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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ..................... TO .....................
333-32041
COMMISSION FILE NUMBER: ................................................
PRECISE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 25-1205268
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
501 MOSSIDE BOULEVARD
NORTH VERSAILLES, PENNSYLVANIA 15137
(412) 823-2100
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 1998, the number of shares outstanding of the registrant's
Common Stock, no par value, was 1 share. There is no trading market for the
Common Stock. Accordingly, the aggregate market value of the Common Stock held
by non-affiliates of the registrant is not determinable. See Part II, Item 5 of
this Report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
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PAGE NUMBER
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REFERENCE
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PART I
ITEM 1. Business................................................................................ 3
ITEM 2. Properties.............................................................................. 12
ITEM 3. Legal Proceedings....................................................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders..................................... 12
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 13
ITEM 6. Selected Financial Data................................................................. 13
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 14
ITEM 8. Financial Statements and Supplementary Data............................................. 20
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 20
PART III
ITEM 10. Directors and Executive Officers of the Registrant...................................... 21
ITEM 11. Executive Compensation.................................................................. 22
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.......................... 24
ITEM 13. Certain Relationships and Related Transactions.......................................... 26
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 10-K....................... 28
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PART I
ITEM 1. BUSINESS
Precise Technology, Inc. ('Precise,' and together with its direct and
indirect subsidiaries, the 'Company,' unless the context otherwise requires), is
a leading full-service, custom injection molder of precision plastic products,
focusing on three broad markets: healthcare, packaging and consumer/industrial
products. These markets are characterized by high volume requirements, long
product life cycles, limited vulnerability to recessionary trends and relatively
low susceptibility to off-shore competition. The Company differentiates itself
by providing total project management, including value-added services, for the
manufacture of highly engineered, close tolerance products, such as disposable
medical devices, thin-wall consumer product containers and electrical
connectors. The Company currently serves a diverse base of original equipment
manufacturers ('OEMs'), including Fortune 500 companies such as Abbott
Laboratories ('Abbott Labs'), The Gillette Company ('Gillette') and The Procter
& Gamble Company ('Procter & Gamble'). The Company is the sole or primary source
supplier of the products that it manufactures for many of its customers.
The Company operates approximately 180 molding machines in ten
strategically located facilities throughout the eastern and midwestern United
States, three of which have advanced mold making capabilities. The Company is
capable of providing its customers with comprehensive custom manufacturing
services, including extensive product design and prototype development, mold
design and manufacturing, close tolerance injection molding and value-added
finishing services such as packaging, assembly and decoration. The Company's
technologically advanced, computer-aided manufacturing facilities and equipment
enable it to engineer custom solutions to technically demanding customer
requirements, which are generally characterized by close tolerances and high
speed, volume and durability parameters. The high level of automation in many of
the Company's manufacturing facilities minimizes both direct labor input and
scrap loss. The Company believes that its leading technical capabilities and
reputation for high quality products, on-time deliveries and reliability have
enabled it to both obtain new customers and further penetrate existing
customers.
In 1996, the Company acquired Tredegar Molded Products Company (the
'Tredegar Acquisition'), a full-service plastics injection molder supplying OEMs
primarily in the healthcare, packaging and consumer/industrial markets, and
Unity Mold Corporation (the 'Unity Acquisition'), a plastics injection molder
specializing in medical diagnostic products and precision valves. The Tredegar
Acquisition and the Unity Acquisition (the 'Acquisitions') more than tripled the
Company's net sales on a pro forma basis, making it one of the larger custom
injection molders in the United States. Management believes that the
Acquisitions also significantly enhanced the Company's prospects for future
growth by expanding its manufacturing capabilities, enlarging its customer base,
strengthening relationships with certain existing customers and broadening its
geographic presence. In addition, the Acquisitions provided the Company with
significant opportunities for economies of scale in raw material purchasing and
reductions in manufacturing and administrative costs.
Injection molding is one of the most widely used plastic processing methods
in the world. According to The Freedonia Group, Inc. ('The Freedonia Group'), an
independent market research firm, annual shipments of injection molded plastic
products have increased from approximately 8 billion pounds in 1987 to
approximately 12 billion pounds in 1996, and are expected to exceed 14 billion
pounds by the year 2001. This growth is driven by the relative design and
production versatility offered by injection molding versus other manufacturing
processes and the continued substitution of plastic for materials such as metal,
glass and paper. The Company believes that this substitution is primarily the
result of plastic's unique physical product attributes such as recyclability,
durability, cosmetic appeal, flexibility of form and cost and weight advantages.
COMPETITIVE STRENGTHS
Management believes that the Company is well positioned to capitalize on
the favorable trends in the plastics injection molding industry and to enhance
its position in its target markets. The following are, in management's view, the
Company's principal competitive strengths:
Full-service Capabilities. The Company offers comprehensive services
ranging from product design, product development and mold making through
molding, decorating and assembly. As one of a limited number of injection
molders in the United States capable of offering such comprehensive
services, management believes that the Company is well positioned to
benefit from the consolidation currently taking
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place in the injection molding industry and the trend among high volume
OEMs to increasingly rely upon custom injection molders for total project
management.
Advanced Manufacturing Capabilities. The Company uses
state-of-the-art computer-aided design/ computer-aided manufacturing
('CAD/CAM') technology in the design and manufacture of its molds and
subjects each mold to extensive testing to ensure that it meets high
quality standards. The Company has also made substantial investments in
advanced high speed molding machines and significantly expanded its use of
automation and robotics in its manufacturing and assembly operations. As a
result of its efforts, the Company has received numerous quality awards,
including Gillette's OmniMark Award, the Lexmark International Prestige
Supplier Award, the SC Johnson Partners in Quality Award and the bioMerieux
Vitek World Class Supplier Award. In addition, the Company has achieved
'ship-to-stock' status with many of its customers, whereby the Company's
products are not subject to quality inspections by such customers prior to
being stocked. Management believes that the Company's mold making
capabilities and the high quality of its molding have been integral in the
Company's strategy of focusing on highly engineered products.
Continuous Improvement. The Company has been successful in reducing
costs by improving manufacturing efficiency, introducing advanced molding
technology and realigning facilities and production to increase facility
utilization. In addition, as one of the largest manufacturers in the
plastics injection molding industry, the Company is able to realize
significant economies of scale in raw material purchasing.
Multiple Plant Locations. Management believes that the Company's ten
plants, located throughout the eastern and midwestern United States,
provide it with the opportunity to effectively compete for new product
contracts that require large volume runs and multiple distribution points.
The Company's multiple plant locations enable it to allocate production to
the facility best suited for a job in view of its relative capabilities and
proximity to the customer. As a result, the Company provides its customers
with a broad range of injection molding capabilities and better service
through improved responsiveness, timely delivery and reduced freight costs.
In addition, by operating numerous plants, the Company can mitigate
customer sourcing risks associated with single facility production.
BUSINESS STRATEGY
The Company's objective is to become the leading supplier of plastic molded
products to leading OEMs in the healthcare, packaging and consumer/industrial
markets. The key elements of the Company's business strategy to achieve this
objective are as follows:
Focus on Target Markets. The Company focuses its marketing efforts on
potential high margin accounts in the healthcare, packaging and
consumer/industrial markets. These markets are characterized by high volume
requirements, long product life cycles, limited vulnerability to
recessionary trends, and relatively low susceptibility to off-shore molding
competition. By focusing on high volume, long run manufacturing for
products in these markets, management believes that the Company will be
able to maximize its profitability and best utilize its resources.
Further Penetrate Existing Customer Base. Substantially all of the
Company's sales are to major consumer product and healthcare companies. In
most cases, the Company manufactures plastic products for specific
applications required by one or more divisions of a single customer. The
trend by OEMs to reduce their supplier base and outsource their injection
molding needs provides the Company with the opportunity to increase sales
to its existing customers and participate in their domestic and
international growth. The Company seeks to capitalize on these favorable
industry trends and growth opportunities by expanding its sales presence,
emphasizing its full-service capabilities and developing close working
relationships with its customers by improving communication and
coordination between the Company's marketing, product design and production
personnel and its customers' counterpart employees. The Company has
designated key account specialists for each of its largest customers whose
sole responsibility will be to serve the diverse injection molding needs of
that customer. By pursuing these and other strategies, management believes
that the Company can capitalize on its full-service capabilities and
customer relationships.
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Invest in Technology and Quality Improvements. The Company continues
to improve productivity through an on-going program of upgrading equipment
and facilities and investing in automation, robotics and other
technological improvements. Since 1991, the Company has made substantial
investments in new mold making equipment and injection molding machines
which have led to improved cycle times, lower operating expenses and higher
quality products. In addition, six of the Company's facilities are
currently ISO 9000 registered, and the Company is actively pursuing ISO
certification of all of its remaining facilities. Management believes
that by continuing to invest in new technology and focusing on quality,
the Company is well positioned to increase sales to existing customers,
develop new customer relationships and improve its profit margins through
increased operating efficiencies.
Reduce Costs and Increase Productivity. The Company focuses on
simultaneously reducing costs while meeting the high quality standards of
its customers. Each of the Company's facilities utilizes total quality
management techniques, including the use of statistical process control and
extensive employee involvement. The Company's employees receive in excess
of 30 hours of training each year, designed to increase productivity,
safety and manufacturing quality and to foster the concept of 'continuous
improvement.' Through an innovative Performance Sharing Program, the
Company's employees focus on cost of goods sold and receive incentives to
maximize gross margins by minimizing costs. Management also continues to
improve asset utilization and increase manufacturing productivity by
consolidating underperforming facilities and streamlining the Company's
workforce. These initiatives have resulted in an increase in the Company's
net sales per employee from $87,000 in 1991 to $110,000 in 1997.
Further Develop Partnerships with Key Customers. Management believes
that its partnerships enable suppliers and OEMs to focus on long-term
strategy and often result in faster product development, design
flexibility, lower costs and improved product quality. For example, the
Company's state-of-the-art Customer-Aligned-Production ('CAP') facility in
Newark, Delaware (the 'Delaware CAP Facility') is specifically designed to
serve the needs of Procter & Gamble and other customers in the thin-wall
packaging market segment. At this facility, using state-of-the-art molding
machines, highly engineered stack molds and high speed automation, the
Company currently is the sole source manufacturer of polypropylene
containers for Baby Fresh(TM) baby wipes for Procter & Gamble and
Softkins(TM) moist tissues for Kimberly-Clark Corporation
('Kimberly-Clark'). Because of its highly automated manufacturing process,
the Delaware CAP Facility's direct labor costs as a percentage of net sales
in 1997 were 1.7%, compared to what management believes to be an industry
average of approximately 10.0%. The Company intends to continue to pursue
CAP opportunities and similar partnerships with other customers.
Selectively Pursue Acquisition Opportunities. Strategic acquisitions
have been, and management believes will continue to be, an important
element in the Company's growth and in its efforts to capitalize on
favorable industry trends. The Company's recent acquisitions have expanded
its OEM customer base, complemented its existing technological and
manufacturing capabilities, presented substantial cost savings
opportunities and provided significant growth opportunities. The Company
will consider future acquisition opportunities that are attractively priced
and that it believes will strengthen its customer base, broaden its
geographic presence, enhance its production capabilities and/or provide
significant operating synergies.
INDUSTRY
Injection molding is one of the most widely used plastic processing methods
in the world due to the high-quality properties of the finished product and its
cost effectiveness. According to The Freedonia Group, annual shipments of
injection molded plastic products, which have increased from approximately 8
billion pounds in 1987 to approximately 12 billion pounds in 1996, are expected
to exceed 14 billion pounds by the year 2001. Despite the increased demand for
plastic injection molded products, the United States injection molding industry
remains highly fragmented. The United States injection molding industry is
currently comprised of over 7,000 molders, a substantial majority of which are
small operators or captive divisions of larger companies. The capabilities of
these molders vary widely, as do their end markets.
In recent years, plastic injection molders have benefited from technology
improvements that have enabled plastic to replace other materials (most notably
metal, glass and paper) in a variety of applications. Plastic has been
substituted for these materials primarily because of its disposability, ease of
manufacture, durability, aesthetic appeal, flexibility of form and weight.
Additionally, plastic often provides significant cost savings over
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other materials due to design and fabrication advantages. By successfully
substituting plastic for other materials, manufacturers can significantly reduce
the amount of necessary parts, manufacturing steps, labor costs, energy costs
and transportation expenses associated with producing their products. As a
result, management believes that substantial growth potential exists for
plastics through further materials substitution.
In addition to the growth projected for the plastics industry as a whole,
growth for larger injection molders such as the Company is driven by industry
consolidation and the trend among OEMs to outsource their injection molding
needs. Management believes that the consolidation of the highly fragmented
plastics injection molding industry has accelerated in recent years as a result
of customer preferences toward larger, full-service independent molders that are
able to provide total project management. As OEMs place increasing emphasis on
minimizing the 'time to market' for their new products and ensuring that their
requirements for production, quality and timely delivery are satisfied, they are
increasingly relying on one full-service supplier for each new product launch.
In many cases, the combination of increasingly complex applications for plastic
molded parts, the limited number of qualified molders and the desire of OEMs to
reduce sourcing costs has resulted in the creation of partnerships between OEMs
and molders who have proven their ability to provide effective total project
management, high quality products and timely delivery. These partnerships enable
OEMs and molders to focus on long-range strategy and often result in faster
product development, greater design flexibility, lower costs and improved
product quality.
The industry-wide trend toward OEM consolidation of suppliers has created
significant opportunities for injection molders such as the Company who possess
full-service capabilities. Given the capital investment required to successfully
compete as a full-service injection molder, management believes that an
increasingly limited number of injection molders will be capable of providing
the breadth of services increasingly being demanded by high volume OEMs.
Furthermore, management believes that the trend among OEMs to develop closer
relationships with injection molders mitigates the potential threat of foreign
competition. Inconsistent product quality, weak tooling capabilities and
significant distance from customers' manufacturing locations have traditionally
hindered foreign competitors from competing effectively for projects that
require full-service capabilities, outstanding quality and quick response time.
MARKETS AND PRODUCTS
The Company is a leading supplier of plastic injection molded products for
the healthcare, packaging and consumer/industrial markets. The Company is also
one of the largest mold makers in the United States producing a wide variety of
products. The following is a description of the principal markets served by the
Company as well as the products the Company produces for those markets.
HEALTHCARE
Plastic molded components for healthcare applications represented
approximately 17.4% of the Company's net sales in 1997. The Company's primary
healthcare products in 1997 included disposable diagnostic cards, syringes,
sample systems and surgical components. During 1997, the Company's four largest
healthcare market customers were Ethicon Endo-Surgery, a division of Johnson &
Johnson ('Ethicon'), Abbott Labs, bioMerieux Vitek and Dade, with bioMerieux
Vitek and Dade having entered into sole or primary source supply agreements with
the Company.
Demand for injection molded plastics within the healthcare market is driven
by both the aging population and the overall demand for new medical products. In
addition, heightened cost consciousness on the part of the United States
government and private insurers has increased demand for medical devices and
supplies that can reduce labor costs, improve productivity and/or facilitate
patient care in a more cost-effective manner. Plastics are being used more
widely in medical devices as customers increasingly recognize the value of
reduced breakage, the ability to manufacture consistent parts in a
cost-effective manner and the infection control benefits of disposable products.
PACKAGING
Packaging applications represented approximately 29.4% of the Company's net
sales in 1997. The Company's primary packaging products in 1997 included caps
and cap liners, closures and packaging for shaving cream, deodorant and feminine
products. During 1997, in the packaging market, the Company's four largest
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customers were Gillette, Carter Wallace, Inc., Chesebrough-Pond's USA Co., a
division of Unilever United States, Inc. ('Chesebrough-Pond's'), and Tambrands,
Inc., a division of Procter and Gamble.
The Company's packaging sales are primarily related to personal care and
household products. Given the intense competition among consumer products
companies, consumer goods marketers are increasingly focusing on packaging as a
relatively inexpensive method of creating brand differentiation. According to
The Freedonia Group, annual demand in the United States for injection molded
packaging is expected to increase by approximately 3.5% per year through 2001,
reaching nearly 3.8 billion pounds. As a result of the continuing substitution
of plastic for alternative materials, such as metal, glass and paper, plastic
packaging has been the fastest growing sector within the packaging industry. See
'--Industry.'
As a result of the Tredegar Acquisition, the Company acquired Tredegar's
existing line of proprietary packaging products for the private label market,
which includes lip balm assemblies and dropper caps. The Company believes that
the private label market offers attractive growth opportunities and will
consider developing additional proprietary products in the future.
CONSUMER/INDUSTRIAL
Consumer/industrial applications represented approximately 40.5% of the
Company's net sales in 1997. The Company's primary consumer/industrial products
in 1997 included printer components, electrical connectors and air freshener
components. During 1997, the Company's four largest consumer/industrial market
customers were Procter & Gamble, The Dial Corporation ('Dial'), Lexmark and AMP.
The Company has entered into sole or primary source supply agreements with
Procter & Gamble and Dial.
The consumer/industrial markets the Company serves primarily include
consumer containers and audio/electronics components. The consumer containers
market segment has been growing rapidly due in part to the conversion of many
products from metal, glass and paper to plastic. Plastic is the preferred
material for many applications due to its low cost, functional performance,
reusability and recyclability. Demand for plastic audio/electronic components is
driven by both the overall demand for audio/electronic products and the
percentage of those products composed of plastic. Strong projected growth for
increased use of plastics is fueled by long product life cycles and consumer
demand for more durable, lightweight and low-cost products. Based on information
contained in a recent report by The Freedonia Group, annual demand in the United
States for injection molded consumer/industrial products is expected to increase
approximately 3.2% per year through 2001, reaching nearly 5.0 billion pounds.
Annual demand in the United States for injection molded electrical components is
expected to increase by approximately 3.7% per year through 2001, reaching
nearly 1.6 billion pounds.
MOLD MAKING
Mold making operations represented approximately 12.6% of the Company's net
sales in 1997. Products produced with the molds manufactured by the Company in
1997 included deodorant dispensers, personal care products, medical disposables
and containers. The Company performs, or expects to perform, the injection
molding for a majority of the products for which it makes molds. Plastic
products for which the Company built the mold but which are not injection molded
by the Company are typically molded in-house by the customer. During 1997, the
Company's four largest mold making customers were Abbott Labs and bioMerieux
Vitek, Spalding and Seibe.
The Company operates three facilities with mold making capabilities,
including one of the largest facilities in the United States. These facilities
offer a full range of services, including conceptual part and mold design,
building and testing. Management views the Company's mold designing and building
operations not simply as supportive of its manufacturing business, but as an
independent profit center.
CUSTOMERS
Substantially all of the Company's sales are made to major OEMs in the
healthcare, packaging and consumer/industrial markets. During 1997, the Company
produced a wide variety of products for over 100 customers, with the Company's
ten largest customers accounting for approximately 59.9% of its net sales. The
Company's largest customers are Procter & Gamble, Gillette, Dial and Lexmark,
which represented approximately 21.2%, 7.7%, 5.2% and 5.1%, respectively, of the
Company's net sales in 1997.
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As one of a limited number of full-service injection molders increasingly
relied upon by OEMs to provide total project management, the Company seeks to
develop lasting relationships with its customers by working closely with them in
the early stages of product design and development. Management believes that the
Company's use of state-of-the-art CAD/CAM technology and robotics in mold making
and molding and its advanced facilities and equipment are integral to its
ability to meet customer requirements. While OEMs are generally reluctant to
change suppliers due to the high switching costs associated with reengineering,
requalifying and restarting production, the plastic injection molding industry
is highly competitive. Management believes that the Company's strong customer
base will provide it with the opportunity to anticipate and generate business
opportunities in the future.
SALES AND MARKETING
Substantially all of the Company's sales are made through the Company's
direct sales force which is located throughout the regions in which the Company
operates. The Company's sales and marketing team's are organized according to
the Company's target markets: healthcare, packaging and consumer/industrial.
Management believes this is the most efficient and effective way to develop and
maintain customer relationships, stay abreast of technical and other
developments that may result in changing customer or consumer preferences and
take advantage of new business opportunities. Sales and marketing personnel
emphasize the Company's full-service injection molding capabilities to customers
and focus on improving communication and coordination between the Company's
marketing, production and product design personnel and customers' counterpart
employees to develop customized products that enhance customer product
differentiation and improve functional performance. In addition, the Company has
designated key account specialists to serve its largest customers. By providing
dedicated support, the Company believes it can better serve these customers,
who, in many cases, have a variety of different product applications or
production requirements in multiple locations. The Company's marketing approach
will continue to remain focused on meeting the integrated needs of OEMs that
require full-service injection molding capabilities.
Customer service is also a critical component of the Company's marketing
efforts. The Company's customers operate high speed, high volume production
lines. In order to operate their production lines efficiently and avoid costly
line stoppages, customers rely on the Company's ability to provide reliable,
on-time delivery of high quality products. Customer service representatives are
located at each of the Company's facilities. Management believes that this
decentralized approach, which provides primary support closer to the customer
and the production process, is efficient and best suited to serve customer
needs. In addition, a small staff of customer service personnel is located at
Company headquarters to provide additional support.
MANUFACTURING AND OPERATIONS
The Company differentiates itself in the marketplace by being a
full-service injection molder capable of meeting the integrated needs of leading
OEMs from product design, development and mold making through molding,
decorating and assembly. Large OEMs increasingly rely on molders for total
project management to enhance quality, streamline production processes and to
ensure timely completion of programs.
MOLD MAKING AND TECHNICAL CAPABILITIES
The Company's three mold making facilities, which include one of the
largest facilities in the United States, offer a full range of services,
including conceptual part and mold design, building and testing. In addition,
the Company's mold manufacturing facilities provide mold and technical
consulting for troubleshooting, repair and preproduction evaluation of parts or
drawings. The Company's target markets, selected for their relatively long
product life cycles, demand durable molds which can be produced only with the
highest-quality mold making equipment. The Company's mold making and technical
operations serve this demand by combining craftsmanship with technologically
advanced computer-aided design and Computer Numerical Control ('CNC') machining.
As a result, the Company consistently delivers molds that are produced to the
proper specifications and delivered on-time. Management views the Company's mold
making operations not simply as supportive of its manufacturing business, but as
an independent profit center.
The mold making process is generally initiated with the Company's engineers
analyzing a customer's production requirements. Based on that analysis, a design
is created or optimized for the part in question. This design is downloaded into
the Company's computer database and serves as the foundation for the mold that
will
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be built utilizing state-of-the-art CAD/CAM technology. The Company's mold
design database is linked via a data communications network to the production
floor, which allows for CNC machining of mold bases and components directly from
the original design. The use of CNC technology and constant in-process
monitoring enhances the Company's ability to create high-tolerance molds and
deliver its molds on time. Moreover, after final assembly each of the Company's
molds is tested for performance.
The Company's St. Petersburg, Florida mold manufacturing facility is one of
the largest and most technologically advanced in the injection molding industry.
The facility employs mold makers with extensive experience in designing and
manufacturing high cavitation production molds and stack molds. The facility
contains advanced mold testing and design centers and has six injection molding
presses to provide qualification and testing of new molds. The Company's two
other mold manufacturing facilities, one of which is located at Company
headquarters near Pittsburgh, Pennsylvania and the other of which is located
outside Chicago, Illinois, are smaller than the St. Petersburg facility,
specialize in molds for smaller, close tolerance plastic parts and have product
design and testing capabilities.
INJECTION MOLDING
The Company manufactures its products using the plastic injection molding
process. The molding operation processes are comparable at each of the Company's
facilities. Raw material arrives at each facility where it is inventoried in
silos or boxes in the plant (depending upon the volume requirements). In
conventional and clean room molding, raw material in the form of pellets is
blended to ensure a homogenous mix, dried when necessary, and conveyed through a
pneumatically controlled material handling system to the molding presses. The
raw material enters the heating chamber where it is melted to a fluid state.
Coloring agents are added as appropriate and a reciprocating screw pushes the
fluid raw material at high pressure through a nozzle into a closed
temperature-controlled mold. At the end of each molding cycle (six to
twenty-eight seconds), the mold opens and the finished parts are ejected from
the mold into automated handling systems from which they are packaged for
further processing or shipment.
The Company operates approximately 180 conventional injection molding
presses ranging in capacity from 28 to 725 tons. These presses are located in
ten strategically located plants, allowing production to be allocated so that
the customer's needs are met in a cost-effective and timely manner. The Company
also operates seven proprietary closure presses and six presses used in the
qualification and testing of new molds. The Company's molding operations also
include white room and Class 100,000 clean room environments that offer a
controlled manufacturing environment for the molding of components used in
medical devices. The Company's molds and molding machines are continuously
monitored through process and manufacturing systems, which include a
preventative maintenance program. Molds in need of repair or scheduled for
maintenance are sent to the plant tool shop for cleaning and repairs. If
significant repairs are required, the molds are sent to one of the Company's
three mold making facilities.
In order to produce high quality products while containing costs, the
Company utilizes the most advanced molding capabilities available in the
industry. For example, the Company operates two-by-two 'stack' molds, which
allow twice the molding capacity of conventional molding systems. For customer
specific projects, the Company has developed engineering and automation systems
resulting in improved manufacturing efficiencies and lower costs. In addition to
its molding capabilities, the Company has significant experience with commodity
and engineered thermoplastic polymers.
Each of the Company's plants is managed by a local plant manager and is
treated as a profit center. The Company seeks to be a low-cost producer by using
high speed molding machines, modern multi-cavity hot runner, cold runner and
insulated runner molds and extensive material handling automation. Many of the
Company's products are packaged and delivered to OEMs in a manner which allows
them to be integrated directly into the production process, minimizing
inventories and fixed costs for both the Company and the customer. Each of the
Company's injection molding plants has complete tool maintenance capability to
support molding operations.
The Company's state-of-the-art Delaware CAP facility, demonstrates its
injection molding capabilities as well as its commitment to developing strategic
partnerships with key customers. This facility was specifically designed to
produce Baby Fresh(TM) polypropylene containers for Procter & Gamble and serve
other customers in the thin-wall packaging market. This facility using
state-of-the-art molding machines, highly engineered stack
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molds and high-speed automation is able to maintain short cycle times seven days
a week. This type of production demands high levels of accuracy and
repeatability. To maintain this level of shot-to-shot consistency, the Company
uses in-line process control software to monitor critical molding parameters.
The success of the Delaware CAP Facility is enhanced through computerization and
close customer communication. A bar-coding system automatically tracks
inventories and shipments and provides product traceability. The Company's
investment in highly automated equipment enables the entire facility to be
operated by only 24 employees, keeping labor costs to a minimum.
SECONDARY PROCESSES
The Company further differentiates itself in the market by offering a
variety of secondary processes at most plant facilities. These secondary
processes typically include assembly and the lining of caps, as well as other
services, including various decorating techniques, such as hot stamping, pad
printing and labeling.
QUALITY ASSURANCE PROGRAMS
A commitment to consistently producing high-quality products is critical to
the success of custom injection molders serving the Company's target markets.
With packaging playing an ever-increasing role in the functionality and
aesthetics of new product launches within the consumer products industry, OEMs
demand high quality products from their injection molding suppliers. Similarly,
given the applications for which their products are used, healthcare companies
demand the highest quality products from their suppliers.
In recognition of these customer demands, the Company has centered its
manufacturing philosophy on being the highest quality custom injection molder in
its targeted end markets. Each of the Company's facilities utilizes total
quality management techniques, including the use of statistical process control
and the extensive involvement of employees to increase productivity. As a
result, the Company is consistently recognized as a leading supplier of quality
injection molded parts to the majority of its key customers. The Company has
received numerous quality awards, including Gillette's OmniMark Award, the
Lexmark International Prestige Supplier Award, the SC Johnson Partner in Quality
Award and the bioMerieux Vitek World Class Supplier Award. 'Ship-to-stock'
status has been achieved with many customers, including the diagnostic division
of Abbott Labs, bioMerieux Vitek and Johnson & Johnson. In addition, six of the
Company's facilities are ISO 9000 registered, and the Company is actively
pursuing ISO certification in all of its remaining facilities. ISO 9000-series
registration certifies compliance by a company with a set of shipping, trading
and technology standards promulgated by the International Standardization
Organization.
COMPETITION
The Company faces intense competition throughout its product lines from
numerous competitors, a number of whom have greater financial resources than the
Company. Competitive factors include product quality, service and the ability to
supply products to customers in a timely manner. The Company faces competition
from well-established independent molders operating nationally, smaller
independent molders operating regionally and captive divisions of larger
companies. In most instances, small regional competitors lack the production and
technological capabilities to service national consumer product and healthcare
companies.
The plastic injection molding industry is highly fragmented. In all three
of its target markets the Company competes with Nypro, Inc., which is
headquartered in Clinton, Massachusetts, and The Tech Group, Inc. ('The Tech
Group'), which is headquartered in Scottsdale, Arizona. The Company competes
with Erie Plastics Corp. in both the consumer/industrial and the packaging
markets. In addition, in the healthcare market, the Company competes with Tenax
Corporation, a primary supplier of surgical devices, and Courtesy Corporation,
one of four major suppliers to Abbott Labs. In the packaging market, the Company
also competes with The West Company, Inc. and Plastek Industries Incorporated.
RAW MATERIALS AND SUPPLIERS
The principal raw materials utilized by the Company's molding processes are
commodity and engineered thermo-plastic polymers, primarily polypropylene,
polyethylene and polycarbonate. The selection of raw material is developed
between the customer and the Company and specified to provide optimum
processing, efficient handling, dimensional stability, end use and pricing
requirements. Raw materials are purchased either from distributors or directly
from polymer producers. Larger volumes are generally acquired from producers
while
10
<PAGE>
smaller volumes are secured from large distributors that carry a wide variety of
raw material types and manufacturers.
The Company's purchasing strategy is to deal with high quality, dependable
suppliers. The Company's largest resin suppliers in 1997 were Huntsman and
General Polymers, two of the largest plastic resin manufacturers/distributors in
North America. In an effort to improve quality and reduce costs, the Company has
recently implemented a 'preferred supplier' program which requires the Company's
suppliers to adhere to strict performance criteria, including satisfaction of
high quality standards, commitment to continuous improvement and participation
in the Company's quality assurance and cost improvement initiatives. The
'preferred supplier' program also requires supply agreements to incorporate
transactional reduction initiatives and include extended and/or discounted
payment terms, performance rebates and price protection provisions with respect
to commodities that can be effected by changing market conditions. The Company
has agreements in place with its primary suppliers pursuant to the program and
will generally require that its other suppliers achieve 'preferred supplier'
status as a condition to future orders.
The Company does not anticipate having any material difficulties obtaining
raw materials in the foreseeable future. However, over the past four years, the
raw material market has been volatile due to increased demand and irregular
producer capacity. With respect to raw material pricing, the Company has
experienced price fluctuations comparable to industry trends over the last
18 months. Pursuant to the terms of multi-year supply agreements and purchase
orders, the Company historically has had the ability to pass through resin price
increases. The Company does not otherwise hedge its exposure to increases in raw
material prices.
REGULATION AND LEGISLATION
The past and present operations of the Company, including its past and
present ownership of real property, 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 substantial 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.
Sampling in 1995 at Tredegar's South Grafton, Massachusetts facility
revealed the presence of contaminants in the soil and groundwater at the
facility. The concentration of certain substances in the soil exceeded minimum
reportable concentrations under Massachusetts environmental regulations; none of
the substances detected in groundwater exceeded minimum reportable
concentrations. In connection with the Tredegar Acquisition, the seller agreed,
at its cost, to determine the extent of the onsite and off-site contamination
resulting from these reportable releases and to perform the clean-up activities
necessary to achieve a permanent remediation under the applicable Massachusetts
regulations. In December 1996, the seller's consultant issued its final report,
which concluded that a condition of 'no significant risk' to safety, health,
public welfare or the environment had been achieved by remediation activities at
the site and stated that no further response actions were recommended for the
site. Remediation of the South Grafton site in accordance with the Massachusetts
program, however, will not necessarily ensure that the Company might not be
subject to further state or federal cleanup orders with respect to the site or
claims by adjacent landowners and/or other third parties allegedly impacted by
releases at the site, and no assurance can be given that the Company will not
incur or elect to assume any liabilities for such remediation as a result of
subsequent negotiations, by operation of law or otherwise.
The operations at the Company's facilities require permits and approvals
from certain federal, state and local authorities. In addition, the Company's
operations are heavily dependent upon its continued ability, under applicable
laws, regulations, policies, permits, licenses or contractual arrangements, to
operate its facilities, and otherwise to conduct its operations. The Company
believes it has all permits, licenses and approvals from governmental
authorities material to the operation of the facilities as currently configured.
In addition, the Company has not received any notice of material non-compliance
with permits, licenses or approvals necessary for the operation of its
properties. However, there can be no assurance that new applications of existing
laws, regulations and policies, or changes in such laws, regulations and
policies will not occur in a manner that could have such an effect, or that
important permits, licenses or agreements will not be canceled, non-renewed, or
renewed on terms materially less favorable to the Company. Although the Company
has no reason to believe that
11
<PAGE>
it will not be successful in implementing its operations and development plans,
no assurance can be given that necessary permits and approvals will be obtained.
The plastics industry in general, and the Company in particular, is also
subject to existing and potential 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 on the use of plastic products. In
addition, various consumer and special interest groups have lobbied from time to
time for the implementation of these and other similar measures. The principal
resins used in the Company's products are recyclable, and, accordingly, the
legislation promulgated to date and such consumer interest group initiatives to
date have not had a material adverse effect on the Company. 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.
EMPLOYEES
As of December 31, 1997, the Company employed 827 individuals, of which 182
were salaried and 645 were hourly. Approximately 42 employees at the Company's
Pittsburgh, Pennsylvania facility, or 5% of the Company's total employees, are
members of a union and are covered by a collective bargaining agreement which
expired in February 1998. The Company is currently in negotiations with the
union, however, no assurances can be given as to the effect the negotiations
will have on the Company's results of operations. The Company believes that its
relationship with its employees is generally good.
ITEM 2. PROPERTIES
The Company operates ten facilities located in the eastern and midwestern
United States. Management believes that these facilities are adequate for its
present needs. A summary of the Company's facilities is presented in the chart
below.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE OWNERSHIP MARKETS SERVED
- ----------------------------------------- -------------- --------- -----------------------------------
<S> <C> <C> <C>
North Versailles (Pittsburgh), PA .......
(Headquarters) 70,000 Owned Mold making, Healthcare, Packaging
West Lafayette, IN....................... 35,000 Owned Healthcare, Consumer/Industrial
Newark, DE............................... 51,000 Leased Packaging
Des Plaines, IL.......................... 30,000 * Mold making, Healthcare,
Consumer/Industrial
Excelsior Springs, MO.................... 70,000 Owned Packaging, Consumer/Industrial
South Grafton, MA........................ 127,000 * Packaging, Consumer/Industrial
Holden, MA............................... 35,000 Leased Consumer/Industrial
St. Petersburg, FL....................... 81,000 Owned Packaging, Consumer/Industrial
St. Petersburg, FL....................... 55,000 Owned Mold making
State College, PA........................ 31,000 Leased Healthcare, Consumer/Industrial
</TABLE>
- ------------------
* This facility is partially owned and partially leased by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company does not believe that it or any of its facilities are involved
in any litigation that will, individually or in the aggregate, have a material
adverse effect on its financial condition or future results of operations. The
Company maintains liability insurance that the Company considers adequate to
insure claims related to usual and customary risks associated with the operation
of its facilities.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the forth
quarter of 1997.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established trading market for any class of equity securities
of Company.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated
financial data of the Company for the five-year period ended December 31, 1997.
The selected historical consolidated financial data for the five-year period
ended December 31, 1997 were derived from audited consolidated financial
statements of the Company. The audited consolidated financial statements of the
Company for each of the years in the three-year period ended December 31, 1997
are included elsewhere in this Document. The selected historical consolidated
financial data for the years ended December 31, 1994, and 1993 were derived from
audited consolidated financial statements of the Company that are not included
herein. The following table 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, and the accompanying notes
thereto, included elsewhere in this Document.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................................. $24,161 $33,157 $33,542 $93,289 $100,737
Cost of sales............................................. 19,536 26,807 25,877 76,477 82,732
------- ------- ------- ------- --------
Gross profit.............................................. 4,625 6,350 7,665 16,812 18,005
Selling, general and administrative....................... 3,373 3,916 4,454 7,262 8,980
Plant closure costs....................................... -- -- -- 671 69
Amortization of intangible assets......................... -- 26 37 1,042 1,224
------- ------- ------- ------- --------
Operating income.......................................... 1,252 2,408 3,174 7,837 7,732
Interest expense.......................................... 706 956 810 6,131 8,771
Other (income) expense.................................... 59 (72) 148 (25) 873(2)
------- ------- ------- ------- --------
Income (loss) before income taxes and extraordinary
item.................................................... 487 1,524 2,216 1,731 (1,912)
Provision for income taxes................................ 66 574 941 1,265 228
------- ------- ------- ------- --------
Net income (loss) before extraordinary item............... 421 950 1,275 466 (2,140)
Extraordinary item, net of tax............................ -- -- -- -- (4,841)(3)
------- ------- ------- ------- --------
Net income (loss)......................................... $ 421 $ 950 $ 1,275 $ 466 $ (6,981)
------- ------- ------- ------- --------
------- ------- ------- ------- --------
CASH FLOW DATA:
Net cash provided by operating activities................. $ 1,463 $ 1,327 $ 3,170 $ 9,602 $ 6,464
Net cash used in investing activities (excluding
Acquisitions) (4)....................................... (309) (1,968) (998) (1,829) (3,490)
Net cash provided by (used in) financing activities....... (1,161) 650 (2,202) 57,313 (3,725)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................. $15,412 $20,358 $18,863 $99,059 $ 93,639
Long-term debt, including current maturities.............. 9,277 9,164 7,538 64,512 92,752
Redeemable preferred stock................................ -- -- -- 8,250 --
Total stockholder's equity (deficit)...................... 295 4,395 5,400 6,953 (10,361)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996(1) 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Depreciation and amortization............................. 644 1,062 1,446 5,353 6,716
Capital expenditures(5)................................... 2,445 4,403 1,582 6,376 4,950
Ratio of earnings to fixed charges(6)..................... 1.6x 2.4x 3.4x 1.3x --
</TABLE>
- ------------------
(1) The statement of income data, cash flow and other financial data for 1996
reflect the results of operations of Unity and Tredegar since they were
acquired by the Company on January 25, 1996 and March 29, 1996,
respectively.
(2) Includes (i) a non-recurring charge of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore and (ii) a
$300,000 charge representing legal fees paid to the law firm of Michael D.
Schenker Co., LPA, whose principal is an officer of Mentmore. Both charges
were related to the Refinancing Transactions.
(3) The Company recorded an extraordinary loss of $4.8 million, net of tax
benefits, for the year ended December 31, 1997, due to the early
extinguishment of indebtedness resulting from the repayment of the Retired
Notes and the termination of the Prior Credit Agreement in connection with
the Refinancing Transactions.
(4) Net cash in the Unity Acquisition was $3,308,000 and net cash used in the
Tredegar Acquisition was $60,493,000.
(5) Includes capital expenditures financed through capital leases of $1,896,000
in 1993, $2,328,000 in 1994, $536,000 in 1995, $4,201,000 in 1996 and
$4,810,000 in 1997 respectively.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing costs, whether expensed or
capitalized, plus the portion of operating lease expense attributable to
interest. For the year ended December 31, 1997, the Company's earnings were
inadequate to cover fixed charges by $ 2,081,000. Adjusted to eliminate
non-cash charges of depreciation and amortization of $6,716,000 for the year
ended December 31, 1997, such earnings would have exceeded fixed charges by
$ 4,635,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
The Company is a leading full-service, custom injection molder of precision
plastic products, focusing on three broad markets: healthcare, packaging and
consumer/industrial products. The Company is capable of providing its customers
with comprehensive custom manufacturing services, including extensive product
design and prototype development, mold design and manufacturing, close tolerance
injection molding and value-added finishing services such as packaging, assembly
and decoration.
In January and March of 1996, the Company completed the acquisitions of
Unity Mold Corporation ('Unity') and Tredegar Molded Products Company
('Tredegar'), respectively, more than tripling the Company's net sales on a pro
forma basis. Management believes that the Acquisitions significantly enhanced
the Company's prospects for future growth by expanding its manufacturing
capabilities, enlarging its customer base, strengthening its relationships with
certain existing customers and broadening its geographic presence.
14
<PAGE>
The Company experienced an 8.0% increase in net sales during the year ended
December 31, 1997, compared to the year ended December 31, 1996. The increase in
net sales from $93.3 million in 1996 to $100.7 million in 1997 was primarily due
to the inclusion of a full year of operations at the Tredegar facilities in
1997, compared to the inclusion of only nine months of operations at the
Tredegar facilities in 1996. When compared to the 1996 net sales on a pro forma
basis, net sales in 1997 decreased by $13.5 million or 11.8%. Management
believes that this decrease was due in part to the prolonged and well publicized
sale of Tredegar which created customer uncertainty in the period prior to the
Tredegar Acquisition, resulting in fewer new program awards in late 1995 and
throughout 1996 which had an impact on 1997. In addition, the Company has also
experienced delays in certain molding and mold making programs, lower than
anticipated volume requirements of certain customers' end-product lines due to
an unsuccessful product launch and product line maturity, customer insourcing,
the loss of a molding program to a competitor with a closer customer
'ship-to-point', and the discontinuance of a low margin proprietary
manufacturing process. These factors impacted sales in 1997 and will continue to
have an impact on sales in the first half of 1998. Management believes and
expects that the factors described above are temporary and that most program
delays will be remedied.
Since the Tredegar Acquisition, the Company's management has focused on
reorganizing and strengthening its sales and marketing efforts to obtain new
business. The Company expects to begin to realize the benefits of these efforts
in the second half of 1998.
Operating income for the year ended December 31, 1997 decreased from $7.8
million, to $7.7 million, or 1.3%, compared to the operating income for fiscal
1996. This decrease resulted primarily from higher selling, general and
administrative and amortization costs which was partially offset by the higher
sales volume.
The Company's operating data for fiscal years ended December 31, 1995, 1996
and 1997 are set forth below as percentages of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................................................... 100.0% 100.0% 100.0%
Cost of sales.................................................. 77.1 82.0 82.1
----- ----- -----
Gross profit................................................... 22.9 18.0 17.9
Selling, general and administrative............................ 13.3 7.8 8.9
Plant closure costs............................................ 0.0 0.7 0.1
Amortization of intangible assets.............................. 0.1 1.1 1.2
----- ----- -----
Operating income............................................... 9.5 8.4 7.7
Interest expense............................................... 2.5 6.5 8.7
Other (income) expense......................................... 0.4 0.0 0.9
----- ----- -----
Income (loss) before income taxes and extraordinary item....... 6.6 1.9 (1.9)
Provision for income taxes..................................... 2.8 1.4 0.2
----- ----- -----
Net income (loss) before extraordinary item.................... 3.8 0.5 (2.1)
Extraordinary item, net of tax................................. 0.0 0.0 (4.8)
----- ----- -----
Net income (loss).............................................. 3.8% 0.5% (6.9)%
----- ----- -----
----- ----- -----
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. The Company's net sales increased to $100.7 million for the
year ended December 31, 1997, an increase of $7.4 million, or 8.0%, over the
year ended December 31, 1996. The primary reason for the increase is due to a
full year contribution from the Tredegar facilities in 1997 as compared to nine
months of contribution in 1996. 1997 sales were lower than comparable 1996
sales due to delays in certain molding and mold making programs, customer
insourcing, the loss of a molding program to a competitor with a closer customer
'ship-to' point and discontinuance of a low margin, proprietary manufacturing
process. See "--Overview" above.
15
<PAGE>
Gross profit. The Company's gross profit increased to $18.0 million for
the year ended December 31, 1997, an increase of $1.2 million, or 7.1%, over the
year ended December 31, 1996. The increase in gross profit was primarily
attributable to higher net sales volume resulting from the Tredegar Acquisition.
Gross profit margin declined to 17.9% for the year ended December 31, 1997 from
18.0% in the year ended December 31, 1996.
Selling, general and administration. Selling, general and administrative
expenses increased to $9.0 million for the year ended December 31, 1997, an
increase of $1.7 million, or 23.7%, over the year ended December 31, 1996. The
increase in selling, general and administrative expenses was primarily
attributable to the addition of six salespersons and certain costs related to
the implementation of the new Enterprise Resource Planning System. See "--Year
2000 Disclosure."
Amortization. The Company's amortization of intangible assets increased to
$1.2 million for the year ended December 31, 1997 from $1.0 million in the year
ended December 31, 1996. This increase resulted primarily from a full year of
amortization in 1997 compared to nine months of operations in 1996.
Operating income. Operating income decreased to $7.7 million for the year
ended December 31, 1997, from $7.8 million for the year ended December 31, 1996,
representing a decrease of 1.3%. Operating income as a percentage of net sales
declined to 7.7% for the year ended December 31, 1997 from 8.4% in the year
ended December 31, 1996, due primarily to higher amortization and selling,
general and administrative costs.
Interest expense. Interest expense increased to $8.8 million for the year
ended December 31, 1997 from $6.1 million in the year ended December 31, 1996,
due primarily to the Refinancing Transactions.
Other expenses/(income). Other expenses increased to $874,000 for the year
ended December 31, 1997 from ($25,000) in the year ended December 31, 1996, due
primarily to (i) non-recurring charges of approximately $555,000 representing
financial advisory fees and out-of-pocket expenses paid to Mentmore Holdings
Corporation ('Mentmore') and (ii) $300,000 of legal fees paid to the law firm of
Michael D. Schenker Co. LPA, whose principal is an officer of Mentmore. Both of
these charges were related to the Initial Offering, the application of the net
proceeds therefrom, the consummation of the New Credit Agreement and the
incurrence of $8.2 million of indebtedness thereunder upon the closing of the
Initial Offering (collectively, the 'Refinancing Transactions').
Provision for income tax. The Company's effective tax rates differed from
the applicable statutory rates for the years ended December 31, 1996 and 1997
primarily due to nondeductible goodwill amortization.
Extraordinary item. The Company recorded an extraordinary loss of $4.8
million, net of tax benefits, for the year ended December 31, 1997, due to the
early extinguishment of indebtedness resulting from the repayment of the
Company's 12.25% Senior Subordinated Notes due 2006 (the 'Retired Notes') and
the termination of that certain Credit Agreement dated as of March 28, 1996 (the
'Prior Credit Agreement') among Parent, Precise and the lenders named therein in
connection with the Refinancing Transactions.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales. The Company's net sales increased to $93.3 million in 1996, an
increase of $59.8 million, or 178.1%, over 1995. The increase in net sales was
primarily attributable to the Company's January 25, 1996 acquisition of Unity
and March 29, 1996 acquisition of Tredegar. Unity and Tredegar generated net
sales of approximately $4.9 million and $58.5 million, respectively, after they
were acquired by the Company. Excluding the net sales of Unity and Tredegar, the
Company's net sales totaled approximately $29.9 million, a decrease of $3.6
million from 1995. This decrease was primarily attributable to lower net sales
of thin-wall consumer product containers for Baby Fresh(TM) baby wipes resulting
from marketing discontinuities caused by the merger of Scott Paper Company with
Kimberly-Clark and the subsequent sale by Kimberly-Clark of the Baby Fresh(TM)
product line to Procter & Gamble. Also contributing to the decline in net sales
was a reduction in net sales to a customer which moved its injection molding to
another molder located near its largest distribution center.
Gross profit. The Company's gross profit increased to $16.8 million in
1996, an increase of $9.1 million, or 119.3%, over fiscal year 1995. The
increase in gross profit was attributable to higher net sales volume resulting
from the Acquisitions. Gross profit margin declined to 18.0% in 1996 from 22.9%
in the prior year. The
16
<PAGE>
decrease in gross profit margin was primarily attributable to the Acquisitions,
as Unity and Tredegar had historically generated lower gross profit margins than
the Company.
Selling, general and administrative. Selling, general and administrative
expenses increased to $7.3 million in 1996, an increase of $2.8 million, or
63.0%, from 1995. The increase in selling, general and administrative expense
was due primarily to incremental selling, general and administrative expenses
related to the Acquisitions and an increase in management fees. Selling, general
and administrative expense as a percentage of net sales decreased to 7.8% in
1996 from 13.3% in 1995. This improvement was primarily attributable to the
consolidation of accounting, purchasing and other administrative functions
related to the Acquisitions.
Plant closure costs. In September 1996, the Company closed its Graham,
North Carolina manufacturing facility, which was acquired in the Tredegar
Acquisition. In December 1996, the Company decided to close its Rochester, New
York manufacturing facility, which was sold in May 1997. The Company recorded
plant closing costs in 1996 of $671,000. These costs include $110,000 of
expenses associated with the relocation of machinery and equipment from the
Graham facility to the Company's other facilities, $260,000 of expenses
associated with employee termination benefits which were accrued in connection
with the decision to close the Rochester facility, and an impairment loss of
$301,000 which represents the difference between the net book value of the
assets to be sold at the Rochester facility and the offer price for those assets
of $900,000.
Amortization. The Company's amortization of intangible assets increased to
$1.0 million in 1996 from $37,000 in 1995 due primarily to the amortization of
goodwill and non-compete agreements associated with the Acquisitions.
Operating income. Operating income increased to $7.8 million in 1996, an
increase of $4.6 million, or 143.8%, over 1995. Operating income as a percentage
of net sales declined to 8.4% in 1996 from 9.5% in the prior year due primarily
to the lower gross profit margin, the increase in amortization of intangible
assets associated with the Acquisitions and expenses associated with the closure
of the Graham and the decision to close the Rochester manufacturing facilities.
Interest expense. Interest expense increased to $6.1 million in 1996 from
$810,000 in 1995 due primarily to interest expense on indebtedness incurred to
finance the Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a $75.0 million offering of senior subordinated notes
due 2007 in June 1997 (the "Offering") and used the proceeds in part to repay
indebtedness incurred in connection with the Tredegar Acquisition. In connection
with the Offering, the Company entered into a Credit Agreement dated as of June
13, 1997, among Precise Holding Corporation, Precise Technology, Inc., the
subsidiary guarantors party thereto, the lenders party thereto and Fleet
National Bank, as Agent and Issuing Bank (the "New Credit Agreement"). The
Offering, the application of the net proceeds therefrom, the consummation of the
New Credit Agreement and the other transactions entered into in connection
therewith are hereinafter collectively referred to as the "Refinancing
Transactions."
The New Credit Agreement provides for revolving loans to, and the issuance
of letters of credit on behalf of Precise, in an aggregate amount not to exceed
$30.0 million, of which approximately $8.5 million was outstanding on December
31, 1997. The New Credit Agreement matures in 2002, and contains certain
covenants customary for a financing of this nature. The New Credit Agreement
requires prepayments and concurrent reductions of the total commitments
thereunder in the amount of certain portions of the net proceeds from certain
asset sales, capital contributions or issuances of debt or equity.
The Company generated cash flows from operations totaling $3.2 million,
$9.6 million and $6.5 million in 1995, 1996 and 1997, respectively. The decrease
in cash flows from operations during the year ended December 31, 1997 compared
to the year ended December 31, 1996, resulted primarily from the lower sales
volume. Cash flows from operations were negatively impacted during 1996 as a
result of costs associated with the closure of the Company's plant in Graham,
North Carolina. During 1996, $0.5 million was expended to satisfy the cash
requirements for employee termination benefits, non-cancelable operating lease
accruals, equipment relocation costs and other costs associated with the closure
of this facility. As of December 31, 1997, the balance of costs associated with
plant closures, which have been accrued, are expected to require cash payouts of
approximately $400,000 through March 2000.
The Company's cash flows used in investing activities totaled $1.0 million,
$65.6 million and $3.5 million, excluding capital lease agreements for equipment
totaling $0.5 million, $4.2 million and $4.8 million in 1995, 1996 and 1997,
respectively. During 1996, the Company effected a replacement program for
molding machines in its Pittsburgh plant which involved capital lease agreements
for 17 machines totaling $2.8 million.
17
<PAGE>
Additionally, $63.8 million was attributed to the net cash used in the
Acquisitions during the first quarter of 1996. During 1997, the Company expended
$4.9 million on cash capital expenditures which were partially offset by
proceeds received from the sale of its Rochester, New York facility in the
amount of $1.3 million, which proceeds were subsequently used to repay
indebtedness outstanding under the Prior Credit Agreement.
The Company's cash flows (used in) provided by financing activities totaled
$(2.2) million, $57.3 million and $3.7 million in 1995, 1996 and 1997,
respectively. During 1995, cash flows were used to repay indebtedness. During
1996, cash financing activities for the Tredegar Acquisition, as described
above, contributed significantly to resulting cash provided. During 1997, the
Refinancing Transactions contributed to the cash used in financing activities.
Since the consummation of the Refinancing Transactions, the Company's
liquidity requirements have consisted primarily of capital expenditures,
required debt service under the Notes, the New Credit Agreement and various
capital lease obligations and working capital needs. The Company estimates that
its cash requirements to service debt will total $3.4 million and $2.7 million
in each of the next two fiscal years, respectively. The Company estimates that
its capital expenditures during 1998 will total $3.8 million, of which
approximately $1.3 million is expected to be in the form of capital leases.
Included in the amount of total projected capital expenditures for 1998 are $1.4
million of expenditures for building improvements, molding presses and ancillary
equipment for a significant new program that began production in December 1997.
Equipment refurbishment programs for 1998, which mainly relate to Tredegar
plants, are expected to cost approximately $0.9 million. The Company is in a
capital-intensive business and will have significant ongoing requirements for
capital which management believes will be satisfied through cash flow from
operations, borrowing under the New Credit Agreement and capital leases.
Management believes that due to the capital expenditures anticipated for 1998,
the Company will be required to incur additional indebtedness under the New
Credit Agreement or through capital leases. However, certain equipment
refurbishment programs could be delayed, if necessary. The New Credit Agreement
and the Indenture place significant restrictions on the Company's ability to,
among other things, incur additional indebtedness, grant liens or sell assets.
Capital leases are used extensively by the Company to finance new molding
presses and certain ancillary equipment. Capital lease obligations totaled $8.9
million as of December 31, 1997, and current maturities relating to these
obligations totaled $3.2 million.
Management believes that the Company's cash flow from operations, together
with borrowings under the New Credit Agreement and capital leases, provide it
with sufficient liquidity necessary to fund capital improvements, service
indebtedness and meet working capital requirements for the Company's existing
operations. The Company is highly leveraged and, as a result, funds available
for working capital, capital expenditures, acquisitions and general corporate
purposes may be limited or unavailable in the event the Company does not
generate cash flow at or above expected levels, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
YEAR 2000 DISCLOSURE
The Company's management has begun a program to prepare the Company's
computer systems and related applications for the year 2000. The Company
believes that a majority of its year 2000 issues will be addressed by the
installation of an enterprise resource planning system ('ERP') software package
by BaaN. The BaaN system, which is year 2000 compliant and will be used for the
Company's primary business application at its headquarters and manufacturing
facilities, currently is being installed. The total cost of the BaaN project
currently is estimated at $2.0 million with the majority of this cost to be
capitalized and charged to expense over the estimated useful life of the BaaN
software and related hardware. The Company has developed a comprehensive plan to
assist all departments and manufacturing facilities in working towards
compliance with year 2000 issues for all other
18
<PAGE>
systems beyond those being addressed by the BaaN system. Estimated incremental
costs to address other year 2000 issues for the remainder of calendar year 1998
and calendar year 1999 are approximately $250,000.
RECENT ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which establishes standards for the reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is expected to impact the Company in the
event that a minimum pension liability is required by SFAS No. 87, Employers'
Accounting for Pensions, in that separate disclosure of comprehensive income and
its components must be displayed in equal prominence with net income. The
standard will be effective for the Company for the year ended December 31, 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which changes the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
reportable segments in interim financial reports issued to shareholders. In
accordance with SFAS No. 131, the Company will be required to make expanded
disclosures relating to its products and markets. The standard will be effective
for the Company for the year ended December 31, 1998 and for interim periods in
the year ended December 31, 1999.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, which standardizes the
disclosure requirement for pensions and other postretirement benefits. The
implementation of SFAS No. 132 is not expected to have an impact on the
Company's financial statements. The standard will be effective for the Company
for the year ended December 31, 1998.
INFLATION AND CHANGING PRICES
The Company's sales and costs are subject to inflation and price
fluctuations. However, because a significant portion of changes in the cost of
plastic resins, the Company's principal raw materials, are passed through to
customers, such changes historically have not, and in the future are not
expected to have, a material effect on the Company's results of operations.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a range of environmental
requirements in the various jurisdictions in which it operates. These
environmental requirements relate to, among other things, air emissions,
wastewater discharges and waste management. The Company can be expected to incur
capital and operating expenses to maintain compliance with applicable
environmental requirements and to meet new regulatory requirements. Based upon
the underlying facts giving rise to its environmental regulatory obligations and
technical reports prepared on the Company's facilities, the Company does not
anticipate that any such capital and operating expenses will have a material
adverse effect on the Company's results of operations. There can be no
assurance, however, that unanticipated, future regulatory programs or previously
unidentified environmental conditions will not impose material capital operating
expenses.
The Company has been identified as one of the several hundred Potentially
Responsible Parties ('PRPs') in connection with the shipment of hazardous wastes
to the Envirotek II State Superfund site in Tonawanda, New York. Because of the
Company's status as a PRP at the Envirotek II site, the New York State
Department of Environmental Conservation ('NYSDEC') identified the Company as a
PRP at the related the Roblin Steel Complex, also a state cleanup site, which
surrounds the Envirotek II site. The Company has records of having shipped 20
drums of waste to Envirotek II and accordingly has participated in the various
proceedings at both of these sites as a de minimis party. The Company entered
into an Administrative Order on Consent with the United States Environmental
Protection Agency ('EPA') with respect to a removal action undertaken at
Envirotek II, and paid $7,700 to settle EPA's claims for removal costs. The
NYSDEC subsequently assumed the lead at both of these sites, now commonly
referred to as the Envirotech II/Roblin Steel Site. In July 1997, the Company
entered into a Consent Order with NYSDEC and a De Minimis Settlement Agreement
with the other PRPs, whereby the Company made an $11,626 lump-sum de minimis
'buyout' payment in exchange for a release
19
<PAGE>
from further liability for past costs by the NYSDEC and an indemnity and
covenant not to sue, from the other PRPs, for future response costs at the
Envirotech II/Roblin Steel site. Accordingly, management believes that the
Company will have no further liability at these sites.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, including Item 7 'Management's Discussion
and Analysis of Financial Condition and Results of Operations,' contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that any forward-looking
statements, including statements regarding the intent, belief, or current
expectations of the Company or its management, are not guarantees of future
performance and involve risks, uncertainties, and other factors, some of which
are beyond the Company's control, and that actual results may differ materially
from those in forward-looking statements. Such risks, uncertainties and other
factors include, but are not limited to: (i) general economic conditions in the
markets in which the Company operates, (ii) fluctuations in the demand for the
Company's services and products and its customers' products, (iii) fluctuations
in resin cost and supply, (iv) the Company's ability to effectively manage
expanding operations, adapt its operational systems to such expansions and to
successfully integrate acquired companies or assets into the Company's
operations, (v) the impact of significant competition from companies of varying
sizes including divisions or subsidiaries of larger companies and (vi) other
risks detailed from time to time in the Company's Securities and Exchange
Commission filings. The Company does not intend to update these forward-looking
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information that are
required to be included pursuant to this Item 8 are listed in Item 14 of this
Report under the caption '(a) 1.' and follow Item 14. The financial statements
and supplementary financial information specifically referenced in such list are
incorporated in this Item 8 by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information with respect to the directors,
executive officers and other key employees of the Company. All directors and
executive officers of the Company hold office until the annual meeting of
stockholders next following their election, or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ ---- ------------------------------------------------
<S> <C> <C>
Richard L. Kramer............................... 48 Chairman of the Board of Directors, Secretary
and Director
William L. Remley............................... 47 Vice Chairman, Treasurer and Director
John R. Weeks................................... 52 President and Chief Executive Officer
Michael M. Farrell.............................. 43 Vice President, Marketing and Sales
Ronald A. Seegers............................... 50 Vice President, Engineering
Clarence E. Stevens, Jr......................... 49 Vice President, Manufacturing
Gregory R. Conley............................... 37 Vice President and Chief Financial Officer
Raymond J. Veno................................. 47 Vice President, Continuous Improvement
Richard C. Hoffman.............................. 49 Director
Elaine E. Healy................................. 35 Director
</TABLE>
Richard L. Kramer became the Chairman of the Board and a director of the
Company in April 1990 and Secretary of the Company in August 1991. Mr. Kramer is
also Chairman and a director of Mentmore Holdings Corporation, Texfi Industries
Inc., a textile and apparel manufacturing firm, CPT Holdings, Inc., a
manufacturer of specialty structural steel profiles, Weldotron Corporation, a
packaging equipment manufacturer, Orion Acquisition Corp. II, an investment
company, MC Equities, Inc., an insurance holding company, and Republic
Properties Corporation. Mr. Kramer is a director of J&L Structural, Inc.,
Precise Holding Corporation and Sunderland Industrial Holdings Corporation.
William L. Remley became the Vice Chairman of the Board and a director of
the Company in April 1990 and Treasurer of the Company in August 1991. Mr.
Remley is also President, Chief Executive Officer and a director of Mentmore
Holdings Corporation and Weldotron Corporation, Vice-Chairman, Chief Executive
Officer and a director of Texfi Industries Inc., and President and a director of
CPT Holdings, Inc. Mr. Remley is a director of J&L Structural, Inc., MC
Equities, Inc., Orion Acquisition Corp. II, Republic Properties Corporation,
Precise Holding Corporation and Sunderland Industrial Holdings Corporation.
John R. Weeks became President and Chief Executive Officer of the Company
in August 1990. Prior to joining Precise, from 1986 to 1990 Mr. Weeks was
employed as a Vice President of Corporate Development for The Tech Group, a
custom molder for the medical, electronic, packaging and consumer product
markets. Previously, from 1977 to 1986 Mr. Weeks was Vice President of Sales
with Nypro Inc. Mr. Weeks began his career with Arco Polymers in 1968.
Michael M. Farrell became Vice President, Marketing & Sales of the Company
in 1991. Prior to joining Precise, from 1987 to 1991 Mr. Farrell was employed as
the Director of Sales for Medical Products for The Tech Group. Mr. Farrell began
his career at Nypro Inc. in 1984.
Ronald A. Seegers became Vice President, Engineering of the Company in
1993. Prior to joining Precise, from 1984 to 1993, Mr. Seegers was employed as
Director of New Business with The Tech Group. Prior to joining The Tech Group,
Mr. Seegers worked for 16 years at Major Tools in Chicago.
Clarence E. Stevens, Jr. became Vice President, Manufacturing of the
Company in 1994. Prior thereto, he served as Director of Continuous Improvement
of Precise since 1991. Prior to joining Precise, from 1988 to 1991, Mr. Stevens
was employed as Manager of Process Improvement for The Tech Group. Prior to
joining The Tech Group, Mr. Stevens worked at Carlisle Syntec, a synthetic
roofing company, as a plant manager for 10 years.
Gregory R. Conley became Vice President and Chief Financial Officer of the
Company in February 1998. Prior to joining Precise, from June 1990 to February
1998, Mr. Conley was employed with The Barrington Consulting Group where most
recently he served as a Vice President. Mr. Conley began his career with Ernst &
Young, LLP in 1983. Mr. Conley is a certified public accountant.
21
<PAGE>
Raymond J. Veno became the Company's Vice President, Continuous Improvement
in 1998. Prior to that Mr. Veno was Director of Continuous Improvement and
Product Development since September 1996. Prior to joining Precise, from June
1986 to February 1995, Mr. Veno was employed as Manager of Plastics Technology
and Development Group for Digital Equipment Corporation. Prior to joining
Digital Equipment Corporation, Mr. Veno was employed at Nypro, Inc. as Business
Manager for seven years.
Richard C. Hoffman became a director of the Company in January 1996. Mr.
Hoffman has been President and Principal of Richard C. Hoffman, P.C., a law firm
with offices in Greenwich, Connecticut, since 1988. From January 1995 to March
1997, Mr. Hoffman served as Vice President and General Counsel of Mentmore
Holdings Corporation. From 1985 to 1992 Mr. Hoffman was a partner at Freytag,
LaForce, Rubinstein & Teofan, a law firm in Dallas, Texas. Mr. Hoffman is a
director of MC Equities, Inc., Orion Acquisition Corp. II, Texfi Industries,
Inc., Precise Holding Corporation and Weldotron Corporation.
Elaine E. Healy became a director of Precise Holding Corporation and of
Precise in 1997. Ms. Healy has been a Vice President of Pecks Management
Partners Ltd., an investment management firm, since May 1993. Prior to joining
Pecks Management Partners Ltd., Ms. Healy was a General Partner of Quantum
Partners, Ltd., a venture capital partnership with which she was associated for
eight years. During that time Ms. Healy also served as Vice President of The
Revere Fund, Inc., a public closed-end investment company. Ms. Healy is also a
director of Dolan Media Company, Inc.
DIRECTORS
Pursuant to the Warrant Purchase Agreement (as defined), the Pecks Funds
(as defined) are entitled to designate one member of the Company's board of
directors. Ms. Healy currently serves on the Company's board of directors as a
designee of the Pecks Funds.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company to (i)
its Chairman of the Board and Chief Executive Officer and (ii) each of the four
other most highly compensated individuals who served as executive officers of
the Company during fiscal 1997 and received annual compensation in excess of
$100,000 (collectively, the 'Named Executives'), for services rendered in all
capacities to the Company during the periods indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ------------------------ -------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(A) ($) (#) ($) ($)
- --------------------------- ---- -------- ------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John R. Weeks ............. 1997 $250,000 $72,499 -- -- -- -- $16,812(b)
President and Chief
Executive Officer
Michael M. Farrell ........ 1997 147,000 32,430 -- -- -- -- 10,425(c)
Vice President,
Marketing and Sales
Ronald A. Seegers ......... 1997 128,256 13,500 -- -- -- -- 9,702(d)
Vice President,
Engineering
Clarence E. Stevens, 1997 113,505 25,614 -- -- -- -- 8,587(e)
Jr. .....................
Vice President,
Manufacturing
Michael D. Bornak ......... 1997 104,730 19,458 -- -- -- -- 5,776(f)
Former Controller
</TABLE>
(Footnotes on next page)
22
<PAGE>
- ------------------
(a) Below amounts which would require disclosure under Commission rules and
regulations.
(b) Included in such amount is $11,458 representing an employer matching
contribution under the 401(k) Plan (as defined), $1,328 in net premiums for
a life insurance policy on behalf of Mr. Weeks and $4,026 representing a
profit sharing bonus.
(c) Included in such amount is $8,159 representing an employer matching
contribution under the 401(k) Plan and $2,266 representing a profit sharing
bonus.
(d) Included in such amount is $7,696 representing an employer matching
contribution under the 401(k) Plan and $2,006 representing a profit sharing
bonus.
(e) Included in such amount is $6,810 representing an employer matching
contribution under the 401(k) Plan and $1,777 representing a profit sharing
bonus.
(f) Included in such amount is $4,424 representing an employer matching
contribution under the 401(k) Plan and $1,352 representing a profit sharing
bonus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation policies are determined and executive officer
compensation decisions are made by the Board of Directors. No member of the
Board of Directors received director fees in 1997.
401(K) PENSION PLAN
Precise sponsors a defined contribution savings plan (the '401(k) Plan')
whereby eligible employees of the Company may (under current administrative
rules) elect to defer a portion of their compensation each year and may also
make after-tax contributions to the 401(k) Plan. Employee and Company
contributions are paid by the Company to the trustee under the 401(k) Plan. The
Company has a policy of (i) making an annual discretionary contribution on
behalf of each eligible employee in an amount equal to 3.5% of such employee's
total annual compensation, regardless of such employee's actual contribution to
the 401(k) Plan, and (ii) making matching contributions equal to 50% of the
first 5% of compensation deferred by employees. The Company's contributions are
subject to vesting and forfeiture. The Company's contributions to the accounts
of the Named Executive Officers during 1997 are included in the Summary
Compensation Table.
The Company sponsored another defined contribution savings plan which
covered substantially all non-union employees at the Tredegar and Unity
facilities (the 'Tredegar 401(k) Plan'). Under the terms of the Tredegar 401(k)
Plan the Company matched 25% of employee's contributions up to 6% of employee's
salaries. On January 1, 1998, the Tredegar 401(k) Plan was merged into the
401(k) Plan.
1997 STOCK OPTION PLAN
In April 1997, Sunderland established the Sunderland Industrial Holdings
Corporation 1997 Key Employee Nonqualified Stock Option Plan (the '1997 Stock
Option Plan') to provide incentives to, encourage stock ownership by and retain
the services of certain of, its key employees and those of its subsidiaries. The
Board of Directors of Sunderland (the 'Sunderland Board') administers the 1997
Stock Option Plan, which provides for the grant of options with respect to a
maximum of 15% of the issued and outstanding shares of common stock, par value
$0.01 per share, of Sunderland ('Sunderland Common Stock'). Each option granted
under the 1997 Stock Option Plan will be evidenced by a written option agreement
between the optionee and Sunderland, which agreement may contain additional
terms not inconsistent with the 1997 Stock Option Plan and as the Sunderland
Board may deem appropriate.
Under Nonqualified Stock Option Agreements (the 'Option Agreements')
entered into in April 1997 pursuant to the 1997 Stock Option Plan, John R.
Weeks, President and Chief Executive Officer of Precise, and Michael M. Farrell,
Vice President, Marketing & Sales of Precise, received options to purchase 1,200
and 400 shares of Sunderland Common Stock, respectively (the 'First Options'),
and additional options to purchase 225 and 75 shares of Sunderland Common Stock,
respectively (the 'Second Options,' and together with the First
23
<PAGE>
Options, the 'Options'). The Options are exercisable at a price of $1,500 per
share of Sunderland Common Stock. The First Options will become exercisable over
a three-year period following the grant date. The Second Options will become
exercisable in 25% increments upon the 90th day following each successful annual
determination by the Sunderland Board that Sunderland's EBITDA (as defined in
the Option Agreements) for the years ended December 31, 1997 through 2000
exceeded certain annual targets. In addition, the Options may be exercised
during the one year period following the optionee's retirement at or above age
65, or upon his or her death or disability, and all of the First Options and the
then exercisable portions of the Second Options may be exercised during the ten
business day period following notice of a Change of Control (as defined in the
Option Agreements). Once exercisable, the Options may be exercised at any time,
in whole or in part, prior to the earlier of (i) the termination of the
optionee's employment with Sunderland or any of its subsidiaries or (ii) January
31, 2005. It is intended that the Options shall not constitute 'incentive stock
options,' as that term is used in Section 422 of the Internal Revenue Code of
1986, as amended.
Pursuant to the Option Agreements, Sunderland has the right to repurchase
Sunderland Common Stock purchased pursuant to the Options upon the occurrence of
a Call Event (as defined in the Option Agreements) at a repurchase price of
either 75% or 100% of the Fair Market Value (as defined in the Option
Agreements) of such stock depending on the reason underlying the Call Event,
subject to adjustment under certain specified circumstances. In addition,
pursuant to the Option Agreements, Sunderland has a right of first refusal prior
to the sale to any third party of any Sunderland Common Stock purchased pursuant
to the Options.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Precise is a wholly owned subsidiary of Precise Holding Corporation. The
following table sets forth information concerning the beneficial ownership of
Parent Common Stock as of December 31, 1997 by (i) each person known to the
Company to own beneficially more than 5% of the outstanding Parent Common Stock,
(ii) by each Named Executive Officer and (iii) all directors and executive
officers of the Company as a group. All shares are owned with sole voting and
investment power, unless otherwise indicated.
<TABLE>
<CAPTION>
PARENT
COMMON STOCK
BENEFICIALLY OWNED
------------------
BENEFICIAL OWNER SHARES
- ------------------------------------------------------------------------------------------- ------------------
<S> <C>
Sunderland Industrial Holdings Corporation(1).............................................. 8,035.00
John Hancock Mutual Life Insurance Company................................................. 570.00(2)
Rice Partners II, L.P...................................................................... 570.00(2)
Delaware State Employees' Retirement Fund(3)............................................... 552.67(4)
Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.(3).................. 110.33(5)
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.(3)............ 162.00(6)
Pecks Management Partners, Ltd.(3)......................................................... 825.00(7)
Richard L. Kramer(8) --
William L. Remley(9)....................................................................... --
John R. Weeks.............................................................................. --
Michael M. Farrell......................................................................... --
Ronald A. Seegers.......................................................................... --
Clarence E. Stevens, Jr.................................................................... --
Gregory R. Conley.......................................................................... --
Richard C. Hoffman......................................................................... --
Elaine E. Healy (10)....................................................................... --
Total Executive Officers and Directors as a Group.......................................... --
<CAPTION>
BENEFICIAL OWNER %
- ------------------------------------------------------------------------------------------- ------------------
<S> <C>
Sunderland Industrial Holdings Corporation(1).............................................. 97.0
John Hancock Mutual Life Insurance Company................................................. 6.4
Rice Partners II, L.P...................................................................... 6.4
Delaware State Employees' Retirement Fund(3)............................................... 6.4
Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.(3).................. 1.4
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.(3)............ 2.0
Pecks Management Partners, Ltd.(3)......................................................... 9.3
Richard L. Kramer(8) --
William L. Remley(9)....................................................................... --
John R. Weeks.............................................................................. --
Michael M. Farrell......................................................................... --
Ronald A. Seegers.......................................................................... --
Clarence E. Stevens, Jr.................................................................... --
Gregory R. Conley.......................................................................... --
Richard C. Hoffman......................................................................... --
Elaine E. Healy (10)....................................................................... --
Total Executive Officers and Directors as a Group.......................................... --
</TABLE>
(Footnotes on following page)
24
<PAGE>
(Footnotes from previous page)
- ------------------
(1) According to information supplied to the Company by Sunderland, Biscayne
Trust, The Sunderland I Trust and The Remley 1990 Trust own beneficially
72%, 18% and 10%, respectively, of the outstanding shares of common stock
of Sunderland. The beneficiaries of these trusts are certain relatives of
Richard L. Kramer and William L. Remley. The trustees of Biscayne Trust and
The Sunderland I Trust are Lewis H. Ferguson III and Gary R. Siegel. All
powers with respect to investment or voting of securities owned by Biscayne
Trust and The Sunderland I Trust are exercisable by Messrs. Ferguson and
Siegel jointly. The trustee of The Remley 1990 Trust is F. Richard Remley,
who exercises all voting and investment power with respect to securities
held by such trust. The business address of Sunderland, Biscayne Trust, The
Sunderland I Trust, The Remley 1990 Trust, Lewis H. Ferguson III, Gary R.
Siegel and F. Richard Remley is c/o Mentmore Holdings Corporation, 1430
Broadway, 13th Floor, New York, New York 10018-3308. Richard L. Kramer,
Chairman of the Board of Directors of the Company, and William L. Remley,
Vice Chairman of the Board of Directors of the Company, are directors and
executive officers of Parent and Sunderland. F. Richard Remley, the trustee
of The Remley 1990 Trust, is the brother of William L. Remley. Mentmore
provides management services to the Company. Messrs. Kramer and William L.
Remley are the sole executive officers and directors of Mentmore.
(2) Comprised of Warrants to purchase 570 shares of Parent Common Stock held by
each of John Hancock Mutual Life Insurance Company ('John Hancock') and
Rice Partners II, L.P. ('Rice'). The business address of John Hancock is
John Hancock Place, 200 Clarendon Street, Boston, Massachusetts 02117. The
business address of Rice is c/o Rice Capital Management, 5847 San Felipe,
Suite 4350, Houston, Texas 77057.
(3) Pecks Management Partners, Ltd. serves as the investment advisor to The
Delaware State Employees' Retirement Fund, the Declaration of Trust for
Defined Benefit Plans of Zeneca Holdings Inc. and the Declaration of Trust
for Defined Benefit Plans of ICI American Holdings Inc. (collectively, the
'Pecks Funds') and, in such capacity, exercises voting and investment
control with respect to the Parent Common Stock beneficially owned by the
Pecks Funds. The business address of Pecks Management Partners, Ltd. and
the Pecks Funds is One Rockefeller Plaza, New York, New York 10020.
(4) Comprised of 167.67 shares of Parent Common Stock and Warrants to purchase
385 shares of Parent Common Stock.
(5) Comprised of 33.33 shares of Parent Common Stock and Warrants to purchase
77 shares of Parent Common Stock.
(6) Comprised of 49 shares of Parent Common Stock and Warrants to purchase 113
shares of Parent Common Stock.
(7) Comprised of 250 shares of Parent Common Stock and Warrants to purchase 575
shares of Parent Common Stock held of record by the Pecks Funds. Pecks
Management Partners, Ltd. disclaims beneficial ownership of the Parent
Common Stock and Warrants held of record by the Pecks Funds.
(8) Mr. Kramer is a director and executive officer of Parent and Sunderland.
See footnote (1) above. Mr. Kramer disclaims beneficial ownership of the
Parent Common Stock held of record by Sunderland.
(9) Mr. Remley is a director and executive officer of Parent and Sunderland.
See footnote (1) above. Mr. Remley disclaims beneficial ownership of the
Parent Common Stock held of record by Sunderland.
(10) Ms. Healy is a Vice President of Pecks Management Partners, Ltd. See
footnote (3) above. Ms. Healy disclaims beneficial ownership of the Parent
Common Stock and Warrants held of record by the Pecks Funds.
25
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TREDEGAR FINANCING TRANSACTIONS
In connection with the Tredegar Acquisition, (i) the Company and Parent
entered into a Securities Purchase Agreement dated March 29, 1996 (as amended,
the 'Securities Purchase Agreement') with Delaware State Employees' Retirement
Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc. and
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.
(each advised by Pecks Management Partners Ltd. and collectively referred to
herein as the 'Pecks Funds') pursuant to which the Pecks Funds purchased (a) 575
shares of the Company's Cumulative Exchangeable Preferred Stock having an
aggregate liquidation preference equal to $5,750,000 (the 'Exchangeable
Preferred Stock') for an aggregate consideration of $5,750,000 and (b) 250
shares of Parent Common Stock for an aggregate consideration of $750,000; (ii)
the Company entered into a Note Purchase Agreement dated March 29, 1996 (the
'Note Purchase Agreement') with John Hancock Mutual Life Insurance Company
('John Hancock') and Rice Partners II, L.P. ('Rice') pursuant to which John
Hancock and Rice purchased $20.0 million aggregate principal amount of the
Company's 12.25% Senior Subordinated Notes due 2006 (the 'Retired Notes'); (iii)
Parent entered into a Warrant Purchase Agreement dated March 29, 1996 (as
amended, the 'Warrant Purchase Agreement') with Rice, John Hancock and the Pecks
Funds pursuant to which, in connection with their purchase of the Retired Notes,
Rice and John Hancock each acquired warrants ('Warrants') to purchase 570 shares
of Parent Common Stock and, in connection with its purchase of the Exchangeable
Preferred Stock, the Pecks Funds acquired Warrants to purchase 575 shares of
Parent Common Stock; and (iv) Parent entered into a Shareholder Agreement dated
March 29, 1996 (as amended, the 'Shareholder Agreement') with Sunderland,
Hamilton Holdings Ltd. Corporation ('Hamilton Holdings'), the Pecks Funds, Rice
and John Hancock. In addition, Precise and Parent entered into the Prior Credit
Agreement, under which Precise incurred approximately $44.0 million of
indebtedness to finance the Tredegar Acquisition, and Precise issued 250 shares
of its Series B Cumulative Redeemable Preferred Stock (the 'Seller Preferred
Stock' and, together with the Exchangeable Preferred Stock, the 'Redeemable
Preferred Stock'), having a liquidation preference of $10,000 per share, to the
former owners of Tredegar. In connection with the consummation of the
Refinancing Transactions, the Company entered into certain consents and
amendments to the Securities Purchase Agreement, the Warrant Purchase Agreement
and the Shareholder Agreement to, among other things, approve the terms of the
Refinancing Transactions and to modify certain covenants contained therein.
The Warrants are exercisable, in whole or in part, at a per share price of
$0.01 at any time prior to March 29, 2006. The Warrant Purchase Agreement
contains customary anti-dilution protection, restrictions on the transfer of
Warrants and shares of Parent Common Stock issuable thereunder ('Warrant
Shares') and provisions requiring that Warrants and Warrant Shares be offered to
Parent prior to any sale to a third party. In addition, the Warrant Purchase
Agreement contains certain covenants pertaining to Parent and its subsidiaries
which, among other things, give the holders of Warrants the right to consent to
certain corporate actions, including certain sales of assets, acquisitions,
issuances of capital stock, amendments to corporate organizational documents,
affiliate transactions and investments. The Warrant Purchase Agreement also
provides Hancock and Rice with Parent Board of Director observation rights and
the Pecks Funds, for so long as the Pecks Funds own 15% or more of the sum of
all Warrant Shares and Parent Common Stock owned by the Pecks Funds on March 29,
1996, with the right to designate one member of the Board of Directors of each
of Parent and Precise.
Precise used a portion of the net proceeds from the Offering to (i) redeem
the Exchangeable Preferred Stock and the Seller Preferred Stock and (ii) repay
the indebtedness outstanding under the Prior Credit Agreement and the Retired
Notes. In addition, Precise used a portion of the net proceeds from the Initial
Offering to repurchase 124 shares of Common Stock of Precise from Parent for
$3,315,000, the proceeds of which were used to redeem shares of Parent Preferred
Stock held by Hamilton Holdings. Richard L. Kramer and William L. Remley are
executive officers and directors of Hamilton Holdings, and the holders of record
of the capital stock of Hamilton Holdings are trusts established for the benefit
of certain relatives of Messrs. Kramer and Remley.
SHAREHOLDER AGREEMENT
In connection with the Tredegar Acquisition, Parent, Sunderland, Parent's
other shareholders (collectively, the 'Shareholders') and the holders of the
Warrants (collectively, the 'Warrantholders') entered into the Shareholder
Agreement. Pursuant to the Shareholder Agreement, the Warrantholders have the
right to require
26
<PAGE>
Parent to purchase (a 'Put Option') their Warrant Shares and certain other
shares of capital stock of Parent held by the Shareholders (collectively, the
'Put Shares'), in whole or in part, at any time after March 29, 2001. In
addition, the Warrantholders are entitled to sell their Put Shares to Parent at
any time prior to the occurrence of an Initial Public Offering (as defined in
the Shareholder Agreement) in the event of (i) a change in control (as defined
in the Shareholder Agreement) of Parent, (ii) a merger, consolidation, share
exchange or similar transaction involving Parent, (iii) a sale in one or more
related transactions of all or a majority of the assets, business or revenue or
income generating operations of Parent or (iv) any substantial change in the
type of business conducted by Parent. The Shareholder Agreement also provides
Parent with an option to purchase (the 'Call Option') all outstanding Warrants
and Warrant Shares at any time on or after April 1, 2002 and prior to an Initial
Public Offering. The price to be paid to the Warrantholders upon the exercise of
the Put Option or the Call Option is to be determined in accordance with a
formula and procedures set forth in the Shareholder Agreement. In the event
Parent is unable to pay the purchase price for the Put Shares in cash after
exercise of the Put Option, it may be required to execute and deliver a
promissory note or notes to the Warrantholders in satisfaction of all or part of
its purchase price obligation. Such promissory notes would mature on April 1,
2006 and bear interest at rates ranging from 14% to 18% during the term of the
notes. The Shareholder Agreement further provides, under certain circumstances,
John Hancock, Rice and the Pecks Funds with certain co-sale rights upon the sale
or other transfer of capital stock of Parent by the Shareholders. In addition,
subject to certain conditions, if prior to an Initial Public Offering holders of
at least 66 2/3% of the issued and outstanding shares of Parent Common Stock and
Common Stock Equivalents (as defined in the Shareholder Agreement) elect to sell
their shares to a bona fide third party (other than in connection with a
registered offering under the Securities Act), then all holders shall be
obligated to sell any shares of Parent Common Stock and Common Stock Equivalents
then owned by such holders in such sale.
Pursuant to the Shareholder Agreement, John Hancock, Rice and the Pecks
Funds also have certain demand registration rights, which become effective after
the date Parent has consummated an Initial Public Offering, and incidental
registration rights. These rights are subject to customary cut-back provisions.
MANAGEMENT AGREEMENT WITH MENTMORE
Mentmore provides management services to Precise and its subsidiaries
pursuant to the Management Agreement dated March 15, 1996, as amended (the
'Management Agreement'), between Precise and Mentmore. Pursuant to the
Management Agreement, Mentmore provides the Company with general management,
advisory and consulting services with respect to Precise's business and with
respect to such other matters as Precise may reasonably request from time to
time, including, without limitation, strategic planning, financial planning,
business acquisition and general business development services. Under the terms
of the Management Agreement, the Company provides customary indemnification,
reimburses certain costs and pays Mentmore an annual management fee of $300,000
(subject to adjustment), which is payable monthly after the consummation of the
Offering. In addition, pursuant to the Management Agreement, Mentmore is
entitled to customary investment banking fees for services rendered in
connection with the Company's financing transactions and acquisitions. The
Management Agreement had an original term of ten years and is automatically
extended for one additional year on each April 1 during the term of the
agreement unless either party shall have previously notified the other in
writing of its desire not to further extend the term. In addition, Mentmore may
terminate the Management Agreement at any time upon 90 days prior written notice
to Precise, and Precise may terminate the Management Agreement 'for cause' (as
defined in the Management Agreement). The sole executive officers and directors
of Mentmore are Richard L. Kramer and William L. Remley. Payments under the
Management Agreement are subject to the restrictions set forth under
'Description of Notes--Certain Covenants--Transactions with Affiliates' as well
as certain limitations set forth in the Warrant Purchase Agreement.
The Company has paid Mentmore fees of $675,000, $450,000, and $300,000 in
1997, 1996, and 1995 respectively, for management and other advisory services
and has reimbursed Mentmore for certain expenses incurred in connection with the
rendering of such services. Mentmore received total fees of $500,000 and the
reimbursement of certain expenses in connection with financial advisory and
other services rendered to the Company in connection with the Refinancing
Transactions.
27
<PAGE>
FEES PAID TO RICHARD C. HOFFMAN
The Company paid the law firm of Richard C. Hoffman, P.C., whose principal
is a director of Precise, a total of approximately $5,000 and $257,000 in legal
fees in 1997 and 1996, respectively. During this period, Mr. Hoffman served as
Vice President and General Counsel of Mentmore.
FEES PAID TO MICHAEL D. SCHENKER
The Company paid the law firm of Michael D. Schenker Co. L.P.A., whose
principal is an officer of Mentmore, a total of approximately $300,000 in legal
fees in connection with the Refinancing Transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(a) List of documents filed as part of this Report:
1. The financial statements listed on page 30 are filed as part of this
Report
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable, not required
or the information is included elsewhere in the Consolidated Financial
Statements or Notes thereto.
3. List of Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
*3.1 -- Amended and Restated Certificate of Incorporation of Precise Technology, Inc.
*3.2 -- Bylaws of Precise Technology, Inc.
*3.3 -- Certificate of Incorporation of Precise Technology of Delaware, Inc.
*3.4 -- Bylaws of Precise Technology of Delaware, Inc.
*3.5 -- Certificate of Incorporation of Precise Technology of Illinois, Inc.
*3.6 -- Bylaws of Precise Technology of Illinois, Inc.
*3.7 -- Articles of Incorporation of Precise TMP, Inc.
*3.8 -- Amended and Restated Bylaws of Precise TMP, Inc.
*3.9 -- Certificate of Incorporation of Precise Polestar, Inc.
*3.10 -- Bylaws of Precise Polestar, Inc.
*3.11 -- Articles of Incorporation of Massie Tool, Mold & Die, Inc.
*3.12 -- Bylaws of Massie Tool, Mold & Die, Inc.
*4.1 -- Indenture dated as of March 18, 1997 by and among Precise Technology, Inc., as Issuer, Precise
Technology of Delaware, Inc., Precise Technology of Illinois, Inc., Precise TMP, Inc., Precise
Polestar, Inc. and Massie Tool, Mold & Die, Inc., as Subsidiary Guarantors, and Marine Midland
Bank, as trustee (including the form of 11 1/8% Senior Subordinated Note due 2007 and the form of
Subsidiary Guarantee).
*4.2 -- Registration Rights Agreement, dated as of June 13, 1997, by and among Precise Technology, Inc.,
Precise TMP, Inc., Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of
Delaware, Inc., Precise Technology of Illinois, Inc., Bear, Stearns & Co. Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
*4.3 -- Purchase Agreement dated June 10, 1997, by and among Precise Technology, Inc., Precise TMP, Inc.,
Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of Delaware, Inc.,
Precise Technology of Illinois, Inc., Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
*4.4 -- Supplemental Indenture No. 1 to Indenture, dated as of October 10, 1997, by and among
PreciseTechnology, Inc., Precise TMP, Inc., Massie Tool, Mold & Die, Inc., Precise Polestar, Inc.,
Precise Technology of Delaware, Inc., Precise Technology of Illinois, Inc. and Marine Midland
Bank, as trustee.
*10.1 -- Credit Agreement dated as of June 13, 1997, among Precise Holding Corporation, Precise Technology,
Inc., the subsidiary guarantors party thereto, the lenders party thereto and Fleet National Bank,
as Agent and Issuing Bank.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.2 -- First Amendment and Consent to Credit Agreement as of March 17, 1998, among Precise Holding
Corporation, Precise Technology, Inc., the subsidiary guarantors party thereto, the lenders party
thereto and Fleet National Bank, as agent and Issuing Bank.
*10.3 -- Consent Agreement dated as of June 9, 1997 among Precise Technology, Inc., Precise Holding
Corporation, Sunderland Industrial Holdings Corporation, Hamilton Holdings Ltd. Corporation, John
Hancock Mutual Life Insurance Company, Rice Partners II, L.P., Delaware State Employees'
Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc., and
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.
*10.4 -- Securities Purchase Agreement dated March 29, 1996, among Precise Holding Corporation, Precise
Technology, Inc., Delaware State Employees' Retirement Fund, Declaration of Trust for Defined
Benefit Plans of Zeneca Holdings Inc., and Declaration of Trust for Defined Benefit Plans of ICI
American Holdings Inc.
*10.5 -- Note Purchase Agreement dated as of March 29, 1996, among Precise Technology, Inc., John Hancock
Mutual Life Insurance Company and Rice Partners II, L.P.
*10.6 -- Warrant Purchase Agreement dated as of March 29, 1996, among Precise Holding Corporation, Rice
Partners II, L.P., John Hancock Mutual Life Insurance Company, Delaware State Employees'
Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc., and
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.
*10.7 -- First Amendment to Warrant Purchase Agreement dated as of June 13, 1997, among Precise Holding
Corporation, Rice Partners II, L.P., John Hancock Mutual Life Insurance Company, Delaware State
Employees' Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings
Inc., and Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc.
*10.8 -- Shareholder Agreement dated as of March 29, 1996 among Precise Holding Corporation, Sunderland
Industrial Holdings Corporation, Hamilton Holdings Ltd. Corporation, Delaware State Employees'
Retirement Fund, Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.,
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc., John Hancock Mutual
Life Insurance Company and Rice Partners II, L.P.
*10.9 -- First Amendment to Shareholder Agreement dated as of June 13, 1997 among Precise Holding
Corporation, Sunderland Industrial Holding Corporation, Hamilton Holdings Ltd. Corporation,
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined Benefit Plans of
Zeneca Holdings Inc., Declaration of Trust for Defined Benefit Plans of ICI American Holdings
Inc., Rice Partners II, L.P. and John Hancock Mutual Life Insurance Company.
*10.10 -- Tax Allocation and Indemnity Agreement dated as of June 11, 1997 by and among Sunderland
Industrial Holdings Corporation, Precise Holding Corporation, and Precise Technology, Inc. and its
direct and indirect subsidiaries.
*10.11 -- Amended and Restated Management Agreement, dated as of June 13, 1997 between Precise Technology,
Inc. and Mentmore Holdings Corporation.
*10.12 -- Sunderland Industrial Holdings Corporation 1997 Key Employee Nonqualified Stock Option Plan dated
as of April 24, 1997.
*10.13 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial
Holdings Corporation and John R. Weeks.
*10.14 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial
Holdings Corporation and Michael M. Farrell.
+10.15 -- Memorandum of Agreement dated August 8, 1995 between The Procter & Gamble Manufacturing Company
and Tredegar Molded Products Company.
*21.1 -- Subsidiaries of the Registrants.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* Filed with Registration No. 333-32041 and incorporated herein by reference.
+ Confidential treatment requested for a portion of this exhibit previously
filed with Registration No. 333-32041 and incorporated herein by reference.
29
<PAGE>
PRECISE TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NUMBER
OR
REFERENCE
-----------
<S> <C>
PART I
Report of Independent Accountants................................................................... 31
Consolidated Balance Sheets......................................................................... 32
Consolidated Statements of Income................................................................... 33
Consolidated Statement of Stockholder's (Deficit) Equity............................................ 34
Consolidated Statements of Cash Flows............................................................... 35
Notes to the Consolidated Financial Statements...................................................... 37
</TABLE>
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Precise Technology, Inc.
We have audited the accompanying consolidated balance sheets of Precise
Technology, Inc. (a wholly owned subsidiary of Precise Holding Corporation) as
of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholder's equity and cash flows for each of three years in the
period then ended. Our audit also includes the financial statement schedule
listed in the index at item 14(a). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Precise
Technology, Inc. as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 26, 1998
31
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 560,059 $ 1,310,564
Accounts receivable, net......................................................... 12,944,644 13,121,818
Inventories...................................................................... 5,855,709 9,856,257
Prepaid expenses and other....................................................... 131,912 440,356
Deferred income taxes............................................................ 989,341 1,496,164
Assets held for sale............................................................. -- 900,000
----------- -----------
Total current assets............................................................... 20,481,665 27,125,159
Property, plant and equipment, net................................................. 44,830,561 42,063,423
Intangible and other assets, net................................................... 28,326,706 29,870,714
----------- -----------
Total assets..................................................................... $93,638,932 $99,059,296
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
CURRENT LIABILITIES:
Line of credit................................................................... $ -- $ 300,000
Current maturities of long-term debt............................................. 5,882,842 7,641,105
Accounts payable................................................................. 5,805,598 6,896,159
Accrued liabilities.............................................................. 2,459,532 4,865,381
Tooling deposits................................................................. 1,552,200 2,063,833
----------- -----------
Total current liabilities........................................................ 15,700,172 21,766,478
Long-term debt, less current maturities............................................ 86,868,663 56,570,692
Deferred income taxes.............................................................. 1,431,162 5,189,259
Payable to Sunderland.............................................................. -- 330,000
Commitments and contingencies...................................................... -- --
Redeemable preferred stock......................................................... -- 8,250,000
Stockholder's (deficit) equity:
Common stock, no par value; 1,000 shares authorized, and 1 share
and 125 shares issued and outstanding at December 31, 1997
and 1996, respectively........................................................ 1,000 3,315,617
Additional paid-in-capital....................................................... 3,554,711 3,554,711
Minimum pension liability........................................................ (204,172) --
Retained (deficit) earnings...................................................... (13,712,604) 82,539
----------- -----------
Total stockholder's (deficit) equity............................................. (10,361,065) 6,952,867
----------- -----------
Total liabilities and stockholder's (deficit) equity............................. $93,638,932 $99,059,296
----------- -----------
----------- -----------
</TABLE>
See accompanying notes
32
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net sales.......................................................... $100,736,800 $93,289,323 $33,542,305
Cost of sales...................................................... 82,731,939 76,477,016 25,876,623
------------ ----------- -----------
Gross profit....................................................... 18,004,861 16,812,307 7,665,682
Selling, general, and administrative............................... 8,980,201 7,262,187 4,454,271
Plant closure costs................................................ 68,915 670,600 --
Amortization of intangible assets.................................. 1,223,772 1,042,533 37,013
------------ ----------- -----------
Operating income................................................... 7,731,973 7,836,987 3,174,398
Other expense (income):
Interest expense................................................. 8,770,734 6,131,234 810,174
Other............................................................ 873,565 (25,423) 147,866
------------ ----------- -----------
(Loss) income before income taxes and extraordinary item........... (1,912,326) 1,731,176 2,216,358
Provision for income taxes......................................... 228,000 1,264,854 941,426
------------ ----------- -----------
Net (loss) income before extraordinary item........................ (2,140,326) 466,322 1,274,932
Extraordinary item, net of tax..................................... (4,840,500) -- --
------------ ----------- -----------
Net (loss) income.................................................. $ (6,980,826) $ 466,322 $ 1,274,932
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes
33
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S (DEFICIT) EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
9 1/2% COMMON STOCK ADDITIONAL MINIMUM RETAINED
-------------------- -------------------- PAID-IN PENSION (DEFICIT)
SHARES AMOUNT SHARES AMOUNT CAPITAL LIABILITY EARNINGS TOTAL
------ ----------- ------ ----------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994... 331 $ 3,314,617 1 $ 1,000 $1,649,000 $(164,570) $ (405,103) $ 4,394,944
Dividends........... -- -- -- -- -- -- (314,889) (314,889)
Minimum pension
liability, net of
tax............... -- -- -- -- -- 44,826 -- 44,826
Net income.......... -- -- -- -- -- -- 1,274,932 1,274,932
------ ----------- ------ ----------- ---------- --------- ------------ ------------
Balance at
December 31, 1995.... 331 3,314,617 1 1,000 1,649,000 (119,744) 554,940 5,399,813
Capital
contributions..... -- -- -- -- 750,000 -- -- 750,000
Exchange of stock... (331) (3,314,617) 124 3,314,617 -- -- -- --
Dividends........... -- -- -- -- -- -- (938,723) (938,723)
Minimum pension
liability, net of
tax............... -- -- -- -- -- 119,744 -- 119,744
Discounts related to
warrants, net of
tax............... -- -- -- -- 1,155,711 -- -- 1,155,711
Net income.......... -- -- -- -- -- -- 466,322 466,322
------ ----------- ------ ----------- ---------- --------- ------------ ------------
Balance at
December 31, 1996... -- -- 125 3,315,617 3,554,711 -- 82,539 6,952,867
Redemption of
stock............. -- -- (124) (3,314,617) -- -- -- (3,314,617)
Dividends........... -- -- -- -- -- -- (6,814,317) (6,814,317)
Minimum pension
liability, net of
tax............... -- -- -- -- -- (204,172) -- (204,172)
Net loss............ -- -- -- -- -- -- (6,980,826) (6,980,826)
------ ----------- ------ ----------- ---------- --------- ------------ ------------
Balance at
December 31, 1997... -- $ -- 1 $ 1,000 $3,554,711 $(204,172) $(13,712,604) $(10,361,065)
------ ----------- ------ ----------- ---------- --------- ------------ ------------
------ ----------- ------ ----------- ---------- --------- ------------ ------------
</TABLE>
See accompanying notes
34
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income................................................... $(6,980,826) $ 466,322 $ 1,274,932
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary item, net of tax................................. 4,840,500 -- --
Depreciation and amortization.................................. 6,715,713 5,353,253 1,445,953
Amortization of original issue discount and
financing fees............................................... 701,717 669,945 --
Loss (gain) on sale of equipment............................... 461,102 (36,628) 140,637
Provision for loss on sale of Rochester plant.................. -- 301,000 --
Deferred income taxes.......................................... (119,990) 348,388 527,426
Changes in assets and liabilities:
Accounts receivable.......................................... 474,710 3,021,575 800,300
Inventories.................................................. 4,000,548 (418,504) (79,888)
Prepaids and other assets.................................... 125,987 367,405 265,428
Accounts payable............................................. (1,090,561) (808,771) (460,851)
Tooling deposits............................................. (511,633) 350,107 (213,853)
Accrued liabilities.......................................... (2,152,856) (11,997) (530,181)
----------- ----------- -----------
Net cash provided by operating activities........................... 6,464,411 9,602,095 3,169,903
INVESTING ACTIVITIES
Capital expenditures................................................ (4,949,685) (2,175,425) (1,045,756)
Proceeds from sale of fixed assets.................................. 1,460,000 346,481 47,758
Net cash used in business acquisitions.............................. -- (63,801,356) --
----------- ----------- -----------
Net cash used in investing activities............................... (3,489,685) (65,630,300) (997,998)
FINANCING ACTIVITIES
Borrowings on revolving line of credit.............................. 23,600,000 25,941,687 34,981,655
Payments on revolving line of credit................................ (15,400,000) (27,925,934) (35,166,657)
Proceeds from bond issuance......................................... 75,000,000 -- --
Repayment of long-term debt......................................... (61,572,352) (7,605,189) (1,902,301)
Prepayment of debt premiums......................................... (2,398,940) -- --
Payment of financing costs.......................................... (4,575,005) (4,743,748) --
Redemption of common stock.......................................... (3,314,617) -- --
Redemption of preferred stock....................................... (8,250,000) -- --
Dividends paid on common and preferred stock........................ (6,814,317) (938,723) (314,889)
Proceeds from senior term notes..................................... -- 40,000,000 --
Proceeds from senior subordinated notes............................. -- 20,000,000 --
Proceeds from issuance of preferred stock........................... -- 8,250,000 --
Proceeds from term note............................................. -- 3,585,000 200,000
Capital contribution................................................ -- 750,000 --
----------- ----------- -----------
Net cash (used in) provided by financing activities................. (3,725,231) 57,313,093 (2,202,192)
----------- ----------- -----------
Net (decrease) increase in cash..................................... (750,505) 1,284,888 (30,287)
Cash at beginning of period......................................... 1,310,564 25,676 55,963
----------- ----------- -----------
Cash at end of period............................................... $ 560,059 $ 1,310,564 $ 25,676
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
35
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C> <C>
Cash paid during the period for:
Interest (including $170,620, $0 and $16,866 capitalized
in 1997, 1996 and 1995, respectively)........................ $ 7,969,133 $ 5,197,957 $ 828,857
----------- ----------- -----------
----------- ----------- -----------
Income taxes................................................... $ 774,067 $ 773,528 $ 293,582
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Capital lease agreements for equipment............................ $ 4,810,001 $ 4,200,501 $ 535,812
----------- ----------- -----------
----------- ----------- -----------
Assets acquired and liabilities assumed in
connection with acquisitions:
Fair value of assets acquired................................ $ -- $81,200,112 $ --
Liabilities assumed.......................................... -- 12,248,954 --
----------- ----------- -----------
Cash paid.................................................... -- 68,951,158 --
Less fees and expenses....................................... -- (4,743,748) --
Less cash acquired........................................... -- (406,054) --
----------- ----------- -----------
Net cash paid for acquisitions............................... $ -- $63,801,356 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes
36
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND ACTIVITIES
The accompanying consolidated financial statements include the accounts of
Precise Technology, Inc. (Company) and its wholly owned subsidiaries.
Significant intercompany transactions have been eliminated.
The Company is a wholly owned subsidiary of Precise Holding Corporation
(Precise Holding) which is a majority-owned subsidiary of Sunderland Industrial
Holdings Corporation (Sunderland).
The Company is a full-service custom injection molder of highly engineered,
close tolerance, precision plastic products. The Company also has extensive mold
manufacturing capabilities. The Company's marketing focus is to service a
diverse base of original equipment manufacturers in the health care, packaging,
and consumer/industrial markets. The Company has ten facilities located
throughout the Eastern and Midwestern United States.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of 90
days or less at the time of original purchase to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) method. Market is net realizable value.
REVENUE RECOGNITION
Finished Products--Revenue from product sales is recognized at the time
products are shipped.
Tolling and Dies--Cost of tooling and dies purchased or produced are
included in inventory. Tooling deposits represent progress billings related to
the manufacture of tools and dies for customers. Income from contracts for the
manufacture of customer tooling is accounted for under the completed-contract
method of accounting, which recognizes revenue upon completion of contracts.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Contracts are considered substantially
complete upon acceptance by the customer.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the straight-line
method based on estimated useful lives, as follows:
<TABLE>
<S> <C>
Building and improvements.............................................. 5-40 years
Machinery and equipment................................................ 3-10 years
</TABLE>
Leasehold improvements are amortized over the shorter of the useful life of
the asset or the term of the lease. Expenses for repairs, maintenance and
renewals are charged to operations as incurred. Expenditures which improve an
asset or extend its useful life are capitalized.
INTANGIBLES
Goodwill--Goodwill represents the excess of amounts paid and liabilities
assumed over the fair value of identifiable tangible and intangible assets
acquired. This amount is amortized using the straight-line method over a period
of 25 years. The Company evaluates the carrying value of goodwill for potential
impairment on an ongoing basis. Such evaluation considers projected future
operating results, trends and other circumstances.
37
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
When factors indicate that goodwill could be impaired, the Company uses an
estimate of the related business' undiscounted future cash flows over the
remaining life of the goodwill in measuring whether the goodwill is recoverable.
If such an analysis indicates that impairment has occurred, the Company adjusts
the book value of the goodwill to fair value.
Deferred Financing Cost--Deferred financing costs relate to the costs of
obtaining financing. These costs are being amortized over the period related to
the loans outstanding.
Noncompete Agreements--Noncompete agreements relate to contracts executed
in conjunction with the acquisitions. Such agreements are being amortized over
the life of the contracts.
INCOME TAXES
The Company is a member of a controlled group of companies. As such, annual
elections are made to share credits and exemptions as allowed under federal
income tax laws. Deferred taxes are provided for the tax consequences of
temporary differences between financial statement carrying amounts and the tax
bases of assets and liabilities. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS
Accounts receivable are presented net of allowance for doubtful accounts of
approximately $85,000 and $60,000 as of December 31, 1997 and 1996,
respectively. Management continually evaluates it's accounts receivable and
adjusts it's allowance for doubtful accounts for changes in potential credit
risk. For the year ended December 31, 1997, sales to one customer accounting for
10% or more of net sales were $21,337,000. For the year ended December 31, 1996,
sales to two customers accounting for 10% or more of net sales were $14,085,000
and $12,263,000. For the year ended December 31, 1995, sales to two customers
accounting for 10% or more of net sales were $10,106,000 and $3,643,000. The
Company does not require collateral for its trade accounts receivable and
maintains an allowance for doubtful accounts.
38
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
The major components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Finished products.............................................. $ 1,679,131 $ 2,971,774
Raw materials.................................................. 2,349,130 4,208,211
Tooling and dies............................................... 1,827,448 2,676,272
----------- -----------
$ 5,855,709 $ 9,856,257
----------- -----------
----------- -----------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Land........................................................... $ 2,193,750 $ 2,193,750
Buildings and leasehold improvements........................... 9,534,416 10,229,961
Machinery and equipment........................................ 45,297,145 37,503,277
----------- -----------
57,025,311 49,926,988
Accumulated depreciation and amortization...................... (12,194,750) (7,863,565)
----------- -----------
Net property, plant and equipment.............................. $44,830,561 $42,063,423
----------- -----------
----------- -----------
</TABLE>
Depreciation and amortization expense on property, plant and equipment was
approximately $5,513,000, $4,213,000 and $1,154,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Goodwill....................................................... $25,392,991 $26,010,395
Deferred financing costs....................................... 4,575,005 4,743,748
Noncompete agreements.......................................... 556,666 556,666
Intangible pension asset and other............................. 421,539 147,235
----------- -----------
Total.......................................................... 30,946,201 31,458,044
Accumulated amortization (2,619,495) (1,587,330)
----------- -----------
Intangible and other assets, net............................... $28,326,706 $29,870,714
----------- -----------
----------- -----------
</TABLE>
In connection with the Refinancing Transactions, the Company expensed
approximately $3,829,000 of unamortized deferred financing cost, related to the
Prior Credit Agreement (see Note 6) and the Retired Note Agreement (see Note 6).
Such costs are included in the Company's extraordinary loss, net of tax, for the
year ended December 31, 1997. Financing costs incurred in connection with
obtaining the 11 1/8% Senior Subordinated Notes ('Notes') and the New Credit
Agreement ('NCA') of approximately $4,575,000 have been deferred by the Company
as of December 31, 1997 and are being amortized over the period the Notes and
the NCA are outstanding.
39
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
11 1/8% Senior Subordinated Notes(a)........................... $75,000,000 $ --
New Credit Agreement(b)........................................ 8,500,000 --
Prior Credit Agreement(c):
Term Note A.................................................. -- 21,562,500
Term Note B.................................................. -- 17,500,000
Retired Notes(d)............................................... -- 20,000,000
Other notes(e)................................................. 372,170 585,261
Capitalized lease obligations (Note 10)........................ 8,879,335 6,366,091
----------- -----------
92,751,505 66,013,852
Less:
Current maturities on long-term debt......................... (5,882,842) (7,641,105)
Unamortized discount on Retired Notes........................ -- (1,802,055)
----------- -----------
$86,868,663 $56,570,692
----------- -----------
----------- -----------
</TABLE>
(A) 11 1/8% SENIOR SUBORDINATED NOTES DUE 2007 ('NOTES')
On June 13, 1997, the Company issued $75,000,000 of Notes. The Company used
the proceeds from the issuance of the Notes and approximately $8,200,000 of
borrowings under its New Credit Agreement to extinguish certain existing
indebtedness, redeem its redeemable preferred stock, repurchase certain shares
of its common stock, make a distribution to its Parent, and pay fees and
expenses related to these Refinancing Transactions. These Refinancing
Transactions resulted in the recording of an extraordinary loss during June 1997
of approximately $4,841,000, net of tax.
The Notes accrue interest at the rate of 11-1/8% per annum and are payable
semi-annually in arrears on June 15 and December 15, commencing on December 15,
1997.
The Notes are subordinate in right of payment to all existing and future
senior indebtedness of the Company and are guaranteed on a senior subordinated
basis by all of the Company's subsidiaries.
The Notes are redeemable at the option of the Company on or after June 15,
2002 at prices decreasing from 105.563% of the principal amount thereof to par
on June 15, 2005 and thereafter. The Company is required to redeem the
outstanding notes based upon certain events as described in the Note Indenture.
The Note Indenture requires the Company and its subsidiaries to comply with
certain restrictive covenants, including a restriction on dividends and
limitations on the incurrence of indebtedness and the issuance of preferred
stock.
(B) NEW CREDIT AGREEMENT ('NCA')
On June 13, 1997, the Company entered into a $30,000,000 NCA with a
financial institution. Borrowings under the NCA may be used to fund the
Company's working capital requirements, finance certain permitted acquisitions
and general corporate requirements of the Company and pay fees and expenses
related to the foregoing. Up to $2,000,000 of the total NCA commitment is
available for the issuance of standby letters of credit, which borrowings reduce
amounts available under the NCA. The Company is required to pay a .50% fee on
the average daily unused portion of the NCA. The Company is also subject to
mandatory prepayment terms as described in the NCA. The NCA expires in 2002.
40
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT--(CONTINUED)
Borrowings under the NCA accrue interest, at the option of the Company, at
either LIBOR (varying from 5.85% to 5.97% at December 31, 1997) plus 2.5% or the
financial institution's prime rate (8.5% at December 31, 1997) plus 1.5%.
The Company has classified approximately $6,000,000 of borrowings under the
NCA as long-term as of December 31, 1997 due to its ability and intent to
maintain such borrowings on a long-term basis.
The NCA is guaranteed on a senior basis by the Company's Parent and by all
of the Company's subsidiaries and is collateralized by substantially all of the
Company's and its subsidiaries' assets. The NCA contains certain covenants which
require the Company to maintain leverage ratios, fixed charge and interest
coverage ratios and minimum net worth. The NCA further limits capital
expenditures, declaration of dividends and other restricted payments, and
additional indebtedness. The NCA also restricts the sale or transferring of the
Company's assets or capital stock.
(C) PRIOR CREDIT AGREEMENT ('PCA')
On March 28, 1996, the Company entered into a $53,000,000 PCA with a
financial institution that was comprised of a $13,000,000 revolving line of
credit and two term notes (A and B) of $22,500,000 and $17,500,000,
respectively.
The PCA obligations of $37,257,000, including accrued interest of $250,000
were extinguished with the proceeds of the Notes and the NCA on June 13, 1997.
The extinguishment required a termination fee of approximately $221,000 which is
included in the Company's extraordinary loss, net of tax, for the year ended
December 31, 1997.
(D) RETIRED NOTE AGREEMENT ('RNA')
On March 29, 1996, the Company issued two $10,000,000 subordinated notes
under the RNA. The RNA obligations of $20,000,000 were extinguished with the
proceeds of the Notes and the NCA on June 13, 1997. The extinguishment required
prepayment premiums of $2,178,000, which are included in extraordinary loss, net
of tax, for the year ended December 31, 1997.
The subordinated note holders also entered into a Warrant Purchase
Agreement pursuant to which, in connection with their purchase of the
subordinated notes, one note holder acquired one warrant exercisable to purchase
570 shares of Precise Holding common stock and the other note holder acquired
two warrants exercisable to purchase 371 and 199 shares of Precise Holding
common stock, respectively. The warrants can be exercised at any time up to
March 29, 2009 for an exercise price of $.01 per share. The warrants were
originally recorded at fair value. The value ascribed to the warrants to
purchase the Precise Holding common stock resulted in a discount to the
subordinated notes and an addition to paid-in-capital of approximately
$1,900,000. The addition to paid-in-capital is net of tax of approximately
$744,000. The discount was being amortized over the life of the subordinated
notes using the interest method yielding an effective interest rate of 14.12%.
The unamortized debt discount of approximately $1,744,000 was expensed at June
13, 1997 in connection with the RNA Extinguishment and is included in the
Company's extraordinary loss, net of tax, for the year ended December 31, 1997.
(E) OTHER NOTES
The Company has various other notes of approximately $372,000 at December
31, 1997. The notes are payable in monthly installments ranging from $3,756 to
$7,697 commencing March 1, 1995 through March 2, 2000. The notes accrue interest
at rates varying from 4.8% to 8.15%.
41
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT--(CONTINUED)
Five-year maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DEBT OBLIGATIONS
----------------
<S> <C>
1998......................................................................... $ 5,882,842
1999......................................................................... 2,706,188
2000......................................................................... 1,740,874
2001......................................................................... 877,648
2002......................................................................... 6,543,953
Thereafter................................................................... 75,000,000
----------------
$ 92,751,505
----------------
----------------
</TABLE>
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company in estimating its fair value disclosures for financial
instruments used the following methods and assumptions:
Cash and cash equivalents--The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long-term debt--The carrying amounts of the Company's borrowings under
its short-term revolving credit agreements approximate their fair value.
The fair values of the Company's long-term debt are estimated using
discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1997 1996
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 560,059 $ 560,059 $ 1,310,564 $ 1,310,564
Line of credit............................ $ -- $ -- $ 300,000 $ 300,000
Long-term debt............................ $92,751,505 $92,751,505 $64,211,797 $64,211,797
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a noncontributory defined benefit pension plan
covering all union employees. Benefits are generally based on years of service
and benefit rates stated in the plan agreement. The Company made an annual
contribution to the plan of at least the minimum funding required by the
Employee Retirement Income Security Act of 1974. Pension costs were determined
by an independent actuary using the projected unit credit cost method.
The plan's assets are held an independent trustee and are invested
primarily in guaranteed fixed income insurance contracts. The weighted average
discount rate used in determining the actuarial present value of the projected
benefit obligation was 7.5% and 8.1%, respectively, at December 31, 1997 and
1996. The expected long-term rate of return on plan assets was 8.0% and 8.5% for
1997 and 1996, respectively.
42
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The Company's pension expense for its defined benefit pension plan consists
of the following components for the years ended December 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Service cost for benefits earned during the year......... $ 32,464 $ 34,515 $ 48,665
Interest cost on projected benefit obligation............ 88,291 82,964 112,397
Actual return on plan assets............................. (95,752) (88,642) (126,099)
Net amortization and deferral............................ 14,120 15,266 14,527
-------- -------- ---------
Net periodic pension cost................................ $ 39,123 $ 44,103 $ 49,490
-------- -------- ---------
-------- -------- ---------
</TABLE>
The following sets forth the funded status of the Company's defined benefit
plan and amounts recognized in the accompanying balance sheets as of December
31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Vested benefit obligation........................................ $ 1,261,094 $1,056,958
----------- ----------
Accumulated benefit obligation (ABO)............................. 1,324,244 1,113,079
Plan assets at estimated fair value.............................. 1,215,615 1,119,555
----------- ----------
Plan assets (less than) in excess of ABO......................... (108,629) 6,476
Unrecognized net loss............................................ 340,286 196,344
Unrecognized prior service cost.................................. 89,835 97,795
Minimum liability adjustment..................................... (430,121) --
----------- ----------
Prepaid pension asset (pension liability)........................ $ (108,629) $ 300,615
----------- ----------
----------- ----------
</TABLE>
In addition, the Company sponsors a defined contribution 401(k) plan which
covers substantially all non-union employees at the Tredegar and Unity
facilities. Under the terms of the 401(k), the Company matches 25% of employees'
contributions up to 6% of employees' salaries. Contributions made by the Company
to the defined contribution 401(k) plan were approximately $146,000 and $69,000
for the years ended December 31, 1997 and 1996, respectively.
The Company also sponsors a defined contribution 401(k) plan which covers
substantially all non-union employees at the other Company facilities. Under the
terms of the 401(k) plan, the Company matches 50% of employees' contributions up
to 5% of employee salary, and provides a discretionary contribution of 3.5% of
eligible employees' salaries to the plan, for a combined total of up to 6% of
eligible employees' earnings. Contributions made by the Company to the defined
contribution 401(k) plan were approximately $343,000, $329,000 and 257,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
43
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
Income tax expense consisted of the following for the years ended December
31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------- --------
<S> <C> <C> <C>
Current:
Federal.............................................. $ -- $ 586,466 $275,000
State................................................ 349,000 330,000 139,000
-------- ---------- --------
349,000 916,466 414,000
Deferred:
Federal.............................................. (398,000) 412,388 472,569
State................................................ 277,000 (64,000) 54,857
-------- ---------- --------
(121,000) 348,388 527,426
-------- ---------- --------
$228,000 $1,264,854 $941,426
-------- ---------- --------
-------- ---------- --------
</TABLE>
A reconciliation of U.S. income tax computed at the statutory rate and
actual expense is as follows for the years ending December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- --------
<S> <C> <C> <C>
Amount computed at statutory rate...................... $(650,000) $ 589,000 $754,000
State and local taxes less applicable federal
income tax........................................... 413,000 156,000 212,000
Goodwill and other amortization........................ 386,000 367,000 --
Other.................................................. 79,000 152,854 (24,574)
--------- ---------- --------
$ 228,000 $1,264,854 $941,426
--------- ---------- --------
--------- ---------- --------
</TABLE>
The components of net deferred tax assets and liabilities at December 31
are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Receivables..................................................... $ 120,937 $ 111,271
Inventory....................................................... 73,363 257,345
Accrued expenses................................................ 1,105,793 1,529,244
Related party financing costs................................... 280,906 --
Plant closing costs............................................. 331,750 643,006
Federal net operating losses.................................... 2,676,085 --
State net operating losses...................................... -- 191,969
Pension......................................................... 118,534 142,519
AMT credit carryforward......................................... 93,000 33,433
Other........................................................... 121,770 --
---------- ----------
Total deferred tax assets......................................... 4,922,138 2,908,787
Deferred tax liabilities:
Inventory....................................................... 170,998 124,021
Property, plant and equipment................................... 5,192,928 5,741,059
Debt discount................................................... -- 736,802
---------- ----------
Total deferred tax liabilities.................................... 5,363,926 6,601,882
---------- ----------
Net deferred tax liabilities...................................... $ 441,788 $3,693,095
---------- ----------
---------- ----------
</TABLE>
The Company had net operating losses for federal income tax purposes at
December 31, 1997 of approximately $7,871,000.
44
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
(A) LEASE COMMITMENTS
The Company leases certain production and office equipment and vehicles.
These leases are subject to renewal options for varying periods. Future minimum
payments under capital leases and noncancelable operating leases with initial or
remaining terms of one year or more consisted of the following as of December
31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
1998............................................................. $ 3,830,426 $1,633,958
1999............................................................. 2,901,008 1,615,722
2000............................................................. 1,937,509 640,520
2001............................................................. 979,702 458,097
2002............................................................. 564,622 189,335
Thereafter....................................................... -- 172,393
----------- ----------
Total minimum lease payments..................................... $10,213,267 $4,710,025
----------
----------
Less amounts representing interest............................... (1,333,932)
-----------
-----------
Present value of net minimum lease payments...................... 8,879,335
Less current maturities of capital lease obligations............. (3,224,576)
-----------
Capital lease obligations........................................ $ 5,654,759
-----------
-----------
</TABLE>
The Company has two lease lines of credit in the amounts of approximately
$3,388,000 and $2,000,000, which expire on February 20, 1998 and April 30, 1998,
respectively. These lease lines of credit are available to support the Company's
capital expenditures for certain machinery and equipment. As of December 31,
1997, the Company had approximately $2,736,000 of borrowings outstanding under
the $3,388,000 lease line, and $0 of borrowings outstanding under the $2,000,000
lease line.
Operating lease expense under such arrangements was approximately
$1,606,000, $1,220,000 and $413,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
Capital leases are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Machinery and equipment.......................... $13,451,000 $ 8,656,000 $ 4,541,000
Leasehold improvements........................... 225,000 799,000 799,000
----------- ----------- -----------
13,676,000 9,455,000 5,340,000
Accumulated amortization......................... (2,622,000) (1,547,000) (1,010,000)
----------- ----------- -----------
$11,054,000 $ 7,908,000 $ 4,330,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Amortization expense related to capitalized leases was approximately
$1,073,000, $749,000 and $576,000 for the years ended December 31, 1997, 1996,
and 1995, respectively.
(B) LITIGATION
The Company is involved from time to time in lawsuits that arise in the
normal course of business. The Company actively and vigorously defends all
lawsuits. Management believes that there are no lawsuits that will have a
material affect on the Company's financial position.
45
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
(C) COLLECTIVE BARGAINING AGREEMENT
Approximately 5% of the Company's employees are covered under a collective
bargaining agreement which expired on February 2, 1998. The Company is currently
in negotiations with the collective bargaining unit, however, no assurances can
be given as to the effect the negotiations will have on The Company's results of
operations.
11. REDEEMABLE PREFERRED STOCK
Redeemable Preferred Stock consists of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
------ ----------
<S> <C> <C>
Series A cumulative exchangeable preferred stock, no par value; 575
shares authorized, issued and outstanding........................... $ -- $5,750,000
Series B cumulative redeemable preferred stock, $10,000 stated value;
250 shares authorized, issued and outstanding....................... -- 2,500,000
------ ----------
$ -- $8,250,000
------ ----------
------ ----------
</TABLE>
Effective March 29, 1996 in connection with the Tredegar acquisition, the
Company authorized and issued 575 shares of Series A cumulative exchangeable
preferred stock without par value (Series A preferred stock) for consideration
of $5,750,000 (liquidation preference $10,000 per share). The Series A preferred
stock was redeemed with the proceeds of the Notes and the NCA on June 13, 1997.
In connection with their purchase of Series A preferred stock, the
stockholders also purchased 250 shares of Precise Holding common stock and $.01
per share warrants to acquire 575 shares of common stock for an aggregate
consideration of $750,000. The warrants can be exercised at any time through
March 29, 2006. The $750,000 was subsequently contributed to the Company as a
capital contribution by Precise Holding.
Effective March 29, 1996 in connection with the Tredegar acquisition, the
Company authorized and issued 250 shares of Series B cumulative redeemable
preferred stock (Series B stock) for consideration of $2,500,000 with a stated
value of $10,000 per share (liquidation preference) under a securities purchase
agreement. The Series B stock was redeemed with the proceeds of the Notes and
the NCA on June 13, 1997.
12. RELATED PARTY TRANSACTION
The sole executive officers and directors of Mentmore are Richard L. Kramer
and William L. Remley who are also directors of the Company. Mentmore provides
management services to Precise and its subsidiaries pursuant to the Management
Agreement dated March 15, 1996, as amended (the 'Management Agreement'), between
Precise and Mentmore. Pursuant to the Management Agreement, Mentmore provides
the Company with general management, advisory and consulting services with
respect to the Company's business and with respect to such to such other matters
as the Company may reasonably request from time to time, including, without
limitation, strategic planning, financial planning, business acquisition and
general business development services. The Company paid Mentmore fees of
$675,000, $450,000, $300,000 for the years ended December 31, 1997, 1996 and
1995, respectively, for management and other advisory services and reimbursed
Mentmore for certain expenses incurred in connection with the rendering of such
services.
The Company paid the law firm of Richard C. Hoffman, P.C., whose principal
is a director of the Company, approximately $5,000 and $257,000 in legal fees
for the years ended December 31, 1997 and 1996. During this period, Mr. Hoffman
served as Vice President and General Counsel of Mentmore.
46
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RELATED PARTY TRANSACTION--(CONTINUED)
The Company paid the law firm of Michael D. Schenker, Co. L.P.A. whose
principal is an officer of Mentmore, a total of approximately $300,000 in legal
fees for the year ended December 31, 1997.
In April of 1997, two of the Company's executive officers were granted
options to purchase an aggregate of 1,900 shares of Sunderland common stock at
an exercise price of $1,500 per share, pursuant to nonqualified stock option
agreements (the 'Option Agreements'). The exercise price was derived from a
formula based upon the fair market value of Sunderland's common stock at the
date of the grant. The majority of the options (1,600 shares) are exercisable
over a three-year period following the grant date. The remainder of the options
are exercisable in 25% increments based upon the attainment of a certain annual
operating target as defined in the Option Agreements, for Sunderland's year
ended December 31, 1997 through 2000.
13. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
'Subsidiary Guarantees') by Precise Technology of Delaware, Inc., Precise
Technology of Illinois, Inc., Precise TMP, Inc., Precise Polestar, Inc., and
Massie Tool, Mold and Die, Inc. each a direct or indirect wholly-owned
subsidiary of the Company and each a 'Guarantor.' These subsidiaries represent
substantially all of the operations of the Company conducted in the United
States. In accordance with previous positions taken by the Securities and
Exchange Commission, the following summarized financial information illustrates
the composition of the combined Guarantors. Separate complete financial
statements of the respective Guarantors are not presented because management has
determined that they would not provide additional material information that
would be useful in assessing the financial composition of the Guarantors. No
single Guarantor has any significant legal restrictions on the ability of
investors or creditors to obtain access to its assets in the event of a default
on its Subsidiary Guarantee other than its subordination to senior indebtedness
described in Note 4. The principal elimination entries eliminate investments in
subsidiaries and inter-company balances and transactions.
47
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS--(CONTINUED)
SUMMARIZED COMBINED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current asets.................................... $ 4,289,403 $ 58,060,662 $(41,868,400) $ 20,481,665
Non-current assets............................... 84,584,952 57,404,221 (68,831,906) 73,157,267
Current liabilities.............................. 37,819,081 19,749,491 (41,868,400) 15,700,172
Non-current liabilities.......................... 83,990,371 4,309,454 -- 88,299,825
Net sales........................................ 17,144,490 84,084,037 (491,727) 100,736,800
Gross profit..................................... 3,269,570 14,735,291 -- 18,004,861
(Loss) income from continuing operations before
extraordinary item............................. (1,011,772) (900,554) -- (1,912,326)
Net (loss) income................................ (15,926,317) 8,945,491 -- (6,980,826)
</TABLE>
SUMMARIZED COMBINED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets................................... $ 7,819,929 $ 37,740,086 $(18,434,856) $ 27,125,159
Non-current assets............................... 77,685,619 63,080,424 (68,831,906) 71,934,137
Current liabilities.............................. 24,234,441 15,966,893 (18,434,856) 21,766,478
Non-current liabilities.......................... 56,172,400 5,917,551 -- 62,089,951
Redeemable preferred stock....................... 8,250,000 -- -- 8,250,000
Net sales........................................ 23,660,460 71,003,843 (1,374,980) 93,289,323
Gross profit..................................... 5,684,712 11,127,595 -- 16,812,307
Net (loss) income................................ (7,953,397) 8,419,719 -- 466,322
</TABLE>
SUMMARIZED COMBINED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales........................................ $ 25,079,156 $ 8,463,149 -- $ 33,542,305
Gross profit..................................... 5,351,248 2,314,434 -- 7,665,682
Net (loss) income................................ (184,674) 1,459,606 -- 1,274,932
</TABLE>
48
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth selected financial information for each of
the fiscal quarters during years ended December 31, 1997 and 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales......................................... $26,325 $25,470 $24,616 $24,326
Gross profit...................................... 4,712 4,215 4,471 4,607
Income/(loss) before extraordinary item,
net of tax...................................... 150 (1,502) (455) (333)
Net income / (loss)............................... 150 (6,343) (455) (333)
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales......................................... $ 9,089 $28,253 $28,397 $27,550
Gross profit...................................... 1,933 4,652 4,489 5,738
Net income / (loss)............................... 287 71 (159) 267
</TABLE>
49
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH VERSAILLES, STATE OF PENNSYLVANIA, AS OF MARCH 31, 1998.
PRECISE TECHNOLOGY, INC.
By: /s/ JOHN R. WEEKS
-----------------------------------
John R. Weeks
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES
AND AS OF THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD L. KRAMER Chairman of the Board of Directors, March 31, 1998
- ------------------------------------------ Secretary and Director
Richard L. Kramer
/s/ WILLIAM L. REMLEY Vice Chairman, Treasurer and Director March 31, 1998
- ------------------------------------------ (principal financial and accounting
William L. Remley officer)
/s/ JOHN R. WEEKS President and Chief Executive Officer March 31, 1998
- ------------------------------------------
John R. Weeks
</TABLE>
50
<PAGE>
PRECISE TECHNOLOGY INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
------------------------------------
(1) (2)
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER
BEGINNING AND ACCOUNTS DEDUCTIONS-- BALANCE AT
OF PERIOD EXPENSES --DESCRIBE DESCRIBE END OF PERIOD
---------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts............. $ 60,000 $25,000 $-- $ -- $ 85,000
---------- --------- --- ----------- -------------
---------- --------- --- ----------- -------------
YEAR ENDED DECEMBER 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts............. $ 100,000 $ -- $-- $ (40,000)(1) $ 60,000
---------- --------- --- ----------- -------------
---------- --------- --- ----------- -------------
YEAR ENDED DECEMBER 31, 1995:
Deducted from asset accounts:
Allowance for doubtful account.............. $ 148,000 $ -- $-- $ (48,000)(2) $ 100,000
---------- --------- --- ----------- ----------
---------- --------- --- ----------- ----------
</TABLE>
- ------------------
(1) Adjustment of allowance as a results of changing circumstances
(2) Adjustment of allowance as a result of changed circumstances ($30,000) and
uncollectible accounts written off, net of recoveries ($18,000).
S-1
<PAGE>
PRECISE TECHNOLOGY INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Earnings before fixed charges:
Net income (loss)............................................. $ 421 $ 950 $1,275 $ 466 $(6,981)
Extraordinary item, net of tax................................ -- -- -- -- 4,841
Provision for income taxes.................................... 66 574 941 1,265 228
------ ------ ------ ------ -------
Income (loss) before income taxes............................... 487 1,524 2,216 1,731 (1,912)
Interest expense................................................ 706 956 810 6,131 8,771
Interest portion of rental expenses............................. 88 124 103 304 390
Current period interest
Amortization of interest capitalized in prior periods......... -- -- 2 2 2
------ ------ ------ ------ -------
Earnings before fixed charges................................... 1,281 2,604 3,131 8,168 7,251
------ ------ ------ ------ -------
Fixed Charges
Interest expense.............................................. 706 956 810 6,131 8,771
Interest portion of rental expenses........................... 88 124 103 304 390
Interest capitalized during the period........................ -- 17 -- -- 171
------ ------ ------ ------ -------
Total fixed charges........................................... 794 1,097 913 6,435 9,332
Excess (Deficiency) of earnings to fixed charges................ $ 487 $1,507 $2,218 $1,733 $(2,081)
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Ratio of Earnings to fixed charges.............................. 1.6x 2.4x 3.4x 1.3x 0.8x
------ ------ ------ ------ -------
------ ------ ------ ------ -------
</TABLE>
S-2
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ --------------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C>
*3.1 -- Amended and Restated Certificate of Incorporation of Precise Technology, Inc.
*3.2 -- Bylaws of Precise Technology, Inc.
*3.3 -- Certificate of Incorporation of Precise Technology of Delaware, Inc.
*3.4 -- Bylaws of Precise Technology of Delaware, Inc.
*3.5 -- Certificate of Incorporation of Precise Technology of Illinois, Inc.
*3.6 -- Bylaws of Precise Technology of Illinois, Inc.
*3.7 -- Articles of Incorporation of Precise TMP, Inc.
*3.8 -- Amended and Restated Bylaws of Precise TMP, Inc.
*3.9 -- Certificate of Incorporation of Precise Polestar, Inc.
*3.10 -- Bylaws of Precise Polestar, Inc.
*3.11 -- Articles of Incorporation of Massie Tool, Mold & Die, Inc.
*3.12 -- Bylaws of Massie Tool, Mold & Die, Inc.
*4.1 -- Indenture dated as of March 18, 1997 by and among Precise Technology, Inc., as Issuer,
Precise Technology of Delaware, Inc., Precise Technology of Illinois, Inc., Precise
TMP, Inc., Precise Polestar, Inc. and Massie Tool, Mold & Die, Inc., as Subsidiary
Guarantors, and Marine Midland Bank, as trustee (including the form of 11 1/8% Senior
Subordinated Note due 2007 and the form of Subsidiary Guarantee).
*4.2 -- Registration Rights Agreement, dated as of June 13, 1997, by and among Precise
Technology, Inc., Precise TMP, Inc., Massie Tool, Mold & Die, Inc., Precise Polestar,
Inc., Precise Technology of Delaware, Inc., Precise Technology of Illinois, Inc., Bear,
Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
*4.3 -- Purchase Agreement dated June 10, 1997, by and among Precise Technology, Inc., Precise
TMP, Inc., Massie Tool, Mold & Die, Inc., Precise Polestar, Inc., Precise Technology of
Delaware, Inc., Precise Technology of Illinois, Inc., Bear, Stearns & Co. Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
*4.4 -- Supplemental Indenture No. 1 to Indenture, dated as of October 10, 1997, by and among
PreciseTechnology, Inc., Precise TMP, Inc., Massie Tool, Mold & Die, Inc., Precise
Polestar, Inc., Precise Technology of Delaware, Inc., Precise Technology of Illinois,
Inc. and Marine Midland Bank, as trustee.
*10.1 -- Credit Agreement dated as of June 13, 1997, among Precise Holding Corporation, Precise
Technology, Inc., the subsidiary guarantors party thereto, the lenders party thereto
and Fleet National Bank, as Agent and Issuing Bank.
10.2 -- First Amendment and Consent to Credit Agreement as of March 17, 1998, among Precise
Holding Corporation, Precise Technology, Inc., the subsidiary guarantors party thereto,
the lenders party thereto and Fleet National Bank, as agent and Issuing Bank.
*10.3 -- Consent Agreement dated as of June 9, 1997 among Precise Technology, Inc., Precise
Holding Corporation, Sunderland Industrial Holdings Corporation, Hamilton Holdings Ltd.
Corporation, John Hancock Mutual Life Insurance Company, Rice Partners II, L.P.,
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined Benefit
Plans of Zeneca Holdings Inc., and Declaration of Trust for Defined Benefit Plans of
ICI American Holdings Inc.
*10.4 -- Securities Purchase Agreement dated March 29, 1996, among Precise Holding Corporation,
Precise Technology, Inc., Delaware State Employees' Retirement Fund, Declaration of
Trust for Defined Benefit Plans of Zeneca Holdings Inc., and Declaration of Trust for
Defined Benefit Plans of ICI American Holdings Inc.
*10.5 -- Note Purchase Agreement dated as of March 29, 1996, among Precise Technology, Inc.,
John Hancock Mutual Life Insurance Company and Rice Partners II, L.P.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ --------------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C>
*10.6 -- Warrant Purchase Agreement dated as of March 29, 1996, among Precise Holding
Corporation, Rice Partners II, L.P., John Hancock Mutual Life Insurance Company,
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined Benefit
Plans of Zeneca Holdings Inc., and Declaration of Trust for Defined Benefit Plans of
ICI American Holdings Inc.
*10.7 -- First Amendment to Warrant Purchase Agreement dated as of June 13, 1997, among Precise
Holding Corporation, Rice Partners II, L.P., John Hancock Mutual Life Insurance
Company, Delaware State Employees' Retirement Fund, Declaration of Trust for Defined
Benefit Plans of Zeneca Holdings Inc., and Declaration of Trust for Defined Benefit
Plans of ICI American Holdings Inc.
*10.8 -- Shareholder Agreement dated as of March 29, 1996 among Precise Holding Corporation,
Sunderland Industrial Holdings Corporation, Hamilton Holdings Ltd. Corporation,
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined Benefit
Plans of Zeneca Holdings Inc., Declaration of Trust for Defined Benefit Plans of ICI
American Holdings Inc., John Hancock Mutual Life Insurance Company and Rice Partners
II, L.P.
*10.9 -- First Amendment to Shareholder Agreement dated as of June 13, 1997 among Precise
Holding Corporation, Sunderland Industrial Holding Corporation, Hamilton Holdings Ltd.
Corporation, Delaware State Employees' Retirement Fund, Declaration of Trust for
Defined Benefit Plans of Zeneca Holdings Inc., Declaration of Trust for Defined Benefit
Plans of ICI American Holdings Inc., Rice Partners II, L.P. and John Hancock Mutual
Life Insurance Company.
*10.10 -- Tax Allocation and Indemnity Agreement dated as of June 11, 1997 by and among
Sunderland Industrial Holdings Corporation, Precise Holding Corporation, and Precise
Technology, Inc. and its direct and indirect subsidiaries.
*10.11 -- Amended and Restated Management Agreement, dated as of June 13, 1997 between Precise
Technology, Inc. and Mentmore Holdings Corporation.
*10.12 -- Sunderland Industrial Holdings Corporation 1997 Key Employee Nonqualified Stock Option
Plan dated as of April 24, 1997.
*10.13 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland
Industrial Holdings Corporation and John R. Weeks.
*10.14 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland
Industrial Holdings Corporation and Michael M. Farrell.
+10.15 -- Memorandum of Agreement dated August 8, 1995 between The Procter & Gamble Manufacturing
Company and Tredegar Molded Products Company.
*21.1 -- Subsidiaries of the Registrants.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* Previously filed with Registration No. 333-32041 and incorporated herein by
reference.
+ Confidential treatment requested for a portion of this exhibit previously
filed herein by reference.
<PAGE>
FIRST AMENDMENT AND CONSENT
FIRST AMENDMENT AND CONSENT (this "Amendment"), dated
as of March 17, 1998, by and among PRECISE HOLDING CORPORATION, a
Delaware corporation ("Parent"), PRECISE TECHNOLOGY, INC., a Delaware
corporation (the "Borrower"), each Subsidiary of the Borrower party to
the Credit Agreement referred to below (each a "Subsidiary Guarantor" and
collectively, the "Subsidiary Guarantors"), the banks, financial
institutions and other institutional lenders party to the Credit
Agreement referred to below (the "Lenders") and FLEET NATIONAL BANK
("Fleet"), as agent for the Lenders (the "Agent") and as Issuing Bank.
Capitalized terms that are used but not otherwise defined herein shall
have the meanings ascribed to them in the Credit Agreement referred to
below.
WHEREAS, Parent, the Borrower, each Subsidiary
Guarantor, the Lenders and Fleet are parties to that certain Credit
Agreement dated as of June 13, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Lenders
consent to certain modifications and amendments to the Credit Agreement
as provided herein; and
WHEREAS, subject to the terms and conditions herein,
the Lenders are willing to grant such consent and agree to such
modifications and amendments;
NOW, THEREFORE, in consideration of the mutual
agreements contained herein and other valuable consideration the receipt
and sufficiency of which are hereby acknowledged, each of the parties
hereto hereby agrees as follows:
I. Amendments and Modifications to the Credit Agreement
1. On and after the Amendment Effective Date (as
hereinafter defined), Section 1.01 of the Credit Agreement is hereby
amended by:
(a) deleting the definition of "Fixed Charge Coverage
Ratio" appearing therein and inserting the following new definition in
lieu thereof:
"Fixed Charge Coverage Ratio" means, with respect to
any Person for any Rolling Period, the ratio of (a) Consolidated EBITDA
for such Person and its Subsidiaries for such Rolling Period less the
amount of all Capital Expenditures of such Person and its Subsidiaries
that have been paid in cash during such Rolling Period (but excluding, to
the extent included herein, Capital Expenditures that have been paid in
cash in an amount of up to $2,347,000 for the 1997 Fiscal Year and up to
$913,000 for the 1998 Fiscal Year, provided that any such amounts are
directly associated with the Holden Facility and/or the purchase,
installation and implementation by the Borrower of the new enterprise
resource planning (ERP) software system by BaaN used for the Borrower's
primary business applications) to (b) the sum of (i) Interest
<PAGE>
Expense of such Person and its Subsidiaries that has been paid in cash
during such Rolling Period and (ii) regularly scheduled principal
payments of Funded Debt and any Capitalized Leases of such Person and its
Subsidiaries made during such Rolling Period."; and
(b) inserting in the appropriate alphabetical order the
following new definition:
"Holden Facility" means the new project being
undertaken by the Borrower to manufacture injection molded plastic
products for Gillette at its Holden, Massachusetts facility."
2. On and after the Amendment Effective Date, Section
5.04 of the Credit Agreement is hereby amended by:
(a) deleting Section 5.04(a)(i) in its entirety and
inserting the following new Section 5.04(a)(i) in lieu thereof:
"(a) (i) Total Leverage Ratio. Maintain a
Total Leverage Ratio for each period set forth below of not more than the
amount set forth below for such period:
Fiscal Quarter Ending Ratio
--------------------- -----
03/31/1998 6.70:1
06/30/1998 6.70:1
09/30/1998 6.25:1
12/31/1998 5.65:1
03/31/1999 4.60:1
06/30/1999 4.40:1
09/30/1999 4.30:1
12/31/1999 4.05:1
03/31/2000 4.05:1
06/30/2000 4.05:1
09/30/2000 4.05:1
12/31/2000 3.35:1
03/31/2001 3.35:1
06/30/2001 3.35:1
09/30/2001 3.35:1
12/31/2001 3.00:1
and thereafter"
(b) deleting Section 5.04(b) in its entirety and
inserting the following new Section 5.04(b) in lieu thereof:
<PAGE>
"(b) Fixed Charge Coverage Ratio. Maintain a
Fixed Charge Coverage Ratio for each Rolling Period set forth
below of not less than the amount set forth below for such
Rolling Period:
Rolling Period Ending Ratio
09/30/1997 1.05:1
12/31/1997 1.05:1
03/31/1998 1.00:1
06/30/1998 1.00:1
09/30/1998 1.00:1
12/31/1998 1.05:1
03/31/1999 1.20:1
06/30/1999 1.25:1
09/30/1999 1.35:1
12/31/1999 1.40:1
03/31/2000 1.40:1
06/30/2000 1.40:1
09/30/2000 1.40:1
12/31/2000 1.50:1
and thereafter"
(c) deleting Section 5.04(c) in its entirety and inserting
the following new Section 5.04(c) in lieu thereof:
"(c) Interest Coverage Ratio. Maintain an
Interest Coverage Ratio for each Rolling Period set forth below of not
less than the amount set forth below for such Rolling Period:
Rolling Period Ending Ratio
--------------------- -----
09/30/1997 1.60:1
12/31/1997 1.60:1
03/31/1998 1.45:1
06/30/1998 1.45:1
09/30/1998 1.45:1
12/31/1998 1.60:1
03/31/1999 1.90:1
06/30/1999 1.90:1
09/30/1999 1.90:1
12/31/1999 2.20:1
3
<PAGE>
03/31/2000 2.20:1
06/30/2000 2.20:1
09/30/2000 2.20:1
12/31/2000 2.60:1
03/31/2001 2.60:1
06/30/2001 2.60:1
09/30/2001 2.60:1
12/31/2001 3.00:1
and thereafter"
(d) deleting the amount of "$5,000,000" opposite the
Fiscal Year 1998 in Section 5.04(e) of the Credit Agreement and inserting
the amount of "$3,000,000" in lieu thereof.
3. In order to induce Fleet and the Lenders to enter into this
Amendment and in consideration of the Lenders' consent, the Borrower
shall pay to the Agent prior to the Amendment Effective Date for the pro
rata account of each Lender a fee in an amount equal to 1/4 of 1% of the
amount of such Lender's Commitment (the "Amendment Fee").
II. Miscellaneous
1. Subject to the next sentence of this clause 1, this
Amendment shall become effective on the date (the "Amendment Effective
Date") when (a) Parent, the Borrower, each Subsidiary Guarantor and
Lenders owed or holding in excess of 50% of the sum of (i) the aggregate
principal amount of the Revolving Credit Advances outstanding at such
time, (ii) the aggregate Available Amount of all Letters of Credit
outstanding at such time and (iii) the aggregate Unused Revolving Credit
Commitments at such time shall have signed a counterpart hereof (whether
the same or different counterparts) and delivered the same to the Agent
at its address as set forth in Section 8.02 of the Credit Agreement and
(b) the Borrower has paid the Amendment Fee to each Lender.
Notwithstanding the foregoing, for the purposes of the definition of
"Fixed Charge Coverage Ratio," the "Amendment Effective Date" is deemed
to be December 31, 1997, and this Amendment is deemed to have been
effective as and of such date with respect to such definition.
2. In order to induce the Lenders to enter into this
Amendment, each of Parent, the Borrower and each Subsidiary Guarantor
hereby, jointly and severally, represents and warrants to the Lenders and
the Agent as follows:
(a) that no Default or Event of Default exists on the
Amendment Effective Date and after giving effect to this Amendment;
(b) that all of the representations and warranties
contained in the Credit Agreement shall be true and correct in all
material respects as of the Amendment Effective Date both before and
after giving effect to this Amendment, with the same effect as though
such representations and warranties had been made on and as of the
Amendment Effective Date (it being understood and accepted that any
representation or warranty made as of a specified date shall be required
to be true and correct in all material respects only as of such specific
date);
4
<PAGE>
(c) that the execution, delivery and performance by
Parent and each Loan Party of this Amendment are within Parent's and such
Loan Party's corporate powers, have been duly authorized by all necessary
corporate action, and do not (i) contravene Parent's or any Loan Party's
charter or bylaws (or equivalent organizational documentation), (ii)
violate any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award, (iii) conflict with or result in the
breach of, or constitute a default under, any material contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting Parent or any Loan Party, any of their respective
Subsidiaries or any of their respective properties or assets or (iv)
except for the Liens created under the Loan Documents, result in the
creation or imposition of any Lien upon or with respect to any of the
properties or assets of Parent or any Loan Party or any of their
Subsidiaries;
(d) that no authorization or approval or other action
by, and no notice to or filing with, any Governmental Authority or
regulatory body or any other third party is required for the due
execution, delivery or performance by Parent or any Loan Party of this
Amendment; and
(e) that this Amendment is the legal, valid and binding
obligation of Parent and each Loan Party, enforceable against Parent and
each Loan Party in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws relating to or limiting creditors' rights or by equitable
principles generally (regardless of whether enforcement is sought in
equity or at law).
3. On and after the Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Credit Agreement, and
each reference in the Notes and each of the other Loan Documents to "the
Credit Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as modified by this Amendment.
4. The Credit Agreement, the Notes and each of the
other Loan Documents, as modified by this Amendment, are and shall
continue to be in full force and effect and are hereby in all respects
ratified and confirmed.
5. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
modification, acceptance or waiver of any right, power or remedy of the
Lenders under any of the Loan Documents, nor constitute a modification,
acceptance or waiver of any provision of any of the Loan Documents.
6. In addition to the Amendment Fee, the Borrower
agrees to pay the Agent and the Lenders all costs and expenses incurred
by the Agent and the Lenders (including, without limitation, reasonable
legal fees and expenses) in connection with the preparation and
enforcement of this Amendment, together with all other fees currently due
and owing to the Agent and the Lenders under the Credit Agreement,
concurrently with the execution by each party of this Amendment.
7. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed
5
<PAGE>
to be an original and all of which taken together shall constitute but
one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Amendment.
8. This Amendment and the rights and obligations of the
parties hereunder shall be governed by, and construed in accordance with,
the laws of the State of New York applicable to contracts made and to be
performed entirely in such State.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
PRECISE HOLDING CORPORATION
By /s/ William L. Remley
_______________________________________
Name:
Title:
PRECISE TECHNOLOGY, INC.
By /s/ William L. Remley
_______________________________________
Name:
Title:
PRECISE TECHNOLOGY OF DELAWARE, INC.
By /s/ William L. Remley
_______________________________________
Name:
Title:
PRECISE TECHNOLOGY OF ILLINOIS, INC.
By /s/ William L. Remley
_______________________________________
Name:
Title:
PRECISE TMP, INC.
By /s/ William L. Remley
_______________________________________
Name:
Title:
6
<PAGE>
PRECISE POLESTAR, INC.
By /s/ William L. Remley
_______________________________________
Name:
Title:
MASSIE TOOL, MOLD & DIE, INC.
By /s/ William L. Remley
_______________________________________
Name:
Title:
FLEET NATIONAL BANK, as Agent and as
Issuing Bank
By /s/ Eugene M. Sullivan
_______________________________________
Name: Eugene M. Sullivan
Title: Sr. Vice President
LENDERS:
FLEET NATIONAL BANK
By /s/ Eugene M. Sullivan
_______________________________________
Name: Eugene M. Sullivan
Title: Sr. Vice President
7
<PAGE>
CREDITANSTALT AG
By /s/ Fiona McKone
_______________________________________
Name: Fiona McKone
Title: Senior Associate
By /s/ Christina T. Schoen
_______________________________________
Name: Christina T. Schoen
Title: Senior Vice President
8
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 560 1,311
<SECURITIES> 0 0
<RECEIVABLES> 13,030 13,182
<ALLOWANCES> 85 60
<INVENTORY> 5,856 9,856
<CURRENT-ASSETS> 20,482 27,125
<PP&E> 57,025 49,927
<DEPRECIATION> 12,195 7,864
<TOTAL-ASSETS> 93,639 99,059
<CURRENT-LIABILITIES> 15,700 21,766
<BONDS> 0 0
0 8,250
0 0
<COMMON> 1 3,316
<OTHER-SE> (10,362) 3,637
<TOTAL-LIABILITY-AND-EQUITY> 93,639 99,059
<SALES> 100,737 93,289
<TOTAL-REVENUES> 100,737 93,289
<CGS> 82,732 76,477
<TOTAL-COSTS> 93,005 86,025
<OTHER-EXPENSES> 874 (25)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,771 5,559
<INCOME-PRETAX> (1,912) 1,731
<INCOME-TAX> 228 1,265
<INCOME-CONTINUING> (2,140) 466
<DISCONTINUED> 0 0
<EXTRAORDINARY> (4,841) 0
<CHANGES> 0 0
<NET-INCOME> (6,981) 466
<EPS-PRIMARY> 0.000 0.000
<EPS-DILUTED> 0.000 0.000
</TABLE>
