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Houlihan Lokey Financial Restructuring Group Case Competition

Darren Tan Darryl Tan Devanshi Mehta Megan Pierce

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Case Study: Star Labs, Inc.

Risky Business

Houlihan Lokey Financial Restructuring Group Case Competition

Risky Business


Business Description Star Labs, Inc. Company Overview

Plastic Films

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Star Labs operates two lines of businesses currently; molded plastics and plastic films. The combined divisions serve a variety of end markets including medical, automotive, textile, furniture, appliance, and computer industries. Closer analysis will reveal that these two divisions operate at significantly different margins despite being under a single entity, and thus our valuation methodologies will reflect the two entities as distinct manufacturing components. Because the debt landscape in terms of leverage multiples and coverage ratios is similar for Star Lab's competitors, and is likely to be consistent across all players, our debt capacity analysis was conducted on Star Labs as a single consolidated entity.

Molded Plastics

Star Lab’s Films division develops and manufactures stretch and custom engineered films, primarily made from low density polyethylene, for use in a wide variety of applications and endmarkets. The majority of customers employ just-in-time inventory, therefore timeliness is crucial in delivery.

Star Lab’s Molded division utilizes injection-modeling processes to transform plastic resin into components. The molding division has recently focused on target non-core accounts, specifically consumer appliance companies.

Direct Competitor Overview Airbend Thermo-Molding, Inc: Airbend operates as a sheet molding composites (SMC) compounder and fiberglass reinforced plastic molder. Booth Industries, Inc: Booth specializes in molded plastic components for consumer and commercial products such as RVs and home furniture. Firestorm Industries, Inc: Firestorm is a injection molded plastic companies that sells fullservice injection mold design and development for appliance industries. Pied-Piper Plastics Corporation: Manufactures and sells injection and blow-molded products for industrial and commercial industries. Snart Enterpirses, Inc: Engaged in the manufacturing and selling of molding products for consumer and industrial applications.

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Direct Competitor Overview Factory Finess Holdings, Inc: Operates as a manufacturer and seller of plastic films and laminate materials for packaging and surface protection applications. Golden Glider Company, Inc: Produces and markets polyvinyl and polyethylene packaging products for consumer and industrial projects. Arrow Technologies Corporation: Manufactures plastic films and aluminum extrusions for commercial and industrial products. Grodd Plastics, Inc: Manufactures plastic polypropylene and cross-laminated film products for industrial, construction and commercial industries. Thorn Packaging Co: Manufactures and distributed plastic films for the packaging industry. Star Labs – Plastic Films Operations Breakdown Gross Profit Margin Operating Margin

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9.80% 10.13% 11.00%

6.30% 6.84% 8.30%

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3.10% 3.64% 3.60%

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Star Labs – Molded Products Operations Breakdown Gross Profit Margin Operating Margin

2015 LTM Industry Median LTM

5.80% 6.03% 8.30%

-4.40% -4.71% 1.40%

EBITDA Margin -2.20% -2.46% 4.40%

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2015 LTM Industry Median LTM

EBITDA Margin

Industry Overview

The plastic film industry is reliant on input prices of polyethylene and polyvinyl chloride and can be affected greatly by fluctuations in these materials. Additionally, competition among the plastic molding industry and reliance by Automotive OEMs accounts has made it crucial for companies to maintain competitive margins to remain frontrunners in the industry. Additionally, the contraction of the OEM industry in recent years has resulted in considerable decline in the plastic molding industry. The 2008 recession also caused a decline in the residential construction industry which is closely linked to plastic films and molding. The cyclical nature of both the plastic film and molding industries can be seen by an increase in revenues in 2011 and 2012, followed by a decline in most of the companies in 2013 and 2014. Additionally, the overall industry decline can be see by a contraction in revenues by both plastic molding and plastic film companies from 2013 to 2014 in the majority of the companies analyzed . Houlihan Lokey Financial Restructuring Group Case Competition

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Company Valuation

Houlihan Lokey Financial Restructuring Group Case Competition

Risky Business


Discounted Cash Flows Analysis Discounted Cash Flow Analysis

Adjusted EBIT Effective Tax Rate Net Operating Profit After Taxes (NOPAT) (+) D&A (-) Capital Expenditures (+/-) Changes in working capital Unlevered Free Cash Flows WACC 15.0% Discount Factor* Discounted Cash Flows

2017E

10.8 40.0% 6.5 9.9 (8.9) 28.8 36.2

38.1 40.0% 22.9 20.3 (20.6) 6.8 29.4

46.6 40.0% 27.9 20.9 (20.9) (1.6) 26.2

2020E

48.9 40.0% 29.3 21.9 (20.7) 4.8 35.4

75th Percentile 357.9

Max 380.0

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Median $335.9

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4.80x 311.45 315.84 320.23 324.63 329.02

Films Exit 5.30x 327.11 331.51 335.90 340.29 344.69

5.80x 342.78 347.17 351.57 355.96 360.35

6.30x 358.45 362.84 367.24 371.63 376.02

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4.30x 295.78 300.17 304.56 308.96 313.35

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Sensitivity Analysis

Molds Exit

57.9 40.0% 34.8 22.7 (22.4) (0.7) 34.4

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25th Percentile 315.5

WACC

335.90 2.70x 3.20x 3.70x 4.20x 4.70x

2021E

55.4 40.0% 33.3 22.1 (21.5) (7.2) 26.7

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Min 295.1

2019E

0 1 2 3 4 5 1 0.8695652 0.7561437 0.6575162 0.5717532 0.4971767 36.2 25.6 19.8 23.3 15.3 17.1

*Mid-year convention was used

DCF Implied EV

2018E

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20162H

Houlihan Lokey Financial Restructuring Group Case Competition

Terminal Value Calculation - Sum of the parts Exit EBITDA Multiple Method 2021 Plastic Films EBITDA (alloc.) Films EV/EBITDA Exit Multiple Implied Terminal EV (Plastic Films)

WACC

2021 Molded Products EBITDA (alloc.) Molds EV/EBITDA Exit Multiple Implied Terminal EV (Molded Products) Total Implied Terminal EV Total Discounted Terminal EV

137.31

Total Calculated Enterprise Value

335.90 14.00% 14.50% 15.00% 15.50% 16.00%

2.70x 338.08 332.53 327.11 321.83 316.67

3.20x 342.67 337.02 331.51 326.13 320.88

335.90 14.00% 14.50% 15.00% 15.50% 16.00%

4.30x 314.53 309.49 304.56 299.76 295.08

4.80x 330.90 325.50 320.23 315.09 310.08

17.67 3.70x 65.39 399.43 198.59

Sum of Discounted Cash Flows

Molds Exit 3.70x 347.26 341.51 335.90 330.43 325.08 Films Exit 5.30x 347.26 341.51 335.90 330.43 325.08

63.03 5.30x 334.04

335.90

4.20x 351.85 346.00 340.29 334.72 329.29

4.70x 356.44 350.49 344.69 339.02 333.50

5.80x 363.63 357.52 351.57 345.76 340.09

6.30x 380.00 373.54 367.24 361.09 355.09 Risky Business


2011 $531.0 506.6

10.9%

10.6%

Molded Products Revenues Molded Products Normalized Revenues Molded Products EBITDA Margins

$269.8 290.6 4.11%

2013 $566.6 507.1

2014 $476.0 507.3

2015 $430.5 507.6

2016 $430.9 507.8

2017 $461.1 508.1

2018 $502.7 508.3

2019 $527.9 508.6

2020 $549.0 508.8

2021 $570.9 509.1

11.3%

9.1%

7.8%

6.3%

8.6%

11.0%

11.4%

11.4%

11.8%

11.8%

$276.9 295.0 -1.77%

$251.4 296.1 -2.20%

$251.7 297.2 2.39%

$269.3 298.3 4.78%

$293.2 299.4 5.26%

$307.9 300.5 5.26%

$320.2 301.6 5.70%

$333.0 302.7 5.68%

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10.93% $55.46

2012 $586.1 506.8

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2010 $460.4 506.3

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Year Plastic Films Revenues Plastic Films Normalized Revenues Plastic Films EBITDA Margins 10 Year Median Implied Normalized Plastic Films EBITDA

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Adjustments for Cyclicality

$343.3 292.8 4.68%

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$311.6 291.7 3.92%

10 Year Median Implied Normalized Molded Plastics EBITDA

$330.5 293.9 3.74%

4.39% $13.01

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Comparable Companies Analysis Molded Plastics Comparable Companies

Profitability Norm Revenue

Norm EBITDA

Molding Molding Molding Molding Molding

$176.40 $1,793.50 $1,838.85 $1,019.30 $480.55

$4.66 $124.28 $111.43 $63.98 $24.09

6.40% 8.40% 8.30% 9.50% 7.30%

0.60% 1.50% 0.90% 1.40% 1.50%

Median Mean Max Min 25th Percentile 75th Percentile

$1,019.30 $1,061.72 $1,838.85 $176.40 $480.55 $1,793.50

$63.98 $65.69 $124.28 $4.66 $24.09 $111.43

8.30% 7.98% 9.50% 6.40% 7.30% 8.40%

1.40% 1.18% 1.50% 0.60% 0.90% 1.50%

6.03%

NMF

Bell Injection Molders, Inc.

Gross Profit Operating EBITDA Margin (LTM) Margin (LTM) Margin (LTM)

EV/Norm Revenue

EV/Norm EBITDA

EV / Revenue (LTM)

EV/EBITDA (LTM)

EV / FCF (LTM)

Cash Conversion Cycle (9 Month)

Cash Conversion Cycle (2014)

3.40% 6.10% 5.50% 4.40% 4.30%

0.12x 0.26x 0.32x 0.25x 0.18x

4.38x 3.70x 4.16x 3.36x 3.61x

0.15x 0.27x 0.31x 0.22x 0.20x

4.43x 4.48x 5.74x 4.99x 4.77x

36.17x 22.05x 9.25x 20.24x 16.62x

18 Days 31 Days 33 Days 55 Days 16 Days

41 Days 26 Days 35 Days 51 Days 15 Days

4.40% 4.74% 6.10% 3.40% 4.30% 5.50%

0.25x 0.23x 0.32x 0.12x 0.18x 0.26x

3.70x 3.84x 4.38x 3.36x 3.61x 4.16x

0.22x 0.23x 0.31x 0.15x 0.20x 0.27x

4.77x 4.88x 5.74x 4.43x 4.48x 4.99x

20.24x 20.86x 36.17x 9.25x 16.62x 22.05x

31 Days 31 Days 55 Days 16 Days 18 Days 33 Days

35 Days 34 Days 51 Days 15 Days 26 Days 41 Days

51 Days

45 Days

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Airbend Thermo-Molding, Inc. Booth Industries Inc. Firestorm Industries, Inc. Pied Piper Plastics Corporation Snart Enterprises, Inc.

Primary Operations

Cash Conversion Metrics

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Company Name

Valuation Multiples

NMF

*Alchemy Medical Products, Inc. was removed from the analysis because it is a contract manufacturing company serving only the pharmaceutical and biomedical industry, which enables it to operate at unusually high margins when compared to the rest of the industry

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Plastic Films Comparable Companies

Profitability

Plastic Films Plastic Films Plastic Films Plastic Films Plastic Films

$1,142.25 $687.10 $764.35 $923.65 $1,720.65

$143.60 $65.14 $91.32 $48.43 $136.79

Median Mean Max Min 25th Percentile 75th Percentile

$923.65 $1,047.60 $1,720.65 $687.10 $764.35 $1,142.25

Gross Profit Operating EBITDA Margin (LTM) Margin (LTM) Margin (LTM)

11.0% 11.0% 11.0% 7.6% 10.7%

3.6% 5.7% 5.7% 1.0% 3.5%

$91.32 $97.06 $143.60 $48.43 $65.14 $136.79

National Films, Inc.

Cash Conversion Metrics

EV/Norm Revenue

Ev/Norm EBITDA

EV / Revenue (LTM)

EV/EBITDA (LTM)

EV / FCF (LTM)

Cash Conversion Cycle (9 Month)

Cash Conversion Cycle (2014)

8.3% 9.3% 10.5% 5.1% 8.0%

0.55x 0.50x 0.65x 0.27x 0.46x

4.46x 5.30x 4.67x 5.32x 5.65x

0.58x 0.55x 0.65x 0.31x 0.45x

7.04x 5.94x 6.18x 6.16x 5.63x

19.65x 10.31x 13.48x 58.86x 17.06x

43 Days 37 Days 17 Days 49 Days 32 Days

39 Days 44 Days 24 Days 45 Days 34 Days

0.50x 0.48x 0.65x 0.27x 0.46x 0.55x

5.30x 5.08x 5.65x 4.46x 4.67x 5.32x

0.55x 0.51x 0.65x 0.31x 0.45x 0.58x

6.16x 6.19x 7.04x 5.63x 5.94x 6.18x

17.06x 23.87x 58.86x 10.31x 13.48x 19.65x

37 Days 36 Days 49 Days 17 Days 32 Days 43 Days

39 Days 37 Days 45 Days 24 Days 34 Days 44 Days

40 Days

35 Days

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Norm EBITDA

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Norm Revenue

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Factory Finess Holdings, Inc. Golden Gilder Company, Inc. Arrow Technologies Corporation Grodd Plastics, Inc. Thorn Packaging Co.

Primary Operations

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Company Name

Valuation Multiples

11.0% 10.3% 11.0% 7.6% 10.7% 11.0%

3.6% 3.9% 5.7% 1.0% 3.5% 5.7%

8.3% 8.2% 10.5% 5.1% 8.0% 9.3%

10.13%

3.64%

6.84%

*Mardon Malleable Corporation was removed from the analysis because it is under Chapter 11 Bankruptcy. As a result, we believe that this has hurt market sentiment and resulted in its current market value deviating from its true value.

Houlihan Lokey Financial Restructuring Group Case Competition

Risky Business


Precedent Transactions Analysis Relevant Transaction History - Molded Products ($ US mm) Buyer

Buyer Type

Bellevue Corp. Aurora AG CMP Packaging Services, Inc. Essen AG Offshore Manufacturing Co. Ltd. UCS Plastics Corporation Narcissus Capital Partners

Relevant Transaction History - Plastic Films Buyer

Strategic Strategic Financial Strategic Strategic Strategic Financial

58.0 527.0 126.0 51.9 148.0 35.9 103.0

Buyer Type

EV

Strategic Financial Strategic Strategic Financial Financial Strategic Financial Financial

167.0 189.0 89.0 513.0 97.4 189.0 287.0 187.0 12.0

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ISCC Plc. Atlas Capital Management, LP Columbus Paper Packaging Inc. Fenco, Inc. McKinley Management Partners Chutney Partners, LP Almere Group Holdings, Ltd. Franconia Partners The Slippery Rock Group, LLC

LTM Revenue

LTM EBITDA

311.0 1,986.0 458.0 278.0 263.2 189.0 428.0

($ US mm) LTM Revenue 294.0 297.0 114.0 972.0 176.0 304.0 521.0 124.0 87.0

4.7 85.4 24.1 10.3 20.5 8.1 18.2

LTM EBITDA 24.7 29.0 12.5 73.9 10.7 27.8 44.8 15.7 3.2

EV / Revenue 0.19x 0.27x 0.28x 0.19x 0.56x 0.19x 0.24x

EV/ EBITDA 12.4x 6.2x 5.2x 5.0x 7.2x 4.4x 5.7x

EV Multiples EV / EV/ EBITDA Revenue 0.57x NMF 0.64x 6.5x 0.78x 7.1x 0.53x 6.9x 0.55x 9.1x 0.62x 6.8x 0.55x 6.4x 1.51x 11.9x 0.14x 3.7x

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Announcement Announcement Seller Date Date August 4, 2015 Aug-15 Milanese Industries SPA May 20, 2015 May-15 Rhodes Plastic Packaging, LLC January 12, 2014 Jan-14 Midwest Extrusion, Inc. September 29, 2013 Sep-13 Colling Film Group LLC February 16, 2013 Feb-13 Foraker Packaging Inc. September 26, 2012 Sep-12 Cheshire Packaging Group Ltd. May 23, 2012 May-12 Specialty Films, Inc. May 14, 2009 May-09 Mahoosuc Specialty Films Co. January 13, 2008 Jan-08 Huron Molded Plastics, LLC

EV

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Announcement Announcement Seller Date Date July 17, 2015 Jul-15 EDG Group, Inc. November 27, 2014 Nov-14 Penobscot Corporation April 28, 2014 Apr-14 The Custom Molding Group, Inc. November 14, 2013 Nov-13 USA Custom Plastics, Inc. April 21, 2013 Apr-13 Helsinki Engineered Components Oy December 16, 2012 Dec-12 Southside Packaging, LLC January 9, 2012 Jan-12 Echo Plastics, Inc.

EV Multiples

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*Malibu Chemicals Corp and Jolly Products, Ltd. were excluded from the precedent transactions analysis due to dissimilar products and business operations from Star Labs, Inc.’s entities

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Relative Valuation Summary Public Comparables

25th Median 75th

0.18x 0.24x 0.26x

3.61x 3.70x 4.16x

Revenue Multiple

EBITDA multiple

53.24 70.57 76.81

46.96 48.14 54.12

25th Median 75th

0.45x 0.51x 0.56x

4.67x 5.30x 5.32x

$US mm

Revenue Multiple

EBITDA multiple

229.00 259.00 285.46

259.21 293.81 295.08

National Films, Inc. EV

Implied EV 25th

Sensitivity Analysis - Normalized EBITDA Multiple

Median 75th

Bell Injection Molders, Inc. EV

25th $282.24 $312.24 $338.70

Median $299.57 $329.56 $356.03

$341.95

75th $305.81 $335.81 $362.27

$US mm

National Films, Inc. EV

Implied EV 25th Median 75th

Bell Injection Molders, Inc. EV

25th $306.18 $340.77 $342.05

Median $307.35 $341.95 $343.22

75th $313.33 $347.93 $349.20

Normalized Revenue: 5 year Median Normalized EBITDA: 5 Year Median EBITDA Margin * LTM Revenue

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Precedent Transactions

Total Implied EV (EBITDA)

$329.56

Sensitivity Analysis - Normalized Revenue Multiple

National Films, Inc. EV/Revenue EV/EBITDA

Total Implied EV (Revenue)

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EV/Revenue EV/EBITDA

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Bell Injection Molders, Inc.

Total Implied EV

Houlihan Lokey Financial Restructuring Group Case Competition

$454.65

Risky Business


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Valuation Summary

Implied EV Range Implied Median EV

Houlihan Lokey Financial Restructuring Group Case Competition

$US 320mm -380mm $US 359.85 mm Risky Business


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Debt Capacity Analysis

Houlihan Lokey Financial Restructuring Group Case Competition

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Debt Capacity Analysis Interest Spreads

Airbend Thermo-Molding, Inc. Booth Industries Inc. Firestorm Industries, Inc. Pied Piper Plastics Corporation Snart Enterprises, Inc. Factory Finess Holdings, Inc. Golden Gilder Company, Inc. Arrow Technologies Corporation Grodd Plastics, Inc. Thorn Packaging Co.

Molding Molding Molding Molding Molding Plastic Films Plastic Films Plastic Films Plastic Films Plastic Films

2.65x 70.49

2015 EBITDA/Cash Interest

2015 (EBITDA CAPEX)/Cash Interest

9.00% 7.81% 8.61% 10.23% 9.98% 8.67% 9.49% 7.42% 7.79% 8.40%

3.30x 2.20x 2.00x 1.30x 2.10x 1.90x 1.80x 1.80x 1.90x 2.80x

3.70x 3.30x 3.00x 2.30x 3.20x 2.80x 2.50x 2.60x 2.70x 3.20x

4.20x 2.60x 1.00x 0.60x 1.70x 0.60x 0.70x 0.70x 0.70x 1.20x

7.20x 6.50x 5.50x 6.80x 5.70x 7.20x 7.10x 7.60x 7.60x 6.00x

1.90x 2.30x 4.40x 2.70x 2.60x 3.60x 5.10x 4.50x 1.80x 3.00x

2.00% 2.50% 2.80% 2.50% 3.38% 3.50%

2.75% 3.00% 3.37% 3.13% 3.65% 4.50%

7.42% 7.96% 8.74% 8.64% 9.37% 10.23%

1.30x 1.80x 2.11x 1.95x 2.18x 3.30x

2.30x 2.60x 2.93x 2.90x 3.20x 3.70x

0.60x 0.70x 1.40x 0.85x 1.58x 4.20x

5.50x 6.00x 6.72x 6.95x 7.20x 7.60x

1.80x 2.60x 3.19x 2.85x 4.20x 5.10x

As 2.20x 58.52

2.45x 65.17

Step 0.25x

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2.40x 63.84

2015 Total Debt/ Market Cap

3.00% 3.00% 4.00% 3.50% 2.75% 3.00% 3.00% 3.70% 3.25% 4.50%

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1.95x 51.87

LTM Total Debt/Multiples Sensitivity Total Debt/LTM EBITDA Total Debt ($US mm)

2015 Total Debt/LTM EBITDA

2.50% 2.00% 3.50% 2.50% 2.50% 2.50% 2.50% 3.50% 3.00% 3.50%

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1.70x 45.22

2015 Secured Debt/LTM EBITDA

Term Loan Debt Capacity - LTM EBITDA/Cash Interest VS Interest Spread on Term Loan

LTM Total Secured Debt/Multiples Sensitivity 1.45x 38.57

Interest Spread on Term Loan

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Minimum 25th Mean Median 75th Max

Total Secured Debt/LTM EBITDA Total Secured Debt ($US mm)

Interest spread on Revolver

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Primary Operations

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Leverage and Interest Coverage Weighted Average Interest Rate on Unsecured

2.90x 77.14

3.15x 83.79

3.40x 90.44

Step 0.25x

LTM EBITDA / Cash Interest

104.06 5.95x 6.45x 6.95x 7.45x 7.95x

2.13% 166.94 154.00 142.92 133.33 124.95

Step

0.50x

Interest Spread on Term Loan - LIBOR of 0.5529% 2.63% 3.13% 3.63% 140.68 121.55 107.01 129.77 112.13 98.71 120.44 104.06 91.61 112.35 97.08 85.46 105.29 90.97 80.09

4.13% 95.57 88.16 81.82 76.33 71.53

Step 0.50%

*Interest capacity was assumed to be 75% allocated to secured debt, 25% allocated to unsecured debt

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LTM EBITDA Multiple Analysis

Interest Coverage Analysis

3.83 3.125% 3.68% 104.06

All numbers in $ US mm

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Interest Capacity Interest Rate - Term Loan L + Interest Rate Spread Term Loan Debt Capacity

LTM EBITDA Multiples Possible Capital Structures Enterprise Value Secured Debt Equity Value

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51.87 25.27 77.14

Calculated Debt Capacity LTM Interest LTM EBITDA Current LTD Coverage (median) (median) 375.62 51.87 104.06 114.00 25.27 NMF 412.48 385.56 489.62 77.14 104.06

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Total Secured LTD Total Unsecured LTD Overlevered Amount Total LTD

25th 359.85 47.88 311.97

Median 359.85 51.87 308.0

75th 359.85 57.86 302.00

25th 359.85 90.97 268.88

Median 359.85 104.06 255.79

75th 359.85 124.95 234.90

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Secured Debt Capacity Unsecured Debt Capacity Total Debt

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Post – Financing Capital Structure

Average Secured LTD capacity

Houlihan Lokey Financial Restructuring Group Case Competition

77.97

LTM Interest Coverage Multiples Possible Capital Structures Enterprise Value Secured Debt Equity Value

Risky Business


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Restructuring

Houlihan Lokey Financial Restructuring Group Case Competition

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Exit Financing Key Assumptions

Priority and Claims Waterfall Claims Class Super Priorirty secured Claim

Applicable Claims

Parties Involved

DIP Financing

First Lien Facility lenders

10

Priority Secured Prepetition Claims

First Lien, Maestro First Lien

Banks, par funds and hedge funds

10

Secured Prepetition Claims

Second Lien

Par funds and hedge funds

15

Administrative Claims

Exit Financing Transaction Fees (1%)

Applicable Parties

Unsecured

9.5% 2030 Unsecured Bonds, 12% Bell Notes

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*Assumed to be 1% of transaction amount

$39.3 0.4 33.5 5.0 0.8 $78.97

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Uses $77.97 DIP/Revolver Balance 1.0 DIP/Revolver Unused Fee First Lien Term Loan Payment Minimum cash balance for operations Transaction Fess and Expenses* $78.97 Total

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Total

Priority

Widely held, Mr. Bell

Sources and Uses of Cash - 5/9/16 Sources Exit Financing Term Loan Initial Cash on Balance Sheet

Approximate Holders

• Amount of leverage available is dependent on median Debt/EBITDA multiples of peers • Substantive consolidation • Minimum $5mm cash balance for company to operate • Term Loan interest rate adheres to the median interest rate spread of peers (~3.13%) • $39.3mm DIP/Revolver balance with 150bps unused fee ($65mm commitment) • Administrative and professional bankruptcy fees are paid in normal course projections prior to exit • 1% Transaction fee and expenses assumed

Houlihan Lokey Financial Restructuring Group Case Competition

78.3%

21.7%

Risky Business


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Restructuring Transaction Recoveries Analysis

Restructuring Recoveries Analysis

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Recovery Method Claim Amount Cash Cash $39.3 $39.3 Cash $0.4 $0.4 Cash & Equity $100.0 $33.5 Equity $75.0 $0.0 Equity and extension of remaining debt $175.0 $0.0 Receive Nothing $100.0 $0.0 Receive Nothing $14.0 $0.0 Receive Nothing $0.0 $0.0 Total Amount 503.7 73.2

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Claims Class DIP/Revolver Paydown DIP/Revolver Unused Fee First Lien Term Loan Maestro 1st Lien Term Loan Second Lien Term Loan 9.5% 2030 Unsecured Bonds 12% Bell Notes Initial Equity Holders

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Priority "Carve Out" "Carve Out" Secured Secured Secured Unsecured Unsecured Equity

Dollar Recovery for old equity holders

Cash Recovery % Equity Value Allocation % Ownership 100.0% $0.0 0.0% 100.0% $0.0 0.0% 33.5% $66.5 23.6% 0.0% $75.0 26.6% 0.0% $140.4 49.8% 0.0% $0.0 0.0% 0.0% $0.0 0.0% 0.0% $0.0 0.0% New Equity Issuance 100.0% 281.88

$0.0

*Remaining of Second Lien Term Loan (34.6mm) will be absorbed into capital structure and paid off with 20% principal repayments every quarter until expiration *The Company exhibits adequate protection that puts the secured creditor in the same position had the Bankruptcy not been filed and can finance the debt remainder of $34.66 mm Houlihan Lokey Financial Restructuring Group Case Competition

Risky Business


Pro-forma Operating Model STAR LABS, Inc.

Proforma Operating Model 3Q '16

4Q '16

2H 2016

1Q '17

2Q '17

3Q '17

4Q '17

$1.7 4.9 0.0 0.0

$2.5 4.9 0.0 0.0

$4.3 19.9 0.0 0.0

$4.1 5.0 0.0 0.0

$4.3 5.2 0.0 0.0

$5.2 5.1 0.0 0.0

$6.0 5.1 0.0 0.0

2017

$20.1 20.3 0.0 0.0

2018

2019

$25.2 20.9 0.0 0.0

2020

$26.6 21.9 0.0 0.0

Operating Model Assumptions

2021

$29.9 22.1 0.0 0.0

$31.1 22.7 0.0 0.0

an ag em en t

Cash Flow Statement Operating Cash Flow Adjustments Net Income Depreciation (Gains) or Losses on Asset Sales PIK Interest

18.8 (4.8) 0.0 12.5 4.4 0.0

(3.3) (8.0) (1.5) 13.4 4.8 0.0

15.5 (12.7) (1.5) 25.9 9.2 0.0

(4.3) (5.9) 0.9 5.6 1.5 0.0

6.5 5.1 1.3 (0.8) (1.0) 0.0

0.0 0.5 0.9 (0.7) 0.4 0.0

(7.4) (5.3) (1.4) 8.4 2.3 0.0

(5.1) (5.6) 1.8 12.5 3.2 0.0

(3.9) (2.8) (0.7) 2.7 3.2 0.0

2.0 1.5 (0.8) (1.4) 3.5 0.0

(9.6) (6.6) (0.6) 6.2 3.5 0.0

(3.6) (2.6) (0.7) 2.4 3.7 0.0

37.6

12.9

50.5

7.0

20.6

11.3

7.7

46.6

43.9

52.1

43.6

51.6

Investing Activity Capital Expenditures Purchase of Assets Cash From Investing Activity

(4.4) 0.0 (4.4)

(5.4) 0.0 (5.4)

(17.8) 0.0 (9.8)

(5.4) 0.0 (5.4)

(4.9) 0.0 (4.9)

(4.9) 0.0 (4.9)

(5.4) 0.0 (5.4)

(20.6) 0.0 (20.6)

(20.9) 0.0 (20.9)

(20.7) 0.0 (20.7)

(21.5) 0.0 (21.5)

(22.4) 0.0 (22.4)

0.0 0.0 0.0 (100.0) (100.0) (75.0) (140.4) (14.0) (39.7) 0.0 78.0 0.0 281.9 114.0 0.0 4.8

0.0 0.0 0.0 0.0 0.0 0.0 (6.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (6.9)

0.0 0.0 0.0 (100.0) (100.0) (75.0) (147.3) (14.0) (39.7) 0.0 78.0 0.0 281.9 114.0 0.0 (2.1)

0.0 0.0 0.0 0.0 0.0 0.0 (6.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (6.9)

0.0 0.0 0.0 0.0 0.0 0.0 (6.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (6.9)

0.0 0.0 0.0 0.0 0.0 0.0 (6.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (6.9)

0.0 0.0 0.0 0.0 0.0 0.0 (6.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (6.9)

0.0 0.0 0.0 0.0 0.0 0.0 (27.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (27.7)

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

8.8 34.2 0.3 43.0

(0.5) 43.0 0.3 42.5

(4.6) 42.5 0.3 37.9

(4.6) 42.5 0.3 37.9

0.7 60.2 0.5 60.8

(42.5) 0.0 0.0 92.3

1.7 112.7 0.8 114.4

1.9 141.7 1.1 143.6

Total Cash Flows Beginning Cash Interest on Cash Balance Ending Cash

38.0 1.0 0.0 39.0

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Financing Activity Revolving Facility Molded Credit Facility Films Credit Facility 9.5% 2030 Unsecured Bonds 1st Lien Term Loan Maestro 1st Lien Term Loan 2nd Lien Term Loan 12% Bell Notes DIP Exit Revolver Exit Term Loan A - 1st Lien Dividends Equity Issuance Liabilities Subject to Compromise - LT Debt Extinguishment of Debt Cash from Financing Activity

tM

Accounts Receivable Inventory Other Current Assets Accounts Payable - Trade Accrued Liabilities Accrued Interest Professional Fee, Hold Back Cash From Operations

0.6 39.0 0.3 39.6

Houlihan Lokey Financial Restructuring Group Case Competition

0.6 39.0 0.3 39.6

(5.3) 39.6 0.3 34.2

• First Lien (Original and Maestro) notes have been paid off • $34.6mm of Second Lien Term Loan remains with interest rate of L+575bps • In addition, the Second Lien Term Loan principal will be repaid and fully paid off by original maturity date (August 31, 2017) • $77.97mm of Exit Term Loan A is assumed to have a interest rate of L+3.13%

• Minimum cash balance of $5mm is satisfied throughout the projection period • Star Labs has the ability to pay off Cash Interest with its strong cash flows and will remain profitable with its new capital structure

Risky Business


an ag em en t

Financial Restructuring Summary

21.7% 78.3%

tM

128.9%

Recovery Summary

First Lien Term Loan Maestro 1st Lien Term Loan

$33.5m Cash and $66.5mm Equity Stake $75mm Equity Stake (26.6%)

Second Lien Term Loan

$140.4mm Equity Stake (49.8%) and repayment of remainder by maturity date

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Prior to restructuring, Star Labs had exceptionally high debt levels and struggled to meet financial covenants Being at the low of the industry cycle exacerbated the constraints on cash flows further This Plan of Reorganization serves to help creditors maximize the value from the company upon emergence from Chapter 11 Bankruptcy • This encompasses successful recovery for secured creditors, but large impairments on unsecured lenders • Original equity holders will not get a recovery as well • We believe that this will be sufficient to garner the support of 2/3rd the amount and½ the number of creditors Post-restructuring, this target capital structure will strengthen Star Labs financial position and enable it to operate healthily

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Case Summary

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9.5% 2030 Unsecured Bonds 12% Bell Notes Initial Equity Holders

Houlihan Lokey Financial Restructuring Group Case Competition

Receive Nothing Receive Nothing Receive Nothing

Risky Business


an ag em en t tM se As Br

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Thank You Questions?

Houlihan Lokey Financial Restructuring Group Case Competition

Risky Business


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Appendix A – Pro-forma Income Statement

Houlihan Lokey Financial Restructuring Group Case Competition

Risky Business


Appendix B – Pro-forma Balance Sheet STAR LABS, Inc. 3Q '16 Balance Sheet Items Cash Accounts Receivable Inventory Other Current Assets Total Current Assets

2016 2H

1Q '17

2Q '17

Projected 3Q '17 4Q '17

2017

2018

2019

2020

2021

39.6 72.9 51.1 16.2 179.7

34.2 77.2 57.0 15.2 183.6

43.0 70.6 51.9 13.9 179.5

42.5 70.6 51.4 13.0 177.6

37.9 78.0 56.7 14.4 187.0

37.9 78.0 56.7 14.4 187.0

60.8 81.9 59.6 15.1 217.4

92.3 79.8 58.1 15.9 246.1

114.4 89.4 64.7 16.5 285.0

143.6 93.0 67.3 17.2 321.0

614.1 (198.8) 415.3

614.1 (198.8) 415.3

619.5 (203.8) 415.7

624.4 (209.0) 415.5

629.3 (214.0) 415.3

634.7 (219.1) 415.6

634.7 (219.1) 415.6

655.6 (240.0) 415.7

676.3 (261.9) 414.4

697.8 (284.0) 413.8

720.2 (306.7) 413.5

(61.2)

(61.2)

(61.2)

(61.2)

(61.2)

(61.2)

(61.2)

(61.2)

(61.2)

(61.2)

(61.2)

520.0

533.8

533.8

538.1

533.7

531.6

541.4

541.4

571.9

599.3

637.6

673.3

Accounts Payable - Trade Accrued Liabilities Accrued Professional Fees Accrued Interest Total Current Liabilities

27.3 11.4

40.7 16.2

40.7 16.2

46.4 17.7

45.5 16.6

44.8 17.1

53.2 19.4

53.2 19.4

55.9 22.6

54.5 26.0

60.7 29.5

63.1 33.2

38.6

56.9

56.9

64.0

62.2

61.9

72.6

72.6

78.5

80.5

90.2

96.3

Revolving Facility Molded Credit Facility Films Credit Facility First Lien Term Loan Maestro 1st Lien Term Loan Second Lien Term Loan 9.5% 2030 Unsecured Bonds 12% Bell Notes

0.0 0.0 0.0 0.0 0.0 34.6 0.0 0.0

0.0 0.0 0.0 0.0 0.0 27.7 0.0 0.0

0.0 0.0 0.0 0.0 0.0 27.7 0.0 0.0

0.0 0.0 0.0 0.0 0.0 20.8 0.0 0.0

0.0 0.0 0.0 0.0 0.0 13.8 0.0 0.0

0.0 0.0 0.0 0.0 0.0 6.9 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0 78.0 105.7 3.97% 0.773 6.6% 0.46 1.23 0.00

0.0 78.0 105.7 3.97% 3.1 6.6% 1.82 2.46 0.00

0.0 78.0 98.7 4.15% 0.913 6.8% 0.35 1.26 0.00

0.0 78.0 91.8 4.34% 0.913 7.0% 0.24 1.15 0.00

0.0 78.0 84.9 4.52% 0.913 7.1% 0.12 1.04 0.00

0.0 78.0 78.0 4.68% 0.913 7.3% 0.00 0.91 0.00

0.0 78.0 78.0 4.68% 3.7 7.3% 0.00 4.37 0.00

0.0 78.0 78.0 5.29% 4.1 7.9% 0.00 4.13 0.00

0.0 78.0 78.0 5.75% 4.5 8.4% 0.00 4.49 0.00

0.0 78.0 78.0 6.10% 4.8 8.7% 0.00 4.75 0.00

0.0 78.0 78.0 6.36% 5.0 9.0% 0.00 4.96 0.00

368.7

371.3

371.3

375.4

379.7

384.9

390.8

390.8

415.4

440.8

469.5

499.0

520.0 TRUE

533.8 TRUE

533.8 TRUE

538.1 TRUE

533.7 TRUE

531.6 TRUE

541.4 TRUE

541.4 TRUE

571.9 TRUE

599.3 TRUE

637.6 TRUE

673.3 TRUE

Total Assets

DIP 1st Lien Revolver Facility

0.0 0.0 78.0 112.6 3.78% 0.773 6.4% 0.46 1.23 0.39

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Exit Revolver Exit Term Loan A - 1st Lien Total Long Term debt Effective Interest Rate on Term Loan Cash Interest on Term Loan Effective Interest Rate on Remainder Tier 2 Cash Interest on Remainder Tier 2 Total Interest Unused DIP Fee

tM

Goodwill

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608.7 (193.8) 414.9 (227.926) (61.2)

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Property, Plant, & Equipment Less: Accumulated Depreciation Net Property, Plant, & Equipment

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39.6 72.9 51.1 16.2 179.7

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39.0 69.5 43.2 14.6 166.3

4Q '16

Stockholders' Equity Total Liabilities and Stockholders' Equity

Houlihan Lokey Financial Restructuring Group Case Competition

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