<PAGE>
Filed Pursuant to Rule 424(b)(3)
Commission File No. 333-05885
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
11 5/8% SENIOR SECURED NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
11 5/8% SENIOR SECURED NOTES DUE 2003
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON SEPTEMBER 20, 1996, UNLESS EXTENDED.
------------------------
Packing Resources Incorporated, a Delaware Corporation ("PRI" or the
"Company"), hereby offers to exchange (the "Exchange Offer") up to $110,000,000
in aggregate principal amount of its new 11 5/8% Senior Secured Notes due 2003
(the "Exchange Notes") for up to $110,000,000 in aggregate principal amount of
its outstanding 11 5/8% Senior Secured Notes due 2003 (the "Old Notes" and,
together with the Exchange Notes, the "Notes") that were issued and sold in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act").
The terms of the Exchange Notes are substantially identical (including
principal amount, interest rate, maturity, security and ranking) to the terms of
the Old Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes (i) are freely transferable by holders thereof
(except as provided below) and (ii) are not entitled to certain registration
rights and certain additional interest provisions which are applicable to the
Old Notes under the Registration Rights Agreement (as defined). The Exchange
Notes will be issued under the indenture governing the Old Notes. See "Risk
Factors -- Ability to Realize on Collateral; No Assurance as to Value of
Assets." The Exchange Notes will be, and the Old Notes are, senior secured
obligations of PRI, secured by certain equipment, fixtures and general
intangibles, and mortgages on substantially all of the owned and certain of the
leased real property of the Company, and proceeds therefrom, and the Exchange
Notes will rank, and the Old Notes rank, senior to all subordinated indebtedness
of PRI and PARI PASSU in right of payment with all other senior indebtedness of
PRI. However, lenders under PRI's Senior Credit Facility (as defined) have
claims with respect to the Company's accounts receivable, raw materials and
finished goods inventory and the proceeds therefrom constituting collateral for
such indebtedness that are effectively senior in right of payment to the claims
of holders of the Notes with respect to such assets. The Notes are not currently
senior to any outstanding indebtedness of the Company. At August 14, 1996, PRI
had outstanding approximately $111.3 million in aggregate principal amount of
indebtedness (excluding trade payables and other accrued liabilities), all of
which constitutes senior indebtedness and none of which constitutes indebtedness
under the Senior Credit Facility. In addition, PRI had, subject to certain
borrowing conditions and limitations, $20.0 million in unused senior secured
borrowing capacity under the Senior Credit Facility. The Indenture (as defined)
under which the Exchange Notes will be, and the Old Notes were, issued permits
PRI to incur additional indebtedness, including indebtedness that ranks PARI
PASSU with the Notes. The ability of the Company to incur any such additional
indebtedness is limited only by the covenants under the Senior Credit Facility
and the Indenture. The Indenture provides that lenders under an Acquisition
Financing Facility (as defined) will have the right to share on a PARI PASSU
basis in any proceeds from the sale of Collateral (as defined) securing the
Notes. For a complete description of the terms of the Exchange Notes, including
provisions relating to the ability of the Company to create indebtedness that is
senior or PARI PASSU to the Exchange Notes, see "Description of Exchange Notes."
There will be no cash proceeds to the Company from the Exchange Offer.
The Exchange Notes will bear interest from May 17, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from May 17, 1996 to the date of the issuance of the Exchange Notes. Interest on
the Exchange Notes is payable semiannually in arrears on May 1 and November 1 of
each year, commencing November 1, 1996, accruing from May 17, 1996 at a rate of
11 5/8% per annum.
--------------------------
HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH IN
"RISK FACTORS" COMMENCING ON PAGE 12 OF THIS PROSPECTUS PRIOR TO MAKING A
DECISION WITH RESPECT TO THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 22, 1996.
<PAGE>
(CONTINUED ON NEXT PAGE)
<PAGE>
(COVER PAGE CONTINUED)
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after May 1, 2000, at the redemption prices set forth herein,
plus accrued and unpaid interest to the date of redemption. In addition, at any
time on or prior to May 1, 1999, the Company, at its option, may redeem up to
30% of the aggregate principal amount of the Notes originally issued with the
net cash proceeds of one or more Public Equity Offerings (as defined) at
111 5/8% of their principal amount, together with accrued and unpaid interest,
if any, to the redemption date; provided that at least $70.0 million in
principal amount of Notes remain outstanding immediately after any such
redemption. Upon a Change of Control (as defined), each holder of Notes will
have the right to require PRI to repurchase all or any part of such holder's
Notes at a purchase price equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest to the date of purchase. See
"Description of Exchange Notes -- Repurchase at the Option of Holders -- Change
of Control."
The Old Notes were originally issued and sold on May 17, 1996 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act (the "Old Notes Offering"). Accordingly,
the Old Notes may not be reoffered, resold or otherwise pledged, hypothecated or
transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
Based upon its view of interpretations provided to third parties by the Staff
(the "Staff") of the Securities and Exchange Commission (the "Commission"), the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for the Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any holder which is (i) an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act (an "Affiliate"), (ii) a broker-dealer who acquired Old Notes directly from
the Company or (iii) a broker-dealer who acquired Old Notes as a result of
market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal that is filed as an exhibit to the Registration
Statement of which this Prospectus is a part (the "Letter of Transmittal")
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Broker-dealers who acquired Old Notes as a result of market
making or other trading activities may use this Prospectus, as supplemented or
amended, in connection with resales of the Exchange Notes. The Company has
agreed that, for a period of 180 days after this Registration Statement is
declared effective by the Commission, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. Any holder who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the Exchange Notes and any other holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Old Notes initially purchased by qualified institutional buyers who did not
elect to take physical delivery of their certificates were initially represented
by a single, global Note in registered form, registered in the name of a nominee
of The Depository Trust Company ("DTC"), as depositary. Notes (i) originally
purchased by or transferred to certain "foreign purchasers" or accredited
investors (as defined in Rule 501(a)(1)(2)(3) or (7) of the Securities Act,
"Accredited Investors") or (ii) held by qualified institutional buyers who
elected to take physical delivery of their certficates instead of holding their
interest through the global Note were issued in registered form. The Exchange
Notes exchanged for Old Notes represented by the global Note will be represented
by one or more global Exchange Notes in registered form, registered in the name
of the nominee of DTC. See "Description of Exchange Notes -- Book-entry;
Delivery and Form." Exchange Notes issued to non-qualified institutional buyers
in exchange for Old Notes held by such investors will be issued only in
certificated, fully registered, definitive form. Except as described herein,
Exchange Notes in definitive certificated form will not be issued in exchange
for the global Exchange Note(s) or interests therein.
The Old Notes and the Exchange Notes constitute new issues of securities
with no established public trading market. Any Old Notes not tendered and
accepted in the Exchange Offer will remain outstanding. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered, Old Notes could be adversely affected. Following consummation
of the Exchange Offer, the holders of any remaining Old Notes will continue to
be subject to the existing restrictions on transfer thereof and the Company will
have no further obligation to such holders to provide for the registration under
the Securities Act of the Old Notes except under certain limited circumstances.
See "Old Notes Registration Rights." No assurance can be given as to the
liquidity of the trading market for either the Old Notes or the Exchange Notes.
The Old Notes are not listed on any securities exchange, and the Company does
not intend to apply for listing of the Exchange Notes on any securities
exchange.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. The Exchange Offer
will expire at 5:00 p.m., New York City time, on September 20, 1996, unless
extended (the "Expiration Date"). The date of acceptance for exchange of the Old
Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of the Old Notes. Old Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the Exchange Notes, reference is hereby made to the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, where such contract
or other document is an exhibit to the Registration Statement, each such
statement is qualified in all respects by the provisions in such exhibit, to
which reference is hereby made.
The Company is not currently subject to the informational requirements of
the Exchange Act of 1934, as amended (the "Exchange Act"). Upon the
effectiveness of the Registration Statement or, if earlier, the Shelf
Registration Statement (as defined), the Company will become subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file all reports and other information required by the Commission. The
Registration Statement as well as periodic reports, proxy statements and other
information filed by the Company with the Commission may be inspected at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. In addition,
registration statements and certain other documents filed with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the Internet's World
Wide Web, located at HTTP://WWW.SEC.GOV. The Registration Statement, including
all exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR. Copies of the Registration Statement, periodic reports, proxy
statements and other information also can be obtained from the Company upon
request. Any such request should be addressed to the Company's principal office
at One Conway Park, 100 Field Drive, Suite 300, Lake Forest, Illinois 60045
Attention: Secretary (telephone number (847) 295-6100).
The Company's obligation to file periodic reports with the Commission
pursuant to the Exchange Act may be suspended if the Notes are held of record by
fewer than 300 holders at the beginning of any fiscal year of the Company, other
than the fiscal year in which the Registration Statement or the Shelf
Registration Statement becomes effective. However, the Company has agreed,
pursuant to the indenture governing the Notes dated as of May 17, 1996 (the
"Indenture") between PRI and LaSalle National Bank, as trustee (the "Trustee"),
that, whether or not it is then subject to Section 13 or 15(d) of the Exchange
Act, it will furnish to the holders of the Notes and the Trustee (and, if filing
such documents with the Commission is prohibited, to prospective holders of the
Notes upon request) copies of the annual reports, quarterly reports and other
periodic reports which the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections. In addition, the Company will furnish, upon the
request of any holder of a Note, such information as is specified in paragraph
(d)(4) of Rule 144A, to such holder or to a prospective purchaser of such Note
which such holder reasonably believes is a qualified institutional buyer within
the meaning of Rule 144A, in order to permit compliance by such holder with Rule
144A in connection with the resale of such Note by such holder unless, at the
time of such request, the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE BY
THIS PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
UNTIL NOVEMBER 20, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
i
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. AS
USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, EACH OF "PRI"
AND THE "COMPANY" REFERS TO PACKAGING RESOURCES INCORPORATED AND ITS
PREDECESSORS. THE COMPANY'S FISCAL YEAR ENDS ON THE LAST DAY OF FEBRUARY IN EACH
YEAR. ALL REFERENCES IN THIS PROSPECTUS TO FISCAL YEARS REFER TO THE FISCAL YEAR
OF THE COMPANY ENDED IN THE YEAR INDICATED. FOR EXAMPLE, "FISCAL 1996" REFERS TO
THE FISCAL YEAR OF THE COMPANY ENDED FEBRUARY 29, 1996.
THE COMPANY
GENERAL
The Company is a leading developer, manufacturer and marketer of rigid
plastic packaging, serving primarily as a supplier of customized containers for
national branded consumer products. The Company is the largest domestic
manufacturer of refrigerated yogurt containers, shelf stable, multi-layer
(impermeable to air and moisture) containers for nutritional supplements and
frosting containers. The Company also believes that it is the largest designer,
manufacturer and supplier of promotional beverage cups in the United States,
marketing these products primarily to the fast-food and beverage industries. For
the fiscal year ended February 29, 1996, the Company generated net sales of
$133.8 million. Approximately 82.8% of the Company's net sales in such period
were attributable to rigid plastic packaging and 17.2% to promotional beverage
cups. In fiscal 1996, the Company produced almost four billion plastic
containers, cups and lids.
The Company's packaging products are sold to over 450 customers, including
manufacturers of national branded food, dairy and pharmaceutical products such
as General Mills, Inc. ("General Mills"), including its Yoplait U.S.A. division
("Yoplait"), The Dannon Company, Inc. ("Dannon"), Ross Laboratories ("Ross
Labs"), a division of Abbott Laboratories, Inc. ("Abbott Labs"), The Haagen Dazs
Company, Inc. ("Haagen Dazs"), Procter & Gamble Company ("Procter & Gamble") and
Pillsbury Company ("Pillsbury"). The Company is also a major supplier of
promotional beverage cups to over 150 companies in the fast-food and beverage
industries, including McDonald's, Burger King, Pizza Hut, Hardee's, Taco Bell,
Coca-Cola and Pepsi.
The Company's rigid plastic packaging business has benefitted from, and is
positioned to continue to participate in, the growth of the markets for its
customers' products, particularly refrigerated yogurt and nutritional
supplements. According to data compiled by Find/SVP, Inc., a New York-based
market research firm ("Find/SVP"), between 1991 and 1994 U.S. retail yogurt
sales grew 9.6%, 11.4% and 7.0% from fiscal 1991 to fiscal 1992, from fiscal
1992 to fiscal 1993 and from fiscal 1993 to fiscal 1994, respectively, or at a
compound annual rate of 10.6%, reaching approximately $2.0 billion in 1994. The
compound annual rate has been presented as an alternative to cumulative or
average annual growth rates because it indicates what the rate of growth would
be had such rate been constant year to year over the periods discussed; however,
the compound annual rate should not be confused with year to year or other
measures of growth rates. This expansion of the U.S. yogurt market resulted, in
part, from new product innovations such as lower fat and lower calorie product
offerings, the introduction of new flavors and consistencies, the increasing
recognition of yogurt's nutritional benefits and innovative packaging solutions
targeting niche market segments. Despite this growth, the Company believes U.S.
yogurt consumption still lags behind that of Europe. During 1991 and 1992, the
most recent periods examined by Find/SVP, the per capita consumption of yogurt
in Europe was six times that in the U.S. Net sales of Ross Labs'
ENSURE-Registered Trademark- ready-to-drink nutritional supplement increased 20%
in 1995, reflecting, in part, the aging of the U.S. population and the
corresponding growth in the market for such products. Based on these industry
and demographic factors, management expects the markets for refrigerated yogurt
and nutritional supplements to continue to grow for the foreseeable future.
COMPETITIVE STRENGTHS
The Company attributes its leading market positions to the following
factors:
WELL ESTABLISHED CUSTOMER RELATIONSHIPS. The Company has long-standing
customer relationships, in many instances as a sole source supplier under
multi-year supply agreements. Yoplait, Dannon and Ross Labs, which accounted
for over 17.9%, 18.7% and 15.2% of fiscal 1996 sales, respectively, have
been customers of PRI since 1979, 1984 and 1991, respectively. In addition,
the Company's established
1
<PAGE>
position with its largest customers is evidenced by its status as the sole
supplier of such customers' most popular sized containers, including the six
ounce container for Yoplait, the four, six and eight ounce containers for
Dannon and the eight ounce multi-layer container for Ross Labs'
ENSURE-REGISTERED TRADEMARK- nutritional supplement. PRI's status as the
sole supplier of such containers positions the Company to benefit from
future growth in these product markets. In recognition of the Company's
performance, Ross Labs recently awarded PRI certified supplier status in
Ross Labs' Partners in Excellence Program.
CUSTOMER INTEGRATED PRODUCT DEVELOPMENT AND MANUFACTURING. The Company
has worked closely with its customers in all phases of product design and
production and has invested heavily in customer-driven research and
development activities. For example, PRI developed the
Autoweld-Registered Trademark- system, a technology that enables Yoplait to
assemble, fill and seal its distinctive cone-shaped container. Yoplait
leases from the Company the equipment necessary to operate the
Autoweld-Registered Trademark- system for use in Yoplait's production
facilities. For Dannon, the Company recently designed and developed a four
ounce yogurt cup targeted for the food service and children's markets. The
Company also worked successfully with Ross Labs to develop the shelf stable,
multi-layer packaging applications for its nutritional supplements and
infant formula product lines. In promotional cups, the Company has worked
closely with several of its promotional beverage cup customers to develop
new and distinctive high-definition graphic designs. In 1993, for example,
the Company was the winner of the McDonald's Performance Award for the
"Jurassic Park" promotional cup. In addition, the Company's facilities are
located, in most cases, adjacent to or within close proximity to its largest
customers' manufacturing operations, which has created manufacturing and
distribution efficiencies. As more of the Company's customers adopt "just-
in-time" inventory systems, these efficiencies have become increasingly
important.
STATE-OF-THE-ART MANUFACTURING TECHNOLOGIES. The Company, through its
five manufacturing facilities, has developed production capabilities in
injection molding, linear melt phase thermoforming ("thermoforming") and
solid phase pressure forming ("pressure forming") and believes it is the
only manufacturer in the rigid plastic packaging industry with capabilities
in all three such processes. Because each of these processes offers
advantages in achieving certain performance features such as structural
strength, rigidity and graphics retention, the Company is able to be highly
responsive to customer requirements and preferences by offering a broader
range of packaging alternatives than its competitors. The Company's three
technical facilities feature design, engineering, prototype production,
graphics and diagnostic capabilities. Management believes that the Company's
in-house capability to design, engineer and build production molds
distinguishes the Company from many of its competitors. This capability
provides PRI with an important competitive advantage in maintaining product
quality as well as in controlling design, development and maintenance costs.
To satisfy the rigorous quality control standards of its customers, the
Company maintains a comprehensive quality assurance program. During fiscal
1996, based on internal estimates, the return rate for all of the Company's
products was less than one quarter of one percent.
ADVANCED GRAPHICS TECHNOLOGIES. Management believes that the Company's
MasterColor printing system, which produces high definition graphics
utilizing a computer controlled nine color press, is the most
technologically advanced color processing system in the rigid plastic
packaging and promotional beverage cup industries. The MasterColor system
enables the Company to create photograph quality images on plastic
containers at speeds comparable to conventional high speed printers and thus
provides an important competitive advantage. Although the Company employs
the MasterColor system primarily in the printing of promotional beverage
cups, management believes significant opportunities exist to apply this
technology to create more sophisticated and colorful designs for other forms
of plastic packaging as manufacturers of branded products seek to enhance
and distinguish the image of their products on store shelves.
LOW COST PRODUCTION. The Company believes that its manufacturing costs
are among the lowest in its industry primarily due to: (i) the economies of
scale provided by the Company's high volume production; (ii) the Company's
use of state-of-the-art molds and manufacturing techniques that minimize
resin requirements, reduce waste and enhance productivity; (iii) the
Company's ability to obtain favorable resin pricing based on its substantial
purchase requirements; (iv) the low transportation costs
2
<PAGE>
resulting from the proximity of the Company's six manufacturing and
warehouse facilities to its major customers; and (v) the Company's continual
efforts to achieve operating efficiencies and increase productivity. Over
the past several years, the Company has significantly upgraded and automated
its manufacturing operations, consolidated certain manufacturing facilities
and centralized all of its administrative functions to reduce costs and
increase efficiency.
The Company was founded in 1984 to capitalize on the growth in outsourcing
among nationally branded food producers for their packaging needs. Since its
formation, the Company has made six strategic acquisitions which have expanded
the Company's product mix and enhanced its competitive position. Most recently,
during fiscal 1994, the Company acquired Louisiana Plastics, Incorporated
("Louisiana Plastics") and substantially all the assets of Miner Container
Printing, Inc. and certain affiliated companies (collectively, "Miner
Container"), which established market share leadership in promotional beverage
cups, increased injection molding capacity and packaging sales and provided the
MasterColor graphics technology.
The Company believes that the fundamental benefits of plastic relative to
other packaging materials, including (i) design versatility, (ii) light weight
and low cost, (iii) strength and durability, (iv) insulating ability and (v)
clarity, will promote opportunities for growth in sales and profitability in
both the rigid plastic packaging and promotional beverage cup industries. The
Company further believes it is well-positioned to capitalize on these
opportunities through its advanced, low-cost, customer-oriented operations.
STRATEGY
The Company's strategy is to enhance its position in the industry by: (i)
participating in the growth being experienced by its largest customers by
continuing to meet their increasing packaging needs; (ii) strengthening its
relationships with these existing customers by continuing to provide new
value-added products and services; (iii) expanding into new packaging and
promotional cup products and markets; and (iv) continuing to seek opportunities
to reduce manufacturing costs and enhance productivity.
GROWTH WITH EXISTING CUSTOMERS. The Company will continue to focus on
meeting the rigid plastic packaging needs of Yoplait, Dannon and Ross Labs
to keep pace with the growth in the markets for their products. Based in
part on growth in domestic consumption of refrigerated yogurt, the Company's
net sales to Yoplait and Dannon, who rely on the Company to provide
substantially all of their single-serving yogurt containers, have increased
13.1%, 14.6%, 34.9% and 15.5% from fiscal 1992 to fiscal 1993, from fiscal
1993 to fiscal 1994, from fiscal 1994 to fiscal 1995 and from fiscal 1995 to
fiscal 1996, respectively, or at a compound annual growth rate of over 19%
during the last four years. In addition, the Company's net sales as the sole
source supplier of multi-layer containers to Ross Labs for its
ENSURE-REGISTERED TRADEMARK- nutritional supplement and
SIMILAC-REGISTERED TRADEMARK- infant formula grew 75.5%, 11.2%, 24.9% and
11.6% from fiscal 1992 to fiscal 1993, from fiscal 1993 to fiscal 1994, from
fiscal 1994 to fiscal 1995 and from fiscal 1995 to fiscal 1996,
respectively, or at a compound annual rate in excess of 29% during the last
four years.
NEW APPLICATIONS FOR EXISTING CUSTOMERS. The Company intends to expand
its relationships with existing customers by developing new applications
based on its extensive manufacturing capabilities and advanced graphics
technologies. For example, the Company applied thin-wall technology, which
combines structural strength with reduced cost and weight, to develop
Dannon's six and eight ounce containers. In addition, the Company developed
the six ounce multi-layer container presently used by Yoplait which features
a glossy exterior finish designed to enhance graphics.
NEW PRODUCTS AND MARKETS. The Company plans to expand into related
product lines serving new markets with several products under development in
both rigid plastic packaging and promotional beverage cups. With respect to
packaging, management believes there will be significant opportunities to
expand the Company's shelf stable, multi-layer packaging to the extent
plastic containers are substituted for metal, glass and composites for
products requiring extended shelf life, such as condensed soups, vegetables,
baby foods and pet foods. In promotional beverage cups, the Company recently
entered the professional sports and college stadium cup market and also has
under development a number of new products, including a new cup for the
gourmet coffee market. In addition, in both
3
<PAGE>
packaging and promotional cups, the Company intends to leverage its advanced
graphics capabilities by introducing new products which highlight its high
definition printing and quality designs. The Company believes these
initiatives will reinforce its reputation as an innovative, value-added
marketing partner for its customers while adding to future profitability.
CONTINUED COST REDUCTION AND PRODUCTIVITY ENHANCEMENTS. The Company
continually seeks opportunities to reduce its costs and improve productivity
to maintain its competitive position as a low-cost manufacturer. For
example, following the acquisition of Miner Container and Louisiana
Plastics, the Company selectively consolidated certain manufacturing
facilities and centralized administrative functions. During the first
quarter of fiscal 1997, the Company completed the consolidation of its
Lenexa, Kansas printing operation into the Kansas City, Missouri facility to
reduce overhead and transportation costs and increase manufacturing
productivity. In fiscal 1997, the Company intends to initiate projects to
further reduce costs and enhance productivity, by, among other things,
increasing the automation of its packaging and handling systems.
STRUCTURE OF THE COMPANY
All of the outstanding capital stock of PRI is held by Packaging Resources
Group, Inc. ("Group"). All of the outstanding capital stock of Group is held by
HPH Industries, Ltd. ("HPH"), which is wholly-owned by Howard P. Hoeper, the
Chairman of the Board of Directors, Chief Executive Officer and President of
Group and PRI. As of August 14, 1996, assuming the exercise of all outstanding
warrants to acquire the capital stock of Group ("Warrants"), HPH, Apollo
Packaging Partners, L.P., a Delaware limited partnership and an affiliate of
Apollo Advisors, L.P. ("Apollo"), and TCW/Crescent Mezzanine Partners, L.P.
together with TCW/Crescent Mezzanine Trust (collectively, the "TCW Entities")
would beneficially own 60%, 29.3% and 10.7% of such stock, respectively. Each of
the TCW Entities is an affiliate of Trust Company of the West.
The Company's principal executive offices are located at One Conway Park,
100 Field Drive, Suite 300, Lake Forest, Illinois 60045 and its phone number is
(847) 295-6100.
4
<PAGE>
THE FINANCING PLAN
The Old Notes Offering was part of a plan of financing designed to provide
the Company with long-term fixed rate financing and increase the Company's
revolving credit availability. In connection with such plan of financing, the
Company (i) issued $110.0 million aggregate principal amount of Notes, (ii)
entered into a credit agreement which provides for a $20.0 million revolving
loan facility, subject to certain borrowing conditions and limitations (the
"Senior Credit Facility"), (iii) repaid all outstanding borrowings under PRI's
existing senior secured credit facility (the "Old Credit Agreement") in the
aggregate principal amount of $73.5 million and (iv) funded a dividend to Group
in the amount of $31.7 million. Group, in turn, used the dividend from PRI to
redeem without penalty or premium a portion of the outstanding 12.5% Senior
Subordinated Notes due June 30, 2003 of Group (the "12.5% Notes") at an
aggregate redemption price of $31.7 million, leaving $19 million in principal of
the 12.5% Notes outstanding as of May 17, 1996. The foregoing transactions by
PRI and Group are collectively referred to herein as the "Financing Plan." See
"Use of Proceeds" and "Capitalization."
The following table illustrates the sources and uses of funds under the
Financing Plan:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN
THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
Notes.......................................................................... $ 110,000
-------------
Total Sources................................................................ $ 110,000
-------------
-------------
USES OF FUNDS:
Repayment of indebtedness under Old Credit Agreement........................... $ 73,500
Dividend to Group(a)........................................................... 31,700
Fees and expenses(b)........................................................... 4,150
Working capital................................................................ 650
-------------
Total Uses................................................................... $ 110,000
-------------
-------------
</TABLE>
- ------------------------
(a) Dividend proceeds were used by Group to redeem, without penalty or premium,
a portion of the 12.5% Notes.
(b) Includes the discount paid to the Initial Purchasers (as defined) in
connection with the issuance of the Old Notes, bank financing fees and legal
and accounting expenses.
5
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer............ The Company is offering to exchange up to $110,000,000
aggregate principal amount of Exchange Notes for up to
$110,000,000 aggregate principal amount of the Old Notes.
The Old Notes were initially offered and sold by BT
Securities Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation as the initial purchasers of the Old
Notes (the "Initial Purchasers"), to certain "qualified
institutional buyers" (as defined in Rule 144A under the
Securities Act) and institutional accredited investors at a
price of 100% of the principal amount thereof. The form and
terms of the Exchange Notes are substantially identical
(including principal amount, interest rate, maturity,
security and ranking) to the form and terms of the Old Notes
for which they may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes are freely
transferable by holders thereof except as provided herein
(see "The Exchange Offer--Terms of the Exchange" and "Terms
and Conditions of the Letter of Transmittal") and are not
entitled to certain registration rights and certain
additional interest provisions which are applicable to the
Old Notes under a registration rights agreement dated as of
May 17, 1996 (the "Registration Rights Agreement") between
the Company and the Initial Purchasers.
Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than any
holder which is (i) an Affiliate of the Company, (ii) a
broker-dealer who acquired Old Notes directly from the
Company or (iii) a broker-dealer who acquired Old Notes as a
result of market-making or other trading activities),
without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such
Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and
do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a
distribution of such Exchange Notes.
Minimum Condition............. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered or
accepted for exchange.
Expiration Date............... The Exchange Offer will expire at 5:00 p.m., New York City
time, on September 20, 1996, unless extended.
Exchange Date................. The first date of acceptance for exchange for the Old Notes
will be the first business day following the Expiration
Date.
Conditions to the Exchange The obligation of the Company to consummate the Exchange
Offer......................... Offer is subject to certain conditions. See "The Exchange
Offer -- Conditions to the Exchange Offer." The Company
reserves the right to terminate or amend the Exchange Offer
at any time prior to the Expiration Date upon the occurrence
of any such condition.
Withdrawal Rights............. Tenders of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. Any Old
Notes not accepted for any reason will be returned without
expense to the tendering holders thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Old See "The Exchange Offer -- How to Tender."
Notes.........................
Federal Income Tax The exchange of Old Notes for Exchange Notes by tendering
Consequences.................. holders will not be a taxable exchange for federal income
tax purposes, and such holders should not recognize any
taxable gain or loss as a result of such exchange.
Use of Proceeds............... There wil be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Effect on Holders of Old As a result of the making of this Exchange Offer, and upon
Notes......................... acceptance for exchange of all validly tendered Old Notes
pursuant to the terms of this Exchange Offer, the Company
will have fulfilled a covenant contained in the terms of the
Old Notes and the Registration Rights Agreement, and,
accordingly, the holders of the Old Notes will have no
further registration or other rights under the Registration
Rights Agreement, except under certain limited
circumstances. See "Old Notes Registration Rights." Holders
of the Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will
be entitled to all the rights and limitations applicable
thereto under the Indenture. All untendered, and tendered
but unaccepted, Old Notes will continue to be subject to the
restrictions on transfer provided for in the Old Notes and
the Indenture. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any,
for the Old Notes not so tendered could be adversely
affected. See "Risk Factors -- Consequences of Failure to
Exchange Old Notes."
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered............ $110,000,000 principal amount of 11 5/8% Senior Secured
Notes due 2003.
Issuer........................ Packaging Resources Incorporated.
Maturity Date................. May 1, 2003.
Interest Rate................. The Exchange Notes will bear interest at the rate of 11 5/8%
per annum.
Interest Payments............. Interest on the Notes will accrue from May 17, 1996 and is
payable in cash semi-annually on each May 1 and November 1,
commencing November 1, 1996.
Optional Redemption........... The Exchange Notes may be redeemed at the option of PRI, in
whole or in part, from time to time on or after May 1, 2000,
at the redemption prices set forth herein plus accrued and
unpaid interest to the redemption date. In addition, at any
time on or prior to May 1, 1999, up to 30% of the aggregate
principal amount of the Exchange Notes may be redeemed at
the option of PRI with the cash proceeds from one or more
Public Equity Offerings at 111 5/8% of their principal
amount, together with accrued and unpaid interest to the
redemption date, if any, provided that after giving effect
to such redemption, at least $70.0 million in principal
amount of the Exchange Notes remain outstanding immediately
after any such redemption. In the case of any Public Equity
Offering by Group, PRI is required to apply to a redemption
of the Exchange Notes an amount not less than 50% of the
aggregate net proceeds of such Public Equity Offering. See
"Description of Exchange Notes -- Optional Redemption."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Ranking....................... The Exchange Notes will be senior secured obligations of PRI
ranking senior to all subordinated indebtedness of PRI and
PARI PASSU in right of payment with all other senior
indebtedness of PRI. However, lenders under the Senior
Credit Facility have claims with respect to the Company's
accounts receivable, raw materials and finished goods in-
ventory and the proceeds therefrom constituting collateral
for such indebtedness that are effectively senior in right
of payment to the claims of holders of the Exchange Notes
with respect to such assets. The Notes are not currently
senior to any outstanding indebtedness of the Company. At
August 14, 1996, PRI had outstanding approximately $111.3
million in aggregate principal amount of indebtedness
(excluding trade payables and other accrued liabilities),
all of which constitutes senior indebtedness and none of
which constitutes indebtedness under the Senior Credit
Facility. In addition, PRI had $20.0 million in unused
senior secured borrowing capacity under the Senior Credit
Facility, subject to certain borrowing conditions and
limitations. See "Description of Exchange Notes -- Ranking
and Security."
Collateral.................... The Collateral securing the Exchange Notes will consist of
certain equipment, fixtures and general intangibles, and
mortgages on substantially all of the owned and certain of
the leased property of the Company, and the proceeds
therefrom. The Indenture provides that lenders under an
Acquisition Financing Facility will have the right to share
on a PARI PASSU basis in any proceeds from the sale of
Collateral. See "Description of Exchange Notes -- Security."
Sinking Fund.................. None.
Change of Control............. Upon a Change of Control, PRI will be required to make an
offer to purchase all of the Exchange Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest
to the date of purchase. There can be no assurance that PRI
will have sufficient funds to satisfy its obligation to
repurchase the Exchange Notes upon a Change of Control. See
"Description of Certain Indebtedness -- The Senior Credit
Facility" and "Description of Exchange Notes -- Repurchase
at the Option of Holders -- Change of Control."
Asset Sales................... Under certain circumstances, PRI will be required to make an
offer to purchase all outstanding Exchange Notes at a
purchase price in cash equal to 100% of their principal
amount, plus accrued and unpaid interest to the date of
purchase, with the proceeds of Asset Sales. See "Description
of Exchange Notes -- Repurchase at the Option of Holders --
Asset Sales; Collateral Loss Events."
Certain Covenants............. The Indenture contains certain covenants that, among other
things, limit the Company's ability to make certain
restricted payments, incur indebtedness, create certain
liens, sell assets, engage in transactions with affiliates,
merge or consolidate with other entities or engage in new
lines of business. See "Description of Exchange Notes --
Certain Covenants."
</TABLE>
RISK FACTORS
Holders of Old Notes should consider carefully the specific factors set
forth under "Risk Factors," as well as the other information set forth in this
Prospectus, before making an investment decision with respect to the Exchange
Offer.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents summary historical and pro forma financial
information for the Company. The summary statement of operations data and other
operating data set forth below for the years ended February 28, 1994 and 1995
and February 29, 1996 and the three months ended May 31, 1995 and 1996 and the
balance sheet data at February 28, 1995 and February 29, 1996 and May 31, 1995
and 1996 have been derived from, and are qualified by reference to, the
financial statements of the Company included elsewhere in this Prospectus. The
summary statement of operations data and other operating data set forth below
for the years ended February 29, 1992 and February 28, 1993 and the balance
sheet data at February 29, 1992 and February 28, 1993 and 1994 have been derived
from the Company's audited financial statements not included herein. Historical
financial data reflects the acquisitions of Louisiana Plastics and Miner
Container from March 12, 1993 and December 15, 1993, respectively. The unaudited
pro forma financial data for fiscal 1996 give effect to the Financing Plan as if
it had occurred on March 1, 1995 for purposes of the statement of operations
data and the other operating data and as of February 29, 1996 for purposes of
the balance sheet data. The unaudited pro forma financial data do not purport to
represent what the Company's results of operations would have been if the
Financing Plan had in fact occurred as of the beginning of the period or on the
date indicated, as applicable, or to project the Company's financial position or
results of operations for any future date or period. Results for interim periods
may not be indicative of results for a full year. The information in this table
should be read in conjunction with "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31, MAY 31,
1992 (A) 1993 1994 1995 1996 1995 1996
----------- ----------- --------- --------- --------- --------- ---------
PRO FORMA
FEB. 29,
1996 (B)
-----------
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 80,473 $ 74,950 $ 118,844 $ 135,696 $ 133,756 $ 133,756 $ 36,335 $ 31,316
Cost of goods sold (c)........... 65,996 59,232 93,248 113,928 111,448 111,448 30,142 25,356
----------- ----------- --------- --------- --------- ----------- --------- ---------
Gross profit..................... 14,477 15,718 25,596 21,768 22,308 22,308 6,193 5,960
Selling, general and
administrative expenses......... 4,990 4,512 6,657 8,407 6,864 6,864 1,796 1,848
Amortization of intangibles...... 620 424 1,122 3,102 2,434 2,434 599 174
Nonrecurring charge (d).......... -- -- -- 7,257 -- -- -- --
----------- ----------- --------- --------- --------- ----------- --------- ---------
Operating income................. 8,867 10,782 17,817 3,002 13,010 13,010 3,798 3,938
Interest expense, net (e)........ 6,082 5,406 5,482 8,503 10,671 13,416 2,769 2,416
----------- ----------- --------- --------- --------- ----------- --------- ---------
Income (loss) before income
taxes, extraordinary item and
cumulative effect of change in
accounting principle............ 2,785 5,376 12,335 (5,501) 2,339 (406) 1,029 1,522
Income tax expense (benefit)..... 1,268 2,215 5,057 (1,980) 1,006 (175) 422 654
----------- ----------- --------- --------- --------- ----------- --------- ---------
Income (loss) before
extraordinary item and
cumulative effect of change in
accounting principle............ 1,517 3,161 7,278 (3,521) 1,333 $ (231) 607 868
----------- ----------- --------- --------- --------- ----------- --------- ---------
-----------
Extraordinary item (f)........... -- -- (2,743) -- -- -- (1,064)
Cumulative effect of change in
accounting principle (g)........ -- -- (2,300) -- -- -- --
----------- ----------- --------- --------- --------- --------- ---------
Net income (loss)................ $ 1,517 $ 3,161 $ 2,235 $ (3,521) $ 1,333 $ 607 $ (196)
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
CASH FLOW DATA:
Net cash provided by (used in)
operating activities............ $ 8,743 $ 6,058 $ (4,506) $ 11,472 $ 11,775 $ 3,911 $ 7,908
Net cash used in investing
activities...................... (3,309) (5,684) (47,557) (7,250) (4,956) (714) (1,942)
Net cash provided by (used in)
financing activities............ (5,430) (380) 52,733 (4,684) (6,653) (1,800) (2,185)
BALANCE SHEET DATA (PERIOD END):
Property, plant, and equipment,
net............................. $ 30,302 $ 31,276 $ 56,912 $ 56,213 $ 52,352 $ 52,352 $ 55,038 $ 52,433
Total assets..................... 61,337 62,727 136,545 121,966 110,683 112,620 118,376 116,881
Total debt....................... 41,903 42,861 86,361 84,177 77,524 112,152 82,376 111,250
Stockholder's equity (deficit)... (561) 1,134 22,953 16,932 18,265 (13,563) 17,542 (13,692)
<CAPTION>
<S> <C>
PRO FORMA
MAY 31,
1996 (B)
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 31,316
Cost of goods sold (c)........... 25,356
-----------
Gross profit..................... 5,960
Selling, general and
administrative expenses......... 1,848
Amortization of intangibles...... 174
Nonrecurring charge (d).......... --
-----------
Operating income................. 3,938
Interest expense, net (e)........ 3,391
-----------
Income (loss) before income
taxes, extraordinary item and
cumulative effect of change in
accounting principle............ 547
Income tax expense (benefit)..... 235
-----------
Income (loss) before
extraordinary item and
cumulative effect of change in
accounting principle............ $ 312
-----------
-----------
Extraordinary item (f)...........
Cumulative effect of change in
accounting principle (g)........
Net income (loss)................
CASH FLOW DATA:
Net cash provided by (used in)
operating activities............
Net cash used in investing
activities......................
Net cash provided by (used in)
financing activities............
BALANCE SHEET DATA (PERIOD END):
Property, plant, and equipment,
net.............................
Total assets.....................
Total debt.......................
Stockholder's equity (deficit)...
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------------------------------------- --------------------
(UNAUDITED)
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31, MAY 31,
1992 (A) 1993 1994 1995 1996 1995 1996
----------- ----------- --------- --------- --------- --------- ---------
PRO FORMA
FEB. 29,
1996 (B)
-----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Ratio of earnings to fixed
charges (h)..................... 1.43x 1.93x 3.00x (i) 1.21x (i) 1.35x 1.59x
EBITDA (j)....................... $ 12,570 $ 14,434 $ 24,096 $ 20,751 $ 22,731 $ 22,731 $ 6,262 $ 5,981
Depreciation and amortization
(k)............................. 3,703 3,652 6,279 10,492 9,721 9,721 2,464 2,043
Capital expenditures (l)......... 2,735 4,435 5,556 7,925 3,449 3,449 740 1,942
Ratio of EBITDA to interest
expense......................... 2.07x 2.67x 4.40x 2.44x 2.13x 1.69x 2.26x 2.48x
Ratio of EBITDA to cash interest
expense (m)..................... 2.29x 3.00x 5.04x 2.71x 2.52x 1.77x 2.66x 2.92x
<CAPTION>
PRO FORMA
MAY 31,
1996 (B)
-----------
<S> <C>
OTHER OPERATING DATA:
Ratio of earnings to fixed
charges (h)..................... 1.15x
EBITDA (j)....................... $ 5,981
Depreciation and amortization
(k)............................. 2,043
Capital expenditures (l)......... 1,942
Ratio of EBITDA to interest
expense......................... 1.76x
Ratio of EBITDA to cash interest
expense (m)..................... 1.84x
</TABLE>
- ------------------------------
(a) Fiscal 1992 amounts have been restated to reflect a change in accounting
for inventory. In fiscal 1993, the Company changed its inventory costing
method from the last in, first out ("LIFO") method to the first in, first
out ("FIFO") method. Cost of goods sold for all fiscal years presented is
valued using the FIFO method.
(b) Financial data for fiscal 1996 gives effect to the Financing Plan, as if
such transactions had occurred on March 1, 1995 for purposes of the
statement of operations data and the other operating data and as of
February 29, 1996 for purposes of the balance sheet data. Pro forma
adjustments to statement of operations data and other operating data for
the year ended February 29, 1996 include adjustments to interest expense in
the aggregate amount of $2.7 million, reflecting the elimination of
interest expense relating to the Old Credit Agreement and the addition of
interest expense associated with the Notes and the Senior Credit Facility.
Financial data for May 31, 1996 gives effect to the Financing Plan as if
such transactions occurred on March 1, 1996 for purposes of the statement
of operations data and other operating data. Pro forma adjustments to
statement of operations data and other operating data include adjustments
to interest expense in the aggregate amount of $975, reflecting the
elimination of interest expense relating to the Old Credit Agreement and
the addition of interest expense associated with the Notes and the Senior
Credit Facility. Pro forma adjustments to balance sheet data for the year
ended February 29, 1996 reflect (i) a non-cash extraordinary charge of $1.4
million (net of tax benefit) for the write-off of the unamortized financing
fees and debt issuance costs associated with the Old Credit Agreement and
(ii) a dividend from PRI to Group in the amount of $30.5 million to redeem
a portion of the 12.5% Notes. See "Capitalization."
(c) Cost of goods sold includes costs for raw materials, labor, maintenance and
repair of property, plant and equipment, manufacturing overhead and
research and development.
(d) The nonrecurring charges in fiscal 1995 include a charge of $6.4 million
relating to the closing and consolidation of certain manufacturing
facilities and the write-off of $894 in costs associated with a public debt
offering that was not completed by the Company.
(e) Interest expense, net includes interest income of $83, $129 and $77 in
fiscal 1993, 1994 and 1995, respectively.
(f) The extraordinary item in fiscal 1994 represents the write-off of
unamortized financing fees and costs and the payment of certain premiums in
connection with the recapitalization and refinancing that occurred in June
1993 (the "1993 Transaction"). See Notes 8 and 11 to the Company's
financial statements included elsewhere in this Prospectus.
(g) Cumulative effect of change in accounting principle in fiscal 1994 reflects
the Company's adoption of Statement of Financial Accounting Standards
("SFAS") 109, "Accounting for Income Taxes." See Notes 1 and 12 to the
Company's financial statements included elsewhere in this Prospectus.
(h) For purposes of this computation, earnings are defined as income before
income taxes plus fixed charges. Fixed charges consist of interest
(including amortization of deferred financing costs and debt discount or
premium) and that portion of rental expense that is representative of
interest (deemed to be one-third of operating lease rental expense).
(i) The Company's earnings were inadequate to cover fixed charges for fiscal
1995 and pro forma 1996 by $5.5 million and $406, respectively.
(j) EBITDA represents earnings (loss) before interest expense, provision
(benefit) for income taxes, depreciation and amortization (excluding
amortization of deferred financing costs), adjusted to exclude the
nonrecurring charges, extraordinary items and cumulative effect of changes
in accounting principles described in notes (d), (f) and (g) above. EBITDA
is presented because such data reflects earnings without giving effect to
non-cash and and nonrecurring items and is used by certain investors,
analysts and others (including the Company's lender under the Senior Credit
Facility) as one measure of a company's ability to service debt. In fiscal
1995, the Company's earnings were inadequate to cover fixed charges and, as
a result, the Company refinanced its outstanding senior debt. Accordingly,
EBITDA, alone, did not fully measure the Company's ability to meet its debt
service obligations in fiscal 1995. See note (i) above and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." EBITDA should not be considered as an
alternative, or be construed as more meaningful than, operating income or
cash flow from operations as determined by generally accepted accounting
principles, and does not necessarily indicate whether cash flow will be
sufficient for the Company's actual cash requirements during any period.
EBITDA is not a measurement determined in accordance with generally
accepted accounting principles and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. Investors should be aware that
EBITDA as described above may differ in the method of calculation from
EBITDA presented by other companies due to the exclusion of nonrecurring
charges. See footnote (d) above for a description of nonrecurring charges.
10
<PAGE>
The following represents a reconciliation of EBITDA from net income as
determined by generally accepted accounting principles:
<TABLE>
<CAPTION>
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31, MAY 31,
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).................... $ 1,517 $ 3,161 $ 2,235 $ (3,521) $ 1,333 $ 607 $ (196)
Cumulative effect of change in
accounting principle................ -- -- 2,300 -- -- -- --
Extraordinary item................... -- -- 2,743 -- -- -- 1,064
Income tax expense (benefit)......... 1,268 2,215 5,057 (1,980) 1,006 422 654
Interest expense, net................ 6,082 5,406 5,482 8,503 10,671 2,769 2,416
Nonrecurring charge.................. -- -- -- 7,257 -- -- --
Depreciation and amortization (less
deferred financing costs which are
included in interest expense
above).............................. 3,703 3,652 6,279 10,492 9,721 2,464 2,043
----------- ----------- ----------- ----------- ----------- ----------- -----------
EBITDA............................... $ 12,570 $ 14,434 $ 24,096 $ 20,751 $ 22,731 $ 6,262 $ 5,981
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(k) Depreciation and amortization as presented excludes amortization of
deferred financing costs.
(l) Capital expenditures in fiscal 1994 do not include $26.9 million expended
for property, plant and equipment obtained through the acquisitions of
Louisiana Plastics and Miner Container.
(m) For the purpose of calculating the ratio of EBITDA to cash interest
expense, interest expense does not include amortization of deferred
financing costs. Amortization of deferred financing costs for fiscal 1992,
1993, 1994, 1995, 1996 and pro forma 1996 was $595, $593, $705, $848, $1.7
million and $593, respectively. EBITDA has been included for convenience of
investors and others who use such measure. EBITDA should not be considered
as an alternative to operating income or cash flow from operations as
determined by generally accepted accounting principles, and does not
necessarily indicate whether cash flow will be sufficient for cash
requirements. EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Notes for the Exchange Notes offered hereby, holders of Old
Notes should consider carefully the following factors, which may be generally
applicable to the Old Notes as well as to the Exchange Notes:
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws, or unless offered or sold pursuant to an exemption therefrom.
Except under certain limited circumstances, the Company does not intend to
register the Old Notes under the Securities Act. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Old Notes not so tendered
could be adversely affected. See "The Exchange Offer" and "Old Notes
Registration Rights."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company is highly leveraged and has indebtedness that is substantial in
relation to its stockholder's equity. As a result of the Financing Plan,
including the Old Notes Offering and PRI's payment of a portion of the net
proceeds therefrom as a dividend to Group, the Company's aggregate indebtedness
for borrowed money and interest expense increased and its stockholder's equity
decreased. At May 31, 1996, the Company had outstanding approximately $111.3
million in aggregate principal amount of indebtedness outstanding (excluding
trade payables and other accrued liabilities) and a stockholder's deficit of
approximately $13.7 million. See "Capitalization." In addition, subject to the
restrictions in the Senior Credit Facility and the Indenture, the Company may
incur additional indebtedness from time to time to finance working capital,
capital expenditures, acquisitions or for other purposes. In fiscal 1995 and pro
forma 1996, PRI's earnings were inadequate to cover its fixed charges by $5.5
million and $406,000, respectively.
The level of the Company's indebtedness has important consequences to
holders of the Notes, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be available
for other purposes, (ii) the Company's ability to obtain additional debt
financing in the future for working capital, capital expenditures, general
corporate purposes or other purposes may be impaired, (iii) PRI's borrowings
under the Senior Credit Facility are at floating rates of interest, which could
result in higher interest expense in the event of an increase in interest rates,
(iv) the Indenture and the Senior Credit Facility contain financial and other
restrictive covenants that could limit the Company's operating and financial
flexibility and, if violated, would result in an event of default that could
preclude the Company's access to credit under such facility or otherwise have a
material adverse effect on the Company, and (v) the level of the Company's
indebtedness could limit its flexibility in reacting to changes in its industry
and economic conditions generally.
RESTRICTIVE COVENANTS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person, sell,
assign, transfer, lease, convey or otherwise dispose of substantially all of the
assets of the Company or engage in new lines of business. In addition, the
Senior Credit Facility contains other and more restrictive covenants and
prohibits PRI from prepaying other indebtedness. See "Description of Exchange
Notes -- Certain Covenants" and "Description of Certain Indebtedness -- The
Senior Credit Facility." The Senior Credit Facility also requires PRI to
maintain specified financial ratios and satisfy certain financial condition
tests. PRI's ability to meet such financial ratios and tests can be affected by
events beyond its control, and there can be no
12
<PAGE>
assurance that PRI will meet such tests. Although there can be no assurances,
the Company anticipates that its operating cash flow, together with borrowings
under the Senior Credit Facility, will be sufficient to meet its operating
expenses, projected capital expenditures and debt service requirements as they
become due.
ABILITY TO REALIZE ON COLLATERAL; NO ASSURANCE AS TO VALUE OF ASSETS
The Notes are secured by certain equipment, fixtures and general
intangibles, and mortgages on substantially all of the owned and certain of the
leased real property of the Company, and proceeds of the foregoing. The ability
of the holders of the Notes to realize upon such Collateral may be limited and
subject to substantial delays. In an Event of Default (as defined) by the
Company, before the Trustee or the holders of the Notes can take possession of
or sell any Collateral, the Trustee and the holders of the Notes will have to
comply with all applicable state judicial or non-judicial foreclosure and sale
laws. Such laws may include cure provisions, mandatory sale notice provisions,
manner of sale provisions and redemption period provisions. These provisions may
significantly increase the time associated with taking possession or the sale of
any Collateral. Failure to comply with such provisions could void the
foreclosure on or sale of any Collateral.
The Company's manufacturing facility in Kansas City, Missouri is leased. The
lien on such leasehold interest granted in favor of the holders of the Notes is
subject to the terms of the lease and the rights of the landlord thereunder in
the event of a breach of the lease, including the landlord's right to terminate
the lease. If the lease is terminated, the Company would lose possession of the
leasehold property and its ability to conduct operations on the premises, and
the lien granted to the Trustee, for the benefit of the holders of the Notes,
would be extinguished. The Trustee has no obligation under the Indenture to cure
any such breach unless so instructed by the holders of a majority of the
outstanding Notes. There can, therefore, be no assurance that any default under
the lease will be timely cured, or that the lease will not be terminated, in
which event, the lien on such Collateral would be lost. Further, the lease
contains restrictions on assignment which may affect the ability of the Trustee
to dispose of the Collateral following a foreclosure. Finally, if the Company or
the landlord were to become the debtor in a bankruptcy proceeding, the leases
could be rejected, which may result in the loss of the leasehold interest as
Collateral, or could be assumed and assigned.
The Notes are not secured by certain other assets of the Company, such as
accounts receivable, raw materials and finished goods inventory, proceeds of any
of the foregoing or cash. To the extent that the Company grants a lien on such
assets to secure other indebtedness, the Notes will be effectively subordinated
to the claims of holders of such other indebtedness with respect to such assets.
The Company has granted a first priority lien on all of its accounts receivable
and raw materials and finished goods inventory, including proceeds thereof, to
the lenders under the Senior Credit Facility. In the event of a default on the
Notes, or a bankruptcy, liquidation or reorganization of the Company, such
assets will be available to satisfy obligations with respect to the indebtedness
secured thereby before any payment therefrom could be made on the Notes. To the
extent that the value of such collateral granted under the Senior Credit
Facility is not sufficient to satisfy the obligations thereunder, amounts
remaining outstanding on such indebtedness would be entitled to share with
holders of the Notes and other claims on the Company with respect to
unencumbered assets of the Company. At May 31, 1996, no amounts were outstanding
under the Senior Credit Facility and the Company had outstanding $20.0 million
in unused secured borrowing capacity thereunder. In addition, the Indenture
provides that the lenders under an Acquisition Financing Facility will be
entitled to share, on a PARI PASSU basis, in any proceeds from any foreclosure
upon the Collateral. To the extent that PRI has outstanding obligations to
lenders under an Acquisition Financing Facility, amounts realized by holders of
the Notes in respect thereof will be reduced. See "Description of Certain
Indebtedness -- The Senior Credit Facility" and "Description of Exchange Notes
- -- Security."
CERTAIN BANKRUPTCY CONSIDERATIONS
The ability of the holders of the Notes to realize upon the Collateral will
be subject to certain bankruptcy law limitations in the event of a bankruptcy of
PRI. Under applicable federal bankruptcy laws, secured creditors are prohibited
from repossessing their security from a debtor in a bankruptcy case, or from
disposing of security repossessed from such a debtor, without bankruptcy court
approval. Moreover, applicable federal bankruptcy laws generally permit the
debtor to continue to retain collateral even though the debtor is in default
under the applicable debt instruments, provided generally that the secured
creditor is
13
<PAGE>
given "adequate protection." The meaning of the term "adequate protection" may
vary according to the circumstances, but is intended in general to protect the
value of the secured creditor's interest in the collateral at the commencement
of the bankruptcy case and may include cash payments or the granting of
additional security, if and at such times as the court in its discretion
determines, for any diminution in the value of the collateral as a result of the
stay of repossession or disposition of the collateral by the debtor during the
pendency of the bankruptcy case. In view of the lack of a precise definition of
the term "adequate protection" and the broad discretionary powers of a
bankruptcy court, the Company cannot predict whether payments under the Notes
would be made following commencement of and during a bankruptcy case, whether or
when the Trustee could foreclose upon or sell the Collateral or whether or to
what extent holders of the Notes would be compensated for any delay in payment
or loss of value of the Collateral through the requirement of "adequate
protection." Furthermore, in the event the bankruptcy court determines that the
value of the Collateral is not sufficient to repay all amounts due on the Notes,
the holders of the Notes would hold "undersecured claims." Applicable federal
bankruptcy laws do not permit the payment and/or accrual of interest, costs and
attorney's fees for "undersecured claims" during the debtor's bankruptcy case.
See "Description of Exchange Notes -- Security."
RELIANCE ON KEY CUSTOMERS AND SUPPLY AGREEMENTS
The Company's business is substantially dependent on a limited number of
customers. In fiscal 1996, the Company's ten largest customers accounted for
approximately 77.7% of its total net sales. PRI's largest customers are General
Mills (including Yoplait), Dannon and Ross Labs, which represented approximately
21.9%, 18.7% and 15.2%, respectively, of the Company's total net sales for
fiscal 1996. During fiscal 1996, no customer other than General Mills, Dannon or
Ross Labs accounted for more than 4.7% of the Company's total net sales. The
loss of a substantial customer, or a significant reduction in its business,
could have a material adverse effect on the Company's business, financial
condition and results of operations. Sales to each of the Company's customers
are dependent on the Company's ability to manufacture products of acceptable
quality that meet the customer's specifications and to deliver such products on
a timely basis. Sales to each of the Company's customers are also subject to the
level of consumer demand for such customers' products for which the Company
manufactures containers. Although management does not expect the Company to lose
or suffer a significant reduction in business from any of its large customers,
there can be no assurance that it will not suffer such a loss or reduction in
the future. See "Business -- Products and Customers."
A substantial portion of the Company's sales to its largest customers,
including Yoplait, Dannon and Ross Labs, are made pursuant to multi-year supply
agreements. Supply agreements accounting for 21% and 20% of the Company's total
net sales in fiscal 1996 are scheduled to expire in fiscal 1997 and 1998,
respectively. While the Company anticipates that, upon expiration, it will be
able to extend or renew its existing supply agreements with its customers on
terms no less favorable to the Company, no assurance can be given that it will
be able to do so.
EXPOSURE TO FLUCTUATIONS IN RESIN COST AND SUPPLY
The Company uses various plastic resins in the manufacture of its products.
For fiscal 1996, the aggregate cost for such resins was $46.4 million, or 41.7%
of the Company's total cost of goods sold. Under supply agreements with
customers that accounted for approximately 57% of the Company's net sales in
fiscal 1996, the Company has the ability to pass through resin price increases
(as well as the obligation to credit any resin price decreases). In the case of
sales which are not made pursuant to supply agreements containing such
pass-through provisions, the Company historically has passed on increases in
resin prices (as well as decreases in resin prices) to its customers through
price adjustments. Sales prices for promotional beverage cups are generally
determined in advance of a promotion and, accordingly, the Company bears the
risk of resin price increases while producing such products. Because plastic
resin is the principal component in the Company's products, the Company's
financial performance is materially dependent on its ability to pass resin price
increases on to its customers through contractual arrangements or otherwise.
Plastic resin prices are subject to fluctuations due, in part, to industry
capacity, consumption levels of resins and changes in the cost of feed stocks.
Although the Company will continue to have the benefit of resin price
pass-through provisions under its supply agreements for so long as such
agreements remain in effect, there can be no assurance that it will continue to
be able to effect such a pass-through under contractual agreements or
14
<PAGE>
otherwise in the future. In addition, there can be no assurance that a
significant increase in resin prices would not negatively impact the Company's
existing business or future business opportunities, including those relating to
the potential conversion from the glass, metal and composite containers to rigid
plastic, and thereby have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products and
Customers."
The Company purchases one of several of the resins required for the shelf
stable, multi-layer containers that it manufactures for Ross Labs exclusively
from Exxon Corporation ("Exxon"). During fiscal 1996, these products accounted
for approximately 14.5% of the Company's total net sales. The Company's current
supply agreement with Ross Labs requires that PRI obtain such resin from this
single source, and management is unaware of any alternative supplier that
manufactures such resin which conforms to the specifications required by Ross
Labs. The Company has relied on Exxon as the sole source supplier of this
particular resin since it began manufacturing products for Ross Labs in 1991 and
has no reason to believe that Exxon will not continue to supply the Company with
this resin. However, there can be no assurance that Exxon will be able to
continue to supply the Company with adequate amounts of this resin on a timely
basis in the future to allow the Company to meet its production requirements for
Ross Labs containers. The loss of Exxon as a supplier or a delay in its
shipments could have a material adverse effect on the Company's business,
financial condition and results of operations. As is customary in its industry,
PRI maintains a renewable one-year supply contract with Exxon. This contract is
scheduled to expire on February 28, 1997.
The Company believes that alternative sources are available for its other
resin requirements. However, should any of the Company's resin suppliers fail to
deliver under their arrangements, the Company would be forced to purchase resin
in the open market, and no assurances can be given that it would be able to make
such purchases at prices which would allow it to remain competitive.
RISKS ASSOCIATED WITH PROMOTIONAL BEVERAGE CUP BUSINESS
The Company significantly expanded its promotional beverage cup business
with the acquisitions of Louisiana Plastics in March 1993 and Miner Container in
December 1993. Promotional beverage cups represented approximately 17.2% of the
Company's total net sales in fiscal 1996. Unlike the Company's customized
container products, which are sold primarily under multi-year supply agreements
that generally require the customer to provide the Company with forecasts of its
container requirements, the Company's promotional beverage cups typically are
sold pursuant to one-time purchase orders. In many instances, these orders
involve large quantities and mandate specific delivery times as the Company's
promotional beverage cups often are used in connection with extensive marketing
or promotional campaigns that are national in scope and are tied to movie
releases or sporting events. While orders for promotional beverage cups
historically are highest in the spring and summer months, the predictability of
the timing and volume of such orders is limited. There can be no assurance that
the Company will not experience a temporary or extended shortage of orders for
these products which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Management believes that the use of plastic promotional beverage cups has
grown dramatically in recent years and that this growth is in large part
attributable to the emergence of such cups as a featured element of marketing
and advertising campaigns for major fast-food and beverage companies. There can
be no assurance as to the extent, if any, that fast-food and beverage companies,
the Company's principal customers for promotional beverage cups, will continue
to employ such cups as part of their marketing and advertising strategies.
COMPETITION
Most of the Company's products are sold in highly competitive markets in the
United States. The Company competes with a significant number of companies of
varying sizes, including divisions or subsidiaries of larger companies, on the
basis of price, service, quality and the ability to supply products to customers
in a timely manner. A number of the Company's competitors have financial and
other resources that are substantially greater than those of the Company.
Competitive pressures or other factors could cause the Company to lose existing
business or opportunities to generate new business or could result in
significant price erosion, all of which would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."
15
<PAGE>
RISK OF INABILITY TO FINANCE A CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to purchase all of the outstanding Notes at a price equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase. The Senior Credit Facility prohibits the purchase of the
Notes by the Company in the event of a Change of Control, unless and until such
time as the indebtedness under the Senior Credit Facility is repaid in full.
PRI's failure to purchase the Notes would result in a default under the
Indenture and the Senior Credit Facility. The inability to repay the
indebtedness under the Senior Credit Facility, if accelerated, would also
constitute an event of default under the Indenture, which could have adverse
consequences to the Company and the holders of the Notes. In the event of a
Change of Control, there can be no assurance that the Company would have
sufficient assets to satisfy all of its obligations under the Senior Credit
Facility and the Notes. See "Description of Exchange Notes--Repurchase at the
Option of Holders--Change of Control" and "Description of Certain
Indebtedness--The Senior Credit Facility."
CONTROL BY HOWARD P. HOEPER AND CERTAIN INTERESTS OF AFFILIATES
Mr. Hoeper indirectly owns all of the outstanding shares of capital stock of
Group and is the Chairman, Chief Executive Officer and President of Group and
PRI. As a result of the foregoing, Mr. Hoeper will continue to have control over
the day-to-day management policies and corporate affairs of the Company. PRI
historically has paid and will continue to pay certain management fees to HPH,
which owns all of the presently outstanding shares of capital stock of Group and
is, in turn, wholly-owned by Mr. Hoeper. See "Certain Transactions -- Management
Agreement."
Apollo owns Warrants to purchase 27,500 shares of common stock of Group (or
29.3% of the outstanding common stock of Group, assuming exercise of all of the
Warrants). Under a Stock and Warrant Holders Agreement dated as of June 30, 1993
(the "Stockholders Agreement"), Apollo has the right, which it has exercised, to
appoint two directors to the five person Boards of Directors of Group and PRI,
with Mr. Hoeper, by virtue of his ownership of HPH, having the power to appoint
the remaining directors. Group has agreed that it will not take certain
corporate actions or make material changes in its line of business (and will
cause PRI to refrain from taking such actions), unless authorized by the
affirmative vote of the directors appointed by Apollo. See "Security Ownership
of Certain Beneficial Owners and Management" and "Certain Transactions -- Stock
and Warrant Holders Agreement and Option."
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the owners of the Company's
equity and the holders of the Notes. For example, if the Company encounters
financial difficulties or is unable to pay its debts as they mature, the
interests of the Company's equity investors might conflict with those of the
holders of Notes. In addition, such equity investors may have an interest in
pursuing acquisitions, divestitures, financings or other transactions that in
their judgment would enhance their equity investment, even though such
transactions might involve risks to the holders of the Notes.
ENVIRONMENTAL MATTERS
Federal, state and local governments or regulatory agencies could enact laws
or regulations concerning environmental matters that increase the cost of
producing, or otherwise adversely affect the demand for, plastic products. The
Company is aware that certain local governments have adopted ordinances
prohibiting or restricting the use or disposal of certain plastic products that
are among the types of products manufactured by the Company. If widely adopted,
such regulatory and environmental measures or a decline in consumer preference
for plastic products due to environmental considerations could have a material
adverse effect upon the Company's business, financial condition and results of
operations. In addition, certain of the Company's operations are subject to
federal, state and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the air and water and establish
standards for the treatment, storage and disposal of solid and hazardous wastes.
While the Company has not been required historically to make significant capital
expenditures in order to comply with applicable environmental laws and
regulations, in the future the Company may have to make capital expenditures in
excess of current estimates because of continually changing compliance standards
and environmental technology. Furthermore, unknown contamination of sites
currently or formerly owned or operated by the Company (including contamination
caused by
16
<PAGE>
prior owners and operators of such sites) and off-site disposal of hazardous
substances may give rise to additional compliance costs. The Company does not
have insurance coverage for environmental liabilities and does not anticipate
obtaining such coverage in the future. See "Business -- Environmental Matters
and Governmental Regulation."
GOVERNMENT REGULATION
The Company is subject to federal and state government regulation, including
regulation by the Food and Drug Administration (the "FDA"). The FDA regulates
the material content of direct-contact food and beverage containers and packages
and periodically examines the Company's operations. The Company uses approved
resins and pigments in its direct-contact food products and believes that it is
in material compliance with all FDA and other regulations. While compliance with
FDA and other governmental regulations has not impeded the growth of the
Company's business, no assurances can be made that future regulatory measures
will not adversely affect the Company's existing business or its ability to
generate additional business or introduce new packaging products.
The Company also must adhere to applicable regulations governing "good
manufacturing practices," including testing, quality control, manufacturing and
documentation requirements. If violations of such regulations are noted during
inspections of the Company's manufacturing facilities by public health
regulatory officials, the Company may be required or may elect to cease
manufacturing until the violation is corrected or to recall products that were
manufactured under improper conditions, either of which could have a material
adverse effect on the Company's continued marketing of its products and on the
Company's business, financial condition and results of operations.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in May 1996 to a small number of institutional
investors and are eligible for trading in the Private Offerings, Resale and
Trading through Automatic Linkages (PORTAL) Market.
The Company does not intend to apply for a listing of the Exchange Notes on
any securities exchange. There is currently no established market for the
Exchange Notes and there can be no assurance as to the liquidity of markets that
may develop for the Exchange Notes, the ability of the holders of the Exchange
Notes to sell their Exchange Notes or the price at which such holders would be
able to sell their Exchange Notes. If such markets were to exist, the Exchange
Notes could trade at prices that may be lower than the initial market values
thereof depending on many factors, including prevailing interest rates, the
markets for similar securities, and the financial performance of the Company.
Although there is currently no market for the Exchange Notes, the Initial
Purchasers advised the Company that they currently intend to make a market in
the Exchange Notes. However, the Initial Purchasers are not obligated to do so,
and any such market making with respect to the Exchange Notes may be
discontinued at any time without notice. In addition, such market-making
activities will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer or the pendency of an
applicable Shelf Registration Statement (as defined herein).
In addition, the liquidity of, and trading markets for, Exchange Notes also
may be adversely affected by declines in the market for high yield securities
generally. Such a decline may adversely affect such liquidity and trading
markets independent of the financial performance of, and prospects for, the
Company.
FRAUDULENT CONVEYANCE
The incurrence by PRI of indebtedness, including the indebtedness
represented by the Notes, and the granting by PRI of Liens (as defined) to
secure indebtedness, including the Liens granted on the Collateral under the
Security Documents (as defined) to secure the Notes, are subject to state and
federal fraudulent conveyance laws. If a court of competent jurisdiction in a
lawsuit by an unpaid creditor or representative of creditors of PRI, such as a
trustee in bankruptcy or a debtor-in-possession, were to find (i) that, at the
time of the incurrence of the indebtedness represented by the Notes or the
granting of the Liens securing the Notes (or, in certain circumstances, the
indebtedness refinanced by the Notes), PRI was insolvent, was rendered insolvent
by reason of such incurrence, was engaged in a business or transaction for which
its remaining assets constituted unreasonably small capital, or intended to
incur, or believed it would incur, debts beyond
17
<PAGE>
its ability to pay such debts as they matured, and that the indebtedness was
incurred for less than reasonably equivalent value, or (ii) that the
indebtedness represented by the Notes was incurred or the Liens securing the
Notes were granted with actual intent to hinder, delay or defraud its creditors,
then such court could, among other things, (a) void all or a portion of PRI's
obligations to the holders of the Notes and/or the Liens on the Collateral or
seek to recover all or a portion of any payments previously made in respect of
the Notes, the effect of which could be that the holders of the Notes may not be
repaid in full and/or (b) subordinate PRI's obligations to the holders of the
Notes to other existing or future indebtedness of PRI and/or subordinate the
Liens on the Collateral to other existing or future Liens, the effect of which
would be to entitle such other creditors to be paid in full before any payment
could be made on the Notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction being applied. Generally, an entity would be
considered insolvent (a) if the sum of its debts (including contingent
liabilities) is greater than all of its property at a fair valuation, or (b) if
the present fair saleable value of its assets is less than the amount that will
be required to pay its probable liability on its existing debts (including
contingent liabilities) as they become absolute and matured. In addition, under
some state fraudulent transfer laws, an entity that is generally not paying its
debts as they become due is presumed to be insolvent. The Company believes that
the indebtedness represented by the Notes is being incurred, and the Liens on
the Collateral are being granted, for proper purposes and in good faith and
that, based on present forecasts and other financial information, PRI is
solvent, will continue to have sufficient capital to carry on its business and
will continue to be able to pay its debts as they mature. Furthermore, the
Company believes that the proceeds from the issuance of the Old Notes
constituted reasonably equivalent value or consideration for the incurrence of
the indebtedness represented by the Notes and the granting of the Liens on the
Collateral. There can be no assurance, however, that a court would not determine
that PRI was insolvent at the time and after giving effect to the incurrence of
the indebtedness represented by the Notes. Nor can there be any assurance that,
regardless of whether PRI was solvent, the incurrence of the indebtedness
represented by the Notes and the granting of the Liens on the Collateral would
not constitute fraudulent transfers under any other criterion listed above.
USE OF PROCEEDS
There will be no cash proceeds to the Company resulting from the Exchange
Offer.
The net proceeds from the Old Notes Offering of approximately $106.7 million
were used by PRI to (i) repay outstanding borrowings under the Old Credit
Agreement in the aggregate principal amount of $73.5 million, (ii) fund a
dividend to Group in the amount of $31.7 million, (iii) pay certain fees and
expenses in connection with the Financing Plan of approximately $850,000 and
(iv) provide working capital of approximately $650,000. Group, in turn, used the
dividend from PRI to redeem, without penalty or premium, a portion of the
outstanding 12.5% Notes at an aggregate redemption price of $31.7 million. As of
February 29, 1996, HPH, certain affiliates of Apollo and Union Bank of
Switzerland, New York Branch ("Union Bank of Switzerland"), held $3.0 million,
$33.0 million and $12.0 million in principal amount of the 12.5% Notes,
respectively. After giving effect to the redemption of the 12.5% Notes, HPH,
Apollo and Union Bank of Switzerland had $1.2 million, $13.0 million and $4.8
million, respectively, of the 12.5% Notes. See "Certain Transactions --
Repayment of Debt to Related Parties."
As of February 29, 1996, borrowings under the Old Credit Agreement totaled
$75.7 million (of which $2.25 million was paid on March 31, 1996) and had a
weighted average maturity of 1.2 years. Indebtedness repaid under the Old Credit
Agreement accrued interest at a variable rate equal to the Base Rate (generally
defined as the prime lending rate from time to time announced by Union Bank of
Switzerland) plus 1.5%. As of February 29, 1996, indebtedness under the Old
Credit Agreement accrued interest at 9.75% per annum. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
18
<PAGE>
The following table illustrates the sources and uses of funds under the
Financing Plan:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN
THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
Notes.................................................................................... $ 110,000
-------------
Total Sources.......................................................................... $ 110,000
-------------
-------------
USES OF FUNDS:
Repayment of indebtedness under Old Credit Agreement..................................... $ 73,500
Dividend to Group(a)..................................................................... 31,700
Fees and expenses(b)..................................................................... 4,150
Working capital.......................................................................... 650
-------------
Total Uses............................................................................. $ 110,000
-------------
-------------
</TABLE>
- ------------------------
(a) Dividend proceeds were used by Group to redeem, without penalty or premium,
a portion of the 12.5% Notes.
(b) Includes the discount paid to the Initial Purchasers in connection with the
issuance of the Old Notes, bank financing fees and legal and accounting
expenses.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the registration of the Old Notes.
The Old Notes were originally issued and sold on May 17, 1996 (the "Issue
Date"). Such sales were not registered under the Securities Act in reliance upon
the exemption provided by Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. In connection with the sale of the Old
Notes, the Company agreed to file with the Commission a registration statement
relating to the Exchange Offer pursuant to which the Exchange Notes, consisting
of another series of senior secured notes of the Company covered by such
Registration Statement and containing substantially identical terms to the Old
Notes, except as set forth in this Prospectus, would be offered in exchange for
Old Notes tendered at the option of the holders thereof. If (i) because of any
change in law or in currently prevailing interpretations of the Staff, the
Company is not permitted to effect an Exchange Offer, (ii) the Exchange Offer is
not consummated within 165 days of the Issue Date, (iii) in certain
circumstances, certain holders of unregistered Exchange Notes so request, (iv)
the holders of not less than a majority in aggregate principal amount of the
Notes reasonably determine that the interests of the holders of Notes would be
materially adversely affected by consummation of the Exchange Offer or (v) in
the case of any holder of Old Notes that participates in the Exchange Offer,
such holder of Old Notes does not receive Exchange Notes on the date of the
exchange that may be sold without restriction under state and federal securities
laws (other than due solely to the status of such holder of Old Notes as an
Affiliate of the Company) then the Company will, within three Business Days
thereof, deliver written notice thereof to the Trustee and at its cost, as
promptly as practicable, file with the Commission a registration statement (the
"Shelf Registration Statement") to cover resales of the Old Notes. In the event
that (i) the Company fails to file the Registration Statement, (ii) the
Registration Statement or, if applicable, the Shelf Registration Statement, is
not declared effective by the Commission, or (iii) the Exchange Offer is not
consummated or the Shelf Registration Statement ceases to be effective, in each
case within specified time periods, the interest rate borne by the Old Notes
will be increased. See "Old Notes Registration Rights."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying the
Registration Statement of which this Prospectus is a part (the "Letter of
Transmittal"), $1,000 in principal amount of Exchange Notes for each $1,000 in
principal amount of Old Notes. The terms of the Exchange Notes are substantially
identical to the terms of the Old
19
<PAGE>
Notes for which they may be exchanged pursuant to this Exchange Offer, except
that the Exchange Notes will generally be freely transferable by holders
thereof, and the holders of the Exchange Notes (as well as remaining holders of
any Old Notes) are not entitled to certain registration rights and certain
additional interest provisions which are applicable to the Old Notes under the
Registration Rights Agreement. The Exchange Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. The Company intends
to conduct the Exchange Offer in accordance with the applicable requirements of
the Exchange Act, and the rules and regulations of the Commission thereunder,
including Rule 14e-1, to the extent applicable.
Based on its view of interpretations set forth in no-action letters issued
by the Staff to third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Old Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an Affiliate of the Company, (ii) a broker-dealer who
acquired Old Notes directly from the Company or (iii) a broker-dealer who
acquired Old Notes as a result of market making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged in,
and do not intend to engage in, and have no arrangement or understanding with
any person to participate in, a distribution of such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging, and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Broker-dealers who acquired Old Notes as a result
of market making or other trading activities may use this Prospectus, as
supplemented or amended, in connection with resales of the Exchange Notes. The
Company has agreed that, for a period of 180 days after the Registration
Statement is declared effective, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. Any holder who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes or any other holder that cannot rely upon such interpretations
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
Tendering holders of Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from May 17, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from May 17, 1996 to the date of the issuance of the Exchange Notes. Interest on
the Exchange Notes is payable semiannually in arrears on May 1, and November 1
of each year, commencing November 1, 1996, accruing from May 17, 1996 at a rate
of 11 5/8% per annum.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on September 20, 1996 unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to LaSalle
National Bank (the "Exchange Agent") and by timely public announcement
communicated by no later than 5:00 p.m. on the next business day following the
Expiration Date, unless otherwise
20
<PAGE>
required by applicable law or regulation, by making a release to the Dow Jones
News Service. During any extension of the Exchange Offer, all Old Notes
previously tendered pursuant to the Exchange Offer will remain subject to the
Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Old Notes for any reason,
including if any of the events set forth below under "Conditions to the Exchange
Offer" shall have occurred and shall not have been waived by the Company and
(ii) amend the terms of the Exchange Offer in any manner, whether before or
after any tender of the Old Notes. If any such termination or amendment occurs,
the Company will notify the Exchange Agent in writing and will either issue a
press release or give written notice to the holders of the Old Notes as promptly
as practicable. Unless the Company terminates the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date, the Company will exchange the
Exchange Notes for Old Notes on the Exchange Date.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Old Notes and will
be furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the lists of holders for subsequent transmittal to
beneficial owners of Old Notes.
HOW TO TENDER
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
GENERAL PROCEDURES
A holder of an Old Note may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
(or a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
pursuant to the procedure described below), to the Exchange Agent at its address
set forth on the back cover of this Prospectus on or prior to the Expiration
Date or (ii) complying with the guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder, the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of the registered holder appearing on the note register for the
Old Notes, the signature on the Letter of Transmittal must be guaranteed by an
Eligible Institution.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
Old Notes should contact such holder promptly and instruct such holder to tender
Old Notes on such beneficial owner's behalf. If such beneficial owner wishes to
tender such Old Notes himself, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering such Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or follow the procedures described in the immediately
preceding paragraph. The transfer of record ownership may take considerable
time.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC (the "Book-Entry Transfer Facility") for purposes of the
Exchange Offer within two business days after receipt of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
21
<PAGE>
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address specified on
the back cover of this Prospectus on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide a taxpayer identification number (social security number or employer
identification number, as applicable) and certify that such number is correct.
Each tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
the Company and the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the Letter of Transmittal on or prior to the Expiration
Date a letter, telegram or facsimile transmission from an Eligible Institution
setting forth the name and address of the tendering holder, the principal amount
of the Old Notes being tendered, the names in which the Old Notes are registered
and, if possible, the certificate numbers of the Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of such letter,
telegram or facsimile transmission by the Eligible Institution, the Old Notes,
in proper form for transfer, will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Old Notes being tendered by the
above-described method (or a timely Book-Entry Confirmation) are deposited with
the Exchange Agent within the time period set forth above (accompanied or
preceded by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a timely Book-Entry Confirmation) is received
by the Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Old Notes (or a timely Book-Entry
Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company, the
Exchange Agent nor any other person will be under
22
<PAGE>
any duty to give notification of any defects or irregularities in tenders or
shall incur any liability for failure to give any such notification. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Old Notes, and that, when the same
are accepted for exchange, the Company will acquire good and unencumbered title
to the tendered Old Notes, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes. All authority conferred
by the Transferor will survive the death or incapacity of the Transferor and
every obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By tendering Old Notes and executing the Letter of Transmittal, the
Transferor certifies that (a) it is not an Affiliate of the Company, that it is
not a broker-dealer that owns Old Notes acquired directly from the Company or an
Affiliate of the Company, that it is acquiring the Exchange Notes offered hereby
in the ordinary course of such Transferor's business and that such Transferor is
not engaged in and does not intend to engage in and has no arrangement with any
person to participate in the distribution of such Exchange Notes, (b) that it is
an Affiliate of the Company or of the initial purchaser of the Old Notes in the
Offering and that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it, or (c) that
it is a broker dealer which is a beneficial owner (as defined in Rule 13d-3
under the Exchange Act) of Exchange Notes received by such broker dealer in the
Exchange Offer (a "Participating Broker-Dealer") and that it will deliver a
prospectus in connection with any resale of such Exchange Notes. By tendering
Old Notes and executing a Letter of Transmittal, the Transferor further
certifies that it is not engaged in and does not intend to engage in a
distribution of the Exchange Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Notes to be withdrawn, the certificate
numbers of Old Notes to be withdrawn, the principal amount of Old Notes to be
withdrawn, a statement that such holder is withdrawing his election to have such
Old Notes exchanged, and the name of the registered holder of such Old Notes,
and must be signed by the holder in the same manner as the original signature on
the Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to the Company that the person withdrawing
the tender has succeeded to the beneficial ownership of the Old Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Old Notes
promptly following receipt of notice of withdrawal. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and the
issuance of the Exchange Notes will be made on the
23
<PAGE>
Exchange Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Old Notes when, as and if
the Company has given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purposes of receiving Exchange Notes from the Company and causing the
Old Notes to be assigned, transferred and exchanged. Upon the terms and subject
to conditions of the Exchange Offer, delivery of Exchange Notes to be issued in
exchange for accepted Old Notes will be made by the Exchange Agent promptly
after acceptance of the tendered Old Notes. Old Notes not accepted for exchange
by the Company will be returned without expense to the tendering holders (or in
the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the procedures described
above, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) promptly following the Expiration Date
or, if the Company terminates the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in respect of any properly tendered Old Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated by no later than 5:00 p.m. on the
next business day following the Expiration Date, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News Service)
or, at its option, modify or otherwise amend the Exchange Offer, if (a) there
shall be threatened, instituted or pending any action or proceeding before, or
any injunction, order or decree shall have been issued by, any court or
governmental agency or other governmental regulatory or administrative agency or
commission, (i) seeking to restrain or prohibit the making or consummation of
the Exchange Offer or any other transaction contemplated by the Exchange Offer,
(ii) assessing or seeking any damages as a result thereof or (iii) resulting in
a material delay in the ability of the Company to accept for exchange or
exchange some or all of the Old Notes pursuant to the Exchange Offer; (b) any
statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer or
any of the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the reasonable judgment of the Company
might directly or indirectly result in any of the consequences referred to in
clauses (a)(i) or (ii) above or, in the reasonable judgment of the Company,
might result in the holders of Exchange Notes having obligations with respect to
resales and transfers of Exchange Notes which are greater than those described
in the interpretations of the Staff referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the Exchange
Offer; or (c) a material adverse change shall have occurred in the business,
condition (financial or otherwise), operations, or prospects of the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in whole
or in part at any time or from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right, and each right will be deemed an ongoing
right which may be asserted at any time or from time to time.
Any determination by the Company concerning the fulfillment or
nonfulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes tendered
and no Exchange Notes will be issued in exchange for any such Old Notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
24
<PAGE>
EXCHANGE AGENT
LaSalle National Bank has been appointed as the Exchange Agent for the
Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent
as follows:
To: LaSalle National Bank
FACSIMILE TRANSMISSION:
(312) 904-2236
CONFIRM BY TELEPHONE TO:
(312) 904-2444
BY MAIL OR OVERNIGHT DELIVERY:
LaSalle National Bank
Corporate Trust Division
135 South LaSalle Street
Suite 1825
Chicago, Illinois 60603
Attention: Sarah H. Webb
BY HAND DELIVERY:
LaSalle National Bank
c/o IBJ Schroder Bank and Trust Company
One State Street - Floor SC1
Securities Processing Window
New York, New York 10004
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting, legal fees and miscellaneous
expenses will be paid by the Company and are estimated to be approximately
$135,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction the securities laws or blue sky laws
of which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
25
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for Exchange Notes by tendering holders will not
be a taxable exchange for federal income tax purposes, and such holders should
not recognize any taxable gain or loss as a result of such exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Old Notes
and the Registration Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights, and limitations applicable
thereto, under the Indenture, except for any such rights under the Registration
Rights Agreement which by their terms terminate or cease to have further effect
as a result of the making of this Exchange Offer. See "Description of Exchange
Notes." All untendered Old Notes will continue to be subject to the restriction
on transfer set forth in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for any
remaining Old Notes could be adversely affected. See "Risk Factors --
Consequences of Failure to Exchange Old Notes."
Subject to the restrictions contained in the Indenture, the Company may in
the future seek to acquire untendered Old Notes in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise. The
Company has no present plan to acquire any Old Notes which are not tendered in
the Exchange Offer.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 29, 1996 and as of May 31, 1996 to reflect the Financing Plan as
described under "Use of Proceeds." This table should be read in conjunction with
the financial statements of the Company and the related notes thereto and other
information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 29,
1996
------------
MAY 31, 1996
-------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current maturities):
Old Credit Agreement (a)........................................................ $ 75,724 $ --
Other Notes Payable............................................................. 1,800 1,250
Senior Credit Facility (b)...................................................... -- --
11 5/8% Senior Secured Notes due 2003 (c)....................................... -- 110,000
------------ -------------
Total long-term debt (including current maturities): 77,524 111,250
------------ -------------
Stockholder's equity:
Common stock, par value $.01 per share; 1,000 shares authorized, issued and
outstanding.................................................................... -- --
Additional paid-in capital...................................................... 20,278 (11,483)
Retained earnings (deficit)..................................................... (2,013) (2,209)(d)
------------ -------------
Total stockholder's equity (deficit).......................................... 18,265 (13,692)
------------ -------------
Total capitalization........................................................ $ 95,789 $ 97,558
------------ -------------
------------ -------------
</TABLE>
- ------------------------
(a) Includes $2.25 million of indebtedness paid on March 31, 1996.
(b) The Senior Credit Facility provides for revolving loans of up to $20.0
million, subject to certain borrowing conditions and limitations. See
"Description of Certain Indebtedness -- The Senior Credit Facility."
(c) Reflects the issuance of the Old Notes.
(d) Reflects (i) a non-cash extraordinary charge of $1.1 million (net of tax
benefit) for the write-off of the unamortized financing fees and debt
issuance costs associated with the Old Credit Agreement and (ii) a dividend
from PRI to Group in the amount of $31.7 million used to redeem a portion of
the 12.5% Notes. See "Security Ownership of Certain Beneficial Owners and
Management" for a description of the Warrants.
27
<PAGE>
SELECTED FINANCIAL DATA
The following table presents summary historical and pro forma financial
information for the Company. The summary statement of operations data and other
operating data set forth below for the years ended February 28, 1994 and 1995
and February 29, 1996 and the three months ended May 31, 1995 and 1996 and the
balance sheet data at February 28, 1995 and February 29, 1996 and May 31, 1995
and 1996 have been derived from, and are qualified by reference to, the
financial statements of the Company included elsewhere in this Prospectus. The
summary statement of operations data and other operating data set forth below
for the years ended February 29, 1992 and February 28, 1993 and the balance
sheet data at February 29, 1992 and February 28, 1993 and 1994 have been derived
from the Company's audited financial statements not included herein. Historical
financial data reflects the acquisitions of Louisiana Plastics and Miner
Container from March 12, 1993 and December 15, 1993, respectively. The unaudited
pro forma financial data for fiscal 1996 give effect to the Financing Plan as if
it had occurred on March 1, 1995 for purposes of the statement of operations
data and the other operating data and as of February 29, 1996 for purposes of
the balance sheet data. The unaudited pro forma financial data do not purport to
represent what the Company's results of operations would have been if the
Financing Plan had in fact occurred as of the beginning of the period or on the
date indicated, as applicable, or to project the Company's financial position or
results of operations for any future date or period. Results for interim periods
may not be indicative of results for a full year. The selected financial data
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the historical financial
statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
FISCAL YEAR ENDED ENDED
---------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31,
1992 (A) 1993 1994 1995 1996 1995
----------- ----------- --------- --------- --------- ---------
PRO FORMA
FEB. 29,
1996 (B)
-----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 80,473 $ 74,950 $ 118,844 $ 135,696 $ 133,756 $ 133,756 $ 36,335
Cost of goods sold (c).................... 65,996 59,232 93,248 113,928 111,448 111,448 30,142
----------- ----------- --------- --------- --------- ----------- ---------
Gross profit.............................. 14,477 15,718 25,596 21,768 22,308 22,308 6,193
Selling, general and administrative
expenses................................. 4,990 4,512 6,657 8,407 6,864 6,864 1,796
Amortization of intangibles............... 620 424 1,122 3,102 2,434 2,434 599
Nonrecurring charge (d)................... -- -- -- 7,257 -- -- --
----------- ----------- --------- --------- --------- ----------- ---------
Operating income.......................... 8,867 10,782 17,817 3,002 13,010 13,010 3,798
Interest expense, net (e)................. 6,082 5,406 5,482 8,503 10,671 13,416 2,769
----------- ----------- --------- --------- --------- ----------- ---------
Income (loss) before income taxes,
extraordinary item and cumulative effect
of change in accounting principle........ 2,785 5,376 12,335 (5,501) 2,339 (406) 1,029
Income tax expense (benefit).............. 1,268 2,215 5,057 (1,980) 1,006 (175) 422
----------- ----------- --------- --------- --------- ----------- ---------
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle..................... 1,517 3,161 7,278 (3,521) 1,333 $ (231) 607
----------- ----------- --------- --------- --------- ----------- ---------
-----------
Extraordinary item (f).................... -- -- (2,743) -- -- --
Cumulative effect of change in accounting
principle (g)............................ -- -- (2,300) -- -- --
----------- ----------- --------- --------- --------- ---------
Net income (loss)......................... $ 1,517 $ 3,161 $ 2,235 $ (3,521) $ 1,333 $ 607
----------- ----------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- ---------
CASH FLOW DATA:
Net cash provided by (used in) operating
activities............................... $ 8,743 $ 6,058 $ (4,506) $ 11,472 $ 11,775 $ 3,911
Net cash used in investing activities..... (3,309) (5,684) (47,557) (7,250) (4,956) (714)
Net cash provided by (used in) financing
activities............................... (5,430) (380) 52,733 (4,684) (6,653) (1,800)
BALANCE SHEET DATA (PERIOD END):
Property, plant, and equipment, net....... $ 30,302 $ 31,276 $ 56,912 $ 56,213 $ 52,352 $ 52,352 $ 55,038
Total assets.............................. 61,337 62,727 136,545 121,966 110,683 112,620 118,376
Total debt................................ 41,903 42,861 86,361 84,177 77,524 112,152 82,376
Stockholder's equity (deficit)............ (561) 1,134 22,953 16,932 18,265 (13,563) 17,542
<CAPTION>
<S> <C> <C>
PRO FORMA
MAY 31, MAY 31,
1996 1996 (B)
----------- -----------
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 31,316 $ 31,316
Cost of goods sold (c).................... 25,356 25,356
----------- -----------
Gross profit.............................. 5,960 5,960
Selling, general and administrative
expenses................................. 1,848 1,848
Amortization of intangibles............... 174 174
Nonrecurring charge (d)................... -- --
----------- -----------
Operating income.......................... 3,938 3,938
Interest expense, net (e)................. 2,416 3,391
----------- -----------
Income (loss) before income taxes,
extraordinary item and cumulative effect
of change in accounting principle........ 1,522 547
Income tax expense (benefit).............. 654 235
----------- -----------
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle..................... 868 $ 312
----------- -----------
-----------
Extraordinary item (f).................... (1,064)
Cumulative effect of change in accounting
principle (g)............................ --
-----------
Net income (loss)......................... $ (196)
-----------
-----------
CASH FLOW DATA:
Net cash provided by (used in) operating
activities............................... $ 7,908
Net cash used in investing activities..... (1,942)
Net cash provided by (used in) financing
activities............................... (2,185)
BALANCE SHEET DATA (PERIOD END):
Property, plant, and equipment, net....... $ 52,433
Total assets.............................. 116,881
Total debt................................ 111,250
Stockholder's equity (deficit)............ (13,692)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
THREE
MONTHS
FISCAL YEAR ENDED ENDED
---------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31,
1992 (A) 1993 1994 1995 1996 1995
----------- ----------- --------- --------- --------- ---------
PRO FORMA
FEB. 29,
1996 (B)
-----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
OTHER OPERATING DATA:
Ratio of earnings to fixed charges (h).... 1.43x 1.93x 3.00x (i) 1.21x (i) 1.35x
EBITDA (j)................................ $ 12,570 $ 14,434 $ 24,096 $ 20,751 $ 22,731 $ 22,731 $ 6,262
Depreciation and amortization (k)......... 3,703 3,652 6,279 10,492 9,721 9,721 2,464
Capital expenditures (l).................. 2,735 4,435 5,556 7,925 3,449 3,449 740
Ratio of EBITDA to interest expense....... 2.07x 2.67x 4.40x 2.44x 2.13x 1.69x 2.26x
Ratio of EBITDA to cash interest expense
(m)...................................... 2.29x 3.00x 5.04x 2.71x 2.52x 1.77x 2.66x
<CAPTION>
<S> <C> <C>
PRO FORMA
MAY 31, MAY 31,
1996 1996 (B)
----------- -----------
OTHER OPERATING DATA:
Ratio of earnings to fixed charges (h).... 1.59x 1.15x
EBITDA (j)................................ $ 5,981 $ 5,981
Depreciation and amortization (k)......... 2,043 2,043
Capital expenditures (l).................. 1,942 1,942
Ratio of EBITDA to interest expense....... 2.48x 1.76x
Ratio of EBITDA to cash interest expense
(m)...................................... 2.92x 1.84x
</TABLE>
- ------------------------------
(a) Fiscal 1992 amounts have been restated to reflect a change in accounting for
inventory. In fiscal 1993, the Company changed its inventory costing method
from the LIFO method to the FIFO method. Cost of goods sold for all fiscal
years presented is valued using the FIFO method.
(b) Financial data for fiscal 1996 gives effect to the Financing Plan, as if
such transactions had occurred on March 1, 1995 for purposes of the
statement of operations data and the other operating data and as of February
29, 1996 for purposes of the balance sheet data. Pro forma adjustments to
statement of operations data and other operating data for the year ended
February 29, 1996 include adjustments to interest expense in the aggregate
amount of $2.7 million, reflecting the elimination of interest expense
relating to the Old Credit Agreement and the addition of interest expense
associated with the Notes and the Senior Credit Facility. Financial data for
May 31, 1996 gives effect to the Financing Plan, as if such transactions
occurred on March 1, 1996 for purposes of the statement of operations data
and other operating data. Pro forma adjustments to statement of operations
data and other operating data include adjustments to interest expense in the
aggregate amount of $975, reflecting the elimination of interest expense
relating to the Old Credit Agreement and the addition of interest expense
associated with the Notes and the Senior Credit Facility. Pro forma
adjustments to balance sheet data for the year ended February 29, 1996
reflect (i) a non-cash extraordinary charge of $1.4 million (net of tax
benefit) for the write-off of the unamortized financing fees and debt
issuance costs associated with the Old Credit Agreement and (ii) a dividend
from PRI to Group in the amount of $30.5 million to redeem a portion of the
12.5% Notes. See "Capitalization."
(c) Cost of goods sold includes costs for raw materials, labor, maintenance and
repair of property, plant and equipment, manufacturing overhead and research
and development.
(d) The nonrecurring charges in fiscal 1995 include a charge of $6.4 million
relating to the closing and consolidation of certain manufacturing
facilities and the write-off of $894 in costs associated with a public debt
offering that was not completed by the Company.
(e) Interest expense, net includes interest income of $83, $129 and $77 in
fiscal 1993, 1994 and 1995, respectively.
(f) The extraordinary item in fiscal 1994 represents the write-off of
unamortized financing fees and costs and the payment of certain premiums in
connection with the 1993 Transaction. See Notes 8 and 11 to the Company's
financial statements included elsewhere in this Prospectus.
(g) Cumulative effect of change in accounting principle in fiscal 1994 reflects
the Company's adoption of SFAS 109, "Accounting for Income Taxes." See Notes
1 and 12 to the Company's financial statements included elsewhere in this
Prospectus.
(h) For purposes of this computation, earnings are defined as income before
income taxes plus fixed charges. Fixed charges consist of interest
(including amortization of deferred financing costs and debt discount or
premium) and that portion of rental expense that is representative of
interest (deemed to be one-third of operating lease rental expense).
(i) The Company's earnings were inadequate to cover fixed charges for fiscal
1995 and pro forma 1996 by $5.5 million and $406, respectively.
(j) EBITDA represents earnings (loss) before interest expense, provision
(benefit) for income taxes, depreciation and amortization (excluding
amortization of deferred financing costs), adjusted to exclude the
nonrecurring charges, extraordinary items and cumulative effect of changes
in accounting principles described in notes (d), (f) and (g) above. EBITDA
is presented because such data reflects earnings without giving effect to
non-cash and and nonrecurring items and is used by certain investors,
analysts and others (including the Company's lender under the Senior Credit
Facility) as one measure of a company's ability to service debt. In
29
<PAGE>
fiscal 1995, the Company's earnings were inadequate to cover fixed charges
and, as a result, the Company refinanced its outstanding senior debt.
Accordingly, EBITDA, alone, did not fully measure the Company's ability to
meet its debt service obligations in fiscal 1995. See note (i) above and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." EBITDA should not be
considered as an alternative, or be construed as more meaningful than,
operating income or cash flow from operations as determined by generally
accepted accounting principles, and does not necessarily indicate whether
cash flow will be sufficient for the Company's actual cash requirements
during any period. EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. Investors should
be aware that EBITDA as described above may differ in the method of
calculation from EBITDA presented by other companies due to the exclusion of
nonrecurring charges. See footnote (d) above for a description of
nonrecurring charges.
The following represents a reconciliation of EBITDA from net income as
determined by generally accepted accounting principles:
<TABLE>
<CAPTION>
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, MAY 31, MAY 31,
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).................... $ 1,517 $ 3,161 $ 2,235 $ (3,521) $ 1,333 $ 607 $ (196)
Cumulative effect of change in
accounting principle................ -- -- 2,300 -- -- -- --
Extraordinary item................... -- -- 2,743 -- -- -- 1,064
Income tax expense (benefit)......... 1,268 2,215 5,057 (1,980) 1,006 422 654
Interest expense, net................ 6,082 5,406 5,482 8,503 10,671 2,769 2,416
Nonrecurring Charge.................. -- -- -- 7,257 -- -- --
Depreciation and amortization (less
deferred financing costs which are
included in interest expense
above).............................. 3,703 3,652 6,279 10,492 9,721 2,464 2,043
----------- ----------- ----------- ----------- ----------- ----------- -----------
EBITDA............................... $ 12,570 $ 14,434 $ 24,096 $ 20,751 $ 22,731 $ 6,262 $ 5,981
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(k) Depreciation and amortization as presented excludes amortization of deferred
financing costs.
(l) Capital expenditures in fiscal 1994 do not include $26.9 million expended
for property, plant and equipment obtained through the acquisitions of
Louisiana Plastics and Miner Container.
(m) For the purpose of calculating the ratio of EBITDA to cash interest expense,
interest expense does not include amortization of deferred financing costs.
Amortization of deferred financing costs for fiscal 1992, 1993, 1994, 1995,
1996 and pro forma 1996 was $595, $593, $705, $848, $1.7 million and $593,
respectively. EBITDA has been included for convenience of investors and
others who use such measure. EBITDA should not be considered as an
alternative to operating income or cash flow from operations as determined
by generally accepted accounting principles, and does not necessarily
indicate whether cash flow will be sufficient for cash requirements. EBITDA
is not a measurement determined in accordance with generally accepted
accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading developer, manufacturer and marketer of rigid
plastic packaging, serving primarily as a supplier of customized containers for
national branded consumer products. The Company is the largest domestic
manufacturer of refrigerated yogurt containers, shelf stable, multi-layer
(impermeable to air and moisture) containers for nutritional supplements and
frosting containers. The Company also believes that it is the largest designer,
manufacturer and supplier of promotional beverage cups in the United States,
marketing these products primarily to the fast-food and beverage industries.
The Company's results of operations during the last three fiscal years are
not readily comparable due to a variety of extraordinary transactions and
non-recurring items. The following discussion summarizes such extraordinary
transactions and nonrecurring items.
ACQUISITIONS. During the last quarter of fiscal 1994, the Company acquired
Miner Container for an aggregate purchase price of approximately $21.0 million.
The acquisition of Miner Container was financed primarily through incurrence of
indebtedness and was treated as a purchase for accounting purposes. Through this
transaction, the Company expanded its sales of eight ounce yogurt containers for
Dannon (enabling the Company to become the sole supplier of such containers),
increased injection molding capacity, improved graphics technology and
established market share leadership in promotional beverage cups.
RESTRUCTURING. During fiscal 1994, the Company's net income was reduced by
nonrecurring charges of $2.7 million relating to prepayment premiums and the
write-off of unamortized financing costs in connection with the 1993
Transaction. In fiscal 1995, the Company incurred a nonrecurring charge of $7.3
million, $6.4 million of which related primarily to costs associated with the
closing of the Sparks, Nevada and the Louisiana, Missouri facilities, and
$894,000 of which resulted from the write-off of costs associated with a public
debt offering which was not completed by the Company. The $6.4 million
restructuring charge relating to the closed facilities consisted primarily of
expenditures made or anticipated to be made in connection with such closings,
including employee severance benefits and costs associated with the relocation
of equipment from the closed facilities. Substantially all of the expenditures
associated with this charge were made in fiscal 1995.
ACCOUNTING CHANGES. Fiscal 1994 net income was further reduced by $2.3
million representing the cumulative effect of the Company's adoption of SFAS
109, "Accounting for Income Taxes."
DEBT REPAYMENT. In the first fiscal quarter of fiscal 1997, the Company
incurred an extraordinary non-cash charge of $1.1 million (net of tax benefit)
for the write-off of unamortized financing fees and costs associated with the
Old Credit Agreement.
OTHER. The principal elements comprising the Company's cost of goods sold
are raw materials consisting primarily of plastic resins, labor, manufacturing
overhead and research and development expenses. Historically, the Company has
been able to pass along resin price increases or decreases to packaging
customers. The Company's selling, general and administrative expenses include
salaries, management fees payable to HPH and other items of corporate overhead.
In April 1994, the Company paid discretionary bonuses to management employees
totaling $810,545. For financial reporting purposes, $250,000 and $560,545 of
such bonus payments were expensed in fiscal 1994 and 1995, respectively. No such
bonuses were paid in fiscal 1996.
31
<PAGE>
The following table sets forth, for the fiscal years indicated, the income
statement of the Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales by product category:
Packaging products................................................. 79.9% 75.8% 82.8%
Promotional beverage cups.......................................... 19.0 21.1 17.2
Housewares......................................................... 1.1 3.1 --
--------- --------- ---------
Net sales............................................................ 100.0 100.0 100.0
Cost of goods sold................................................... 78.5 84.0 83.3
--------- --------- ---------
Gross profit......................................................... 21.5 16.0 16.7
Selling, general and administrative expenses......................... 5.6 6.2 5.1
Amortization of intangibles.......................................... 0.9 2.3 1.8
Nonrecurring charge.................................................. -- 5.3 --
--------- --------- ---------
Operating income..................................................... 15.0 2.2 9.8
Interest expense, net................................................ 4.6 6.3 8.0
--------- --------- ---------
Income (loss) before income taxes, extraordinary item and cumulative
effect of change in accounting principle............................ 10.4 (4.1) 1.8
--------- --------- ---------
Income tax expense (benefit)......................................... 4.3 (1.5) 0.8
--------- --------- ---------
Income (loss) before extraordinary item and cumulative effect of
change in accounting principle...................................... 6.1 (2.6) 1.0
Extraordinary item................................................... 2.3 -- --
Cumulative effect of change in accounting principle.................. 1.9 -- --
--------- --------- ---------
Net income (loss).................................................. 1.9 (2.6) 1.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
RESULTS OF OPERATIONS
The following discussion represents the analysis by the Company's management
of the results of operations for fiscal 1994, 1995 and 1996 and the three months
ended May 31, 1995 and 1996. This discussion should be read in conjunction with
the financial statements of the Company and the notes thereto included elsewhere
in this Prospectus.
THREE MONTHS ENDED MAY 31, 1996 COMPARED TO THREE MONTHS ENDED MAY 31, 1995
NET SALES: Net sales decreased $5.0 million, or 13.8%, from $36.3 million
in the first quarter of fiscal 1996 to $31.3 million in the first quarter of
fiscal 1997. Packaging sales decreased $0.4 million, or 1.4%, from $27.9 million
in the first quarter of fiscal 1996 to $27.5 million in the first quarter of
fiscal 1997. Net sales to Yoplait increased $0.9 million in the first quarter of
fiscal 1997 compared to the first quarter of fiscal 1996, primarily reflecting
higher unit volume. This increase was offset with a decrease in net sales to
Ross Labs and Dannon of $0.4 million and $0.3 million, respectively, primarily
reflecting lower unit volume and the pass through of lower resin cost. Packaging
sales were also adversely impacted by the Company's loss of certain lower margin
accounts. Promotional sales decreased $4.6 million, or 55.0%, from $8.4 million
in the first quarter of fiscal 1996 to $3.8 million in the first quarter of
fiscal 1997. This decrease is primarily due to a major promotion that occurred
during the first quarter of fiscal 1996 but was not repeated during the
comparable period of fiscal 1997.
GROSS PROFIT: Gross profit decreased $0.2 million, from $6.2 million in the
first quarter of fiscal 1996 to $6.0 million in the first quarter of fiscal
1997. Gross margins improved from 17.0% in the first quarter of fiscal 1996 to
19.0% in the first quarter of fiscal 1997. This increase in gross margin
reflects a favorable shift in product mix to higher margin products and the
lower costs of resin used in promotional beverage containers.
32
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses remained flat at $1.8 million in the first quarter of
fiscal 1996 and the first quarter of fiscal 1997 but increased as a percentage
of net sales from 4.9% to 5.9% due to lower net sales.
AMORTIZATION EXPENSE: Amortization expense decreased $0.4 million, from
$0.6 million in the first quarter of fiscal 1996 to $0.2 million in the first
quarter of fiscal 1997. The decrease is primarily attributable to the
non-compete agreement related to the purchase of Miner Container being fully
amortized in fiscal 1996.
OPERATING INCOME: Operating income increased $0.1 million, from $3.8
million, or 10.5% of net sales, in the first quarter of fiscal 1996 to $3.9
million, or 12.6% on net sales, in the first quarter of fiscal 1997, reflecting
the favorable change in product mix and decreased amortization expense noted
above.
INTEREST EXPENSE: Interest expense decreased $0.4 million, from $2.8
million in the first quarter of fiscal 1996 to $2.4 million in the first quarter
of fiscal 1997. The decrease is primarily due to lower average debt balances.
Interest expense will increase in future periods as a result of the issuance of
the Senior Secured Notes (as defined below).
INCOME TAXES: Income taxes increased $0.3 million, from $.04 million in the
first quarter of fiscal 1996 to $.07 million in the first quarter of fiscal 1997
due to higher earnings. The Company's effective state and Federal tax rate was
41% in the first quarter of fiscal 1996 and 43% in the first quarter of fiscal
1997.
INCOME BEFORE EXTRAORDINARY ITEM: For the reasons noted above, income
before extraordinary item increased $0.3 million, from $0.6 million in the first
quarter of fiscal 1996 to $0.9 million in the first quarter of fiscal 1997.
EXTRAORDINARY ITEM, NET OF TAX: In the first quarter of fiscal 1997, the
Company recorded an extraordinary write-off net of taxes of $1.1 million for
unamortized deferred financing costs related to bank debt which was repaid in
May 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES. Net sales decreased $1.9 million, or 1.4%, from $135.7 million
in fiscal 1995 to $133.8 million in fiscal 1996. Packaging sales increased 7.7%,
from $102.9 million in fiscal 1995, to $110.8 million in fiscal 1996. Net sales
in fiscal 1996 to Yoplait, Ross Labs and Dannon increased by $5.1 million, $2.6
million and $1.5 million, respectively, over the prior fiscal year to an
aggregate of $24.0 million, $20.3 million and $25.0 million, respectively,
primarily reflecting higher unit volume. Partially offsetting such increases was
the loss of certain low margin packaging accounts. Promotional cup sales
declined approximately $5.6 million, or 19.6%, from $28.6 million in fiscal 1995
to $23.0 million in fiscal 1996, due to fewer customer promotions. Divestiture,
during fiscal 1995, of the housewares product line acquired in connection with
the acquisition of Miner Container also resulted in a decline of $4.2 million in
net sales.
GROSS PROFIT. Gross profit increased $0.5 million, from $21.8 million in
fiscal 1995 to $22.3 million in fiscal 1996. Gross margins improved from 16.0%
in fiscal 1995 to 16.7% in fiscal 1996. This increase in gross margin reflects a
favorable shift in product mix to higher margin products, such as yogurt
containers and shelf stable, multi-layer nutritional supplement containers, the
discontinuance of certain lower margin packaging businesses and the divestiture
of the housewares product line. The increase is also attributable to cost
savings achieved by closing the Sparks, Nevada, and Louisiana, Missouri plants.
These increases were offset, in part, by higher costs of resin used in
promotional beverage containers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $1.5 million, or 17.8%, from $8.4 million in
fiscal 1995 to $6.9 million in fiscal 1996 and decreased as a percentage of net
sales from 6.2% to 5.1%. This decline reflects cost savings resulting from a
reduction in administrative staff, a reduction in variable selling expenses as a
result of fewer promotional beverage cup sales as well as the fact that no
management bonuses were paid during fiscal 1996.
AMORTIZATION EXPENSE. Amortization expense decreased $0.7 million, from
$3.1 million in fiscal 1995 to $2.4 million in fiscal 1996, primarily due to the
completion of the amortization in fiscal 1996 of the non-compete agreements
entered into in connection with the purchase of Miner Container and Louisiana
Plastics.
33
<PAGE>
OPERATING INCOME. Operating income increased $10.0 million from $3.0
million, or 2.2% of net sales, in fiscal 1995 to $13.0 million, or 9.8% of net
sales, in fiscal 1996. Without giving effect to the $7.3 million nonrecurring
charge taken in fiscal 1995, operating income would have increased $2.8 million,
or 26.8%, from fiscal 1995 to fiscal 1996, reflecting the favorable change in
product mix and the impact of the cost reductions noted above. As a percentage
of net sales, operating income, without giving effect to the nonrecurring charge
in fiscal 1995, increased from 7.6% in fiscal 1995 to 9.8% in fiscal 1996.
INTEREST EXPENSE. Interest expense increased 25.9% from $8.5 million in
fiscal 1995 to $10.7 million in fiscal 1996 primarily due to accelerated
amortization of deferred financing costs as a result of the shortening of the
maturity of the Old Credit Agreement.
INCOME TAXES. Income taxes increased from a benefit of $2.0 million in
fiscal 1995 to an expense of $1.0 million in fiscal 1996 due to pre-tax income
in fiscal 1996 as compared to a pre-tax loss fiscal 1995. The Company's
effective state and Federal tax rate increased from 36.0% in fiscal 1995 to
43.0% in fiscal 1996.
NET INCOME (LOSS). For the reasons stated above, net loss was $3.5 million
in fiscal 1995 compared to net income of $1.3 million in fiscal 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales increased $16.9 million, or 14.2%, from $118.8 million
in fiscal 1994 to $135.7 million in fiscal 1995. Packaging sales increased 8.4%,
from $94.9 million in fiscal 1994 to $102.9 million in fiscal 1995. Net sales in
fiscal 1995 to Yoplait, Ross Labs and Dannon increased by $2.4 million, $3.5
million and $8.6 million, respectively, over the prior fiscal year to an
aggregate of $18.9 million, $17.7 million and $23.6 million, respectively,
primarily reflecting higher unit volume. Approximately $3.8 million of the
increase in sales to Dannon was attributable to the acquisition of Miner
Container. Partially offsetting such increases was a decline of approximately
$6.5 million in net sales resulting from the Company's loss of, or decision to
exit, certain lower margin packaging business. Promotional cup sales increased
approximately $6.0 million, or 26.5%, from $22.6 million in fiscal 1994 to $28.6
million in fiscal 1995, due to the acquisition of Miner Container and the
Company's participation in nationwide promotions by McDonald's and Burger King.
The housewares product line, also acquired in connection with the purchase of
Miner Container, contributed additional net sales of $2.9 million in fiscal
1995.
GROSS PROFIT. Despite higher net sales, gross profit decreased $3.8
million, or 14.8%, from $25.6 million in fiscal 1994 to $21.8 million in fiscal
1995. Gross margin declined from 21.5% in fiscal 1994 to 16.0% in fiscal 1995.
The decline in gross margin was primarily due to manufacturing inefficiencies at
the Company's former Sparks, Nevada and Louisiana, Missouri facilities, excess
production capacity and higher resin costs for promotional beverage cups and
lids. The portion of depreciation expense reflected in cost of goods sold
increased from $5.0 million (4.2% of net sales) in fiscal 1994 to $7.3 million
(5.4% of net sales) in fiscal 1995 due to the acquisition of Miner Container.
These costs were partially offset by a favorable change in product mix
reflecting increased sales of higher margin products, particularly yogurt
containers and shelf stable, multi-layer nutritional supplement containers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.7 million, or 25.4%, from $6.7 million in
fiscal 1994 to $8.4 million in fiscal 1995 and increased as a percentage of net
sales from 5.6% to 6.2%. This increase resulted primarily from an increase in
selling and administrative staff, higher variable costs associated with
increased sales of promotional beverage cups and the recognition of $560,545 in
management bonus payments in fiscal 1995.
AMORTIZATION EXPENSE. Amortization expense increased $2.0 million, from
$1.1 million in fiscal 1994 to $3.1 million in fiscal 1995. The increase is
primarily attributable to the amortization of goodwill and non-compete
agreements related to the purchase of Miner Container.
NONRECURRING CHARGE. As described above, in fiscal 1995 the Company
incurred a nonrecurring charge of $7.3 million, $6.4 million of which related to
expenses incurred in connection with the closing of
34
<PAGE>
manufacturing facilities in Sparks, Nevada and Louisiana, Missouri and
consolidation of operations and $894,000 of which reflected write-off of costs
associated with a public debt offering that was not completed by the Company.
OPERATING INCOME. Operating income decreased $14.8 million, from $17.8
million, or 15.0% of net sales, in fiscal 1994 to $3.0 million, or 2.2% of net
sales, in fiscal 1995, as a result of lower gross margins, higher selling,
general and administrative expenses and the nonrecurring charge discussed above.
INTEREST EXPENSE. Interest expense increased $3.0 million, from $5.5
million in fiscal 1994 to $8.5 million in fiscal 1995. This increase reflects
higher borrowing levels under the Company's Old Credit Agreement, primarily to
finance the purchase of Miner Container, and slightly higher interest rates.
INCOME TAXES. Income taxes decreased from $5.1 million in fiscal 1994 to a
$2.0 million benefit in fiscal 1995 due to lower earnings. The Company's
effective state and Federal tax rate was 41.0% in fiscal 1994 and 36.0% in
fiscal 1995.
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE. For the reasons noted above, income before extraordinary
item and cumulative effect of change in accounting principle decreased from $7.3
million in fiscal 1994 to a net loss of $3.5 million in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from capital investments,
working capital requirements and principal and interest payments on its
indebtedness. The Company has met these liquidity requirements in the past three
fiscal years primarily with funds provided by long-term borrowings and cash
generated by operating activities.
In June 1993, Group issued $40.0 million aggregate principal amount of the
12.5% Notes and PRI entered into the Old Credit Agreement. Proceeds from the
sale of the 12.5% Notes and borrowings under the Old Credit Agreement were used
to (i) refinance $39.7 million of PRI's outstanding senior bank debt, (ii)
redeem $24.0 million aggregate principal amount of PRI's 13.5% Senior
Subordinated Notes due 1996 (the "13.5% Notes"), (iii) repurchase certain
redeemable preferred stock issued by PRI with an aggregate liquidation value of
$10.0 million and (iv) acquire warrants to purchase common stock of PRI for
$13.9 million. In December 1993, PRI borrowed an additional $22.0 million under
the Old Credit Agreement to fund a portion of the purchase price for Miner
Container. Beginning in September 1994, PRI failed to comply with certain
financial covenants under the Old Credit Agreement, which caused the interest
rate applicable to outstanding borrowings thereunder to increase to the Base
Rate plus 2.0%. On March 31, 1995, the agreement was amended to modify such
covenants, establish the interest rate applicable to outstanding borrowings to
the Base Rate plus 1.5% and shorten the maturity of the facility. Since March
1995, the Company has been in compliance with all covenants under the Old Credit
Agreement. See Notes 8 and 9 to the Company's financial statements included
elsewhere in this Prospectus.
On May 17, 1996, the Company issued the Old Notes. The Company used the net
proceeds of the Old Notes, among other things, to repay all outstanding
borrowings under the Old Credit Agreement in the aggregate principal amount of
$73.5 million and pay a dividend to Group of approximately $31.7 million that
enabled Group to redeem a portion of the 12.5% Notes. In connection with the
Financing Plan, PRI also entered into the Senior Credit Facility, which enables
PRI to borrow up to $20.0 million for general working capital purposes, subject
to certain terms and conditions. See "Description of Certain Indebtedness -- The
Senior Credit Facility," "Use of Proceeds" and "Capitalization." These
transactions are part of the Financing Plan which was designed to provide the
Company with long-term fixed rate financing and increase revolving credit
availability. As a result of the Financing Plan, the Company's aggregate
indebtedness for borrowed money and its interest expense has increased. During
fiscal 1996, the Company's total interest expense was $10.7 million. The
Company's annual interest expense with respect to the Notes is $12.6 million. As
of May 31, 1996, no amounts were outstanding under the Senior Credit Facility.
The Company's scheduled principal repayments in fiscal 1997 and 1998 will total
$300,000 and $950,000, respectively.
35
<PAGE>
Cash provided by operating activities increased to $7.9 million in the first
quarter of fiscal 1997 from $3.9 million in the comparable quarter of fiscal
1996. The increase primarily reflects a $4.6 million increase in current
liabilities that was primarily due to the timing of trade payables. Other assets
increased $1.9 million primarily due to the deferral of $4.1 million of
financing costs related to the issuance of the Old Notes. This was partially
offset by the write-off of $1.9 million of deferred financing cost related to
certain bank debt that was paid off in May, 1996. The deferred financing costs
will be amortized over the life of the Notes. Stockholder's equity decreased
$31.7 million due to the dividend payment to the sole stockholder of the
Company.
Cash provided by operating activities in fiscal 1996 and 1995 was $11.8
million and $11.5 million, respectively. In fiscal 1996, cash provided from
operations declined due to a decrease in accounts payable of $5.9 million
attributable, in part, to a reduction in inventories of $3.6 million and the
timing of payments to suppliers. Despite a net loss in fiscal 1995, the Company
had an increase in cash from operations due to a decrease in receivables of $5.7
million. This was partially offset by a decrease in accrued expenses of $3.4
million primarily due to interest and acquisition reserves. In fiscal 1994,
operating activities resulted in a net use of cash of $4.5 million. In fiscal
1994, the Company's net use of cash resulted from substantial changes in certain
working capital requirements that more than offset the favorable impact of
higher net income before non-cash charges. These changes in working capital
items primarily involved an increase in inventories of $5.3 million and a
decline in accrued expenses of over $8.2 million. The increase in inventories
reflects higher levels of inventory, including production molds, necessitated by
the growth in sales over the prior fiscal year as well as the impact of the
timing of resin deliveries. The decline in accrued expenses results from the
expenditure of financing costs in connection with the 1993 Transaction and
amounts reserved in connection with the acquisitions of Louisiana Plastics and
Miner Container to fund integration and consolidation initiatives.
Capital expenditures were $0.7 million and $1.9 million for the first
quarter of fiscal 1996 and 1997, respectively. PRI's estimated capital
expenditures for the balance of fiscal 1997 are expected to range from $7.0
million to $8.0 million. These expenditures, which are intended to further
expand production capacity and reduce costs, include (i) the engineering and
manufacture of new production molds, (ii) the installation of automated
packaging and handling systems, and (iii) the expansion of the Company's
warehouse space.
Excluding the acquisitions of Louisiana Plastics and Miner Container, the
Company's capital expenditures for fiscal 1994, 1995 and 1996 were $5.6 million,
$7.9 million and $3.4 million, respectively. These expenditures primarily were
incurred to expand manufacturing capacity, including the development of molds
for new products or modified versions of existing products, and to replace and
upgrade existing equipment. PRI's estimated capital expenditures for fiscal 1997
are expected to range from $7.0 million to $10.0 million. These expenditures,
which are intended to further expand production capacity and reduce costs,
include (i) the engineering and manufacture of new production molds, (ii) the
installation of automated packaging and handling systems, and (iii) the
expansion of the Company's warehouse space.
Although there can be no assurances, the Company anticipates that its
operating cash flow, together with borrowings under the Senior Credit Facility,
will be sufficient to meet its operating expenses, projected capital
expenditures and debt service requirements as they become due.
Instruments governing the Company's indebtedness, including the Senior
Credit Facility and the Indenture, contain financial and other covenants that
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the assets
of the Company. Such limitations, together with the highly leveraged nature of
the Company, could limit corporate and operating activities, including the
Company's ability to respond to market conditions to provide for unanticipated
capital investments or to take advantage of business opportunities. See "Risk
Factors -- Leverage; Restrictive Covenants."
36
<PAGE>
SEASONALITY
The Company's business is somewhat seasonal in nature with its fourth fiscal
quarter historically the weakest due to lower consumer demand for refrigerated
yogurt and soft drink products. The Company's working capital requirements
historically have been relatively constant throughout the year but are subject
to periodic fluctuations due to, among other things, large volume orders of
promotional beverage cups that require increased inventories.
INCOME TAX MATTERS AND IMPACT OF CERTAIN ACCOUNTING POLICIES
Effective March 1, 1993, the Company adopted the accounting principles set
forth in SFAS 109 "Accounting for Income Taxes." SFAS 109 requires the
recognition of deferred tax assets and tax liabilities for operating loss
carryforwards and certain taxable and deductible differences between the tax
basis of an asset or liability and the corresponding amount reported for
financial statement purposes. The adoption of SFAS 109 resulted in a charge to
net income of $2.3 million in fiscal 1994. At February 29, 1996, the Company had
net operating loss carryforwards ("NOL's") of approximately $12.3 million which
will expire at various dates through 2011. Such NOL's are available to reduce
future taxable income for Federal income tax purposes under a tax sharing
agreement with HPH. See "Certain Transactions -- Tax Sharing Agreement."
In connection with the acquisition of Miner Container, PRI agreed to
indemnify the former owners for up to $2.3 million of tax liabilities arising
from the operations of an affiliate of Miner Container. During fiscal 1996 the
Company paid approximately $1.5 million of this obligation. The Company is
unable to estimate whether or to what extent it will be obligated to make future
payments in respect of such liabilities. Any payment made by the Company will
result in a corresponding increase in the excess of purchase price over the fair
market value of the net assets acquired attributed to this acquisition. See Note
2 to the Company's financial statements included elsewhere in this Prospectus.
INFLATION
The principal component of the Company's products is resin. In recent years,
resin prices have fluctuated, in part, due to industry capacity, consumption
levels of resins and changes in the cost of feed stocks. In the event of
significant inflationary pressures, the cost of the Company's raw materials,
including resins, may increase. Under supply agreements with customers that
accounted for approximately 57% of the Company's net sales in fiscal 1996, the
Company has the ability to pass through resin price increases (as well as the
obligation to credit any resin price decreases). In the case of sales which are
not made pursuant to supply agreements containing such pass-through provisions,
the Company historically has passed on increases in resin prices (as well as
decreases in resin prices) to its customers through price adjustments. Sales
prices for promotional beverage cups are generally determined in advance of a
promotion and, accordingly, the Company bears the risk of resin price increases
while producing such products. Because plastic resin is the principal component
in the Company's products, the Company's financial performance is materially
dependent on its ability to pass resin price increases on to its customers
through contractual arrangements or otherwise. There can be no assurance that a
significant increase in resin prices would not negatively impact the Company.
See "Risk Factors -- Exposure to Fluctuations in Resin Cost and Supply."
37
<PAGE>
BUSINESS
GENERAL
The Company is a leading developer, manufacturer and marketer of rigid
plastic packaging, serving primarily as a supplier of customized containers for
national branded consumer products. The Company is the largest domestic
manufacturer of refrigerated yogurt containers, shelf stable, multi-layer
(impermeable to air and moisture) containers for nutritional supplements and
frosting containers. The Company also believes that it is the largest designer,
manufacturer and supplier of promotional beverage cups in the United States,
marketing these products primarily to the fast-food and beverage industries. For
the fiscal year ended February 29, 1996, the Company generated net sales of
$133.8 million. Approximately 82.8% of the Company's net sales in such period
were attributable to rigid plastic packaging and 17.2% to promotional beverage
cups. In fiscal 1996, the Company produced almost four billion plastic
containers, cups and lids.
The Company's packaging products are sold to over 450 customers, including
manufacturers of national branded food, dairy and pharmaceutical products such
as General Mills, including Yoplait, Dannon, Ross Labs, Haagen Dazs, Procter &
Gamble and Pillsbury. The Company is also a major supplier of promotional
beverage cups to over 150 companies in the fast-food and beverage industries,
including McDonald's, Burger King, Pizza Hut, Hardee's, Taco Bell, Coca-Cola and
Pepsi.
The Company's rigid plastic packaging business has benefitted from, and is
positioned to continue to participate in, the growth of the markets for its
customers' products, particularly refrigerated yogurt and nutritional
supplements. According to data compiled by Find/SVP, between 1991 and 1994 U.S.
retail yogurt sales grew 9.6%, 11.4% and 7.0% from fiscal 1991 to fiscal 1992,
from fiscal 1992 to fiscal 1993 and from fiscal 1993 to fiscal 1994,
respectively, or at a compound annual rate of 10.6%, reaching approximately $2.0
billion in 1994. The compound annual rate has been presented as an alternative
to cumulative or average annual growth rates because it indicates what the rate
of growth would be had such rate been constant year to year over the periods
discussed; however, the compound annual rate should not be confused with year to
year or other measures of growth rates. This expansion of the U.S. yogurt market
resulted, in part, from new product innovations such as lower fat and lower
calorie product offerings, the introduction of new flavors and consistencies,
the increasing recognition of yogurt's nutritional benefits and innovative
packaging solutions targeting niche market segments. Despite this growth, the
Company believes U.S. yogurt consumption still lags behind that of Europe.
During 1991 and 1992, the most recent periods examined by Find/SVP, the per
capita consumption of yogurt in Europe was six times that in the U.S. Net sales
of Ross Labs' ENSURE-Registered Trademark- ready-to-drink nutritional supplement
increased 20% in 1995, reflecting, in part, the aging of the U.S. population and
the corresponding growth in the market for such products. Based on these
industry and demographic factors, management expects the markets for
refrigerated yogurt and nutritional supplements to continue to grow for the
foreseeable future.
COMPETITIVE STRENGTHS
The Company attributes its leading market positions to the following
factors:
WELL ESTABLISHED CUSTOMER RELATIONSHIPS. The Company has long-standing
customer relationships, in many instances as a sole source supplier under
multi-year supply agreements. Yoplait, Dannon and Ross Labs, which accounted
for over 50% of fiscal 1996 sales, have been customers of PRI since 1979,
1984 and 1991, respectively. In addition, the Company's established position
with its largest customers is evidenced by its status as the sole supplier
of such customers' most popular sized containers, including the six ounce
container for Yoplait, the four, six and eight ounce containers for Dannon
and the eight ounce multi-layer container for Ross Labs'
ENSURE-REGISTERED TRADEMARK- nutritional supplement. PRI's status as the
sole supplier of such containers positions the Company to benefit from
future growth in these product markets. In recognition of the Company's
performance, Ross Labs recently awarded PRI certified supplier status in
Ross Labs' Partners in Excellence Program.
CUSTOMER INTEGRATED PRODUCT DEVELOPMENT AND MANUFACTURING. The Company
has worked closely with its customers in all phases of product design and
production and has invested heavily in customer-driven research and
development activities. For example, PRI developed the
Autoweld-Registered Trademark- system, a
38
<PAGE>
technology that enables Yoplait to assemble, fill and seal its distinctive
cone-shaped container. Yoplait leases from the Company the equipment
necessary to operate the Autoweld-Registered Trademark- system for use in
Yoplait's production facilities. For Dannon, the Company recently designed
and developed a four ounce yogurt cup targeted for the food service and
children's markets. The Company also worked successfully with Ross Labs to
develop the shelf stable, multi-layer packaging applications for its
nutritional supplements and infant formula product lines. In promotional
cups, the Company has worked closely with several of its promotional
beverage cup customers to develop new and distinctive high-definition
graphic designs. In 1993, for example, the Company was the winner of the
McDonald's Performance Award for the "Jurassic Park" promotional cup. In
addition, the Company's facilities are located, in most cases, adjacent to
or within close proximity to its largest customers' manufacturing
operations, which has created manufacturing and distribution efficiencies.
As more of the Company's customers adopt "just-in-time" inventory systems,
these efficiencies have become increasingly important.
STATE-OF-THE-ART MANUFACTURING TECHNOLOGIES. The Company, through its
five manufacturing facilities, has developed production capabilities in
injection molding, thermoforming and pressure forming and believes it is the
only manufacturer in the rigid plastic packaging industry with capabilities
in all three such processes. Because each of these processes offers
advantages in achieving certain performance features such as structural
strength, rigidity and graphics retention, the Company is able to be highly
responsive to customer requirements and preferences by offering a broader
range of packaging alternatives than its competitors. The Company's three
technical facilities feature design, engineering, prototype production,
graphics and diagnostic capabilities. Management believes that the Company's
in-house capability to design, engineer and build production molds
distinguishes the Company from many of its competitors. This capability
provides PRI with an important competitive advantage in maintaining product
quality as well as in controlling design, development and maintenance costs.
To satisfy the rigorous quality control standards of its customers, the
Company maintains a comprehensive quality assurance program. During fiscal
1996, based on internal estimates, the return rate for all of the Company's
products was less than one quarter of one percent.
ADVANCED GRAPHICS TECHNOLOGIES. Management believes that the Company's
MasterColor printing system, which produces high definition graphics
utilizing a computer controlled nine color press, is the most
technologically advanced color processing system in the rigid plastic
packaging and promotional beverage cup industries. The MasterColor system
enables the Company to create photograph quality images on plastic
containers at speeds comparable to conventional high speed printers and thus
provides an important competitive advantage. Although the Company employs
the MasterColor system primarily in the printing of promotional beverage
cups, management believes significant opportunities exist to apply this
technology to create more sophisticated and colorful designs for other forms
of plastic packaging as manufacturers of branded products seek to enhance
and distinguish the image of their products on store shelves.
LOW COST PRODUCTION. The Company believes that its manufacturing costs
are among the lowest in its industry primarily due to: (i) the economies of
scale provided by the Company's high volume production; (ii) the Company's
use of state-of-the-art molds and manufacturing techniques that minimize
resin requirements, reduce waste and enhance productivity; (iii) the
Company's ability to obtain favorable resin pricing based on its substantial
purchase requirements; (iv) the low transportation costs resulting from the
proximity of the Company's six manufacturing and warehouse facilities to its
major customers; and (v) the Company's continual efforts to achieve
operating efficiencies and increase productivity. Over the past several
years, the Company has significantly upgraded and automated its
manufacturing operations, consolidated certain manufacturing facilities and
centralized all of its administrative functions to reduce costs and increase
efficiency.
The Company was founded in 1984 to capitalize on the growth in outsourcing
among nationally branded food producers for their packaging needs. Since its
formation, the Company has made six strategic acquisitions which have expanded
the Company's product mix and enhanced its competitive position. Most
39
<PAGE>
recently, during fiscal 1994, the Company acquired Louisiana Plastics and
substantially all the assets of Miner Container, which established market share
leadership in promotional beverage cups, increased injection molding capacity
and packaging sales and provided the MasterColor graphics technology.
The Company believes that the fundamental benefits of plastic relative to
other packaging materials, including (i) design versatility, (ii) light weight
and low cost, (iii) strength and durability, (iv) insulating ability and (v)
clarity, will promote opportunities for growth in sales and profitability in
both the rigid plastic packaging and promotional beverage cup industries. The
Company further believes it is well-positioned to capitalize on these
opportunities through its advanced, low-cost, customer-oriented operations.
STRATEGY
The Company's strategy is to enhance its position in the industry by: (i)
participating in the growth being experienced by its largest customers by
continuing to meet their increasing packaging needs; (ii) strengthening its
relationships with these existing customers by continuing to provide new
value-added products and services; (iii) expanding into new packaging and
promotional cup products and markets; and (iv) continuing to seek opportunities
to reduce manufacturing costs and enhance productivity.
GROWTH WITH EXISTING CUSTOMERS. The Company will continue to focus on
meeting the rigid plastic packaging needs of Yoplait, Dannon and Ross Labs
to keep pace with the growth in the markets for their products. Based in
part on growth in domestic consumption of refrigerated yogurt, the Company's
net sales to Yoplait and Dannon, who rely on the Company to provide
substantially all of their single-serving yogurt containers, have increased
13.1%, 14.6%, 34.9% and 15.5% from fiscal 1992 to fiscal 1993, from fiscal
1993 to fiscal 1994, from fiscal 1994 to fiscal 1995 and from fiscal 1995 to
fiscal 1996, respectively, or at a compound annual growth rate of over 19%
during the last four years. In addition, the Company's net sales as the sole
source supplier of multi-layer containers to Ross Labs for its
ENSURE-REGISTERED TRADEMARK- nutritional supplement and
SIMILAC-REGISTERED TRADEMARK- infant formula grew 75.5%, 11.2%, 24.9% and
11.6% from fiscal 1992 to fiscal 1993, from fiscal 1993 to fiscal 1994, from
fiscal 1994 to fiscal 1995 and from fiscal 1995 to fiscal 1996,
respectively, or at a compound annual rate in excess of 29% during the last
four years.
NEW APPLICATIONS FOR EXISTING CUSTOMERS. The Company intends to expand
its relationships with existing customers by developing new applications
based on its extensive manufacturing capabilities and advanced graphics
technologies. For example, the Company applied thin-wall technology, which
combines structural strength with reduced cost and weight, to develop
Dannon's six and eight ounce containers. In addition, the Company developed
the six ounce multi-layer container presently used by Yoplait which features
a glossy exterior finish designed to enhance graphics.
NEW PRODUCTS AND MARKETS. The Company plans to expand into related
product lines serving new markets with several products under development in
both rigid plastic packaging and promotional beverage cups. With respect to
packaging, management believes there will be significant opportunities to
expand the Company's shelf stable, multi-layer packaging to the extent
plastic containers are substituted for metal, glass and composites for
products requiring extended shelf life, such as condensed soups, vegetables,
baby foods and pet foods. In promotional beverage cups, the Company recently
entered the professional sports and college stadium cup market and also has
under development a number of new products, including a new cup for the
gourmet coffee market. In addition, in both packaging and promotional cups,
the Company intends to leverage its advanced graphics capabilities by
introducing new products which highlight its high definition printing and
quality designs. The Company believes these initiatives will reinforce its
reputation as an innovative, value-added marketing partner for its customers
while adding to future profitability.
CONTINUED COST REDUCTION AND PRODUCTIVITY ENHANCEMENTS. The Company
continually seeks opportunities to reduce its costs and improve productivity
to maintain its competitive position as a low-cost manufacturer. For
example, following the acquisition of Miner Container and Louisiana
Plastics, the Company selectively consolidated certain manufacturing
facilities and centralized administrative functions. During the first
quarter of fiscal 1997, the Company completed the consolidation of its
Lenexa, Kansas printing operation into the Kansas City, Missouri facility to
reduce overhead and
40
<PAGE>
transportation costs and increase manufacturing productivity. In fiscal
1997, the Company intends to initiate projects to further reduce costs and
enhance productivity, by, among other things, increasing the automation of
its packaging and handling systems.
PRODUCTS AND CUSTOMERS
The Company's products are divided into two categories: rigid plastic
packaging and promotional beverage cups.
RIGID PLASTIC PACKAGING
The Company serves a number of niche markets within the rigid plastic
packaging industry with products that include various sizes of refrigerated
yogurt containers, multi-layer containers for nutritional supplements and infant
formula and frosting cans and lids. The Company also produces container lids for
manufacturers of cottage and ricotta cheeses, whipped toppings, teas, potato
chips, dry soups, margarine, ice cream, cookie dough and dry roasted nuts.
The Company sells its products to over 450 customers throughout the United
States, including the following manufacturers of nationally branded products,
which, in the aggregate, accounted for 66.8% of fiscal 1996 net sales:
<TABLE>
<S> <C> <C>
General Mills Pillsbury Yoplait (a division of General
Mills)
Procter & Gamble Tetley Tea Company General Foods
The Dannon Company Ross Labs (a division of Abbott Labs) Haagen Dazs
</TABLE>
The Company supplies substantially all of the single-serving yogurt
containers used by Dannon and Yoplait, which in 1995 had a combined 58.2% share
of the U.S. refrigerated yogurt market according to Information Resources, Inc.,
a market research firm. The Company's net sales to these two customers have
grown 13.1%, 14.6%, 34.9% and 15.5% from fiscal 1992 to fiscal 1993, from fiscal
1993 to fiscal 1994, from fiscal 1994 to fiscal 1995 and from fiscal 1995 to
fiscal 1996, respectively, or at a compound annual rate of over 19% during the
last four years. The Company is the sole source supplier of the multi-layer
plastic container used by Ross Labs for its ENSURE-REGISTERED TRADEMARK-
nutritional supplement and SIMILAC-REGISTERED TRADEMARK- infant formula product
lines. Net sales to Ross have grown 75.5%, 11.2%, 24.9% and 11.6% from fiscal
1992 to fiscal 1993, from fiscal 1993 to fiscal 1994, from fiscal 1994 to fiscal
1995 and from fiscal 1995 to fiscal 1996, respectively, or at a compound annual
rate in excess of 29% during the past four years. The high rate of growth in net
sales to Ross Labs between fiscal 1992 and fiscal 1993 reflects Ross Labs'
continuing conversion from metal containers to the Company's plastic containers,
which began in 1991 and which the Company believes is now substantially
complete. Such rate also reflects Ross Labs' introduction in 1992 of the
Company's shelf stable plastic container for a portion of its
SIMILAC-REGISTERED TRADEMARK- infant formula product line. The Company is also
the sole supplier of plastic frosting cans and lids for Pillsbury and Procter &
Gamble and supplies substantially all the frosting containers and lids used by
General Mills.
The Company believes that the markets for yogurt and nutritional supplements
will continue to grow in the foreseeable future, providing the Company with
significant opportunities to expand its business. According to Find/SVP, U.S.
retail sales of refrigerated yogurt grew 9.6%, 11.4% and 7.0% from fiscal 1991
to fiscal 1992, from fiscal 1992 to fiscal 1993 and from fiscal 1993 to fiscal
1994, respectively, or at a compound annual rate of 10.6% between 1991 and 1994.
Despite this growth, the Company believes U.S. yogurt consumption still lags
behind that of Europe. The U.S. yogurt industry is aggressively promoting yogurt
in an effort to raise U.S. consumption to European levels where, during 1991 and
1992, the per capita consumption was 25.9 pounds versus 4.3 pounds in the U.S.
New products, including yogurt/mix-ins and low fat/calorie offerings, have
served to increase the market. New flavors such as tropical fruit and indulgent
flavors like chocolate and amaretto are helping to expand the yogurt product
category, as are new products targeted at children and specific ethnic groups.
Because Ross Labs' ENSURE-REGISTERED TRADEMARK- nutritional supplement is most
often prescribed for the elderly, its consumption growth should be helped by the
aging of the U.S. population.
The only shelf stable packaging products presently manufactured by the
Company are the containers for the nutritional supplements and infant formula
produced by Ross Labs. Ross initially marketed these products in metal
containers but began switching to the Company's plastic containers (with metal
lids) in
41
<PAGE>
1991. Ross Labs has advised the Company that it made the switch for several
reasons, including reduced freight costs due to the lower weight of plastic
containers, lower return rates based on the ability of plastic containers to
resist denting and consumer preference. The Company believes that Ross Labs has
converted the packaging for substantially all of its
ENSURE-REGISTERED TRADEMARK- nutritional supplement product to its shelf stable
plastic containers. In 1992, Ross Labs began using the Company's shelf stable
plastic container for a portion of its SIMILAC-REGISTERED TRADEMARK- infant
formula product line. The Company believes that the use of plastic containers by
Ross Labs for SIMILAC-REGISTERED TRADEMARK- infant formula has increased during
the past four years, but that such containers continue to account for only a
minor portion of Ross Labs' total sales of such products. In management's
opinion, the continued conversion of these containers from metal to plastic
provides the Company with a significant opportunity for growth. Management also
expects that there will be significant opportunities to expand the Company's
product line of shelf stable multi-layer packaging to the extent plastic
containers are substituted for metal, glass and composite containers for other
products requiring extended shelf life, such as condensed soups, vegetables,
baby foods and pet foods. The Company is also marketing its packaging
capabilities to food and other companies that currently use metal, glass and
composite containers.
PROMOTIONAL BEVERAGE CUPS
The Company is engaged in the design, manufacture and marketing of a wide
assortment of promotional beverage cups. Management believes the market for
promotional beverage cups has expanded rapidly in recent years and that the
Company's superior graphics technology, low-cost molding capabilities and new
product innovation have made it the largest manufacturer of promotional beverage
cups in the United States. The Company's promotional cup products include
beverage cups ranging in size from 12 ounces to 64 ounces. In addition, the
Company recently entered the professional sports and college stadium cup market
and has under development a number of new products, including a new product for
the gourmet coffee market. The Company believes that its ability to leverage its
unique printing and design capabilities will enable it to continue to develop
innovative, value-added products.
Promotional beverage cups historically have been marketed directly to
fast-food and beverage companies, such as McDonald's, Burger King, Pizza Hut,
Hardee's, Taco Bell, Coca-Cola and Pepsi, as well as to specialty distributors
for resale to fast-food and beverage companies, sports stadiums, movie theaters
and food service companies. In recent years, the Company has manufactured
promotional beverage cups featuring blockbuster movie releases and professional
sports personalities for customers such as McDonald's (as one of the primary
suppliers for its "Jurassic Park" and NBA Legends promotions) and Burger King
(as a supplier for the "Lion King" promotion). The promotional beverage cup
business is seasonal and generally peaks with consumption of soft drinks during
the spring and summer months. This business is primarily supported by beverage
companies attempting to stimulate syrup sales to fast-food operators and by
fast-food companies featuring promotional cups with theme action figures and
personalities in connection with campaigns linked to the release of major motion
pictures or sporting events. In fiscal 1996, Hardee's, McDonald's and a
specialty distributor with whom the Company no longer has a relationship
accounted for the majority of the Company's promotional beverage cup sales. See
"-- Marketing and Sales."
MARKETING AND SALES
The Company directs its sales effort by utilizing its technical expertise,
diverse production capabilities (thermoforming, injection molding and pressure
forming) and graphics capabilities to serve the needs of its new and existing
customers. The Company's comprehensive, multiple-channel sales and marketing
approach includes both the personnel in its technical centers as well as its
direct sales force. By utilizing the capabilities provided by its technical
centers and staff, the Company is able to create prototypes when introducing new
products or concepts to its customers. Recently, to complement its technical
marketing capabilities, the Company has increased the number of its direct sales
representatives both to strengthen existing relationships and develop new
relationships. Sales representatives marketing rigid plastic packaging solutions
focus on national branded consumer food producers, while representatives selling
promotional beverage cups focus on soft drink distributors, fast food chains and
stadium promoters. The Company's emphasis on a direct sales approach represents
a strategic initiative to reduce the use of indirect sales channels, such as
specialty distributors, and strengthen relationships with end customers. In
March 1996, a promotional beverage cup distributor terminated its relationship
with the Company in order to distribute on a sole source
42
<PAGE>
basis plastic beverage cups produced by another manufacturer. In fiscal 1996,
this distributor accounted for approximately 4.7% of the Company's net sales.
The Company has established contacts with this distributor's end use customers
through its practice of direct shipment, and is aggressively pursuing these
customers on a direct basis. The Company does not believe that the termination
of its relationship with this distributor will materially and adversely affect
its business.
Customer relationships in the food, dairy and pharmaceutical packaging
industry generally are developed and maintained over extended periods. These
relationships develop because of the high degree of coordination necessary
between packaging suppliers and their customers to ensure that packaging parts
conform precisely to the tolerances of the high speed automated filling systems
commonly employed by customers. The integration of product design and
manufacturing along with inventory management and distribution systems provide
suppliers, such as PRI, with a competitive advantage in maintaining and
expanding business with established customers. Management believes that the
Company's existing customers, which include several of the leading consumer
products companies in the United States, represent an important source of new
business opportunities through the modification of existing packaging and the
development of new applications.
Pursuant to multi-year supply agreements with Yoplait, Dannon and Ross Labs,
PRI manufactures and sells substantially all of the plastic containers required
for the yogurt products of Dannon and Yoplait and the nutritional supplement and
infant formula products of Ross Labs. The prices provided for in these supply
agreements generally are based on volume levels and are subject to (i)
adjustments for increases or decreases in resin prices and (ii) annual
negotiated adjustments relating to cost elements other than resin price. The
products manufactured under these agreements generally require the use of
proprietary tooling and molds, some of which are owned by the Company. In
certain cases, the tooling and molds owned by the Company are subject to
purchase options which may be exercised by the customer upon termination of the
applicable supply agreement. Certain of these supply agreements prohibit the
Company from selling similar containers to the customer's competitors. The
Company's current supply agreement with Dannon for eight ounce containers, which
commenced in January 1992, expires in December 1999. The Company's current
supply agreements with Dannon for four ounce containers, which commenced in June
1992, and six ounce containers, which commenced in March 1991, expire in
December 1997. The Company's current supply agreement with Yoplait commenced in
June 1992 and expires in July 1997. The current supply agreement with Ross Labs
was entered into in January 1991 and expires in December 1996, but may be
terminated by Ross Labs upon six month's prior written notice to PRI. All of
PRI's supply agreements require PRI to satisfy certain product quality
standards. Yoplait, Dannon and Ross Labs have been customers of the Company (or
businesses acquired by the Company) since 1979, 1984 and 1991, respectively.
While PRI anticipates that, upon expiration, it will be able to extend or renew
its existing supply agreements with its customers on substantially similar
terms, no assurance can be given that it will be able to do so.
MANUFACTURING
The Company has production capabilities in injection molding, thermoforming
and pressure forming, and believes it is the only manufacturer in the rigid
plastic packaging industry with capabilities in all three processes. Because
each of these processes offers advantages in achieving certain performance
features such as structural strength, rigidity and graphics retention, the
Company is able to be highly responsive to customer requirements and preferences
by offering a broader range of packaging alternatives than its competitors.
During fiscal 1996, approximately 65% of the Company's revenues were derived
from products manufactured using the injection molding process, including all of
the Company's promotional beverage cups. Thermoforming is currently used to
manufacture substantially all of the packaging produced for Yoplait and Ross
Labs. The Company employs the pressure forming process in the manufacture of
certain relatively low-volume products.
Management believes that the Company is the largest manufacturer of
injection molded products in the domestic rigid plastic packaging and
promotional beverage cup industries. Injection molding involves the injection of
molten plastic into multi-cavity male and female molds at extremely high
temperatures and the application of pressure to force the plastic to take the
desired form. The Company operates 89 high speed injection molding machines
utilizing modern multi-cavity hot and cold runner molds. The Company's four
43
<PAGE>
660 ton clamp capacity injection molding machines are designed specifically to
produce lightweight, thin-walled parts and are among the most technologically
advanced machines of their kind. They are controlled by micro-processors that
provide statistical process control and state-of-the-art diagnostic
capabilities. Unlike most of its competitors, the Company has the in-house
capability to design, test and produce production molds for its injection
molding machines.
Injection molding generally provides more flexibility in part design than
other forming processes. The use of male and female molds allows both interior
and exterior surfaces to incorporate special design features. In addition,
injection molding results in highly uniform parts with surfaces that can be more
easily textured, pigmented and decorated. Further, injection molding requires
relatively little floor space, thus reducing associated overhead costs.
In the thermoforming process, an extruded sheet formed from plastic resins
is rolled over a multi-cavity female steel mold and heated to its precise
melting point. Parts are then formed and cut with a vacuum mold in a single
operation. As with injection molding, the process concludes with the molded
product being ejected for automated handling and processing. Thermoforming
employs molds with higher cavitations than are presently feasible in other
manufacturing processes and, therefore, is a low-cost means of manufacturing
customized packaging products for high volume markets. Moreover, thermoforming
equipment can be retooled relatively quickly and inexpensively, making the
process well-suited for production runs requiring fast changeover times. The
Company has developed thermoforming technologies that enable substantially all
unused portions of the extruded sheet to be immediately recycled into the
manufacturing process, resulting in reduced product cost and waste.
When employed in conjunction with co-extrusion, thermoforming permits the
manufacture of shelf stable plastic containers with excellent rigidity and heat
resistance properties. Under this process, materials that combine to incorporate
the precise properties required by the customer are co-extruded into a multi-
layer sheet and then thermoformed into a container. In the manufacture of shelf
stable plastic packaging, the co-extruded sheet contains a co-polymer material
such as vinyl alcohol which effectively prevents gas and moisture from
permeating a container. The Company maintains seven thermoforming lines, six of
which employ co-extrusion. These lines are used principally in the manufacture
of yogurt containers and packaging for nutritional supplements and infant
formula. The Company believes that its thermoforming and co-extrusion abilities
are among the most advanced in the rigid plastic packaging industry.
In the pressure forming process, an extruded plastic sheet is heated to just
below its melting point and rolled over a multi-cavity steel mold. As the still
solid sheet passes over the mold, a plug presses the material into the mold and
the forming is completed by air pressure. While pressure forming cannot employ
the highest cavity molds used in thermoforming, pressure forming molding cycles
are shorter. As a result, pressure forming offers cost advantages similar to
those of thermoforming. Like thermoforming, however, pressure forming provides
limited design flexibility. In addition, because of sidewall thickness
variations, it is more difficult to texture or print on pressure molded parts.
Pressure forming is generally favored in producing packaging products that
require structural strength and rigidity as well as thin sidewalls.
Another important element of the Company's manufacturing technologies is its
Autoweld-Registered Trademark- system. Autoweld-Registered Trademark- is a
spin-welding process that joins pre-formed packaging parts with friction. The
Company's most widely distributed product assembled with the
Autoweld-Registered Trademark- process is the Yoplait yogurt container which is
filled, assembled and sealed with equipment designed and owned by the Company.
Yoplait maintains such equipment at its various production facilities under
leasing agreements with the Company. The Company believes that this joint
manufacturing effort represents a substantial competitive advantage in serving
Yoplait's current and future needs.
The Company has the ability to produce state-of-the-art graphics on plastic
packaging and promotional cups through its nine color MasterColor printing
system. MasterColor uses advanced computer technology and color processing to
create photograph-like images on pre-formed plastic containers and cups. The
Company has seven MasterColor printing machines. Management believes that the
MasterColor system has provided and will continue to provide the Company with a
competitive advantage in the promotional
44
<PAGE>
beverage cup market. In addition, although it is used primarily in the
manufacture of promotional beverage cups, management believes that the
MasterColor printing system may also be employed to create more sophisticated
and colorful designs to enhance the appeal of other packaging products.
The Company, like its competitors, is subject to rigorous quality control
standards imposed by its customers. The Company has implemented a comprehensive
quality assurance program, which includes computer-aided testing of parts for
size, color, strength and, where appropriate, barrier properties. Using advanced
laser measuring technology as well as state-of-the-art high speed vision
systems, the Company is able to satisfy and exceed the most demanding customer
requirements. Statistical quality control methods are also used to promote total
customer satisfaction. Based on internal estimates, the return rate for the
Company's products during fiscal 1996 was less than one quarter of one percent.
The Company's manufacturing operations are conducted in five facilities. The
Company's geographic coverage and the proximity of its facilities to major
customers reduce transportation costs and enable the Company to more effectively
serve its customers, many of which maintain "just-in-time" inventory systems.
TECHNICAL CENTERS
The Company's three technical centers are staffed with approximately 56
full-time personnel and feature extensive in-house design, engineering, tooling,
prototype production, graphics and processing capabilities utilizing CAD/CAM
technology. In addition to overseeing the ongoing maintenance and performance of
the Company's manufacturing operations, these technical centers provide key
support for the Company's marketing efforts. In this regard, the Company's
in-house design and production engineers work closely with existing and
potential customers in the preliminary stages of product design and development,
in many instances using single cavity thermoforming and injection molding
machines which are dedicated to product research and development to test
prototype molds and packaging parts. For example, the Company developed the
Autoweld-Registered Trademark- process and related equipment to enable Yoplait
to assemble, fill and seal its distinctive cone-shaped container. Substantially
all of the production molds used by the Company's injection molding and pressure
forming machines are designed and manufactured at the Company's New Vienna, Ohio
technical center. Thermoforming molds are designed by personnel at the Company's
Coleman, Michigan center and outsourced for fabrication to various tooling shops
with which the Company has long-established relationships. Utilizing the
thermoforming process, the Company, in conjunction with Ross Labs, developed
multi-layer packaging applications for Ross Labs' ENSURE-REGISTERED TRADEMARK-
nutritional supplement and SIMILAC-REGISTERED TRADEMARK- infant formula product
lines. The Company's Lenexa, Kansas technical center supports the Company's
graphics and printing operations with color separation and processing
facilities. In fiscal 1996, the Company spent approximately $2.1 million on
research and development activities. Management believes that the Company's
in-house design, engineering and graphics capabilities are among the most
extensive and sophisticated in the industry and significantly reduce the
Company's tooling and equipment costs as well as product development time.
COMPETITION
The Company's business is highly competitive, the degree of competition
varying with the product. Major competitive factors in the Company's business
are product quality and differentiation, graphics design and print quality,
innovation, service and price. As more companies adopt "just-in-time" inventory
systems, delivery lead time has also taken on increased importance. Since the
Company's products are shipped by customers' trucks or common carrier, the
proximity of the manufacturing facility to the customer's plant can
significantly affect the price of products. The locations of the Company's
facilities make it well-positioned to serve national markets. See "Business --
Competitive Strengths" and "-- Facilities." Because the Company's products are
bulky and shipping costs are relatively high, foreign competition has not been
an important factor.
The Company's main competitors in the rigid plastic packaging business are
Landis Plastics, Inc., Airlite Plastics Company, Polytainers Inc. and Fabri-Kal
Corp. It also competes, to a lesser extent, with Mount Vernon Plastics, a
subsidiary of Reynolds Metals Co. In the promotional beverage cup business, the
Company's principal competitors are Packer Plastics, Berry Sterling, Pescor,
Canada Cup, a division of James River Corp. of Virginia, and Sweetheart Cup
Company Inc.
45
<PAGE>
RAW MATERIALS
The raw materials used by the Company for the manufacture of plastic
containers and promotional beverage cups are primarily resins in pellet form
such as polyethylene, polypropylene and polystyrene. The Company's resin
supplies are purchased under agreements with several suppliers for unspecified
quantities. The price the Company pays for resin is determined at the time of
purchase. The Company believes that its resin volume requirements are among the
largest in the industry, and that its ability to purchase such materials in
large quantity shipments enables it to obtain favorable pricing.
Most of the plastic resins used by the Company are available from a variety
of sources. The Company's current supply agreement with Ross Labs requires that
it purchase one of several of the resins required for the shelf stable,
multi-layer containers that the Company manufactures for Ross Labs exclusively
from Exxon. During fiscal 1996, these resins accounted for approximately 5.1% of
the resins purchased by the Company. The Company has relied on Exxon as the sole
source supplier of this particular resin since it began manufacturing products
for Ross Labs in 1991 and has no reason to believe that Exxon will not continue
to supply the Company with this resin. However, there can be no assurance that
Exxon will be able to continue to supply the Company with adequate amounts of
this resin on a timely basis in the future to allow the Company to meet its
production requirements for Ross Labs containers. The unanticipated loss of
Exxon as a supplier or a delay in its shipments could have a material adverse
effect on the Company's business, financial condition and results of operations.
PRI maintains a renewable one-year supply contract with Exxon which is scheduled
to expire on February 28, 1997. With the exception of its relationship with
Exxon, the Company does not believe that it is materially dependent upon any
single source for any of its raw materials. The Company anticipates that it will
be able to purchase sufficient quantities of resin for the foreseeable future.
However, should any of its suppliers fail to deliver under their arrangements,
the Company would be forced to purchase raw materials on the open market, and no
assurances can be given that it would be able to make such purchases at prices
which would allow it to remain competitive. See "Risk Factors -- Exposure to
Fluctuations in Resin Cost and Supply."
Over one-half of the Company's net sales in fiscal 1996 were under
multi-year customer supply agreements which generally allow the Company to pass
through increases in resin prices (and obligate the Company to pass on resin
price decreases) to customers. See "Risk Factors -- Exposure to Fluctuations in
Resin Cost and Supply." Such pass-through provisions do not pertain to the
Company's sales of promotional beverage cups which are generally made on a
purchase order basis. The risk associated with resin price fluctuations in
promotional beverage cup sales is mitigated in many instances in which the time
period between product order and delivery is relatively short (approximately 3
to 6 weeks). Promotional beverage cups accounted for 17.2% of the Company's net
sales during fiscal 1996.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing federal, state and local environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling and disposition of wastes or otherwise relating to the protection of
the environment. The Company believes that it is in material compliance with
applicable environmental laws and regulations. However, the Company cannot
predict with any certainty that it will not in the future incur liability under
environmental statutes and regulations with respect to contamination of sites
formerly or currently owned or operated by the Company (including contamination
caused by prior owners and operators of such sites) and the off-site disposal of
hazardous substances. See "Risk Factors -- Environmental Matters."
The FDA regulates the material content of direct-contact food containers and
packages, including certain thinwall containers manufactured by the Company. The
Company uses approved resins and pigments in its direct-contact food products
and believes it is in material compliance with all such applicable FDA
regulations.
The Company, like all companies in the plastics industry, is also subject to
federal, state, local and foreign legislation designed to reduce solid wastes by
requiring, among other things, plastics to be degradable in landfills, minimum
levels of recycled content, various recycling requirements, disposal fees and
limits
46
<PAGE>
on the use of plastic products. In addition, various consumer and special
interest groups have lobbied from time to time for the implementation of
additional environmental protection measures. The Company does not believe that
the legislation promulgated to date and such initiatives to date will have a
material adverse effect on its business. There can be no assurance that any such
future legislative or regulatory efforts or future initiatives would not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Environmental Matters."
EMPLOYEES
As of February 29, 1996, the Company had approximately 950 employees, of
which 853 were engaged in production or production support, 56 in research,
development and engineering, 19 in marketing and sales and 22 in corporate
management and administration. None of the Company's employees are covered by a
collective bargaining agreement. The Company believes that its relations with
employees are satisfactory, and it has not experienced any strikes or work
stoppages.
FACILITIES
The Company's operations are conducted through eight facilities in seven
states within the United States. The Company's principal executive offices are
located in Lake Forest, Illinois and are leased by the Company. The Company's
facilities are designed to provide for efficient manufacturing, material
handling and storage of its products and no facility is materially
underutilized. Management believes that substantially all of the Company's
property and equipment is in good condition and that it has sufficient capacity
to meet its current manufacturing and distribution requirements.
The following table provides certain information regarding the Company's
operating facilities.
<TABLE>
<CAPTION>
BUILDING
FACILITY OWNERSHIP SQ. FEET FUNCTION LEASE EXPIRATION
- ------------------- ---------- --------- -------------------------------- ----------------------
<S> <C> <C> <C> <C>
Carson, CA Leased 12,215 Warehouse October 31, 1997
Coleman, MI Owned 85,966 Manufacturing/Technical Center --
Ft. Worth, TX Owned 40,000 Manufacturing --
Kansas City, MO Leased 254,000 Manufacturing October 31, 2005
Lenexa, KS Leased 7,500 Technical Center December 31, 1996
Mt. Carmel, PA Owned 141,376 Manufacturing --
New Vienna, OH Owned 176,500 Manufacturing --
New Vienna, OH Owned 63,160 Technical Center --
</TABLE>
The Company owns a 182,463 square foot building in Louisiana, Missouri that
is currently leased to a third party. In addition, the Company is a lessee under
long-term leases for a 133,014 square foot manufacturing facility that PRI
formerly occupied in Cedar Grove, New Jersey and approximately 7,800 square feet
of office space that the Company has vacated in Lake Forest, Illinois. PRI has
entered into a sub-lease with respect to the Cedar Grove facility that is
scheduled to expire concurrently with the Company's underlying lease in June
2000. The Company has also entered into a sub-lease with respect to a portion of
its unoccupied office space in Lake Forest, Illinois. See Note 6 to the
Company's financial statements included elsewhere in this Prospectus.
The owned facilities in Coleman, Michigan, Ft. Worth, Texas, Mt. Carmel,
Pennsylvania, New Vienna, Ohio, and Louisiana, Missouri are subject to a
mortgage, and the leased facility in Kansas City, Missouri is subject to a
leasehold mortgage, in favor of the Trustee under the Indenture to secure the
obligations under the Notes. See "Description of Exchange Notes -- Security."
PATENTS AND TRADEMARKS
The Company owns a number of patents and trademarks. However, the Company
believes that the design, innovation and quality of its products and its
relationships with its customers are substantially more
47
<PAGE>
important to the maintenance and growth of its business than its patents and
trademarks. Accordingly, the Company does not believe that its business is
dependent to any material extent upon any single patent or group of patents.
LITIGATION
Management does not believe that any of the litigation in which the Company
is currently engaged will have a material effect on the Company's business,
financial condition or results of operations.
COMPANY HISTORY
PRI was formed as a Delaware corporation in 1984. Group is a Delaware
corporation that was formed in 1993 at which time PRI became a wholly-owned
subsidiary of Group.
Since its formation, PRI has completed a series of strategic acquisitions
designed to expand and complement its product lines and manufacturing
capabilities. The following table provides certain information with respect to
such acquisitions.
<TABLE>
<CAPTION>
ACQUISITION DATE BUSINESS ACQUIRED MANUFACTURING TECHNOLOGIES
- ------------------ -------------------------------------------------- --------------------------------
<S> <C> <C>
October 1984 Certain assets of Universal Packaging, a division Injection Molding
of Kraft, Inc.
October 1986 Buckeye Molding Company, a subsidiary of Aluminum Injection Molding
Company of America Pressure Forming
April 1987 Vercon Corporation, a division of Fina Oil and Thermoforming
Chemical Company
October 1988 Captainer Corporation, a subsidiary of Injection Molding
Owens-Illinois, Inc.
March 1993 Louisiana Plastics Corporation, a subsidiary of Injection Molding
Bemis Corporation
December 1993 Miner Container Injection Molding
MasterColor Printing System
</TABLE>
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the individuals who are
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Howard P. Hoeper 56 Chairman of the Board of Directors, Chief Executive
Officer and President
Jerry J. Corirossi 52 Vice President -- Finance & Administration, Chief
Financial Officer, Secretary and Director
John D. Williams 42 Vice President -- Sales & Marketing
Donald L. MacLaughlin 58 Vice President -- Manufacturing (Western Operations) and
Director
Walter C. Riesen 65 Vice President -- Manufacturing (Eastern Operations)
Kenneth W. Miner 53 Vice President -- Graphics
Antony P. Ressler 35 Director
David B. Kaplan 28 Director
</TABLE>
Set forth below is a description of the business experience of each director
and executive officer of the Company.
HOWARD P. HOEPER. Mr. Hoeper has been Chairman of the Board, Chief
Executive Officer and President of Group since its formation in 1993, and has
served as Chairman of the Board and Chief Executive Officer of PRI since 1984.
He was also elected President of PRI in 1989.Mr. Hoeper has been elected to
serve as Chairman of the Board of each of Group and PRI until the next annual
meeting of the stockholders or until his successor is elected and qualified. Mr.
Hoeper is the sole shareholder of HPH Industries, Ltd. which owns all of the
outstanding capital stock of Group.
JERRY J. CORIROSSI. Mr. Corirossi has been Vice President -- Finance &
Administration, Chief Financial Officer and Secretary of the Company since 1989,
and has been a Director of Group since its formation in 1993 and a Director of
PRI since February 1990. Mr. Corirossi shall serve as a director of such
companies until the next annual meeting of stockholders or until his successor
is elected and qualified. Mr. Corirossi is a Certified Public Accountant and has
over twenty-five years of financial managerial experience.
JOHN D. WILLIAMS. Mr. Williams joined the Company as Vice President --
Sales and Marketing in March 1996. From 1988 to 1992, Mr. Williams was Managing
Director of Sweetheart International. From 1992 to 1995, Mr. Williams was Chief
Executive Officer of the Polarcup Group, a division of Huhtamaki Oy. From 1995
to February 1996, he was President of Donruss Trading Cards, which was owned by
the Polarcup Group. Mr. Williams has over 20 years of sales and marketing
experience in consumer-related companies.
DONALD L. MACLAUGHLIN. Mr. MacLaughlin has been Vice President --
Manufacturing (Western Operations) since 1989, and has been a Director of Group
and PRI since October 1993. Mr. MacLaughlin shall serve as a director of such
companies until the next annual meeting of stockholders or until his successor
is elected and qualified. Mr. MacLaughlin has more than twenty years of
experience in the rigid plastics packaging industry with a concentration in the
thermoforming process.
WALTER C. RIESEN. Mr. Riesen has been Vice President -- Manufacturing
(Eastern Operations) since 1989. Mr. Riesen has more than twenty years of
experience in the rigid plastics packaging industry with a concentration in the
injection molding and pressure forming processes.
49
<PAGE>
KENNETH W. MINER. Mr. Miner has been Vice President -- Graphics since the
consummation of the Company's acquisition of Miner Container in December 1993.
Prior to such acquisition, Mr. Miner had been President and Chief Executive
Officer of Miner Container since August 1984. He has over twenty years of
experience in the graphics industry.
ANTONY P. RESSLER. Mr. Ressler was designated by Apollo to serve as a
Director of Group and PRI in June 1993 pursuant to the Stockholders Agreement.
See "Certain Transactions -- Stock and Warrant Holders Agreement and Option."
Mr. Ressler has been elected to serve as a Director of each of Group and PRI
until the next annual meeting of the stockholders or until his successor is duly
elected and qualified. In 1990, Mr. Ressler was one of the founding principals
of Apollo Advisors, L.P. which, together with an affiliate, serves as the
managing general partner of Apollo Investment Fund, L.P., AIF II, L.P., and
Apollo Investment Fund III, L.P., which are private securities investment funds,
and Lion Advisors, L.P., which acts as financial advisor to and representative
for certain institutional investors with respect to securities investments. Mr.
Ressler also serves as a Director of Family Restaurants, Inc., Gillett Holdings,
Inc., United International Holdings, Inc. and Dominick's Finer Foods, Inc.
DAVID B. KAPLAN. Mr. Kaplan was designated by Apollo to serve as a director
of Group and PRI in March 1996 pursuant to the Stockholders Agreement. See
"Certain Transactions -- Stock and Warrant Holders Agreement and Option." Mr.
Kaplan has been elected to serve as a Director of each of Group and PRI until
the next annual meeting of the stockholders or until his successor is elected
and qualified. Since 1991, Mr. Kaplan has been associated with and is a limited
partner of Apollo Advisors, L.P. which, together with an affiliate, serves as
the managing general partner of Apollo Investment Fund, L.P., AIF II, L.P., and
Apollo Investment Fund III, L.P., which are private securities investment funds,
and Lion Advisors, L.P., which acts as financial advisor to and representative
for certain institutional investors with respect to securities investments. Mr.
Kaplan also serves as a Director of BDK Holdings, Inc. and Dominick's Finer
Foods, Inc.
Non-employee directors of PRI receive a fee of $3,500 for each meeting
attended, up to a maximum of $15,000 per annum. Messrs. Kaplan and Ressler are
serving as directors of Group and PRI pursuant to the Stockholders Agreement,
which provides that two individuals designated by Apollo be elected as directors
of Group and PRI so long as Apollo owns or has the right to acquire 15% or more
of Group's voting securities (or one individual in the event Apollo owns or has
the right to acquire between 10% and 14.99% of Group's voting securities). In
addition, pursuant to the Stockholders Agreement, certain fundamental corporate
actions proposed to be taken by Group or PRI require the approval of the
directors designated by Apollo. See "Certain Transactions -- Stock and Warrant
Holders Agreement and Option." Apollo has given an undertaking to Group that, if
Group objects, no such designee will serve as a director of a direct competitor
of the Company. Mr. Hoeper has agreed with Apollo and the TCW Entities that he
will not compete directly or indirectly with the business carried on by the
Company or any of its subsidiaries until the later of (i) two years following
cessation of his employment with the Company or its subsidiaries and (ii) the
date on which he and the members of his family do not own, directly and
indirectly, at least 50% of Group's capital stock.
50
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes information concerning annual and long-term
cash and non-cash compensation paid to or accrued for the benefit of the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company (collectively, the "named executive officers") for all
services rendered in all capacities to the Company for fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
---------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (2) COMPENSATION (3) COMPENSATION (4)
- ------------------------------------------- ---------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Howard P. Hoeper $ 318,270 -- $ 600,000 $ 5,250
Chairman of the Board, Chief Executive
Officer and President
Jerry J. Corirossi 182,954 -- -- 5,250
Vice President -- Finance &
Administration and Chief Financial
Officer
Donald L. MacLaughlin 182,954 -- -- 5,250
Vice President -- Manufacturing (Western
Operations)
Walter C. Riesen 182,954 -- -- 5,250
Vice President -- Manufacturing (Eastern
Operations)
Kenneth W. Miner 182,954 -- -- 5,250
Vice President -- Graphics
</TABLE>
- ------------------------
(1) The Company does not have restricted stock award plans or long-term
incentive plans and has not granted stock appreciation rights.
(2) No bonus awards were made in fiscal 1996 pursuant to PRI's Bonus Plan. See
"-- Bonus Plan."
(3) "Other Annual Compensation" for Mr. Hoeper consists of fees paid by PRI to
HPH pursuant to the Management Agreement. See "Certain Transactions --
Management Agreement." None of the other named executive officers received
reportable "Other Annual Compensation" in fiscal 1996.
(4) Consists of contributions made by PRI on behalf of the named executive
officers pursuant to the Pension Plan (as defined).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation policies are determined and executive officer
compensation decisions are made by Mr. Hoeper, subject to the right of the
directors designated by Apollo to approve the adoption of any employee stock
option plan, stock bonus plan or any similar plan. Mr. Hoeper is the Chairman of
the Board, Chief Executive Officer and President of the Company and indirectly
owns, through his ownership of HPH, all of the outstanding capital stock of
Group. See "Security Ownership of Certain Beneficial Owners and Management."
BONUS PLAN
The Company maintains a cash bonus plan (the "Bonus Plan") for all of its
executive officers and for certain other key management personnel. The bonus
amount and the extent of participation in the Bonus Plan are discretionary. In
the past, bonus awards to employees have been based on various qualitative and
quantitative indicators of corporate and individual performance. No bonuses were
paid during fiscal 1996.
51
<PAGE>
PENSION PLAN
On September 30, 1985, the Company established a qualified defined
contribution pension plan (the "Pension Plan") for the purpose of providing
funds to its employees upon their retirement. Participation in the Pension Plan
is open to substantially all of the Company's employees. The Pension Plan
requires the Company to contribute a specified percentage of an employee's total
compensation for each plan year, and such amounts are credited to each
employee's individual account on an annual basis. If any employee retires at age
65, or at such later date as permitted under the Pension Plan, then the entire
amount of his account becomes 100.0% vested as of that date. The amount in an
employee's account will also be fully vested at the time of his death or total
permanent disability. Distributions under the Pension Plan may be made in one
lump sum payment, in designated installments, in installments based upon an
employee's life expectancy at retirement, or in the form of an annuity, at the
employee's election. If employment is terminated for any reason other than
retirement, death or total and permanent disability, then his account will be
deemed to have been 20.0% vested for each year of service. The amounts accrued
for the benefit of the named executive officers pursuant to the Pension Plan
during fiscal 1996 are reflected in the Summary Compensation Table above.
401(K) SAVINGS PLAN
PRI has adopted a plan pursuant to Section 401(k) of the Internal Revenue
Code (the "401(k) Plan") for non-union employees that are age 18 or older and
have been employed by PRI for at least three (3) months. Under the 401(k) Plan,
each eligible employee is able to defer a portion of his or her salary each year
on a before-tax basis. The portion deferred is paid by PRI to the trustee under
the 401(k) Plan for the account of the participant. The Company does not match
employee contributions or otherwise contribute to the 401(k) Plan on behalf of
employee-participants. All employee-participant contributions are fully vested
upon contribution.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
PRI's Certificate of Incorporation contains a provision permitted under the
Delaware General Corporation Law (the "DGCL") eliminating (with limited
exceptions) each director's personal liability for monetary damages for breach
of any duty as a director. PRI's Certificate of Incorporation and Bylaws
authorize PRI to indemnify its present and former directors and officers and to
pay or reimburse expenses for such individuals in advance of the final
disposition of a proceeding to the maximum extent permitted from time to time
under the DGCL. The DGCL provides that indemnification of a person who is a
party, or threatened to be made a party, to legal proceedings by reason of the
fact that such a person is or was a director, officer, employee or agent of a
corporation, or is or was serving as a director, officer, employee or agent of a
corporation or other firm at the request of a corporation, against expenses,
judgments, fines and amounts paid in settlement, is mandatory in certain
circumstances and permissive in others, subject to authorization by the
corporation's board of directors.
PRI has entered into indemnification agreements with each of its directors
and executive officers. The indemnification agreements require, among other
things, that PRI indemnify such officers and directors to the fullest extent
permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The indemnification agreements also require
PRI to indemnify and advance all expenses incurred by officers and directors
seeking to enforce their rights thereunder and cover officers and directors
under the Company's directors' and officers' liability insurance. Although the
indemnification agreements offer substantially the same scope of coverage
afforded by provisions in PRI's Certificate of Incorporation and Bylaws, they
provide greater assurance to directors and officers that indemnification will be
available, because, as a contract, it cannot be unilaterally modified by the
Board of Directors or by the stockholders to eliminate the rights it provides.
52
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Group owns all of the outstanding capital stock of the Company. The
following table sets forth certain information, as of July 24, 1996, regarding
beneficial ownership of the capital stock of Group by each stockholder who is
known by the Company to own beneficially more than 5% of the outstanding capital
stock of Group. Except as identified below with respect to Messrs. Hoeper,
Ressler and Kaplan, none of the executive officers or directors of Group
beneficially own any shares of the capital stock of Group.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AMOUNT OF VOTING OF VOTING
OWNED SECURITIES SECURITIES
NAME AND COMPLETE MAIL ADDRESS (SHARES) OWNED OWNED (1)
- --------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
HPH Industries, Ltd. (2) 56,250 100% 60.0%
One Conway Park
100 Field Drive
Suite 300
Lake Forest, Illinois 60045
Apollo Packaging Partners, L.P. (3), (4) 27,500 -- 29.3%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
TCW/Crescent Mezzanine Partners, L.P. (3), (5) 7,613 -- 8.1%
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
TCW/Crescent Mezzanine Trust (3), (5) 2,387 -- 2.5%
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
</TABLE>
- ------------------------
Notes:
(1) On a fully diluted basis, assuming the exercise of all of the Warrants (as
discussed in note 3 below).
(2) Through his ownership of HPH, Mr. Hoeper beneficially owns and exercises
sole investment and voting rights with respect to 56,250 shares of capital
stock of Group representing 100% of Group's outstanding capital stock.
(3) Apollo and the TCW Entities own Warrants to purchase 27,500 and 10,000
shares of Group's capital stock, respectively (or 29.3% and 10.7% of such
capital stock of Group, respectively, assuming full exercise of the
Warrants). The Warrants are exercisable for an exercise price of $213.33 per
share of capital stock of Group. The Warrants expire on June 30, 2003.
Apollo and the TCW Entities also own an option to purchase additional shares
of capital stock of Group under certain circumstances. See "Certain
Transactions -- Stock and Warrant Holders Agreement and Option."
(4) The general partner of Apollo is AIF II, L.P., the general partner of which
is Apollo Advisors, L.P. The general partner of Apollo Advisors, L.P. is
Apollo Capital Management, Inc., the directors and stockholders of which are
Messrs. Leon D. Black and John J. Hannan. Messrs. Ressler and Kaplan serve
on the Board of Directors of Group and PRI as nominees of Apollo. See
"Management." Each of Messrs. Ressler, Kaplan, Black and Hannan disclaim any
beneficial ownership of the capital stock of Group.
(5) The general partner of TCW/Crescent Mezzanine Partners, L.P. and the
managing owner of TCW/ Crescent Mezzanine Trust is TCW/Crescent Mezzanine,
L.L.C. ("TCW/Crescent LLC"). Messrs. Robert D. Beyer and Jean-Marc Chapus
are portfolio managers of TCW/Crescent LLC and exercise voting and
dispositive powers on its behalf. Messrs. Beyer and Chapus disclaim any
beneficial ownership of the capital stock of Group.
53
<PAGE>
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENT
Since its inception, PRI has paid certain fees to HPH in exchange for
financial and management consulting services and has reimbursed HPH for expenses
incurred in connection with the performance of such services. HPH owns all of
the outstanding capital stock of Group and is itself wholly-owned by Mr. Hoeper,
the Chairman, Chief Executive Officer and President of Group and PRI. The
aggregate amount of payments received by HPH during fiscal 1994, 1995 and 1996
in respect of such fees and reimbursements were approximately $699,000, $687,000
and $662,000, respectively. In connection with the Financing Plan, PRI and HPH
entered into a management agreement pursuant to which HPH will receive a fixed
payment for financial and management consulting services in the amount of
$600,000 per fiscal year, subject to increase at the discretion of the Company
and to the extent permitted by instruments governing indebtedness of PRI,
including the Indenture, or decrease to the extent required by the terms of such
indebtedness. Because of the personal nature of the services provided by HPH and
Mr. Hoeper, the Company cannot determine whether it could obtain the same
services on more favorable terms from a third party. See "Description of
Exchange Notes -- Certain Covenants."
FORMER INDEBTEDNESS OF HOWARD P. HOEPER TO THE COMPANY
In 1992 the Company made a loan to Mr. Hoeper in the aggregate principal
amount of $2.1 million with a stated maturity of January 31, 1995. The
indebtedness bore interest at the rate of 7.5% per annum and was secured by a
second mortgage on certain residential property in Lake County, Illinois. By
November 1994, Mr. Hoeper had fully repaid such loan.
TAX SHARING AGREEMENT
The operations of Group and PRI are included in the Federal income tax
returns filed by HPH. The three companies have entered into a tax sharing
agreement (the "Tax Sharing Agreement") which apportions the consolidated income
tax liability of the affiliated group. Under the Tax Sharing Agreement, the
Federal income tax liability of PRI is calculated on a separate return basis and
the amount so calculated, which in no event may exceed the group's consolidated
tax liability for such year, is paid to HPH which then pays the group's taxes
for such year. None of HPH, Group or PRI is liable for (or is due) any amount to
(or from) the other even though the tax liability of the group may have been
reduced by reason of the inclusion of Group or PRI as a member of the group.
AGREEMENTS RELATING TO FORMER OWNERS OF MINER CONTAINER
In connection with the Company's acquisition of Miner Container, PRI entered
into a consulting agreement (the "Consulting Agreement") with Kenneth Miner, a
former principal owner of Miner Container who has been an executive officer of
PRI since such acquisition. Pursuant to the Consulting Agreement, which
terminated in March 1996, the Company paid an aggregate of $1.1 million to Mr.
Miner.
In connection with the acquisition of Miner Container, PRI agreed to
indemnify the former owners for up to $2.3 million of tax liabilities arising
from the operations of an affiliate of Miner Container. During fiscal 1996 the
Company paid approximately $1.5 million of this obligation. The Company is
unable to estimate whether or to what extent it will be obligated to make future
payments in respect of such liabilities.
Prior to the Company's acquisition of Miner Container in December 1993,
Miner Container had for several years obtained services relating to the design
and preparation of graphics for promotional beverage cups from Container Design
Inc. Mrs. Elaine Miner, the wife of Kenneth W. Miner, Vice-President-Graphics of
PRI, has been the principal owner and President of Container Design Inc. since
its inception. Since the Company's acquisition of Miner Container, Container
Design Inc. has provided the Company services on substantially the same basis as
it provided such services to Miner Container. The aggregate amount paid by the
Company to Container Design Inc. for these services for fiscal 1995 and 1996 was
$265,000 and $187,000, respectively. No payments were made to Container Design
Inc. in fiscal 1994. The Company believes that the terms of its transactions
with Container Design Inc. have been no less favorable to the Company than would
be available from an unrelated third party, and the Company intends to continue
to obtain the services of Container Design Inc. in the future.
54
<PAGE>
FEES PREVIOUSLY PAID TO APOLLO
Under the Indenture dated October 28, 1986, as supplemented, relating to
PRI's 13.5% Notes, PRI was required to obtain the consent of the holders of the
13.5% Notes to the acquisition of Louisiana Plastics. In March 1993, PRI paid
Apollo, as a holder of $10.0 million aggregate principal amount of the 13.5%
Notes, $250,000 in exchange for its consent to the financial arrangements which
PRI made in order to acquire Louisiana Plastics.
1993 TRANSACTION
The Company entered into the 1993 Transaction, which involved the
refinancing of certain of its indebtedness, including the 13.5% Notes, and the
redemption or exchange of certain of its outstanding capital stock and warrants
to acquire such stock. In connection with the 1993 Transaction, HPH exchanged
shares of junior preferred stock of PRI having an aggregate liquidation value of
$2.5 million for 12.5% Notes of like principal amount. The junior preferred
stock, which accumulated dividends, payable quarterly, at the rate of 10% per
annum, was acquired by HPH for $2.5 million in 1989. HPH also transferred to
Group all of the outstanding common stock of PRI in exchange for 56,250 shares
of capital stock of Group, representing all of the currently outstanding capital
stock of Group. As part of the 1993 Transaction, Warrants to purchase 27,500
shares of capital stock of Group were issued to Apollo, and Warrants to purchase
10,000 shares of the capital stock of Group were issued to UBS Capital. Apollo,
UBS Capital and Group also entered into the Stockholders Agreement and the
Equity Registration Rights Agreement, and Union Bank of Switzerland, Group, HPH
and certain affiliates of Apollo entered into the Debt Registration Rights
Agreement (each of which is described below).
DIVIDENDS AND INTEREST TO HPH
Prior to the 1993 Transaction, PRI paid dividends on its outstanding junior
preferred stock, all of which was held by HPH, in the amount of $115,000 in
fiscal 1994. In addition, in fiscal 1994 and 1995, PRI paid dividends on its
outstanding common stock, all of which was held by Group, in the amount of $2.1
million and $2.5 million to permit Group to make required interest payments on
the 12.5% Notes. Interest payments made to HPH in respect of the 12.5% notes
were $130,187 in fiscal 1994 and $156,250 in fiscal 1995. In fiscal 1996, PRI
did not pay any dividends to Group and Group did not make any interest payments
to HPH.
STOCK AND WARRANT HOLDERS AGREEMENT AND OPTION
HPH, Apollo, the TCW Entities, Mr. Hoeper and Group are parties to the
Stockholders Agreement which, among other things, gives Apollo and the TCW
Entities the pre-emptive right to acquire a portion of additional shares of
capital stock of Group issued by Group, a right of first refusal on shares of
capital stock of Group owned by HPH, the right to require Group to purchase
their equity interests if Group has not had a public offering of voting stock
prior to June 30, 1999 (to the extent permitted under the Senior Credit Facility
and the Indenture governing the Notes) and, subject to certain exceptions, the
right to participate in any sale of capital stock of Group by HPH. In addition,
if at any time after June 30, 1999, the holders of a majority of the shares of
capital stock of Group propose to sell their shares, they may require the other
parties to the Stockholders Agreement to participate in such sale. The
Stockholders Agreement also provides that Mr. Hoeper will not, as long as HPH
owns at least 10% of Group, transfer any shares of capital stock of HPH, except
pursuant to the laws of descent. If any shares of HPH capital stock are
transferred pursuant to laws of descent, Apollo and the TCW Entities will have
the right to require the descendants to purchase their equity interests in Group
at the fair market value thereof. Group has granted Apollo and the TCW Entities
an option to purchase at fair market value that number of shares of capital
stock of Group which, when aggregated with the other shares owned by them or
which they have the right to acquire, equal 51% of the outstanding shares on a
fully diluted basis. The option is exercisable during the period of 180 days
following the date on which Mr. Hoeper and his heirs do not own and have the
right to vote all of the shares of HPH. The exercise of the option is
conditioned upon a simultaneous offer by the holders to purchase at fair market
value all shares of Group owned by HPH.
The Stockholders Agreement also provides, among other things, that Apollo
has the right to designate (i) two members of the Board of Directors of Group
and PRI so long as it owns or has the right to acquire
55
<PAGE>
15% or more of the voting securities of Group outstanding as of the date of
consummation of the Stockholders Agreement (the "Initial Voting Securities") and
(ii) one member of the Board of Directors of Group and PRI so long as it owns or
has the right to acquire between 10% and 14.99% of the Initial Voting
Securities. In addition, a majority of the Apollo designees serving as members
of the Board of Directors of Group or PRI must approve certain fundamental
corporate actions proposed to be taken by each such company, including (i) the
sale of all or substantially all of its assets, (ii) a merger, consolidation or
dissolution, (iii) an acquisition involving consideration of more than $10.0
million, (iv) certain transactions with affiliates, (v) an amendment to its
Certificate of Incorporation or By-laws, (vi) the adoption of certain employee
benefit plans and (vii) any material change in its line of business. The
Stockholders Agreement terminates on June 30, 2003.
EQUITY REGISTRATION RIGHTS AGREEMENT
Group, Apollo and the TCW Entities are parties to the Equity Registration
Rights Agreement dated as of June 30, 1993 (the "Equity Registration Rights
Agreement"). Under the Equity Registration Rights Agreement, at any time after
June 30, 1996, or earlier upon the occurrence of certain events, the holders of
at least 25% of the Warrants (or shares of capital stock of Group obtainable
upon exercise of the Warrants (collectively, the "Registrable Equity
Securities")) on up to three separate occasions may require Group, subject to
certain conditions, to effect the registration of the Registrable Equity
Securities under the Securities Act. In addition to such demand registration
rights, such holders also may, subject to certain limitations, require Group to
register their Registrable Equity Securities if Group registers any of its
equity securities under the Securities Act. Group has agreed to bear all
expenses incident to the registration rights provided under the Equity
Registration Rights Agreement, except that expenses incurred in connection with
any second or third demand registration are to be allocated equally between
Group and the selling securityholders. Group has also agreed to indemnify
selling securityholders against certain liabilities, including liabilities under
the Securities Act.
DEBT REGISTRATION RIGHTS AGREEMENT
Group, HPH, the TCW Entities, Lion Advisors, L.P. (an affiliate of Apollo)
and AIF II, L.P. (an affiliate of Apollo) are parties to the Debt Registration
Rights Agreement dated as of June 30, 1993 and amended as of May 17, 1996 (the
"Debt Registration Rights Agreement"). Under the Debt Registration Rights
Agreement, at any time until the holders of a majority of the 12.5% Notes (or
other securities issued with respect to the 12.5% Notes (collectively, the
"Registrable Debt Securities")) make a written request that Group offer to
exchange the Registrable Debt Securities held by each holder thereof (other than
HPH) for an equivalent aggregate principal amount of such Registrable Debt
Securities (an "Exchange Offer") and, if such Exchange Offer is not consummated
for any reason within 150 days after Group has received such request,
thereafter, the holders of a majority of the Registrable Debt Securities may
require Group, subject to certain conditions, to effect the registration of the
Registrable Debt Securities under the Securities Act. In addition to such demand
registration rights, such holders also may, subject to certain limitations,
require Group to register their Registrable Debt Securities if Group registers
any of its debt securities under the Securities Act. Group has agreed to bear
all expenses incident to the registration rights provided under the Debt
Registration Rights Agreement. Group has also agreed to indemnify selling
securityholders against certain liabilities, including liabilities under the
Securities Act.
REPAYMENT OF DEBT TO RELATED PARTIES
In connection with the Financing Plan, PRI repaid all outstanding borrowings
under the Old Credit Agreement and Group redeemed without penalty or premium a
portion of the outstanding 12.5% Notes for an aggregate redemption price of
$31.7 million. See "Use of Proceeds." As of February 29, 1996, HPH, certain
affiliates of Apollo, and Union Bank of Switzerland held $3.0 million, $33.0
million and $12.0 million, respectively, in aggregate principal amount of the
12.5% Notes. After giving effect to the redemption of the 12.5% Notes, HPH,
Apollo and Union Bank of Switzerland held $1.2 million, $13.0 million and $4.8
million, respectively, in principal amount of the 12.5% Notes. In connection
with the closing of the transactions contemplated by the Financing Plan, Union
Bank of Switzerland assigned all of its interest in the 12.5% Notes to UBS
Capital LLC ("UBS Capital"), which, in turn, assigned all of its interest in the
12.5% Notes and the Warrants to the TCW Entities. In addition, the TCW Entities
and the parties to the Stockholders Agreement, the Equity Registration Rights
Agreement and the Debt Registration Rights Agreement have
56
<PAGE>
acknowledged that the TCW Entities succeed to the rights of UBS Capital and
Union Bank of Switzerland, as applicable, and have become parties with respect
to such agreements. Through his ownership of HPH, Mr. Hoeper owns 56,250 of the
outstanding shares of capital stock of Group (which presently constitutes all of
its outstanding capital stock) and is the Chairman, Chief Executive Officer and
President of Group and PRI. Apollo and the TCW Entities own Warrants to purchase
27,500 and 10,000 shares of common stock of Group, respectively (or 29.3% and
10.7% of the outstanding capital stock of Group, respectively, assuming exercise
of all of the Warrants). The Warrants expire on June 30, 2003.
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE SENIOR CREDIT FACILITY
GENERAL. As part of the Financing Plan, PRI entered into the Senior Credit
Facility with LaSalle National Bank, as lender and administrative agent (the
"Administrative Agent"), and BT Commercial Corporation, as lender. The Senior
Credit Facility establishes a revolving credit facility in the initial aggregate
principal amount of $20.0 million (the "Revolving Credit Facility") and a letter
of credit facility in the initial aggregate amount of up to $2.0 million (the
"Letter of Credit Facility").
AVAILABILITY AND REPAYMENT. Availability under the Revolving Credit
Facility is subject to a borrowing base equal to the sum of 85% of PRI's
accounts receivable and 60% of PRI's raw materials and finished goods
inventories. Advances under the Revolving Credit Facility are available for
working capital and general corporate purposes, as well as to fund up to $4.0
million of transaction costs incurred in connection with the Financing Plan. The
amount available under the Letter of Credit Facility may not exceed the lesser
of $2.0 million or the amount available under that portion of the Revolving
Credit Facility available for working capital purposes. PRI may prepay principal
amounts outstanding under the Revolving Credit Facility, in whole or in part,
without penalty, subject to payment by PRI of all accrued interest and customary
LIBOR breakage fees.
The Senior Credit Facility matures on May 1, 1999, subject to renewal at the
lender's option for successive one year terms.
SECURITY. Obligations under the Senior Credit Facility are secured by all
of PRI's accounts receivable and raw materials and finished goods inventory,
including any proceeds therefrom.
INTEREST. At PRI's election, the interest rates per annum applicable to the
Senior Credit Facility are fluctuating rates of interest measured by reference
either to (a) an adjusted London inter-bank offered rate ("LIBOR") plus 2.00% or
(b) the prime rate of the Administrative Agent (which is based on the
Administrative Agent's published prime rate) plus 0.50%. Amounts under the
Senior Credit Facility not paid when due bear interest at a default rate of 2.0%
above the otherwise applicable rate.
FEES. PRI has agreed to pay certain fees with respect to the Revolving
Credit Facility, including a closing fee of $100,000 and a commitment fee in the
amount of 0.50% per annum on the average unused portion of the commitment
thereunder. PRI has also agreed to pay a fee with respect to the Letter of
Credit Facility in the amount of 2.0% per annum of the total maximum amount
available under all outstanding standby letters of credit and customary fees
charged by LaSalle National Bank with respect to commercial letters of credit.
COVENANTS. The Senior Credit Facility contains a number of covenants that,
among other things, restrict the ability of PRI to (i) incur certain
indebtedness or guarantee obligations, (ii) prepay other indebtedness, (iii)
make investments, loans or advances, (iv) create certain liens, (v) make certain
payments, dividends and distributions, (vi) merge with or sell assets to another
person or liquidate, (vii) sell or discount receivables, (viii) engage in
certain intercompany transactions and transactions with affiliates, (ix) change
its business, (x) experience a change of control and (xi) make amendments to its
charter, by-laws and other debt instruments. In addition, under the Senior
Credit Facility, PRI will be required to comply with specified financial ratios
and tests, including minimum debt service coverage ratios, maximum funded debt
to EBITDA tests and minimum working capital tests.
57
<PAGE>
EVENTS OF DEFAULT. The Senior Credit Facility contains customary events of
default, including nonpayment of principal, interest or fees, violation of
covenants, inaccuracy of representations or warranties in any material respect,
cross default and cross acceleration to certain other indebtedness, bankruptcy,
material judgments and liabilities and change of control.
BEMIS NOTE
In connection with the Company's acquisition of Louisiana Plastics, PRI
issued a promissory note to Bemis Company, Inc. in the principal amount of $2.0
million (the "Bemis Note"), $1.5 million aggregate principal amount of which was
outstanding as of February 29, 1996. The Bemis Note is subordinated in right of
payment to all indebtedness of PRI to any bank, insurance company or other
financial institution. Interest on the Bemis Note is payable monthly at the
prime rate from time to time publicly announced by Bank of America, N.A., plus
2.0%. In March 1996, the Company paid $250,000 in outstanding principal amount
of the Bemis Note. The remaining outstanding principal amount of the Bemis Note
is payable in installments of $300,000, $250,000 and $700,000 in September 1996,
March 1997 and July 1997, respectively.
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued, and the Old Notes were issued, under the
Indenture by and among the Company and LaSalle National Bank, as Trustee and as
collateral agent (the "Collateral Agent"). The terms of the Exchange Notes are
the same in all respects (including principal amount, interest rate, maturity,
security and ranking) as the terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except that the Exchange Notes (i) are
freely transferable by holders thereof (except as provided below) and (ii) are
not entitled to certain registration rights and certain additional interest
provisions which are applicable to the Old Notes under the Registration Rights
Agreement.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act. The Notes are
subject to all such terms, and holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement of those terms.
A copy of the Indenture is filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The following is a summary of certain
provisions of the Notes and the Indenture. This summary does not purport to be
complete and is subject to the detailed provisions of, and is qualified in its
entirety by reference to, the Notes and the Indenture. The definitions of
certain terms used in the following summary are set forth below under "--
Certain Definitions." Unless the context otherwise requires, all references
herein to the "Notes" shall include the Old Notes and the Exchange Notes.
RANKING AND SECURITY
The Notes are general obligations of PRI, secured to the extent described
below by Liens on the Collateral (as defined below under "-- Security") and
ranking senior to all subordinated Indebtedness of PRI and PARI PASSU in right
of payment to all other senior Indebtedness of PRI. The lenders under the Senior
Credit Facility have claims with respect to the assets constituting collateral
for Indebtedness thereunder (which assets do not constitute Collateral securing
the Notes) that are effectively senior to the claims of holders of the Notes. In
addition, pursuant to the Indenture, in the event the Company enters into an
Acquisition Financing Facility, the lender or lenders thereunder will be
entitled, pursuant to the terms of an Intercreditor Agreement (as defined) to be
entered into in connection therewith, to share, generally on a PARI PASSU basis,
in any proceeds upon any foreclosure upon the Collateral. See "-- Security." As
of February 29, 1996, on a pro forma basis, after giving effect to the Financing
Plan, PRI would have had outstanding approximately $112.2 million in aggregate
principal amount of senior Indebtedness, including approximately $0.4 million of
secured Indebtedness (excluding the Notes). In addition, PRI would have had
$19.6 million in unused secured borrowing capacity under the Senior Credit
Facility.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be senior secured obligations of the Company limited in
aggregate principal amount at maturity to $110,000,000 and will mature on May 1,
2003. Interest on the Notes will accrue at the rate of
58
<PAGE>
11 5/8% per annum and will be payable semiannually in arrears on May 1 and
November 1 in each year, commencing on November 1, 1996, to holders of record on
the immediately preceding April 15 and October 15, respectively. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of the original issuance of the
Notes (the "Issue Date"). Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
The Exchange Notes will bear interest from May 17, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from May 17, 1996 to the date of the issuance of the Exchange Notes. Interest on
the Exchange Notes is payable semiannually in arrears on May 1 and November 1 of
each year, commencing November 1, 1996, accruing from May 17, 1996 at a rate of
11 5/8% per annum.
Principal of, and premium, if any, and interest on, the Notes will be
payable at the office or agency of the Company maintained for such purpose
within The City of New York or, at the option of the Company, payment of
interest may be made by check mailed to the holders of the Notes at their
respective addresses as set forth in the register of holders of Notes. Until
otherwise designated by the Company, the Company's office or agency in The City
of New York will be the office of the Trustee maintained for such purpose. The
Notes will be issued in fully registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable at PRI's option prior to May 1, 2000.
Thereafter, at any time or from time to time, the Notes will be subject to
redemption at the option of PRI, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on May 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- -----------
<S> <C>
2000................................................................... 105.813%
2001................................................................... 102.906%
2002 and thereafter.................................................... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to May 1, 1999, PRI may redeem at
any time or from time to time up to 30% of the aggregate principal amount of
Notes originally issued at a redemption price of 111 5/8% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
redemption date, with the net proceeds of one or more Public Equity Offerings;
PROVIDED that at least $70.0 million in aggregate principal amount of Notes
remain outstanding immediately after such redemption; and PROVIDED FURTHER, that
such redemption shall occur within 90 days of the date of the closing of any
such Public Equity Offering. In the case of any Public Equity Offering by Group,
the Indenture provides that PRI shall apply to a redemption of the Notes to the
extent permitted under the Indenture an amount not less than 50% of the
aggregate net proceeds of such Public Equity Offering, and Group has separately
agreed with PRI to make an equity contribution to PRI of 50% of such aggregate
net proceeds. PRI has also agreed pursuant to the Indenture not to repurchase
any of the Notes pursuant to open market or privately negotiated purchases until
the expiration of twelve months following any Public Equity Offering.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate, PROVIDED
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On
59
<PAGE>
and after the redemption date (unless PRI shall default in the payment of the
redemption price, together with accrued and unpaid interest to the redemption
date), interest will cease to accrue on Notes or portions thereof called for
redemption.
The Company will comply with the applicable requirements of Rule 14e-1 under
the Exchange Act, and all other applicable securities laws and regulations in
connection with the optional repurchase by the Company of the Exchange Notes.
MANDATORY REDEMPTION
Except as set forth above under the caption "Optional Redemption" and below
under the caption "Repurchase at the Option of Holders," PRI is not required to
make mandatory redemption or sinking fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require PRI to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holders's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the Change of Control Payment Date (as hereinafter defined)
(the "Change of Control Payment"). Within 30 days following any Change of
Control, PRI will mail a notice to each Holder stating: (1) that the Change of
Control Offer is being made pursuant to the covenant entitled "Change of
Control" and that all Notes tendered will be accepted for payment; (2) the
purchase price and the purchase date, which will be no earlier than 30 days nor
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"); (3) that any Note not tendered will continue to accrue interest;
(4) that, unless PRI defaults in the payment of the Change of Control Payment,
all Notes accepted for payment pursuant to the Change of Control Offer will
cease to accrue interest after the Change of Control Payment Date; (5) that
Holders electing to have any Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Notes, with the form entitled "Option to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (6) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holders, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have such Notes purchased; and (7) that Holders whose Notes are being purchased
only in part (which purchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof) will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered.
On the Change of Control Payment Date, PRI will, to the extent lawful, (1)
accept for payment Notes or portions thereof tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent an amount equal to the Change
of Control Payment in respect of all Notes or portions thereof so tendered and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
tendered to PRI. The Paying Agent will promptly mail to each Holder of Notes so
accepted the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; PROVIDED
that each new Note will be in a principal amount of $1,000 or an integral
multiple thereof. PRI will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
With respect to the sale of assets referred to in the definition of "Change
of Control", the phrase "all or substantially all" as used in the Indenture
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under New York law (which governs the Indenture)
and is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty
60
<PAGE>
in ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the assets of a person and therefore it may be
unclear whether a Change of Control has occurred and whether the Notes are
subject to, and whether PRI is required to make, a Change of Control Offer.
The Company will comply with the applicable tender offer rules, including
the requirements of Rule 14e-1 under the Exchange Act, and all other applicable
securities laws and regulations in connection with any Change of Control Offer.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require that
PRI repurchase or redeem the Notes in the event of a takeover, recapitalization
or similar restructuring.
The Senior Credit Facility prohibits PRI from purchasing any Notes upon a
Change of Control and also provides that certain change of control events with
respect to PRI or Group would constitute a default thereunder. Any future credit
agreements to which PRI or Group becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when PRI is prohibited from purchasing Notes, PRI could seek the consent of its
lenders to the purchase of Notes or could attempt to refinance the borrowings
that contain such prohibition. If PRI does not obtain such a consent or repay
such borrowings, PRI will remain prohibited from purchasing Notes. In such case,
PRI's failure to purchase tendered Notes would constitute an Event of Default
under the Indenture, which would, in turn, constitute a default under the Senior
Credit Facility.
The Company may not have sufficient funds to redeem the Exchange Notes upon
a change of control or upon the occurrence of certain sales or dispositions of
assets. See "Risks Factors -- Substantial Leverage and Debt Service
Obligations."
ASSET SALES; COLLATERAL LOSS EVENTS
The Indenture provides that PRI will not, and will not permit any of its
Restricted Subsidiaries to, engage in any Asset Sale, unless (i) PRI or any such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors of PRI set forth in an Officers'
Certificate delivered to the Trustee) of the assets sold or otherwise disposed
of, (ii) 80% (or, in the case of an Asset Sale involving the sale or other
disposition of Collateral, 90%) of the consideration therefor received by PRI or
such Restricted Subsidiary is in the form of cash; PROVIDED, HOWEVER, that the
amount of (A) any liabilities (as shown on PRI's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto) of PRI or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated in right
of payment to the Notes) that are assumed by the transferee of any such assets
and (B) any notes or other obligations received by PRI or such Restricted
Subsidiary from such transferee that are immediately converted by PRI or such
Restricted Subsidiary into cash (to the extent of the cash received), shall be
deemed to be cash for purposes of this provision; and PROVIDED, FURTHER, that
the 80% and 90% limitations referred to in this clause (ii) shall not apply to
any Asset Sale in which the cash portion of the consideration received
therefrom, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax proceeds would have been had such Asset Sale
complied with the aforementioned 80% or 90% limitation, as applicable, and (iii)
in the event the Asset Sale involves the sale or other disposition of
Collateral, the Net Proceeds thereof are deposited promptly into the Cash
Collateral Account pending application in accordance with the next succeeding
paragraph and PRI takes such other actions, at its sole expense, as may be
required to ensure that the Trustee holds a first priority Lien on such Net
Proceeds in accordance with the Indenture.
Within 360 days after any Asset Sale, PRI or such Restricted Subsidiary may
apply the Net Proceeds from such Asset Sale (a) except in the case of an Asset
Sale involving the sale or other disposition of Collateral, to permanently
reduce Indebtedness under the Senior Credit Facility or other Senior Debt (with
a permanent reduction of availability in the case of Indebtedness under the
Senior Credit Facility or other revolving credit borrowings) or (b) to an
investment in capital expenditures or other long-term tangible assets related to
the business of the Company, or in another business, in each case in a line of
business permitted under the "Line of Business" limitation described below
(provided, however, that, in the event the
61
<PAGE>
Net Proceeds so invested are received in connection with an Asset Sale involving
the sale or other disposition of Collateral, (i) such investment is in
Replacement Collateral, (ii) prior to such investment, PRI shall deliver to the
Trustee an Officers' Certificate dated no more than 30 days prior to the date of
consummation of such investment, certifying that the purchase price of such
Replacement Collateral does not exceed the fair market value of such Replacement
Collateral as determined in good faith by the Board of Directors and (iii) PRI
shall take such actions, at its sole expense, as shall be required to release
such Net Proceeds from the Lien of the Security Documents and to ensure that the
Trustee has, from the date of such investment, a first priority security
interest in the Replacement Collateral). Pending the final application of any
such Net Proceeds, except in the case of Net Proceeds received from an Asset
Sale involving the sale or other disposition of Collateral, PRI or such
Restricted Subsidiary may invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from the Asset Sale that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds."
Pursuant to the Indenture, PRI may not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, suffer or permit a
Collateral Loss Event unless the Net Proceeds therefrom are paid to the Trustee
and deposited in the Cash Collateral Account and PRI takes such actions, at its
sole expense, as may be required to ensure that the Trustee has from the date of
such deposit a first priority security interest on such Net Proceeds in the Cash
Collateral Account in accordance with the Indenture. Within 270 days of receipt
of the Net Proceeds therefrom, PRI may apply all the Net Proceeds received from
a Collateral Loss Event: (i) to purchase or otherwise invest in Replacement
Collateral; or (ii) to Restore the relevant Collateral. In the event that PRI
elects to Restore the relevant Collateral, PRI, within 90 days of receipt of
such Net Proceeds from a Collateral Loss Event, shall (x) give the Trustee
irrevocable written notice of such election and (y) enter into a binding
commitment to Restore the relevant Collateral, a copy of which shall be supplied
to the Trustee, and shall carry out such Restoration with due diligence and
complete such Restoration within 270 days from the date of such binding
commitment. Any Net Proceeds from a Collateral Loss Event not so applied shall
constitute Excess Proceeds.
When the aggregate amount of Excess Proceeds exceeds $5.0 million, PRI shall
make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, (i) amounts remaining on deposit in the
Cash Collateral Account shall be retained therein and shall continue to be
subject to the Lien of the Security Documents and may be used by PRI to purchase
or invest in Replacement Collateral at any time and from time to time, and (ii)
any remaining deficiency not so deposited may be used by PRI for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the applicable tender offer rules, including
the requirements of Rule 14e-1 under the Exchange Act, and all other applicable
securities laws and regulations in connection with any Asset Sale Offer.
SECURITY
All of the obligations of PRI under the Notes and the Indenture are secured
by a first priority Lien on the following property (collectively, the
"Collateral"): (i) mortgages on substantially all of the owned and certain of
the leased real property of the Company, (ii) certain equipment and fixtures,
(iii) certain general intangibles and (iv) proceeds of any of the foregoing, in
each case whether owned on the Issue Date or acquired thereafter, PROVIDED,
HOWEVER, that property purchased with the proceeds of a loan made pursuant to an
Acquisition Financing Facility and subject to a Lien securing such Acquisition
Financing Facility will not constitute Collateral.
If the Notes become due and payable prior to the final stated maturity
thereof for any reason or are not paid in full at the final stated maturity
thereof, the Trustee has the right to foreclose upon the Collateral in
62
<PAGE>
accordance with instructions from the Holders of a majority in aggregate
principal amount of the Notes or, in the absence of such instructions, in such
manner as the Trustee deems appropriate in its absolute discretion. Pursuant to
the Indenture, in the event PRI obtains an Acquisition Financing Facility, the
lender or lenders thereunder, the Trustee and the Collateral Agent (which
initially will be the Trustee) will enter into an Intercreditor Agreement.
Pursuant to the Intercreditor Agreement, upon any foreclosure on the Collateral
or collateral acquired with the proceeds of the Acquisition Financing Facility,
the proceeds thereof will be distributed by the Collateral Agent (i) first, to
pay certain obligations of PRI to reimburse or indemnify the Collateral Agent,
(ii) next, to the Trustee on behalf of the Holders and to such lenders pro rata
on account of certain payments, if any, previously set aside, (iii) next, to the
Trustee on behalf of the Holders and to such lenders pro rata on account of
unpaid interest, prepayment or redemption premiums or payments due upon an Asset
Sale Offer or Change of Control Offer, (iv) next, to the Trustee on behalf of
the Holders and to such lenders pro rata on account of unpaid principal, (v)
next, to the Trustee on behalf of the Holders and to such lenders pro rata on
account of other obligations of PRI and (vi) next, to PRI or as otherwise
required by law. The Intercreditor Agreement will provide that the Trustee and
the lenders under the Acquisition Financing Facility will have recourse to the
Collateral and the collateral acquired with the proceeds of the Acquisition
Financing Facility only through the Collateral Agent and that the Trustee and
such lenders will have the right to direct the Collateral Agent to foreclose
upon the Collateral and the collateral acquired with the proceeds of the
Acquisition Financing Facility, respectively.
There can be no assurance that the proceeds of any sale of the Collateral in
whole or in part pursuant to the Indenture and the related Security Documents
following an Event of Default would be sufficient to satisfy payments due on the
Notes. To the extent that PRI has outstanding obligations to lenders under an
Acquisition Financing Facility, with whom the Holders of the Notes will share
proceeds from any sales of Collateral, amounts realized by Holders of the Notes
in respect thereof will be reduced. Moreover, some or all of the Collateral will
be illiquid and may have no readily ascertainable market value. Accordingly,
there can be no assurance that the Collateral can be sold in a short period of
time, or at all. In addition, the ability of the Holders of the Notes to realize
upon the Collateral will be subject to certain bankruptcy law limitations in the
event of a bankruptcy of PRI. Under applicable federal bankruptcy laws, secured
creditors are prohibited from repossessing their security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such a debtor,
without bankruptcy court approval. Moreover, applicable federal bankruptcy laws
generally permit the debtor to continue to retain collateral even though the
debtor is in default under the applicable debt instruments, provided generally
that the secured creditor is given "adequate protection." The meaning of the
term "adequate protection" may vary according to the circumstances, but is
intended in general to protect the value of the secured creditor's interest in
the collateral at the commencement of the bankruptcy case and may include cash
payments or the granting of additional security, if and at such times as the
court in its discretion determines, for any diminution in the value of the
collateral as result of the stay of repossession or disposition of the
collateral by the debtor during the pendency of the bankruptcy case. In view of
the lack of a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, the Company cannot predict whether
payments under the Notes would be made following commencement of and during a
bankruptcy case, whether or when the Trustee could foreclose upon or sell the
Collateral or whether or to what extent Holders of the Notes would be
compensated for any delay in payment or loss of value of the Collateral through
the requirement of "adequate protection." Furthermore, in the event the
bankruptcy court determines that the value of the Collateral is not sufficient
to repay all amounts due on the Notes, the Holders would hold "undersecured
claims." Applicable federal bankruptcy laws do not permit the payment and/or
accrual of interest, costs and attorney's fees for "undersecured claims" during
the debtor's bankruptcy case.
Old Notes initially purchased by qualified institutional buyers who did not
elect to take physical delivery of their certificates were initially represented
by a single, global Note in registered form, registered in the name of a nominee
of DTC, as depositary. Notes (i) originally purchased by or transferred to
certain "foreign purchasers" or Accredited Investors or (ii) held by qualified
institutional buyers who elected to take physical delivery of their certficates
instead of holding their interest through the global Note were issued in
registered form. The Exchange Notes exchanged for Old Notes represented by the
global Note will be represented by one or more global Exchange Notes in
registered form, registered in the name of the
63
<PAGE>
nominee of DTC. See "Description of Exchange Notes -- Book-entry; Delivery and
Form." Exchange Notes issued to non-qualified institutional buyers in exchange
for Old Notes held by such investors will be issued only in certificated, fully
registered, definitive form. Except as described herein, Exchange Notes in
definitive certificated form will not be issued in exchange for the global
Exchange Note(s) or interests therein.
THE GLOBAL NOTE. PRI expects that pursuant to procedures established by DTC
(i) upon the issuance of the Global Note, DTC or its custodian will credit, on
its internal system, the principal amount of Notes of the individual beneficial
interests represented by such global securities to the respective accounts of
persons who have accounts with such depositary and (ii) ownership of beneficial
interests in the Global Note will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchasers and ownership of beneficial interests in the Global Note will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. QIBs may hold their interests in the Global
Note directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in any of the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of PRI, the Trustee or
any Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
PRI expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) in
respect of the Global Note, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Note as shown on the records of DTC or its nominee. PRI
also expects that payments by participants to owners of beneficial interests in
the Global Note held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same day funds. If a holder
requires physical delivery of a Certificated Security for any reason, including
to sell Notes to persons in states which require physical delivery of the Notes,
or to pledge such securities, such holder must transfer its interest in the
Global Note, in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised PRI that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Note are credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such participant
or participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Note for
Certificated Securities, which it will distribute to its participants and which
will be legended as set forth under the heading "Transfer Restrictions."
DTC has advised PRI as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC was created to
64
<PAGE>
hold securities for its participants and facilitate the clearance and settlement
of securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither PRI nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES. Certificated Securities will be transferred to all
beneficial owners in exchange for their beneficial interests in the Global Note
if (A) DTC (i) has notified the Company that it is unwilling or unable to
continue as depositary for such Global Note or (ii) has ceased to be a clearing
agency registered under the Exchange Act or (B) there shall have occurred and be
continuing an Event of Default resulting in acceleration of the Notes. Such
Certificated Securities will bear the legends referred to under "Transfer
Restrictions," except upon satisfaction of the conditions set forth in the
Indenture permitting removal of such legends.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that PRI will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of the Equity Interests of PRI or
any of its Restricted Subsidiaries (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of PRI or such
Restricted Subsidiary or dividends or distributions payable by a Restricted
Subsidiary of PRI to PRI or to another Restricted Subsidiary of PRI); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of PRI or any Restricted Subsidiary or other Affiliate of PRI (other than any
such Equity Interests owned by PRI or a Restricted Subsidiary of PRI); (iii)
purchase, redeem or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Notes; (iv) pay an amount in any fiscal year in excess of
$600,000 pursuant to the Management Services Agreement; or (v) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (v) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the
beginning of PRI's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
on which such Restricted Payment is made, the Fixed Charge Coverage Ratio
would have been greater than 2.0 to 1 for Restricted Payments made on or
prior to February 29, 2000 and greater than 2.25 to 1 for Restricted
Payments made after February 29, 2000; and
(c) such Restricted Payment (the amount of any such payment, if other
than cash, to be determined by the Board of Directors of PRI, whose
determination shall be conclusive and evidenced by a resolution in an
Officers' Certificate delivered to the Trustee), together with the aggregate
of all other Restricted Payments made by PRI and its Restricted Subsidiaries
after the date of the Indenture, shall not exceed the sum of (1) 50% of the
Consolidated Net Income of PRI for the period (taken as one accounting
period) commencing March 1, 1996 and ending on the last day of PRI's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, 100% of such deficit); plus (2)
100% of the aggregate net cash proceeds received by PRI from the issue, sale
or exercise since the
65
<PAGE>
date of the Indenture of Equity Interests of PRI or of debt securities of
PRI that have been converted into such Equity Interests (other than (A)
Equity Interests (or convertible debt securities) sold to, or exercised by,
a Restricted Subsidiary of PRI, (B) Equity Interests the proceeds of which
are applied as permitted by clause (ii) of the next succeeding paragraph and
(C) Disqualified Stock or debt securities that have been converted into
Disqualified Stock); plus (3) the aggregate cash received by PRI as capital
contributions to PRI after the Issue Date (other than a capital contribution
applied as permitted by clause (ii) of the next succeeding paragraph); plus
(4) the amount of the net reduction in Investments in Unrestricted
Subsidiaries of PRI resulting from (x) the payment of cash dividends or the
repayment in cash of the principal of loans or the cash return on any
Investment, in each case to the extent received by PRI or any Restricted
Subsidiary of PRI from Unrestricted Subsidiaries of PRI, (y) to the extent
that any Restricted Investment that was made after the date of the Indenture
is sold for cash or otherwise liquidated or repaid for cash, the after-tax
cash return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (z) the redesignation of Unrestricted
Subsidiaries of PRI as Restricted Subsidiaries of PRI (valued as provided in
the definition of "Investment"), such aggregate amount of the net reduction
in Investments not to exceed in the case of Unrestricted Subsidiary, the
amount of Restricted Investments previously made by PRI or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of PRI, or the defeasance, redemption or repurchase of
subordinated Indebtedness in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary of PRI) of
Equity Interests (other than any Disqualified Stock) of PRI or out of the
proceeds of a substantially concurrent cash capital contribution received by
PRI; (iii) the defeasance, redemption or repurchase of subordinated Indebtedness
with the net proceeds from an incurrence of Indebtedness incurred in a Permitted
Refinancing (as hereinafter defined); (iv) a Restricted Payment by PRI pursuant
to the Tax Sharing Agreement; (v) following consummation by Group of a Public
Equity Offering, a Restricted Payment to Group in such amounts as may be
necessary to pay operating and/or administrative expenses of Group, up to a
maximum of $750,000 per year; and (vi) a Restricted Payment to Group of up to
$32.0 million that is applied in full on the Issue Date to the payment of the
redemption price of a portion of the outstanding 12.5% Notes. Any payments made
pursuant to clauses (i), (iv) and (v) of this paragraph will be, and any
payments made pursuant to clauses (ii), (iii) and (vi) will not be, deemed to be
Restricted Payments for the purpose of clause (c) of the preceding paragraph.
Not later than the date of making any Restricted Payment, PRI shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the "Restricted Payments" covenant were computed, which calculations may be
based upon PRI's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that PRI will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and that
PRI will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any share of Disqualified Stock or preferred
stock; PROVIDED, HOWEVER, that PRI may incur Indebtedness or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for PRI's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such preferred stock is issued, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period would
have been greater than 2.0 to 1 for Indebtedness incurred on or prior to
February 28, 1998 and greater than 2.25 to 1 for Indebtedness incurred after
February 28, 1998.
66
<PAGE>
The foregoing limitations will not apply to:
(i)
Indebtedness incurred by PRI under the Senior Credit Facility or any
replacement credit facility in an aggregate principal amount not to
exceed the greater of (A) $20.0 million in principal amount (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of PRI thereunder), less the aggregate amount of all
repayments after the Issue Date that permanently reduce the commitment under
the Senior Credit Facility or such replacement credit facility and (B) the
Borrowing Base at the time such Indebtedness is incurred;
(ii)
Indebtedness incurred by PRI or any Subsidiary Guarantor in respect
of Capital Lease Obligations or Purchase Money Obligations in an
aggregate principal amount not to exceed $10.0 million at any time
outstanding reduced by the principal amount of any such Indebtedness repaid
with the Net Proceeds of Asset Sales (other than Purchase Money Obligations
repaid with Net Proceeds of Asset Sales of the asset securing such
Obligations);
(iii)
Existing Indebtedness outstanding on the date of the Indenture;
(iv)
the incurrence by PRI or any Subsidiary Guarantor of Indebtedness
issued in exchange for, or the proceeds of which are used to extend,
refinance, renew, replace, defease or refund (collectively, to "Refinance"),
any Indebtedness incurred pursuant to clause (iii) above or this clause (iv)
in whole or in part (the "Refinancing Indebtedness"); PROVIDED, HOWEVER,
that (1) the principal amount of such Refinancing Indebtedness shall not
exceed the principal amount of Indebtedness so Refinanced (plus the amount
of prepayment premium and reasonable expenses incurred in connection
therewith); (2) the Refinancing Indebtedness shall have a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced; (3) if the Indebtedness is
subordinated in right of payment to the Notes, the Refinancing Indebtedness
shall be subordinated in right of payment to the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness; and (4) immediately after such Refinancing, the
amount remaining outstanding or available under such Existing Indebtedness
or such Refinancing Indebtedness being so Refinanced does not exceed the
difference between (A) the amount outstanding under such Existing
Indebtedness or such Refinancing Indebtedness immediately prior to such
Refinancing together with any prepayment premium paid and expenses
reasonably incurred by PRI in connection with such Refinancing MINUS (B) the
amount of the Refinancing Indebtedness being incurred in such Refinancing
(any such Refinancing being referred to as a "Permitted Refinancing");
(v)
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any Indebtedness that is
permitted by the terms of the Indenture to be outstanding;
(vi)
intercompany Indebtedness between or among PRI and any of its
Restricted Subsidiaries;
(vii)
Indebtedness of PRI attributable to any Currency Agreement, Commodity
Agreement or Interest Rate Agreement;
(viii)
Indebtedness arising from BONA FIDE agreements providing for
indemnification, adjustment of purchase price or similar obligations,
or from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of PRI or any of its Restricted Subsidiaries
pursuant to such agreements, in any case incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of PRI in
compliance with the covenant described under "-- Repurchase at the Option of
Holders -- Asset Sales; Collateral Loss Events" above (other than Guarantees
of Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of PRI for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by PRI or any Restricted Subsidiary in connection
with such disposition; and
(ix)
other Indebtedness in an aggregate principal amount not to exceed
$5.0 million at any time outstanding.
67
<PAGE>
LIENS
The Indenture provides that PRI will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on (a) any item of Collateral (other than the Liens
created by the Security Documents), except as expressly permitted by the
Security Documents or (b) any other asset now owned or hereafter acquired, or
any income or profits therefrom or assign or convey any right to receive income
therefrom, except in the case of this clause (b), (1) if such Liens are
Permitted Liens or (2) effective provision is made so that the Notes will be
secured (A) equally and ratably with (or prior to) the obligations so secured
for so long as such obligations are so secured, or (B) in the event the
obligations so secured are subordinate in right of payment to the Notes, prior
to such obligations for so long as such obligations are so secured.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that PRI will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to PRI or any of its Restricted Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or measured
by, its profits, (b) pay any Indebtedness owed to PRI or any of its
Subsidiaries, (c) make loans or advances to PRI or any of its Restricted
Subsidiaries or (d) transfer any of its properties or assets to PRI or any of
its Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (i) Existing Indebtedness as in effect on the
date of the Indenture, (ii) the Indenture and the Notes, (iii) the Senior Credit
Facility, as in effect on the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof after such date; PROVIDED that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are not more restrictive with respect
to the provisions set forth in clauses (a), (b), (c) and (d) than those
contained in the Senior Credit Facility, as in effect on the date of the
Indenture, (iv) applicable law, (v) any instrument governing Indebtedness or
Capital Stock of a Person acquired by PRI or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, PROVIDED that the Consolidated
Cash Flow of such Person is not taken into account in determining whether such
acquisition was permitted by the terms of the Indenture, (vi) customary
nonassignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (vii) Purchase Money Obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (d) above on the property so
acquired, (viii) restrictions with respect solely to a Subsidiary of PRI imposed
pursuant to a binding agreement (subject only to customary closing conditions
and termination provisions) that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets to be
sold of such Subsidiary, PROVIDED that such restrictions apply solely to the
Capital Stock or assets to be sold of such Subsidiary, and such sale or
disposition is permitted under the covenant entitled "Repurchase at Option of
Holders -- Asset Sales; Collateral Loss Events" or (ix) Refinancing
Indebtedness, PROVIDED that the restrictions contained in the agreements
governing such Refinancing Indebtedness are no more restrictive with respect to
the provisions set forth in clauses (a), (b), (c) and (d) above than those
contained in the agreements governing the Indebtedness being refinanced.
LIMITATION ON MERGER OR CONSOLIDATION
The Indenture provides that PRI may not consolidate or merge with or into
(whether or not PRI is the surviving corporation), or sell, lease, license,
transfer or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless (i) PRI is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than PRI) or to which such sale, lease,
license, transfer or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than PRI) or the Person to which such sale,
lease, license, transfer or other disposition shall have been made assumes all
the obligations of PRI under
68
<PAGE>
the Notes, the Indenture and the Security Documents, including the Trustee's
uninterrupted Lien with respect to the Collateral, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after giving effect to such transaction no Default or Event of Default exists;
(iv) PRI or any Person formed by or surviving any such consolidation or merger,
or to which such sale, lease, license, transfer or other disposition shall have
been made (A) will have Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments resulting from the
transaction) equal to or greater than the Consolidated Net Worth of PRI
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock;" and (v) the Company has delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, lease, license, transfer or other
disposition complies with the "Limitation on Merger or Consolidation" covenant
and that all conditions precedent in the Indenture relating to such transaction
have been complied with.
Upon any consolidation, merger, sale, lease, license, transfer or other
disposition in accordance with such covenant, the successor Person formed by
such consolidation or into which PRI is merged or to which such sale, lease,
license, transfer or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, PRI under the
Indenture and the Security Documents with the same effect as if such successor
had been named as PRI in the Indenture and the Security Documents and thereafter
(except in the case of a lease) the predecessor corporation will be relieved of
all further obligations and covenants under the Indenture, the Security
Documents and the Notes.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that PRI will not, and will not permit any of its
Restricted Subsidiaries to, sell, lease, license, transfer or otherwise dispose
of any of its properties or assets to, or purchase any property or assets from,
or enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to PRI or the relevant Restricted Subsidiary, as the case may be,
than those that would have been obtained in a comparable transaction by PRI or
such Restricted Subsidiary, as the case may be, with an unrelated Person and (b)
PRI delivers to the Trustee (i) with respect to any Affiliate Transaction
involving aggregate payments in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (a) above and such Affiliate
Transaction is approved by a majority of the disinterested members of the Board
of Directors and (ii) with respect to any Affiliate Transaction involving
aggregate payments in excess of $5.0 million, an affirmative opinion as to the
fairness to PRI or such Restricted Subsidiary, as the case may be, from a
financial point of view issued by an investment banking firm of national
standing with expertise in underwriting non-investment grade debt securities;
PROVIDED, HOWEVER, that (i) any employment agreement or stock option agreement
(other than any such agreement involving options on Disqualified Stock) entered
into by PRI or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of PRI or such Restricted
Subsidiary, (ii) transactions between or among PRI and its Restricted
Subsidiaries, (iii) transactions permitted by the provisions of the Indenture
described above under "-- Restricted Payments," (iv) the payment of reasonable
fees or indemnities to directors of PRI or its Restricted Subsidiaries, (v) the
payment by PRI to HPH of an amount during any four consecutive fiscal quarters
pursuant to the Management Services Agreement not in excess of the Permitted
Amount, (vi) any issuance of Equity Interests (other than Disqualified Stock) or
other payments, awards or grants in Equity Interests pursuant to stock options
and stock ownership plans (other than plans involving Disqualified Stock) of PRI
entered into in the ordinary course of business and approved by the Board of
Directors, (vii) payments pursuant to the Miner Purchase Agreement, and (viii)
transactions and payments pursuant to the Registration Rights Agreements and the
Stock and Warrant Holders Agreement, in each case will not be deemed Affiliate
Transactions.
69
<PAGE>
GUARANTEE OF THE NOTES
The Indenture provides that PRI will not permit any Restricted Subsidiary to
incur any Indebtedness or issue any preferred stock unless (i) such Restricted
Subsidiary enters into or has entered into a Guarantee of the Notes in
accordance with the terms of the Indenture or (ii) the total principal amount of
Indebtedness and liquidation preference of preferred stock of such Restricted
Subsidiary does not exceed $250,000 individually and, together with the total
principal amount of Indebtedness and liquidation preference of preferred stock
of all other Restricted Subsidiaries that are not Guarantors, does not exceed
$500,000 in the aggregate.
Any such Guarantee of the Notes by a Restricted Subsidiary will be limited
in amount to an amount not to exceed the maximum amount that can be guaranteed
by that Restricted Subsidiary without rendering such Guarantee voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. With such limitations,
such Guarantee could be effectively subordinated to all other Indebtedness
(including guarantees and other contingent liabilities) of such Restricted
Subsidiary and, depending on the amount of such Indebtedness, such Restricted
Subsidiary's liability on its Guarantee could be reduced to zero. Upon the sale
or other disposition of a Restricted Subsidiary that is a Guarantor (other than
to PRI or an Affiliate of PRI) permitted by the Indenture, such Restricted
Subsidiary will be released and relieved from all of its obligations under its
Guarantee.
LINE OF BUSINESS
The Indenture provides that for so long as any Notes are outstanding, PRI
and its Restricted Subsidiaries will engage primarily in the business of
developing, manufacturing and marketing of rigid plastic packaging and plastic
promotional beverage cups.
IMPAIRMENT OF SECURITY INTEREST
Neither PRI nor any of its Subsidiaries will take or omit to take any action
that would have the result of adversely affecting or impairing the security
interest in favor of the Trustee, on behalf of itself and the Holders of the
Notes, with respect to the Collateral, and neither PRI nor any of its
Subsidiaries shall grant to any Person, or suffer any Person (other than PRI) to
have (other than to the Trustee on behalf of the Trustee and the Holders of the
Notes) any interest whatsoever in the Collateral except as expressly permitted
by the Security Documents. Neither PRI nor any of its Subsidiaries will enter
into any agreement or instrument that by its terms requires the proceeds
received from any sale of Collateral to be applied to repay, redeem, defease or
otherwise acquire or retire any Indebtedness of any Person, other than (i)
lenders under an Acquisition Financing Facility and (ii) pursuant to the
Indenture, the Notes and the Security Documents.
REPORTS
The Indenture provides that whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, PRI will
furnish to the Holders of Notes (i) all quarterly and annual financial
information that is substantially equivalent to that which would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if PRI were
required to file such Forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section and, with respect to
the annual information only, a report thereon by PRI's certified independent
accountants and (ii) all reports that are substantially equivalent to that which
would be required to be filed with the Commission on Form 8-K if PRI were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, PRI will file a copy of all such information
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to investors who
request it in writing. The Indenture also requires that, so long as any of the
Notes remain outstanding, PRI will make available to any prospective purchaser
of Notes or beneficial owner of Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act, until such
time as PRI has either exchanged the Notes for securities identical in all
material respects which have been registered under the Securities Act or until
such time as the holders thereof have disposed of such Notes pursuant to an
effective registration statement under the Securities Act.
70
<PAGE>
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in payment when due of the principal of or premium, if any,
on the Notes or in payment when due with respect to Notes tendered pursuant to a
Change of Control Offer or Asset Sale Offer; (iii) failure by PRI to comply with
the provisions described under the covenants "-- Repurchase at the Option of
Holders" and "-- Certain Covenants -- Limitation on Merger or Consolidation;"
(iv) failure by PRI for 30 days after written notice from the Trustee or the
holders of 25% of the outstanding Notes to comply with any of its other
agreements in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by PRI, Group or any
Restricted Subsidiary of PRI (or the payment of which is guaranteed by PRI,
Group or any Restricted Subsidiary of PRI) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, on
such Indebtedness prior to the expiration of the grace period, if any, provided
in such Indebtedness (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by PRI, Group or any Restricted Subsidiary of PRI to pay final judgments
aggregating in excess of $3.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) certain events of bankruptcy or
insolvency with respect to PRI, Group or any Restricted Subsidiary of PRI that
is a Significant Subsidiary or any group of Restricted Subsidiaries of PRI that,
taken together, would constitute a Significant Subsidiary of PRI; and (viii) any
of the Security Documents cease to be in full force and effect (other than in
accordance with their respective terms or the terms of the Indenture), or any of
the Security Documents cease to give the Trustee the Liens, rights, powers and
privileges purported to be created thereby, or any Security Document is declared
null and void, or PRI denies any of its obligations under any Security Document
or any Collateral becomes subject to any Lien other than the Liens created or
permitted by the Security Documents.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to PRI, Group, any Restricted Subsidiary of PRI that is
a Significant Subsidiary or any group of Restricted Subsidiaries of PRI that,
taken together, would constitute a Significant Subsidiary of PRI, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to (i) the payment of principal or interest on the
Notes, (ii) payment when due with respect to the Notes tendered pursuant to a
Change of Control Offer or Asset Sale Offer or (iii) the failure to comply with
the covenant described above under "-- Certain Covenants -- Limitation on Merger
or Consolidation") if it determines that withholding such notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of PRI with the
intention of avoiding payment of the premium that PRI would have had to pay if
PRI then had elected to redeem the Notes pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the Notes. If an Event of Default occurs prior to May 1, 2000, by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of PRI
with the intention of avoiding the prohibition on redemption of the Notes prior
to such date, then the amount payable for purposes of this paragraph will be
105.813%, expressed as a percentage of the amount that would otherwise be due
but for the provisions of this sentence, plus accrued interest, if any, to the
date of payment.
71
<PAGE>
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest (and premium, if any) on, or the principal of, the Notes or in
connection with a covenant or provision contained in the Indenture which cannot
be modified or amended without the consent of the Holders of the Notes affected
thereby.
PRI is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and, upon becoming aware of any Default or Event
of Default, to deliver to the Trustee a statement specifying such Default or
Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of PRI or Group, as such, shall have any liability for any
obligations of PRI under the Notes, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
PRI may, at its option and at any time, elect to have the Collateral
released from the Lien created by the Security Documents and all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due, (ii) PRI's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and PRI's obligations in
connection therewith, and (iv) the Legal Defeasance provisions of the Indenture.
In addition, PRI may, at its option at any time, elect to have the Collateral
released from the Lien created by the Security Documents and its obligations
released with respect to certain covenants that are described in the Indenture
and the Security Documents ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including nonpayment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) PRI
must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the Notes, cash in U.S. Dollars, non-callable Government Securities,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, of
such principal or installment of principal of, premium, if any, or interest on
the outstanding Notes; (ii) in the case of Legal Defeasance, PRI shall have
delivered to the Trustee an opinion of counsel reasonably acceptable to the
Trustee confirming that (A) PRI has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, PRI shall
have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no
72
<PAGE>
Default or Event of Default shall have occurred and be continuing on the date of
such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which PRI or any of its
Restricted Subsidiaries is a party or by which PRI or any of its Restricted
Subsidiaries is bound; (vi) PRI shall have delivered to the Trustee an opinion
of counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) PRI shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by PRI with the intent of
preferring the Holders of Notes over the other creditors of PRI with the intent
of defeating, hindering, delaying or defrauding creditors of PRI; (viii) PRI
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
trust resulting from the deposit does not constitute, or is qualified as, a
regulated investment company under the Investment Company Act of 1940, as
amended; and (ix) PRI shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, PRI will
have the right to remain in possession and retain exclusive control of the
Collateral securing the Notes (other than any cash and Cash Equivalents
constituting part of the Collateral and deposited with the Trustee in the Cash
Collateral Account and other than as set forth in the Security Documents), to
freely operate the Collateral and to collect, invest and dispose of any income
thereon.
RELEASE OF COLLATERAL
Upon compliance by PRI with the conditions set forth below in respect of any
Asset Sale, the Trustee will release the Released Interests (as defined below)
from the Lien of the Security Documents and reconvey the Released Interests to
PRI. PRI will have the right to obtain a release of items of Collateral (the
"Released Interests") subject to an Asset Sale upon compliance with the
condition that PRI deliver to the Trustee the following:
(a) A notice from PRI requesting the release of Released Interests, (i)
describing the proposed Released Interests, (ii) specifying the value
of such Released Interests on a date within 60 days of such notice (the
"Valuation Date"), (iii) stating that the purchase price to be received is
at least equal to the fair market value of the Released Interest, (iv)
stating that the release of such Released Interests will not interfere with
the Trustee's ability to realize the value of the remaining Collateral and
will not impair the maintenance and operation of the remaining Collateral,
(v) confirming the sale of, or an agreement to sell, such Released Interests
in a bona fide sale to a person or entity that is not an Affiliate of PRI
or, in the event that such sale is to a person or entity that is an
Affiliate, confirming that such sale is made in compliance with the
provisions set forth above under "-- Certain Covenants -- Transactions with
Affiliates," (vi) certifying that such Asset Sale complies with the terms
and conditions of the Indenture with respect thereto, and (vii) in the event
there is to be a substitution of Replacement Collateral for the Collateral
subject to the Asset Sale, specifying the property intended to be
substituted for the Collateral to be disposed of;
(b) An Officers' Certificate of PRI stating that (i) such Asset Sale
covers only the Released Interests and complies with the terms and
conditions of the Indenture with respect to Asset Sales, (ii) all Net Cash
Proceeds from the sale of any of the Released Interests will be applied
pursuant to the provisions of the Indenture in respect of Asset Sales, (iii)
there is no Default (unless the Default Release Conditions are complied
with) or Event of Default in effect or continuing on the date thereof, the
Valuation Date or the date of such Asset Sale, (iv) the release of the
Collateral will not result in a Default or Event of Default under the
Indenture or any Security Document, and (v) all conditions precedent in the
Indenture relating to the release in question have been complied with; and
73
<PAGE>
(c) All documentation required by the Trust Indenture Act, if any, prior
to the release of Collateral by the Trustee and, in the event there
is to be a substitution of Replacement Collateral for the Collateral subject
to the Asset Sale, all documentation necessary to effect the substitution of
such Replacement Collateral.
With respect to any release of Released Interests requested by PRI in
connection with any Asset Sale by PRI or a Restricted Subsidiary of PRI if a
Default is in effect or continuing on the date of the Officers' Certificate
referred to in clause (b) above, the applicable Valuation Date or the date of
such Asset Sale, "Default Release Conditions" mean, as a condition to such
release, (i) the receipt by PRI and delivery to the Trustee of (A) an appraisal
by an independent third party appraiser of the value of the Released Interests
as of the applicable Valuation Date (the "Appraised Value"), in the case of any
Asset Sale other than an Asset Sale involving the sale, as a going concern, of a
business or line of business (a "Business Sale"), which Appraised Value shall be
less than or equal to the consideration to be received by PRI or such Restricted
Subsidiary pursuant to such Asset Sale, or (B) in the case of an Asset Sale
involving a Business Sale, an affirmative opinion issued by an investment
banking firm of national standing with expertise in underwriting non-investment
grade debt securities as to the fairness to PRI or the Restricted Subsidiary of
PRI engaging in such Asset Sale, as the case may be, from a financial point of
view of the consideration to be received by PRI or such Restricted Subsidiary in
such Asset Sale in exchange for the assets proposed to be sold, (ii) 100% of the
consideration to be received in such Asset Sale shall be in the form of cash and
(iii) the Net Proceeds of such Asset Sale shall, concurrently with the release
of the Released Interests, be deposited in the Cash Collateral Account and
retained therein pending application as provided in the next succeeding sentence
and PRI shall have taken such other actions, at its sole expense, as may be
required to ensure that the Trustee holds a first priority Lien on such Net
Proceeds in accordance with the Indenture. Such Net Proceeds shall constitute
Excess Proceeds for purposes of determining the time at which PRI shall be
required to make an Asset Sale Offer and shall be applied solely (i) to purchase
Notes tendered pursuant to an Asset Sale Offer and (ii) following such an Asset
Sale Offer, to the extent such Net Proceeds remain on deposit in the Cash
Collateral Account, to purchase or invest in Replacement Collateral at any time
or from time to time.
DISPOSITION OF COLLATERAL WITHOUT RELEASE
Notwithstanding the provisions described under "-- Release of Collateral"
above, so long as no Default or Event of Default shall have occurred and be
continuing, PRI may, among other things, subject to certain limitations and
conditions, sell or otherwise dispose of any property subject to the Lien of the
Security Documents that may have become worn out or obsolete; abandon,
terminate, cancel, release or make alterations in or substitutions of any leases
or contracts subject to the Lien of the Security Documents; surrender or modify
any franchise, license or permit subject to the Lien of the Security Documents
that it may own or under which it may be operating; alter, repair, replace,
change the location or position of and add to its structure, machinery, systems,
equipment, fixtures and appurtenances; demolish, dismantle, tear down or scrap
any Collateral or abandon any thereof; and grant leases in respect of real
property constituting Collateral under certain circumstances.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and PRI may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
PRI is not required to transfer or exchange any Note selected for redemption.
Also, PRI is not required to transfer or exchange any Note for a period of 15
days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as its owner for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs, the Indenture, the
Notes or the Security Documents may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Notes), and any existing default or compliance with any
provisions of the
74
<PAGE>
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder of Notes): (i) reduce
the percentage of principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal amount of or change
the fixed maturity of any Note, (iii) reduce the redemption price, including
premium, if any, or change the time at which at any Note may be redeemed, (iv)
reduce the repurchase price for the offers to purchase described above under the
caption "--Repurchase at the Option of Holder," change the time at which any
Note may be repurchased thereunder or otherwise amend in any material respect
(including through amendment of any of the definitions relating thereto) or
waive PRI's obligation to make and consummate a Change of Control Offer in the
event of a Change of Control or an Asset Sale Offer in the event of an Asset
Sale, (v) reduce the rate of, or change the time for payment of, interest on any
Note, (vi) waive a continuing Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (vii) make any Note payable in money other than that
stated in the Notes, (viii) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on the Notes,
(ix) waive a redemption payment with respect to any Note, (x) modify or amend
the Indenture or the Security Documents, or take or fail to take any action,
that would have the effect of impairing the Lien on the Collateral granted
pursuant to the Security Documents or permitting any release of Collateral from
such Lien except as expressly contemplated by the Indenture or the Security
Documents, (xi) impair the right to institute suit for the enforcement of any
payment of principal or interest on or after the fixed maturity thereof, any
payment of the redemption price (including premium, if any) on or after the date
of redemption or any payment of the repurchase amount for the offers to purchase
described above under the caption "-- Repurchase at the Option of Holders" on or
after the date of such repurchase, or (xii) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
PRI and the Trustee may amend or supplement the Indenture, the Notes or the
Security Documents to provide for the assumption of PRI's obligations to Holders
of the Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to, or security for, the Holders
of the Notes, to cure any ambiguity, defect or inconsistency, or make any other
provision which shall not be inconsistent with the Indenture or any Security
Document, provided that any such other provision does not adversely affect the
interests of the Holders.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the laws of the State of New York without giving effect to applicable principles
of conflicts of laws to the extent that the application of the law of another
jurisdiction would be required thereby.
THE TRUSTEE
LaSalle National Bank is the Trustee under the Indenture and has been
appointed by PRI as Registrar and Paying Agent with respect to the Notes.
LaSalle National Bank is the administrative agent and a lender under the
Senior Credit Facility and may extend additional credit to PRI and Group in the
future. In the event of a Default under the Indenture, due to LaSalle National
Bank's relationship with PRI as lender under the Senior Credit Facility, LaSalle
National Bank would be deemed, under the Trust Indenture Act, to have a
conflicting interest and would be required to eliminate such conflict within 90
days, apply to the Commission for permission to continue as Trustee or resign as
Trustee. LaSalle National Bank is also trustee under the indenture governing the
12.5% Notes, a portion of which will be redeemed for cash in connection with the
Financing Plan. Upon consummation of the Financing Plan, LaSalle National Bank
will resign as trustee under such indenture.
75
<PAGE>
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person was
acquired by such specified Person or a Restricted Subsidiary of such specified
Person, merged with or into or became a Restricted Subsidiary of such specified
Person, including Indebtedness incurred in connection with, or in contemplation
of, such other Person merging with or into or becoming a Restricted Subsidiary
of such specified Person and (ii) Indebtedness encumbering any asset acquired by
such specified Person.
"ACQUISITION FINANCING CONDITIONS" means (i) the execution and delivery by
or on behalf of the lender or lenders parties to the Acquisition Financing
Facility of an Intercreditor Agreement, (ii) the granting to, and perfection by,
such lender or lenders of security interests on the real property, equipment and
general intangibles acquired with the proceeds of such Acquisition Financing
Facility in favor of a Collateral Agent (which initially will be the Trustee)
acting on behalf of the Holders of the Notes and such lender or lenders, (iii)
the consent to such Intercreditor Agreement by PRI and (iv) the receipt by the
Trustee of an Officers' Certificate and Opinion of Counsel that the foregoing
conditions have been satisfied.
"ACQUISITION FINANCING FACILITY" means a credit facility between PRI and the
lender or lenders party thereto providing for loans (i) incurred in compliance
with the "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant,
(ii) the proceeds of which are required to be applied, and which are applied
within five days of receipt, to the purchase by PRI of property or assets used
in a line of business in which PRI is permitted to engage pursuant to the "Line
of Business" covenant and (iii) as to which the Acquisition Financing Conditions
shall have been satisfied.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control. Notwithstanding the foregoing, in no event will
the Initial Purchasers or any Affiliate of an Initial Purchaser be deemed an
Affiliate of PRI for purposes of the purchase of the Notes by the Initial
Purchasers, any compensation paid or payable to the Initial Purchasers in
connection therewith or any of the other transactions contemplated by the
Purchase Agreement to be entered into by PRI and the Initial Purchasers in
connection with the Offering, including, without limitation, the indemnification
and contribution obligations of PRI contained therein.
"ASSET SALE" means, with respect to any Person, (i) the sale, lease,
conveyance or other disposition (collectively, "dispositions") of any assets
(including by way of a sale and leaseback transaction) other than (A)
dispositions of inventory in the ordinary course of business, (B) dispositions
of Autoweld machinery and related parts, and (C) Permitted Leases, (ii) the
issuance by any Restricted Subsidiary of Equity Interests of such Restricted
Subsidiary or (iii) the disposition by such Person or any Restricted
Subsidiaries of such
76
<PAGE>
Person of Equity Interests of any Restricted Subsidiary of such Person, in the
case of either clause (i), (ii) or (iii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding
the foregoing, the following will not be deemed to be Asset Sales: (i) a
disposition of assets by PRI to any of its Restricted Subsidiaries or by a
Restricted Subsidiary of PRI to PRI or another of its Restricted Subsidiaries,
(ii) an issuance of Equity Interests by a Restricted Subsidiary of PRI to PRI or
to another Restricted Subsidiary of PRI, (iii) a disposition consisting of a
Restricted Payment permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments", (iv) a disposition by PRI or any
of its Restricted Subsidiaries of Equity Interests of any of their respective
Unrestricted Subsidiaries and (v) the disposition of all or substantially all of
the assets of PRI and its Restricted Subsidiaries taken as a whole permitted by
the covenant described above under the caption "-- Certain Covenants --
Limitation on Merger or Consolidation."
"AUTHORITY" means any federal, state, municipal or local governmental or
quasi-governmental agency or authority.
"BORROWING BASE" on any date, means the sum of (i) 90% of accounts
receivable, (ii) 75% of raw materials inventory and (iii) 75% of finished goods
inventory of PRI that would be reflected on a balance sheet of PRI, prepared in
accordance with GAAP on a separate and not a consolidated basis, on such date.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet prepared in
accordance with GAAP.
"CAPITAL STOCK" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including, without
limitation, with respect to partnerships, partnership interests (whether general
or limited) and any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, such partnership.
"CASH COLLATERAL ACCOUNT" means one or more accounts in the name of the
Trustee pursuant to the applicable Security Document, and in the sole dominion
and control of the Trustee, into which certain funds are required to be
deposited by or on behalf of PRI under the terms of the Indenture and the
Security Documents.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition and bankers' acceptances with maturities not
exceeding six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities not exceeding six months and
overnight bank deposits, in the case of deposits in excess of $100,000, with any
commercial bank, depository institution or trust company incorporated or doing
business under the laws of the United States of America, any state thereof or
the District of Columbia or a branch or subsidiary of any such depository
institution or trust company operating outside the United States, provided, that
such depository institution or trust company has, at the time of the Investment,
having capital and surplus in excess of $200 million, (iv) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having a rating in one of the two highest rating categories
from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in
each case maturing within six months after the date of acquisition and (vi)
money market mutual or similar funds having assets in excess of $200.0 million.
"CASUALTY", with respect to any Collateral, means loss of, damage to or
destruction of all or any part of such Collateral.
"CEDAR GROVE FACILITY" means the Company's leased facility located in Cedar
Grove, New Jersey.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of
77
<PAGE>
PRI to any Person or group (as such term is used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act), (ii) the adoption of a plan relating to the
liquidation or dissolution of PRI, (iii) any Person (other than a Permitted
Holder) or group (as defined above) is or becomes the "beneficial owner" (as
defined in Rules 13d-2 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 35% of the total voting power of the Voting Stock of
Group or PRI, including by way of merger, consolidation or otherwise provided
that the Permitted Holders (A) beneficially own less than a majority of any
class of Voting Stock of PRI or (B) do not have the right and ability, by
contract, voting power or otherwise, to elect or designate for election at least
a majority of the Board of Directors of each of Group (so long as Group
beneficially owns a majority of any class of Voting Stock of PRI) and PRI, and
(iv) the first day on which a majority of the members of the Board of Directors
of Group (so long as Group beneficially owns a majority of any class of Voting
Stock of PRI) or PRI are not Continuing Directors.
"COLLATERAL LOSS EVENT" means a Condemnation or Casualty involving an actual
or constructive total loss or agreed or compromised actual or constructive total
loss of Collateral with a fair market value, as determined by the Board of
Directors of PRI in good faith, in excess of $500,000.
"COMMODITY AGREEMENT" means any commodity futures contract, commodity option
or other similar agreement or arrangement entered into by PRI or any Subsidiary
designed to protect PRI or any of its Subsidiaries against fluctuations in the
price of commodities actually used to produce products in the ordinary course of
business of PRI and its Subsidiaries.
"CONDEMNATION" means any taking of the Collateral, or any part thereof, in
or by condemnation, expropriation or similar proceeding, eminent domain
proceedings, seizure or forfeiture, pursuant to any law, general or special, or
by reason of the temporary requisition of the use or occupancy of the Collateral
or any part thereof, by any Authority.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period, plus (a) an amount equal to any extraordinary loss plus any net
loss realized in connection with an Asset Sale, to the extent that such losses
were deducted in computing Consolidated Net Income, plus (b) provision for taxes
based on income or profits of such Person for such period, to the extent such
provision for taxes was deducted in computing Consolidated Net Income, plus (c)
Consolidated Interest Expense of such Person for such period, to the extent such
amount was deducted in computing Consolidated Net Income, plus (d) depreciation
and amortization (including amortization of goodwill and other intangibles and
amortization of deferred compensation in respect of non-cash compensation but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person for such period, to the extent such depreciation and
amortization were deducted in computing Consolidated Net Income, plus (e) all
other non-cash items to the extent such items were deducted in determining
Consolidated Net Income, in each case, for such period without duplication on a
consolidated basis and determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the aggregate consolidated interest, whether expensed or capitalized,
paid, accrued or scheduled to be paid or accrued, of such Person and its
Restricted Subsidiaries for such period (including (i) amortization of debt
discount and deferred financing costs and noncash interest payments and
accruals, (ii) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method and (iii) the
interest component of any payments associated with Capital Lease Obligations and
net payments (if any) pursuant to Hedging Obligations, in each case, to the
extent attributable to such period, but excluding (x) commissions, discounts and
other fees and charges incurred with respect to letters of credit and bankers'
acceptances financing and (y) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or secured by a Lien on assets of such
Person) determined in accordance with GAAP. Consolidated Interest Expense of PRI
shall not include any prepayment premiums or write down of debt discount or
deferred financing costs, to the extent such amounts are incurred as a result of
the prepayment on the date of this Indenture of any Indebtedness of PRI with the
proceeds of the Notes.
"CONSOLIDATED NET INCOME" means, with respect to any Person (the "referent
Person") for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a
78
<PAGE>
consolidated basis, determined in accordance with GAAP; PROVIDED, that (i) the
Net Income of any Person that is not a Restricted Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid to the referent Person
or a Restricted Subsidiary thereof, (ii) the Net Income of any Person that is a
Restricted Subsidiary (other than a Wholly Owned Restricted Subsidiary) shall be
included only to the extent of the amount of dividends or distributions paid to
the referent Person or a Restricted Subsidiary thereof, (iii) the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded and (iv) the cumulative effect
of a change in accounting principles shall be excluded. The amount of any
dividends paid in property or assets other than cash shall be valued at fair
market value on the date of such dividend (as determined in good faith by the
Board of Directors of such Person). Consolidated Net Income of PRI shall not
include any prepayment premiums or write-down or write-off of debt discount or
deferred financing costs to the extent such amounts are incurred as a result of
the prepayment on the Issue Date of any Indebtedness of PRI with the proceeds of
the Notes.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (y) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Restricted Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of PRI or Group (as long as Group beneficially owns a
majority of any class of Voting Stock of PRI), as applicable, who (i) was a
member of such Board of Directors on the date of the Indenture or (ii) was
nominated for election or elected to such Board of Directors with the
affirmative vote of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect PRI or
any of its Subsidiaries against fluctuation in the values of the currencies of
the countries (other than the United States) in which PRI or its Subsidiaries
conduct business and which is required under any bank agreement to which PRI is
or hereafter becomes a party.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to May 1,
2003.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means, with respect to any Person, Indebtedness of
such Person and its Subsidiaries in existence on the date of the Indenture,
until such amounts are repaid.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that such
Person or any of its Restricted Subsidiaries incurs, assumes, guarantees,
redeems, repurchases or repays any Indebtedness (other than revolving credit
borrowings) or if such Person issues,
79
<PAGE>
redeems or repurchases any preferred stock, in each case subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date of the event for which the calculation of the
Fixed Charge Ratio is made (the "Transaction Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, redemption, repurchase or repayment of Indebtedness, or
such issuance, redemption or repurchase of preferred stock, as if the same had
occurred at the beginning of the applicable period. For purposes of making the
computation referred to above, acquisitions (including all mergers and
consolidations), dispositions and discontinuance of operations that have been
made by such Person or any of its Restricted Subsidiaries during the relevant
period or subsequent to such period and on or prior to the Transaction Date
shall be calculated on a pro forma basis assuming that all such acquisitions,
dispositions and discontinuance of operations had occurred on the first day of
such period; provided, however, that Fixed Charges shall be reduced by amounts
attributable to operations that are so disposed of or discontinued only to the
extent that the obligations giving rise to such Fixed Charges would no longer be
obligations contributing to such Person's Fixed Charges subsequent to the
Transaction Date. If any Indebtedness bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (a) Consolidated Interest Expense, (b) commissions,
discounts and other fees and charges incurred with respect to letters of credit
and bankers' acceptances financing, (c) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or secured by a Lien on assets
of such Person and (d) the product of (i) all cash dividend payments on any
series of preferred stock of such Person, times (ii) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, determined, in each case, on a consolidated basis and in
accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, in each case, as in effect in the United States on the date of the
Indenture.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTOR" means any Restricted Subsidiary of PRI that executes a Guarantee
in accordance with the provisions of the Indenture, and its respective
successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates in each case that are required under any bank agreements to which such
Person is or hereafter becomes a party.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is assumed by such
Person) and, to the extent not otherwise included, the Guarantee of any
Indebtedness of such Person or any other Person.
80
<PAGE>
"INTERCREDITOR AGREEMENT" means an Intercreditor and Collateral Agency
Agreement in the form attached to the Indenture among the Collateral Agent, the
lender or lenders parties to an Acquisition Financing Facility and the Trustee,
and consented to by PRI.
"INTEREST RATE AGREEMENT" means, with respect to any Person, any interest
rate protection agreement, interest rate future, interest rate option, interest
rate swap, interest rate cap or other interest rate hedge arrangement to or
which such Person or any Restricted Subsidiary is or hereafter becomes a part or
a beneficiary and which is required under any bank agreement to which such
Person is or hereafter becomes a party.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions, purchases or other acquisitions
for consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. For purposes of the covenant described above
under "-- Certain Covenants -- Restricted Payments," (i) "Investment" in a
Subsidiary shall include the portion (proportionate to such Person's Equity
Interest in such Subsidiary) of the fair market value (as determined in good
faith by the Board of Directors of such Person) of such Subsidiary at the time
that such Subsidiary is designated an Unrestricted Subsidiary; provided that
upon a redesignation of such Subsidiary as a Restricted Subsidiary, such Person
shall be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) such Person's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to such Person's Equity Interest in such Subsidiary) of the fair
market value (as determined in good faith by the Board of Directors) of the net
assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors of such Person.
"ISSUE DATE" means the date the Notes are originally issued under the
Indenture.
"LAKE FOREST FACILITY" means the Company's facility in Lake Forest,
Illinois.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"LOUISIANA FACILITY" means the Company's facility in Louisiana, Missouri.
"MANAGEMENT SERVICES AGREEMENT" means the Management Agreement dated as of
May 17, 1996 between PRI and HPH with respect to the provision by HPH of
services to PRI and the payment by PRI to HPH of fees, and the reimbursement of
expenses, in connection therewith as in effect on the date of the Indenture.
"MINER PURCHASE AGREEMENT" means the Asset and Stock Purchase Agreement
dated December 15, 1993 among PRI, Miner Container Printing, Inc. and the
stockholders signatory thereto.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (i) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (ii)
the disposition of any securities or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries, and (b) any extraordinary
gain (but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
"NET PROCEEDS" means the aggregate proceeds in cash or Cash Equivalents
received by PRI or any of its Restricted Subsidiaries in respect of (i) any
Asset Sale, net of the direct costs relating to such Asset Sale
81
<PAGE>
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness secured by a Lien on the
asset or assets the subject of such Asset Sale and the after-tax amount of an
appropriate reserve for adjustment in respect of the sale price of such asset or
assets or for any indemnification obligation by PRI or such Restricted
Subsidiary to the purchaser in respect of such Asset Sale, in each case to the
extent, and only to the extent, permitted to be reflected as a liability
(contingent or otherwise) or asset valuation allowance on a balance sheet of PRI
or such Restricted Subsidiary in accordance with GAAP or (ii) any Collateral
Loss Event, including, without limitation, proceeds received under policies of
insurance (other than policies providing business interruption insurance) and
any awards, proceeds, payments or other compensation with respect to a
Condemnation constituting a Collateral Loss Event.
"OBLIGATIONS" means any principal, premium, interest (including
post-petition interest), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"PERMITTED AMOUNT" means, (i) if the Fixed Charge Coverage Ratio for the
most recently ended four full fiscal quarters for which financial statements are
available is greater than 1.4 to 1, $600,000, (ii) if the Fixed Charge Coverage
Ratio for such four quarter period is greater than 1.2 to 1 but less than or
equal to 1.4 to 1, $450,000 and (iii) if the Fixed Charge Coverage Ratio is less
than or equal to 1.2 to 1, $300,000.
"PERMITTED HOLDER" means (A) Howard Hoeper, his spouse, members of his
immediate family and/or any of the lineal descendants of any such person and/or
(B) any trust or similar entity all of the beneficiaries of which, or a
corporation or partnership all of the stockholders or limited and general
partners of which, are (x) any of the persons described in the foregoing clause
(A) or (y) any entity described in this clause (B).
"PERMITTED INVESTMENTS" means, with respect to any Person, (a) any
Investments in such Person or in a Restricted Subsidiary of such Person; (b) any
Investments in Cash Equivalents; (c) Investments by such Person or any
Restricted Subsidiary of such Person in a person (the "Other Entity"), if as a
result of such Investment (i) such Other Entity becomes a Restricted Subsidiary
of such Person or (ii) such Other Entity is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, such Person or a Restricted Subsidiary of such Person; (d)
Investments in any Other Entity engaged primarily in businesses permitted to be
engaged in by such Person or any of its Restricted Subsidiaries pursuant to the
"Line of Business" covenant in an aggregate amount not to exceed $1.0 million at
any time outstanding; (e) Investments in Unrestricted Subsidiaries in an
aggregate amount not to exceed $1.0 million at any time outstanding; (f)
receivables owing to such Person or any of its Restricted Subsidiaries if
created or acquired in the ordinary course of business; (g) stock, obligations
or securities received in settlement of debts created in the ordinary course of
business and owing to such Person or any of its Subsidiaries or in satisfaction
of judgments; (h) loans and advances to employees of PRI or any Restricted
Subsidiary of PRI for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount outstanding at any time not
to exceed $500,000; and (i) Investments received by PRI or any Restricted
Subsidiary of PRI as consideration for asset sales, including Asset Sales;
PROVIDED, HOWEVER, in the case of an Asset Sale, that such Asset Sale is
effected in compliance with the covenant described under "-- Repurchase at the
Option of Holders -- Asset Sales; Collateral Loss Events."
"PERMITTED LEASES" means the lease of the Louisiana Facility and the
subleases of the Cedar Grove Facility and the Lake Forest Facility.
"PERMITTED LIENS" means, with respect to any Person, (a) Liens in favor of
such Person; (b) in the case of PRI, Liens on accounts receivable or inventories
(or proceeds thereof) of PRI to secure Indebtedness of PRI under the Senior
Credit Facility; (c) Liens on property of another Person (the "Other Entity")
existing at the time such Other Entity is merged into or consolidated with such
Person or any Restricted Subsidiary of such Person, PROVIDED that such Liens
were not incurred in the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Other Entity merged into or
consolidated with such Person; (d) Liens on property existing at the time of
acquisition thereof by such Person or any Restricted
82
<PAGE>
Subsidiary of such Person; PROVIDED that such Liens were not incurred in
contemplation of such acquisition; (e) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (f)
Liens existing on the date of the Indenture; (g) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, PROVIDED that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (h)
Liens imposed by law, such as mechanics', carriers', warehousemen's,
materialmen's, and vendors' Liens, incurred in good faith in the ordinary course
of business with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings PROVIDED that any reserve or other
provisions required by GAAP shall have been made therefor; (i) zoning
restrictions, easements, licenses, covenants, reservations, restrictions on the
use of real property or minor irregularities of title incident thereto that do
not, in the aggregate, materially detract from the value of the property or the
assets of such Person or impair the use of such property in the operation of
such Person's business; (j) judgment Liens to the extent that such judgments do
not cause or constitute a Default or an Event of Default; (k) Liens to secure
Indebtedness incurred for the purpose of financing of all or a part of the
purchase price of property or assets acquired or constructed on or after the
date of the Indenture, including Liens securing any Acquisition Financing
Facility, PROVIDED that (i) such property or assets are used in a line of
business in which such Person is permitted to engage pursuant to the "Line of
Business" covenant, (ii) at the time of incurrence of any such Lien, the
aggregate principal amount of the obligations secured by such Lien shall not
exceed the lesser of the cost or fair market value of the assets or property (or
portions thereof) so acquired or constructed, (iii) each such Lien shall
encumber only the assets or property (or portions thereof) so acquired or
constructed and shall attach to such property within 120 days of the purchase or
construction thereof and (iv) any Indebtedness secured by such Lien shall have
been permitted to be incurred under the "Incurrence of Indebtedness and Issuance
of Preferred Stock" covenant; (l) ground leases in respect of the real property
on which facilities owned or leased by such Person or any of its Subsidiaries
are located; (m) Liens arising from UCC financing statements regarding property
leased by such Person or any of its Subsidiaries, PROVIDED that such Liens are
granted solely in connection with such leases and not in connection with the
borrowing of money or the obtaining of advances or credit; (n) Liens incurred
and pledges made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and social security benefits; (o) Liens
securing Purchase Money Obligations, the proceeds of which are used solely to
finance the acquisition or lease by such Person or any of its Subsidiaries of
furniture, fixtures or equipment used in the ordinary course of business,
PROVIDED that such Purchase Money Obligations are (i) non-recourse to such
Person and its Subsidiaries and (ii) permitted to be incurred under the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" above, (p)
Liens securing Indebtedness incurred to refinance Indebtedness that has been
secured by a Lien permitted under the Indenture, PROVIDED that (i) any such Lien
shall not extend to or cover any assets or property not securing the
Indebtedness so refinanced and (ii) the Refinancing Indebtedness secured by such
Lien shall not have a principal amount in excess of the Indebtedness so
refinanced, and (q) Liens arising in the ordinary course of such Person's
business to the extent the fair market value of property and assets secured by
such Liens (as determined in good faith by the Board of Directors of such
Person) shall not exceed $2.0 million.
"PUBLIC EQUITY OFFERING" means a bona fide underwritten sale to the public
of Common Stock of PRI or of Group (to the extent the net proceeds thereof are
contributed to PRI as common equity) pursuant to a registration statement (other
than on Form S-8 or any other form relating to securities issuable under any
benefit plan of PRI or Group, as the case may be) that is declared effective by
the Commission.
"PURCHASE MONEY OBLIGATIONS" of any Person means any obligations of such
Person or any of its Subsidiaries to any seller or any other person incurred or
assumed in connection with the purchase of real or personal property to be used
in the business of such Person or any of its Subsidiaries within 180 days of
such incurrence or assumption.
"REGISTRATION RIGHTS AGREEMENTS" means collectively the Equity Registration
Rights Agreement dated as of June 30, 1993, among Group, the TCW Entities and
Apollo, and the Debt Registration Rights Agreement
83
<PAGE>
dated as of June 30, 1993, as amended as of May 17, 1996, among Group, the TCW
Entities, Lion Advisors, L.P. and AIF II, L.P., in each case as in effect on the
Issue Date or as thereafter amended in a manner that is not materially adverse
to PRI or the Holders of the Notes.
"REPLACEMENT COLLATERAL" means, at any relevant date in connection with an
Asset Sale involving Collateral or a Collateral Loss Event, assets used in PRI's
business other than the Collateral which (i) constitute long-term tangible
assets (and do not constitute Capital Stock of any Person), (ii) are acquired by
PRI at a purchase price which does not exceed the fair market value of such
Replacement Collateral (as determined, in good faith by the Board of Directors),
and (iii) are free and clear of all Liens, except as expressly permitted by the
Security Documents.
"RESTORATION" or "RESTORE" means the physical repair, restoration or
rebuilding of all or any portion of the Collateral following any Casualty or
Condemnation.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person that
is not an Unrestricted Subsidiary.
"SECURITY DOCUMENTS" means, collectively, all security agreements,
mortgages, deeds of trust, collateral assignments or other instruments
evidencing or creating any security interests in favor of the Trustee in all or
any portion of the Collateral, in each case as amended, supplemented or modified
from time to time in accordance with their terms and the terms of the Indenture.
"SENIOR CREDIT FACILITY" means that certain Agreement, dated as of May 17,
1996, by and among PRI, LaSalle National Bank, as lender and administrative
agent, and BT Commercial Corporation, as lender, initially providing for
revolving credit loans in a principal amount of up to $20.0 million and a letter
of credit facility in an aggregate amount of up to the lesser of (i) the
remaining availability under the Senior Credit Facility and (ii) $2.0 million,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, in each case as it may be
thereafter amended, modified or extended from time to time.
"SENIOR DEBT" means, any Indebtedness incurred by PRI, unless the instrument
under which such Indebtedness is incurred expressly provides that it is
subordinated in right of payment to the Notes; PROVIDED that Senior Debt will
not include (a) any liability for federal, state, local or other taxes owed or
owing, (b) any Indebtedness owing to any Subsidiaries of PRI, (c) any trade
payables or (d) any Indebtedness that is incurred in violation of the Indenture.
"SIGNIFICANT SUBSIDIARY" means, with respect to any Person, any Subsidiary
of such Person that would be a "significant subsidiary" as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such
Regulation is in effect on the date hereof.
"STOCK AND WARRANT HOLDERS AGREEMENT" means the Stock and Warrant Holders
Agreement dated as of June 30, 1993, among Group, Howard P. Hoeper, HPH, UBS
Capital, and Apollo, as in effect on the Issue Date or thereafter amended in a
manner that is not materially adverse to PRI or the Holders of the Notes.
"SUBSIDIARY" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
"SUBSIDIARY GUARANTOR" means any Restricted Subsidiary of PRI that executes
a Guarantee in accordance with the provisions of the Indenture, and its
respective successors and assigns.
"TAX SHARING AGREEMENT" means the tax sharing agreement between PRI and HPH
or any other person with which PRI is required to, or is permitted to, file a
consolidated tax return or with which PRI is or could be part of an affiliated
group for tax purposes as in effect on the date of the Indenture or as
thereafter amended in a manner that is not materially adverse to PRI or the
Holders of the Notes.
84
<PAGE>
"UNRESTRICTED SUBSIDIARY" means, with respect to any Person, any Subsidiary
of such Person designated by the Board of Directors of such Person as an
Unrestricted Subsidiary pursuant to a Board Resolution set forth in an Officers'
Certificate and delivered to the Trustee (i) that, (A) at the time of
designation, has total assets not exceeding $1,000 or (B) if such Subsidiary has
total assets exceeding $1,000, then such designation would be permitted by the
covenant entitled "Restricted Payments", (ii) no portion of the Indebtedness or
any other obligations (contingent or otherwise) of such Subsidiary (A) is
guaranteed by such Person or any other Subsidiary (other than another
Unrestricted Subsidiary) of such Person, (B) is recourse to or obligates such
Person or any other Subsidiary (other than another Unrestricted Subsidiary) of
such Person in any way or (C) subjects any property or asset of such Person or
any other Subsidiary (other than another Unrestricted Subsidiary) of such
Person, directly or indirectly, contingently or otherwise, to the satisfaction
thereof, (iii) with which neither such Person nor any other Subsidiary of such
Person (other than another Unrestricted Subsidiary) has any contract, agreement,
arrangement or understanding other than on terms no less favorable to such
Person or such other Subsidiary than those that might be obtained at the time
from persons who are not Affiliates of such Person and (iv) with which neither
such Person nor any other Subsidiary of such Person (other than another
Unrestricted Subsidiary) has any obligation (A) to subscribe for additional
shares of Capital Stock or other Equity Interests therein or (B) to maintain or
preserve such Subsidiary's financial condition or to cause such Subsidiary to
achieve certain levels of operating results. Subject to the preceding sentence,
the Board of Directors of such Person may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary; PROVIDED that such designation shall be deemed to
be the making of an Investment by such Person in such Subsidiary and such
designation shall only be permitted if, in addition to the requirements of the
preceding sentence, (i) such Investment is permitted under the covenant entitled
"Restricted Payments" and (ii) no Default or Event of Default would be in
existence following such designation. The Board of Directors of such Person may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of such Person of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" and (ii) no Default or Event of
Default would be in existence following such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF EXCHANGE NOTES
The following summary is based on current law and certain proposed
regulations and is for general information only. Forthcoming legislative,
regulatory, judicial or administrative changes or interpretations could affect
the federal income tax consequences to holders of Exchange Notes. The tax
treatment of a holder may vary depending upon whether the holder is a
cash-method or accrual-method taxpayer and upon
85
<PAGE>
the holder's particular status. For example, certain holders, including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers and foreign persons may be subject to special rules not discussed
below.
EXCHANGE OFFER
The exchange of Exchange Notes for Old Notes pursuant to the Exchange Offer
will not be treated as an "exchange" for federal income tax purposes because the
Exchange Notes will not be considered to differ materially in kind or extent
from the Old Notes. Rather, the Exchange Notes received by a holder will be
treated as a continuation of the Old Notes in the hands of such holder. As a
result, there will be no federal income tax consequences to holders exchanging
the Old Notes for the Exchange Notes pursuant to the Exchange Offer. The holder
must continue to include stated interest in income as if the exchange (and
waiver of accrued interest on the Old Notes from May 17, 1996 to the date of
issuance of the Exchange Notes) had not occurred. If, however, the exchange of
the Old Notes for the Exchange Notes were treated as an "exchange" for federal
income tax purposes, such exchange would constitute a recapitalization for
federal income tax purposes. Holders exchanging the Old Notes pursuant to such
recapitalization would not recognize any gain or loss upon the exchange.
SALE OR OTHER DISPOSITION OF EXCHANGE NOTES
A holder of an Exchange Note will have a tax basis in the Exchange Note
equal to the holder's purchase price for the Old Note, increased by the amount
of interest (and market discount) that is included in the holder's gross income
and decreased by payments of cash interest received by the holder.
A holder of an Exchange Note will generally recognize gain or loss on the
sale, exchange, redemption or retirement of the Exchange Note equal to the
difference (if any) between the amount realized from such sale, exchange,
redemption or retirement and the holder's basis in the Exchange Note. Such gain
or loss will generally be long-term capital gain (except to the extent
attributable to market discount) or loss if the Exchange Note has been held more
than one year (including the period that such holder held the Old Note prior to
exchange).
BACKUP WITHHOLDING
A noncorporate holder of Exchange Notes that either (a) is (i) a citizen or
resident of the United States, (ii) a partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source or (b) is not
described in the preceding clause (a), but whose income from interest with
respect to the Exchange Notes or proceeds from the disposition of the Exchange
Notes is effectively connected with such holder's conduct of a United States
trade or business, and that receives interest with respect to the Exchange Notes
or proceeds from the disposition of the Exchange Notes will generally not be
subject to backup withholding on such payments or distributions if it certifies,
under penalty of perjury, that it has furnished a correct Taxpayer
Identification Number ("TIN") and it is not subject to backup withholding either
because it has not been notified by the Internal Revenue Service that is subject
to backup withholding or because the Internal Revenue Service has notified it
that it is no longer subject to backup withholding. Such certification may be
made on an Internal Revenue Service Form W-9 or substantially similar form.
However, backup withholding will apply to such a holder if the holder (i) fails
to furnish its TIN, (ii) furnishes an incorrect TIN, (iii) is notified by the
Internal Revenue Service that it has failed to properly report payments of
interest or dividends or (iv) under certain circumstances, fails to make such
certification.
The Company will withhold (at a rate of 31%) all amounts required by law to
be withheld from reportable payments made and with respect to the Exchange
Notes. Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the Internal Revenue
Service.
86
<PAGE>
Holders of the Exchange Notes should consult their tax advisors regarding
the application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF
EXCHANGE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX
CONSEQUENCES OF HOLDING, EXCHANGING OR SELLING THE EXCHANGE NOTES INCLUDING THE
APPLICATION AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF
ANY CHANGES IN APPLICABLE TAX LAWS.
OLD NOTES REGISTRATION RIGHTS
The Company and the Initial Purchasers entered into the Registration Rights
Agreement dated as of May 17, 1996 pursuant to which the Company agreed, for the
benefit of holders of the Old Notes, that it will, at its expense (i) on or
prior to the 45th day after the Issue Date, file the Registration Statement with
the Commission pursuant to which the Old Notes will be exchanged for the
Exchange Notes, which would have terms identical to the Old Notes (except that
the Exchange Notes will not contain terms with respect to transfer restrictions
or any provision relating to this paragraph) and (ii) use its best efforts to
cause the Registration Statement to be declared effective under the Securities
Act by the 120th day after the Issue Date. Upon effectiveness of the
Registration Statement, the Company will offer to all holders of the Old Notes
an opportunity to exchange their Old Notes for a like principal amount of the
Exchange Notes. The Company agreed to keep the Exchange Offer open for not less
than 20 business days (or longer if required by applicable law) after the date
of the commencement of the Exchange Offer, and will comply with Regulation 14E
and Rule 13e-4 under the Exchange Act (other than the filing requirements of
Rule 13e-4). For each Old Note surrendered to the Company for exchange pursuant
to the Exchange Offer, the holder of such Old Note will receive an Exchange Note
having a principal amount at maturity equal to that of the surrendered Old Note.
The Exchange Notes will bear interest from May 17, 1996. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued
from May 17, 1996 to the date of the issuance of the Exchange Notes. Interest on
the Exchange Notes is payable semiannually in arrears on May 1 and November 1 of
each year, commencing November 1, 1996, accruing from May 17, 1996 at a rate of
11 5/8% per annum. See "The Exchange Offer."
If (i) because of any change in law of in writing prevailing interpretations
of the Staff, the Company is not permitted to effect on Exchange Offer, (ii) the
Exchange Offer is not consummated witin 165 days of the Issue Date, (iii) in
certain circumstances, certain holders of unregistered Exchange Notes so
request, (iv) the holders of not less than a majority in aggregate principal
amount of the Notes reasonably determine that the interests of the holders of
Notes would be materially adversely effected by consummation of the Exchange
Offer or (v) in the case of any holder of Old Notes that participates in the
Exchange Offer, such holder of Old Notes does not receive Exchange Notes on the
date of the exchange that may be sold without restriction under state and
federal securities laws (other than due solely to the status of such holder of
Old Notes as an Affiliate of the Company) the Company will, within three
Business Days thereof, deliver written notice thereof to the Trustee and at its
cost, as promptly as practicable, file with the Commission a Shelf Registration
Statement to cover resales of the Old Notes. The Company will use its best
efforts to cause such Shelf Registration Statement to become effective and use
its best efforts to keep such Shelf Registration Statement current and effective
until the earlier of three years after the Issue Date and such time as all of
the applicable Old Notes have been sold thereunder (the "Effective Period"). The
Company will, in the event of the filing of a Shelf Registration Statement,
provide to each holder of the Old Notes copies of the prospectus which is a part
of such Shelf Registration Statement, notify each such holder when such Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Old Notes. A holder that
sells its Old Notes pursuant to a Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to
87
<PAGE>
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
In the event that (i) the Registration Statement is not filed within 45 days
following the Issue Date or declared effective within 120 days following the
Issue Date, (ii) the Exchange Offer is not consummated within 165 days following
the Issue Date, (iii) the Shelf Registration Statement is not filed or declared
effective within the required time periods or (iv) the Registration Statement
ceases to be effective at any time prior to the time that the Exchange Offer is
consummated or, if applicable, the Shelf Registration Statement has been
declared effective and ceases to be effective at any time during the
Effectiveness Period (each such event, a "Registration Default"), additional
interest will accrue on the Old Notes at a rate of 0.50% per annum in excess of
the stated interest rate on the Old Notes for the first 90 days immediately
following such Registration Default, and such additional interest rate shall
increase by an additional 0.50% per annum at the beginning of each subsequent
90-day period; provided however, that such additional interest rate on the Old
Notes may not exceed the aggregate of 1.0% per annum in excess of the stated
interest rate of the Old Notes and provided further that such additional
interest shall cease to accrue at such time, if any, as the Registration Default
is cured.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
OLD NOTES TRANSFER RESTRICTIONS
Because the following restrictions will apply to any Old Notes held by
holders who do not participate in the Exchange Offer, holders of Old Notes are
advised to consult legal counsel prior to making any offer, resale, pledge or
transfer of any of the Old Notes.
None of the Old Notes has been registered under the Securities Act and they
may not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
Accordingly, the Old Notes were sold only (A) to a limited number of "qualified
institutional buyers" (as defined in Rule 144A) ("QIBs") in compliance with Rule
144A, (B) to a limited number of other institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)
("Accredited Investors") that, prior to their purchase of any Old Notes,
delivered to the Initial Purchasers a letter containing certain representations
and agreements and (C) outside the United States to persons other than U.S.
persons ("foreign purchasers," which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners (other than an estate or trust)) in reliance upon
Regulation S under the Securities Act ("Regulation S"). As used herein, the
terms "United States" and "U.S. person" have the respective meanings given to
them in Regulation S.
Each purchaser of Old Notes has been deemed to have represented and agreed
as follows:
1. It purchased the Old Notes for its own account or an account with respect
to which it exercises sole investment discretion and that it and any such
account is either (A) a QIB, and is aware that the sale to it is being made in
reliance on Rule 144A, (B) an Accredited Investor or (C) a foreign purchaser
that is outside the United States (or a foreign purchaser that is a dealer or
other fiduciary as referred to above).
2. It acknowledged that the Old Notes have not been registered under the
Securities Act and that they may not be offered or sold except as set
forth below.
3. It shall not resell or otherwise transfer any of such Old Notes within
three years after the original issuance of the Old Notes except (A) to
the Company or any of its subsidiaries, (B) inside the United States to a QIB in
compliance with Rule 144A, (C) inside the United States to an Accredited
Investor that, prior to such transfer, furnishes (or has furnished on its behalf
by a U.S. broker-dealer) to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Notes (the
88
<PAGE>
form of which letter can be obtained from the Trustee), (D) outside the United
States in compliance with Rule 904 under the Securities Act, (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
available), or (F) pursuant to an effective registration statement under the
Securities Act.
4. It agreed that it will give to each person to whom it transfers the Old
Notes notice of any restrictions on transfer of such Old Notes.
5. It understands that all of the Old Notes will bear, and if not exchanged
pursuant to the Exchange Offer will continue to bear, a legend
substantially to the following effect unless otherwise agreed by PRI and the
holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE ACT), (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR
(C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR
THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE), OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES
THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF
THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE ACT.
6. It shall not sell or otherwise transfer such Old Notes to, and each
purchaser represented and covenanted that it did not acquire the Old
Notes for or on behalf of, and will not transfer the Old Notes to, any pension
or welfare plan (as defined in Section 3 of the Employee Retirement Income
Security Act of 1974 ("ERISA")), except that such a purchase for or on behalf of
a pension or welfare plan shall be permitted:
a. to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the purchaser in which, at
any time while the Old Notes are held by the purchaser, no plan (together
with any other plans maintained by the same employer or employee
organization) has an interest in excess of 10% of the total assets in such
collective investment fund and the conditions of Section III of Prohibited
Transaction Class Exemption 91-38 issued by the Department of Labor are
satisfied;
89
<PAGE>
b. to the extent such purchase is made by or on behalf of an insurance
company pooled separate account maintained by the purchaser in which,
at any time while the Old Notes are held by the purchaser, no plan (together
with any other plans maintained by the same employer or employee
organization) has an interest in excess of 10% of the total of all assets in
such pooled separate account and the conditions of Section III of Prohibited
Transaction Class Exemption 90-1 issued by the Department of Labor are
satisfied;
c. to the extent such purchase is made on behalf of a plan by (i) an
investment adviser registered under the Investment Advisors Act of
1940 that had as of the last day of its most recent fiscal year total assets
under its management and control in excess of $50,000,000 and had
stockholders' or partners' equity in excess of $750,000, as shown in its
most recent balance sheet prepared in accordance with generally accepted
accounting principles, (ii) a bank as defined in Section 202(a)(2) of the
Investment Advisers Act of 1940 with equity capital in excess of $1,000,000
as of the last day of its most recent fiscal year, (iii) an insurance
company which is qualified under the laws of more than one state to manage,
acquire or dispose of any assets of a plan, which insurance company has, as
of the last day of its most recent fiscal year, net worth in excess of
$1,000,000 and which is subject to supervision and examination by a state
authority having supervision over insurance companies, or (iv) a savings and
loan association, the accounts of which are insured by the Federal Savings
and Loan Insurance Corporation, that has made application for and been
granted trust powers to manage, acquire or dispose of assets of a plan by a
State or Federal authority having supervision over savings and loan
associations, which savings and loan association has, as of the last day of
its most recent fiscal year, equity capital or net worth in excess of
$1,000,000 and, in any case, such investment adviser, bank, insurance
company or savings and loan association is otherwise a qualified
professional asset manager, as such term is used in Prohibited Transaction
Exception 84-14 issued by the Department of Labor, and the assets of such
plan when combined with the assets of other plans established or maintained
by the same employer (or affiliate thereof) or employee organization and
managed by such investment advisor, bank, insurance company or savings and
loan association do not represent more than 20% of the total client assets
managed by such investment adviser, bank, insurance company or savings and
loan association and the conditions of Section I of such exemption are
otherwise satisfied;
d. to the extent such plan is a governmental plan (as defined in Section
3 of ERISA) which is not subject to the provisions of Title I of
ERISA or Section 4975 of the Internal Revenue Code; or
e. to the extent that the assets used to acquire the Old Notes are
assets of an insurance company general account and the purchase of
the Old Notes is exempt under the provisions of Prohibited Transaction
Exemption 95-60, published by the Department of Labor in the Federal
Register on July 12, 1995.
7. It acknowledged that the Trustee for the Old Notes will not be required
to accept for registration of transfer any Old Notes acquired by it,
except upon presentation of evidence satisfactory to PRI and the Trustee that
the restrictions set forth herein have been complied with.
8. It acknowledged that PRI, the Initial Purchasers and others have relied
and will continue to rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements and agreed that if any of the
acknowledgments, representations or agreements deemed to have been made by its
purchase of the Old Notes are no longer accurate, it shall promptly notify PRI
and the Initial Purchasers. If it acquired the Old Notes as a fiduciary or agent
for one or more investor accounts, it represented that it has sole investment
discretion with respect to each such account and it has full power to make the
foregoing acknowledgments, representations, and agreements on behalf of each
account.
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an affiliate of the Company, (ii) a broker-dealer who acquired Old Notes
directly from the Company or (iii) a broker-dealer who acquired Old Notes as a
result of market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such
90
<PAGE>
Exchange Notes are acquired in the ordinary course of such holders' business,
and such holders are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of such Exchange Notes; provided that broker-dealers ("Participating Broker-
Dealers") receiving Exchange Notes in the Exchange Offer will be subject to a
prospectus delivery requirement with respect to resales of such Exchange Notes.
To date, the Staff has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as the exchange pursuant to the
Exchange Offer (other than a resale of an unsold allotment from the sale of the
Old Notes to the Initial Purchasers) with the prospectus contained in the
Registration Statement. Pursuant to the Registration Rights Agreement, the
Company has agreed to permit Participating Broker Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use this Prospectus
in connection with the resale of such Exchange Notes. The Company has agreed
that, for a period of 180 days after the Exchange Date, it will make this
Prospectus, and any amendment or supplement to this Prospectus, available to any
broker-dealer that requests such documents in the Letter of Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer -- Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Old Notes that were acquired by it as a result of market-making activities
or other trading activities, will be required to acknowledge that it will
deliver a prospectus in connection with any resale by it of such Exchange Notes.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/ or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concession of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Winston & Strawn, Chicago, Illinois.
EXPERTS
The financial statements and schedule of the Company as of February 28, 1995
and February 29, 1996, and for each of the years in the three-year period ended
February 29, 1996, included herein and elsewhere in the Registration Statement
have been included herein and in the Registration Statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The reports of KPMG Peat Marwick LLP covering the above
mentioned financial statements and schedule refer to a change in accounting in
1994 relating to income taxes.
91
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
REFERENCE
-----------
<S> <C>
PACKAGING RESOURCES INCORPORATED
Independent Auditors' Report........................................................................... F-2
Balance Sheets as of February 28, 1995 and February 29, 1996........................................... F-3
Statements of Operations for the years ended February 28, 1994 and 1995 and February 29, 1996.......... F-4
Statements of Stockholder's Equity for the years ended February 28, 1994 and 1995 and February 29,
1996.................................................................................................. F-5
Statements of Cash Flows for the years ended February 28, 1994 and 1995 and February 29, 1996.......... F-6
Notes to Financial Statements.......................................................................... F-7
Balance Sheets (Unaudited) as of February 29, 1996 and May 31, 1996.................................... F-17
Statements of Operations (Unaudited) for the three months ended May 31, 1995 and 1996.................. F-18
Statements of Cash Flows (Unaudited) for the three months ended May 31, 1995 and 1996.................. F-19
Notes to Unaudited Financial Statements................................................................ F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder of
Packaging Resources Incorporated:
We have audited the accompanying balance sheets of Packaging Resources
Incorporated as of February 28, 1995 and February 29, 1996, and the related
statements of operations, stockholder's equity, and cash flows for each of the
years in the three-year period ending February 29, 1996. These financial
statements are the responsibility of the management of Packaging Resources
Incorporated. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Packaging Resources
Incorporated as of February 28, 1995 and February 29, 1996, and the results of
its operations and its cash flows for each of the years in the three-year period
ended February 29, 1996 in conformity with generally accepted accounting
principles.
As discussed in note 12 to the financial statements, the Company adopted the
provisions of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
KPMG Peat Marwick LLP
Chicago, Illinois
March 20, 1996, except for note 17, which
is as of May 17, 1996
F-2
<PAGE>
PACKAGING RESOURCES INCORPORATED
BALANCE SHEETS
FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ASSETS 1995 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash.................................................................. $ 232 398
Accounts receivable, net of allowance for doubtful accounts of $200
and $156 in 1995 and 1996, respectively.............................. 11,286 10,719
Inventories........................................................... 24,977 21,394
Prepaid expenses...................................................... 119 646
Income tax receivable................................................. 1,468 44
Deferred income taxes................................................. 1,107 922
--------- ---------
Total current assets.................................................... 39,189 34,123
Property, plant, and equipment, net..................................... 56,213 52,352
Intangibles, net........................................................ 19,610 20,454
Other assets............................................................ 6,954 3,754
--------- ---------
$ 121,966 110,683
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt.................................. 6,550 10,350
Accounts payable...................................................... 8,547 2,615
Accrued expenses...................................................... 4,720 3,912
Income taxes payable.................................................. -- 284
--------- ---------
Total current liabilities............................................... 19,817 17,161
Long-term debt, excluding current maturities............................ 77,627 67,174
Deferred income taxes................................................... 7,590 8,083
--------- ---------
Total liabilities....................................................... 105,034 92,418
--------- ---------
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares authorized, issued, and
outstanding in 1995 and 1996......................................... -- --
Additional paid-in capital............................................ 20,278 20,278
Retained earnings (accumulated deficit)............................... (3,346) (2,013)
--------- ---------
Total stockholder's equity.............................................. 16,932 18,265
--------- ---------
$ 121,966 110,683
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................................................... $ 118,844 135,696 133,756
Cost of goods sold........................................................... 93,248 113,928 111,448
---------- ---------- ----------
Gross profit................................................................. 25,596 21,768 22,308
Selling, general, and administrative expenses (note 15)...................... 6,657 8,407 6,864
Amortization of intangibles and other assets................................. 1,122 3,102 2,434
Nonrecurring charge (note 10)................................................ -- 7,257 --
---------- ---------- ----------
Operating income............................................................. 17,817 3,002 13,010
Interest expense, net of interest income of $129 and $77 in 1994 and 1995,
respectively................................................................ 5,482 8,503 10,671
---------- ---------- ----------
Income (loss) before income taxes, extraordinary item, and cumulative effect
of change in accounting principle........................................... 12,335 (5,501) 2,339
Income tax expense (benefit)................................................. 5,057 (1,980) 1,006
---------- ---------- ----------
Income (loss) before extraordinary item and cumulative effect of change in
accounting principle........................................................ 7,278 (3,521) 1,333
---------- ---------- ----------
Extraordinary item -- loss on early extinguishment of debt,
net of tax.................................................................. 2,743 -- --
Cumulative effect at March 1, 1993 of change in accounting for income taxes
(note 12)................................................................... 2,300 -- --
---------- ---------- ----------
Net income (loss)............................................................ $ 2,235 (3,521) 1,333
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SERIES B 10% RETAINED TOTAL
CUMULATIVE ADDITIONAL EARNINGS STOCK-
COMMON COMMON STOCK PREFERRED PAID-IN (ACCUMULATED HOLDER'S
STOCK WARRANTS STOCK CAPITAL DEFICIT) EQUITY
----------- ------------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at February 28, 1993.............. $ 8 2 -- 525 599 1,134
Amortization of the excess of redemption
value over fair value of Series A
preferred stock........................... -- -- -- (74) -- (74)
Repurchase of 10,000 shares of Series A,
10% cumulative preferred stock............ -- -- -- (1,327) -- (1,327)
Repurchase of common stock warrants........ -- (2) -- (13,854) -- (13,856)
Reverse stock split of 754,000 shares of
common stock, $.01 par value, to 1,000
shares of common stock, $.01 par value.... (8) -- -- 8 -- --
Redemption of 2,500 shares of Series B, 10%
cumulative preferred stock................ -- -- -- (2,500) -- (2,500)
Issuance of 1,000 shares of common stock,
$.01 par value and contribution of
additional paid-in capital................ -- -- -- 40,000 -- 40,000
Dividends paid:
Series A preferred stock................. -- -- -- -- (461) (461)
Series B preferred stock................. -- -- -- -- (115) (115)
Common stock............................. -- -- -- -- (2,083) (2,083)
Net income................................. -- -- -- -- 2,235 2,235
--- --- --- ----------- ------ ---------
Balances at February 28, 1994.............. -- -- -- 22,778 175 22,953
Dividends paid on common stock............. -- -- -- (2,500) -- (2,500)
Net income................................. -- -- -- -- (3,521) (3,521)
--- --- --- ----------- ------ ---------
Balances at February 28, 1995.............. -- -- -- 20,278 (3,346) 16,932
Net income................................. -- -- -- -- 1,333 1,333
--- --- --- ----------- ------ ---------
Balances at February 29, 1996.............. $ -- -- -- 20,278 (2,013) 18,265
--- --- --- ----------- ------ ---------
--- --- --- ----------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ 2,235 (3,521) 1,333
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................. 6,984 11,340 11,381
Deferred income taxes.......................................................... 5,191 (1,481) 678
Loss on sale of property, plant, and equipment................................. 314 1,034 31
Change in assets and liabilities net of effects from the purchase of Louisiana
Plastics, Incorporated and Miner Container:
Accounts receivable.......................................................... (993) 5,710 567
Inventories.................................................................. (5,290) 977 3,583
Prepaid expenses............................................................. (391) 638 (527)
Other assets................................................................. (1,831) (87) (239)
Accounts payable............................................................. (1,058) 306 (5,932)
Accrued expenses............................................................. (8,222) (3,416) (808)
Income taxes................................................................. (1,445) (28) 1,708
---------- --------- ---------
Net cash provided by (used in) operating activities................................ (4,506) 11,472 11,775
---------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment............................. 1,241 237 29
Payment for purchase of the net assets from Louisiana Plastics, Incorporated and
Miner Container, net of cash acquired........................................... (42,957) (1,500) (1,536)
Capital expenditures............................................................. (5,556) (7,925) (3,449)
Notes receivable from related party.............................................. (130) 1,938 --
Other, net....................................................................... (155) -- --
---------- --------- ---------
Net cash used in investing activities.............................................. (47,557) (7,250) (4,956)
---------- --------- ---------
Cash flows from financing activities:
Net borrowings (payments) under credit agreement................................. 2,222 (834) (5,603)
Retirement of Miner line-of-credit agreement..................................... (1,752) -- --
Retirement of capital expenditure loan........................................... (4,440) -- --
Retirement of senior subordinated note........................................... (24,000) -- --
Retirement of term loan.......................................................... (12,117) -- --
Net borrowings from term loan.................................................... 77,161 -- --
Repurchase of common stock warrants.............................................. (13,856) -- --
Redemption of preferred stock, Series A.......................................... (10,000) -- --
Proceeds from capital contribution............................................... 37,500 -- --
Issuance (payment) of promissory notes........................................... 4,200 (1,350) (1,050)
Dividends paid................................................................... (2,659) (2,500) --
Premium on senior subordinated notes............................................. 474 -- --
---------- --------- ---------
Net cash provided by (used in ) financing activities............................... 52,733 (4,684) (6,653)
---------- --------- ---------
Net increase (decrease) in cash.................................................... 670 (462) 166
Cash at beginning of year.......................................................... 24 694 232
---------- --------- ---------
Cash at end of year................................................................ $ 694 232 398
---------- --------- ---------
---------- --------- ---------
Supplemental disclosure of cash flow information -- cash paid for:
Interest......................................................................... $ 5,003 8,881 9,239
Income taxes..................................................................... 373 432 117
Supplemental disclosure of noncash financing activities -- cancellation of
preferred stock, Series B......................................................... (2,500) -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Packaging Resources Incorporated (PRI or the Company) was organized in 1984
as a wholly owned subsidiary of HPH Industries, Ltd. (HPH). During fiscal 1994
PRI Holdings, Inc. (Holdings) acquired all of the common stock of PRI from HPH.
During fiscal 1995 Holdings changed its name to Packaging Resources Group, Inc.
(Group). Packaging Resources Group, Inc. is a wholly owned subsidiary of HPH.
The primary business of PRI is the manufacture and sale of promotional
beverage cups and plastic packaging for the food, dairy, and pharmaceutical
industries. PRI has manufacturing facilities in Coleman, Michigan; Fort Worth,
Texas; Kansas City, Missouri; Lenexa, Kansas; Mt. Carmel, Pennsylvania; and New
Vienna, Ohio.
(B) INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or net
realizable value.
(C) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on plant and
equipment is calculated on the straight-line method over the following estimated
useful lives of the assets:
<TABLE>
<S> <C>
Furniture and fixtures............................................ 5 years
Molds............................................................. 3-5 years
Machinery and equipment........................................... 13 years
Buildings and improvements........................................ 25 years
Land improvements................................................. 35 years
</TABLE>
Leasehold improvements are amortized ratably over the shorter of the lease
term or estimated useful life of the assets.
(D) INTANGIBLES
Intangibles consists of patent costs and the excess of the cost over the
fair value of net assets purchased. These intangibles are amortized on a
straight-line basis over their useful lives of 14 and 40 years, respectively.
Accumulated amortization was $3,172 and $3,865 at February 28, 1995 and February
29, 1996, respectively.
At each balance sheet date, PRI evaluates the realizable value of
intangibles on the basis of whether the intangibles are fully recoverable from
projected, undiscounted net cash flows. Based on its most recent analysis, PRI
believes no impairment of the carrying values of intangibles exists.
(E) OTHER ASSETS
The costs of noncompete agreements and debt issuance costs included in other
assets are amortized over their respective useful lives on the straight-line
method.
(F) INCOME TAXES
PRI is included in the consolidated Federal income tax return of HPH.
Federal income taxes are calculated on a separate company basis and remitted to
HPH.
In February 1992 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Statement 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax
F-7
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in operations for the
period that includes the enactment date.
Effective March 1, 1993 PRI adopted Statement 109 and has reported the
cumulative effect of that change in the method of accounting for income taxes in
the statement of operations for the year ended February 28, 1994.
(G) RETIREMENT PLANS
PRI has two defined contribution retirement plans covering substantially all
of its employees. PRI's Money Purchase Retirement Plan is funded entirely by
employer contributions based upon a defined percentage of participating
employees compensation. PRI also has a 401(k) plan where participants elect to
have a designated percentage of their salary withheld and contributed to the
plan.
(H) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(I) FINANCIAL STATEMENT RECLASSIFICATION
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform with the 1996 presentation.
(2) ACQUISITION OF BUSINESSES
On March 12, 1993 PRI acquired substantially all of the assets of Louisiana
Plastics, Incorporated (LPI). LPI was engaged in the business of manufacturing
plastic food containers and promotional beverage cups. Results of LPI are
included in PRI's statement of operations from the date of acquisition. The
purchase price was $22,122, consisting of $20,122 in cash and $2,000 of debt.
In connection with the purchase of LPI, PRI's bank credit agreement was
amended. The amendment extended the credit facility to $43,800, consisting of a
revolving credit facility of up to $20,000 and a term loan in aggregate
principal amount of $23,800. All property acquired from LPI together with PRI's
remaining property and assets were pledged as collateral for amounts borrowed
under this agreement. The amendment contained certain covenants relating to
PRI's financial condition and restrictions on capital expenditures. PRI borrowed
$18,182 under the amended agreement for the cash purchase price.
As part of the transaction, the preceding owner entered into a two-year
noncompete agreement with PRI. The $500 cost of the noncompete agreement was
included in the purchase price.
The acquisition of LPI is being accounted for as a purchase and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the date of the acquisition. As the purchase price did
not exceed the fair value of the net assets acquired, no goodwill was recorded.
On December 15, 1993 PRI acquired all issued and outstanding shares of
capital stock of Miner Container of Missouri, Inc. and Miner Container of Texas,
Inc. Additionally, PRI acquired specific assets and liabilities of Miner
Container Printing, Inc. (all businesses acquired are collectively hereafter
referred to
F-8
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(2) ACQUISITION OF BUSINESSES (CONTINUED)
as Miner). Miner is engaged in the business of manufacturing plastic food
containers and promotional beverage cups. Results of Miner are included in PRI's
statement of operations from the date of acquisition. The purchase price was
$20,950, consisting of $11,750 in cash and $9,200 of debt of which $7,000 was
paid prior to February 28, 1994.
In connection with the purchase of Miner, the credit agreement was amended
to extend the credit facility to $95,000, including a maximum revolving credit
line of $15,000 and a term loan in aggregate principal amount of $80,000. All
Miner property acquired has been pledged as collateral for amounts borrowed
under this agreement. The amendment contains certain covenants relating to PRI's
financial condition and restrictions on capital expenditures. PRI borrowed
$22,000 under the amended agreement for the cash purchase price and to retire
other debt assumed in the acquisition.
As part of the transaction, the preceding owners entered into a two-year
noncompete agreement with PRI. Of the $4,400 cost of the noncompete agreement,
$1,100 was paid December 31, 1993, $1,100 was paid January 3, 1994, $1,100 was
paid January 2, 1995, and the remaining $1,100 initially was due January 2,
1995. PRI renegotiated the payment terms relating to the final payment of
$1,100. As a result, $800 was paid on April 13, 1995, and the remaining $300 is
due in March of 1996. The outstanding obligation of $1,100 became
interest-bearing on January 2, 1995 at a rate of 1.5% over prime rate.
The Miner acquisition is being accounted for as a purchase and, accordingly,
the acquired assets and liabilities were recorded at their preliminary estimated
fair values at the date of the acquisition. The $9,918 preliminary excess of the
purchase price over the fair market value of the net assets was recorded. During
fiscal 1995 PRI's final determination of the purchase price of Miner resulted in
the excess of the purchase price over the fair market value of the net assets
acquired increasing by $1,500.
PRI had contingent consideration of up to $2,300 associated with the
purchase of Miner. During fiscal 1996, PRI made payments towards this balance of
$1,536 resulting in a remaining contingent consideration of $764. However, as
the probability and amount of payment are uncertain, no amount relating to this
remaining contingency has been recorded. Subsequent payments result in an
adjustment to increase the excess of the purchase price over the fair market
value of the net assets acquired.
(3) INVENTORIES
Inventories consist of the following at February 28, 1995 and February 29,
1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Finished goods........................................................... $ 15,637 13,065
Raw materials............................................................ 5,718 4,407
Supplies and mold materials.............................................. 3,622 3,922
--------- ---------
Total.................................................................. $ 24,977 21,394
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(4) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at February 28, 1995
and February 29, 1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Land...................................................................................... $ 309 309
Buildings................................................................................. 10,019 10,156
Machinery, equipment, and fixtures........................................................ 77,471 80,271
Leasehold improvements.................................................................... 157 157
Construction in progress.................................................................. 1,238 1,562
---------- ----------
89,194 92,455
Less allowance for depreciation and amortization.......................................... (32,981) (40,103)
---------- ----------
Total..................................................................................... $ 56,213 52,352
---------- ----------
---------- ----------
</TABLE>
Construction in progress includes machinery and equipment which have not yet
been placed in service and molds which are in the process of being manufactured.
Depreciation expense for the years ended February 28, 1994 and 1995 and February
29, 1996 was $5,157, $7,390, and $7,287, respectively.
(5) OTHER ASSETS
Other assets consist of the following at February 28, 1995 and February 29,
1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Debt issuance cost, net........................................................................ $ 3,673 2,213
Noncompete agreements, net..................................................................... 1,741 --
Leased equipment, net.......................................................................... 1,531 1,479
Other.......................................................................................... 9 62
--------- ---------
$ 6,954 3,754
--------- ---------
--------- ---------
</TABLE>
The debt issuance costs were incurred in connection with the revolving line
of credit, the 12.5% senior subordinated notes issued by Group, and the term
loan described in note 8. The cost is being amortized over the remaining life of
the debt. Amortization of these costs was $705, $848 and $1,660 for the years
ended February 28, 1994 and 1995 and February 29, 1996, respectively. The
noncompete agreements resulted from the acquisitions as discussed in note 2 and
are being amortized over two years from the date of acquisitions. Leased
equipment represents equipment leased and available for lease to PRI's
customers.
(6) LEASES
PRI has several noncancelable operating leases for substantial portions of
the Company's plant and office facilities and machinery and equipment. Leased
plant and office facilities generally contain renewal options. Rental expense
for operating leases for the years ended February 28, 1994 and 1995 and February
29, 1996 aggregated approximately $2,083, $2,547, and $2,062, respectively.
Additionally, PRI has several facilities which are being subleased.
F-10
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(6) LEASES (CONTINUED)
Future minimum lease payments and related sublease income under
noncancelable operating leases (with initial or remaining lease terms in excess
of one year) as of February 29, 1996 are:
<TABLE>
<CAPTION>
OPERATING OPERATING
LEASE SUBLEASE
FISCAL YEAR PAYMENTS INCOME
- ------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1997....................................................................................... $ 1,970 (855)
1998....................................................................................... 1,766 (570)
1999....................................................................................... 1,276 (505)
2000....................................................................................... 1,207 (505)
2001....................................................................................... 970 (168)
----------- -----------
Total minimum lease payments (income)...................................................... $ 7,189 (2,603)
----------- -----------
----------- -----------
</TABLE>
(7) ACCRUED EXPENSES
Accrued expenses consist of the following at February 28, 1995 and February
29, 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Interest........................................................................................ $ 18 27
Vacation........................................................................................ 1,056 1,056
Pension......................................................................................... 1,095 985
Other........................................................................................... 2,551 1,844
--------- ---------
$ 4,720 3,912
--------- ---------
--------- ---------
</TABLE>
(8) LONG-TERM DEBT
On June 30, 1993 PRI obtained a credit facility, fully described below,
which includes a revolving credit loan. The revolving credit loan balance is
limited to $15,000, with substantially all of PRI's property pledged as
collateral for amounts borrowed. The balance outstanding under this revolving
credit loan was $5,000, $15,000, and $15,000 at February 28, 1994 and 1995 and
February 29, 1996, respectively.
The borrowing base for the revolving credit loan consists of specific
accounts receivable and inventories. PRI borrows at the base rate (Base Rate)
which is equal to one and one-half percent over the prime rate (8.25% at
February 29, 1996) on the outstanding balance.
Beginning in September of 1994, PRI was not in compliance with certain debt
covenants. As a result, from October 1, 1994 through March 31, 1995, PRI was
required to borrow funds at the Base Rate plus two percentage points.
On March 31, 1995, PRI restructured their credit facility and their debt
covenants. In conjunction with this restructuring, PRI received a waiver for
noncompliance with certain debt covenants through March 31, 1995. Thereafter,
PRI was in compliance with all restructured debt covenants throughout fiscal
1996.
The revolving loan matures on the earlier of the maturity date of the term
loan (June 30, 1997) or the date of repayment of the term loan.
F-11
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(8) LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following at February 28, 1995 and February
29, 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Revolving credit loan, interest at the Base Rate, payable in June of 1997................... $ 15,000 15,000
Term loan, interest at eurodollar rate plus 2.75% through October 1994 and interest at the
prime rate plus 1.5% since October 1994, payable in quarterly installments through June 30,
1997....................................................................................... 66,327 60,724
Promissory note, interest at the prime rate plus 0.75% and effective March 12, 1995,
interest at the prime rate plus 2.0%, payable in installments semiannually through July of
1997....................................................................................... 1,750 1,500
Promissory note, interest-bearing at the prime rate plus 1.5% beginning January 1995; $800
payable in April of 1995 and $300 payable in March of 1996................................. 1,100 300
--------- ---------
84,177 77,524
Less current maturities of long-term debt................................................... 6,550 10,350
--------- ---------
$ 77,627 67,174
--------- ---------
--------- ---------
</TABLE>
At February 29, 1996, the Base Rate was 9.75% and the Prime Rate was 8.25%.
On June 30, 1993, PRI entered into a new credit agreement initially
providing for a $55,000 term loan and a $20,000 revolving credit facility. On
December 15, 1993, the terms of this agreement were amended to increase the term
loan to $80,000 and reduce the revolving credit facility to $15,000.
Substantially all of PRI's property has been pledged as collateral for amounts
borrowed under the agreement. Interest is due on either a one, three, or six
month basis for borrowings under the eurodollar interest rate or quarterly for
borrowings under the Base Rate. There is an annual fee of one-half of one
percent on the unused credit commitment, payable quarterly.
This credit agreement contains restrictions on incurring additional debt or
liens, making investments, or making payments such as dividends, stock
repurchases, or debt prepayments, and payments to affiliates. These agreements
also contain various financial covenants such as interest coverage ratio,
working capital, and net worth. PRI paid approximately $4,600 in fees in
connection with the new credit agreement and the 12.5% senior subordinated notes
issued by Group.
As discussed in note 2, in connection with the Miner acquisition, a two-year
noncompete agreement was entered into by PRI. Of the $4,400 cost of the
noncompete agreement, $1,100 was paid December 31, 1993, $1,100 was paid January
3, 1994, $1,100 was paid January 2, 1995, and the remaining $1,100 initially was
due January 2, 1995. PRI renegotiated the payment terms relating to the final
payment of $1,100. As a result, $800 was paid on April 13, 1995, and the
remaining $300 is due March 1, 1996. The outstanding obligation of $1,100 became
interest-bearing on January 2, 1995 at a rate of 1.5% over prime rate.
F-12
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(8) LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt after February 29, 1996 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------------------------------------------------- ---------
<S> <C>
1997................................................................................................... $ 10,350
1998................................................................................................... 67,174
1999................................................................................................... --
2000................................................................................................... --
2001................................................................................................... --
---------
$ 77,524
---------
---------
</TABLE>
(9) COMMON STOCK, ADDITIONAL PAID-IN CAPITAL, REDEEMABLE EXCHANGEABLE PREFERRED
STOCK, AND COMMON STOCK PURCHASE WARRANTS
During fiscal 1990 PRI issued 52,632 detachable common stock purchase
warrants to the holder of the redeemable exchangeable preferred stock under an
amended Stock Purchase Agreement. PRI also had 246,000 outstanding detachable
common stock purchase warrants which were issued in 1986 with the 13.5% senior
subordinated notes and redeemable exchangeable preferred stock. The warrants
were purchased by PRI for $13,856 on June 30, 1993. PRI also redeemed the
Redeemable Exchangeable Preferred Stock on June 30, 1993 for $10,000 plus
accrued dividends.
Group acquired all issued and outstanding capital stock of PRI and,
simultaneously with such transaction, Group caused PRI to reconstitute its
capital structure through the replacement of its bank credit facility and
redemption of its outstanding (i) 13.5% Senior Subordinated Notes due 1996, (ii)
shares of Redeemable Exchangeable Preferred Stock, and (iii) warrants to
purchase stock. In connection with this refinancing, Group made a capital
contribution to PRI consisting of $37,500 in cash and 2,500 shares of Redeemable
Convertible Junior Preferred Stock.
In June 1993 HPH exchanged all of the outstanding shares of common stock of
PRI, par value $.01 per share, for 56,250 shares of the common stock of Group,
par value $.01 per share. HPH also exchanged its shares of PRI's Series B
Redeemable Convertible Junior Preferred Stock, par value $.01 per share, for
$2,500 principal amount of the 12.5% senior subordinated notes issued by Group.
In connection with the March of 1995 restructured credit agreement, dividend
payments are prohibited by PRI.
(10)NONRECURRING CHARGE
During fiscal 1995 a nonrecurring charge was incurred relating to the
following items:
<TABLE>
<CAPTION>
Employee termination payments....................................................... $ 263
<S> <C>
Termination payments for leases and other contracts................................. 112
Write-down of operating assets to net realizable value.............................. 1,496
Write-off of excess and obsolete inventory.......................................... 2,401
Moving expenses incurred for inventory and fixed assets............................. 848
Operating costs relating to closed facilities subsequent to shut-down............... 1,243
Write-off of costs associated with the public debt offering that was not completed
by PRI............................................................................. 894
---------
$ 7,257
---------
---------
</TABLE>
F-13
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(11)EARLY EXTINGUISHMENT OF DEBT
During fiscal 1994, in connection with the reconstituting of the capital
structure as discussed in note 8, the difference between the amount paid to
extinguish the debt and net carrying amount of the debt was recorded as an
extraordinary item, net of taxes in the accompanying statements of operations.
(12)INCOME TAXES
As discussed in note 1, PRI adopted Statement 109 as of March 1, 1993. The
cumulative effect of this change in accounting for income taxes of $2,300 is
determined as of March 1, 1993 and is reported separately in the statement of
operations for the year ended February 28, 1994.
Total income tax expense (benefit) for the years ended February 28, 1994 and
1995 and February 29, 1996 was allocated as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income (loss) from operations........................................................ $ 5,057 (1,980) 1,006
Extraordinary item -- loss on early extinguishment of debt........................... (1,906) -- --
--------- --------- ---------
$ 3,151 (1,980) 1,006
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense (benefit) attributable to income before income taxes,
extraordinary item, and cumulative effect of change in accounting principle for
the years ended February 28, 1994 and 1995 and February 29, 1996 consists of:
<TABLE>
<CAPTION>
1994
-----------------------------------
CURRENT DEFERRED TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Federal............................................................................. $ 1,764 2,084 3,848
State............................................................................... 666 543 1,209
----------- ----------- ---------
$ 2,430 2,627 5,057
----------- ----------- ---------
----------- ----------- ---------
<CAPTION>
1995
-----------------------------------
CURRENT DEFERRED TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Federal............................................................................. $ (668) (1,184) (1,852)
State............................................................................... 169 (297) (128)
----------- ----------- ---------
$ (499) (1,481) (1,980)
----------- ----------- ---------
----------- ----------- ---------
<CAPTION>
1996
-----------------------------------
CURRENT DEFERRED TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Federal............................................................................. $ 103 546 649
State............................................................................... 225 132 357
----------- ----------- ---------
$ 328 678 1,006
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
F-14
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(12)INCOME TAXES (CONTINUED)
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 34% in 1994, 1995 and 1996 to pretax income
as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............................................. $ 4,194 (1,870) 795
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax benefit............................... 798 (185) 235
Other, net.......................................................................... 65 75 (24)
--------- --------- ---------
$ 5,057 (1,980) 1,006
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at February 28,
1994 and 1995 and February 29, 1996 are presented below:
<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Compensated absences, principally due to accrual for financial reporting
purposes...................................................................... $ 419 345 343
Net operating loss carryforwards............................................... 1,786 4,612 4,785
Alternative minimum tax credit carryforwards................................... 1,103 395 495
Other.......................................................................... 906 844 686
---------- --------- ---------
Total gross deferred tax assets.................................................. 4,214 6,196 6,309
---------- --------- ---------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation............ (10,337) (10,354) (11,843)
Intangible assets.............................................................. (1,518) (2,243) (1,520)
Other.......................................................................... (323) (82) (107)
---------- --------- ---------
Total gross deferred liabilities................................................. (12,178) (12,679) (13,470)
---------- --------- ---------
Net deferred liability........................................................... $ (7,964) (6,483) (7,161)
---------- --------- ---------
---------- --------- ---------
</TABLE>
PRI has not recorded a valuation allowance related to the deferred tax
assets, as management believes that it is more likely than not that the results
of future operations will generate sufficient taxable income to realize the
deferred tax assets.
At February 29, 1996 PRI has net operating loss carryforwards of $12,269
which are available to reduce future taxable income for Federal income tax
purposes under a tax sharing agreement with HPH. The operating loss
carryforwards expire at various dates through 2011.
PRI also has alternative minimum tax credit carryforwards of $495 which are
available to reduce future Federal income taxes over an indefinite period under
a tax sharing agreement with HPH.
(13)DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables, accounts payable and accrued expenses: The carrying
amounts approximate fair value due to the short maturity of these instruments.
Notes payable: The carrying amounts approximate fair value as a majority of
the obligations incur interest at a market rate. In addition, the significant
terms of fixed rate obligations do not differ materially from those currently
available to PRI.
F-15
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(14)RETIREMENT PLAN
PRI has a defined contribution retirement plan covering substantially all
employees; contributions are based upon a defined percentage of compensation.
Provisions for the plan's contributions amounted to $673, $775, and $670 for the
years ended February 28, 1994 and 1995 and February 29, 1996, respectively.
Provisions of the plan include 20% vesting per year.
(15)RELATED-PARTY TRANSACTIONS
PRI has various transactions with Group and HPH. These transactions include
management fees and reimbursements to HPH of $699, $687 and $662 for each fiscal
year 1994, 1995 and 1996, respectively. Additionally, PRI paid dividends of $115
to HPH on Series B preferred stock in 1994, and $2,083 and $2,500 to Group on
common stock in 1994 and 1995, respectively.
(16)BUSINESS AND CREDIT CONCENTRATIONS
PRI's business is substantially dependent on a limited number of large
customers. In fiscal years 1994, 1995 and 1996, PRI's ten largest customers
accounted for approximately 62%, 69% and 78%, respectively, of its net sales.
PRI's largest customers are General Mills (including Yoplait), Dannon, and Ross
Labs, which represented approximately 21.9%, 18.7%, and 15.2%, respectively, of
PRI's net sales for fiscal 1996. No customer other than General Mills, Dannon,
or Ross Labs accounted for more than 5% of PRI's net sales during fiscal 1996.
Accounts receivable for General Mills, Dannon, and Ross Labs totaled $4,594,
$6,416, and $5,976 at February 28, 1994 and 1995 and February 29, 1996,
respectively.
(17)SUBSEQUENT EVENT
On May 17, 1996, the Company issued $110,000 of 11 5/8% senior secured notes
due 2003. The Company received net proceeds from the senior secured notes of
$106,700. The Company used these proceeds to retire the $73,830 principal and
interest outstanding under the term and revolving credit agreements and to fund
a dividend to Group in the amount of $31,761. The remaining proceeds of $1,109
were retained by the Company for working capital purposes.
F-16
<PAGE>
PACKAGING RESOURCES INCORPORATED
BALANCE SHEETS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
FEBRUARY MAY 31,
ASSETS 29, 1996 1996
----------- ---------
<S> <C> <C>
Current assets:
Cash................................................................. $ 398 $ 4,179
Accounts receivable, net of allowance for doubtful accounts of $156
and $130 at February 29, 1996 and May 31, 1996, respectively........ 10,719 11,670
Inventories.......................................................... 21,394 20,778
Prepaid expenses..................................................... 690 960
Deferred income taxes................................................ 922 922
----------- ---------
Total current assets................................................... 34,123 38,509
Property, plant, and equipment, net.................................... 52,352 52,433
Intangibles, net....................................................... 20,454 20,281
Other assets........................................................... 3,754 5,658
----------- ---------
$ 110,683 $ 116,881
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt................................. $ 10,350 $ 550
Accounts payable..................................................... 2,615 6,514
Accrued expenses..................................................... 3,912 4,602
Income taxes payable................................................. 284 284
----------- ---------
Total current liabilities.............................................. 17,161 11,950
----------- ---------
Long-term debt, excluding current maturities........................... 67,174 110,700
Deferred income taxes.................................................. 8,083 7,923
----------- ---------
Total liabilities...................................................... $ 92,418 $ 130,573
----------- ---------
Stockholder's equity (deficit):
Common stock, $.01 par value; 1,000 shares authorized, issued, and
outstanding at February 29, 1996 and May 31, 1996................... -- --
Additional paid-in capital........................................... 20,278 (11,483)
Retained earnings (accumulated deficit).............................. (2,013) (2,209)
----------- ---------
Total stockholder's equity (deficit)................................... $ 18,265 $ (13,692)
----------- ---------
$ 110,683 $ 116,881
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to unaudited financial statements.
F-17
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net Sales................................................................................... $ 36,335 $ 31,316
Cost of goods sold.......................................................................... 30,142 25,356
--------- ---------
Gross Profit................................................................................ 6,193 5,960
Selling, general & administrative expenses.................................................. 1,796 1,848
Amortization of intangibles and other assets................................................ 599 174
--------- ---------
Operating income............................................................................ 3,798 3,938
Interest expense............................................................................ 2,769 2,416
--------- ---------
Income before income taxes and extraordinary item........................................... 1,029 1,522
Income tax expense.......................................................................... 422 654
--------- ---------
Income before extraordinary item............................................................ 607 868
Extraordinary item -- write-off of unamortized deferred financing cost, net of tax.......... -- 1,064
--------- ---------
Net income (loss)........................................................................... $ 607 $ (196)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited financial statements.
F-18
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................ $ 607 $ (196)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization.......................................................... 2,879 2,413
Deferred income taxes.................................................................. 1,382 (160)
Change in assets and liabilities:
Change in current assets............................................................. 1,321 (605)
Change in current liabilities........................................................ (2,278) 4,589
Write-off of unamortized deferred financing costs...................................... -- 1,867
--------- ----------
Net cash provided by operating activities.................................................. 3,911 7,908
--------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment..................................... 26 --
Capital expenditures..................................................................... (740) (1,942)
--------- ----------
Net cash used in investing activities...................................................... (714) (1,942)
--------- ----------
Cash flows from financing activities:
Payments under credit agreement.......................................................... (1,000) (2,250)
Payments of promissory notes............................................................. (800) (550)
Repayment of indebtedness under old credit agreement..................................... -- (73,474)
Proceeds from senior secured notes, net.................................................. -- 105,850
Dividends paid........................................................................... -- (31,761)
--------- ----------
Net cash used in financing activities...................................................... (1,800) (2,185)
--------- ----------
Net increase in cash....................................................................... 1,397 3,781
Cash at beginning of period................................................................ 232 398
--------- ----------
Cash at end of period...................................................................... $ 1,629 $ 4,179
--------- ----------
--------- ----------
Supplemental disclosure of cash flow information -- cash paid for:
Interest................................................................................. $ 2,465 $ 1,593
Income taxes............................................................................. $ 8 $ 28
--------- ----------
--------- ----------
</TABLE>
See accompanying notes to unaudited financial statements.
F-19
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(1) BASIS OF PRESENTATION
The balance sheet as of May 31, 1996 and the statements of operations and
cash flows for the three month periods ended May 31, 1996 and 1995 have been
prepared by management. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair statement
of the financial statements for the interim periods included herein have been
made. Management recommends the accompanying financial information be read in
conjunction with the audited financial statements and related notes set forth
elsewhere herein.
The results of operations for the three-month period ended May 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Packaging Resources Incorporated (PRI or the Company) is a wholly owned
subsidiary of Packaging Resources Group, Inc (Group). Group is a wholly owned
subsidiary of HPH Industries, Ltd (HPH).
The primary business of PRI is the manufacture and sale of plastic packaging
for the food, dairy, and pharmaceutical industries and promotional beverage
cups. PRI has manufacturing facilities in Coleman, Michigan; Fort Worth, Texas;
Kansas City, Missouri; Mt. Carmel, Pennsylvania; and New Vienna, Ohio.
(B) INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or net
realizable value.
(C) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on plant and
equipment is calculated on the straight-line method over the following estimated
useful lives of the assets:
<TABLE>
<S> <C>
Furniture and fixtures............................................ 5 years
Molds............................................................. 3-5 years
Machinery and equipment........................................... 13 years
Buildings and improvements........................................ 25 years
Land improvements................................................. 35 years
</TABLE>
Leasehold improvements are amortized ratably over the shorter of the lease
term or estimated useful life of the assets.
(D) INTANGIBLES
Intangibles consists of patent costs and the excess of the cost over the
fair value of net assets purchased. These intangibles are amortized on a
straight-line basis over their useful lives of 14 years and 40 years,
respectively. Accumulated amortization was $3,865 and $4,038 at February 29,
1996 and May 31, 1996, respectively.
At each balance sheet date, PRI evaluates the realizable value of
intangibles on the basis of whether the intangibles are fully recoverable from
projected, undiscounted net cash flows. Based on its most recent analysis, PRI
believes no impairment of the carrying values of intangibles exists.
(E) OTHER ASSETS
The debt issuance costs included in other assets are amortized over their
respective useful lives on the straight-line method.
F-20
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) RETIREMENT PLANS
PRI has two defined contribution retirement plans covering substantially all
of its employees. PRI's Money Purchase Retirement Plan is funded entirely by
employer contributions based upon a defined percentage of participating
employees compensation. PRI also has a 401(k) plan where participants elect to
have a designated percentage of their salary withheld and contributed to the
plan.
(G) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) INVENTORIES
Inventories consist of the following at February 29, 1996 and May 31, 1996:
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1996
------------ ---------
<S> <C> <C>
Finished goods....................................................... $ 13,065 $ 11,635
Raw materials........................................................ 4,407 5,017
Supplies and mold materials.......................................... 3,922 4,126
------------ ---------
Total............................................................ $ 21,394 $ 20,778
------------ ---------
------------ ---------
</TABLE>
(4) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at February 29, 1996
and May 31, 1996:
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1996
------------ ----------
<S> <C> <C>
Land................................................................ $ 309 $ 309
Buildings........................................................... 10,156 10,156
Machinery, equipment, and fixtures.................................. 80,271 80,271
Leasehold improvements.............................................. 157 157
Construction in progress............................................ 1,562 3,504
------------ ----------
92,455 94,397
Less allowance for depreciation and amortization.................... (40,103) (41,964)
------------ ----------
Total........................................................... $ 52,352 $ 52,433
------------ ----------
------------ ----------
</TABLE>
Construction in progress includes machinery and equipment which have not yet
been placed in service and molds which are in the process of being manufactured.
Depreciation expense for the three months ending May 31, 1995 and May 31, 1996
was $1,865 and 1,869, respectively.
F-21
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(5) OTHER ASSETS
Other assets consist of the following at February 29, 1996 and May 31, 1996:
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1996
------------ ----------
<S> <C> <C>
Debt issuance cost, net............................................. $ 2,213 $ 4,125
Leased equipment, net............................................... 1,479 1,469
Other............................................................... 62 64
------------ ----------
$ 3,754 $ 5,658
------------ ----------
------------ ----------
</TABLE>
The debt issuance costs as of February 29, 1996, were incurred in connection
with the revolving credit loan, the 12.5% senior subordinated notes issued by
Group, and the term loan described in note 8. These cost were written-off in May
1996. The debt issuance costs as of May 31, 1996 were incurred in connection
with the 11 5/8% Senior Secured Notes due 2003 and are being amortized over the
remaining life of the debt. Amortization of the deferred financing costs was
$415 and $370 for the three months ended May 31, 1995 and May 31, 1996,
respectively.
(6) LEASES
PRI has several noncancelable operating leases for substantial portions of
the Company's plant and office facilities and machinery and equipment. Leased
plant and office facilities generally contain renewal options. Rental expense
for operating leases for the three months ended May 31, 1995 and May 31, 1996
aggregated $539 and $456, respectively.
Additionally, PRI has several facilities which are being subleased.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following at February 29, 1996 and May 31,
1996:
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1996
------------ ---------
<S> <C> <C>
Interest............................................................. $ 27 $ 467
Vacation............................................................. 1,056 1,056
Pension.............................................................. 985 1,192
Other................................................................ 2,128 2,171
------------ ---------
$ 4,196 $ 4,886
------------ ---------
------------ ---------
</TABLE>
(8) LONG-TERM DEBT
On March 31, 1995, PRI restructured their credit facility and debt
covenants. In conjunction with this restructuring, PRI received a waiver for
noncompliance with certain debt covenants through March 31, 1995. Thereafter,
PRI was in compliance with all restructured debt covenants.
On May 17, 1996, PRI issued $110 million in 11 5/8% Senior Secured Notes due
2003. The funds from this issuance were used to repay all outstanding borrowings
of the existing senior secured credit facility of $73.8 million and to fund a
dividend to Group of $31.8 million. At this time the Company also entered into a
credit agreement that provides for a $20.0 million revolving loan facility.
F-22
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (CONTINUED)
(8) LONG-TERM DEBT (CONTINUED)
Long-term debt consist of the following at February 29, 1996 and May 31,
1996:
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1996
------------ ----------
<S> <C> <C>
Revolving credit loan, interest at Base Rate during, 1995, paid off
May 17, 1996....................................................... $ 15,000 $ --
Term loan, interest at prime rate plus 1.5%, payable in quarterly
installments, paid off May 17, 1996................................ 60,724 --
Promissory note, interest at prime plus 0.75% and effective March
12, 1995, interest at prime plus 2.0%, payable in installments
semiannually through July, 1997.................................... 1,500 1,250
Promissory note, interest-bearing at prime plus 1.5% beginning
January 1995; $800 payable in April, 1995 and $300 payable in
March, 1996........................................................ 300 --
Senior Secured Notes, interest at 11 5/8% paid semi-annual on May 1
and November 1; notes due May 1, 2003.............................. -- 110,000
------------ ----------
77,524 111,250
Less current maturities of long-term debt........................... 10,350 550
------------ ----------
$ 67,174 $ 110,700
------------ ----------
------------ ----------
</TABLE>
(9) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, cash equivalents, receivables, accounts payable and accrue expenses:
The carrying amounts approximate fair value due to the short maturity of these
instruments.
Notes payable: The carrying amounts approximate fair value as a majority of
the obligations incur interest at a market rate. In addition, the significant
terms of fixed rate obligations do not differ materially from those currently
available to PRI.
(10) RETIREMENT PLAN
PRI has a defined contribution retirement plan covering substantially all
employees and contributions are based upon a defined percentage of compensation.
Provisions for the plan's contributions amounted to $196 and $207 for the three
months ended May 31, 1995 and May 31, 1996, respectively. Provisions of the plan
include 20% vesting per year.
(11) RELATED-PARTY TRANSACTIONS
PRI has various transactions with Group and HPH. These transactions include
management fees and reimbursements to HPH of $167 and $162 for the three months
ended May 31, 1995 and May 31, 1996, respectively.
(12) BUSINESS AND CREDIT CONCENTRATIONS
PRI's business is substantially dependent on a limited number of large
customers. In the three months ended May 31, 1995 and May 31, 1996, PRI's ten
largest customers accounted for approximately 79% and 78%, respectively, of its
nets sales. PRI's largest customers are General Mills (including Yoplait),
Dannon, and Ross Labs, which represented approximately 25.4%, 20.6%, and 14.7%,
respectively, of PRI's net sales for the three months ended May 31, 1996. No
customer other than General Mills, Dannon, or Ross Labs accounted for more than
5% of PRI's net sales during the three months ended May 31, 1996. Accounts
Receivable from General Mills, Dannon, and Ross Labs totaled $5,976 and $5,902
at February 29, 1996 and May 31, 1996, respectively.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE BY
THIS PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... i
Prospectus Summary............................. 1
Risk Factors................................... 12
Use of Proceeds................................ 18
The Exchange Offer............................. 19
Capitalization................................. 27
Selected Financial Data........................ 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 31
Business....................................... 38
Management..................................... 49
Security Ownership of Certain Beneficial Owners
and Management................................ 53
Certain Transactions........................... 54
Description of Certain Indebtedness............ 57
Description of Exchange Notes.................. 58
Certain United States Federal Income Tax
Consequences.................................. 85
Old Notes Registration Rights.................. 87
Old Notes Transfer Restrictions................ 88
Plan of Distribution........................... 90
Legal Matters.................................. 91
Experts........................................ 91
Index to Financial Statements.................. F-1
</TABLE>
[LOGO]
OFFER TO EXCHANGE $1,000
PRINCIPAL AMOUNT OF ITS
11 5/8% SENIOR SECURED NOTES DUE 2003
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR EACH $1,000 PRINCIPAL AMOUNT
OF ITS OUTSTANDING
11 5/8% SENIOR SECURED NOTES DUE 2003
---------------------
PROSPECTUS
---------------------
THE EXCHANGE AGENT
FOR THE EXCHANGE OFFER IS:
LASALLE NATIONAL BANK
BY FACSIMILE: (312) 904-2236
CONFIRMATION BY TELEPHONE:(312) 904-2444
BY MAIL OR OVERNIGHT DELIVERY:
LaSalle National Bank
Corporate Trust Division
135 South LaSalle Street
Suite 1825
Chicago, Illinois 60603
Attention: Sarah H. Webb
BY HAND DELIVERY:
LaSalle National Bank
c/o IBJ Schroder Bank and Trust Company
One State Street - Floor SC1
Securities Processing Window
New York, New York 10004
AUGUST 22, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
