<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the fiscal year ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 33-88007
LLS CORP.
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(Exact name of registrant as specified in its character)
<TABLE>
<S> <C>
ILLINOIS 36-2741439
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
101 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63105
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(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (314) 727-1701
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the last 90 days.
X YES NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [x]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid asked prices of such common equity, as of a specified date within 60
days prior to the date of filing.
The Common Stock of the registrant is not publicly traded or registered and,
therefore, no market value, whether held by affiliates or non-affiliates, can be
readily ascertained.
Indicate the number of shares outstanding of each of the registrants's classes
of common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS NOVEMBER 30, 2000
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COMMON STOCK 55,333,333
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE> 2
PART I
ITEM 1. BUSINESS
THE RECAPITALIZATION
On July 30, 1999, Hicks, Muse, Tate & Furst, Incorporated, a leading
private investment firm ("Hicks Muse"), and Mills & Partners, Inc., a St.
Louis-based investment and management services firm, together with our
then-existing shareholders, completed a recapitalization of the Company (the
"Recapitalization") pursuant to which Hicks Muse and its affiliates purchased
approximately 68.5% of the outstanding capital stock (see note 1 to the
Company's Consolidated Financial Statements).
GENERAL
We are a leading, fully-integrated custom designer, manufacturer and
marketer of precision injection molds and molded plastic components, closures
and dispensing systems used in (1) medical devices and pharmaceutical products,
(2) consumer products and (3) food and beverage products.
PRODUCTS AND SERVICES
Our offering of products and services includes the following:
Mold Design and Development. We design and manufacture custom-made molds
for our customers and for our own proprietary use. The molds we develop for our
customers are used in all of the markets we serve, and the molds we develop for
our own proprietary use are used primarily to produce plastic closures for
applications in bottled beverage products, food products and personal care
products. The typical production cycle of a custom-made mold includes product
concept development, design and precision mold tool construction.
Injection Molded Products. We manufacture precision injection molded
plastic components, closures and dispensing systems used in all of the markets
we serve. Our injection molded components are used in a variety of medical
devices which include insulin pens, inhalers, diagnostic test kits and vials.
Our closure and dispensing systems are used to cap or dispense products which
include (1) pull/push and twist top closures used to cap plastic bottles,
(2) hinged and twist top closures for food products and (3) tilt top closures
for food and personal care products.
Value-Added Assembly Services. Our assembly activities consist of
continuous motion, multi-component, pick-and-place assembly of plastic
components. We work closely with our customers to develop equipment, process
controls and assembly techniques to facilitate the delivery of high quality,
fully assembled products.
Supplier-Managed Inventory Programs. As an additional value-added service,
we offer supplier-managed inventory programs to some of our largest customers.
In such programs, we manufacture and ship consignment inventory on an as-needed
basis to customer-owned warehouses. Participating customers manage their
inventory positions through the use of electronic data interface systems shared
with us.
RAW MATERIALS AND PRODUCTION
The principal raw materials for our plastic products are polypropylene and
polyethylene resins. While prices for resins can fluctuate over relatively short
periods of time, historically, we have been able to pass a significant portion
of resin price increases on to our customers on a timely basis. In order to
produce our products, the resin, which is delivered as small pebble-size pellets
to large storage silos, is conveyed through a pipeline system to an injection
molding machine, where it is melted into a thick liquid state. Coloring agents
are added as appropriate and the mixture is injected at high pressure into a
specially designed, multi-cavity mold. The principal equipment in our plants
includes injection molding machines (we operate approximately 180 molding
machines ranging in size from 55 to 715 tons clamping pressure), finishing
lines, high speed, multi-component, pick and place assembly machines, and
automated systems for handling and processing raw materials and finished goods.
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We design and manufacture substantially all of our own molds. We believe
our mold expertise has led to reduced costs due to shorter molding cycle times
and enhanced reliability and longevity of our tooling.
SALES, MARKETING AND CUSTOMER SERVICE
We market our products primarily through our internal sales department. We
also utilize independent sales representatives to market our products. Calls on
customers by these salespersons and representatives, along with participation at
trade shows, are the primary means of customer contact. A number of our
customers are large corporate clients with numerous production facilities, many
of which may make their own separate purchase decisions. Our two largest
customers, Colgate-Palmolive and Abbott Laboratories, accounted for
approximately 27% and 14% and 22% and 12% of our sales, respectively, during
2000 and 1999. No other customers accounted for more than 10% of our sales
during 2000 and 1999. Many of our customers have been doing business with us
for more than ten years.
Attention to customer service is a critical component of our marketing
effort. Our customers operate high-speed, high-volume production lines.
Customers rely on our ability to provide reliable, on-time delivery of our
products and to maintain the uniform quality of those products.
COMPETITION
We believe that the most important factors in marketing our products are
price, product design, product quality, reliability and customer service.
Among the attributes that distinguish us from other sellers of such products and
provide a competitive advantage include our:
- ability to provide our customers with innovative, low-cost products;
- reputation for quality, reliability and service; and
- highly automated production facilities and in-house tool manufacturing
capability.
We face direct competition in each of our product lines from a number of
companies, many of which have financial and other resources that are
substantially greater than ours. As we broaden our product offerings, we expect
to meet increased competition from additional competitors with entrenched
positions in those product lines. We also face competition from medical and
pharmaceutical companies and other consumer and food and beverage providers that
elect to produce their own devices, closures and dispensing systems rather than
purchase them from outside sources. In addition, the packaging industry has
numerous well-capitalized competitors, and there is a risk that these companies
will expand their product offerings, either through internal product development
or acquisitions of any of our direct competitors, to compete in the niche
markets that we currently serve.
INTELLECTUAL PROPERTY
We hold more than 40 patents covering various aspects of the design and
construction of our food and beverage products. None of our patents cover design
aspects of our medical devices, pharmaceutical products or consumer products.
Our patents were granted between 1985 and 2000 and the earliest expiration date
will be in 2002. We consider the patents valuable to our food and beverage
products as they illustrate our innovative design ability and product
development capabilities. However, we do not believe that the loss or expiration
of any particular patent would have a material impact on our revenues.
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ENVIRONMENTAL
Certain of our operations are subject to federal, state and local
environmental laws and regulations that govern, among other things, the
discharge of pollutants into the air and water, as well as the handling and
disposal of solid and hazardous wastes. We believe that we are in material
compliance with applicable environmental laws and that the costs of compliance
with such current or proposed environmental laws and regulations will not have a
material adverse effect on us. Further, we are not a party to any claim or
proceeding and are not aware of any threatened claim or proceeding under
environmental laws that could, if adversely decided, reasonably be expected to
have a material adverse effect on our financial condition or results of
operations.
EMPLOYEES
As of September 30, 2000, we had approximately 1,300 employees, none of
which are party to any collective bargaining agreements. We have not experienced
any labor problems resulting in a work stoppage, and believe we have good
relations with our employees.
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ITEM 2. PROPERTIES
We own or lease six modern production facilities, which operate five to
seven days a week, 24 hours a day, and one warehouse facility. The production
facilities are efficient due to automation and scheduled maintenance in the
plants. We believe that these facilities are well-maintained and in good
operating condition and anticipate that the facilities themselves will be
sufficient to meet our needs for the next several years. We cannot guarantee,
however, that unanticipated developments will not occur that would require us to
add production facilities sooner than expected. The following table indicates
the locations, square footage, nature of ownership and principal use of our
facilities:
<TABLE>
<CAPTION>
APPROXIMATE
FACILITY SQUARE FOOTAGE OWNED/LEASED PRINCIPAL USE
-------- -------------- ------------ -------------
<S> <C> <C> <C>
800 Corporate Grove Dr. 265,000 Land & building owned Headquarters and manufacturing
Buffalo Grove, Illinois
700 Corporate Grove Dr. 342,000 Land & building owned Headquarters and manufacturing
Buffalo Grove, Illinois
600 Deerfield Parkway 311,000 Land leased/building Manufacturing
Buffalo Grove, Illinois owned
1019-1021 Noel Avenue 66,000 Leased Manufacturing
Wheeling, Illinois
200 Masters Boulevard 169,000 Land & building Manufacturing
Anderson, South Carolina leased
2491 Vista Drive 11,000 Owned Manufacturing
Lake Geneva, Wisconsin
913 Commerce 98,000 Leased Warehouse
Buffalo Grove, Illinois
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative
actions, all of which are of an ordinary or routine nature incidental to the
operations of the Company. In the opinion of the Company's management, such
proceedings and actions should not, individually or in the aggregate, have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of the Company's outstanding common stock is privately held and there
is no established public trading market for such common stock. The Company has
paid no dividends to common stockholders since the Recapitalization and its
ability to pay such dividends is limited by the terms of its Amended Credit
Agreement and the Indenture pursuant to which it issued its Notes (see note 6 to
the Company's Consolidated Financial Statements).
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ITEM 6. SELECTED FINANCIAL DATA
The historical financial data for the fiscal years ended September 30,
1998, 1999 and 2000 have been derived from, and should be read in conjunction
with, the audited combined financial statements of Courtesy Corporation and its
affiliates and the audited consolidated financial statements of LLS Corp. (the
"Company") included elsewhere in this Form 10-K. The historical financial data
for the fiscal years ended September 30, 1996 and 1997 has been derived from
the audited combined financial statements of Courtesy Corporation and its
affiliates not included in this Form 10-K. The following information should be
read in conjunction with the audited combined financial statements of Courtesy
Corporation and its affiliates and the audited consolidated financial
statements of LLS Corp. and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
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COURTESY CORPORATION AND AFFILIATES LLS CORP.
------------------------------------ ---------------------
1996 1997 1998 1999 2000
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(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $101,366 $129,485 $172,608 $171,703 $162,050
Cost of sales.......................... 67,248 88,153 120,986 121,101 119,515
-------- -------- -------- -------- --------
Gross profit........................... 34,118 41,332 51,622 50,602 42,535
Operating expenses..................... 9,507 11,974 15,064 17,363 18,042
Other(1)............................... -- -- -- 1,220 4,315
-------- -------- -------- -------- --------
Operating income....................... 24,611 29,358 36,558 32,019 20,178
Interest expense, net.................. 1,389 1,535 1,315 6,835 25,533
Amortization of deferred financing
costs................................ -- -- -- 428 2,719
-------- -------- -------- -------- --------
Income (loss) before income taxes...... 23,222 27,823 35,243 24,756 (8,074)
Income tax provision (benefit)......... 84 277 188 3,260 (2,892)
-------- -------- -------- -------- --------
Income (loss) before minority
interest............................. 23,138 27,546 35,055 21,496 (5,182)
Minority interest...................... 718 1,060 1,225 171 --
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Net income (loss)...................... $ 22,420 $ 26,486 $ 33,830 $ 21,325 $ (5,182)
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization.......... $ 5,795 $ 8,224 $ 9,896 $ 13,517 $ 14,684
Operating cash flows................... 29,839 29,670 37,206 49,414 4,186
Investing cash flows................... (21,071) (13,937) (31,303) (20,800) (13,076)
Financing cash flows................... (9,444) (15,900) (5,106) (25,651) 4,750
EBITDA(2).............................. 30,406 37,582 46,454 46,756 39,177
Capital expenditures................... 21,107 13,937 31,330 20,800 13,076
Total assets........................... 87,866 105,343 129,826 169,200 156,871
Long-term obligations (including
current portion)..................... 20,452 19,188 29,925 245,000 250,300
</TABLE>
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(1) Represents non-recurring Recapitalization related expenses which includes
among other things, legal fees, bonuses and severance related payments.
(2) Earnings before interest, taxes, depreciation, amortization, other and
minority interest ("EBITDA") is a key financial measure but should not be
construed as an alternative to operating income or cash flows from operating
activities, as determined in accordance with generally accepted accounting
principles. EBITDA is generally considered to provide information regarding
a company's ability to service indebtedness and it is included herein to
provide additional information with
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respect to the ability of the Company to meet its future debt service
requirements. EBITDA is also one of the financial measures by which our
covenants are calculated under our debt instruments.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company has made forward-looking statements in this Form 10-K,
including this section entitled "Management's Discussion and Analysis of Results
of Operations and Financial Condition" that are based on management's beliefs
and assumptions and on information currently available to management.
Forward-looking statements include the information concerning our possible or
assumed future results of operations, business strategies, financing plans,
competitive position, potential growth opportunities, benefits resulting from
the transactions completed and the effects of competition. Forward-looking
statements include all statements that are not historical facts and can be
identified by the use of forward-looking terminology such as the words
"believes," "expects," "anticipates," "intends," "plans," "estimates," or other
similar expressions. Forward-looking statements involve risks, uncertainties
and assumptions. Actual results may differ materially from those expressed in
these forward-looking statements. Undue reliance should not be put on any
forward-looking statements.
The Company does not have any intention or obligation to update
forward-looking statements after distribution of this Form 10-K. Many important
factors could cause the Company's results to differ materially from those
expressed in forward-looking statements. These factors include, but are not
limited to, fluctuations in operating results and customer orders, competitive
environment, reliance on our largest customers, our ability to obtain raw
materials, our ability to protect our patents and trade secrets, environmental
laws and regulations, risk associated with our acquisition strategy, our
substantial indebtedness and control by our largest stockholders.
THE RECAPITALIZATION
On July 30, 1999, Hicks, Muse and Mills & Partners together with our
then-existing shareholders, completed a Recapitalization of the Company pursuant
to which Hicks Muse and its affiliates purchased approximately 68.5% of the
outstanding capital stock (see note 1 to the Company's Consolidated Financial
Statements).
RESULTS OF OPERATIONS
The following table is derived from the audited combined financial
statements of Courtesy Corporation and its affiliates and the audited
consolidated financial statements of the Company included elsewhere in this
Form 10-K and sets forth certain items for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
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COURTESY
CORPORATION
AND
AFFILIATES LLS CORP.
----------------- ----------------------------------------
1998 1999 2000
----------------- ----------------- -------------------
(IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $172,608 100.0% $171,703 100.0% $162,050 100.0%
Cost of sales................... 112,608 65.2% 110,546 64.4% 108,420 66.9%
Operating expenses.............. 13,546 7.9% 14,401 8.4% 14,453 8.9%
Other........................... -- -- 1,220 0.7% 4,315 2.7%
Depreciation and
amortization(1)............... 9,896 5.7% 13,517 7.9% 14,684 9.1%
-------- -------- --------
Operating income................ 36,558 21.2% 32,019 18.6% 20,178 12.5%
======== ======== ========
</TABLE>
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(1) Depreciation and amortization has been excluded from cost of sales and
operating expenses, and reflected as a separate component of operating
income for all of the periods presented. Had depreciation and amortization
been classified as a component of cost of sales and operating expenses, the
cost of sales, and cost of sales as a percentage of net sales, would be
$120,986, or 70.1%, $121,101, or 70.5%, and $119,515 or 73.8% for the
fiscal years ended September 30, 1998, 1999 and 2000, respectively, with no
effect on the operating income presented.
Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September
30, 1999
Net sales -- Net sales of $162.1 million during the year ended September
30, 2000 decreased $9.7 million or 5.6%, compared to the same period in 1999.
This net decrease was due primarily to delays in a major project and weakened
demand from certain international customers partially offset by increased
business from existing customers.
Cost of sales -- Cost of sales decreased $2.1 million or $1.9% to $108.4
million during the year ended September 30, 2000 compared to cost of sales for
the same period in 1999. Cost of sales expressed as a percentage of net sales
increased to 66.9% for the year ended September 30, 2000 from 64.4% for the year
ended September 30, 1999. The overall increase in cost of sales and the increase
as a percentage of sales was partially due to noncontributing costs incurred in
connection with the delay of a major project. These noncontributing costs
included the expense of keeping a trained work team in place during the project
delay period. In addition, the increase in cost of sales and the increase as a
percentage of sales was due to higher average resin prices. Because the Company
passes a significant portion of resin price fluctuations on to our customers, a
higher average resin price leads to a lower gross margin percentage that
generally has no significant impact on gross margin dollars. Offsetting these
factors were improved manufacturing efficiencies resulting from continuous
improvement programs and plant automation projects.
Operating expenses -- Operating expenses increased $0.1 million or less
than 1% to $14.5 million during the year ended September 30, 2000 compared to
the same period during 1999. Operating expenses expressed as a percentage of
sales increased to 8.9% for the year ended September 30, 2000 from 8.4% during
the prior year. Contributing to this increase were higher fixed general and
administrative costs resulting from annual wage increases, the addition of
management personnel and incremental costs associated with the addition of two
new manufacturing facilities, which occurred during the second half of fiscal
1999. These factors were offset by the consolidation and centralization of
certain administrative functions.
Other -- Other increased $3.1 million to $4.3 million during the year ended
September 30, 2000. Other expressed as a percentage of sales increased to 2.7%
for the year ended September 30, 2000 from 0.7% during the prior year. This
increase was due to non-recurring Recapitalization related expenses which
primarily reflected severance related costs.
Depreciation and amortization -- Depreciation and amortization increased
$1.2 million or 8.6% to $14.7 million for the year ended September 30, 2000.
This increase primarily reflects net increases in depreciable assets from new
equipment purchases and mold construction costs.
Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September
30, 1998
Net sales -- Net sales of $171.7 million in 1999, represented a slight
decrease of $0.9 million, compared to net sales of $172.6 million in 1998.
Cost of sales -- Cost of sales decreased $2.1 million or 1.8% during the
year ended September 30, 1999 compared to cost of sales for the same period
during 1998. Cost of sales expressed as a percentage of net sales decreased to
64.4% for the year ended September 30, 1999 from 65.2% for the comparable period
in 1998. These decreases were primarily due to lower average resin prices and to
improvements in manufacturing efficiencies offset by higher labor and facility
costs incurred during the year. Because the Company passes a significant portion
of resin price fluctuations on to our customers, a lower average resin price
leads to a higher gross margin percentage but generally has no significant
impact on gross margin dollars.
Operating expenses -- Operating expenses increased $0.9 million or 6.3%, to
$14.4 million for the year ended September 30, 1999 compared to the same period
during 1998. Operating expenses expressed as a percentage of sales increased to
8.4% for the year ended September 30, 1999 from 7.9% for the comparable period
in 1998. These increases were primarily attributable to higher fixed general and
administrative costs resulting from the addition of two manufacturing
facilities.
Other -- Other increased $1.2 million during the year ended September 30,
1999. This increase was due to non-recurring Recapitalization related expenses
which primarily reflected legal fees and bonus costs.
Depreciation and amortization -- Depreciation and amortization increased
$3.6 million to $13.5 million for the year ended September 30, 1999. This
increase primarily reflected net increases in depreciable assets from new
equipment purchases and the addition of two manufacturing facilities.
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SEASONALITY
Historically, a slightly higher portion of our sales and net income has
been realized during the third and fourth fiscal quarters. In addition to our
peak season fluctuations, quarterly results of operations may fluctuate
depending on the timing and amount of sales from the introduction of new
products.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows
For the year ended September 30, 2000, the Company generated $4.2 million
in cash from operations. During fiscal 2000, the Company received net proceeds
of $5.3 million from debt obligations, spent $13.1 million on capital projects
and used $0.6 million to pay financing fees.
For the year ended September 30, 1999, the Company generated $49.4 million
in cash from operations. During fiscal 1999, the Company received $245.0 million
from the issuance of debt securities and from long term obligations and $78.1
million from the issuance of equity securities related to the Recapitalization.
The Company made net repayments of $29.9 million on debt obligations, spent
$20.8 million on capital projects, used $17.3 million to pay financing fees and
made distributions to its pre-Recapitalization shareholders of $27.5 million. In
connection with the Recapitalization, the Company redeemed common stock in the
amount of $274.0 million to its pre-Recapitalization shareholders.
For the year ended September 30, 1998, the Company generated $37.2 million
in cash from operations. During fiscal 1998, the Company received net proceeds
of $10.7 million from debt obligations, spent $31.3 million on capital
projects and made distributions to shareholders of $15.8 million.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes. The Company does, however, recognize market risk from interest
rates and raw material price exposure.
INTEREST RATE RISK
At September 30, 2000, approximately $150.3 million of the Company's
long-term obligations, specifically, borrowings outstanding under the Amended
Credit Agreement, bore interest at variable rates. Accordingly, the Company's
net income and after tax cash flow are affected by changes in interest rates.
Assuming the current level of borrowings at variable rates and assuming a two
percentage point change in the average interest rate under these borrowings, it
is estimated that the Company's interest expense for the year ended September
30, 2000 would have increased by approximately $3.0 million, resulting in a
decrease to the Company's net income and after tax cash flow of approximately
$1.9 million. In the event of an adverse change in interest rates, management
would likely take actions that would mitigate the Company's exposure; however,
due to the uncertainty of the actions that would be taken and their possible
effects, this analysis assumes no such actions. Further, this analysis does not
consider the effects of the change in the level of overall economic activity
that could exist in such an environment. Additionally, there can be no
assurances that increases in interest rates will not exceed the interest rates
discussed above.
RAW MATERIAL PRICE RISK
The principal raw material used by the Company is plastic resin,
particularly polypropylene and polyethylene. The cost of plastic resin
fluctuates based upon supply and demand. These fluctuations can be and have been
significant in the past. The Company cannot guarantee that plastic resin prices
will not rise significantly in the future or that the supply will remain stable.
In the event of an adverse change in the plastic resin market, the Company also
cannot guarantee that we will be able to pass on increased costs of resin to our
customers or that we will be able to obtain sufficient quantities of plastic
resin for production.
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ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
FINANCIAL STATEMENTS:
LLS Corp.
Report of Independent Public Accountants.................. 12
Consolidated Balance Sheets as of September 30, 2000 and
1999................................................... 13
Consolidated Statements of Operations for the year ended
September 30, 2000 and 1999............................ 14
Consolidated Statements of Stockholders' Equity for the
year ended September 30, 2000 and 1999................. 15
Consolidated Statements of Cash Flows for the year ended
September 30, 2000 and 1999............................ 16
Notes to Consolidated Financial Statements................ 17
Consolidated Financial Statement Schedule for the years
ended September 30, 2000 and 1999: Schedule II -
Valuation and Qualifying Accounts...................... 24
Courtesy Corporation and Affiliates
Independent Auditors' Report.............................. 25
Combined Statement of Income, Fiscal Year Ended September
30, 1998............................................... 26
Combined Statement of Changes in Stockholders' Equity,
Fiscal Year Ended September 30, 1998................... 27
Combined Statement of Cash Flows, Fiscal Year Ended
September 30, 1998..................................... 28
Notes to the Combined Financial Statements................ 29
</TABLE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of LLS Corp.:
We have audited the accompanying consolidated balance sheets of LLS Corp.
and subsidiaries (an Illinois corporation) as of September 30, 2000 and 1999 and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These consolidated 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
LLS Corp. and subsidiaries as of September 30, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
November 1, 2000
12
<PAGE> 13
LLS CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ -- $ 4,140
Accounts receivable (less allowance of $530 and $494)..... 20,912 20,424
Inventories............................................... 24,837 28,705
Prepaid expenses and other................................ 1,107 768
--------- ---------
Total current assets.............................. 46,856 54,037
Property, plant and equipment, net.......................... 84,800 86,072
Intangible assets, net...................................... 6,201 6,537
Deferred financing costs, net............................... 18,550 20,719
Other assets................................................ 464 1,835
--------- ---------
Total assets...................................... $ 156,871 $ 169,200
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............... $ 3,200 $ --
Accounts payable.......................................... 13,949 19,712
Customers' deposits....................................... 3,177 7,645
Accrued and other liabilities............................. 4,970 8,228
Accrued interest.......................................... 4,945 4,120
--------- ---------
Total current liabilities......................... 30,241 39,705
Long-term obligations....................................... 247,100 245,000
Other long-term liabilities................................. 8,383 8,166
--------- ---------
Total liabilities................................. 285,724 292,871
--------- ---------
Stockholders' equity:
Series A convertible preferred stock, $.01 par value,
100,000,000 shares authorized, 78,000,000 shares issued
and outstanding........................................ 780 780
Common stock, $.01 par value, 500,000,000 shares
authorized, 55,333,333 shares issued and outstanding... 553 553
Warrants for common stock................................. 900 900
Additional paid-in capital................................ 75,167 75,167
Accumulated deficit....................................... (206,253) (201,071)
--------- ---------
Total stockholders' equity........................ (128,853) (123,671)
--------- ---------
Total liabilities and stockholders' equity........ $ 156,871 $ 169,200
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
13
<PAGE> 14
LLS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net sales................................................... $162,050 $171,703
Operating expenses:
Cost of sales............................................. 108,420 110,546
Selling, general and administrative....................... 14,453 14,401
Other..................................................... 4,315 1,220
Depreciation and amortization............................. 14,684 13,517
-------- --------
Operating income............................................ 20,178 32,019
Other expense:
Interest expense, net..................................... 25,533 6,835
Amortization of deferred financing costs.................. 2,719 428
-------- --------
Income (loss) before income tax provision (benefit) and
minority interest......................................... (8,074) 24,756
Income tax provision (benefit).............................. (2,892) 3,260
-------- --------
Income (loss) before minority interest...................... (5,182) 21,496
Minority interest........................................... -- 171
-------- --------
Net income (loss)........................................... $ (5,182) $ 21,325
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
14
<PAGE> 15
LLS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED TOTAL
SERIES A ADDITIONAL EARNINGS/ STOCKHOLDERS'
CONVERTIBLE COMMON PAID-IN (ACCUMULATED EQUITY
PREFERRED STOCK STOCK WARRANTS CAPITAL DEFICIT) (DEFICIT)
--------------- ------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998... $ -- $ 20 $ -- $ 324 $ 70,382 $ 70,726
Reorganization adjustments
(see note 1):
Conversion redemption of
common stock............. -- (20) -- (324) 344 --
Conversion reissuance of
common stock............. -- 3,088 -- -- (3,088) --
Recapitalization adjustments
(see note 1):
Issuance of common stock.... -- 133 -- -- -- 133
Issuance of series A
convertible preferred
stock.................... 780 -- -- 77,220 -- 78,000
Redemption of common stock.. -- (2,668) -- -- (262,836) (265,504)
Issuance of warrants........ -- -- 900 -- -- 900
Transaction fees and
expenses................. -- -- -- (2,053) -- (2,053)
Distributions to
stockholders................ -- -- -- -- (27,198) (27,198)
Net income.................... -- -- -- -- 21,325 21,325
---- ------- ---- ------- --------- ---------
Balance, September 30, 1999... 780 553 900 75,167 (201,071) (123,671)
Net loss...................... -- -- -- -- (5,182) (5,182)
---- ------- ---- ------- --------- ---------
Balance, September 30, 2000... $780 $ 553 $900 $75,167 $(206,253) $(128,853)
==== ======= ==== ======= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
15
<PAGE> 16
LLS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (5,182) $ 21,325
Adjustment to reconcile net income to net cash from
operating activities:
Depreciation and amortization........................... 14,684 13,517
Amortization of deferred financing costs................ 2,719 428
Deferred income taxes................................... (2,100) 2,149
Minority interest....................................... -- 171
Change in assets and liabilities:
Accounts receivable................................... (488) (740)
Inventories........................................... 3,868 (3,773)
Prepaid expenses and other............................ 1,032 2,865
Accounts payable...................................... (5,763) 6,551
Customers' deposits................................... (4,468) 1,253
Accrued and other liabilities......................... (941) 1,733
Accrued interest...................................... 825 3,935
--------- ---------
Net cash from operating activities................. 4,186 49,414
--------- ---------
Cash flows from investing activities:
Capital expenditures, net................................. (13,076) (20,800)
--------- ---------
Net cash from investing activities................. (13,076) (20,800)
--------- ---------
Cash flows from financing activities:
Proceeds from senior credit facility term loans........... -- 145,000
Proceeds from issuance of notes........................... -- 100,000
Repayments of long-term debt obligations.................. -- (28,925)
Proceeds from revolving credit borrowings................. 63,400 --
Repayments of revolving credit borrowings................. (58,100) (1,000)
Proceeds from issuance of common stock.................... -- 133
Proceeds from issuance of series A convertible preferred
stock................................................... -- 78,000
Redemption of common stock................................ -- (265,504)
Financing costs........................................... (550) (17,300)
Redemption of minority interest........................... -- (8,524)
Distributions to stockholders............................. -- (27,531)
--------- ---------
Net cash from financing activities................. 4,750 (25,651)
--------- ---------
Net change in cash.......................................... (4,140) 2,963
Cash, beginning of period................................... 4,140 1,177
--------- ---------
Cash, end of period......................................... $ -- $ 4,140
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.............................................. $ 24,708 $ 2,900
========= ========
Income taxes.......................................... $ 1,122 $ 244
========= ========
Non-cash transaction:
Issuance of warrants for common stock..................... $ -- $ 900
========= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
16
<PAGE> 17
LLS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
LLS Corp., an Illinois corporation ("LLS" or the "Company"), formerly
Courtesy Corporation ("Courtesy"), is a leading, fully-integrated custom
designer, manufacturer and marketer of precision injection molds and molded
plastic components, closures and dispensing systems used in (1) medical
devices and pharmaceutical products, (2) consumer products and (3) food and
beverage products. The Company operates in one reportable segment, serving
customers located primarily in the United States.
On July 30, 1999, the Company completed a recapitalization (the
"Recapitalization") through the following simultaneous transactions: (i) LLS
received $78,133 in exchange for the issuance of 78,000,000 shares of its
series A convertible preferred stock at $1.00 per share and 13,333,333 shares
of class A common stock at $0.01 per share, (ii) LLS raised $150,300 from a
senior credit facility (the "Senior Credit Facility") and $100,000 from the
issuance of senior subordinated notes payable (the "Notes") and (iii) the
proceeds from the issuance of equity, the issuance of the Notes and
borrowings under the Senior Credit Facility were used to repay existing
indebtedness and accrued interest for $45,496, redeem approximately 67.0% of
the outstanding capital stock at $1.00 per share from Walter J. Kreiseder,
Gerald J. Sommers and certain family trusts controlled by them for $265,504,
and pay fees and expenses of $17,300. The Company also incurred a non-cash
transaction fee of $900 in connection with the issuance of warrants to
purchase 1,800,000 shares of its common stock for $0.50 per share. The
warrants are exercisable on the first anniversary of the date of the
Recapitalization and expire on the tenth anniversary thereof. In addition,
approximately $133 was retained for operating purposes.
Prior to the Recapitalization, Courtesy completed a reorganization which
included Creative Packaging Corporation ("Creative") and Courtesy Sales
Corporation ("CSC") -- affiliated by reason of common ownership -- being
reorganized as wholly-owned subsidiaries. This reorganization included the
following: (i) the shareholders of CSC exchanged their common stock for
common stock in Courtesy making CSC a wholly-owned subsidiary of Courtesy,
(ii) the shareholders of Creative exchanged their common stock for common
stock in Courtesy making Creative a wholly-owned subsidiary of Courtesy,
(iii) Courtesy amended its articles of incorporation to, among other things,
recapitalize its outstanding capital stock and change its name to LLS Corp.
and (iv) LLS organized a new wholly-owned subsidiary and contributed all of
its assets and liabilities to this new subsidiary. This reorganization was
accounted for as a reorganization of entities under common control.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements include
the accounts of LLS and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition -- Sales of all the Company's products are recognized
upon shipment or upon passage of title to the customer. Sales for services
are recognized upon completion.
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 disclosures of contingent assets and liabilities at the date
of the financial statements, as well as the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Inventories -- Inventories are stated at the lower of cost, determined under
the first-in, first-out (FIFO) method, or market.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Depreciation is calculated using the straight-line method. The average
estimated useful lives
17
<PAGE> 18
LLS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
utilized in calculating depreciation are as follows: buildings and
improvements -- 15 to 39 years; machinery and equipment -- 5 to 7 years; and
molds and tools -- 5 years.
Intangible Assets -- On January 31, 1999, the minority interest was redeemed
for $8,524. The Company recorded approximately $6,763 of goodwill in
connection with the transaction. The goodwill is being amortized on a
straight-line basis over an estimated useful life of twenty years.
Deferred Financing Costs -- Deferred financing costs, consisting of fees and
other expenses associated with debt financings are amortized over the term of
the related debt using the effective interest method.
Impairment of Long-lived Assets -- In the event that facts and circumstances
indicate that the cost of any long-lived assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
Fair Value of Financial Instruments -- The Company's financial instruments
consisting primarily of cash, trade receivables and trade payables are
carried at fair value or amounts that approximate fair value. The Company has
estimated the fair value of the Notes using current market data. At September
30, 2000, the estimated fair value of the Notes was $93,000.
Significant Customers -- Sales to two significant customers during fiscal
year 2000 and 1999 approximated 27% and 14% and 22% and 12% of net sales,
respectively. No other single customer accounted for more than 10% of net
sales.
Recent Accounting Pronouncements --
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB 101),
Revenue Recognition in Financial Statements, which summarizes certain of the
SEC staff's views on applying generally accepted accounting principles to
revenue recognition in financial statements. The Company will adopt the
accounting provisions of SAB 101 in the first quarter of the Company's 2001
fiscal year. Management believes that the implementation of SAB 101 will not
have a significant effect on the Company's financial condition or results of
operations.
3. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
2000 1999
------- -------
<S> <C> <C>
Raw materials............................................... $ 7,654 $ 8,138
Work-in-process............................................. 7,928 9,990
Finished goods.............................................. 9,255 10,577
------- -------
$24,837 $28,705
======= =======
</TABLE>
18
<PAGE> 19
LLS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Land........................................................ $ 4,263 $ 4,263
Buildings and improvements.................................. 45,963 45,443
Machinery and equipment..................................... 85,123 78,600
Molds and tools............................................. 16,149 10,394
Construction in progress.................................... 2,502 2,698
-------- --------
154,000 141,398
Less accumulated depreciation and amortization.............. (69,200) (55,326)
-------- --------
$ 84,800 $ 86,072
======== ========
</TABLE>
5. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, the Company incurred aggregate fees
and costs of $18,200. Costs of $16,147 related to the Senior Credit Facility
and the Notes and costs of $550 related to the Amended Credit Agreement (see
note 6) are included in deferred financing costs and are being amortized over
the terms of the related borrowings, using the effective interest method.
Costs of $2,053 related to the issuance of the Company's series A convertible
preferred stock and class A common stock have been deducted from the proceeds
to reduce the carrying value of the stock.
In connection with the Recapitalization and obtaining the related financing,
the Company entered into a Financial Advisory Agreement with Hicks, Muse &
Co. Partners, L.P. ("Hicks Muse") pursuant to which the Company paid Hicks
Muse a cash fee of $5,295 as compensation for financial advisory services.
The fees have been allocated based upon the issuance proceeds to the debt and
equity securities issued in connection with the Recapitalization as deferred
financing costs and reduction of equity proceeds, respectively. In connection
with the Recapitalization and obtaining the related financing, the Company
also entered into a Monitoring and Oversight Agreement (the "Agreement"). The
Agreement provides that the Company shall pay Hicks Muse an annual fee of
$500, for ten years for monitoring and oversight services, adjusted annually
on January 1 of each calendar year to an amount equal to 0.2% of the
consolidated budgeted net sales of the Company of the then current fiscal
year, but in no event less than $500 annually. The obligation under the
Agreement and the related deferred financing costs have been recorded in the
consolidated balance sheet.
6. LONG-TERM OBLIGATIONS
The composition of long-term obligations is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
Credit Agreement:
Revolver.................................................. $ 5,300 $ --
Term Facility............................................. 145,000 145,000
Senior Subordinated Notes................................... 100,000 100,000
-------- --------
250,300 245,000
Less, current maturities.................................... (3,200) --
-------- --------
$247,100 $245,000
======== ========
</TABLE>
19
<PAGE> 20
LLS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The schedule of principal payments for long-term obligations at September 30,
2000 is as follows:
<TABLE>
<S> <C>
2001........................................................ $ 3,200
2002........................................................ 12,800
2003........................................................ 15,800
2004........................................................ 17,800
2005........................................................ 18,800
Thereafter.................................................. 181,900
--------
$250,300
========
</TABLE>
In connection with the Recapitalization on July 30, 1999, the Company
executed a $200,000 Senior Credit Facility and issued $100,000 of Notes.
The Senior Credit Facility provides for (i) a $65,000 term loan (the "Tranche
A Loan") maturing July 31, 2005, (ii) an $80,000 term loan (the "Tranche B
Loan") maturing July 31, 2006 (together with the Tranche A Loan, the "Term
Facility") and (iii) a $55,000 revolving credit facility (the "Revolver").
During the year ended September 30, 2000, the Company entered into an Amended
Credit Agreement in which certain terms and conditions were amended (the
"Amended Credit Agreement"). The loans under the Amended Credit Agreement
bear interest, at the Company's election, at either the LIBOR Rate plus an
applicable margin or the Base Rate plus an applicable margin. The applicable
LIBOR Rate margin is 2.75% for the Tranche A Loan and Revolver and 3.25% for
the Tranche B Loan. The applicable Base Rate margin is 1.50% for the Tranche
A Loan and Revolver and 2.00% for the Tranche B Loan. The applicable margin
with respect to the loans will be eligible for certain performance pricing
step-downs. The Revolver is subject to a commitment fee based on the undrawn
portion of the Revolver. The commitment fee is .050% per annum and is
eligible for certain performance pricing step downs. The Company may use the
Revolver for letters of credit of up to $10,000.
The Company may, at its option, prepay the Term Facility without premium or
penalty. Additionally, the Company may reduce or eliminate the Revolver prior
to maturity on July 31, 2005. The Amended Credit Agreement is guaranteed
unconditionally on a senior basis by the Company's direct and indirect
domestic subsidiaries and is collateralized by a lien on substantially all
assets of the Company and its wholly-owned subsidiaries. The Amended Credit
Agreement contains several financial covenants which, among other things,
require the Company to maintain certain financial ratios and restrict the
Company's ability to incur indebtedness, make capital expenditures and pay
dividends.
The Notes bear interest at 11 5/8% per year, payable semi-annually on
February 1, and August 1 of each year, commencing on February 1, 2000 and
maturing on August 1, 2009. Except as set forth below, the Notes will not be
redeemable at the option of the Company prior to August 1, 2004. On and after
such date, the Notes are subject to redemption by the Company, in whole or in
part, at specified redemption prices. In addition, prior to August 1, 2002,
the Company may, subject to certain requirements, redeem up to $35,000 of
Notes outstanding at a redemption price equal to 111.625% plus accrued and
unpaid interest. The Notes may be redeemed at any time on or after August 1,
2004, in whole or in part by the Company.
The Notes restrict, among other things, the incurrence of additional
indebtedness by the Company, the payment of dividends and other distributions
in respect of the Company's capital stock, the payment of dividends and other
distributions by the Company's subsidiaries, the creation of liens on the
properties and the assets of the Company to secure certain subordinated debt
and certain mergers, sales of assets and transactions with affiliates.
7. OTHER
Represents non-recurring Recapitalization related expenses which include
among other things legal fees, bonuses and severance related costs.
8. INCOME TAXES
Prior to the Recapitalization, the Company had elected S-Corporation Status
under the Internal Revenue Code. Subsequent thereto, the Company elected
C-Corporation Status under the Internal Revenue Code.
20
<PAGE> 21
LLS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
Current:
Federal....................................... $ (914) $ 815
State......................................... 122 296
-------- --------
$ (792) $ 1,111
Deferred:
Federal....................................... $ (1,590) $ 1,880
State......................................... (510) 269
-------- --------
$(2,892) $ 3,260
======== ========
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
U.S. Federal statutory rate..................... $ (2,745) $ 8,664
Pre-recapitalization S-Corp taxable income...... -- (8,270)
State taxes..................................... (270) 296
Deferred taxes established upon conversion to
C-corporation................................. -- 2,549
Other........................................... 123 21
--------- --------
$ (2,892) $ 3,260
========= ========
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Accounts receivable allowance................. $ 199 $ 198
Inventories................................... 520 202
Accrued liabilities........................... 1,810 973
Net operating loss carryforward............... 1,921 --
-------- --------
$ 4,450 $ 1,373
-------- --------
Deferred Tax Liabilities:
Property, plant and equipment................. $ 2,842 $ 3,522
Other......................................... 1,657 --
-------- --------
Net deferred tax liability.................... $ 49 $ 2,149
======== ========
</TABLE>
9. RETIREMENT BENEFITS AND STOCK OPTION PLANS
The Company maintains for the benefit of its eligible employees, several
benefit plans, all of which conform to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA), as follows:
Employees' Profit-sharing Plan -- This defined contribution plan is
maintained for the benefit of all eligible employees. The employer makes
discretionary annual contributions in such amounts as may be determined by
its Board of Directors, limited to amounts deductible for federal income tax
purposes. Participants vest in benefits over
21
<PAGE> 22
LLS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a period of years, and distributions are made to participants (or to their
beneficiaries) upon death, retirement or severance of employment. The
employer contribution for the fiscal years ended September 30, 2000 and 1999,
amounted to $590 and $615, respectively.
Employees' 401(k) Plan -- This defined contribution plan is maintained for
the benefit of all eligible employees and was established under the
provisions of Section 401(k) of the Internal Revenue Code. Under such plan,
employer contributions are discretionary. The employer contribution for the
fiscal years ended September 30, 2000 and 1999, amounted to $27 and $26,
respectively.
Qualified and Non-qualified Stock Option Plan (the "Option Plan") -- This
plan provides for the granting of up to 7,017,543 shares of common stock to
officers and key employees of the Company. Under the plan, options granted
approximate fair value of the common stock at the date of grant. Such
options vest ratably over a period of up to ten years commencing on the first
anniversary date after the date of grant, and vested options are exercisable
at the discretion of the committee appointed to administer the Option Plan.
Generally, an option may be exercised only if the holder is an officer or
employee of the Company at the time of exercise. Options granted under the
Option Plan are not transferable, except by will and the laws of descent and
distribution.
The Company has also granted Performance Options (the "Performance Options")
to certain key executives. The Performance Options are exercisable only on
the occurrence of certain events. The exercise price for the Performance
Options is initially equal to $1.00 per share and, effective each anniversary
of the grant date, the per share exercise price for the Performance Options
is equal to the per share exercise price for the prior year multiplied by
1.08. The Performance Options terminate on the tenth anniversary date of the
date of grant. The Performance Options will be accounted for using variable
plan accounting and accordingly there may be compensation expense in future
periods to the extent that the fair value of the stock exceeds the exercise
price of the Performance Options. No compensation expense was recognized in
2000 and 1999 as the fair value of the common stock is equal to or less than
the exercise price.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the Option Plan.
Had compensation cost for the Option Plan and the Performance Options been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS 123, the effect
on the Company's financial statements would have been immaterial.
Changes in the status of the Option Plan are summarized below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE PER OPTIONS OPTIONS
SHARE GRANTED VESTED
------------------ ----------- ---------
<S> <C> <C> <C>
September 30, 1998............ -- -- --
Granted ................... $1.00 3,250,000 --
----- ----------- ---------
September 30, 1999 ........... $1.00 3,250,000 --
Granted ................... $1.00 1,145,000 --
Vested .................... $1.00 -- 255,000
Forfeiture ................ $1.00 (1,200,000) --
----- ----------- ---------
September 30, 2000 ........... $1.00 3,195,000 255,000
===== =========== =========
</TABLE>
Changes in the status of the Performance Options:
<TABLE>
<S> <C> <C> <C>
September 30, 1998............ -- -- --
Granted....................... $1.00 3,600,749 --
----- ----------- ---------
September 30, 1999............ $1.00 3,600,749 --
Granted....................... -- -- --
----- ----------- ---------
September 30, 2000............ $1.08 3,600,749 --
===== =========== =========
</TABLE>
Of the Options outstanding under the Option Plan at September 30, 2000, all
3,195,000 have an exercise price of $1.00 and have weighted average
remaining contractual lives of between 9 and 10 years.
Of the Performance Options outstanding at September 30, 2000, all 3,600,749
have an exercise price of $1.08 and have a weighted average remaining
contractual life of nine years.
22
<PAGE> 23
LLS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Certain premises occupied by the Company are leased under various operating
leases, some of which are owned by a partnership whose partners are
stockholders of the Company. All leases provide for payment by the lessee of
costs applicable to operating the leased premises (inclusive of real estate
taxes), and expire at various dates through fiscal 2011.
Total rent expense was $1,205 and $1,210 during fiscal 2000 and 1999.
Future minimum rental payments applicable to the aforementioned leases are
as follows:
<TABLE>
<CAPTION>
RELATED THIRD
FISCAL YEAR ENDED SEPTEMBER 30, PARTIES PARTIES TOTAL
------------------------------- ------- ------- ------
<S> <C> <C> <C>
2001....................................................... $ 695 $ 376 $1,071
2002....................................................... 695 376 1,071
2003....................................................... 695 282 977
2004....................................................... 695 -- 695
2005....................................................... 695 -- 695
Thereafter................................................. 2,700 -- 2,700
------ ------ ------
$6,175 $1,034 $7,209
====== ====== ======
</TABLE>
The Company is a party to various legal proceedings and administrative
actions, all of which are of an ordinary or routine nature incidental to the
operations of the Company. In the opinion of the Company's management, such
proceedings and actions should not, individually or in the aggregate, have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
23
<PAGE> 24
LLS CORP.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLLECTION OF
BALANCE AT PREVIOUSLY BALANCE AT
ALLOWANCE FOR DOUBTFUL ACCOUNTS -- DEDUCTED BEGINNING WRITTEN OFF END OF
FROM RECEIVABLES ON THE BALANCE SHEET OF PERIOD PROVISION WRITEOFFS ACCOUNTS ACQUISITIONS PERIOD
------------------------------------------- ---------- --------- --------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
For the year ended September 30, 1999 $ 28 $466 -- -- -- $494
For the year ended September 30, 2000 $494 $ 54 $(18) -- -- $530
</TABLE>
24
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Courtesy Corporation
We have audited the combined statements of income, changes in stockholders'
equity and cash flows for the fiscal year ended September 30, 1998. Courtesy
Corporation and Affiliates are under common ownership and management. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Courtesy Corporation and Affiliates for the fiscal year ended September 30,
1998, in conformity with generally accepted accounting principles.
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
December 11, 1998 (except for
Note 1 as to which the date is
July 30, 1999)
25
<PAGE> 26
COURTESY CORPORATION AND AFFILIATES
COMBINED STATEMENT OF INCOME
FISCAL YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Net Sales................................................... $172,607,862
Cost of Sales............................................... 120,985,809
------------
Gross Profit................................................ 51,622,053
Selling, General and Administrative Expenses................ 15,063,672
------------
Income from Operations...................................... 36,558,381
Interest Expense............................................ (1,719,078)
Interest Income............................................. 403,972
------------
Income before Income Taxes.................................. 35,243,275
Income Tax Provision........................................ 187,810
------------
Net Income before Minority Interest......................... 35,055,465
Minority Interest........................................... (1,224,984)
------------
Net Income.................................................. $ 33,830,481
============
</TABLE>
The accompanying notes are an integral part of this statement.
26
<PAGE> 27
COURTESY CORPORATION AND AFFILIATES
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FISCAL YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, October 1, 1997.................... $20,000 $ 319,310 $51,650,385 $ 51,989,695
Issuance of common stock.................... 5,000 5,000
Distributions to stockholders............... (15,098,781) (15,098,781)
Net income.................................. 33,830,481 33,830,481
------- --------- ------------ ------------
Balance, September 30, 1998................. $20,000 $ 324,310 $ 70,382,085 $ 70,726,395
======= ========= ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
27
<PAGE> 28
COURTESY CORPORATION AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income for year....................................... $ 33,830,481
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 9,895,858
Gain on sale of property and equipment.................. (27,477)
Deferred compensation................................... 159,394
Minority interest....................................... 1,224,984
Increase (Decrease) in cash from changes in:
Trade accounts receivable............................. (6,378,610)
Inventories........................................... 4,248,536
Other current assets and prepaid expenses............. 222,749
Other assets.......................................... (344,798)
Accounts payable...................................... 116,043
Income taxes payable.................................. (87,000)
Customers' deposits................................... (7,679,201)
Due to employee benefit plans......................... 171,690
Accrued salaries and other expenses................... 2,252,878
Deferred compensation obligation...................... (400,000)
------------
Net cash provided by operating activities.......... 37,205,527
------------
Cash Flows from Investing Activities:
Capital expenditures...................................... (31,330,007)
Proceeds from sale of property and equipment.............. 27,477
------------
Net cash used in investing activities.............. (31,302,530)
------------
Cash Flows from Financing Activities:
Proceeds from notes payable............................... 13,408,616
Principal payments of notes payable....................... (1,586,666)
Repayments of revolving credit borrowings,
net..................................................... (500,000)
Repayments of capital lease obligation.................... (585,524)
Proceeds from issuance of common stock.................... 5,000
Distributions to stockholders............................. (15,847,808)
------------
Net cash used in financing activities.............. (5,106,382)
------------
Net Increase in Cash........................................ 796,615
Cash, Beginning of Year..................................... 380,673
------------
Cash, End of Year........................................... $ 1,177,288
============
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year for:
Interest.............................................. $ 1,646,324
============
Income taxes.......................................... $ 274,810
============
</TABLE>
The accompanying notes are an integral part of this statement.
28
<PAGE> 29
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION AND NATURE OF ACTIVITIES
The combined financial statements include the accounts and activities of
Courtesy Corporation ("Courtesy"), Creative Packaging Corporation ("Creative")
and Courtesy Sales Corporation ("CSC" -- formed during fiscal 1998)
(collectively, the "Company") which are affiliated by reason of common ownership
and management. Because the companies are under common ownership, excluding an
11.11% minority interest in Creative, and management, the financial statements
have been combined based on the historical costs of the underlying companies.
All significant intercompany accounts and transactions have been eliminated in
the combination.
The Company is engaged in the design, manufacture and distribution of
various types of injection molded plastic parts and custom molds used in plastic
injection molding. The Company operates in one industry segment, serving
customers located primarily in the United States.
On January 31, 1999, the 11.11% minority interest in Creative was redeemed
for $8,524,355 in cash. In its combined financial statements, the Company
recorded approximately $6,763,000 of goodwill in connection with the purchase of
this minority interest.
Prior to the Recapitalization discussed below, the Company completed a
Reorganization whereby (i) the shareholders of CSC exchanged their common stock
for common stock in Courtesy making CSC a wholly-owned subsidiary of Courtesy,
(ii) the shareholders of Creative exchanged their common stock for common stock
in Courtesy making Creative a wholly-owned subsidiary of Courtesy, (iii)
Courtesy amended its articles of incorporation to, among other things,
recapitalize its outstanding capital stock and change its name to LLS Corp.
("LLS") and (iv) LLS organized a new wholly-owned subsidiary and contributed all
of its assets and liabilities to this new subsidiary.
On July 30, 1999, the Company completed a recapitalization (the
"Recapitalization") through the following simultaneous transactions: (i) LLS
received $78,133,000 in exchange for the issuance of 78,000,000 shares of its
Series A Convertible Preferred Stock at $1.00 per share and 13,333,333 shares of
Class A Common Stock at $0.01 per share, (ii) LLS raised $150,300,000 from a
senior credit facility (the "Senior Credit Facility") and $100,000,000 from the
issuance of senior subordinated notes payable (the "Notes") and (iii) the
proceeds from the issuance of equity, the issuance of the Notes and borrowings
under the Senior Credit Facility were used to repay existing indebtedness and
accrued interest for approximately $45,496,000, redeem approximately 67.0% of
the outstanding capital stock from Walter J. Kreiseder, Gerald J. Sommers and
certain family trusts controlled by them at $1.00 per share for approximately
$265,504,000, and pay fees and expenses of approximately $17,300,000. The
Company also incurred a non-cash expense of $900,000 in connection with the
issuance of warrants to purchase 1,800,000 shares of its common stock for $0.50
per share. In addition, approximately $133,000 was retained for operating
purposes.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company is as
follows:
Revenue Recognition -- Sales of all the Company's products are
recognized upon shipment or upon passage of title to the customer.
Use of Estimates -- In preparing financial statements in conformity
with generally accepted accounting principles, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
29
<PAGE> 30
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- Inventories are stated at the lower of cost, determined
under the first-in, first-out (FIFO) method, or market.
Depreciation and Amortization -- Provisions for depreciation and
amortization of plant and equipment are computed on both straight-line and
accelerated methods for financial reporting purposes, based on the
estimated useful lives of the assets. For income tax reporting purposes,
such provisions are computed principally under accelerated methods, as
permitted by the Internal Revenue Code.
Impairment of Long-lived Assets -- In the event that facts and
circumstances indicate that the cost of any long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value
is required.
Capital Leases -- Leases required to be capitalized under criteria of
Statement of Financial Accounting Standards No. 13 are recorded at the
present value of future rental payments. Amortization of capital leases is
computed under the straight-line method over the estimated useful life of
the equipment for financial purposes and under accelerated methods for tax
reporting purposes.
Fair Value of Financial Instruments -- Management believes that the
book value of its current receivables, accounts payable and accrued
expenses approximates fair value due to their short-term nature and the
fair value of the revolving credit note is equal to its carrying value
because the interest rate adjusts with changes in the market rate of
interest. The fair value of the mortgage notes and capitalized lease
obligation are not materially different from its carrying value based upon
discounting cash flows using interest rates that management believes
approximate interest rates currently available for similar debt.
Income Taxes -- Courtesy, Creative and CSC have elected to be taxed as
S corporations, under the Internal Revenue Code, pursuant to which profits
are allocated and taxed to their stockholders by inclusion in their
respective individual income tax returns. Accordingly, no liability or
provision for federal income taxes is included in the accompanying
financial statements, and no deferred taxes are provided for temporary
differences between tax and financial reporting. However, the Company is
subject to state income taxes.
Significant Customers -- Sales to two significant customers during
fiscal 1998 approximated 40% of net sales. No other single customer
accounted for more than 10% of net sales.
Advertising and Promotion -- All costs associated with advertising and
promotion are charged to operations as incurred. Such expenses are included
in operating expenses in the combined statement of income and amounted to
$307,447 for the fiscal year ended September 30, 1998.
NOTE 3 -- DEFERRED COMPENSATION OBLIGATION
Courtesy maintains nonqualified deferred compensation agreements for the
benefit of certain key officers of the Company. The plan provides for $3,200,000
to be paid, in equal or unequal increments at such times and in such amounts as
may be determined by the Company, on or before December 31, 2002. During the
year ended September 30, 1998, $400,000 was paid to the officers. The initial
cost of the benefits was charged to expense and accrued using a present value
method over the expected term of the agreements. Charges to expense for the
fiscal year ended September 30, 1998 was $159,394.
30
<PAGE> 31
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- EMPLOYEE BENEFIT PLANS
The Company maintains for the benefit of its eligible employees, several
benefit plans, all of which conform to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA), as follows:
Employees' Profit-sharing Plan -- This plan is maintained for the
benefit of all eligible employees. The employer makes discretionary annual
contributions in such amounts as may be determined by its Board of
Directors, limited to amounts deductible for federal income tax purposes.
Benefits vest in participants over a period of years, and distributions are
made to participants (or to their beneficiaries) upon death, retirement or
severance of employment. The employer contribution for the fiscal year
ended September 30, 1998 amounted to $735,000.
Employees' 401(k) Plan -- This plan is maintained for the benefit of
all eligible employees and was established under the provisions of Section
401(k) of the Internal Revenue Code. Under such plan, employer
contributions are discretionary. The employer contribution for the fiscal
year ended September 30, 1998 amounted to $20,469.
NOTE 5 -- STOCKHOLDERS' EQUITY
As of September 30, 1998 (a) 5,000 shares of Courtesy's Class A voting
common (no par value, 10,000 shares authorized) were issued and outstanding, (b)
15,000 shares of Courtesy's Class B nonvoting common (no par value, 30,000
shares authorized) were issued and outstanding and (c) 1,000 shares of
Creative's common stock (no par value) were authorized, issued and outstanding.
As of September 30, 1998, 100 shares of CSC's common stock (no par value) were
authorized, issued and outstanding.
Stockholders' equity at September 30, 1998 is comprised of the following:
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Courtesy ................. $20,000 $ 5,000 $56,565,329 $56,590,329
Creative ................. 0 353,594 16,958,167 17,311,761
CSC ...................... 0 5,000 26,310 31,310
------- -------- ----------- -----------
20,000 363,594 73,549,806 73,933,400
Eliminations ............. 0 (39,284) (3,167,721) (3,207,005)
------- -------- ----------- -----------
Total ............. $20,000 $324,310 $70,382,085 $70,726,395
======= ======== =========== ===========
</TABLE>
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Certain premises occupied by the Company are leased under various operating
leases, some of which are owned by a partnership whose partners are officers and
stockholders of the Company (see below). All leases provide for payment by the
lessee of costs applicable to operating the leased premises (inclusive of real
estate taxes), and expire at various dates through fiscal 2011.
Courtesy is subject to a ground lease agreement, which allows Courtesy to
utilize a vacant plot of land adjacent to the Company's corporate headquarters.
This plot of land is currently owned by an affiliate of the Company related by
common ownership and was used to build a manufacturing and warehouse facility
which was placed into service in June 1998. The ground lease agreement, as
amended, provides for a base rent of $334,691 per year through August 31, 2011,
with an adjustment based on the Consumer Price Index every five years. The
agreement also provides for an option to renew for up to three consecutive
periods of five years and an option to purchase the land at fair market value.
Total rent expense, including real estate taxes, amounted to $1,924,991
($694,691 which was paid to related parties) for the fiscal year ended September
30, 1998.
31
<PAGE> 32
COURTESY CORPORATION AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments applicable to the aforementioned leases are
as follows:
<TABLE>
<CAPTION>
RELATED THIRD
FISCAL YEAR ENDED SEPTEMBER 30, PARTIES PARTIES TOTAL
------------------------------- ---------- -------- ----------
<S> <C> <C> <C>
1999.............................................. $ 695,000 $515,000 $1,210,000
2000.............................................. 695,000 388,000 1,083,000
2001.............................................. 695,000 8,000 703,000
2002.............................................. 695,000 0 695,000
2003.............................................. 695,000 0 695,000
Thereafter........................................ 4,060,000 0 4,060,000
---------- -------- ----------
$7,535,000 $911,000 $8,446,000
========== ======== ==========
</TABLE>
Pursuant to an agreement between Courtesy and its stockholders, Courtesy
shall purchase all shares of such stockholders upon that stockholder's death or
disability. The purchase price shall be equal to the Fair Market Value per
Share, as defined, determined as of the date of death or disability. Courtesy
maintains life insurance policies on the lives of its stockholders, in the
aggregate amount of $58,000,000, to provide funds for such possible purchases.
Any remaining unpaid balance shall be paid, in accordance with the terms of a
note to be established, in ten equal annual principal payments, with interest
rates adjusted at each anniversary date based upon Northern's prime rate. Such
agreement was terminated in connection with the Recapitalization.
Pursuant to an agreement between Creative and its stockholders, Creative
shall purchase all shares of such stockholders upon that stockholder's death or
disability. The purchase price shall be equal to the Book Value per Share, as
defined, determined as of the date of death or disability. Creative maintains
life insurance policies on the lives of its majority stockholders, in the
aggregate amount of $20,000,000, to provide funds for such possible purchases.
Twenty-five percent of the stockholder's balance will be paid upon determination
of the Book Value per Share. The unpaid balance shall be paid, in accordance
with the terms of a note to be established, in sixteen equal quarterly principal
payments, with interest rates adjusted at each quarter based upon Northern's
prime rate. Such agreement was terminated in connection with the
Recapitalization.
There are various lawsuits against Courtesy incident to the operation of
its business. The liability, if any, associated with these matters was not
determinable at September 30, 1998. While certain of these matters involve
substantial amounts, it is the opinion of management that their ultimate
resolution will not have a material adverse effect on the Company's financial
position or results of operations.
32
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL
DISCLOSURE.
None.
33
<PAGE> 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information with respect to those individuals who
currently serve as members of our Board of Directors or as our executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James N. Mills............................. 63 Chairman of the Board and Chief Executive
Officer
Dan H. Blanks.............................. 51 Director
Jack D. Furst.............................. 41 Director
David M. Sindelar.......................... 43 Director, Senior Vice President and Chief
Financial Officer
Walter J. Kreiseder........................ 58 Director
Gerald J. Sommers.......................... 59 Director
Joseph M. Fiamingo......................... 51 President and Chief Operating Officer
Wesley D. DeHaven.......................... 36 Vice President-Finance
</TABLE>
Set forth below is a description of the backgrounds of those persons who
serve as our directors and executive officers. There is no family relationship
between any of our directors or executive officers. Officers are elected by the
Board of Directors and hold office until their respective successors are duly
elected and qualified.
James N. Mills
James N. Mills has served as our Chairman of the Board and Chief Executive
Officer since 1999. Mr. Mills is the Chairman of the Board and Chief Executive
Officer of Mills & Partners. Mr. Mills is also Chairman of the Board and Chief
Executive Officer of International Wire Holding Company and Viasystems Group,
Inc. Mr. Mills was Chairman of the Board and Chief Executive Officer of Berg
Electronics Corp. from 1992 through 1998, of Crain Holdings Corp. from 1995
through 1997, of Jackson Holding Company from 1993 through 1995, of Thermadyne
Holdings Corporation from 1989 through 1995 and of Thermadyne Industries, Inc.
from 1987 to 1995. Prior to that time, Mr. Mills served as Executive Vice
President of McGraw-Edison Company, a company engaged in the electronic,
industrial, commercial and automotive industries, from 1978 to 1985, and served
as Industrial Group President and President of the Bussman Division of the
McGraw-Edison Company from 1980 to 1984.
Dan H. Blanks
Dan H. Blanks has served as a director since 1999. Mr. Blanks has served as
a Senior Vice President of Hicks Muse since 1997. Mr. Blanks has 28 years
experience in equity research and international asset management. Prior to
joining Hicks Muse, Mr. Blanks spent 20 years specializing in working with
pension funds and other institutions on their international investment programs.
Mr. Blanks was involved in the development of the international investments
resources and business for Fidelity Investments as International Investment
Director in London, Hong Kong and Boston. Prior to that, he spent 11 years as
President of Pictet International, an international asset management company, in
London as well as 11 years with J.P. Morgan in London, Tokyo and New York in the
institutional investment and international research areas.
Jack D. Furst
Jack D. Furst has served as a director since 1999. Mr. Furst has served as
a Partner and Principal of Hicks Muse since 1989, the year in which it was
formed. Mr. Furst has approximately 20 years of experience in leveraged
acquisitions and private investments. Mr. Furst is involved in all aspects of
Hicks Muse's business and has been actively involved in originating, structuring
and monitoring its investments. Prior to joining Hicks Muse, Mr. Furst served as
a Vice President and subsequently a Partner of Hicks & Haas from 1987 to 1989.
From 1984 to 1986, Mr. Furst was a Merger and Acquisitions/Corporate Finance
Specialist for The First
34
<PAGE> 35
Boston Corporation in New York. Before joining First Boston, Mr. Furst was a
Financial Consultant at PricewaterhouseCoopers. Mr. Furst serves on the Boards
of Directors of American Tower Corporation, Triton Energy Limited, Home
Interiors & Gifts, Inc., Hedstrom Holdings, Inc., International Wire Holding
Company, Cooperative Computing, Inc. and Viasystems Group, Inc.
David M. Sindelar
David M. Sindelar has served as our Senior Vice President and Chief
Financial Officer and as a director since 1999. Mr. Sindelar serves as President
of Mills & Partners, Inc., and is the Senior Vice President and Chief Financial
Officer of International Wire Holding Company and Viasystems Group, Inc. Mr.
Sindelar served as Senior Vice President and Chief Financial Officer of Berg
Electronics Corp. from 1992 through 1998, of Crain Holdings Corp. from 1995
through 1997 and of Jackson Holding Company from 1993 through 1995. From 1987 to
February 1995, Mr. Sindelar held various positions at Thermadyne Holdings
Corporation including Senior Vice President, Chief Financial Officer and Vice
President -- Corporate Controller and Controller.
Walter J. Kreiseder
Walter J. Kreiseder has served as a director since 1999. Mr. Kreiseder has
over 37 years of experience in the injection molding industry. Mr. Kreiseder was
a co-founder of Courtesy Corporation in 1972 and served as Chief Executive
Officer through 1999. Mr. Kreiseder is affiliated with several industry
associations including the Tooling and Manufacturing Association and the Society
of Plastic Engineers.
Gerald J. Sommers
Gerald J. Sommers has served as a director since 1999. Mr. Sommers has over
37 years of experience in the injection molding industry. Mr. Sommers was a
co-founder of Courtesy Corporation in 1972 and served as Chief Operating Officer
through 1999. Mr. Sommers is affiliated with several industry associations
including the Tooling and Manufacturing Association and the Society of Plastic
Engineers.
Joseph M. Fiamingo
Joseph M. Fiamingo has served as President and Chief Operating Officer of
our operating subsidiary since 2000. Mr Fiamingo has over 20 years of high-level
management experience in a variety of businesses. Mr. Fiamingo joined Mills &
Partners in 1995 as President of Wirekraft Industries. In 1996 he was appointed
President and Chief Operating Officer of International Wire. Previously, Mr.
Fiamingo was with General Cable Company, a recognized leader in the wire and
cable industry serving the telecommunications, electronics and electrical
markets, where he served as Executive Vice President -- Operations,
President -- Telecommunications and Electronics Division, Vice President and
General Manager -- Aerial Equipment Division, as well as several Divisional and
Plant Management positions throughout the United States.
Wesley D. DeHaven
Wesley D. DeHaven has served as our Vice President -- Finance since 1999.
Mr. DeHaven serves as a Vice President of Mills & Partners. Mr. DeHaven served
as a Vice President of Viasystems Group, Inc. during 1998, Vice President --
Finance of Crain Industries, Inc. from 1996 through 1998, Corporate Controller
of International Wire Group, Inc. from April 1994 through 1996, and Controller
for the cutting and welding segment of Thermadyne Industries, Inc. from 1993
through 1994. Prior to that time, Mr. DeHaven was employed by the international
accounting firm of Arthur Andersen & Co.
Compliance with Section 16(a) of the Exchange Act
The Company does not have any class of equity securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended. Therefore the
shareholders of the Company are not required to file reports pursuant to
Section 16(a) thereof.
35
<PAGE> 36
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the fiscal
years ended September 30, 2000 and 1999 to the Chief Executive Officer and the
four other most highly compensated executive officers who were serving as
executive officers at September 30, 2000 or during the fiscal year ended
September 30, 2000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(5) SECURITIES
--------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
--------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
James N. Mills, Chairman of the Board and Chief
Executive Officer........................................ 2000 350,000 175,000 --
1999 58,333 -- 2,000,749(4)
Walter J. Kreiseder, Chief Executive Officer(1)............. 2000 500,000 -- --
1999 500,000 -- --
Gerald J. Sommers, Chief Operating Officer(2)............... 2000 500,000 -- --
1999 500,000 -- --
David M. Sindelar, Senior Vice President & Chief
Financial Officer........................................ 2000 150,000 75,000 --
1999 25,000 -- 1,600,000(4)
Paul E. Whybrow, Vice President(3).......................... 2000 350,000 118,625 --
1999 87,500 -- --
</TABLE>
(1) Mr. Kreiseder retired from his position as Chief Executive Officer of the
Company's operating subsidiary during the fiscal year ended September 30,
2000, as contemplated by his employment agreement. He will continue to
serve as a director.
(2) Mr. Sommers retired from his position as Chief Operating Officer of the
Company's operating subsidiary during the fiscal year ended September 30,
2000, as contemplated by his employment agreement. He will continue to serve
as a director.
(3) Mr. Whybrow resigned from his position as Vice President of the Company's
operating subsidiary during the fiscal year ended September 30, 2000.
(4) Reflects the Performance Options (as hereinafter defined) granted to the
executive officer by the Company. For a description of the material terms of
such options, see "--Benefit Plans-- Performance Options."
(5) The Company provides a car allowance and certain other benefits to certain
executive officers. The aggregate incremental cost of these benefits to the
Company for each officer does not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus reported for each officer.
OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants made to the executive officers named above during
fiscal 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table summarizes the number of options exercised during
fiscal 2000 and the value of unexercised options as of September 30, 2000. The
per share fair market value of the Company's Common Stock used to make the
calculations in the following table is $1.00, which is the per share price at
which the Company's Common Stock was sold in connection with the
Recapitalization. Accordingly, the table indicates that the options had no
value at the end of fiscal 2000 because the exercise price was equal to such
fair market value.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END
SHARES ACQUIRED --------------------------- ---------------------------
ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) $ (#) (#) ($) ($)
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James N. Mills 0 0 0 2,000,749 0 0
Walter J. Kreiseder 0 0 0 0 0 0
Gerald J. Sommers 0 0 0 0 0 0
David M. Sindelar 0 0 0 1,600,000 0 0
Paul E. Whybrow 0 0 0 0 0 0
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS
James N. Mills Employment Agreement
Mr. James N. Mills entered into an executive employment agreement with us
upon consummation of the Recapitalization. Under his employment agreement, Mr.
Mills will serve as our Chairman of the Board and Chief Executive Officer
through July 30, 2004. Mr. Mills is required to devote his business time and
attention to the transaction of our business as is reasonably necessary to
discharge his duties under the employment agreement. Subject to the above
limitation on his activities, Mr. Mills is free to participate in other business
endeavors.
Mr. Mills' compensation under his employment agreement includes an annual
base salary of not less than $350,000, subject to adjustment at the sole
discretion of our Board of Directors, and benefits as will be customarily
accorded our executives for as long as our employment agreement is in effect. In
addition, Mr. Mills is entitled to an annual bonus in an amount to be determined
at the sole discretion of our Board of Directors.
Mr. Mills' employment agreement also provides that if Mr. Mills' employment
is terminated for a reason other than death, disability or cause, Mr. Mills will
continue to receive his then current salary through July 30, 2004 or for one
year, whichever is longer, and any other benefits to which he would otherwise be
entitled under the employment agreement. In addition, Mr. Mills' employment
agreement provides that if Mr. Mills is terminated due to death or disability,
Mr. Mills or his estate, heirs or beneficiaries, as applicable, will receive, in
addition to any other benefits provided under any benefit plan, his then current
salary for a period of 24 months from the date of termination.
David M. Sindelar Employment Agreement
Mr. David M. Sindelar entered into an executive employment agreement with
us upon consummation of the Recapitalization. Under his employment agreement,
Mr. Sindelar will serve as our Senior Vice President and Chief Financial Officer
through July 30, 2004. Mr. Sindelar is required to devote his business time and
attention to the transaction of our business as is reasonably necessary to
discharge his duties under the employment agreement. Subject to the above
limitation on his activities, Mr. Sindelar is free to participate in other
business endeavors.
36
<PAGE> 37
Mr. Sindelar's compensation under his employment agreement includes an
annual base salary of not less than $150,000, subject to adjustment at the sole
discretion of the Chairman of the Board, and benefits as will be customarily
accorded our executives for as long as the employment agreement is in effect. In
addition, Mr. Sindelar is entitled to an annual bonus in an amount to be
determined at the sole discretion of the Chairman of the Board.
Mr. Sindelar's employment agreement also provides that if Mr. Sindelar's
employment is terminated for a reason other than death, disability or cause, Mr.
Sindelar will continue to receive his then current salary through July 30, 2004
or for one year, whichever is longer, and any other benefits to which he would
otherwise be entitled under the employment agreement. In addition, Mr.
Sindelar's employment agreement provides that if Mr. Sindelar is terminated due
to death or disability, Mr. Sindelar or his estate, heirs or beneficiaries, as
applicable, will receive, in addition to any other benefits provided under any
benefit plan, his then current salary for a period of 24 months from the date of
termination.
Walter J. Kreiseder Employment Agreement
Mr. Walter J. Kreiseder entered into an executive employment agreement with
our operating subsidiary providing for an employment term of up to five years
upon consummation of the Recapitalization. Mr. Kreiseder agreed in connection
with his employment agreement not to compete with us or any of our subsidiaries
during his employment and for a period of two years after the termination of his
employment for any reason. During the fiscal year ended September 30, 2000, Mr.
Kreiseder retired as Chief Executive Officer of our operating subsidiary,
however, he continues to serve as a member of our Board of Directors.
Mr. Kreiseder's compensation under his employment agreement includes an
annual base salary of $500,000, and benefits as customarily accorded the
executives of our operating subsidiary for as long as the employment agreement
is in effect.
Mr. Kreiseder's employment agreement also provides that if Mr. Kreiseder's
employment is terminated by him for "good reason," or by our operating
subsidiary for any reason other than "cause" or Mr. Kreiseder's death, permanent
disability or retirement on or prior to the second anniversary of the effective
date of the employment agreement. Mr. Kreiseder will continue to receive his
then current base salary for the greater of (1) 12 months from the date of
termination of his employment and (2) the remainder of the period on or prior to
the second anniversary of the effective date of the employment agreement.
Mr. Kreiseder and his spouse will also continue to be covered by the same
or equivalent medical, dental and life insurance coverage as in effect
immediately prior to the termination of his employment until age 65 or if Mr.
Kreineder dies prior to age 65, until his spouse reaches age 65.
37
<PAGE> 38
Gerald J. Sommers Employment Agreement
Mr. Gerald J. Sommers entered into an executive employment agreement with
our operating subsidiary providing for an employment term of up to five years
upon consummation of the Recapitalization. Mr. Sommers agreed pursuant to his
employment agreement not to compete with us or any of our subsidiaries during
his employment and for a period of two years after the termination of his
employment for any reason. During the fiscal year ended September 30, 2000, Mr.
Sommers retired as Chief Operating Officer of our operating subsidiary, however,
he continues to serve as a member of our Board of Directors.
Mr. Sommers' compensation under his employment agreement includes an annual
base salary of $500,000, and such benefits as customarily accorded the
executives of our operating subsidiary for as long as the employment agreement
is in effect.
Mr. Sommers' employment agreement also provides that if Mr. Sommers'
employment is terminated by him for "good reason," or by our operating
subsidiary for any reason other than "cause" or Mr. Sommers' death, permanent
disability or retirement on or prior to the second anniversary of the effective
date of the employment agreement, Mr. Sommers will continue to receive his then
current base salary for the greater of (1) 12 months from the date of
termination of his employment and (2) the remainder of the period on or prior to
the second anniversary of the effective date of the employment agreement.
Mr. Sommers will also continue to be covered by the same or equivalent
medical, dental and life insurance coverage as in effect immediately prior to
the termination of his employment until age 65 or, if Mr. Sommers dies prior to
age 65, until his spouse reaches age 65.
COMPENSATION OF DIRECTORS
Directors who are officers, employees or otherwise an affiliate of ours do
not receive compensation for their services as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions are made by the Board of Directors. James N. Mills
and David M. Sindelar served as both executive officers and directors during
fiscal 2000 and are both expected to serve in such capacity in fiscal 2001.
LLS CORP. 1999 STOCK OPTION PLAN
During fiscal 1999, the Company adopted the LLS Corp. 1999 Stock Option Plan
under which incentive and non-qualified stock options, stock appreciation
rights, stock awards, performance awards and stock units will be issued to our
employees and the employees of any of our subsidiaries as designated by our
Board of Directors. A total of 7,017,543 shares of our common stock are reserved
for issuance under the stock option plan. The stock option plan will terminate
on the tenth anniversary of its effectiveness, unless sooner terminated by the
committee.
The stock option plan provides that it is to be administered by a committee
of our Board of Directors or a subcommittee of such a committee. The committee
has the authority to grant to any participant one or more awards and to
establish the terms and conditions of such awards, subject to certain
limitations specified in the stock option plan. For example, in the case of
stock options, the per-share exercise price of each option must not be less than
100% of the fair market value of our common stock on the date such option is
granted, and no option may be exercisable later than ten years after the date of
grant. In the event of a change in control, as set forth in the stock option
plan, the committee, in its discretion, may take such actions as it deems
appropriate with respect to outstanding awards, including, without limitation,
accelerating the exercisability or vesting of such awards.
38
<PAGE> 39
PERFORMANCE OPTIONS
We granted 2,000,749 and 1,600,000 performance options (the "Performance
Options") to purchase shares of our common stock to James N. Mills and David M.
Sindelar, respectively, on July 30, 1999. A total of 4,340,749 shares of our
common stock are reserved for issuance in connection with the exercise of
Performance Options. The Performance Options will be exercisable only in the
event that HMTF/CC Investments, LLC has realized an overall rate of return of at
least 35% per year, compounded annually, on all equity funds invested by it in
us. Subject to the foregoing, the performance options will be exercisable:
- immediately prior to a Liquidity Event, as defined below;
- concurrently with the consummation of a Qualified IPO, as defined below;
or
- on the tenth anniversary of the date of grant.
A "Liquidity Event" generally means:
- one or more sales or other dispositions of our common stock if,
thereafter, the amount of our common stock owned by HMTF/CC Investments,
LLC is reduced by 50%;
- any merger, consolidation or other business combination involving us in
which any person or group acquires a majority of the common stock of the
resulting entity; or
- any sale of all or substantially all of our assets.
A "Qualified IPO" means a firm commitment underwritten public offering of our
common stock for gross proceeds of at least $50.0 million.
The exercise price for the Performance Options will initially be equal to
$1.00 per share and, effective each anniversary of the grant, the per share
exercise price for the Performance Options will be equal to the per share
exercise price for the prior year multiplied by 1.08. The exercise price for the
Performance Options and the number of shares of our common stock for which the
Performance Options will be exercisable is subject to adjustment in the event of
certain fundamental changes in our capital structure. The Performance Options
will terminate on the tenth anniversary of the date of grant.
39
<PAGE> 40
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our capital stock by (1) each person who owns beneficially more
than five percent of our capital stock, (2) each of our directors and executive
officers and (3) all directors and executive officers as a group. Our series A
convertible preferred stock and class A common stock vote together with our
common stock as a single class. Our series A convertible preferred stock is
entitled to the number of votes equal to the whole number of shares of common
stock into which it is then convertible, which will initially be one per share,
and our class A common stock is entitled to one vote for each share. Unless
otherwise indicated, each person has sole voting power and investment power with
respect to the shares attributed to him/her.
Our series A convertible preferred stock is convertible into our common
stock (1) at the option of any holder of series A convertible preferred stock at
any time and (2) automatically upon the closing of the sale of shares of our
common stock in a registered public offering resulting in at least $50.0 million
in gross proceeds to us. Each share of series A convertible preferred stock is
convertible into a whole number of shares of our common stock as is determined
by dividing $1.00 by the series A conversion price, which will initially be
$1.00.
Our class A common stock is convertible into our common stock (1) at the
option of any holder of class A common stock at any time, (2) at our option upon
the occurrence of a Triggering Event (as defined) and (3) automatically on July
31, 2009. A "Triggering Event" means any merger, consolidation or other business
combination or any sale of all or substantially all of our assets in which Hicks
Muse and its affiliates cease to beneficially own at least 50% of the resulting
entity. Each share of class A common stock is convertible into a fraction of a
share of common stock equal to the quotient of (1) the fair market value of a
share of common stock at the time of conversion less the sum of $0.99 plus
imputed interest on such share at a rate of 8% per annum, compounded annually,
at the time of conversion, divided by (2) the fair market value of a share of
common stock at the time of conversion. Because the fraction of a share of
common stock into which class A common stock is convertible is determinable only
at the time of a conversion, shares of common stock that may be issuable upon
conversion of class A common stock are not included in the shares of common
stock beneficially owned in the foregoing table.
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE COMMON CLASS A
PREFERRED STOCK STOCK COMMON STOCK
----------------------- ----------------------- -----------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENT
NUMBER OF OF NUMBER OF OF NUMBER OF OF OF
SHARES CLASS SHARES CLASS SHARES CLASS TOTAL
---------- ---------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
5% SHAREHOLDERS
HMTF/CC Investments, LLC(1)...... 78,000,000 100.0% -- -- -- -- 58.5%
c/o Hicks, Muse, Tate & Furst
Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
James N. Mills(2)................ -- -- -- -- 13,333,333 100.0% 10.0%
100 South Hanley, Suite 400
St. Louis, Missouri 63105
Walter J. Kreiseder(3)........... -- -- 21,000,000 49.9% -- -- 15.8%
800 Corporate Grove Drive
Buffalo Grove, Illinois
60089-4552
Gerald J. Sommers(4)............. -- -- 21,000,000 49.9% -- -- 15.8%
800 Corporate Grove Drive
Buffalo Grove, Illinois
60089-4552
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE COMMON CLASS A
PREFERRED STOCK STOCK COMMON STOCK
----------------------- ----------------------- -----------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENT
NUMBER OF OF NUMBER OF OF NUMBER OF OF OF
SHARES CLASS SHARES CLASS SHARES CLASS TOTAL
---------- ---------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
James N. Mills(2)................ -- -- -- -- 13,333,333 100.0% 10.0%
Walter J. Kreiseder(3)........... -- -- 21,000,000 49.9% -- -- 15.8%
Gerald J. Sommers(4)............. -- -- 21,000,000 49.9% -- -- 15.8%
Dan H. Blanks (5)................ 78,000,000 100.0% -- -- -- -- 58.5%
Jack D. Furst(6)................. 78,000,000 100.0% -- -- -- -- 58.5%
David M. Sindelar(7)............. -- -- -- -- 4,000,000 30.0% 3.0%
Wesley D. DeHaven(8)............. -- -- 100,000 * -- -- --
All directors/executive officers
as a group(7 persons).......... 78,000,000 100.0% 42,100,000 100.0% 13,333,333 100.0% 100.0%
</TABLE>
---------------
* Less than 1.0%
(1) Consists solely of shares of our series A convertible preferred stock owned
of record by HMTF/CC Investments, LLC, a limited liability company whose
managing member is HMTF/Courtesy GP, LLC. Mr. Thomas O. Hicks is the sole
member and manager of HMTF/Courtesy GP, LLC and, accordingly, may be deemed
to be the beneficial owner of our series A convertible preferred stock held
directly or indirectly by HMTF/CC Investments, LLC. In addition, Mr. Hicks
holds a minority limited liability company interest in HMTF/CC Investments,
LLC. Mr. Hicks disclaims beneficial ownership of shares of our series A
convertible preferred stock owned by HMTF/CC Investments, LLC.
(2) Includes 4,400,000 shares of class A common stock owned of record by Mr.
Mills and 8,933,333 shares of class A common stock owned of record by
certain persons subject to an irrevocable proxy in favor of Mr. Mills. Mr.
Mills disclaims beneficial ownership of shares of our class A common stock
not owned by him. See "Certain Relationships and Related Transactions -- The
Shareholders Agreement."
(3) Includes 10,500,000 shares of common stock owned of record by a personal
trust for which Mr. Kreiseder serves as trustee and 10,500,000 shares of
common stock owned of record by four children's trusts. Mr. Kreiseder
disclaims beneficial ownership of shares of our common stock owned by the
children's trusts.
(4) Includes 8,400,000 shares of common stock owned of record by a personal
trust for which Mr. Sommers serves as trustee and 12,600,000 shares of
common stock owned of record by four children's trusts. Mr. Sommers
disclaims beneficial ownership of shares of our common stock owned by the
children's trusts.
(5) Mr. Blanks holds a minority limited liability company interest in HMTF/CC
Investments, LLC. Mr. Blanks disclaims beneficial ownership of shares of our
series A convertible preferred stock owned by HMTF/CC Investments, LLC.
(6) Mr. Furst holds a minority limited liability company interest in HMTF/CC
Investments, LLC. Mr. Furst disclaims beneficial ownership of shares of our
series A convertible preferred stock owned by HMTF/CC Investments, LLC.
(7) Includes 3,600,000 shares of class A common stock owned of record by Mr.
Sindelar and 400,000 shares of class A common stock owned of record by two
children's trusts of which Mr. Sindelar serves as trustee. Mr. Sindelar
disclaims beneficial ownership of shares of our class A common stock owned
by the children's trusts.
(8) Includes 100,000 shares issuable under stock options that are exercisable
within 60 days.
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<PAGE> 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of certain transactions entered into
between us and certain of our shareholders or affiliates during the last three
years. Some of these relationships continue to be in effect and may result in
conflicts of interest between us and those shareholders or affiliates.
THE SHAREHOLDERS AGREEMENT
Each holder of common stock, series A convertible preferred stock and class
A common stock entered into a shareholders agreement with us upon consummation
of the Recapitalization. In accordance with the terms of the shareholders
agreement, our Board of Directors consists of six directors, made up of two
Hicks Muse designees, two Mills & Partners designees and Walter J. Kreiseder and
Gerald J. Sommers. Also, the number of members of the Board of Directors may be
expanded by the mutual agreement of Hicks Muse and Mills & Partners to include
independent directors who are reasonably acceptable to Mr. Kreiseder and Mr.
Sommers. Each party to the shareholders agreement agreed to vote his or its
shares of common stock, series A convertible preferred stock and class A common
stock and take all other actions necessary to give effect to the agreements
contained therein, including without limitation the election of the Hicks Muse
designees, the Mills & Partners designees and Mr. Kreiseder and Mr. Sommers to
the Board of Directors.
In addition, the shareholders agreement contains an irrevocable proxy in
connection with which the initial holders of class A common stock and their
transferees granted to James N. Mills, or to Hicks Muse if Mr. Mills is no
longer an officer or director, the power to vote all shares of capital stock
held by such parties on all matters concerning the election of directors as
provided in the shareholders agreement.
The shareholders agreement, among other things, grants preemptive rights
and certain registration rights to the parties thereto and contains provisions
requiring the parties to the shareholders agreement to sell their shares of
common stock in connection with certain sales of common stock by HMTF/CC
Investments, LLC and its affiliates ("drag-along rights") and granting the
parties to the shareholders agreement the right to include a portion of their
shares of common stock in certain sales in which HMTF/CC Investments, LLC and
its affiliates do not exercise their drag-along rights ("tag-along rights"). The
shareholders agreement will terminate on its tenth anniversary date, although
the preemptive rights, drag-along rights and tag-along rights contained in the
shareholders agreement will terminate earlier upon the consummation of a firm
commitment underwritten public offering of our common stock.
MONITORING AND OVERSIGHT AND FINANCIAL ADVISORY AGREEMENTS
Following consummation of the Recapitalization, we entered into a
monitoring and oversight agreement with an affiliate of Hicks Muse ("Hicks Muse
Partners"), under which we pay Hicks Muse Partners an annual fee, payable
quarterly, in an initial amount equal to $500,000 for monitoring and oversight
services to be provided to us. In addition, we reimburse Hicks Muse Partners for
its expenses incurred in connection with services rendered. The initial fee is
adjusted, but not below the amount of the initial fee, on January 1 of each
calendar year to an amount equal to 0.2% of our budgeted consolidated annual net
sales for our then-current fiscal year. Upon the acquisition by us or any of our
subsidiaries of another entity or business, the fee will be adjusted
prospectively in the same manner using the pro forma combined budgeted
consolidated annual net sales.
We also entered into a financial advisory agreement with Hicks Muse
Partners under which Hicks Muse Partners received a financial advisory fee in an
amount equal to $5.3 million for its services as financial advisor to us in
connection with the Recapitalization. We also reimbursed Hicks Muse Partners for
its expenses incurred in connection with the Recapitalization. In addition,
Hicks Muse Partners are entitled to receive a fee equal to 1.5% of the
"transaction value", as defined below, for each "subsequent transaction", as
defined below, in which we or any of our subsidiaries are involved. The term
"transaction value" means the total value of the subsequent transaction,
including without limitation, the aggregate amount of the funds required to
complete the subsequent transaction, excluding any fees payable pursuant to the
financial advisory agreement, including the amount of any indebtedness,
preferred stock or similar items assumed, or remaining outstanding. The term
"subsequent transaction" means any future proposal for a tender offer,
acquisition, sale, merger,
42
<PAGE> 43
exchange offer, recapitalization, restructuring or other similar transaction
directly or indirectly involving us or any of our subsidiaries or any of their
respective subsidiaries and any other person or entity.
Each of the monitoring and oversight agreement and the financial advisory
agreement will terminate upon the earlier to occur of:
- the tenth anniversary of its execution; or
- the date on which Hicks Muse or its successors and their respective
affiliates, including, without limitation, any equity fund sponsored by
Hicks Muse or its successors, shall cease to own beneficially, any of our
securities or the securities of any of our successors.
Messrs. Furst and Blanks, who serve as two of our directors, are each
principals of Hicks Muse Partners. In addition, we agreed to indemnify Hicks
Muse Partners, its affiliates, and their respective directors, officers,
controlling persons, if any, agents and employees from and against any and all
claims, liabilities, losses, damages, expenses and fees and disbursements
related to or arising out of or in connection with the services rendered by
Hicks Muse Partners in connection with each of the monitoring and oversight
agreement and the financial advisory agreement and not resulting from the bad
faith, gross negligence or willful misconduct of Hicks Muse Partners. Hicks Muse
Partners is also entitled to reimbursement for any expenses incurred by it in
connection with rendering services allocable to us under the monitoring and
oversight agreement and the financial advisory agreement.
The monitoring and oversight agreement and the financial advisory agreement
each make available the resources of Hicks Muse Partners concerning a variety of
financial and operational matters. We do not believe that the services to be
provided by Hicks Muse Partners could otherwise be obtained by us without the
addition of personnel or the engagement of outside professional advisors. In our
opinion, the fees to be provided for under these agreements reasonably reflect
the benefits to be received by us.
REAL PROPERTY LEASES
We lease two of our properties from entities in which two of our directors,
Walter J. Kreiseder and Gerald J. Sommers, hold beneficial interests. The lessor
of our facility in Wheeling, Illinois is KS/Wheeling L.L.C., a limited liability
company of which Messrs. Kreiseder and Sommers are the only members. We have
leased this property since September 1986, and the term of the lease expires in
August 2007. We paid a total of $360,000 in rent in fiscal year 2000 and 1999.
We lease the land on which one of our Buffalo Grove, Illinois facilities is
located from Cole Taylor Bank, trustee of a trust for the benefit of Messrs.
Kreiseder and Sommers. We have leased this property since August 1996, and the
term of the lease expires in August 2011. We paid a total of $334,691 in rent
in fiscal years 2000 and 1999. The terms of the leases are equivalent to terms
available from independent third parties.
NOTES PURCHASE COMMITMENT
In connection with the consummation of the Recapitalization, TCW/Crescent
Mezzanine, L.L.C. and its affiliates (collectively, "TCW"), made a stand-by
commitment to purchase the entire $100 million aggregate principal amount of the
notes we originally offered. In consideration for this commitment, TCW received
approximately $2.4 million in cash and warrants to purchase 1,800,000 shares of
our common stock for $0.50 per share. In addition, TCW invested $10.0 million in
HMTF/CC Investments, LLC. TCW/Crescent Mezzanine, L.L.C. is an affiliate of
Hicks Muse.
43
<PAGE> 44
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Index to Financial Statements and Financial Schedules on page 11 of
this report.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Recapitalization Agreement, dated July 13, 1999, by and
among HMTF/CC Investments, L.P., Courtesy Corporation,
Creative Packaging Corp., Courtesy Sales Corp. and the
shareholders party thereto.*
3.1 -- Articles of Incorporation of LLS Corp., as amended.*
3.2 -- Amended and Restated Bylaws of LLS Corp.*
4.1 -- Indenture, dated July 30, 1999, by and between LLS Corp.,
as issuer, and The Bank of New York, as trustee.*
10.1 -- Credit Agreement, dated July 30, 1999, by and among LLS
Corp., certain lenders, Bank of America, N.A., as
administrative agent, Credit Suisse First Boston, as
syndication agent, and Bankers Trust Company, as
documentation agent.*
10.2 -- Escrow Agreement, dated July 30, 1999, by and among LLS
Corp., Walter J. Kreiseder, Gerald J. Sommers and
American National Bank & Trust Company.*
10.3 -- Warrant Agreement, dated July 30, 1999, by and among LLS
Corp. and the purchasers party thereto.*
10.4 -- Shareholders Agreement, dated July 30, 1999, by and among
LLS Corp. and the securityholders listed on the signature
pages thereof.*
10.5 -- Monitoring and Oversight Agreement, dated July 30, 1999,
by and among LLS Corp., Courtesy Corporation, Creative
Packaging Corp., Courtesy Sales Corp. and Hicks Muse &
Co. Partners, L.P.*
10.6 -- Financial Advisory Agreement, dated July 30, 1999, by and
among LLS Corp., Courtesy Corporation, Creative Packaging
Corp., Courtesy Sales Corp. and Hicks Muse & Co.
Partners, L.P.*
10.7 -- Employment Agreement, dated July 30, 1999, by and between
LLS Corp. and James N. Mills.*
10.8 -- Employment Agreement, dated July 30, 1999, by and between
LLS Corp. and David M. Sindelar.*
10.9 -- Employment Agreement, dated July 30, 1999, by and between
Courtesy Corporation and Walter J. Kreiseder.*
10.10 -- Employment Agreement, dated July 30, 1999, by and between
Courtesy Corporation and Gerald J. Sommers.*
10.11 -- Courtesy Group 1999 Stock Option Plan for Key Employees.*
10.12 -- Second Amendment to Credit Agreement dated December 31,
1999, by and among LLS Corp., certain lenders, Bank of America,
N.A. as administrative agent, Credit Suisse First Boston,
Syndication Agent and Bankers Trust Company, as documentation
agent.
10.13 -- Third Amendment to Credit Agreement dated September 8,
2000, by and among LLS Corp., certain lenders, Bank of America,
N.A. as administrative agent, Credit Suisse First Boston,
Syndication Agent and Bankers Trust Company, as documentation
agent.
12.1 -- Computation of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of LLS Corp.*
27.1 -- Financial Data Schedule for the Fiscal Year Ended
September 30, 2000 and 1999.+
</TABLE>
----------
* Incorporated by reference to the Company's Registration Statement on Form S-4,
File No. 333-88007, dated September 29, 1999.
+ Filed herewith.
(b) Reports on Form 8-K: Not applicable.
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<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in St. Louis,
Missouri, on December 8, 2000.
LLS CORP.
By: /s/ DAVID M. SINDELAR
-----------------------------------
David M. Sindelar
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
By: /s/ WESLEY D. DEHAVEN
-----------------------------------
Wesley D. DeHaven
Vice President - Finance
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<S> <C> <C>
/s/ JAMES N. MILLS Chairman of the Board and Chief December 8, 2000
----------------------------------------------------- Executive Officer
James N. Mills
/s/ DAN H. BLANKS Director December 8, 2000
-----------------------------------------------------
Dan H. Blanks
/s/ JACK D. FURST Director December 8, 2000
-----------------------------------------------------
Jack D. Furst
/s/ DAVID M. SINDELAR Senior Vice President, Chief December 8, 2000
----------------------------------------------------- Financial Officer and Director
David M. Sindelar
/s/ WALTER J. KREISEDER Director December 8, 2000
-----------------------------------------------------
Walter J. Kreiseder
/s/ GERALD J. SOMMERS Director December 8, 2000
-----------------------------------------------------
Gerald J. Sommers
</TABLE>
45
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
2.1 -- Recapitalization Agreement, dated July 13, 1999, by and
among HMTF/CC Investments, L.P., Courtesy Corporation,
Creative Packaging Corp., Courtesy Sales Corp. and the
shareholders party thereto.*
3.1 -- Articles of Incorporation of LLS Corp., as amended.*
3.2 -- Amended and Restated Bylaws of LLS Corp.*
4.1 -- Indenture, dated July 30, 1999, by and between LLS Corp.,
as issuer, and The Bank of New York, as trustee.*
10.1 -- Credit Agreement, dated July 30, 1999, by and among LLS
Corp., certain lenders, Bank of America, N.A., as
administrative agent, Credit Suisse First Boston, as
syndication agent, and Bankers Trust Company, as
documentation agent.*
10.2 -- Escrow Agreement, dated July 30, 1999, by and among LLS
Corp., Walter J. Kreiseder, Gerald J. Sommers and
American National Bank & Trust Company.*
10.3 -- Warrant Agreement, dated July 30, 1999, by and among LLS
Corp. and the purchasers party thereto.*
10.4 -- Shareholders Agreement, dated July 30, 1999, by and among
LLS Corp. and the securityholders listed on the signature
pages thereof.*
10.5 -- Monitoring and Oversight Agreement, dated July 30, 1999,
by and among LLS Corp., Courtesy Corporation, Creative
Packaging Corp., Courtesy Sales Corp. and Hicks Muse &
Co. Partners, L.P.*
10.6 -- Financial Advisory Agreement, dated July 30, 1999, by and
among LLS Corp., Courtesy Corporation, Creative Packaging
Corp., Courtesy Sales Corp. and Hicks Muse & Co.
Partners, L.P.*
10.7 -- Employment Agreement, dated July 30, 1999, by and between
LLS Corp. and James N. Mills.*
10.8 -- Employment Agreement, dated July 30, 1999, by and between
LLS Corp. and David M. Sindelar.*
10.9 -- Employment Agreement, dated July 30, 1999, by and between
Courtesy Corporation and Walter J. Kreiseder.*
10.10 -- Employment Agreement, dated July 30, 1999, by and between
Courtesy Corporation and Gerald J. Sommers.*
10.11 -- Courtesy Group 1999 Stock Option Plan for Key Employees.*
10.12 -- Second Amendment to Credit Agreement dated December 31,
1999, by and among LLS Corp., certain lenders, Bank of America,
N.A. as administrative agent, Credit Suisse First Boston,
Syndication Agent and Bankers Trust Company, as documentation
agent.
10.13 -- Third Amendment to Credit Agreement dated September 8,
2000, by and among LLS Corp., certain lenders, Bank of America,
N.A. as administrative agent, Credit Suisse First Boston,
Syndication Agent and Bankers Trust Company, as documentation
agent.
12.1 -- Computation of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of LLS Corp.*
27.1 -- Financial Data Schedule for the Fiscal Year Ended
September 30, 2000 and 1999.+
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* Incorporated by reference to the Company's Registration Statement on Form S-4,
File No. 333-88007, dated September 29, 1999.
+ Filed herewith.
