397) -- (23,999)
Changes in assets and liabilities:
Accounts receivable.................... (1,112,144) 1,837,848 933,877 (1,235,372)
Due from affiliates, net............... (3,119) 25,714 (97,703) 2,782,953
Inventories............................ 1,082,034 1,285,704 546,713 (739,036)
Deposits on tooling.................... (3,140,865) (146,677) 1,131,761 (4,299,084)
Other assets........................... (203,848) 218,472 (218,012) (148,967)
Other receivables...................... (11,720) 114,049 154,472 3,474
Accounts payable....................... 1,884,153 (938,846) (3,825,510) (1,992,673)
Accrued liabilities.................... (424,178) 339,433 1,301,398 (155,610)
Checks drawn in excess of cash on
deposit............................. (184,328) 150,212 610,906 (321,070)
Customer deposits on tooling........... 3,836,908 (926,547) 302,495 5,822,111
----------- ----------- ----------- -----------
Total adjustments................. 3,201,621 3,244,808 1,723,602 333,441
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities............ (53,757) 626,214 271,636 (296,283)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment.............................. (945,461) (1,029,359) (438,201) (544,845)
Proceeds on disposal of fixed assets..... 174,711 1,248,344 1,163,812 23,999
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities............ (770,750) 218,985 725,611 (520,846)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings...... 800,133 731,628 300,451 (1,387,662)
Partner contributions.................... 3,138,513 1,345,413 15,308 --
Receivable from partner.................. -- (1,000,000) (1,000,000) --
Net change in stockholder debt........... (2,533,096) (1,466,937) (9,495) 2,790,838
Principal payments on long-term
obligations............................ (569,951) (199,102) -- (705,343)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............ 835,599 (588,998) (693,736) 697,833
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE.................... 575 2,909 2,744 (3,839)
----------- ----------- ----------- -----------
NET CHANGE IN CASH......................... 11,667 259,110 306,255 (123,135)
BALANCE AT BEGINNING OF PERIOD............. 100,741 112,408 112,408 371,518
----------- ----------- ----------- -----------
BALANCE AT END OF PERIOD................... $ 112,408 $ 371,518 $ 418,663 $ 248,383
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................... $ 539,854 $ 465,585 $ 172,497 $ 241,773
=========== =========== =========== ===========
Cash paid for income taxes............... $ 19,078 $ 23,661 $ 14,000 $ 258,518
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-71
<PAGE> 184
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Hanning Companies (the "Company") consists of the following entities
which are under common ownership.
<TABLE>
<CAPTION>
TYPE OF COUNTRY OF
COMPANY ENTITY OPERATIONS
<S> <C> <C>
Hanning Corporation......................................... Corporation United States
Moll Industries Paderborn Beteilingungs-GmbH................ Corporation Germany
Moll Industries Paderborn GmbH & Co. ....................... Partnership Germany
Hanning Plastics, Ltd. ..................................... Corporation United Kingdom
Hanning Property Associates................................. Corporation United States
PB Hanning GmbH & Co. ...................................... Corporation Germany
PB Hanning GmbH & Co. Handelsgesellschaft................... Partnership Germany
</TABLE>
The entities listed above were acquired through either asset or stock
purchases on August 8, 1997, by Moll PlastiCrafters Limited Partnership. The
Company manufactures custom injection molded parts which it sells primarily to
customers in the office equipment, home appliance and automotive industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the combined
companies. All significant inter-company balances and transactions have been
eliminated in combination.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from sales of injection molded plastic parts is recognized at the
time products are shipped.
TOOLING
The Company enters into agreements with its major customers to design and
produce certain customer owned plastic injection tooling (primarily molds).
Amounts paid or received by the Company in connection with this activity related
to tooling that remains undelivered at the end of an accounting period are
included as Deposits on Tooling or Customer Deposits on Tooling, respectively,
in the accompanying combined balance sheet. At the time of delivery of completed
tooling, the excess of revenues over costs are recognized in the accompanying
combined statements of operations as tooling revenue, net.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out (FIFO)
method) or market.
F-72
<PAGE> 185
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is valued at cost. Depreciation is computed
using straight-line and accelerated methods over the estimated useful lives of
the assets, as follows:
<TABLE>
<S> <C>
Buildings..................................... 40 to 50 years
Machinery and equipment....................... 3 to 10 years
</TABLE>
INCOME TAXES
Certain of the entities included in the Company are partnerships. The
earnings of the partnerships are included in the tax returns of its partners.
Accordingly, the combined financial statements contained no provision for
federal or state income taxes related to these earnings.
Certain of the entities included in the Company are taxable entities. As
such the Company has accounted for income taxes using the liability method which
requires recognition of deferred tax assets and liabilities for the expected
future consequences of events that have been included in the combined financial
statements or income tax returns.
Certain of the Company's incurred costs were not deductible for income tax
purposes. As a result, the Company incurred current income tax expense. At
December 31, 1996, the Company had net operating loss carryforwards available to
offset future taxable income. However, due to the Company's historical operating
results, it has not recognized a deferred tax asset in the accompanying combined
financial statements.
LONG-LIVED ASSETS
When factors are present which indicate the cost of long-lived assets may
not be recovered, the Company evaluates the realizability of its long-lived
assets, based upon the anticipated future cash flows generated by the asset.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company are translated to United States
dollars at current exchange rates, while revenues and expenses are translated at
the average rate prevailing during the period. Gains and losses resulting from
translation since January 1, 1995 are accumulated in a separate component of
equity (deficit).
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited, interim financial
statements have been prepared on a basis consistent with the audited financial
statements and contain all adjustments necessary to present fairly the Company's
results of operations and cash flows for the seven months and seven days ended
August 7, 1996 and 1997.
F-73
<PAGE> 186
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Raw materials............................................... $4,341,883 $3,325,107
Work-in-process............................................. 1,137,132 694,188
Finished goods.............................................. 2,368,651 2,327,113
Reserve..................................................... (504,371) (598,015)
---------- ----------
$7,343,295 $5,748,393
========== ==========
</TABLE>
4. RELATED PARTIES
The Company has certain transactions with companies that are affiliated
through common ownership. At December 31, 1996, the Company has a net receivable
from these affiliated parties totaling $2,314,405 related to these transactions.
The Company pays management fees to a related company. Management fee
expense was approximately $262,000 and $264,000 for 1995 and 1996, respectively.
5. STOCKHOLDER DEBT
Stockholder debt consists of the following:
A note bearing interest at 7.5% per annum, payable semiannually (interest
expense totaled $155,868 and $83,428 in 1995 and 1996, respectively.) The note
matures on June 30, 1998 and requires repayment in Deutsche Marks. The
outstanding balance was DM 2,200,507 and DM 1,400,507 at December 31, 1995 and
1996, respectively ($1,534,079 and $908,123, respectively). Principle payments,
in U.S. dollars and stated at current exchange rates, are due as follows:
1997--$648,508 and 1998--$259,615. The note is unsecured and may be repaid at
any time without penalty.
A note bearing interest at a prime rate plus 1%, payable quarterly
(interest expense totaled $18,738 in 1996). The outstanding balance was $312,728
at December 31, 1996.
Additionally, the Company has payables to the stockholders totaling DM
2,108,295 and DM 337,174 at December 31, 1995 and 1996, respectively ($1,469,707
and $289,530, respectively). These payables do not bear interest and are due on
demand.
6. SHORT-TERM BORROWINGS
The Company has the following revolving loan facilities:
Facility with a bank which provides for borrowings up to DM 2,000,000
($1,300,000 at December 31, 1996). The Company had a balance outstanding of DM
1,080,672 and DM 2,458,499 at December 31, 1995 and 1996, respectively ($753,343
and $1,597,777, respectively). Interest is payable quarterly at a variable rate
(6.55% at December 31, 1996). The facility is secured by land and an office
building in Germany.
Facility with a bank which provides for borrowings up to $250,000. The
Company had a balance outstanding of $200,000 and $0 at December 31, 1995 and
1996, respectively. Interest is payable monthly at prime (8.25% at December 31,
1996). The facility is secured by all assets of the Company located in the
United States.
F-74
<PAGE> 187
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM OBLIGATIONS
The Company has the following long-term debt obligations:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Term loan payable to a bank, denominated in Deutsche
Marks, payable in annual installments of DM 1,200,000
($779,879 at December 31, 1996 exchange rates), matures
May 10, 1999. Interest payable quarterly at 6.92%.
Secured by land and office building in Germany. ........ $ 3,346,113 $ 2,339,463
Term loan payable to a bank, payable in annual
installments of $181,173 in addition to a balloon
payment of $920,000 due on December 15, 1997. Interest
is payable at the banks base rate plus 1% (9.25% at
December 31, 1996). .................................... 1,300,275 1,101,173
Capital lease obligations (see Note 8).................... 69,187 40,671
----------- -----------
4,715,575 3,481,307
Less current portion...................................... (1,065,374) (1,907,866)
----------- -----------
$ 3,650,201 $ 1,573,441
=========== ===========
</TABLE>
The amounts of all long-term obligations, excluding capital leases, to be
repaid for the years following December 31, 1996 are as follows:
<TABLE>
<S> <C> <C>
1997...................................................... $ 1,881,052
1998...................................................... 779,879
1999...................................................... 779,705
-----------
$ 3,440,636
===========
</TABLE>
8. LEASE COMMITMENTS
The aggregate future minimum fixed lease obligations for the Company as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASES LEASES
-------------- ---------
<S> <C> <C>
1997........................................................ $28,181 $212,541
1998........................................................ 10,509 285,670
1999........................................................ 4,618 35,287
2000........................................................ 385 --
------- --------
Total minimum lease payments................................ 43,693 $533,498
========
Less amounts representing interest.......................... 3,022
-------
Present value of minimum capital lease payments............. $40,671
=======
</TABLE>
Total rent expense for the Company's operating leases for the years ended
December 31, 1995 and 1996 was approximately $180,839 and $654,354.
F-75
<PAGE> 188
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. RETIREMENT PLAN
The Company has a 401(k) deferred compensation plan covering substantially
all U.S. employees meeting the service requirements defined in the plan. Under
the provisions of the plan, employees may elect to contribute up to 15% of their
wages. The Company may make matching contributions equal to a discretionary
percentage, to be determined by the Company. The Company made no contributions
to the plan for the years ended December 31, 1995 and 1996.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments is disclosed
in accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.
Cash, accounts receivable, and accounts payable
The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.
Short-term borrowings
The carrying amounts of the short-term borrowings approximates fair value
as the interest rates reflect market rates.
Long-term obligations
The fair value of the variable rate obligation approximates its fair value
since the interest rate reflects market rates. The fair value of the fixed rate
obligation is estimated to be $1,987,550 as compared to its carrying amount of
$2,339,463. The Company estimated the fair value based on estimated borrowing
rates for similar obligations with similar terms.
Note payable to stockholder
The carrying amount of the note payable approximates fair value based upon
current market rates and the remaining term to maturity.
11. CONTINGENCIES
The Company is a party to various lawsuits and claims in the normal course
of business. While the outcome of the lawsuits and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of these matters will not have a material effect on the Company. The
Company is undergoing a tax audit covering the years 1993 to 1996. Management is
currently not able to determine the effects on the financial statements, if any.
12. MAJOR CUSTOMERS
Two customers accounted for approximately 86% and 91% of the Company's net
sales in 1995 and 1996, respectively. In addition, approximately 86% and 81% of
the Company's total accounts receivable at December 31, 1995 and 1996,
respectively, were from these customers. Management believes the credit risk
associated with these customers to be minimal.
F-76
<PAGE> 189
THE HANNING COMPANIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. SEGMENT INFORMATION
The Company operates in one industry segment. The following table presents
sales and other financial information by geographic region for the years ended
December 31, 1995 and 1996.
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net sales:
United States........................................... $ 8,599,770 $11,641,318
Europe.................................................. 48,698,960 42,421,491
----------- -----------
Total net sales................................. $57,298,730 $54,062,809
=========== ===========
Operating loss:
United States........................................... $ (322,310) $ 475,000
Europe.................................................. (2,616,741) (2,686,719)
Eliminations............................................ 334,000 --
----------- -----------
Total operating loss............................ $(2,605,051) $(2,211,719)
=========== ===========
Identifiable assets:
United States........................................... $ 8,882,549 $ 7,222,715
Europe.................................................. 20,018,870 16,236,720
Eliminations............................................ (474,383) (1,630,488)
----------- -----------
Total assets.................................... $28,427,036 $21,828,947
=========== ===========
Depreciation and amortization:
United States........................................... $ 618,297 $ 494,497
Europe.................................................. 1,035,142 853,346
----------- -----------
Total........................................... $ 1,653,439 $ 1,347,843
=========== ===========
Capital Expenditures:
United States........................................... $ 516,959 $ 474,874
Europe.................................................. 428,502 554,485
----------- -----------
Total........................................... $ 945,461 $ 1,029,359
=========== ===========
</TABLE>
F-77
<PAGE> 190
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY HOLDINGS OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HOLDINGS SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information...................... i
Prospectus Summary......................... 1
Risk Factors............................... 15
The Company................................ 22
The Transactions........................... 24
Use of Proceeds............................ 27
Capitalization............................. 28
Selected Historical Consolidated Financial
Data..................................... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 33
The Exchange Offer......................... 44
Business................................... 51
Management................................. 61
Certain Beneficial Owners.................. 65
Certain Relationships and Related
Transactions............................. 66
Description of Notes....................... 67
Description of Certain Indebtedness........ 92
Certain Federal Income Tax
Considerations........................... 96
Book Entry; Form...........................
Plan of Distribution....................... 101
Legal Matters.............................. 102
Experts.................................... 102
Index to Unaudited Pro Forma Consolidated
Financial Statements..................... P-1
Index to Financial Statements.............. F-1
</TABLE>
UNTIL , 1998 (90 DAYS FOLLOWING THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS OBLIGATION IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS ON SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$68,000,000
AMM HOLDINGS, INC.
13 1/2% SENIOR
DISCOUNT NOTES
DUE 2009
------------------------
PROSPECTUS
------------------------
------------ , 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 191
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL"), as amended,
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL, as amended, empowers a Delaware corporation to
indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
such officer or director acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests, and, for
criminal proceedings, had no reasonable cause to believe his conduct was
unlawful. A Delaware corporation may indemnify officers and directors against
expenses (including attorneys' fees) in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
CERTIFICATE OF INCORPORATION
Article Eight of the Certificate of Incorporation of Holdings provides in
relevant part as follows:
EIGHTH: A director shall have no personal liability to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director; however, the foregoing provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct of a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware,
as so amended from time to time.
II-1
<PAGE> 192
BY-LAWS
Article VIII of the By-laws of Holdings provides as follows:
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than
Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
Section 4. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
withstanding the absence of any determination thereunder, any director, officer,
employee or agent may apply to any court of competent jurisdiction in the State
of Delaware for indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article VIII. The basis of such indemnification by a
court shall be a determination by such court that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be. Notice of any application for
II-2
<PAGE> 193
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application.
Section 5. Expenses Payable in Advance. Expenses incurred in defending or
investigating a threatened or pending action, suit or proceeding may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article VIII.
Section 6. Non-exclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be deemed
to preclude the indemnification of any person who is not specified in Sections 1
or 2 of this Article VIII but whom the Corporation has the power or obligation
to indemnify under the provisions of the General Corporation Law of the State of
Delaware, or otherwise.
Section 7. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article VIII.
Section 8. Meaning of "Corporation" for Purposes of Article VIII. For
purposes of this Article VIII, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees, or agents, so that any person
who is or was a director, officer, employee, or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
Section 9. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The following exhibits are filed as a part of this
Registration Statement:
<TABLE>
<S> <C>
3.1 Second Amended and Restated Certificate of Incorporation of
AMM Holdings, Inc. (formerly known as Anchor Acquisition
Co.)*
3.2 By-Laws of AMM Holdings, Inc.*
4.1 Indenture dated as of June 26, 1998 by and between AMM
Holdings, Inc. and State Street Bank and Trust Company, as
Trustee*
4.2 Form of 13 1/2% Senior Discount Note due 2009 (included in
Exhibit 4.1)*
4.3 Registration Rights Agreement dated as June 26, 1998 by and
between AMM Holdings, Inc. and the Initial Purchaser named
therein*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 Purchase Agreement dated as June 26, 1998 by and between AMM
Holdings, Inc. and the Initial Purchaser named therein*
</TABLE>
II-3
<PAGE> 194
<TABLE>
<S> <C>
12.1 Computation of Ratio of Earnings to Fixed Charges, Ratio of Earnings to Cash Interest Expense and Ratio
of Net Debt to EBITDA.*
16.1 Letter of PricewaterhouseCoopers LLP dated October 21, 1998.
21.1 List of Subsidiaries of AMM Holdings, Inc.*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney for AMM Holdings, Inc. (contained on the signature pages of this Registration
Statement)*
25.1 Statement of Eligibility and Qualification on Form T-1 of Trustee*
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Clients
99.4 Form of Letter to Brokers, Dealers, Trust Companies and Other Nominees*
99.5 Exchange Agent Agreement by and between AMM Holdings, Inc. and State Street Bank and Trust Company*
</TABLE>
- ---------------
* Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to between an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) That every prospectus: (i) that is filed pursuant to paragraph
(1) immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as a part of an amendment
to the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first-class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(4) To supply the means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Tennessee, on
November 2, 1998.
AMM HOLDINGS, INC.
By: /s/ GEORGE T. VOTIS
------------------------------------
Name: George T. Votis
Title: Chairman and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE T. VOTIS Chairman and Chief Executive November 2, 1998
- ------------------------------------------ Officer
George T. Votis
* President and Director November 2, 1998
- ------------------------------------------
Charles B. Schiele
/s/ PHYLLIS C. BEST Chief Financial Officer November 2, 1998
- ------------------------------------------
Phyllis C. Best
*By: /s/ PHYLLIS C. BEST Attorney-in-Fact November 2, 1998
-----------------------------------
Phyllis C. Best
</TABLE>
II-5
<PAGE> 196
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Second Amended and Restated Certificate of Incorporation of
AMM Holdings, Inc. (formerly known as Anchor Acquisition
Co.)*
3.2 By-Laws of AMM Holdings, Inc.*
4.1 Indenture dated as of June 26, 1998 by and between AMM
Holdings, Inc. and State Street Bank and Trust Company, as
Trustee*
4.2 Form of 13 1/2% Senior Discount Note due 2009 (included in
Exhibit 4.1)*
4.3 Registration Rights Agreement dated as June 26, 1998 by and
between AMM Holdings, Inc. and the Initial Purchaser named
therein*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 Purchase Agreement dated as June 26, 1998 by and between AMM
Holdings, Inc. and the Initial Purchaser named therein*
12.1 Computation of Ratio of Earnings to Fixed Charges, Ratio of
Earnings to Cash Interest Expense and Ratio of Net Debt to
EBITDA.*
16.1 Letter of PricewaterhouseCoopers LLP dated October 21, 1998.
21.1 List of Subsidiaries of AMM Holdings, Inc.*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney for AMM Holdings, Inc. (contained on the
signature pages of this Registration Statement)*
25.1 Statement of Eligibility and Qualification on Form T-1 of
Trustee*
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Clients
99.4 Form of Letter to Brokers, Dealers, Trust Companies and
Other Nominees*
99.5 Exchange Agent Agreement by and between AMM Holdings, Inc.
and State Street Bank and Trust Company*
</TABLE>
- ------------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 5.1
November 2, 1998
AMM Holdings, Inc.
1111 Northshore Drive, Suite N-600
Knoxville, Tennessee 37919-4048
Re: AMM Holdings, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel to AMM Holdings, Inc., a
Delaware corporation (the "Company"), in connection with the public offering of
$68,000,000 aggregate principal amount at maturity of the Company's 13 1/2%
Senior Discount Notes due 2009 (the "Notes"). The Notes are to be issued
pursuant to an exchange offer (the "Exchange Offer") in exchange for a like
principal amount at maturity of the issued and outstanding 13 1/2% Senior
Discount Notes due 2009 of the Company (the "Old Notes") under the Indenture,
dated as of June 26, 1998 (the "Indenture"), by and between the Company and
State Street Bank and Trust Company, as Trustee (the "Trustee"), as contemplated
by the Registration Rights Agreement, dated June 26, 1998 (the "Registration
Rights Agreement"), by and between the Company and Donaldson, Lufkin & Jenrette
Securities Corporation.
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-4 as filed with the Securities and Exchange
Commission (the
<PAGE> 2
AMM Holdings, Inc.
November 2, 1998
Page 2
"Commission") on August 7, 1998 under the Act and Amendment No. 1 thereto filed
with the Commission on November 2, 1998 (as so amended, the "Registration
Statement"); (ii) an executed copy of the Registration Rights Agreement; (iii)
an executed copy of the Indenture; (iv) the Restated Certificate of
Incorporation of the Company, as amended to date; (v) the By-Laws of the
Company, as amended to date; (vi) certain resolutions adopted by the Board of
Directors of the Company relating to the Exchange Offer, the issuance of the
Old Notes and the Notes, the Indenture and related matters; (vii) the Form T-1
of the Trustee filed as an exhibit to the Registration Statement; and (viii)
the form of the Notes. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
other representatives of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof. As to any facts material to the opinions expressed
herein which we have not independently established or verified, we have relied
upon statements and representations of officers and other representatives of the
Company and others.
Members of our firm are admitted to the bar in the State of
New York, and we do not express any opinion as to the laws of any other
jurisdiction other than Delaware corporate law.
In rendering the opinion set forth below, we have assumed that
the execution, authentication and delivery by the Company of the Notes do not
and will not violate, conflict with or constitute a default under (i) any
agreement or instrument to which the Company or its properties is subject
(except that we do not make the
<PAGE> 3
AMM Holdings, Inc.
November 2, 1998
Page 3
assumption set forth in this clause (i) with respect to the Company's Restated
Certificate of Incorporation, the Company's By-Laws, the Indenture, or the
Registration Rights Agreement), (ii) any law, rule, or regulation to which the
Company is subject (except that we do not make the assumption set forth in this
clause (ii) with respect to Delaware corporate law and those laws, rules and
regulations of the State of New York and the United States of America, in each
case, which, in our experience, are normally applicable to transactions of the
type contemplated by the Exchange Offer (other than the United States federal
securities laws, state securities or Blue Sky laws, antifraud laws and the
rules and regulations of the National Association of Securities Dealers, Inc.),
but without our having made any special investigation with respect to any other
laws, rules or regulations), (iii) any judicial or regulatory order or decree
of any governmental authority or (iv) any consent, approval, license,
authorization or validation of, or filing, recording or registration with any
governmental authority.
Based upon and subject to the foregoing, we are of the opinion
that when the Notes have been duly executed and authenticated in accordance with
the terms of the Indenture and have been delivered upon consummation of the
Exchange Offer in accordance with the terms of the Exchange Offer, the Notes
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and (2) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
--------------------------------------------
Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE> 1
EXHIBIT 16.1
[PricewaterhouseCoopers Letterhead]
October 21, 1998
Securities and Exchange Commission
450 5th Street, NW
Washington, DC 20549
Gentlemen,
We have read, and agree with, the statements concerning our Firm made by AMM
Holdings, Inc. in the section entitled "Experts" in the Prospectus constituting
part of the Registration Statement on Form S-4 of AMM Holdings, Inc.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
DT/rgt
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to inclusion in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-4 (File No. 333-60855)
of AMM Holdings, Inc. of our report dated February 20, 1998, relating to the
financial statements of Anchor Holdings, Inc., which report appears in such
Prospectus. We also consent to the references to us under the heading "Experts"
in the Prospectus.
PricewaterhouseCoopers LLP
Knoxville, Tennessee
October 28, 1998
<PAGE> 1
EXHIBIT 23.2
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the financial statements of Moll PlastiCrafters Limited Partnership, The
Hanning Companies and Somomeca Industries, and to all references to our firm
included in or made a part of this registration statement of AMM Holdings, Inc.,
relating to the registration if its 13.5% Senior Discount Notes due 2009.
/s/ Arthur Andersen LLP
Nashville, Tennessee
October 30, 1998
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
AMM HOLDINGS, INC.
OFFER FOR ALL OUTSTANDING
13 1/2% SENIOR DISCOUNT NOTES DUE 2009
IN EXCHANGE FOR
13 1/2% SENIOR DISCOUNT NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO THE PROSPECTUS, DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT P.M. NEW YORK CITY TIME,
ON [ ], 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO [ ] P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
DELIVERY TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand: in New York (as Drop Agent) By Hand: in Boston
State Street Bank and Trust Company, N.A. State Street Bank and Trust Company
61 Broadway, 15th Floor Two International Place
Corporate Trust Window Fourth Floor, Corporate Trust
New York, New York 10006 Boston, Massachusetts 02110
Attention: Corporate Trust Department
Kellie Mullen
</TABLE>
For Information Call:
(617) 664-5587
By Facsimile Transmission
(for Eligible Institutions only):
(617) 664-5290
Attention: Corporate Trust Department
Confirm by Telephone:
(617) 664-5587
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
The undersigned acknowledges that he has received and reviewed the
Prospectus, dated [ ], 1998 (the "Prospectus"), of AMM Holdings,
Inc., a Delaware corporation ("Holdings"), and this Letter of Transmittal (the
"Letter"), which together constitute Holdings' offer (the "Exchange Offer") to
exchange up to $68,000,000 aggregate principal amount at maturity of Holdings'
13 1/2% Senior Discount Notes due 2009 (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount at maturity of Holdings' issued and outstanding
13 1/2% Senior Discount Notes due 2009 (the "Old Notes") from the registered
holders thereof (the "Holders").
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The Old Notes were issued at a substantial discount from their
principal amount at maturity. Original issue discount on the Notes will accrete
at a rate of 13 1/2%, compounded semi-annually to an aggregate principal amount
$68.0 million at July 1, 2003. Cash interest will not accrue on the Notes prior
to July 1, 2003. Commencing July 1, 2003, cash interest on the Notes will accrue
at the rate of 13 1/2% per annum, and will be payable semiannually in arrears on
January 1 and July 1 of each year, commencing January 1, 2004, to Holders of
record on the immediately preceding
<PAGE> 2
May 15 and December 15. No cash interest will be payable on the Notes prior to
January 1, 2004. 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 July 1,
2003. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or 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" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount at
maturity of Old Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- --------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL
AMOUNT AT PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE MATURITY OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes
represented by the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be
in denominations of principal amount of $1,000 and any integral multiple thereof. See Instruction 1.
- --------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
---------------------------------------------
Account Number Transaction Code Number
------------------ -----------------
2
<PAGE> 3
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
--------------------------------------------
Window Ticket Number (if any)
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------
Name of Institution Which Guaranteed Delivery
-----------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number Transaction Code Number
------------------------------------- -------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
---------------------------------------------------------------------------
Address:
----------------------------------------------------------------------------
The undersigned represents that (A) it is not an Affiliate (as defined in
Rule 144 of the Securities Act), (B) it is not engaged in, and does not intend
to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes, and (C) it is
acquiring the New Notes in its ordinary course of business. If the undersigned
is a broker-dealer that will receive New Notes for its own account in exchange
for Old Notes that were acquired as a result of market-making activities or
other trading activities, it acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act , in connection with any resale
of such New Notes; however, by so acknowledging and by delivering such a
prospectus the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. If the undersigned is a
broker-dealer that will receive New Notes, it represents that the Old Notes to
be exchanged for the New Notes were acquired as a result of market-making
activities or other trading activities.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to Holdings the aggregate principal amount at
maturity of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, Holdings all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among other
things, to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned hereby represents and warrants that the undersigned has full power
and authority to tender, sell, assign and transfer the Old Notes, and to acquire
Exchange Notes issuable upon the exchange of such tendered Old Notes, and that,
when the same are accepted for exchange, Holdings will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by Holdings. The undersigned hereby further represents that any New Notes
acquired in exchange for Old Notes tendered hereby will have been acquired in
the ordinary course of business of the person receiving such New Notes, whether
or not such person is the undersigned, that neither the Holder of such Old Notes
nor any such other person is participating in, intends to participate in or has
an arrangement or understanding with any person to participate in the
distribution of such New
3
<PAGE> 4
Notes and that neither the Holder of such Old Notes nor any such other person is
an "affiliate," as defined in Rule 405 under the Securities Act, of Holdings.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold or otherwise transferred by
Holders thereof (other than any such Holder that is an "affiliate" of Holdings
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holders' business and such Holders have no arrangement or understanding with any
person to participate in the distribution of such New Notes. However, the SEC
has not considered the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
The undersigned represents that (A) it is not an Affiliate (as defined in Rule
144 of the Securities Act), (B) it is not engaged in, and does not intend to
engage in, a distribution of New Notes and has no arrangement or understanding
to participate in a distribution of New Notes, and (C) it is acquiring the New
Notes in its ordinary course of business. As a condition to its participation in
the Exchange Offer each Holder using the Exchange Offer to participate in a
distribution of the New Notes acknowledges and agrees that, if the resales are
of New Notes obtained by such Holder in exchange for Old Notes acquired directly
from Holdings or an Affiliate thereof it (i) could not rely on the applicable
interpretations of the staff of the of the Commission and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction and that such a secondary
resale transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507 or 508,
as applicable, of Regulation S-K under the Securities Act. If the undersigned is
a broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, it represents that the Old Notes to be exchanged for the New Notes
were acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus meeting the
requirements of the Securities Act, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by Holdings to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
4
<PAGE> 5
- -----------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- -----------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter above, or if Old
Notes delivered by book-entry transfer which are not accepted for exchange are
to be returned by credit to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s)
-----------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
-----------------------------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- -------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on
this Letter above.
Mail: New Notes and/or Old Notes to:
Name(s)
------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(ZIP CODE)
- -------------------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO [ ] P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
5
<PAGE> 6
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
X
- ---------------------------------------------------------------------- , 1998
X
- ---------------------------------------------------------------------- , 1998
- -----------------------------------------------------------------------------
Signature(s) of Owner Date
Area Code and Telephone Number
------------------------------------
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
- -------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name and Firm)
Dated: , 1998
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
13 1/2% SENIOR DISCOUNT NOTES DUE 2009 OF AMM HOLDINGS, INC. IN EXCHANGE FOR THE
13 1/2% SENIOR DISCOUNT NOTES DUE 2009 OF AMM HOLDINGS, INC.,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to [ ] P.M., New York City time, on the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by Holdings (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by this Letter will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are received by the Exchange Agent within three NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be
registered mail, properly insured, with return receipt requested, made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to [ ] P.M., New York City time, on the Expiration
Date. No letters or Old Notes should be sent to Holdings.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
7
<PAGE> 8
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by Holdings, proper
evidence satisfactory to Holdings, of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A FINANCIAL
INSTITUTION (INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND BROKERAGE
HOUSES) THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION
PROGRAM, THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR THE STOCK
EXCHANGES MEDALLION PROGRAM (EACH AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED
THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Noteholders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide Holdings (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering holder who is an individual, is his or
her social security number. If Holdings is not provided with the current TIN or
an adequate basis for an exemption from backup withholding, such tendering
holder may be subject to a $50 penalty imposed by the
8
<PAGE> 9
Internal Revenue Service. In addition, the Exchange Agent may be required to
withhold 31% of the amount of any reportable payments made after the exchange to
such tendering holder of New Notes. If withholding results in an overpayment of
taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such holder is awaiting a TIN) and that (i) the holder is exempt from
backup withholding, or (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Old Notes is a nonresident alien or
foreign entity not subject to backup withholding, such holder must give the
Exchange Agent a completed Form W-8, Certificate of Foreign Status. These forms
may be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, such holder should consult the
W-9 Guidelines for information on which TIN to report. If such holder does not
have a TIN, such holder should consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write
"applied for" in lieu of its TIN. Note: Checking this box and writing "applied
for" on the form means that such holder has already applied for a TIN or that
such holder intends to apply for one in the near future. If the box in Part 2 of
the Substitute Form W-9 is checked, the Exchange Agent will retain 31% of
reportable payments made to a holder during the sixty (60) day period following
the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent
with his or her TIN within sixty (60) days of the Substitute Form W-9, the
Exchange Agent will remit such amounts retained during such sixty (60) day
period to such holder and no further amounts will be retained or withheld from
payments made to the holder thereafter. If, however, such holder does not
provide its TIN to the Exchange Agent within such sixty (60) day period, the
Exchange Agent will remit such previously withheld amounts to the Internal
Revenue Service as backup withholding and will withhold 31% of all reportable
payments to the holder thereafter until such holder furnishes its TIN to the
Exchange Agent.
6. TRANSFER TAXES.
Holdings will pay all transfer taxes, if any, applicable to the transfer of
Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
Holdings or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
Holdings reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
9
<PAGE> 10
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither Holdings, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to [ ] P.M.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written notice
of withdrawal must be received by the Exchange Agent at the address set forth
above prior to [ ] P.M., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including certificate number or numbers and the principal
amount of such Old Notes), (iii) contain a statement that such holder is
withdrawing his election to have such Old Notes exchanged, (iv) be signed by the
holder in the same manner as the original signature on the Letter by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes in the name of the person
withdrawing the tender and (v) specify the name in which such Old Notes are
registered, if different from that of the Depositor. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by Holdings, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes that have been tendered for exchange but which are not
exchanged for any reason will be returned to the Holder thereof without cost to
such Holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus, such Old Notes will be credited to an
account maintained with the Book-Entry Transfer Facility for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following the
procedures described above at any time on or prior to [ ] P.M., New York
City time, on the Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices of
Guaranteed Delivery and other related documents may be directed to the Exchange
Agent, at the address and telephone number indicated above.
10
<PAGE> 11
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY
- --------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT
FORMW-9 AND CERTIFY BY SIGNING AND DATING BELOW.
TIN: --------------------------
Social Security Number or
Employer Identification Number
-------------------------------------------------------------------------------------------
PART 2--TIN Applied For [ ]
---------------------------------------------------------------------------------------------
Department of the CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Treasury, Internal
Revenue Service (1) the number shown on this form is my correct Taxpayer Identification Number (or
PAYOR'S REQUEST FOR I am waiting for a number to be issued to me);
TAXPAYER IDENTIFICATION
NUMBER ("TIN") AND (2) I am not subject to backup withholding because: (a) I am exempt from backup
CERTIFICATION withholding, or (b) I have not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividend, or (c) the
IRS has notified me that I am no longer
subject to backup withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE----------------------------------------------- DATE------------------
- --------------------------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject
to backup withholding because of underreporting interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding.
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of the
exchange, 31 percent of all reportable payments made to me thereafter will be
withheld until I provide a number.
- -------------------------------------- ----------------------
Signature Date
11
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
AMM HOLDINGS, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of AMM Holdings, Inc., a Delaware corporation ("Holdings") made
pursuant to the Prospectus, dated [ ], 1998 (the "Prospectus"), if
certificates for the outstanding 13 1/2% Senior Discount Notes due 2009 of
Holdings (the "Old Notes") are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach State Street Bank and Trust Company, as
exchange agent (the "Exchange Agent") prior to [ ] P.M., New York City time,
on the Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by facsimile transmission, mail or hand delivery to the Exchange
Agent as set forth below. In addition, in order to utilize the guaranteed
delivery procedure to tender Old Notes pursuant to the Exchange Offer, a
completed, signed and dated Letter of Transmittal (or facsimile thereof) must
also be received by the Exchange Agent prior to [ ] P.M., New York City
time, on the Expiration Date. Capitalized terms not defined herein are defined
in the Prospectus.
DELIVERY TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand: in New York (as Drop Agent) By Hand: in Boston
State Street Bank and Trust Company, N.A. State Street Bank and Trust Company
61 Broadway, 15th Floor Two International Place
Corporate Trust Window Fourth Floor, Corporate Trust
New York, New York 10006 Boston, Massachusetts 02110
Attention: Corporate Trust Department
Kellie Mullen
</TABLE>
For Information Call:
(617) 664-5587
By Facsimile Transmission
(for Eligible Institutions only):
(617) 664-5290
Attention: Corporate Trust Department
Confirm by Telephone:
(617) 664-5587
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to Holdings
the aggregate principal amount at maturity of Old Notes set forth below pursuant
to the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Principal Amount at Maturity of Old Notes Tendered. $
------------------------ *
Certificate Nos. (if available):
-------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$
------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT AT MATURITY REPRESENTED BY OLD NOTES CERTIFICATE(S)
If Old Notes will be delivered by book-entry transfer to The Depository Trust
Company, provide account number.
Account Number:
------------------------------------------------------------------------------
-----------------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
PLEASE SIGN HERE
<TABLE>
<S> <C>
X
--------------------------------------------------- ---------------------------------------------------
X
--------------------------------------------------- --------------------------------------------------
Signature(s) of Owner(s) or Authorized Signatory Date
</TABLE>
Area Code and Telephone Number:
Must be signed by the holder(s) of Old Notes as their name(s) appear(s)
on certificates for Old Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Capacity:
------------------------------------------------------------------------------
Address(es):
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the certificates representing the principal amount at maturity of Old Notes
tendered hereby in proper form for transfer, or timely confirmation of the
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company pursuant to the procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with
any required signature guarantee and any other documents required by the Letter
of Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three New York Stock Exchange trading days after the date
of execution of this Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
- ----------------------------------------------------- -----------------------------------------------------
Name of Firm Authorized Signature
- ----------------------------------------------------- -----------------------------------------------------
Address Title
Name: ---------------------------------------------
- -----------------------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. --------------------------- Dated: ---------------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
3
<PAGE> 1
EXHIBIT 99.3
AMM HOLDINGS, INC.
OFFER FOR ALL OUTSTANDING
13 1/2% SENIOR DISCOUNT NOTES DUE 2009
IN EXCHANGE FOR
13 1/2% SENIOR DISCOUNT NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated [ ], 1998
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of AMM Holdings,
Inc., a Delaware corporation ("Holdings") to exchange up to $68,000,000
aggregate principal amount at maturity of its 13 1/2% Senior Discount Notes due
2009 (the "New Notes"), which have been registered under the Securities Act of
1933, as amended, for a like principal amount at maturity of its issued and
outstanding 13 1/2% Senior Discount Notes due 2009 (the "Old Notes"), upon the
terms and subject to the conditions described in the Prospectus and the Letter
of Transmittal. The Exchange Offer is being made in order to satisfy certain
obligations of Holdings contained in the Registration Rights Agreement dated
June 26, 1998, by and among Holdings, and the initial purchaser referred to
therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes held by us for your account but not registered in your name. A TENDER OF
SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at [ ]
P.M., New York City time, on [ ], 1998, unless extended by Holdings.
Any Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section captioned "The Exchange Offer-Certain
Conditions to the Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to Holdings will be paid by Holdings, except as otherwise provided
in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at [ ] P.M., New York City time, on
[ ], 1998, unless extended by Holdings.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE> 2
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by AMM
Holdings, Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF OLD NOTES
---------------------------------------------------
<S> <C>
13 1/2% Senior Discount Notes due 2009.......
[ ] Please do not tender any Old Notes held
by you for my account.
Dated: ____________________, 1998
------------------------------------------------
SIGNATURE(S)
------------------------------------------------
------------------------------------------------
PLEASE PRINT NAME(S) HERE
------------------------------------------------
------------------------------------------------
ADDRESS(ES)
------------------------------------------------
AREA CODE AND TELEPHONE NUMBER
------------------------------------------------
TAX IDENTIFICATION OR SOCIAL SECURITY NO(S).
</TABLE>
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
2
