As filed with the Securities and Exchange Commission on
January 21, 2000
Registration No. 333-92019
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PLASTICS MFG. COMPANY
(Exact name of registrant as specified in its charter)
______
WISCONSIN 3621 39-1867101
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification
organization) Classification No.)
Code Number)
W190 N11701 MOLDMAKERS WAY
GERMANTOWN, WISCONSIN 53022-8214
(414) 255-5790
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
SCOTT W. SCAMPINI
EXECUTIVE VICE PRESIDENT
PLASTICS MFG. COMPANY
W190 N11701 MOLDMAKERS WAY
GERMANTOWN, WISCONSIN 53022-8214
(414) 255-5790
(Name, address, including zip code and telephone number, including
area code, of agent for service)
WITH COPIES TO:
ARNOLD J. KIBURZ III
RUDER, WARE & MICHLER, A LIMITED LIABILITY S.C.
500 THIRD STREET, SUITE 700
WAUSAU, WISCONSIN 54403
(715) 845-4336
Approximate date of commencement of proposed sale to the public: AS
SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE. If any of the securities being registered on this form
are to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, please check the following
box. <checked-box>
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. <square>
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. <square>
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. <square>
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. <square>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C>
Title of each class of Proposed maximum Amount of
securities to be aggregate offering registration
registered: price (1): fee (1):
COMMON STOCK $7,951,360 (VALUE OF) $2,100 (2)
<FN>
(1)Estimated solely for the purpose of computing the amount of the
registration fee under the Securities Act of 1933, as amended pursuant
to (i) Rule 457(j) with respect to the Registrant's offer to repurchase
722,490 shares and (ii) Rule 457(o) with respect to the sale for cash
of 500,000 shares.
(2)This amount has previously been paid.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE>
PROSPECTUS
1,222,490 Shares
PLASTICS MFG. COMPANY
Common Stock
PRICE: $12.00 A SHARE
________________
This is our initial public offering of shares of common stock of
Plastics Mfg. Company. We are offering to sell 500,000 shares of our
common stock for cash at a price of $12.00 per share. We are
concurrently offering to repurchase up to 722,490 shares which were
sold without registration under the Securities Act of 1933 at an
average repurchase price of $2.70 per share, plus accrued interest.
See "Rescission Offer."
This is not an underwritten offering. There is no minimum amount
of stock which must be sold in the offering. No public market
currently exists for our shares and no market is expected to develop
after the offering. Our stock will not be listed on any national
securities exchange or the Nasdaq Stock Market.
________________
SEE "RISK FACTORS" ON PAGE 6 TO READ ABOUT MATERIAL RISKS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
_________________
UNDER WISCONSIN LAW, A SHAREHOLDER MAY BE HELD LIABLE FOR EMPLOYEE
WAGES (FOR NOT MORE THAN SIX MONTHS OF SERVICES FOR ANY SINGLE
EMPLOYEE) IF WE CANNOT MEET OUR LIABILITIES FOR WAGES. THIS LIABILITY
IS LIMITED TO THE AMOUNT PAID BY THE SHAREHOLDER FOR OUR STOCK.
_________________
PER SHARE TOTAL
Initial public offering price $12.00 $6,000,000
(500,000 shares to be sold for cash)
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
__________________
We expect to deliver the shares of our common stock to purchasers
on ____________.
__________________
Prospectus dated ________________, 1999
IN MAKING ANY INVESTMENT DECISION RELATING TO OUR COMMON STOCK, YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL SHARES
OF COMMON STOCK AND SEEKING OFFERS TO BUY SHARES COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS OR OTHER DATE WE INCLUDE IN SUCH INFORMATION.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary 1
Risk Factors 6
Special Note With Respect to Forward-Looking Information 20
Use of Proceeds 20
Dividend Policy 22
Dilution 22
Selected Historical Consolidated Financial Data 24
Rescission Offer 26
Management's Discussion and Analysis of Financial Condition and
Results of Operations 29
Business 34
Management 44
The MGS Group 50
Related Party Transactions and Conflicts of Interest 52
Principal Stockholders 56
Description of Common Stock 58
Shares Eligible for Future Sale 62
Plan of Distribution 63
Pricing of this Offering 63
Legal Matters 63
Experts 63
Additional Information 64
Index to Consolidated Financial Statements F-1
i
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD
READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING
IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS" ON PAGE 6.
In this prospectus, the terms "we," "us" and "our" refer to
Plastics Mfg. Company. Unless otherwise noted, these terms also
include our wholly owned subsidiary, TecStar Mfg. Company.
PLASTICS MFG. COMPANY
We manufacture plastic parts through the injection molding process.
Our manufacturing business is conducted through our wholly owned
subsidiary, TecStar Mfg. Company. Our principle executive offices are
located at W190 N11701 Moldmakers Way, Germantown, Wisconsin
53022-8214, telephone number (262) 255-5790.
PRODUCTS
Our customers use the parts made by us to manufacture end-products
or components for industry and the consumer markets. For example, some
of our plastic parts are now used to make cellular telephones, pagers,
nailguns, and computers.
<PAGE>
AFFILIATED COMPANIES AND RELATED PARTY TRANSACTIONS - THE MGS GROUP.
Twenty companies are affiliated with us through common ownership.
These affiliated companies are collectively referred to as the "MGS
Group." Mark G. Sellers is our Chairman, President, and Chief
Executive Officer and he controls directly or indirectly at least 51%
of the voting interests of each company in the MGS Group. Mr. Sellers
and the MGS Group collectively own approximately 60% of our outstanding
common stock and will continue to own at least 53% of our stock if
500,000 shares of stock are sold in the offering. In addition, Mr.
Sellers and two of the MGS Group companies hold options with respect to
an additional 5,000,000 shares. See "Principal Stockholders."
Before part production by us can take place, the molds used to form
the plastic must be designed, tested, and manufactured. In addition,
maintenance on and adjustments to the molds must be performed during
the production process. We often rely on MGS Group companies to
1
perform these steps in the production process. The relationship with
affiliated companies allows us to offer a "turn-key" alternative for
our customers at competitive prices.
We also rely on the MGS Group to provide management, accounting,
information system, and human resource services for us. Our principal
production facility and our injection molding equipment is leased from
the MGS Group companies.
A description of the MGS Group and our transactions with the
companies in the group can be found under "The MGS Group" and "Related
Party Transactions and Conflicts of Interest."
STRATEGIC PLAN
Our strategic plan is to become a leading national manufacturer of
plastic parts by increasing revenues at our Germantown, Wisconsin,
manufacturing facility and expanding into additional geographic areas
of the United States. In addition, we plan to acquire mold making
capabilities so that some of the mold production and services now
purchased from the MGS Group can be undertaken internally.
THE RESCISSION OFFER
From August, 1999 through September, 1999, a total of 722,490
shares of our common stock was sold by us and some of the MGS companies
to employees and unrelated parties. The proceeds of these sales
received by us and the MGS Group was $1,951,360. The common stock
purchased was inadvertently not registered under federal or state law.
We are offering to repurchase these shares. Stockholders who purchased
stock from us or the members of the MGS Group during this period may
return their shares to us and receive the amount they paid for the
stock, plus interest at the rate prescribed by law. Mr. Sellers and
the companies of the MGS Group which sold these shares have entered
into a written agreement with us to purchase any shares which are
returned to us. Stockholders who do not elect to return their shares
<PAGE>
will have registered shares upon completion of the 30 day rescission
period. We do not anticipate that stockholders will exercise this
return right. See "Rescission Offer."
2
THE OFFERING
SALE OF NEW SHARES OF COMMON STOCK
We are offering to sell our common stock at a price of $12.00 per
share. The common stock will be sold for us by our officers and
employees. No officer or employee will receive a commission or other
compensation for selling our stock.
<TABLE>
<CAPTION>
<S> <C>
Common stock offered for cash: 500,000 shares
Common stock subject to our
offer to repurchase: 722,490 shares
Common stock to be
outstanding after this offering: 4,250,000 shares*
Use of proceeds: Working capital, equipment lease
deposits, and general corporate
purposes. See "Use of Proceeds."
<FN>
*Includes 722,490 shares which are the subject of our rescission offer.
</TABLE>
SUMMARY HISTORICAL
CONSOLIDATED FINANCIAL DATA
The table below provides you with our summary historical financial
information. The following consolidated statement of operations data
for the years ended September 30, 1997, 1998 and 1999 is derived from
our audited consolidated financial statements included elsewhere in
this prospectus.
The following financial data should be read in conjunction with,
and is qualified by reference to, "Selected Historical Consolidated
Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our consolidated financial
statements and the notes to those financial statements, included
elsewhere in this prospectus.
3
<PAGE>
<TABLE>
<CAPTION>
(In thousands, except per share data)
YEAR ENDED SEPTEMBER 30,
1997 1998 1999
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
<S> <C> <C> <C>
Total revenue $ 0 $ 850 $7,465
Gross profit (loss) 0 (659) (147)
Operating expenses 3 325 1168
Income (loss) from operations (3) (984) (1,315)
Income (loss) before accounting change 2 (581) (836)
Change in accounting principle (95)
Net income (loss) 2 (581) (931)
Per basic share:
Income (loss) before accounting change .00 (0.24) (0.32)
Change in accounting principle (0.04)
Net income (loss) .00 (0.24) (0.36)
Per diluted share:
Income (loss) before accounting change .00 (0.20) (0.27)
Change in accounting principle (0.03)
Net income (loss) .00 (0.20) (0.30)
Shares in computing basic net
income (loss) per share 1,551 2,432 2,614
Shares in computing diluted net
income (loss) per share 2,051 2,932 3,114
CONSOLIDATED BALANCE
SHEET DATA:
Cash $1,222 $ 10 $ 246
Total current assets 1,222 147 4,428
Total current liabilities 1 823 4,054
Noncurrent liabilities 0 0 0
Stockholders' equity 52 1,066 2,841
</TABLE>
4
NOTES TO HISTORICAL AND PRO FORMA FINANCIAL DATA
(1) As of September 30, 1997, we were still a development stage
company that had not commenced operations. The proceeds of
our first stock offering were held in escrow until September
14, 1997. We then paid legal and accounting invoices related
to organizing the company and the first offering. No other
transactions took place during the fiscal year ended September
30, 1997.
(2) The number of shares used in computing diluted loss per share
reflects the stock option granted on October 1, 1999 as if
they were outstanding for all periods presented, calculated
<PAGE>
using the treasury stock method.
(3) All shares outstanding and earnings per share have been
retroactively restated to reflect the 3-for-1 stock split on
September 30, 1999.
5
RISK FACTORS
You should carefully consider the following risks and the other
information contained in this prospectus before investing in our common
stock. The value of our common stock could decline due to any of these
risks, and you could lose all or part of your investment. You also
should refer to the other information included in this prospectus,
including the financial statements and related notes. The risks
described below are not the only ones facing us. We have only
described the risks we consider to be material. However, there may be
additional risks that we view as not material or of which we are not
presently aware.
If any of the events described below were to occur, our business,
prospects, financial condition, results of operations, or cash flow
could be materially adversely affected. When we state below that
something could or will have a material adverse effect on us, we mean
that it could or will have one or more of these effects.
MANAGEMENT RISKS
MANAGEMENT OF THE COMPANY IS ALSO RESPONSIBLE FOR MANAGING THE MGS
GROUP AND SUCH SHARED MANAGEMENT COULD RESULT IN CONFLICTS OF INTEREST.
We rely on executive officers who are also full-time employees of
companies in the MGS Group. This shared management may result in
conflicts of interest and may compromise our potential as an individual
company. Actions by shared management may, for example, result in a
benefit to one of the companies in the MGS Group and a corresponding or
related detriment to us.
We have entered into management agreements with three members of
the MGS Group which provide for the payment of fees equal to a total of
5% of our net sales through December, 2006. We have also entered into
various leases and other contractual agreements with the MGS Group. As
a result of this shared management, our officers are unable to devote
their full time and efforts to our management. In addition, our
directors also serve as directors of one or more of the companies in
the MGS Group and will therefore be responsible not only to our
stockholders, but to the stockholders of the MGS Group companies for
which they also serve as directors. None of our directors will be
independent of the MGS Group. No independent director will evaluate
any issues involving potential conflicts of interest between our
interests and those of our stockholders, on the one hand, and the
interests of the MGS Group and the stockholders or partners of its
companies, on the other. See "Business," "The MGS
6
<PAGE>
Group," and "Related Party Transactions and Conflicts of Interest."
THE LOSS OF THE SERVICES OF MARK G. SELLERS OR OTHER KEY EMPLOYEES MAY
HAVE A MATERIAL ADVERSE AFFECT ON OUR REVENUES, RESULTS OF OPERATIONS
AND PROSPECTS.
We are highly dependent upon our founder, Chairman, President and
Chief Executive Officer, Mark G. Sellers. The reduction or loss of the
services of Mr. Sellers may have a material adverse effect on our
operating results and prospects. Mr. Sellers is widely known in the
plastics industry and his knowledge of the moldmaking process and
plastics industry, business contacts, and leadership have been, and
will continue to be, critical to our success. Mr. Sellers has no
employment agreement with the Company.
Our future continued success also is dependent upon the retention
of other of our key management executives. We also depend upon a
number of other key employees who have been instrumental in our success
thus far, and will depend upon our ability to attract and retain other
highly capable individuals. The loss of one or more of these senior
executives or key members of our production and quality control staff,
or an inability to attract or retain other key individuals, could have
a material adverse effect on our business. We seek to compensate our
key executives, as well as other employees, through competitive
salaries and the opportunity to purchase our stock, but we can make no
assurance that these programs will allow us to retain key employees or
hire new employees.
WE MAY INCUR INCREASED COSTS TO OBTAIN NECESSARY TECHNOLOGICAL,
FINANCIAL AND ADMINISTRATIVE SERVICES AFTER OUR AGREEMENTS WITH THE MGS
GROUP EXPIRES.
Various MGS Group companies provide us with selected
administrative, financial reporting, tax, information system, and human
resources services. Executive management and marketing services are
provided to us under management agreements with MGS Group companies.
In order to continue to operate, we will need to maintain the
management agreements with the MGS Group after their December 31, 2006
termination date and continue to receive the other services or develop
the capability to provide these services internally. If our management
agreements are not renewed, or the other services are no longer
provided, we may not be able to develop these services at comparable
costs after expiration of these agreements.
7
THERE ARE RISKS ASSOCIATED WITH OUR INDUSTRY AND, IN PARTICULAR, OUR
BUSINESS
WE ARE DEPENDENT ON THE MGS GROUP FOR THE DEVELOPMENT AND RETENTION OF
OUR BUSINESS.
Our operations are substantially dependent upon companies over
which we do not exercise direct control. We have been and will
continue to be dependent on the MGS Group to a significant degree for
marketing, technical, and manufacturing support. We are currently
<PAGE>
dependent on the sales and marketing efforts of the companies within
the MGS Group to obtain purchase orders and we rely on the resources of
the MGS Group for technical and manufacturing support.
LONG-TERM CONTRACTS ARE NOT TYPICAL IN OUR INDUSTRY AND REDUCTIONS,
CANCELLATIONS, OR DELAYS IN CUSTOMER ORDERS WOULD ADVERSELY AFFECT OUR
PROFITABILITY.
As is typical in the plastics manufacturing industry, we do not
obtain long-term contracts or commitments from our customers. Instead,
we work closely with customers to develop nonbinding forecasts of the
future volume of orders and rely on purchase orders. Customers may
cancel their orders, change production quantities from forecast
volumes, or delay production for a number of reasons beyond our
control. Significant or numerous cancellations, reductions, or delays
in orders by customers would have a material adverse effect on our
results of operations and financial condition. In addition, because
many of our costs are fixed, a reduction in customer demand could have
an adverse affect on our gross profit margins and operating income.
TERMINATION OF OUR RELATIONSHIP WITH MOTOROLA, INC. WOULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
In 1999, we received approximately 56% of our manufacturing revenue
from our relationship with six divisions of Motorola, Inc. to produce
plastic parts for its cellular telephones and pagers. If Motorola was
to experience a significant downturn in its cellular telephone or pager
businesses, was otherwise unable to honor its obligations to us, or
chose to contract with additional manufacturers, our business would be
disrupted and our cash flow and profitability would be materially
adversely affected.
8
TERMINATION OF OUR RELATIONSHIP WITH ITW PASLODE CORDLESS TOOL GROUP
WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We have a five-year agreement with ITW Paslode, Cordless Tool
Group, a division of Illinois Tool Works, Inc. to supply plastic
components. We will occupy a portion of the Paslode facility without
direct rent expense as part of the agreement. We expect that sales to
Paslode under the agreement will exceed 10% of our revenue in fiscal
2000. The early termination of this agreement would have a material
adverse effect on our cash flow and profitability.
A DECREASE IN THE BUSINESS OF THE MGS GROUP WOULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
Sales to MGS Group companies represented approximately 22.6% of our
revenue in 1999. A decrease in the MGS Group's business and,
accordingly, a reduction in our sales to MGS Group companies, would
have a material adverse effect on our cash flow and profitability.
FAILURE TO DEVELOP NEW OR EXPAND EXISTING PRODUCTION ORDERS WILL IMPAIR
OUR ABILITY TO GROW AND ADVERSELY AFFECT OUR PROSPECTS.
<PAGE>
Our growth depends to a significant degree upon our ability to
develop new customer relationships or to expand existing relationships
with current customers. We cannot guarantee that new customers will be
found, that any such new relationships will be successful when they are
in place, or that business with current customers will increase. If
these and other programs are not successful, our results of operations,
financial condition, and prospects could be materially adversely
affected.
COMPETITION IN OUR INDUSTRY MAY HINDER OUR ABILITY TO EXECUTE OUR
BUSINESS STRATEGY, ACHIEVE PROFITABILITY, OR MAINTAIN RELATIONSHIPS
WITH EXISTING CUSTOMERS.
We operate in an industry that is highly competitive, with no
single plastics manufacturer having a dominant position. Competition
could cause price reductions, reduced profits or losses, or loss of
market share, any of which could have a material adverse effect on our
business. We compete against numerous other domestic and foreign
providers of plastics manufacturing services, some of which are more
established in the industry and have substantially greater revenues or
resources than we do. Our inability to do any of the following could
materially adversely affect our
9
ability to execute our business strategy and develop new customers:
<circle> provide technologically advanced manufacturing services;
<circle> maintain strict quality standards;
<circle> offer geographic flexibility in production and delivery;
<circle> respond flexibly and rapidly to customers' design and
schedule changes; and
<circle> deliver products on a reliable basis at competitive
prices.
We also face competition from the manufacturing operations of our
current and potential customers who are continually evaluating the
relative merits of internal manufacturing versus outsourcing. A shift
away from outsourcing on behalf of our current or potential customers
could materially adversely affect our results of operations and
financial condition.
OUR REVENUES AND INCOME COULD DECLINE DUE TO OVERCAPACITY IN THE
PLASTICS INDUSTRY, GENERAL ECONOMIC TRENDS, AND/OR DECLINES IN BUSINESS
OR CONSUMER SPENDING.
We enter into purchase order contracts with our customers in which
we agree to produce plastic parts at a stated price per part. We
cannot assure you that the prices we are able to obtain under our
purchase orders will not decline in the future.
Although our purchase orders are often parts for technical
components and are somewhat resistant to economical cycles, many of the
industries which we serve and expect to serve are cyclical. Spending
for products for which we now produce parts or components may decline
during recessionary periods because of the discretionary nature of
<PAGE>
consumer and business spending. The price which we can obtain in our
purchase order contracts could also fall if the plastics manufacturing
industry creates excess capacity for plastic parts. This could
significantly reduce our cash flow and could have a material adverse
effect on our results of operations and our financial condition.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BECAUSE OF RISKS WHICH ARE
PARTICULAR TO INTERNATIONAL OPERATIONS.
Approximately 40% of our revenue in fiscal 1999 was derived from
sales outside of the United States. We expect that foreign sales in
fiscal 2000 and subsequent years will not exceed 20% of our revenue. A
significant portion of our foreign sales are made to customers who have
U.S. operations, but who assemble components or end-use products
offshore for
10
sale in the U.S. International sales (and the international operations
of our customers) are subject to inherent risks, which may adversely
affect us, including:
<circle>fluctuations in the value of currencies;
<circle>unexpected changes in and the burdens and costs of
compliance with a variety of foreign laws;
<circle>political and economic instability;
<circle>increases in duties and taxation;
<circle>limitations on imports or exports; and
<circle>reversal of the current policies (including favorable tax
and lending policies) encouraging foreign investment or
foreign trade by our host countries.
OUR OPERATING RESULTS CAN BE ADVERSELY EFFECTED BY CHANGES IN THE COST
OR AVAILABILITY OF RAW MATERIALS.
In turn-key manufacturing, we provide both the equipment and the
manufacturing and engineering services. As a result, we often bear the
risk of fluctuations in materials costs, scrap, and excess inventory,
each of which can affect our gross profit margins and liquidity. We
forecast our future needs based upon the anticipated needs of our
customers. Inaccuracies in making these forecasts or estimates could
result in a shortage or an excess of materials, which could affect
production schedules, margins and profitability.
Some of the products we manufacture require particular types of
plastic. Supply shortages for a particular type of plastic can delay
production or cause cost increases in the services we provide.
WE MAY NEED ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE, OR WHICH
MAY DILUTE THE OWNERSHIP INTERESTS OF INVESTORS.
We have limited funds. In order to fully implement the growth in
our business which is anticipated by our fiscal 2000 business plan we
will need the proceeds of the offering and additional debt financing.
11
<PAGE>
WE MAY NOT BE ABLE TO SELL ALL OF THE COMMON STOCK IN THIS OFFERING AND
MAY NEED TO BORROW ADDITIONAL FUNDS IN ORDER TO MEET OUR OBJECTIVES FOR
FISCAL YEAR 2000 OR DELAY IMPLEMENTATION OF OUR BUSINESS PLANS.
This offering is not underwritten, there is no minimum number of
shares which must be sold before proceeds of the offering are made
available to us, and there is no assurance that we will be able to sell
all or a substantial portion of the shares being offered. To the
extent we are unable to sell 500,000 shares, we will be required to
borrow additional funds from commercial lenders or seek financing from
the MGS Group in order to realize our fiscal 2000 business expansion
plans within the time frame anticipated by our strategic plan.
Accordingly, if we are not able to secure alternative financing, our
plan to expand our business operations in fiscal years 2000 and 2001
will be delayed for an undetermined period of time. See "Use of
Proceeds."
WE MAY NOT BE ABLE TO OBTAIN THE ADDITIONAL FINANCING CONTEMPLATED BY
OUR BUSINESS PLANS FOR 2000 AND 2001.
Even if we are successful in selling all 500,000 shares in the
offering, we will need to increase our line of credit or secure term
debt in order to fund our 2000 business plan. In addition, we expect
that we will need to raise additional capital through the sale of
additional securities later in fiscal year 2000 and obtain additional
borrowings in order to provide funding for our planned expansion in
fiscal year 2001. If these funds are not available, implementation of
our plans would be delayed or deferred indefinitely.
No commitments to provide additional funds have been made by
management or other stockholders. We are negotiating additional
financing to meet our short-term needs, but we have not investigated
the availability, source or terms that might govern additional
financing from a bank or other commercial lender to meet our needs with
respect to fiscal year 2001. There is no assurance that funds will be
available from any source or, if available, that funds can be obtained
on terms acceptable to us. Even if commercial financing is available
to meet our additional short- or long-term working capital needs,
lenders almost always impose restrictions of a type which may limit our
operational flexibility in the future. In addition, indebtedness may
increase our vulnerability to general adverse economic and industry
conditions by limiting our flexibility in planning for and reacting to
changes in our business and industry. Typically, lenders would seek to
limit our ability, among other things, to:
<circle> incur additional indebtedness;
<circle> enter into transactions with affiliates;
12
<circle> pay dividends and make distributions;
<circle> enter into sale and leaseback transactions;
<circle> issue stock of subsidiaries;
<circle> make capital expenditures;
<circle> make investments;
<circle> repurchase stock;
<circle> create liens;
<PAGE>
<circle> merge or consolidate our company; and/or
<circle> transfer and sell assets.
SUCCESSFUL IMPLEMENTATION OF OUR BUSINESS STRATEGIES DEPENDS ON OUR
ABILITY TO SUCCESSFULLY ACQUIRE ADDITIONAL COMPANIES
WE MAY NOT BE ABLE TO IDENTIFY, FINANCE, AND CLOSE ANY FUTURE
ACQUISITIONS.
The acquisition of additional mold makers and injection molding
capacity are essential parts of our business strategies. Competition
for attractive companies in our industry is substantial. In executing
this part of our strategy, we may experience difficulty in identifying
suitable acquisition candidates or in completing selected transactions.
In addition, current or future credit facilities may restrict our
ability to acquire the assets or business of other companies. If we
are able to identify acquisition candidates, such acquisitions may be
financed with cash or substantial borrowings. The use of cash or
borrowings for acquisitions may restrict the cash or borrowings needed
to fund other parts of our growth such as additional manufacturing
equipment, marketing or training. In addition, we may choose to
finance transactions with potentially dilutive issuances of equity
securities.
WE MAY EXPERIENCE DIFFICULTY IN INTEGRATING ACQUIRED BUSINESSES WHICH
MAY INTERRUPT OUR BUSINESS OPERATIONS.
The acquisition of additional mold makers and injection molding
capacity are essential parts of our business strategies. Acquisitions
involve numerous risks, which may adversely affect our ability to
operate our business successfully and produce consistent financial
results. In addition, during the integration of an acquired company,
our financial performance may suffer from disruption of operations and
the financial impact of expenses necessary to close the transaction and
realize benefits from the acquisition. Some of the risks involved in
acquisitions include:
13
<circle> difficulty in integrating operations, technologies,
systems, and products and services of acquired companies;
<circle> diversion of management's attention and increased demands
on our administrative, technical, and financial personnel
resources and systems;
<circle> increased expenses and working capital requirements;
<circle> entering markets in which we have no or limited prior
experience and where competitors in such markets have
stronger market positions;
<circle> potential loss of key employees and customers of acquired
companies; and
<circle> financial risks, such as
<circle> potential liabilities of the acquired businesses;
<circle> the dilutive effect of the issuance of additional equity
securities;
<circle> the incurrence of additional debt;
<circle> the financial impact of amortizing or writing off
<PAGE>
goodwill and other intangible assets involved in any
transactions that are accounted for using the purchase
method of accounting; and
<circle> possible adverse tax and accounting effects.
The difficulties of integrating acquired businesses may be further
complicated by the geographic distances between facilities.
WE HAVE HAD OPERATING LOSSES SINCE THE INCEPTION OF OUR BUSINESS
If we are not profitable, the price which other investors may be
willing to pay for our common stock would be adversely affected. As of
September 30, 1999, we had an accumulated deficit of $1,509,702. We
have had net losses in the two plus years in which we have been in
operation. We expect to incur substantial costs in connection with the
planned expansion of our business in fiscal 2000 and 2001. If our
expansion plans proceed as planned, we do not expect to be profitable
in 2000 and only marginally profitable in 2001. We cannot guarantee
that we will be profitable in periods after 2001. For a discussion of
our results of operations, please turn to "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
OUR FAILURE, OR THE FAILURE OF OUR SUPPLIERS OR CUSTOMERS, TO ADDRESS
INFORMATION TECHNOLOGY ISSUES RELATED TO THE YEAR 2000 COULD ADVERSELY
AFFECT OUR OPERATIONS AND PROSPECTS
As of the date of this prospectus it appears that neither we, nor
our vendors or customers will encounter material year 2000 problems.
However, at this time we cannot guarantee that our systems or, that the
systems of
14
the MGS Group or our suppliers and customers will continue to function
without year 2000 related problems, or that there will not be
significant problems among information technology systems generally.
Given the potentially pervasive nature of the year 2000 problem, we
cannot guarantee that disruption in other industries and market
segments will not adversely affect our business. See "Management's
Discussion and Analysis - Year 2000"
INVESTMENT RISKS
UNDER WISCONSIN LAW, STOCKHOLDERS MAY SHARE A LIABILITY FOR UNPAID
WAGES (FOR UP TO SIX MONTHS OF AN EMPLOYEE'S SERVICE); EACH
STOCKHOLDER'S LIABILITY IS LIMITED TO THE AMOUNT PAID FOR THE COMMON
STOCK.
Under Wisconsin law, stockholders of a Wisconsin corporation may be
held personally liable in an amount equal to the consideration paid for
their shares for amounts owed to employees for past services performed
for the company. This potential liability cannot exceed wages for six
months' service for any employee.
YOUR OWNERSHIP INTERESTS MAY ALSO BE DILUTED IF ADDITIONAL COMMON
STOCK IS SOLD.
<PAGE>
If we issue additional stock or other equity-related securities,
those securities may have rights, preferences or privileges senior to
those of the rights of the common stock and you may experience a
dilution of your ownership interests and investment. The authorized
shares of common stock remaining after completion of the offering could
be issued by our board of directors for a variety of other corporate
purposes, including anticipated future offerings to raise additional
capital, future acquisitions of molding facilities or equipment,
defenses to unfriendly corporate acquisitions, and stock option and
other stock grant plans.
WE MAY RETAIN A CONTINGENT LIABILITY IN CONNECTION WITH OUR OFFER TO
REPURCHASE COMMON STOCK; AS A RESULT, WE MAY BE UNABLE TO SATISFY OUR
FUTURE CAPITAL AND LIQUIDITY REQUIREMENTS.
The common stock sold by us and some of the MGS Group companies
during the period from August 6, 1999 through September 30, 1999, was
not registered under federal and state securities laws. Federal
securities laws do not expressly provide that a rescission offer will
terminate a purchaser's right to rescind a sale of stock which was not
registered as required. If any or all of these stockholders reject the
rescission offer, we may continue to be liable under federal securities
laws for up
15
to an aggregate amount of approximately $1.95 million plus statutory
interest. We are offering to repurchase these shares. Persons who
return these shares to us will receive the price they paid for the
shares, plus interest from the date of their purchase. If this offer
is accepted by all of the purchasers, we could be required to make
payments to the holders of these shares of approximately $1.95 million
plus statutory interest. We do not expect these stockholders to return
their shares. We have a written agreement with Mr. Sellers and the MGS
Group that they will assume our obligation to purchase shares which are
returned by stockholders who accept our repurchase offer. Accordingly,
we do not expect to be required to use a portion of the proceeds from
this offering to make any such payments. See "Rescission Offer."
YOU MAY NOT BE ABLE TO RESELL YOUR COMMON STOCK, OR MAY HAVE TO SELL IT
AT A DISCOUNT, BECAUSE IT IS NOT EXPECTED THAT AN ACTIVE TRADING MARKET
WILL BE DEVELOPED OR MAINTAINED.
No public market currently exists for our common stock. It is not
expected that a market for the common stock will develop or be
maintained following this offering. As a result, you may not be able
to sell your shares of common stock or may have to sell them at a
discount.
THE PRICE OF OUR COMMON STOCK COULD FLUCTUATE SUBSTANTIALLY.
The value of our common stock will be affected by the limited
ability of investors to buy or sell our common stock, other business
developments, and sales by other persons. In the absence of an active
market, you can expect only limited and sporadic transactions in our
stock. Any such transactions will not be publicly reported. In
addition to the effects that this lack of liquidity may have, we
<PAGE>
believe that the market value of our common stock will also be affected
by a number of factors, both within and outside our control. Some of
these additional factors that could affect the market value of our
common stock include:
<circle> announcements of developments related to our business or
our competitors' or customers' businesses;
<circle> loss or cancellation of material purchase orders with our
customers;
<circle> fluctuations in our financial results;
<circle> general conditions or developments in the plastics
business;
<circle> potential sales of our common stock by us or our
stockholders; and
<circle> announcements by third parties of significant claims or
proceedings against us.
16
The future sale of a substantial number of shares of common stock,
or the perception that future sales could occur, could adversely affect
the future market price of or interest in our common stock.
Approximately 4,250,000 shares of our common stock will be outstanding
after completion of the offering and 5,000,000 additional shares of
common stock will be subject to currently exercisable options. All of
the common stock to be sold in this offering will be freely tradeable
without restriction or further registration under the federal
securities laws unless purchased by persons who control the company.
The transfer of a total of 2,471,610 shares of outstanding common stock
upon completion of the offering, will be subject to transfer
restrictions under the Securities Act of 1933, representing
approximately 58.2% of the outstanding common stock. These securities
will be subject to restrictions on the timing, manner and volume of
sales.
We expect that we will need to raise additional capital through the
sale of additional securities later in fiscal year 2000 in order to
provide funding for our planned expansion in fiscal year 2001. We
cannot predict if future sales of our common stock or the availability
of our common stock for sale will adversely affect the market price for
our common stock or our ability to raise capital by offering equity
securities.
MR. SELLERS WILL CONTROL OUR COMPANY AND THIS CONTROL COULD INHIBIT
POTENTIAL CHANGES IN CONTROL OR CONFLICT WITH THOSE OF THE OTHER
HOLDERS OF OUR COMMON STOCK.
Following the sale of 500,000 shares in this offering, Mr. Sellers,
individually and through his direct or indirect ownership of the MGS
Group, will beneficially own or control approximately 53% of the voting
power of our outstanding common stock. Mr. Sellers, or companies in
the MGS Group, also have options to purchase an additional 5,000,000
shares at a price of $10.00 per share. As a result, Mr. Sellers will
have the practical ability to control the outcome of all matters
requiring stockholder approval, including the election and removal of
our entire board of directors, any merger, consolidation, or sale of
<PAGE>
all or substantially all of our assets, and the ability to control our
management and affairs. This concentrated control could discourage
others from initiating any potential merger, takeover, or other change
in control transaction that other stockholders may consider beneficial.
As a result, the market price of our common stock and its liquidity
could be further adversely affected. In addition, the interests of the
MGS Group and Mr. Sellers could conflict with the interests of the
other holders of the common stock.
17
SOME OF THE PROVISIONS OF OUR CURRENT ARTICLES OF INCORPORATION AND BY-
LAWS (AND SOME PROPOSED CHANGES TO THESE DOCUMENTS) COULD DISCOURAGE
POTENTIAL ACQUISITION PROPOSALS AND COULD DELAY, DETER OR PREVENT A
CHANGE IN CONTROL.
Our articles of incorporation and by-laws may have the effect of
making it more difficult for a third party to acquire, or could
discourage a third party from attempting to acquire, control of the
company. For example, we intend to amend our articles of incorporation
and by-laws to provide that only one-third of our board of directors is
to be elected at each annual meeting of stockholders and to require
that two-thirds of the shares be voted for a merger or sale of the
company's assets. In addition, stockholders must give advance notice
of any intention to nominate a candidate for election as a director or
to bring matters before a meeting of stockholders. See "Description
of Common Stock."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The price at which we are offering to sell you our common stock is
substantially higher than the net tangible book value of each
outstanding share. If you purchase common stock in this offering, you
will experience immediate and substantial dilution. The dilution will
be $9.49 per share in net tangible book value of our common stock from
the initial public offering price. If outstanding options to purchase
shares of common stock are exercised, there would be further dilution.
See "Dilution," "Management," and "Related Party Transactions and
Conflicts of Interest" for information regarding outstanding stock
options and additional stock options which may be granted.
THERE IS NO LIKELIHOOD THAT WE WILL PAY CASH DIVIDENDS ON THE COMMON
STOCK FOR THE FORESEEABLE FUTURE.
We have never paid a cash dividend on our common stock. It is
unlikely that we will pay any cash dividends for the foreseeable
future.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF THE
PROCEEDS FROM THIS OFFERING
The net proceeds of our sale of 500,000 shares of common stock in
this offering will be approximately $5.85 million, after deducting
estimated offering expenses of $150,000. Our management will retain
broad discretion as to the use of those proceeds and the funds we
intend to borrow. We intend to use a substantial portion of the net
<PAGE>
proceeds from this offering for working capital needs related to the
expansion of our business, and to acquiring additional equipment. The
18
timing of the application of these funds is not fixed and will depend,
in part, in our ability to obtain additional financing. The failure of
our management to apply these funds effectively could have a material
adverse effect on our business, results of operations and financial
condition. For more information, see "Use of Proceeds."
WE HAVE A SHORT OPERATING HISTORY, WE HAVE NEVER OPERATED AS A PUBLIC
COMPANY, AND THE OBLIGATIONS INCIDENT TO BEING A PUBLIC COMPANY WILL
REQUIRE ADDITIONAL EXPENDITURES
Prior to this offering, we have never been a public company. We
expect that the obligations of being a public company, including
substantial public reporting obligations, will require significant
additional expenditures, place additional demands on our management,
and may require the hiring of additional personnel.
We were incorporated in 1996 and did not begin plastic
manufacturing operations until November, 1997. We have made
significant investments in equipment and facilities, personnel
additions, and organizational changes, and have experienced significant
growth. Accordingly, we have only a limited operating history for
potential investors to consider.
We will also be required to implement financial reporting systems
and other controls which we have not previously used. We may need to
implement additional systems in order to adequately function as a
public company. Such expenditures could adversely affect our financial
condition and results of operations.
IF WE ARE NOT ABLE TO EFFECTIVELY MANAGE OUR GROWTH, OUR RESULTS OF
OPERATIONS, FINANCIAL CONDITION, AND PROSPECTS COULD DECLINE
Our rapid growth since 1997 has placed significant demands on our
management and other resources. If we continue to experience rapid
growth, we will require significant additional investment in personnel,
systems, and related capital expenditures. We may not be able to
recruit adequate personnel, or properly train, integrate, or manage our
growing employee base, implement new systems (including those for
transaction processing and operational and financial management), or
invest in capital expenditures in a timely and effective manner. If we
fail to effectively manage and continue this growth, our results of
operations, financial condition, and prospects could decline.
19
SPECIAL NOTE WITH RESPECT TO
FORWARD-LOOKING INFORMATION
We have made some statements in this prospectus, including some
under "Prospectus Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
<PAGE>
"Business" and elsewhere, which constitute forward-looking statements.
These statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, levels of activity,
performance, or achievements to be materially different from any
results, levels of activity, performance, or achievements expressed or
implied by any forward-looking statements. These factors include,
among other things, those listed under "Risk Factors" and elsewhere in
this prospectus. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could,"
"expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or
other comparable terminology. Although we believe that the
expectations reflected in forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus.
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the 500,000
shares of common stock offered in this prospectus for cash to be
approximately $5,850,000, after deducting estimated offering expenses
of approximately $150,000. We plan to use the net proceeds from this
offering for the following purposes:
<circle> Approximately $1,500,000 will be used to meet working
capital needs. The growth of our business has resulted in an
increase of approximately $800,000 in receivables and
$1,200,000 in inventory in the three months of operations
ended December 31, 1999 and we anticipate further increases.
<circle> Approximately $4,350,000 will be applied as deposits on
equipment and machinery leases and leasehold improvements.
Equipment leasing allows us to leverage our available funds
and serves as part of our plan of financing. For the balance
of fiscal year 2000, we expect that our cash needs for lease
deposits will be in the range of $200,000 to $300,000 per
month. We intend to apply the proceeds of the offering to
help us meet this need.
20
<circle> We intend to first apply available funds to provide the
equipment, machinery and leasehold improvements required to
meet our obligations under our agreement with Illinois Tool
Works to produce parts for its Paslode Cordless Tool Group
(See "Business"). Approximately $1,500,000 of offering
proceeds will be applied for this purpose.
<circle> We plan to apply a total of $1,000,000 over the balance
of the 2000 fiscal year to meet actual and expected demand for
additional production machinery and equipment for our
Germantown, Wisconsin facility.
<circle> We expect to use approximately $1,850,000 to acquire
tooling and injection molding equipment in the fourth quarter
<PAGE>
of fiscal 2000 for our proposed new facility in Fort Worth,
Texas.
The offering proceeds are intended to be applied in the order
described in the preceding paragraphs. The need for funds for lease
deposits will arise over time as our business expands in fiscal 2000
and we prepare to begin our operations in Texas in the fourth quarter
of fiscal year 2000. The proposed use of offering proceeds also
assumes that we are successful in obtaining term financing of $2 to $5
million during the second quarter of fiscal year 2000. To the extent
we do not secure additional term financing, offering proceeds would be
applied to finance working capital needs and the expansion of our
business would be delayed. Similarly, if we obtain the additional term
financing, but we do not obtain the expected proceeds from the
offering, the acquisition of new equipment will be delayed. We also
anticipate that we will require an additional $5 million in term
financing during the fourth quarter to help meet working capital needs
which will be associated with the Texas operations planned to commence
in the fourth quarter of fiscal 2000. These operations will be delayed
if this additional financing cannot be obtained.
We have offered to repurchase up to 722,490 shares of common stock
at an average price of $2.70 per share. These shares were offered and
sold without registration under federal or state securities laws. We
do not expect that any proceeds of the offering will be applied to
repurchase these shares. We do not anticipate that stockholders will
accept this offer. Mr. Sellers and the MGS Group have entered into a
written agreement with us to assume our obligations under our
repurchase offer. See "Rescission Offer."
21
DIVIDEND POLICY
We anticipate that we will retain all of our earnings in the
foreseeable future to finance the continued growth and expansion of our
businesses. We have no current intention to pay cash dividends. Our
future dividend policy will depend on our earnings, capital
requirements, requirements of the financing agreements to which we may
be a party, financial condition, and other factors considered relevant
by our board of directors.
DILUTION
Net tangible book value per share is determined by dividing the
number of outstanding shares of common stock into our stockholders
equity. Our net tangible book value as of September 30, 1999 was
$2,840,510 or $0.94 per share based on an aggregate of 3,027,510 shares
of common stock outstanding. Net tangible book value at September 30,
1999 reflects the reclassification of the 722,490 shares which are
subject to our repurchase offer. This reclassification assumes that
the shares subject to our repurchase offer will be repurchased by us.
After giving effect to the sale of the 500,000 shares of common
stock offered in this prospectus, before deducting estimated offering
expenses, and based on an offering price of $12.00 per share, our net
<PAGE>
tangible book value as of September 30, 1999 would have been
$8,840,510, or $2.51 per share. This represents an immediate dilution
of $9.49 per share to new investors purchasing shares of common stock
at the initial offering price. Additionally, if all options which are
outstanding as of, and exercisable within 60 days of, the date of this
prospectus were exercised as of September 30, 1999, our net tangible
book value, on a pro forma as adjusted basis, would have been
$58,840,510 or $6.90 per share. This represents an immediate dilution
of $5.10 per share to new investors purchasing shares of common stock
at the initial offering price. The following table illustrates this
per share dilution on a pro forma and pro forma as adjusted basis:
<TABLE>
<CAPTION>
Pro forma
PRO FORMA AS ADJUSTED
<S> <C> <C>
Offering price per share. $12.00 $12.00
Net tangible book value per share as of
September 30, 1999. $ .94 $ 6.58{ (1)}
Increase in net tangible book value per
share attributable to new investors $ 1.57 $ 0.32
Pro forma net tangible book value per
share after this offering. $ 2.51 $ 6.90
Dilution per share to new investors $ 9.49 $ 5.10
<FN>
{(1)} After exercise of all options outstanding.
</TABLE>
22
We do not expect shareholders to accept our repurchase offer and,
in any event, Mr. Sellers and some of the MGS Group companies have
agreed to assume any obligations we have in connection with the
repurchase offer. See "Rescission Offer." Upon completion of the
repurchase offer, the shares subject to the offer will be reclassified
as equity on our balance sheet. Had such post-repurchase offer
reclassification occurred on September 30, 1999, our net tangible book
value, on such a pro forma basis, would have been $4,791,870 or $1.28
per share. The following table gives effect to the post-repurchase
reclassification of 722,490 shares, the sale of 500,000 shares of
common stock offered in this prospectus, before deducting estimated
offering expenses, based on an offering price of $12.00 per share, and,
on a pro forma as adjusted basis, the exercise of all options which are
outstanding as of, and exercisable within 60 days of, the date of this
prospectus.
<PAGE>
<TABLE>
<CAPTION>
Pro forma
PRO FORMA AS ADJUSTED
<S> <C> <C>
Offering price per share $12.00 $12.00
Net tangible book value per share
as of September 30, 1999 $ 1.28 $ 6.26 {(1)}
Increase in net tangible book value per
share attributable to new investors $ 1.26 $ 0.31
Pro forma net tangible book value per
share after this offering $ 2.54 $ 6.57
Dilution per share to new investors $ 9.46 $ 5.43
<FN>
{(1)} After exercise of all options
outstanding
</TABLE>
The following table summarizes, as of September 30, 1999, the
number of shares of common stock purchased from us, the total
consideration paid to us (including shares subject to our repurchase
offer) or accrued under subscription agreements, and the average price
per share paid by existing stockholders and, on a pro forma basis, by
investors purchasing shares of common stock in this offering at $12.00,
before deducting the estimated offering expenses:
<TABLE>
<CAPTION>
Total Cash
SHARES CONSIDERATION AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,750,000 88.2% 7,085,800 54.1% $ 1.89
New investors 500,000 11.8% 6,000,000 45.9% $12.00
Total 4,250,000 100% 13,085,800 100% $ 3.08
</TABLE>
23
The following table summarizes, as of September 30, 1999 on the
adjusted pro forma basis described above, the number of shares of
common stock purchased from us, the total consideration paid to us
(including shares subject to our repurchase offer) or accrued under
subscription agreements, and the average price per share paid by
existing stockholders, by investors, on a pro forma basis, purchasing
shares of common stock in this offering at $12.00, before deducting the
estimated offering expenses, and by the exercise of options exercisable
within 60 days:
<PAGE>
<TABLE>
<CAPTION>
SHARES CONSIDERATION AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,750,000 40.5% 7,085,800 11.2% $ 1.89
New investors 500,000 5.4% 6,000,000 9.5% $12.00
Options exercised 5,000,000 54.1% 50,000,000 79.3% $10.00
Total 9,250,000 100% 63,085,800 100% $ 6.82
</TABLE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
In the following table, we provide you with our selected historical
consolidated financial data. The following selected consolidated
statement of operations data for the years ended September 30, 1997,
1998, and 1999 and the consolidated balance sheet data as of September
30, 1997, 1998, and 1999 are derived from our financial statements that
have been audited by Wolf & Company - Milwaukee, S.C., independent
public accountants and are included elsewhere in this prospectus.
The following financial data should be read in conjunction with,
and is qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and our consolidated
financial statements and the related notes to those financial
statements which are included elsewhere in this prospectus.
24
<PAGE>
<TABLE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<CAPTION>
(In thousands, except per share data)
YEAR ENDED SEPTEMBER 30,
1997 1998 1999
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
<S> <C> <C> <C>
Revenues
Trade $ $ 203 $ 5,778
Related parties 647 1,687
Total revenues 850 7,465
Cost of goods sold
Trade 354 4,575
Related parties 1,155 3,037
Total cost of goods sold 1,509 7,612
Gross profit (659) (147)
Operating expenses
Trade 1 79 623
Related parties 2 203 172
Management fees 43 373
Total operating expenses 3 325 1,168
Income (loss) from operations (3) (984) (1,315)
Interest and other income (expense), net 6 - (17)
Income (loss) before income tax expense 3 (984) (1,332)
Income tax (1) 403 496
Income (loss) before cumulative effect of
accounting change 2 (581) (836)
Cumulative effect of accounting
change, net of tax 0 (95)
Net income (loss) $ 2 $ (581) $ (931)
Per basic share:
Income (loss) before cumulative effect of
accounting change $ 0.00 $(0.24) $(0.32)
Cumulative effect of accounting change (0.04)
Net income (loss) $ 0.00 $(0.24) $(0.36)
Per diluted share:
Income (loss) before cumulative effect of
accounting change $ 0.00 $(0.20) $(0.27)
Cumulative effect of accounting change (0.03)
Net income (loss) $ 0.00 $(0.20) $(0.30)
Shares in computing basic net income (loss)
per share 1,551 2,432 2,614
Shares used in computing diluted
net income (loss) per share 2,051 2,932 3,114
CONSOLIDATED BALANCE
SHEET DATA:
Cash $ 1,222 $ 10 $ 246
Total current assets 1,222 147 4,428
Total current liabilities 1 823 4,054
Noncurrent liabilities 0 0 0
Stockholders' equity 52 1,066 2,841
</TABLE>
25
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) As of September 30, 1997, we were still a development stage company
that had not commenced operations. The proceeds of our first stock
offering were held in escrow until September 14, 1997. We then
paid legal and accounting invoices related to organizing the
company and the first offering. No other transactions took place
during the fiscal year ended September 30, 1997.
(2) The number of shares used in computing diluted loss per share
reflects the stock option granted on October 1, 1999 as if they
were outstanding for all periods presented, calculated using the
treasury stock method.
(3) All shares outstanding and earnings per share have been
retroactively restated to reflect the 3-for-1 stock split on
September 30, 1999.
RESCISSION OFFER
SALE OF UNREGISTERED COMMON STOCK - THE "RESCISSION SHARES"
During the period from August 6, 1999 through September 30, 1999,
722,490 shares of common stock were offered and sold by us and some MGS
Group companies to individual investors. These shares were sold
without registration or qualification under federal and state
securities laws. All shares of common stock sold during the August 6,
1999 through September 30, 1999 period by us and the MGS Group
companies (and any shares received as a stock dividend paid on those
shares), will be referred to as the "RESCISSION SHARES" to
differentiate them from the shares of common stock being offered by
this prospectus for cash. Approximately 98.8% of all of the Rescission
Shares were sold in Wisconsin. A limited number of Rescission Shares
were also sold in Illinois, North Dakota, and California.
The Rescission Shares consist of 85,500 shares sold by us directly
to unrelated purchasers, and 636,990 shares sold by MGS Group companies
to unrelated purchasers. During this period, we sold 825,000 shares of
common stock to MGS Group companies for a consideration of $2,952,000.
A total of 246,753 of these 825,000 shares are included in the 636,990
Rescission Shares sold by the MGS Group companies. We received total
consideration of $285,000 with respect to the Rescission Shares, and
the MGS Group companies received consideration of $1,666,360. All
proceeds of sales by the MGS Group were retained by the selling MGS
Group companies. We applied the net proceeds from the sale of
Rescission Shares and from the sale of the 816,600 shares to the MGS
Group companies to our general operations.
26
RIGHTS OF HOLDERS OF RESCISSION SHARES
Investors who purchased Rescission Shares may have the right under
both federal and state securities laws to return their Rescission
Shares to us (or the selling MGS Group company) and receive the amount
paid for the shares, plus interest under applicable state law from the
<PAGE>
date of purchase through the date on which we refund the purchase
price. Under federal law, purchasers of Rescission Shares generally
have one year from the date of purchase to exercise this right. The
time period to exercise this right varies from two years in California,
to three in Wisconsin and Illinois, and five in North Dakota.
State rescission rights are governed by the laws of the state in
which the sale of common stock was made. The applicable law governing
the rights of purchasers of the Rescission Shares are Section 12(a)(1)
of the Securities Act, Section 551.59 of the Wisconsin Uniform
Securities Law, Section 5/13 of the Illinois Securities Law of 1953,
Section 10-04-17 of the North Dakota Securities Act of 1951, and
Section 25507 of the California Corporation Code.
OUR OFFER TO REPURCHASE THE RESCISSION SHARES
We are offering to repurchase the Rescission Shares from all
holders. This offer to repurchase the Rescission Shares will expire
on _________, 2000. Holders of Rescission Shares may accept our offer
to repurchase their shares prior to __________, 2000 by returning to us
(1) certificates representing the Rescission Shares and (2) an
Acceptance Form which has been delivered to each holder along with a
copy of this prospectus. Each Acceptance Form specifies the number of
Rescission Shares which we believe are registered in the holder's name.
Each holder who accepts our offer to repurchase his or her Rescission
Shares will be entitled to receive the amount paid for the Rescission
Shares, plus interest determined under applicable state law from the
date of purchase by the holder through the date of our repurchase. The
Acceptance Form will specify for each holder the particular interest
rate or other terms required under the applicable state law in order
for the rescission offer to extinguish such holder's state law claims
for sale of the Rescission Shares without registration under state law.
If accepted by all holders of Rescission Shares, our rescission
offer could require us to make aggregate payments to the holders of the
Rescission Shares of up to $1,951,360 plus statutory interest. Mr.
Sellers and the MGS Group companies have entered into a written
agreement which provides that they will assume our obligations with
respect to the Rescission Shares. Under the agreement, the following
parties will assume this obligation with respect to the number of
27
shares and for the amount indicated: Mr. Sellers, 85,500 shares
($285,000); Moldmakers Leasing, 427,440 shares ($1,214,360);
Moldmakers, Inc., 41,550 shares ($134,500); Statistical Plastics,
145,500 shares ($242,500); and Prototype Mold & Design, 22,500 shares
($75,000). Any Rescission Shares which are acquired by Mr. Sellers or
the MGS Companies pursuant to the agreement will be held by the
purchaser. There are no agreements or understanding with respect to
the subsequent resale or other distribution of any of such Rescission
Shares.
As the average purchase price paid by investors for the Rescission
Shares was $2.70 per share (with the maximum price being $4.00 per
share), we do not expect that any holder of Rescission Shares will
<PAGE>
exercise the rescission right.
EFFECT OF RESCISSION OFFER
Under the laws of the states of Wisconsin, Illinois, North Dakota,
and California, an offer to purchase the Rescission Shares which
complies with the terms of the applicable state statute governing such
offers will terminate the purchaser's rights to return their Rescission
Shares and receive a refund of the purchase price plus interest. This
termination of the purchaser's rights to return the Rescission Shares
will occur whether or not the holder accepts or rejects our offer to
repurchase the shares. Therefore, each holder of Rescission Shares
should carefully consider our offer. In effect, our offer permits the
holder to make a new investment decision with respect to the Rescission
Shares.
The Securities Act does not expressly provide that a rescission
offer will terminate a purchaser's right to seek damages in connection
with the sale of stock which was not registered under the Securities
Act as required. Accordingly, although we believe our liability under
state laws for the purchase price of the Rescission Shares up to an
aggregate amount of approximately $1.95 million plus statutory interest
will terminate, we may continue to be contingently liable under the
Securities Act to any holders of Rescission Shares who do not accept
our offer. If we are sued, however, we intend to take the position in
court that our offer to repurchase the Rescission Shares precludes a
holder of Rescission Shares who did not accept the offer from making a
claim against us under the Securities Act.
Purchasers of Rescission Shares who do not accept our offer to
repurchase their shares will, for purposes of applicable federal and
state securities laws, be deemed to hold registered shares under the
Securities Act which will be freely tradeable under federal securities
law as of the effective date of this prospectus.
28
As of the date of this prospectus, we are not aware of any claims
against us, any MGS Group company, or any of our directors or officers
in connection with the sale of the Rescission Shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
audited financial statements, the notes to those statements, and the
other information included elsewhere in this prospectus. Some
statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are forward-looking statements
which are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from
those expressed in such forward-looking statements. For a more
detailed discussion of these and other business risks, see "Risk
Factors." Also see "Special Note With Respect to Forward-Looking
Information" and "Business."
<PAGE>
OVERVIEW
Our revenues are primarily derived from the sale of plastic
injection molded parts. The normal practice in the injection molding
industry is to be a custom molder, which involves only the
manufacturing of parts. However, we also generate revenues by assembly
and value-added operations. Our marketing efforts are dedicated
towards contract manufacturing of high precision and high quality
parts, which includes these assembly and value-added operations. We
began operations in November of 1997, and were considered a development
stage company through March of 1999. We incurred losses from inception
through June of 1999. These losses are primarily due to costs
associated with a start-up enterprise, training costs, initial excess
manufacturing capacity, higher than average selling and administrative
expenses and related costs. We operated at a profit during the fourth
quarter of fiscal 1999. We expect to incur a net loss from operations
in fiscal year 2000 and 2001 as a result of planned growth for these
years.
Research and development expenses include expenses for research,
design and development of the MGS Group's multi-shot process which
permits us to mold different types of plastic resin, typically with
different aesthetic and texture qualities, into a single plastic part.
Because of our relationship to the MGS Group, we have access to the
multi-shot technology and other related manufacturing processes.
Research and development costs are not material and are included in the
cost of goods sold section of our income statements.
29
RESULTS OF OPERATIONS
SALES. For fiscal 1998, we were classified as a development stage
company. We did not realize monthly sales in excess of $100,000 until
August, 1998. This explains the rapid increase in sales of 778% from
fiscal 1998 to fiscal 1999. Designing and building tooling is a
service provided to our customers in order to obtain the piece part
production, and as a result, we do not realize significant profit
margins on tooling sales. Related party sales consist of machine time
and labor provided to our affiliates at competitive rates.
COST OF GOODS SOLD. Certain minimum levels of available plant
capacity are required in order to compete in the plastic injection
molding industry. The type of customer we seek expects the molder to
be able to perform at a world class level prior to issuing a production
order. The costs associated with achieving this capacity and
maintaining the highest level of quality are substantial. Accordingly,
cost of goods sold increased from $1.5 million in fiscal 1998 to $7.6
million in fiscal 1999. From fiscal 1998 to fiscal 1999, material
costs decreased from 35.7% to 26.4% as a percentage of sales, due to a
change in our product mix to items with lower material requirements.
From fiscal 1998 to fiscal 1999, labor as a percentage of sales
decreased from 49.1% to 42.1%, although the total amount expensed
increased from approximately $417,000 to $3,143,000. The increase in
sales required additional labor shifts to be added, along with a
substantial increase in machine capacity and correspondingly, operators
<PAGE>
and technicians.
Through a substantial time commitment and cost, we obtained ISO
9002 certification during fiscal 1999. As a result of this
certification, additional resources were dedicated to this effort, and
are included in cost of goods sold.
TRAINING EXPENSES. In order to achieve the high standard of
quality parts that our customers require while simultaneously
undergoing a 778% increase in revenue, significant resources were used
to train all levels of employees. These expenses are not expected to
continue at similar levels in connection with our Wisconsin operations,
but we expect to incur significant training expenses as we expand into
other locations.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses increased from $325,000 in fiscal 1998 to $1,169,000 in fiscal
1999. This reflects our commitment to maintaining the highest level of
quality in our infrastructure, including management personnel,
facilities costs, marketing materials, and computer systems.
Additionally, the rapid increase in employees caused us to incur
significant costs in human resource management. We do not anticipate a
30
proportionate increase in selling and administrative expenses as
compared to sales during fiscal 2000, now that this framework is in
place.
INTEREST EXPENSE. Interest expense was immaterial in fiscal 1998
and $22,000 in fiscal 1999. Interest expense relates to the
borrowings on our line of credit. We anticipate that interest will
increase significantly in fiscal 2000 as our sales, and correspondingly
our use of our credit facility, increase.
INCOME TAX EXPENSE. For both fiscal 1998 and 1999, we recorded a
tax benefit due to differences between book and tax accounting,
principally for our operating losses, organization costs, progress
receivables and depreciation.
ACCOUNTING CHANGE. In fiscal 1999, we adopted Statement of
Position 98-5 issued by the Accounting Standards Executive Committee.
Accordingly, we have charged all start-up costs to operations as of
October 1, 1998, including writing off all unamortized costs as of that
date. These costs included legal and accounting fees related to our
organization. Previously, in fiscal 1998, organization costs were
capitalized and amortized over 5 years.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
$5.7 million in sales of equity securities, including sales to related
parties. In addition, we have a bank $3 million line of credit
facility (effective January 18, 2000) which bears interest at a rate of
the 30 day interbank Eurodollar market rate plus 225 basis points. We
have leased in excess of $10 million of equipment from affiliated
<PAGE>
entities, and at September 30, had accounts payable of $1.6 million due
affiliated entities.
We have entered into a total of 34 separate equipment leases which
are each for a term of one-month and renew automatically until 30 days'
notice of termination is given. The leases generally provide for a
security deposit equal to two months' payments.
Net cash provided by operating activities totaled $3,000 for the
year ended September 30, 1997, and used by operating activities totaled
$251,000 for the year ended September 30, 1998 and $2.5 million for the
year ended September 30, 1999. Cash used in operating activities for
each year resulted primarily from net operating losses during those
years and the necessity of funding inventory and accounts receivable
growth in excess of our accounts payable growth.
31
Net cash used in investing activities totaled $346,000 for the year
ended September 30, 1997, $1.04 million for the year ended September
30, 1998 and $2.34 million for the year ended September 30, 1999. Cash
used in investing activities for each year resulted primarily from the
acquisition of leasehold improvements and manufacturing equipment
accessories, and lease deposits on manufacturing equipment.
Net cash provided by financing activities totaled $1.57 million for
the year ended September 30, 1997, $80,000 for the year ended September
30, 1998 and $5.08 million for the year ended September 30, 1999. Cash
provided by financing activities for each year resulted primarily from
issuances of common stock and draws on our line of credit facility.
The fees payable under our management agreements are accrued and
payable in cash at termination of the agreements on December 31, 2006.
The amount accrued as of September 30, 1999, $415,772, was applied, by
consent of the parties, to offset amounts owed to us under various
stock subscription agreements which had been entered into in December,
1996. The deferral of management fees reduces our current cash
requirements.
We believe that the net proceeds from the sale of 500,000 shares in
this offering, together with current cash balances, cash flows from
current operations, leasing financing through affiliates, our existing
line of credit, and anticipated term debt financing of $2 to $5 million
will be sufficient to fund our expected growth and related working
capital and capital expenditure requirements for the 2000 fiscal year.
Without the expected proceeds of this offering, we will require
additional financing from commercial lenders or the MGS Group to
implement our expansion plans at the pace that we currently
anticipate. If our anticipated additional term debt financing proves
to be unavailable, we will be required to apply the proceeds of the
offering to meet working capital requirements and delay full
implementation of our business expansion plans. In addition to
requiring the proceeds of the offering and $2 to $5 million of new term
debt in order to meet our 2000 business plan, we currently anticipate
the need to raise approximately $7 million in additional capital
through the issuance of additional equity securities and borrowings to
implement our fiscal year 2001 business plan. See "Business -
<PAGE>
Acquisitions and Expansion." If we are unable to raise this
additional capital, our fiscal 2001 expansion will also be delayed or
deferred.
We do not expect the repayment obligations which result from our
offer to repurchase shares as described under "Rescission Offer" to be
material and have entered into a written agreement by which all of our
repurchase obligations will be assumed by other parties. See "The
Rescission Offer."
32
Our forecast of the period of time through which our financial
resources will be adequate is a forward-looking statement that involves
risks and uncertainties. Our actual funding requirements may differ
materially from our forecast as a result of a number of factors
including our plans to expand our operations geographically and the
expansion of our value added and assembly operations. We cannot be
certain that additional funds will be available on satisfactory terms
when needed, if at all. If we are unable to raise additional necessary
capital in the future, we may be required to curtail our expansion
plans significantly.
We believe that our exposure to risk related to changes in interest
rates and equity prices is not material. At September 30, 1999, we did
not hold any short or long-term investments.
YEAR 2000
We have not experienced any material disruption in our operations
or in our business relationships with suppliers or customers due to
year 2000 readiness. As year 2000 only recently commenced, we cannot
yet independently verify the state of readiness of all of our vendors,
service providers, and customers with respect to year 2000.
We have identified alternative sources of supply to address any
failure of supply associated with our suppliers. We have not attempted
to evaluate the year 2000 compliance of our customers because we do not
think it is practicable to do so.
Excluding internal costs which are not tracked separately and are
therefore not readily determinable, we expect the costs of these year
2000 remedial actions to be immaterial. Based on current estimates, we
anticipate no future costs related to year 2000 issues.
The potential effect if we or third parties with whom we do
business are unable to timely resolve year 2000 issues is not
determinable, but we believe that our most reasonably likely year 2000
worst case scenario would involve:
<circle> short-term down time for some of our equipment as a result
of process control device malfunctions at our production
facilities;
<circle> temporary disruption of deliveries of supplies and
products due to truck shortages;
<circle> a lack of supplies from vendors we have identified as not
<PAGE>
being sufficiently prepared for the year 2000;
33
<circle> temporary loss of customer orders; and
<circle> possible errors and delays, as well as increased labor
costs, associated with manually taking orders, scheduling,
production reporting and processing billing and shipping
information if our customers experience system failures.
Based on information currently available, we do not believe that
the year 2000 issue will have a material effect on our operations or
those of our material third-party vendors or customers. However, if we
or any of our significant vendors or customers do experience a year
2000 readiness problem, this could have a material adverse effect on
our profitability and liquidity. In some cases, these vendors or
customers could not be easily replaced, and we may suffer a disruption
in our business. These contingencies could have a material adverse
effect on our results of operations and financial condition.
BUSINESS
OVERVIEW
We were incorporated in Wisconsin in October, 1996 for the purpose
of producing high volume, precision plastic parts in conjunction with
the engineering, design, manufacturing, and testing services provided
by the MGS Group. Through TecStar, our wholly owned subsidiary, we now
manufacture high volume, precision injection molded plastic parts for
original equipment manufacturers in the medical, automotive, appliance,
telecommunications, cosmetic, and computer markets. Our customers are
other manufacturers which produce end-use products or manufacture
components for sale to other manufacturers.
THE INDUSTRY
The plastics manufacturing business is a multi-billion dollar
industry. According to an annual survey published in the April 19,
1999 issue of PLASTIC NEWS, the 100 largest injection molders had
combined sales in excess of $16.7 billion in 1998. In 1998, the same
survey indicated that the 100 top molders had combined sales in excess
of $16.1 billion in 1997. We operate in a majority of the 25 market
segments in which the top 100 molders conducted operations in 1998.
There are an estimated 3,800 independent plastic molding companies
in the United States, most of which are privately held and have sales
volumes of under $10 million per year. However, within the high
technology, specialized plastics manufacturing segment of the market,
we compete with many companies which have more operating experience,
34
greater management depth, more capital or financing, and greater sales
and income levels. We believe our principal competitors and their
approximate 1998 sales volumes are:
<PAGE>
<TABLE>
<CAPTION>
Approximate 1998
COMPETITOR SALES VOLUME{(1)}
<S> <C>
Nypro, Inc. $389 million
Clinton, MA
Phillips Plastics Corp. $188 million
Hudson, WI
InteSys Technologies, Inc. $150 million
Gilbert, AZ
Hoffer Plastics Corp. $76 million
South Elgin, IL
Advance Dial Co. $50 million
Elmhurst, IL
Evco Plastics $50 million
DeForest, WI
<FN>
{(1)} As reported in PLASTICS NEWS, April 19, 1999.
</TABLE>
Arrangements with most independent molding companies are in the
form of purchase orders that may be canceled by the customer.
Competition in the industry is based on piece price, quality, and
service.
OUR BUSINESS
We manufacture products using the plastic injection molding
process. The process begins when plastic resin, in the form of small
pellets, is fed into an injection molding machine. The injection
molding machine then melts the plastic resin and injects it into a
multi-cavity steel mold, forcing the plastic resin to take the final
shape of the product. At the end of each molding cycle (generally six
to 60 seconds), the plastic parts are ejected from the mold into high
speed automated equipment for secondary packaging or assembly
operations.
Plastics manufacturing involves high volume production of parts and
components. Production runs vary with the type of product, but
typically vary from 100,000 to several million pieces. We began our
operations in November of 1997. During the fourth quarter of our 1999
35
fiscal year, we became vertically integrated within the plastic
injection molding industry to include value-added and assembly
operations. Value-added operations include, but are not limited to,
pad printing, heat staking, and sonic welding. We offer a total
manufacturing solution to our customers, from design services to
tooling manufacture to production and final assembly of plastic parts.
We expect this total solution to differentiate us from custom molders
and to increase our revenues and customer base.
<PAGE>
During 1999, we received ISO 9002 certification. The ISO 9000
series is a generic term for standards sponsored by the International
Standards Organization, a worldwide federation of national standards
bodies from 130 countries. ISO 9002 certification can take the place
of a customer's audit of our manufacturing procedures or other quality
inquiries. As some customers will only order from ISO certified
manufacturers and others express a preference for such certifications,
ISO 9002 should assist our marketing efforts as it recognizes our
compliance with specified quality production management standards.
The largest portion of our business is represented by our
operations in conjunction with the MGS Group in an industry niche as a
"turn-key" manufacturer. Along with the MGS Group, we can offer
customers full service plastic injection molding of high volume plastic
parts along with design and engineering services, and testing,
sampling, and polishing operations. During the last fiscal year
approximately 85% of our net sales was derived from business which
involved moldmaking services of the MGS Group. See "MGS Group" and
"Related Party Transactions and Conflicts of Interest."
Precision molds are essential to high volume, precision plastic
part production. Contracts to produce the molds for a particular
production run can range between $50,000 and $300,000. The MGS group
designs, tests and builds molds used by us and by other independent
plastics manufacturers. MGS Group companies also perform sampling and
polishing operations for us and other manufacturers. Historically, the
MGS Group designed and build injection molds to customer specifications
for use by unrelated injection molding companies which then produced
the plastic parts. Our market strategy has been to capitalize on the
established reputation, customer base, and resources of the MGS Group
to capture part of the plastic manufacturing business for which the MGS
Group has historically provided the molds and performed other technical
services. We currently employ two full-time salesmen who solicit
production orders. However, our sales team often works in conjunction
with MGS Group companies to bid for contracts.
We have worked with the MGS Group to develop some proprietary
techniques to which we have access to because of our relationship. One
of these is the portable "multi-shot" process capability. Multi-shot
36
injection molding is an injection process in which different types of
plastic resin, typically with different aesthetic and texture
qualities, are used to create a single plastic part. Demand for
multi-shot injection molding has increased dramatically throughout the
industry with applications in everything from toothbrushes to cellular
telephones. We are a leader in this emerging market. This type of
technology enhances our productivity and competitiveness.
To offer the total manufacturing solution to our customers, we
provide for the manufacture of plastic injection molds in compressed
lead times in an effort to reduce the time to market of the finished
product. Currently customer orders placed for injection molds are
subcontracted to manufacturers who specialize in the manufacture and
engineering of plastics injection molds. The majority of these molds
<PAGE>
are subcontracted to affiliated companies within the MGS Group. See
"MGS Group" and "Related Party Transactions and Conflicts of Interest."
As part of our strategic plan, we intend to acquire or develop plastic
injection mold manufacturing capabilities at our production facility in
Wisconsin. We expect to begin operations, including mold
manufacturing, at a new Texas location during the fourth quarter of
fiscal 2000, assuming adequate cash flow from operations, the sale of
stock and additional term financing. We also manufacture plastic parts
for unrelated customers on a purchase order basis. These orders use
tooling provided by the customer and our only responsibility is the
manufacture of parts. This portion of our business represented
approximately 15% of our net sales in fiscal 1999.
In late fiscal 1999, we began to perform assembly operations for
customers for whom we have manufactured individual molded parts. For
example, we are assembling the holster for a cellular telephone, a
procedure involving assembling four parts and packaging the completed
assembly in poly bags for bulk shipment. These assembly operations are
largely hand work and contracted for at a per piece price. We intend
to expand this portion of our business and expect it to account for
approximately 25% of our net sales in 2000.
Our finished products are shipped to customers by common carrier in
most instances.
CUSTOMERS
Our customer list currently includes approximately 10 Fortune 500
companies and approximately 25 other companies.
37
In 1999, we received approximately 56% of our manufacturing revenue
from our arrangement with Motorola, Inc. to produce plastic parts for
six of its divisions which produce consumer communications products.
We have entered into a five-year agreement with the Paslode
Cordless Tool Group of Illinois Tool Works, Inc., to provide injection
molded parts. Paslode designs and manufactures fasteners and power
tools for the residential construction industry. Under this agreement,
we will install approximately $5.0 million of equipment and
improvements into the Paslode facility at Green Oaks, Illinois, to
produce the parts. We will have the use of approximately 29,000 square
feet of space. Sales under this agreement are estimated to be
approximately $2.7 million for fiscal year 2000. We expect to be
producing parts at this facility by March, 2000. The agreement may be
terminated upon 180 days notice by either Paslode or us. If terminated
by Paslode, other than for cause, during the initial five year term,
Paslode is required to reimburse us for our capital costs associated
with the equipment and other related costs.
In 1999, sales to MGS Group companies represented approximately
22.6% of our revenue. These sales consisted mainly of machine time and
related labor.
We derive approximately 40% of our revenues from sales outside of
<PAGE>
the United States. Information concerning revenues derived from
different geographic areas is set forth under "Business" in the notes
to our consolidated financial statements. A significant portion of our
products which represent foreign sales are used in the assembly of
end-use products which are then sold in the United States.
BACKLOG
At September 30, 1999, we had a backlog of orders, in the amount of
approximately $7,000,000, compared to a backlog of approximately
$350,000 on September 30, 1998. This increase is attributable to the
growth of our business in 1999, as 1998 was our first year of
production. Sales revenue increased approximately 778% in 1999 over
the 1998 fiscal year.
Our open order backlog at September 30, 1999 required deliveries at
varying dates in fiscal 2000. Because of the length of time between
entering an order, shipping the product and recording the sale can vary
significantly from order to order, we believe that backlog levels
should not be relied upon as an indicator of future sales volume.
38
Our purchase orders often call for the delivery of finished
products over an extended period of time. These delivery periods
commonly range from one to 12 months. As is customary in our industry,
we carry adequate amounts of raw materials inventory to facilitate the
manufacture of products for which we have purchase orders in hand. In
addition, in order to make the best use of manufacturing efficiencies,
we may produce an entire order in one production run and hold finished
goods in inventory until the purchase order requires delivery.
ACQUISITIONS AND EXPANSION
Our strategic plan is based, in part, on growth through
acquisition. From time to time we intend to explore the acquisition of
tooling and injection molding businesses, and may be engaged in
discussion with one or more of such businesses.
We intend to begin operation of a tooling and molding facility in
Fort Worth, Texas in the fourth quarter of fiscal 2000. See "Use of
Proceeds," "Machinery and Equipment" and "Production and Administrative
Facilities."
TRADEMARKS AND PATENTS
Our business is not dependent upon trademark or patent rights.
MACHINERY AND EQUIPMENT
Our overall manufacturing philosophy is to be a low-cost producer
by using high speed molding machines, modern multi-cavity hot runner,
cold runner and insulated runner molds and extensive material handling
automation. We have made, and intend to continue to make, significant
capital investments in plant and equipment because of our objectives
to grow, to improve productivity, to maintain competitive advantages,
<PAGE>
and meet the asset-intensive nature of the injection molding business.
At September 30, 1999, we had leased 34 injection molding machines.
We lease equipment from Moldmakers Leasing and from PCI Consulting and
Leasing, each of which is a member of the MGS Group. The leases are
for one month in duration and are automatically renewable unless
cancelled by either party upon 30 days' notice.
Assuming adequate financing, our business plan calls for us to
place approximately 30 additional molding machines and accessory
equipment in operation during the 2000 fiscal year under leases whose
terms are identical to those now in effect. We intend to equip many of
39
these molding machines with multi-shot capabilities. In addition, we
will lease the necessary equipment for performing assembly operations,
material handling, storage and other facets of the operations as well
as office and related furniture at our various facilities. The
assembly operations equipment will consist of industry specific
welders, pad printers and work benches.
PRODUCTION AND ADMINISTRATIVE FACILITIES
GERMANTOWN, WISCONSIN
We lease approximately 66,000 square feet in an 88,000 square foot
building owned by Moldmakers Leasing, a member of the MGS Group. This
leased space houses our production facilities. The leased space is
being finished to also house our assembly, engineering, and design
functions and provide general office space. Other members of the MGS
Group occupy the remaining 22,000 square feet. The facility is located
immediately across the street from the MGS Technical Center, which
houses the offices of the MGS Group's companies and some of the design,
engineering and operating staff of those companies. During 1999, we
paid $305,500 under this lease and expect to pay $337,500 during fiscal
2000. See "Related Party Transactions and Conflicts of Interest."
FORT WORTH, TEXAS
We have entered into a lease with an unrelated third party for a
142,000 square foot building in Fort Worth. The building will not be
ready for occupancy on March 1, 2000 as provided by the lease. We are
engaged in discussions with the landlord related to the specifications
of the leased premises and alternatives to our occupancy of the
premises, including the construction of a new building by the lessor.
We expect to begin operations in the facility or a different facility
in the fourth quarter of fiscal 2000.
RAW MATERIALS
The principal raw materials we use in the manufacture of plastic
parts are pelletized plastic resins. These resins are purchased at
open market prices from several manufacturers. The resins used in our
manufacturing process are petroleum or natural gas derivatives and
their availability and price could be affected by the supply or prices
<PAGE>
of petroleum. However, we have not experienced shortages in our
operating history and do not foresee any material increases in pricing.
We believe that should the cost of resins increase substantially, it
may have a short-term adverse impact on our operating results, but that
we will be able to recover most price increases from our customers in
the form of higher prices for our products.
40
ENVIRONMENTAL REGULATIONS
We are subject to various federal, state and local laws and
regulations including, without limitation, laws and regulations
concerning the containment and disposal of hazardous waste and other
waste materials which directly or indirectly affect our operations.
Environmental laws and regulations typically impose "strict liability"
for some environmental damages. Accordingly, in some situations, we
could be liable for clean up costs even if the situation resulted from
previous conduct that was lawful at the time or from improper conduct
of, or conditions caused by, previous property owners, lessees or other
persons not associated with us or events outside of our control. Such
clean up or costs associated with changes in environmental laws and
regulations could be substantial and could have a materially adverse
effect on our consolidated financial position, results of operations or
cash flows.
Our plastic products business routinely uses chemicals and
solvents, some of which are classified as hazardous substances. Use of
these materials is generally limited to the spray application of
solvents to clean molds. No special handling of used material is
currently required. Plastic resin and scraps may be recycled or sent
to landfills. We believe we are currently in material compliance with
existing environmental protection laws and regulations. We are not
involved in any significant remediation activities or administrative or
judicial proceedings arising under federal, state or local
environmental protection laws and regulations.
OUR LONG-TERM BUSINESS STRATEGY
Our long-term business strategy is to attain $250 million in annual
revenue by fiscal year 2004. The knowledge gained of customers'
molding needs during the past 23 months of operations, and the 17 years
of experience of the MGS Group in the plastics injection molding
industry, has provided us with a basis to formulate a plan intended to
achieve this objective.
A key element of our plan is the expansion of our operations
throughout the United States. Initial planning has indicated Arizona,
Colorado, Georgia, Illinois, and Texas as key locations. We intend to
expand our operations through a combination of acquisitions of
complementary businesses and expanding our own manufacturing
facilities.
During this growth, we plan to continue to use a corporate level
strategy of differentiation by offering our customers a total
manufacturing solution at the highest levels of quality on the most
<PAGE>
complex jobs. Since virtually the entire MGS Group operates in the
injection molding industry, we have the benefit of serving customers
with complementary needs. However, in order to achieve this total
solution we intend to acquire the in-house capability to manufacture
our own tooling.
41
Some of this capability will be achieved by purchasing existing
businesses as part of our expansion plan. Additional tooling
capability will be developed or acquired for our Wisconsin based
operations.
Extending our current product line to include additional
value-added and assembly services will serve as the second part of our
total manufacturing solution marketing and operations plan. All of
these services will be available at compressed lead times to allow the
customer to reduce its time to market and generate greater revenue and
profit margins.
In connection with the physical expansion of our facilities, we
plan to increase our customer base. The proposed locations for
expansion have been strategically selected to logistically assist us in
increasing our customer base. Expansion of our sales force will also
help to increase our presence within the injection molding industry.
It has been and continues to be our intention to hire experienced
management from the industry to provide inroads to new customers. We
also expect to benefit from exposure through participation in national
and international trade association shows. We also recognize the
impact of the Internet and we are in the process of developing a plan
to best utilize the Internet for our business.
We expect to continue to capitalize on our relationship with the
MGS Group. We will be able to draw on the significant experience of
management within all aspects of the plastic injection molding
industry. However, it is essential that our management team be
strengthened to accommodate this growth. Consequently, we are
aggressively recruiting key personnel who can provide skills currently
needed or complement current strengths.
We also plan to continue efforts to enhance efficiency. During the
past two years we have invested many resources to build an
infrastructure which would allow for exponential future growth. That
infrastructure is now in place, and we plan to be able to take
advantage of economies of scale to increase profit margins. Using the
MGS Group for administrative services and internal functions also
enables us to take advantage of economies of scale in the areas of
management information, accounting, financial management and human
resources.
We also will continue to focus on the development of proprietary
equipment and manufacturing processes in conjunction with the MGS
Group. This should allow us to become more integrated and distinguish
ourselves from our competitors. The equipment and processes will give
us competitive advantages by making technological advances which allow
for lead times, precision, and quality which was previously unattainable.
<PAGE>
42
EMPLOYEES
At January 1, 2000, we employed approximately 300 employees, of
which 200 are production workers and 100 are office, managerial,
engineering and technical employees. Our principal executive officers
are also officers and employees of other companies within the MGS
Group. See "Management" and "Related Party Transactions and Conflicts
of Interest."
Our employees participate in one or more employee benefit plans,
including group health and disability insurance and a tax qualified
retirement plan. It is our intention to review our employee benefit
programs from time to time and make any adjustments we feel are
necessary or appropriate to attract and retain qualified employees.
The MGS Group maintains the same employee benefit plans for the benefit
of its employees. Human resources administration is provided through
the MGS Group. See "Related Party Transactions and Conflicts of
Interest."
None of our employees is represented under a collective bargaining
agreement. We consider our relations with our employees to be
satisfactory and have not experienced any job actions or labor
shortages since our inception.
LEGAL PROCEEDINGS AND OTHER CLAIMS
We are currently involved in a dispute with the landlord over the
suitability of our proposed Texas facility. We believe the premises do
not meet the requirements of the lease. The landlord has given us a
notice of default under the lease. In our opinion there is no merit in
a claim that we are in default under the lease. We are discussing
alternatives with the landlord under which our occupancy will be
deferred until the fourth quarter or new premises provided. We do not
expect the claims asserted against us to have a material adverse effect
on our business, although it is possible that resolution of the matter
could delay our occupancy of a Texas facility beyond the fourth quarter
of fiscal 2000.
We may, from time to time, become involved in various legal
proceedings in the ordinary course of our business. As of the date of
this prospectus, we are not engaged in any legal proceedings and are
not aware of any other claims which are likely to be asserted against
us.
43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The persons listed below are now and will continue to be our
directors and executive officers immediately following this offering:
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION
<S> <C>
Mark G. Sellers, 45 Chairman of the Board,
President, CEO and Treasurer of PMC and
TecStar and President, director and/or
partner in each other entity in MGS Group.
Scott W. Scampini, 47 Executive Vice President and Secretary of PMC
and TecStar; also an officer, director or partner
of each other entity in MGS Group.
Jeffrey A. Kolbow, 31 Director of PMC and TecStar; also Vice President-
Finance of MGS Enterprises, Inc., and an officer
and/or director in each other entity in MGS Group.
Bruce L. Schneider, 48 Vice President - Finance and a director of PMC
and TecStar, also an officer and/or director of each
other entity in MGS Group.
Rade (Rudi) Petrovic, 50 Vice President - Sales and a director of PMC
and TecStar.
Alan E. Vick, 51 Vice President - Quality Systems of TecStar and
Statistical Plastics Corporation
Kevin P. Christ, 33 Vice President - Manufacturing of TecStar
</TABLE>
44
MARK G. SELLERS has served as President of PMC and TecStar since
November, 1997, and as CEO, Chairman of the Board and Treasurer since
inception. Mr. Sellers has had extensive experience in the plastic
moldmaking and related business. Mr. Sellers received an Associate
Degree in Tool and Die Technology from Milwaukee Area Technical College
in 1972 and, following a five-year apprenticeship program, worked as a
tool and die maker until 1982. Mr. Sellers began his own tool and die
shop in 1982 under the name Moldmakers, Incorporated, the first company
of the MGS Group. See "The MGS Group" and "Related Party Transactions
and Conflicts of Interest."
Mr. Sellers served as the president of the Society of Plastics
Engineers, Milwaukee Section (1990-1991) as Chairman of the Moldmaking
& Mold Design Division of the Society of Plastics Engineers
International (1994), and is a member of the Division's board of
directors. In addition, he serves on the Advisory Committee of Moraine
Park Technical College and was the recipient of the Ernst & Young
Emerging Entrepreneur Award in 1990. As principal executive officer of
the MGS Group, he also supervises a tool maker apprenticeship program
certified by the State of Wisconsin for approximately 20 apprentices.
SCOTT W. SCAMPINI has served as the Executive Vice President and
Secretary of PMC and TecStar since its inception. Mr. Scampini is also
an officer and/or director of each of the companies in the MGS Group.
Mr. Scampini has served the MGS Group of companies in various
<PAGE>
capacities since 1983. He received a degree in business administration
in 1974 from the Marquette University School of Business and received
his license as a Certified Public Accountant in the same year. Mr.
Scampini has twenty years of experience in public accounting; from 1977
to 1982 he was employed by Price Waterhouse and from 1984 to 1993 he
was employed by BDO Siedman, LLP. In addition to his services for the
MGS Group, he was a partner in Scampini & Bond, certified public
accountants through December 31, 1999. Mr. Scampini is the founder of
the Wisconsin Institute of Certified Public Accountants Corporate
Finance Committee. See "The MGS Group" and "Related Party Transactions
and Conflicts of Interest."
JEFFREY A. KOLBOW has served as a director since July, 1999. Mr.
Kolbow has served the MGS Group of companies in various capacities
since 1995. He received his bachelor of business administration in
1991 from the University of Wisconsin - Whitewater. Mr. Kolbow is a
Certified Public Account and a member of the Wisconsin Institute of
Certified Public Accountants and the American Institute of Certified
Public Accountants. Mr. Kolbow practiced public accounting at BDO
Siedman, LLP from 1990 to 1995.
45
BRUCE L. SCHNEIDER has served as the Vice President - Finance and a
director of PMC and TecStar since July, 1999. Previously, Mr.
Schneider was CFO of TecStar and Statistical Plastics Corporation, a
member of the MGS Group, since 1996. Mr. Schneider has twenty-five
years of experience in the accounting field. From 1994 to 1996
Sterling Tool Mfg. Co. employed Mr. Schneider as its controller, and
from 1974 until 1994 Applied Power, Inc. employed him in various
accounting capacities.
RADE (RUDI) PETROVIC has served as the Vice President of Sales and
a director of PMC and TecStar. Mr. Petrovic received a B.S. in
mechanical engineering from the University of Wisconsin-Milwaukee in
1973. From 1973 to 1989, he worked for Rexnord Corporation, Milwaukee,
Wisconsin, in manufacturing and engineering positions in facilities in
the United States and in Germany. His background includes ten years of
experience as plant superintendent and plant manager for Rexnord's
plastics operations. From 1989 to 1995, Mr. Petrovic worked for Regina
U.S.A., a division of Regina Industria, an Italian manufacturer of
conveyor chains. Mr. Petrovic joined Statistical Plastics Corporation,
a member of the MGS Group and a stockholder of PMC, in 1995 and
currently serves as its vice president.
ALAN E. VICK has served as Vice President - Quality Systems of
TecStar since April, 1999. Mr. Vick has worked in plastic molding
management and quality assurance management for over 25 years. He has
extensive experience in the manufacturing of plastics, including
tooling, maintenance, scheduling, purchasing and quality assurance.
Mr. Vick spent 18 years with Globe Union, Inc., and 10 years with New
Berlin Plastics, Inc. before joining the MGS Group in July, 1997.
KEVIN P. CHRIST has served as Vice President - Manufacturing of
TecStar since July, 1999. Previously, Mr. Christ was manufacturing
coordinator for the MGS Group from 1995 until 1998 when he moved into
<PAGE>
the same position for TecStar. Prior to that, Mr. Christ was molding
operations manager at Johnson Level & Tool from 1992 to 1995, and was a
process engineer at Engineered Plastics Corp. from 1985 to 1992.
COMPENSATION OF DIRECTORS
Our directors are not compensated for their services as directors.
Depending on our future operations, and other factors, our board of
directors may determine that reasonable fees or compensation are
appropriate. There is no present intention to establish such fees or
compensation.
46
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has not established any committees and has
no present intention of doing so.
MANAGEMENT AGREEMENTS
Our three principal executive officers also serve as executive
officers of MGS Group companies. In 1996, we entered into agreements
with three of the MGS Group of companies (Statistical Plastics
Corporation, Moldmakers Management, Inc., and MGS Enterprises, Inc.) to
provide sales and marketing, consulting, and reference services in
exchange for payments based on our net sales. Under these agreements,
the services of Mr. Sellers, Mr. Scampini, and Mr. Schneider are made
available to us as our principal executive officers. There is no
obligation under the agreements to provide the services of any
specified individual. These agreements have terms which expire on
December 31, 2006. Payments under the agreements provide for an
aggregate amount equal to 5% of our net sales during the term of the
agreements, subject to an aggregate maximum payment under all
agreements of $1,200,000. No cash payments are required by us until
termination of the agreements. Through September 30, 1999, a total of
$435,357 had been accrued under these agreements. Of this accrued
amount, $415,772 has been applied in lieu of cash payment by the three
companies to amounts due us under various stock subscription agreements
for our common stock.
The terms of the management agreements were not determined by arms-
length negotiation or reviewed by independent third parties. We
believe that the costs to the company under these agreements are
comparable to what we would pay for similar management and marketing
services if comparable full time executive officers were directly
employed by us. See "Related Party Transactions and Conflicts of
Interest."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors does not currently have a Compensation
Committee. Senior management has been and will continue to be directly
involved in setting compensation for our executives and the terms of
our management agreements.
47
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth the cash compensation paid by us to our
CEO and to each of our four other most highly compensated executive
officers whose salary and bonus exceeded $100,000 for the last fiscal
year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Long Term
Compensation
Awards
Securities All Other
Name and Principal Other Annual Underlying Compensation
Position Year Salary Bonus Compensation($) Options/
<S> <C> <C> <C> <C> <C> <C>
Mark G. Sellers; President 1999 $(1) $(1) $(1) 0* $(1)
and CEO of the Company
Scott W. Scampini; 1999 $(1) $(1) $(1) 0* $(1)
Executive Vice President
Rade (Rudi) Petrovic; Vice 1999 $105,800 $0 $0 0 $1,560(2)
President - Sales
<FN>
* Mr. Sellers and various affiliates of Mr. Sellers were granted options with
respect to 5,000,000 shares on October 1, 1999. See "Option Exercises and
Holdings."
{(1)}Neither Mr. Sellers nor Mr. Scampini received any salary, bonus, or other
compensation from us in 1999. Payments were made by us to the MGS Group
pursuant to the terms of management agreements described under "Management -
Management Agreements" to reimburse the MGS Group for, among other things, the
management time provided by Mr. Sellers and Mr. Scampini. See "Related Party
Transactions and Conflicts of Interest".
{(2)}Amounts contributed to 401(k) plan.
</TABLE>
OPTION EXERCISES AND HOLDINGS
No options were exercised by any executive officer named in the
Summary Compensation Table during our last fiscal year, nor did any of
the executive officers hold options at year-end. The following table
provides information regarding holdings of stock options by Mr. Sellers
at October 1, 1999. No other executive officers hold stock options as
of the date of this prospectus.
48
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR {(1)}
Individual
Grants
Number of % of total Potential Realizable
Securities Options/SARs Value at Assumed Annual
Underlying Granted to Exercise or Rates of Stock Price
Options/SARs Employees in Base Price Expiration Appreciation for
Name Granted(#) Fiscal Year ($/Sh) Date Option Term
5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Mark G. Sellers 5,000,000{(1)} 100% $10.00 9/30/01 $0{(2)} $0{(2)}
<FN>
{(1)}No options were granted by us in the last fiscal year to any person named
in the Summary Compensation Table. The options indicated in the table were
granted on October 1, 1999 to Mr. Sellers (1,750,000 shares), two trusts for
which he serves as trustee (1,250,000 shares), and two of the MGS Group
companies, Moldmakers Investments (1,000,000 shares) and Moldmakers, Inc.
(1,000,000 shares). Each of the options is immediately exercisable, in whole
or in part, at an exercise price of $10.00 per share.
{(2)}There is no established market for the stock. Assumes fair market value
per share of $4.00 on date of grant.
</TABLE>
OTHER INCENTIVE PLANS
We expect to continue to review the adoption of cash and
stock-based incentive plans for management and our employees. The
terms and number of shares of stock which may be subject to options
under any such plans, if adopted, cannot be determined at the present
time.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by applicable Wisconsin law, we have included in our
articles of incorporation a provision to limit the personal liability
of our directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors. In addition, our by-laws provide
that we are required to indemnify our officers and directors under a
number of circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and we are required
to advance expenses to our officers and directors as incurred in
connection with proceedings against them for which they may be
indemnified. At present, we are not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or
agent of ours in which indemnification would be required or permitted.
We believe that these indemnification provisions are necessary to
attract and retain qualified persons as directors and officers.
49
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be granted to directors, officers or persons
controlling us under the foregoing provisions, we have been informed
<PAGE>
that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act of 1933 and is therefore
unenforceable.
THE MGS GROUP
The MGS Group consists of 20 separate entities, ten of which
constitute its principal operating entities. The business strategy of
the MGS Group is to develop, through its member companies and closely
affiliated companies, the capability to serve as a full-service
provider to manufacturers who purchase plastic parts for use in their
products. The MGS Group is capable of providing design, moldmaking,
testing and production of plastic parts and components. The MGS Group
currently provides substantially all of the services or products
required by the plastics industry. We currently operate
in conjunction with the MGS Group as a high volume plastic
manufacturing company, although one of our strategic goals is to
develop a greater independent marketing strength, customer base, and
our own mold making capability. We now have and expect to continue to
have on-going management, service, marketing, and production
relationships with each of these principal members and other companies
within the MGS Group.
The principal companies in the MGS Group (and year of organization)
are:
<circle> MOLDMAKERS, INCORPORATED (1982) - a full-service moldmaking
and engineering facility producing high quality molds for the
plastics industry in an expedited time frame. In addition to
making molds under subcontracts with us, its clients include
the electrical, mechanical, medical, automotive, water
treatment, appliance, and telecommunications industries, among
others.
<circle> O&S DESIGN, INC. (1989) - provides product development,
consultation, and tool design for us, other MGS Group
companies, and unrelated companies in the plastics industry;
<circle> PROTOTYPE MOLD & DESIGN, INC. (1993) - has integrated on-site
design capabilities to meet the program needs for product
renderings, tool layout, detailed designs, engineering and
machine tool programming for us, other MGS Group companies,
and unrelated companies in the plastics industry;
50
<circle> STATISTICAL PLASTICS CORPORATION (1995) - provides mold
sampling of new and rebuilt tooling and develops processing
parameters for high volume plastic part production primarily
for us, other companies in the MGS Group, and unrelated
companies in the plastics industry;
<circle> MGS ENTERPRISES INC. (1993) - provides management, accounting,
marketing and human resources services for us and other
companies within the MGS Group;
<PAGE>
<circle> MOLDMAKERS LEASING & INVESTMENTS LIMITED PARTNERSHIP, LLP
(1988) - organized as a partnership in 1988 and reorganized as
a limited liability partnership in 1995 to provide lease
financing to us and other companies within the MGS Group.
<circle> PCI CONSULTING AND LEASING, INC. (1994) - engaged in leasing
and investment activities and provides financing to us and
other companies within the MGS Group;
<circle> CADD PLUS, INC. (1995) - a computer software and hardware
provider, offering networking and other computer related
products and services to us and other companies within
the MGS Group;
<circle> REDLINE, INC. (1993) - provides, among other services,
full-service professional finishing and detailing of molds,
including detailed mold polishing, professional finishing and
detailing, high tolerance polishing, and diamond finishing to
Society of Plastics Engineers standards using ultrasound
polishing systems. Its principal customers consist of
companies within the MGS Group; and
<circle> MOLDMAKERS DIE CAST TOOLING DIVISION, INC. (1996) - a full
service die cast moldmaking facility that produces die cast
molds from metal alloys, including aluminum, zinc, and
magnesium for the automotive and mechanical industries.
At the present time and upon completion of the offering, voting
control of our common stock will rest with members of the MGS Group and
their directors and officers. Mark G. Sellers exercises direct or
indirect voting control over each company within the MGS Group. See
"Risk Factors," "Principal Stockholders," "Management" and "Related
Party Transactions and Conflicts of Interest."
51
The MGS Group of companies are located in Germantown and Menomonee
Falls, Wisconsin. Our Wisconsin production facility is located
adjacent to the Technical Center in Germantown, Wisconsin.
RELATED PARTY TRANSACTIONS AND CONFLICTS OF INTEREST
RELATED PARTY TRANSACTIONS
We have entered into various transactions with members of the MGS
Group to provide management and administrative services, equipment, and
facilities. We expect that additional transactions of a similar nature
will be entered into in the future. None of these agreements is the
result of independent, arms-length negotiations and no independent
third party has reviewed or approved any of these arrangements. We
believe that the services, equipment and/or real estate transactions
which have been or which will be entered into with the MGS Group are,
or will be, on terms no less favorable than comparable transactions
entered into with independent parties. The types of transactions we
have entered into with MGS Group companies, and the aggregate dollar
amounts attributable to transactions with each company which aggregated
more than $5,000, are as follows:
<PAGE>
RELATED PARTY PURCHASES
<circle> Management agreements under which MGS group companies and
officers provide essential management, sales, and marketing
services to us in exchange for an amount equal to 5% of our
revenue. (See "Management - Management Agreement" with
respect to the term of, and amounts paid or accrued under,
these agreements);
<circle> We subcontract with several of the MGS Group companies for
moldmaking, engineering, maintenance, sampling, and other
services related to our production orders from customers.
These services are not bid with independent parties by us or
our customers. Our contracts represent less than 5% of each
of such companies' revenues. During fiscal 1999, these
contracts and services can be summarized as follows:
52
<TABLE>
<CAPTION>
MGS GROUP COMPANY PRODUCTS OR SERVICES AMOUNT
<S> <C> <C>
Moldmakers, Incorporated Tooling $590,133
Maint./Shipping/Quality 128,963
O&S Design Design 84,985
Moldmakers Die Cast
Tooling Division Maint./Shipping/Quality 23,725
Prototype Mold & Design Tooling 74,000
Maint./Shipping/Quality 57,732
Statistical Plastics Corporation Mold Sampling 50,958
Quality/Operators/Consulting 139,050
</TABLE>
<circle> Leases between us and Moldmakers Leasing under which we lease
our Germantown, Wisconsin facility. Rental payments are based
on 105% of the lessors' debt service attributable to the
square footage of the leased space. (See "Business -
Machinery and Equipment; - Production and Administrative
Facilities"). Rent payments to Moldmakers Leasing in fiscal
1999 under these leases were $305,500;
Subleases for a majority of our production equipment with
Moldmakers Leasing and PCI Consulting and Leasing, Inc. These
subleases provide for a lease payment which is 5% higher than
the lease payment by the applicable MGS Group company under
its principal leases. We believe that the rate paid by us is
comparable to the lease rate we would pay if we obtained lease
financing independently. Rent payments in fiscal 1999 under
these leases were $116,430, paid to Moldmakers Leasing, and
$1,449,800, paid to PCI Consulting and Leasing, Inc.;
We provide 10% of Moldmakers Leasing's revenue and 52% of the
revenue of PCI Consulting.
<circle> Agreements between us and MGS Enterprises, Inc. for
accounting, sales and marketing services, and human resources
services. The costs of these services are shared primarily on
<PAGE>
a per capita basis with the MGS Group of companies using the
services. In some cases, costs are based on actual usage.
During fiscal 1999, we paid MGS Enterprises, Inc. $156,961 for
accounting, human resource, and other administrative services,
and $20,300 for sales and marketing services. (See
"Management - Management Agreements," and "Business -
Employees");
53
<circle> Agreements between us and Cadd Plus, Inc. for management
information systems and related computer support services.
The costs of these services are shared primarily on a per
capita basis with the MGS Group of companies using the
services. In some cases, costs are based on actual usage.
During fiscal 1999, we paid Cadd Plus, Inc. $6,800 for these
services;
RELATED PARTY SALES
<circle> Agreements under which Statistical Plastics Corporation
purchases machine time and labor to meet their customer
orders. These agreements are furnished on a time and
materials basis which reflect our operating costs
and include an operating profit. Sales to Statistical
Plastics represented $1,304,030 or approximately 17% of our
revenue in 1999;
<circle> Agreements with other MGS Group companies in which we were
compensated based upon hourly rates. These contracts resulted
in payments to us as follows:
<TABLE>
<CAPTION>
MGS GROUP COMPANY SERVICES AMOUNT
<S> <C> <C>
Moldmakers, Incorporated Project Management $198,672
Moldmakers Die Casting Division Project Management 19,418
Prototype Mold & Design Project Management/Maint. 163,167
</TABLE>
In addition to the services listed immediately above, we contracted
with the certified public accounting firm of Scampini & Bond, Certified
Public Accountants, to perform special projects, accounting, tax
consulting and return preparation services at hourly rates. These
rates are at or below rates charged to unaffiliated clients of the
firm. Scott W. Scampini, our Executive Vice President and Secretary,
was a principal in the firm. He was not paid for services provided as
a member of the firm. Payments made in 1999 amounted to less than 5%
of Scampini and Bond's revenue.
Further information on the terms of these transactions may be found
under the headings "Business" and "Management" and in our consolidated
financial statements and the notes to those statements; see "Index to
Consolidated Financial Statements." We have filed copies of each of
our material agreements as an exhibit to the registration statement of
which this prospectus is a part.
54
<PAGE>
OWNERSHIP OF MGS GROUP CONFLICTS OF INTEREST
Mark G. Sellers is the principal stockholder of each of the MGS
Group of companies and Mr. Sellers, each of our directors, and each of
our principal executive officers are also directors and executive
officers of various companies in the MGS Group. The following
describes the equity interest of our directors and officers in each of
the MGS Group companies listed on page 50.
<circle> Mr. Sellers owns 69% and Mr. Scampini owns 11% of the stock of
Moldmakers Management, Inc. Moldmakers Management owns 100%
of the stock of Moldmakers, Incorporated, O&S Design, Inc.,
Cadd Plus, Inc., and Moldmakers Die Cast Tooling Division, Inc.
<circle> Mr. Sellers owns 51% and Mr. Scampini owns 14% of MGS
Enterprises, Inc.
<circle> The stock of Prototype Mold & Design, Inc. is owned by Mr.
Sellers (7%), Mr. Scampini (13.9%), and MGS Enterprises, Inc.
(44%).
<circle> Mr. Sellers owns 24.5% of the equity interests of Statistical
Plastics Corporation and controls 100% of its voting stock.
Mr. Scampini owns 10.7% of its equity interests and Mr.
Petrovic owns 4% of its equity interests.
<circle> Mr. Sellers owns 69% of the equity interests of Moldmakers
Leasing and Mr. Scampini owns 11% of the equity interests.
<circle> Mr. Sellers owns 50% of the equity interests of PCI Consulting
and Leasing and Mr. Scampini owns 25%.
Mr. Kolbow, Mr. Schneider, Mr. Vick, and Mr. Christ do not have a
beneficial ownership interest in any of the MGS Group companies.
Ownership of some of the companies in the MGS Group is being
reorganized into a holding company structure. Upon completion early in
2000, MGS Mfg. Group, Inc. will own 100% of Moldmakers, Incorporated,
O&S Design, Prototype Mold & Design, MGS Enterprises, Inc., Cadd Plus,
Inc., Redline, Inc., and Moldmakers Die Cast. Holders of equity
interests of the affected MGS Group companies will receive shares of
MGS Manufacturing, Inc. in exchange for such interests. Upon
completion of the reorganization it is anticipated that Mr.
55
Sellers will own 61.42%, and Mr. Scampini 11.22%, of the equity
interests of MGS Mfg. Group, Inc.
As a result of this overlapping ownership and management structure,
the interests of the MGS Group stockholders and partners may differ
from those of our stockholders. For example, we compete for purchase
order contracts with companies for whom the MGS Group may perform
design, testing or other services. In other cases, we subcontract
moldmaking and related engineering services and contract to MGS Group
companies without competitive bidding from other companies which may
<PAGE>
provide these services on an independent basis. Similarly, because of
the interrelationship of our management and the physical proximity of
our principal offices and production facility, our management has not
and does not intend to invite competitive bids for the support services
provided by the MGS Group for accounting, management information, sales
and marketing, human resources and other services. Finally, management
has not sought competitive bidding for the various real estate leases
and equipment financing transactions which are essential to our
business.
In resolving any competing interests, our management will be bound
by general corporate fiduciary duties imposed under state law which
requires our directors and officers to deal fairly and in the best
interests of our stockholders. However, there is no independent review
of the terms of any of our transactions and we have agreed to limit the
liability of our directors and officers. See "Management - Limitation
of Liability and Indemnification Matters."
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to
beneficial ownership of our common stock as of November 30, 1999, and
as adjusted to reflect completion of this offering, by
<circle> each of the officers listed in the Summary Compensation
Table;
<circle> each director;
<circle> each holder of more than 5% of our common stock; and
<circle> all current directors and executive officers as a group.
Except as indicated in the footnotes to this table, the individuals
named in this table have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them.
56
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned Percentage of Class
NAME BEFORE OFFERING BEFORE OFFERING AFTER OFFERING{(1)}
<S> <C> <C> <C>
Statistical Plastics 705,000 18.80% 16.59%
Corporation<dagger>
MGS Enterprises Inc.<dagger> 324,000 8.64% 7.62%
Moldmakers Management, Inc.<dagger> 300,000 8.00% 7.06%
Moldmakers, Incorporated 1,300,450 {(2)} 27.38% 24.77%
Prototype Mold & Design, Inc. 120,000 3.20% 2.82%
Moldmakers Leasing &
Investments 1,517,560 {(2)} 31.95% 28.91%
Mark G. Sellers 7,330,010 {(3)} 83.77% 79.24%
Scott W. Scampini 61,500 1.64% 1.45%
Jeffrey A. Kolbow 9,000 * *
Rudi Petrovic 39,000 1.04% *
Bruce L. Schneider 32,100 * *
All directors and officers
as a group (5) 7,471,610 {(4)} 85.39% 80.77%
<FN>
<dagger>Member of MGS Group of companies
*Less than 1%
{(1)}Assumes sale of 500,000 shares in the offering. Also assumes that no
shares are repurchased in the rescission offer described under "Rescission
Offer"
{(2)}Includes 1,000,000 shares subject to options exercisable within 60 days
{(3)}Includes (a) 4,267,010 shares beneficially owned by the MGS Group
companies (including options exercisable within 60 days) listed in the table
and in which Mr. Sellers directly or indirectly holds a majority of the equity
interests and over which Mr. Sellers exercises management and voting control
as principal executive officer, (b) 1,750,000 shares subject to options which
are exercisable within 60 days, and (c) 1,250,000 shares which are exercisable
within 60 days held by trusts of which Mr. Sellers is trustee. See "The MGS
Group"
{(4)}Includes shares subject to options which are exercisable within 60 days
</TABLE>
57
DESCRIPTION OF COMMON STOCK
THE FOLLOWING SUMMARY DESCRIPTION OF THE MATERIAL PROVISIONS OF OUR
ARTICLES OF INCORPORATION AND BY-LAWS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO OUR ARTICLES OF INCORPORATION AND BY-LAWS, WHICH WE HAVE
FILED AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART.
Our authorized capital stock consists of 15,000,000 shares of
common stock, no par value per share. Immediately prior to this
offering, we had 3,750,000 shares of common stock outstanding which
were held by approximately 214 stockholders of record. If all shares
in this offering are sold and no Rescission Shares are repurchased by
us, there will be 4,250,000 shares of common stock outstanding upon
completion of the offering.
<PAGE>
COMMON STOCK
Holders of common stock are entitled to receive dividends as may be
declared by our board of directors out of funds legally available to
pay dividends, and, in the event of liquidation, to share pro rata with
the holders of common stock in any distribution of our assets after
payment or providing for the payment of liabilities and the liquidation
preference of any outstanding preferred stock. Each holder of common
stock is entitled to one vote for each share held of record on the
applicable record date for all matters presented to stockholders.
Holders of common stock have no cumulative voting rights or preemptive
rights to purchase or subscribe for any stock or other securities.
There are no conversion rights or redemption or sinking fund provisions
with respect to common stock. All outstanding shares of common stock
are, and the shares of common stock offered in this prospectus will be
when issued, fully paid and nonassessable except for a contingent
liability under Wisconsin law for unpaid wages. Wisconsin law
provides that a stockholder may be held liable, up to the amount the
stockholder paid for his shares, for any claims made by employees for
unpaid wages, up to a maximum of six-months of wages.
ANTI-TAKEOVER PROVISIONS IN OUR ARTICLES OF INCORPORATION AND BY-LAWS
AND WISCONSIN LAW
Our articles of incorporation and by-laws contain provisions that
could delay or make more difficult the acquisition of PMC by means of a
hostile tender offer, open market purchases, a proxy contest, or
otherwise. We intend to amend our articles of incorporation and
by-laws to add additional provisions which may also have the same
effect. Wisconsin law also contains provisions which are intended to
make a non-negotiated transaction more
58
difficult to achieve. We also refer you to "Risk Factors--Mr. Sellers
Will Control Our Company and This Control Could Inhibit Potential
Changes in Control" for information on other factors which could impact
a change in control.
PROPOSED AMENDMENTS TO OUR ARTICLES AND BY-LAWS
At our annual meeting of stockholders to be held in 2000, we intend
to propose that the following amendments to our articles of
incorporation and by-laws be adopted. Given the beneficial ownership
of shares by Mr. Sellers, these amendments will be adopted if proposed:
<circle> SUPERMAJORITY VOTE REQUIRED FOR MERGER OR SALE. Amend our
articles of incorporation to require that any proposal to
merge with another company, to effect a share exchange, or to
sell all or substantially all of our assets will require the
approval of the holders of two-thirds of our common stock.
<circle> CLASSIFIED BOARD OF DIRECTORS. Amend our articles of
incorporation and by-laws to provide that our board of
directors be divided into three classes of directors, as
nearly equal in size as possible, serving staggered
three-year terms. Upon expiration of the term of a class of
<PAGE>
directors, the directors in that class will be elected for
three-year terms at the annual meeting of stockholders in the
year in which the term for that class of directors expires.
In addition, these amendments will provide that directors may
be removed only for cause by the affirmative vote of the
holders of two-thirds of the shares of common stock entitled
to vote, and any vacancy on the board of directors, however
occurring, including a vacancy resulting from an enlargement
of the board, may only be filled by vote of a majority of the
directors then in office. The classification of the board of
directors and the limitations on the removal of directors and
filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a
third party from acquiring, control of us.
<circle> AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS. Amend our
articles of incorporation to impose supermajority vote
requirements in connection with the amendment of provisions of
our amended articles of incorporation and by-laws, including
those provisions relating to the classified board of
directors. The Wisconsin Business Corporation Law provides
generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a
corporation's articles of incorporation or by-laws, unless a
corporation's articles of incorporation or by-laws, as the
case may be, requires a greater percentage.
59
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATION AND
PROPOSALS
Our by-laws establish advance notice procedures with regard to
stockholder proposals and the nomination, other than by or at the
direction of our board of directors or a committee of the board, of
candidates for election as directors. To be timely, a stockholder's
notice must be received at our principal executive offices not less
than 60 days, nor more than 90 days, prior to the anniversary date of
the immediately preceding annual meeting of stockholders. In the event
that the annual meeting is called for a date that is not within 30 days
before or after the anniversary date, notice from the stockholder must
be received no later than the tenth day following the date on which
notice of the annual meeting was mailed to stockholders or made public,
whichever occurred earlier. In the case of a special meeting of
stockholders called for the purpose of electing directors, notice by
the stockholder must be received not later than the close of business
on the tenth day following the day on which notice was mailed or public
disclosure of the date of the special meeting was made, whichever first
occurs. Our by-laws also specify some requirements as to the form and
content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an annual
meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock are available
<PAGE>
for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
RESTRICTIONS ON BUSINESS COMBINATIONS AND CONTROL SHARES UNDER
WISCONSIN LAW
Section 180.1141 of the Wisconsin Business Corporation Law
restricts some business combinations between us and an "interested
stockholder." An "interested stockholder" includes any person
(including the person's affiliates or associates) who beneficially owns
at least 10% of the voting power of the outstanding voting stock of our
common stock and any of our affiliates or associates who, within the
last three years, beneficially owned at least 10% of the voting power
of our then outstanding voting stock. A business combination
prohibited by Section 180.1141 includes:
60
<circle> a merger or share exchange with an interested stockholder (or
a corporation which would become an affiliate after a merger
or share exchange);
<circle> a sale, lease or other disposition to or with an interested
stockholder of assets which:
<circle> represents at least 5% of the aggregate market value of our
assets;
<circle> has an aggregate market value equal to at least 5% of the
value of our outstanding stock; or
<circle> represents at least 10% of the earning power or income of our
company;
<circle> the issuance of our stock which has an aggregate market value
equal to at least 5% of the aggregate market value of all of
our outstanding stock to an interested stockholder;
<circle> a plan or proposal for liquidation or dissolution of our
corporation pursuant to a proposal by or an agreement with an
interested stockholder; and
<circle> other reclassifications, recapitalizations and loan,
guarantees, financial assistance, or other transactions for
the benefit of the interested stockholder.
For a period of three years after the date on which an interested
stockholder first became an interested stockholder, no business
combinations between us and the interested stockholder may occur unless
our board of directors had given prior approval to the business
combination or the purchase by which the interested stockholder became
an interested stockholder. At any time more than three years after the
date on which an interested stockholder became an interested
stockholder, no business combination may be consummated unless the
purchase by which the interested stockholder became an interested
stockholder was approved by our board of directors prior to the date on
which the interested stockholder became an interested stockholder, the business
<PAGE>
combination meets some requirements set forth in the statute regarding
the price paid for our stock, or the business combination is approved
by a majority of our shares entitled to vote which are not beneficially
owned by the interested stockholder.
Section 180.1150 of the Wisconsin Business Corporation Law provides
that, subject to some exceptions, in any matters to be voted upon by
our stockholders, the voting power of shares held by any person in
excess of 20% of the shares outstanding and entitled to vote in the
election of directors is limited to 10% of the full voting power of
those excess shares. For example, a stockholder with 30% of the voting
shares would exercise 23% of the voting power of the shares eligible to
vote. There are exceptions to these limitations, including exceptions
for shares acquired before this offering or which were acquired by the
exercise of an option. The shares beneficially owned by Mr. Sellers
are not subject to this limitation on voting power.
61
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock. No public market is expected to develop after this
offering as the common stock will not be listed for trading on any
exchange and the stock will not be followed by the investment
community. However, future sales of substantial amounts of our common
stock could adversely affect the price at which a stockholder may be
able to sell share of common stock. If no Rescission Shares are
repurchased by us, upon completion of this offering we will have
4,250,000 shares of common stock outstanding. The 500,000 shares
offered in this prospectus will be freely tradeable without restriction
or further registration under the federal securities laws, unless
purchased by one of our directors, executive officers, or a related MGS
Group company. The transferability of all shares purchased by our
directors, executive officers, or a related MGS Group company will be
restricted shares under the Securities Act and subject to the volume
and other limitations set forth in Rule 144.
In general, under Rule 144, as currently in effect, a person, or
persons whose shares are aggregated, who has beneficially owned shares
for at least one year, including the holding period of any prior owner,
except an affiliate from whom those shares were purchased, is entitled
to sell in brokers' transactions or to market makers, within any
three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of
<circle> 1% of the then outstanding shares of common stock (1% is
expected to be 42,500 shares immediately after this
offering), or
<circle> the average weekly trading volume of our common stock
during the four calendar weeks preceding the required
filing of a Form 144 with respect to this sale.
Sales under Rule 144 are generally subject to the availability of
current public information about us. Under Rule 144(k), a person who
is not deemed to have been our affiliate at any time during the 90 days
<PAGE>
preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years, including the holding period of any
prior owner other than an affiliate from whom these shares were
purchased, is entitled to sell these shares without having to comply
with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
62
None of our directors, executive officers, or other stockholders
have entered into lock-up agreements under which they have agreed not
to sell any of their shares for a specified period of time.
PLAN OF DISTRIBUTION
We are offering to sell 500,000 shares of our common stock for cash
at a price of $12.00 per share. The offering is not underwritten. The
common stock will be sold for us by our officers and employees. No
officer or employee will receive a commission or other compensation for
selling our stock.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for the
common stock. We have determined the initial public offering price
after consideration of numerous factors we considered relevant. The
principal factor which has been used to determine the offering price is
the historical and projected growth in our revenues. The price of the
stock sold by us and the MGS Group in August and September, 1999 was
considered in connection with the relationship of those sales to our
revenues at the time. Additional factors include our future prospects
and our industry in general, our present customer list and status as a
preferred supplier with some customers, our anticipated earnings in the
2000 fiscal year, and other financial and operating information in
recent periods.
LEGAL MATTERS
Some legal matters relating to PMC and TecStar will be passed upon
for us by Niebler, Pyzyk, Klaver & Wagner LLP. Menomonee Falls,
Wisconsin. This firm has in the past represented and continues to
represent us on a regular basis and in a variety of matters other than
this offering. Matters relating to the application of state and
federal securities laws in connection with the offering will be passed
upon by Ruder, Ware & Michler, A Limited Liability S.C., Wausau,
Wisconsin.
EXPERTS
The audited financial statements and schedules included in this
prospectus and elsewhere in the registration statement have been
audited by Wolf & Company - Milwaukee, S.C., independent public
accountants, as indicated in their report on the financial statements
set forth on page F-2, and are
63
<PAGE>
included in reliance upon the authority of that firm as experts in
giving audited financial statement reports.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a
registration statement on Form S-1 under the Securities Act of 1933
with respect to the common stock offered in this prospectus. This
prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to that
registration statement. For further information with respect to us and
the common stock, we refer you to this registration statement and its
exhibits and schedules. Statements contained in this prospectus as to
the contents of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of that
contract or document filed as an exhibit to the registration statement,
each of these statements being qualified in all respects by that
reference. The registration statement, including exhibits to the
registration statement, may be inspected and copied at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 (telephone number
1-800-SEC-0330) and at the SEC's Regional Offices located at Suite
1400, 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of these
materials may be obtained from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The SEC also maintains a world wide web site, HTTP://WWW.SEC.GOV, that
contains reports, proxy and information statements and other
information regarding registrants such as us which file electronically
with the SEC. The registration statement, including all exhibits and
amendments to the registration statement, is available on that
website.
Upon completion of this offering, we will be subject to the
informational requirements of the Securities Exchange Act of 1934 and,
in accordance with those requirements, will file reports, proxy and
information statements with the SEC. You may inspect and copy these
reports, proxy and information statements and other information at the
addresses set forth above.
We intend to furnish to our stockholders our annual reports
containing consolidated financial statements audited by our independent
auditors and quarterly reports containing unaudited consolidated
financial statements for each of the first three quarters of each
fiscal year.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
PLASTICS MFG. COMPANY
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of September
30, 1998 and 1999 F-3
Consolidated Statements of Operations for
the years ended September 30, 1997, 1998,
and 1999 F-5
Consolidated Statements of Stockholders'
Equity for the years ended
September 30, 1997, 1998, and 1999 F-7
Consolidated Statements of Cash Flows
for the years ended
September 30, 1997, 1998, and 1999 F-8
Notes to Consolidated Financial Statements F-9
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
PLASTICS MFG. COMPANY, AND
WHOLLY-OWNED SUBSIDIARY TECSTAR MFG. COMPANY
Germantown, Wisconsin
We have audited the accompanying balance sheets of Plastics Mfg.
Company, and wholly owned subsidiary TecStar Mfg. Company as of
September 30, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for the years ended September 30,
1997, 1998 and 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
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 of the statements provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
<PAGE>
fairly, in all material respects, the financial position of Plastics
Mfg. Company, and wholly-owned subsidiary TecStar Mfg. Company at
September 30, 1998 and 1999, and the results of its operations, its
changes in stockholders' equity, and its cash flows for the years ended
September 30, 1997, 1998 and 1999 in conformity with generally accepted
accounting principles.
WOLF AND COMPANY-MILWAUKEE, S. C.
CERTIFIED PUBLIC ACCOUNTANTS
Milwaukee, Wisconsin
October 28, 1999
F-2
<PAGE>
<TABLE>
PLASTICS MFG. COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1999
<CAPTION>
ASSETS
SEPTEMBER 30,
1998 1999
<S> <C> <C>
Current assets
Cash in bank $ 9,621 $ 245,813
Accounts receivable - trade (Note 4) 30,141 2,167,918
Accounts receivable - related parties (Note 4) - 739,603
Progress receivables - 111,745
Prepaid expenses 34,578 89,897
Inventory 72,202 1,073,435
TOTAL CURRENT ASSETS 146,542 4,428,411
PROPERTY AND EQUIPMENT
Office equipment 15,274 20,405
Leasehold improvements 533,055 549,521
Truck 3,655 3,655
Machinery & equipment 375,007 697,406
Production molds - 100,000
926,991 1,370,987
Less accumulated depreciation (40,676) (134,756)
NET PROPERTY AND EQUIPMENT 886,315 1,236,231
OTHER ASSETS
Deposits (Note 2) 289,850 2,189,039
Deferred income tax benefit, net 402,040 992,200
Organization costs, net (Note 9) 164,414 -
TOTAL OTHER ASSETS 856,304 3,181,239
$1,889,161 $8,845,881
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
</TABLE>
F-3
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
SEPTEMBER 30,
1998 1999
<S> <C> <C>
Current liabilities
Accounts payable - trade $ 152,016 $ 1,359,174
Accounts payable - related parties 663,291 1,600,087
Line of credit loan - 425,000
Accrued payroll 7,397 203,711
Customer deposits - 441,439
Deferred income tax liability, net - 24,600
TOTAL CURRENT LIABILITIES 822,704 4,054,011
LONG-TERM LIABILITIES - -
TOTAL LIABILITIES 822,704 4,054,011
COMMON STOCK SUBJECT TO RESCISSION (NOTE 5) 1,951,360
STOCKHOLDERS' EQUITY (NOTE 6)
Common stock, no par value,
15,000,000 shares authorized,
819,000 shares issued and
outstanding (1998)
3,027,510 shares issued and
outstanding (1999) 2,845,000 5,134,440
Stock subscriptions receivable (1,200,000) (784,228)
Accumulated deficit (578,543) (1,509,702)
TOTAL STOCKHOLDERS' EQUITY 1,066,457 2,840,510
$ 1,889,161 $ 8,845,881
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
</TABLE>
F-4
<PAGE>
<TABLE>
PLASTICS MFG. COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
SEPTEMBER 30, 1997, 1998, AND 1999
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Sales
Molding $ - $ 72,171 $ 4,561,615
Tooling - 131,200 1,217,037
Related parties - 646,693 1,686,730
- 850,064 7,465,382
COST OF GOODS SOLD
Trade - 354,126 4,575,334
Related parties - 1,154,722 3,036,764
- 1,508,848 7,612,098
Gross profit - (658,784) (146,716)
SELLING AND ADMINISTRATIVE EXPENSES
Trade 1,591 78,981 622,963
Related parties 1,773 203,392 172,441
Management fee ( Note 8) - 42,503 373,269
3,364 324,876 1,168,673
Total operating loss (3,364) (983,660) (1,315,389)
OTHER INCOME (EXPENSE)
Interest income 6,441 - 5,006
Interest expense - - (21,872)
Income (loss) before income tax
expense and accounting change 3,077 (983,660) (1,332,255)
INCOME TAX EXPENSE (Note 3) (668) 402,708 496,710
Net income (loss) before
cumulative effect
of accounting change 2,409 (580,952) (835,545)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
net of $68,800 deferred tax benefit
(Note 9) - - (95,614)
NET INCOME (LOSS) $ 2,409 $ (580,952) $ (931,159)
Per basic share:
Income (loss) before accounting
change $ .00 $ (0.24) $ (0.32)
Change in accounting principle (0.04)
Net income (loss) $ .00 $ (0.24) $ (0.36)
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
</TABLE>
F-5
<PAGE>
<TABLE>
PLASTICS MFG. COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
SEPTEMBER 30, 1997, 1998, AND 1999
(Continued)
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Per diluted share:
Income (loss) before accounting change .00 (0.20) (0.27)
Change in accounting principle (0.03)
Net income (loss) .00 (0.20) (0.30)
Shares in computing basic net income (loss)
per share (in 000's) 1,551 2,432 2,614
Shares in computing diluted net income (loss)
per share (in 000's) 2,051 2,932 3,114
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
</TABLE>
F-6
<TABLE>
PLASTICS MFG. COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
SEPTEMBER 30, 1997, 1998 AND 1999
<CAPTION>
Common Stock Accumulated
STOCK SUBSCRIPTIONS DEFICIT
<S> <C> <C> <C>
Initial common stock sale $ 1,250,000 $1,200,000 $ -
Net income 2,409
BALANCES, SEPTEMBER 30, 1997 1,250,000 1,200,000 2,409
Common stock sales 1,595,000 - -
Net loss - - (580,952)
BALANCES, SEPTEMBER 30, 1998 2,845,000 1,200,000 (578,543)
Common stock sales 2,289,440 - -
Common stock split effected
in the form of a dividend - - -
Management fee applied (Note 8) (415,772)
Net Loss - - (931,159)
BALANCES, SEPTEMBER 30, 1999 $ 5,134,440 $ 784,228 $(1,509,702)
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
</TABLE>
F-7
<PAGE>
<TABLE>
PLASTICS MFG. COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
SEPTEMBER 30, 1997, 1998, AND 1999
<CAPTION>
SEPTEMBER 30,
1997 1998 1999
<S> <C> <C> <C>
Cash Flows from operating activities:
Net Income (Loss) $ 2,409 $ (580,952) $ (931,159)
Change in Accounting - 95,614
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation - 40,676 94,080
Amortization - 6,000 -
Income taxes 668 (668) -
Deferred income taxes - (402,040) (496,760)
Accounts receivable - trade - (30,141) (2,137,777)
Accounts receivable - related parties - - (739,603)
Progress receivables - - (111,745)
Inventory - (72,202) (1,001,233)
Prepaid expenses - (34,578) (55,319)
Accounts payable - trade - 152,016 1,207,158
Accounts payable - related parties - 663,291 936,796
Accrued expenses - 7,397 196,314
Customer deposits - - 441,439
CASH PROVIDED BY OPERATING ACTIVITIES 3,077 (251,201) (2,502,195)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (250,000) (676,991) (443,996)
Deposits on leases - (289,850) (1,899,189)
Payment of organizational expenses - trade (41,290) (9,370) -
Deposits to escrow account 1,511,441
Withdrawals from escrow (1,511,441)
Payment of organizational expenses
- related parties (54,760) (64,994) -
CASH PROVIDED BY INVESTING ACTIVITIES (346,050) (1,041,205) (2,343,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 1,565,000 80,000 4,656,572
Proceeds from line of credit - - 425,000
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,565,000 80,000 5,081,572
INCREASE (DECREASE) IN CASH 1,222,027 (1,212,406) 236,192
CASH, beginning of year - 1,222,027 9,621
CASH, end of year $ 1,222,027 $ 9,621 $ 245,813
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for: Interest $ - $ - $ 21,872
Income taxes - - 25
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
F-8
</TABLE>
<PAGE>
PLASTICS MFG. COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS
Plastics Mfg. Company (the Company) is a holding company, which owns
100% of the stock of TecStar Mfg. Company. The Company was in the
development stage from its formation on October 23, 1996 through March
31, 1999. As of April 1, 1999, the Company was no longer considered to
be in the development stage. Manufacturing operations commenced in
November, 1997 with sales being made primarily to related companies.
The Company produces high quality injection molded plastic parts for
various original equipment manufacturers located throughout the world.
The Company also recognizes revenues from the sale of high quality
molds, the manufacture of which is currently subcontracted, primarily
to affiliates. The majority of these molds are intended for parts
produced at its facility in Germantown, Wisconsin.
CASH AND CASH EQUIVALENTS
Cash in bank includes cash in checking and savings accounts. The
Company has no cash equivalents.
ACCOUNTS RECEIVABLE
The balance includes no allowance for doubtful accounts - all balances
are fully collectible.
REVENUE RECOGNITION
The Company recognizes revenue from molding upon shipment of the parts.
Progress billings for tooling sales are recognized on the specific job
orders based upon hours incurred using the applicable billing rate for
shop or design work, which approximates the percentage of completion
method of income recognition.
INVENTORY
Inventory is valued at the lower of cost (determined by the first-in,
first-out method) or market. The components of inventory consist of
the following:
F-9
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Perishable tools $ 21,972 $ 14,772
Raw materials 35,768 459,825
Materials in progress 14,462 176,630
Finished goods - 422,208
Total $ 72,202 $1,073,435
</TABLE>
Materials are classified as materials in process when they are
assigned to or procured for a specified customer order.
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided by
the straight-line method over the estimated useful lives of the related
assets. For income tax purposes, depreciation is provided using the
MACRS method over the prescribed lives of the related assets.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. The company
does not utilize direct-response advertising.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Plastics
Mfg. Company and its wholly owned subsidiary, TecStar Mfg. Company.
Inter-company accounts and transactions have been eliminated in
consolidation.
1. DEBT
The Company has a bank line of credit of $750,000 (increased in
October, 1999 to $2,000,000, which is available through September
2000). The loan agreement includes various covenants pertaining to
maintenance of working capital and
F-10
tangible net worth levels; liability ratios; no additional debt; no
dividends; and no transfer, sale or lease of significant assets. The
interest rate on the loan is 8.75% (prime plus .5%) at September 30,
1999.
2. LEASE COMMITMENTS
The Company leases equipment from Moldmakers Leasing and Investments
Limited Partnership, LLP (Moldmakers Leasing) and from PCI Consulting
and Leasing, Inc., both of whom are related parties through common
control. The month-to-month leases are automatically renewable. Rent
expenses totaled $0, $603,476 and $1,566,230, in 1997, 1998 and 1999,
respectively.
In addition, the Company leases its facilities from Moldmakers Leasing
on a month-to-month basis, under a triple net operating lease. Rent
expense totaled $0, $174,663 and $305,500 in 1997, 1998 and 1999,
respectively.
Deposits outstanding at year-end consist of the following:
<PAGE>
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Facility $ 60,000 $ 60,000
EQUIPMENT 229,850 229,039
EQUIPMENT ORDERS 0 1,900,000
TOTAL $289,850 $2,189,039
</TABLE>
The Company has placed orders for approximately $7,500,000 of new
equipment and has plans to order additional equipment worth
approximately $13,500,000 during the coming year. It is anticipated
that most of this will be leased under terms similar to above.
<PAGE>
3. INCOME TAXES
The September 30 income tax provisions consist of the following:
<TABLE>
<CAPTION>
CURRENT: 1997 1998 1999
<S> <C> <C> <C>
Federal $ (425) $ - $ -
State (243) - (50)
Benefit of NOL carryback - 668 -
TOTAL (668) 668 (50)
DEFERRED:
Federal - 333,398 377,100
State - 68,642 119,660
TOTAL - 402,040 496,760
GRAND TOTAL $ (668) $ 402,708 $496,760
F-11
Reconciliation of the statutory federal income tax rate and the
effective tax rate:
Statutory federal income tax rate 15.0% (34.0)% (34.0)%
State tax, net of federal income tax 6.7 (7.0) (4.3)
Other - .1 1.0
EFFECTIVE TAX RATE 21.7% (40.9)% (37.3)%
The September 30 net deferred income taxes consist of the following:
CURRENT:
Federal $ - $ (19,700)
State - (4,900)
TOTAL $ - $ (24,600)
LONG-TERM:
Federal $ 333,398 $ 786,000
State 68,642 206,200
TOTAL $ 402,040 $ 992,200
The September 30 gross deferred tax assets and liabilities were:
GROSS DEFERRED TAX ASSETS:
Federal net operating loss
carryforward $1,005,506 $ 2,536,986
Organization costs - 128,413
Other - 12,763
TOTAL $1,005,506 $ 2,678,162
GROSS DEFERRED TAX LIABILITIES:
Progress receivables $ - $ 111,745
Depreciation 24,923 89,140
TOTAL $ 24,923 $ 200,885
</TABLE>
<PAGE>
The Federal net operating loss carryforwards will expire on September
30, 2018 and 2019. Wisconsin net operating losses totaling $2,536,936
will expire on September 30, 2013 and 2014.
4. CUSTOMER AND CREDIT RISK CONCENTRATIONS
The Company's customers operate in a number of different industries.
As of September 30, 1998 and 1999, sales to six separate divisions of
Motorola, Inc. in each year were approximately $140,000 and $2,018,000,
respectively, sales to the Company's group of related parties were
approximately $647,000 and $1,687,000, respectively.
F-12
Sales by geographical location of customers were approximately as follows:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
United States $ $ 850,000 $4,495,000
China 1,370,000
United Kingdom 1,190,000
Other countries 410,000
Total $ 0 $ 850,000 $7,465,000
</TABLE>
The Company presently does not require collateral from its customers.
To reduce credit risk, the Company performs ongoing evaluations of its
customers' financial condition. As of September 30, 1998 trade
accounts receivable consist of five unrelated parties, all of whom were
current. As of September 30, 1999, three customers owed approximately
41% of the Company's accounts receivable. Of this, one customer was a
related party with approximately 13% of the total.
5. STOCK SUBJECT TO RESCISSION
722,490 shares of common stock sold by the Company from August 1999 to
September 1999 may not have qualified for exemption from registration
under federal or state securities law. The Company intends to offer to
repurchase these shares for a 30-day period. If all holders of these
shares accept the offer, the Company would be required to make
aggregate payments of up to $1,951,360 plus statutory interest. The
Company has a written agreement with its president and affiliated
organizations to purchase shares tendered in the rescission offer. The
Company has classified the amounts received for outstanding shares
subject to the rescission offer outside of permanent equity in the
accompanying balance sheets.
The Company's President and principal shareholder, Mark G. Sellers, and
certain affiliated companies have entered into a written agreement
which provides that they will assume the Company's obligations with
respect to these shares. Under the agreement, the following parties
will assume this obligation with respect to the number of shares and
for the amount indicated: Mr. Sellers, 85,500 ($285,000) shares;
Moldmakers Leasing, 427,440 ($1,214,360) shares; Moldmakers, Inc.,
41,550 ($134,500) shares; Statistical Plastics, 145,500 ($242,500)
shares; and Prototype Mold & Design, 22,500 ($75,000) shares.
F-13
<PAGE>
<TABLE>
<CAPTION>
6. CAPITAL STOCK ACTIVITY
Date of Number Price Common Stock
TRANSACTION OF SHARES PER SHARE STOCK SUBSCRIPTIONS
<S> <C> <C> <C> <C> <C>
Initial stock sale 1/01/97 500,000 2.50 $ 1,250,000 $ 1,200,000
Totals, September 30, 1997 500,000 1,250,000 1,200,000
Stock sold for cash Various 319,000 5.00 1,595,000 -
Totals, September 30, 1998 819,000 2,845,000 1,200,000
Stock sold for cash Various 67,300 6.00 403,800 -
Stock sold for cash Various 263,700 10.00 2,637,000 -
Stock sold for cash Various 100,000 12.00 1,200,000 -
Management fee applied (Note 8) - (415,772)
Stock split 9/30/99 2,500,000 - -
Totals 3,750,000 7,085,800 784,228
Less Stock subject to rescission (722,490) (1,951,360) -
Totals, September 30, 1999 3,027,510 $ 5,134,440 $ 784,228
</TABLE>
Three related parties subscribed to the initial 500,000 shares of stock
issued. The subscription agreements provide for the payment of $.10
per share upon issuance of the stock with the remaining $2.40 per share
payable on December 31, 2001. If 50% of the management fees (see Note
8) received by the subscribers for the period ending September 30, 2001
are insufficient to fully pay the remaining subscription price, each
subscriber has the option to: a)pay twice the balance due or, b)
surrender a sufficient number of shares so as to eliminate the
outstanding balance based on a per share value equal to the initial
offering price of $2.50 per share.
The number of shares sold, and the related share prices, shown above
are based upon pre-split values.
On September 30, 1999, the Company declared a three-for-one stock split
effected in the form of a dividend of two shares per share then
outstanding. The record date was September 30, 1999.
F-14
7. RETIREMENT PLAN
The Company maintains a retirement savings plan for substantially all
of their employees, which allows participants to make contributions by
salary reduction pursuant to Section 401(k) of the Internal Revenue
Code. Company contributions are discretionary and amounted to $50 and
$13,196 in 1998 and 1999, respectively. Employees vest immediately in
their contributions and vest in the Company contributions over a
seven-year period of service.
<PAGE>
8. RELATED PARTY TRANSACTIONS
During the period presented, the Company transacted business with
certain other companies, which are related by common control. The
activity consisted primarily of buying and selling services between the
parties, whose services complement one another. Also included is the
purchase of services from one company that performs human resources,
marketing, finance, and other administrative duties for all of the
related companies. Mark G. Sellers, who beneficially owns
approximately 60% of the Company's issued and outstanding common stock,
also controls a majority of the equity interests of each of the
companies. Scott W. Scampini, Executive Vice President of the Company,
owns between 10.5% and 25% of the equity interests of these related
companies. These transactions are summarized as follows:
<TABLE>
<CAPTION>
RELATED PARTY PURCHASERS
1997 1998 1999
MGS GROUP COMPANY PRODUCTS OR SERVICES AMOUNT AMOUNT AMOUNT
<S> <C> <C> <C> <C>
Moldmakers, Incorporated Tooling $ - $ 67,091 $ 590,133
Maint./Shipping/Quality - 10,514 128,963
O&S Design, Inc. Design - 15,769 84,985
Moldmakers Die Cast
Tooling Division Maint./Shipping/Quality - 278 23,725
Prototype Mold & Design Tooling - 33,950 74,000
Maint./Shipping/Quality - 3,950 57,732
Statistical Plastics
Corporation Mold Sampling - 10,270 50,958
Quality/Operators/
Consulting 50,000 397,272 139,050
Redline, Inc. Mold Polishing - - 3,218
Moldmakers Leasing Facility Lease - 174,663 305,500
Equipment Lease - 122,857 116,430
PCI Consulting Equipment Lease - 480,618 1,449,800
Cadd Plus Computer Services - 445 6,800
MGS Enterprises Administrative Services 3,251 41,618 156,961
Sales/Consulting - 455 20,300
</TABLE>
F-15
<TABLE>
<CAPTION>
RELATED PARTY SALES
1997 1998 1999
MGS GROUP COMPANY SERVICES AMOUNT AMOUNT AMOUNT
<S> <C> <C><C> <C>
Statistical Plastics Corporation Machine Time - $646,693 $1,304,030
Moldmakers, Incorporated Project Management - - 198,672
Moldmakers Die Casting Div. Project Management - - 19,418
Prototype Mold & Design Project Management/
Maint. - - 163,167
O&S Design Project Management - - 188
MGS Enterprises Maintenance - - 1,144
ProFab Maint./Shipping - - 113
</TABLE>
Through December 31, 1999, Mr. Scampini was a partner in Scampini & Bond,
Certified Public Accountants. Fees paid to the firm by the Company were:
1997, $3,000; 1998, $475; and 1999, $650.
<PAGE>
Some of the Company's other stockholders also have ownership interests
and management functions in the above related entities. The existence
of that common control could result in operating results or financial
position of the Company significantly different from those that would
have been obtained had such control not existed, although there is no
indication that such control has had an adverse affect on the Company.
The Company has entered into management agreements with its three
initial stock subscribers under which it will pay them an aggregate
management fee equal to 5% of gross sales through December 31, 2001 up
to a maximum amount of $1,200,000. As of September 30, 1999, the
Company agreed with those related companies to offset payment of the
management fees due them to date against the stock subscriptions due
from them. The amount offset totaled $415,772. In addition to
providing management services, each of the three companies solicits
sales on behalf of the Company. On October 1, 1999, the Company agreed
to extend the termination of the agreements to December 31, 2006.
9. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In accordance with Statement of Position 98-5 issued by the Accounting
Standards Executive Committee, the Company has chosen to charge all
start-up costs to operations as of October 1, 1998. As a result, all
organization costs remaining unamortized as of that date ($164,414)
were written off. Prior to this change, organization costs were
amortized over 5 years. The effect on deferred income taxes was to
record a benefit of $68,800 as of that date, for a cumulative net
change of $95,614.
F-16
10. SUBSEQUENT EVENTS
On October 1, 1999, the Company granted stock options totaling 5
million shares to its president, Mark G. Sellers, or to other entities
that he controls. The option price is set at $10.00 per share, with an
expiration date of September 30, 2001.
F-17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses
payable in connection with the sale of common stock being registered,
all of which will be paid by the Registrant:
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
SEC registration fee $ 2,100
Printing expenses $ 3,500 *
Legal fees and expenses $10,000 *
Accounting fees and expenses $20,000 *
Blue sky fees and expenses $10,000 *
Miscellaneous $ 4,400 *
Total $150,000
<FN>
*Estimated
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is incorporated under the Wisconsin Business
Corporation Law (the "WBCL"). Pursuant to sections 180.0850 to
180.0859 of the Wisconsin statutes, and subject to the limitations
stated therein, the Registrant is required to indemnify any director or
officer against liability and reasonable expenses (including attorneys'
fees) incurred by such person in the defense of any threatened, pending
or completed civil, criminal, administrative or investigative action,
suit or proceeding in which such person is made a party by reason of
being or having been a director or officer of the Registrant, unless
liability was incurred because such person breached or failed to
perform a duty owed to the Registrant which constituted (1) a willful
failure to deal fairly with the Registrant or its stockholders in
connection with a matter in which such person has a material conflict
of interest; (2) a violation of criminal law, unless such person had
reasonable cause to believe his or her conduct was lawful or no
reasonable cause to believe his or her conduct was unlawful; (3) a
transaction from which such person derived an improper personal profit;
or (4) willful misconduct. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights or
indemnification to which a person may be entitled under the
Registrant's articles of incorporation or bylaws, or any written
agreement, vote of stockholders or disinterested directors, or
otherwise.
Section 180.0859 of the Wisconsin statutes provides that it is the
public policy of the State of Wisconsin that such indemnification
provisions apply, to the extent applicable to any other proceeding, to,
among other things, the offer, sale or purchase of securities in any
proceeding involving a state or federal statute.
II-1
Article IX of the Registrant's bylaws are substantially similar to
the provisions of sections 180.0850 to 180.0859 of the Wisconsin
statutes. The Registrant's bylaws extend coverage to directors or
officers serving in a fiduciary or administrative capacity and also set
forth procedures to be followed in obtaining indemnification. Officers
and directors of the Registrant are also insured, subject to certain
specified exclusions and deductible and maximum amounts, against loss
<PAGE>
from claims arising in connection with their acting in their respective
offices, which include claims under the Securities Act of 1933, as
amended.
The Registrant has in effect insurance polices which, among other
things, insure directors and officers of the Registrant against certain
claims which are not indemnified by the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant has issued the
following shares of common stock without registration under the
Securities Act of 1933. None of the transactions were underwritten.
The number of shares issued or sold in each of the transactions, and
the per share proceeds to the Registrant or affiliated MGS Group
companies, have been adjusted to reflect the 3-for-1 stock split
effected in the form of a dividend which was paid by the Registrant on
September 30, 1999 to stockholders of record as of September 30, 1999.
(1) On January 1, 1997, the registrant issued 1,500,000 shares to three
affiliated companies of the MGS Group at a price of $.83 per share
pursuant to the terms of a subscription agreement which provided
that payment for the shares would be set off against amounts owed
the affiliates under the management agreements between the
affiliates and the Registrant. The sale was made pursuant to the
exemptions from registration afforded under Sections 4(2) and
3(a)(11) of the Securities Act.
(2) Between March 3, 1997 and October 31, 1997, the Registrant sold
915,000 shares pursuant to an offering which was limited to
residents of the state of Wisconsin pursuant to the exemption
from registration afforded under Section 3(a)(11). All shares
were sold for cash at a price of $1.67 per share (aggregate
offering price of $1,525,000).
(3) Between February 4, 1998 and July 23, 1998, the Registrant sold
42,000 shares to residents of the state of Wisconsin pursuant to
the exemption from registration afforded under Section 3(a)(11).
All shares were sold for cash at a price of $1.67 per share
(aggregate offering price of $70,000).
(4) On March 10, 1999, the Registrant sold 51,000 shares to its
President and CEO (21,000 shares) and two other officers of
companies in the MGS Group pursuant to the exemptions from
registration afforded under Sections 4(2) and 3(a)(11). All
shares were sold for cash at a price of $2.00 per share (aggregate
offering price of $102,000).
(5) Between May 3, 1999 and June 30, 1999, the Registrant sold 147,900
shares to residents of the state of Wisconsin (including 66,000
shares to directors
II-2
of the Registrant) pursuant to the exemption from registration
afforded under Section 3(a)(11). All shares were sold for cash at
a price of $2.00 per share (aggregate offering price of $295,800).
<PAGE>
(6) On July 29, 1999, Registrant sold 180,000 shares to an affiliated
MGS Group company for cash at a price of $3.33 per share (aggregate
offering price of $600,000) pursuant to the exemptions from
registration afforded under Sections 4(2) and 3(a)(11).
(7) Between August 6, 1999 and September 30, 1999, the Registrant and
affiliated MGS Group companies sold 722,490 shares for cash at an
average price of $2.70 per share (aggregate cash consideration of
$1,951,630).
Included in this total are 195,000 shares sold by an affiliate to the
affiliate's stockholders. The affiliate cancelled certain redemption
rights held by the affiliate with respect to the shares of the
affiliate and sold its shares of common stock of the Registrant to the
affiliate's stockholders for a price of $1.67 per share (aggregate cash
consideration of $325,000).
These stock issuances and sales by the registrant and certain of its
affiliated MGS Group companies were not made pursuant to a registration
statement under the Securities Act, nor were the offers and sales
registered or qualified under any state securities laws. Although the
Registrant believed at the time that registration of such offers and
sales was not required, these offers and sales may not have been
exempt from the registration requirements of the Securities Act. As
a result, purchasers of such shares may have the right under the
Securities Act or state securities laws to rescind their purchases and
thereby be entitled to return such shares to the Registrant and receive
back from the Registrant the full consideration paid by such purchasers
($1,951,360), plus statutory interest. The Registrant intends to
include a rescission offer to holders of such shares in connection with
the offering to which this Registration Statement relates. The
Registrant's President and CEO has agreed to assume the Registrant's
repurchase obligation for shares sold by the Registrant and each of the
affiliated MGS Group companies have agreed to assume the Registrant's
obligation to repurchase shares sold by such company. There are no
assurances that the Registrant will not otherwise be subject to
possible penalties or fines relating to these issuances. The Registrant
believes the rescission offers could provide it with additional
meritorious defenses to any such future claims.
II-3
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
Exhibits required by Item 601 of Regulation S-K:
Exhibit
NUMBER EXHIBIT DESCRIPTION
3.1*Registrant's Restated Articles of Incorporation
3.2*Registrant's By-laws, as amended November 29, 1999
4.1*Form of specimen certificate for Registrant's common stock.
4.2*Loan Agreement between M&I Northern Bank and PMC
<PAGE>
5.1Form of Opinion of Niebler, Pyzyk, Klaver & Wagner LLP
(including consent)
10.01*Mark G. Sellers Stock Option Agreement
10.02*MGS Childrens' Trust Stock Option Agreement
10.03*Moose Lake Trust Stock Option Agreement
10.04*Moldmakers Leasing & Investments Limited Partnership, LLP Stock
Option Agreement
10.05*Moldmakers, Inc. Stock Option Agreement
10.06*Management Agreement Between Registrant and MGS Enterprises, Inc.
dated December 31, 1996
10.07*Management Agreement Between Registrant and Moldmakers
Management, Inc. dated December 31, 1996
10.08*Management Agreement Between Registrant and Statistical Plastics
Corporation dated December 31, 1996
10.09*Master Equipment Lease between Registrant and Moldmakers Leasing
& Investments Limited Partnership, LLP
10.10*Master Equipment Lease between Registrant and PCI Consulting and
Leasing, Inc.
10.11*ITW Paslode, Cordless Tool Group Supply Agreement
10.12Agreement to Assume Obligations With Respect to Rescission Shares
entered into between Registrant, Mark G. Sellers, and certain MGS
Group companies.
21.1*Subsidiaries of the Registrant
23.1Consent of Wolf & Company - Milwaukee, S.C.
23.3*Consent of Niebler, Pyzyk, Klaver & Wagner LLP (included in
Exhibit 5.1)
24.1*Powers of Attorney
27.1Financial Data Schedule
99.1*Form of Rescission Offer Cover Letter
* Previously Filed
(B) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements
or notes thereto.
II-4
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
<PAGE>
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
Registration Statement.
(b) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action,
II-5
suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Germantown, Wisconsin, State of Wisconsin,
on the 19th day of January, 2000.
PLASTICS MFG. COMPANY
By: SCOTT W. SCAMPINI
Scott W. Scampini
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement on Form S-1 has been
signed by the following persons in the capacities and on the 19th
day of January, 2000.
SIGNATURE TITLE
MARK G. SELLERS* President and Chief Executive Officer
Mark G. Sellers and a director (Principal Executive Officer)
SCOTT W. SCAMPINI Executive Vice President and Director
Scott W. Scampini
BRUCE L. SCHNEIDER* Vice President - Finance and Director
Bruce L. Schneider (Principal Financial and Accounting Officer)
JEFFREY A. KOLBOW* Director
Jeffrey A. Kolbow
RADE PETROVIC* Director
Rade Petrovic
* By: SCOTT W. SCAMPINI
Scott W. Scampini
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
TO
AMENDMENT NO. 1
TO
FORM S-1
OF
PLASTICS MFG. COMPANY
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
3.1 Registrant's Restated Articles of Incorporation*
3.2 Registrant's By-laws, as amended November 29, 1999*
4.1 Form of specimen certificate for Registrant's common stock.*
4.2 Loan Agreement between M&I Northern Bank and PMC*
5.1 Form of Opinion of Niebler, Pyzyk, Klaver & Wagner LLP
(including consent)
10.01 Mark G. Sellers Stock Option Agreement*
10.02 MGS Childrens' Trust Stock Option Agreement*
10.03 Moose Lake Trust Stock Option Agreement*
10.04 Moldmakers Leasing & Investments Limited Partnership, LLP Stock
Option Agreement*
10.05 Moldmakers, Inc. Stock Option Agreement*
10.06 Management Agreement Between Registrant and MGS Enterprises, Inc.
dated December 31, 1996*
10.07 Management Agreement Between Registrant and Moldmakers
Management, Inc. dated December 31, 1996*
10.08 Management Agreement Between Registrant and Statistical Plastics
Corporation dated December 31, 1996*
10.09 Master Equipment Lease between Registrant and Moldmakers Leasing
& Investments Limited Partnership, LLP*
10.10 Master Equipment Lease between Registrant and PCI Consulting and
Leasing, Inc.*
10.11 ITW Paslode, Cordless Tool Group Supply Agreement*
10.12 Agreement to Assume Obligations With Respect to Rescission Shares
entered into between Registrant, Mark G. Sellers, and certain MGS
Group companies.
21.1 Subsidiaries of the Registrant*
23.1 Consent of Wolf & Company - Milwaukee, S.C.
23.3 Consent of Niebler, Pyzyk, Klaver & Wagner LLP (included in
Exhibit 5.1)*
24.1 Powers of Attorney*
27.1 Financial Data Schedule
99.1 Form of Rescission Offer Cover Letter*
* Previously Filed
Form of Opinion
of
Niebler, Pyzyk, Klaver & Wagner LLP
___________ __, 1999
Plastics Mfg. Company
W188 N11707 Maple Road
Box 1014
Germantown, WI 53022-8214
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-1 to be
filed with the Securities and Exchange Commission (the "Registration
Statement") in connection with the registration of 1,222,490 shares of
common stock, without par value per share (the "Shares"), of Plastics
Mfg. Company (the "Company") under the Securities Act of 1933, as
amended, to be sold by you in your initial public offering (the
"Offering"). In connection with the Offering, you have requested our
opinion with respect to the following matters.
In connection with the delivery of this opinion, we have examined
originals or copies of the Restated Articles of Incorporation and the
By-Laws of the Company as set forth as exhibits to the Registration
Statement, the Registration Statement, certain resolutions adopted or
to be adopted by the Board of Directors, the form of stock certificate
representing the Shares and such other records, agreements,
instruments, certificates and other documents of public officials, the
Company and its officers and representatives and have made such
inquiries of the Company and its officers and representatives, as we
have deemed necessary or appropriate in connection with the opinions
set forth herein. We are familiar with the proceedings heretofore
taken, and with the additional proceedings proposed to be taken, by the
Company in connection with the authorization, registration, issuance
and sale of the Shares. With respect to certain factual matters
material to our opinion, we have relied upon representations from, or
certificates of, officers of the Company. In making such examination
and rendering the opinions set forth below, we have assumed without
verification the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the authenticity of the
originals of such documents submitted to us as certified copies, the
conformity to originals of all documents submitted to us as copies, the
authenticity of the originals of such later documents, and that all
documents submitted to us as certified copies are true and correct
copies of such originals.
Based on such examination and review, and subject to the foregoing,
we are of the opinion that the Shares, upon issuance, delivery and
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<PAGE>
payment therefor in the manner contemplated by the Registration
Statement, will be duly authorized, validly issued, fully paid and
non-assessable, subject, however, to the provision of Section
180.0622(2)(b) of the Wisconsin Statutes which provides that
shareholders of a Wisconsin corporation are liable up to the amount of
consideration paid for their shares for debts to employees for services
performed for a period of service not in excess of six months in any
one case.
We are members of the Bar of the State of Wisconsin, and we have
not considered, and we express no opinion as to, the laws of any
jurisdiction other than the laws of the United States of America and
the State of Wisconsin.
We consent to the inclusion of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm in the
Prospectus that is a part of the Registration Statement. In giving such
consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of
1933, as amended.
Very truly yours,
NIEBLER, PYZYK, KLAVER & WAGNER LLP
-2-
Exhibit 10.12
AGREEMENT
THIS AGREEMENT, dated this 18th day of January, 2000, and entered
into by and between Plastics Mfg. Company, a Wisconsin corporation
("PMC"), Mark G. Sellers ("Mr. Sellers"), Moldmakers Leasing and
Investments Limited Partnership, LLP, a Wisconsin limited partnership
("Leasing"), Moldmakers, Inc., a Wisconsin corporation ("Moldmakers"),
Statistical Plastics Corporation, a Wisconsin corporation ("SPC"), and
Prototype Mold & Design, Inc. ("PMD"), a Wisconsin corporation.
WHEREAS, PMC, Mr. Sellers, Leasing, Moldmakers, SPC, and PMD are
affiliates of one another within the meaning of the federal securities
laws; and
WHEREAS, PMC, Leasing, Moldmakers, SPC, and PMD (collectively
referred to as the "MGS Companies") sold an aggregate of 722,490 shares
of PMC common stock (the "Rescission Shares") to various parties during
the period from August 6, 1999 through and including September 30, 1999
(the "Sales Period"); and
WHEREAS, the Rescission Shares sold by PMC and the MGS Companies
during the Sales Period were not registered under the Securities Act of
1933, as amended (the "Securities Act"), and were not registered or
qualified under the securities laws of any state in which such sales
were made; and
WHEREAS, PMC, in connection with the sale of 500,000 shares of
Common Stock to be registered under the Securities Act, intends to
offer to repurchase the Rescission Shares for the consideration paid
for such shares, together with applicable interest as required under
the laws of the states in which such shares were sold, in order to
effect a legal rescission offer and extinguish any state law claims for
liability in connection with the unregistered or unqualified sales of
the Rescission Shares; and
WHEREAS, Mr. Sellers is a director, partner or officer of, and he
is, directly or indirectly, the beneficial owner of a majority of the
outstanding equity interests of, PMC and each of the MGS Companies; and
WHEREAS, each of Mr. Sellers and the MGS Companies benefitted from
the sale of the Rescission Shares and believes it is appropriate to
assume the repurchase obligations associated with the Rescission
Shares;
NOW, THEREFORE, PMC, Mr. Sellers, and each of the MGS Companies
agree as follows:
1. CONDUCT OF RESCISSION OFFER. On or before September 30, 2000, PMC
shall offer to repurchase all Rescission Shares in such a manner as is
<PAGE>
designed and intended to eliminate the right of each purchaser of
-1-
Rescission Shares to seek damages or otherwise assert a liability
against PMC, Mr. Sellers, and the MGS Companies under the state law
governing the sale of unregistered or unqualified securities to such
purchaser. Accordingly, PMC shall use its best efforts to conduct such
repurchase offer (the "Repurchase Offer") in accordance with the
requirements of the applicable provisions of Section 551.59 of the
Wisconsin Uniform Securities Law, Section 5/13 of the Illinois
Securities Law of 1953, Section 10-04-17 of the North Dakota Securities
Act of 1951, and Section 25507 of the California Corporation Code.
2. ASSUMPTION OF PMC OBLIGATIONS. In consideration of the Repurchase
Offer to be conducted by PMC pursuant to the provisions of paragraph 1:
(a) Mr. Sellers agrees to assume the obligations of PMC which
arise in connection with the repurchase by PMC of 85,500 Rescission
Shares sold by PMC, including the consideration paid by investors and
interest at the rate and in the amount determined by applicable state
law;
(b) Leasing agrees to assume the obligations of PMC which arise in
connection with the repurchase by PMC of 427,440 Rescission Shares sold
by Leasing, including the consideration paid by investors and interest
at the rate and in the amount determined by applicable state law;
(c) Moldmakers agrees to assume the obligations of PMC which arise
in connection with the repurchase by PMC of 41,550 Rescission Shares
sold by Moldmakers, including the consideration paid by investors and
interest at the rate and in the amount determined by applicable state
law;
(d) SPC agrees to assume the obligations of PMC which arise in
connection with the repurchase by PMC of 145,500 Rescission Shares sold
by SPC, including the consideration paid by investors and interest at
the rate and in the amount determined by applicable state law; and
(e) PMD agrees to assume the obligations of PMC which arise in
connection with the repurchase by PMC of 22,500 Rescission Shares sold
by PMD, including the consideration paid by investors and interest at
the rate and in the amount determined by applicable state law.
3. PAYMENT. Each of Mr. Sellers and each of the MGS Companies will
reimburse PMC within five business days of the receipt of a statement
from PMC of the amount required to reimburse PMC for all expenses
incurred by PMC with respect to the obligations of PMC assumed pursuant
to paragraph 2. Within five business days of the receipt of payment
from Mr. Sellers or an MGS Company pursuant to this paragraph 3, PMC
shall deliver to the payor duly executed stock certificates for that
number of shares of Common Stock which is equal to the number of
Rescission Shares for which such payor has assumed PMC's obligations.
-2-
<PAGE>
4. STATUS OF SHARES. Mr. Sellers and each of the MGS Companies each
warrant and represent that:
(a) He or it, as the case may be, will not sell, transfer, or
otherwise dispose of any shares of Common Stock acquired pursuant to
this Agreement except pursuant to an effective registration statement
filed under the Securities Act with the Securities and Exchange
Commission or an exemption from such registration and in compliance
with applicable state securities laws; and
(b) Any shares of Common Stock to be acquired pursuant to this
Agreement will be for his or its, as the case may be, own account and
for investment and without the intention of reselling the same and that
there is no agreement with others regarding the sale, transfer, or
other disposition of any of such shares of Common Stock.
5. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the
parties and supersedes any prior understandings, agreements, or
representations by or between the parties, written or oral, to the
extent they related in any way to the subject matter hereof.
(b) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties named herein and their
respective successors and permitted assigns. No party may assign
either this Agreement or any of its rights, interests, or obligations
hereunder.
(c) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(d) HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(e) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
-3-
If to PMC:
Mr. Scott W. Scampini
Executive Vice President
Plastics Mfg. Company
W190 N11701 Moldmakers Way
Germantown, WI 53022
If to Mr. Sellers, Leasing, Moldmakers, or SPC:
<PAGE>
Mr. Mark G. Sellers
President and Chief Executive Officer
W188 N11707 Maple Road
Box 1014
Germantown, WI 53022-8214
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery,
expedited courier, messenger service, facsimile transmission, telex,
ordinary mail, or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set
forth.
(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of
Wisconsin without giving effect to any choice or conflict of law
provision or rule (whether of the State of Wisconsin or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Wisconsin.
(g) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed
by the parties. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of
any prior or subsequent such occurrence.
(h) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
-4-
provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
(i) SPECIFIC PERFORMANCE. Each party acknowledges and agrees that
the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each party
agrees that the other party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and
to enforce specifically this Agreement and the terms and provisions
hereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the parties, in addition to
any other remedy to which it may be entitled, at law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
<PAGE>
PROTOTYPE MOLD & DESIGN, INC.
MARK G. SELLERS By: MARK G. SELLERS
Mark G. Sellers Mark G. Sellers
As its President
MOLDMAKERS LEASING AND PLASTICS MFG. COMPANY
INVESTMENTS LIMITED
PARTNERSHIP, LLP
By: MARK G. SELLERS By: SCOTT W SCAMPINI
Mark G. Sellers Scott W. Scampini
As Partner As its Executive Vice President
MOLDMAKERS, INC. STATISTICAL PLASTICS CORPORATION
By: MARK G. SELLERS By: MARK G. SELLERS
Mark G. Sellers Mark G. Sellers
As its President As its President
-5-
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our reports (and to all references to our Firm) included in or made a
part of Amendment No. 1 to the Registration Statement (Form S-1 No.
333-92019) and related Prospectus of Plastics Mfg. Company for the
initial registration of its common stock.
WOLF & COMPANY - MILWAUKEE, S.C.
Milwaukee, Wisconsin
January 19, 2000
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 245,813
<SECURITIES> 0
<RECEIVABLES> 2,167,918
<ALLOWANCES> 0
<INVENTORY> 1,073,435
<CURRENT-ASSETS> 4,428,411
<PP&E> 1,370,987
<DEPRECIATION> (134,756)
<TOTAL-ASSETS> 8,845,881
<CURRENT-LIABILITIES> 4,054,011
<BONDS> 0
<COMMON> 5,134,440
0
0
<OTHER-SE> (784,228)
<TOTAL-LIABILITY-AND-EQUITY> 2,840,510
<SALES> 7,465,382
<TOTAL-REVENUES> 7,465,382
<CGS> 7,612,098
<TOTAL-COSTS> 8,780,771
<OTHER-EXPENSES> 373,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,872
<INCOME-PRETAX> (1,332,255)
<INCOME-TAX> 496,710
<INCOME-CONTINUING> (931,159)
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<EXTRAORDINARY> 0
<CHANGES> (95,614)
<NET-INCOME> (931,159)
<EPS-BASIC> (.32)
<EPS-DILUTED> (.30)
</TABLE>
