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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, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......... TO ............
Commission file number: 333-32041
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 24, 2000, 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 zero. See Part II, Item 5 of this Report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
Page
Number or
Reference
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PART I
ITEM 1. Business..................................................... 3
ITEM 2. Properties................................................... 13
ITEM 3. Legal Proceedings............................................ 13
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 13
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
ITEM 6. Selected Financial Data...................................... 14
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 15
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk... 21
ITEM 8. Financial Statements and Supplementary Data.................. 21
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 21
PART III
ITEM 10. Directors and Executive Officers of the Registrant........... 22
ITEM 11. Executive Compensation....................................... 24
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 27
ITEM 13. Certain Relationships and Related Transactions............... 28
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 10-K................................................. 31
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PART I
ITEM 1. BUSINESS
Precise Technology, Inc. (together with Precise Intellectual Property
Holdings Company, Inc., its wholly owned subsidiary, "Precise," unless the
context otherwise requires), was founded in 1964 and incorporated in 1969.
Precise operates in two segments: Injection Molding and Mold Making. Precise's
reportable segments are strategic business units that offer different products
and services. They are managed separately based on the fundamental differences
in their operations.
The Injection Molding segment produces 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. Precise 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. Precise currently serves a diverse base of original equipment
manufacturers ("OEMs") such as Abbott Laboratories ("Abbott Labs"), The Gillette
Company ("Gillette"), The Procter & Gamble Company ("Procter & Gamble"),
Unilever United States, Inc. ("Unilever"), and Playtex Products, Inc.
("Playtex"). Precise is the sole or primary source supplier of the products that
it manufactures for many of its customers.
The Mold Making segment provides customers with extensive design,
prototype development, mold design and mold manufacturing. Precise focuses on
high cavitation, close tolerance molds for the healthcare, packaging and
consumer/industrial markets. Precise performs, or expects to perform, the
injection molding for a majority of the products for which it makes molds.
Plastic products for which Precise builds the mold but which are not injection
molded by Precise are typically molded in-house by the customer.
Information attributable to each of Precise's segments is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
---------------------------------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Items Consolidated
----------------- ------------------ ------------------ -----------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external customers $86,562 $23,568 $ -- $110,130
Segment gross profit 22,279 2,042 -- 24,321
Depreciation and amortization expense 5,295 1,092 1,332 7,719
Interest expense -- -- 10,365 10,365
Segment assets 55,101 13,006 30,067 98,174
Net capital expenditures 6,701 1,225 356 8,282
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Items Consolidated
----------------- ----------------- ------------------ -----------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external customers $82,064 $15,961 $ -- $98,025
Segment gross profit 19,302 1,264 -- 20,566
Depreciation and amortization expense 5,245 1,017 1,507 7,769
Interest expense -- -- 10,311 10,311
Segment assets 48,711 13,565 31,132 93,408
Net capital expenditures 4,167 806 597 5,570
</TABLE>
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<TABLE>
<CAPTION>
Year Ended December 31, 1997
---------------------------------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Items Consolidated
----------------- ----------------- ------------------ -----------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external customers $88,003 $ 12,734 $ -- $100,737
Segment gross profit 18,350 (345) -- 18,005
Depreciation and amortization expense 4,341 948 1,427 6,716
Interest expense -- -- 8,771 8,771
Segment assets 50,413 10,587 32,639 93,639
Net capital expenditures 6,869 1,159 1,732 9,760
</TABLE>
For further information on Precise's segments, see Footnote 12 to the
Financial Statements.
Injection Molding
Precise operates approximately 200 molding machines in eleven
strategically located injection molding facilities throughout the eastern and
midwestern United States. Precise is capable of providing its customers with
close tolerance injection molding and value-added finishing services such as
packaging, assembly and decoration. Precise'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 Precise's
manufacturing facilities minimizes both direct labor input and scrap loss.
Precise 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.
Injection molding is one of the most widely used plastic processing
methods in the world. Management believes the plastic injection molding industry
will grow due to 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. Precise
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.
Mold Making
Precise operates three mold making facilities which collectively
comprise one of the largest organizations in the United States with such
capabilities. These facilities offer a full range of services, including
conceptual part and mold design, building and testing. The mold making
facilities are able to produce a variety of production molds from prototype,
pre-production, full production, hot runner and stack molds. Management views
Precise's mold designing and building operations not simply as supportive of its
manufacturing business, but as an independent profit center.
Competitive Strengths
Management believes that Precise is well positioned to capitalize on the
favorable trends in the plastic injection molding industry and to enhance its
position in its target markets. The following are, in management's view,
Precise's principal competitive strengths:
Full-service Capabilities. Precise's two business segments offer
comprehensive services ranging from design, development and manufacture of
molds to the production, decorating, and assembly of injection molded
products. As one of a selected group of injection molders in the United
States capable of offering such comprehensive services, management believes
that Precise is well positioned to benefit from the consolidation currently
taking place in the injection molding industry and the trend among high
volume OEMs to increasingly rely upon custom injection molders for total
program management.
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Advanced Manufacturing Capabilities. Precise 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. Precise
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,
Precise 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. In addition, Precise has achieved "ship-to-stock" status with many
of its customers, whereby Precise's products are not subject to quality
inspections by such customers prior to being consumed. Management believes
that Precise's mold making capabilities and the high quality of its molding
have been integral to Precise's operational excellence and success.
Continuous Improvement. Precise has been successful in reducing costs by
improving manufacturing efficiency, introducing advanced molding
technology, implementing high scale automation and realigning facilities
and production to increase plant utilization. In addition, as one of the
largest manufacturers in the plastics injection molding industry, Precise
is able to realize significant economies of scale in raw material
purchasing.
Multiple Plant Locations. Management believes that Precise's fourteen
plants, located in twelve separate locations 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. Precise'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, Precise
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, Precise
can mitigate customer sourcing risks associated with single facility
production.
Business Strategy
Precise's objective is to enhance its position as a leading supplier of
plastic molded products to leading OEMs in the healthcare, packaging and
consumer/industrial markets. The key elements of Precise's business strategy to
achieve this objective are as follows:
Focus on Target Markets. Precise 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 Precise will be able to maximize its profitability
and best utilize its resources.
Further Penetrate Existing Customer Base. Substantially all of Precise's
sales are to major consumer product and healthcare companies. In most
cases, Precise 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 Precise with the opportunity to increase sales to its existing
customers and participate in their domestic and international growth.
Precise 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 Precise's marketing,
product design and production personnel and its customers' counterpart
employees. Precise 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 Precise can bring its full-service
capabilities to its customer relationships.
Invest in Technology and Quality Improvements. Precise 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, Precise 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, eleven of Precise's fourteen facilities are currently ISO 9000
registered, with the three remaining facilities expecting to receive
certification in the second half of 2000. Management believes that by
continuing to invest in new technology and focusing on quality, Precise is
well positioned to increase sales to existing customers,
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develop new customer relationships and improve its profit margins through
increased operating efficiencies.
Reduce Costs and Increase Productivity. Precise focuses on simultaneously
reducing costs while meeting the high quality standards of its customers.
Each of Precise's facilities utilizes total quality management techniques,
including the use of statistical process control and extensive employee
involvement. Precise's employees receive training each year that is
designed to increase productivity, safety and manufacturing quality and to
foster the concept of "continuous improvement." Through an innovative
Performance Sharing Program, Precise's employees focus on cost of goods
sold and receive incentives to maximize gross margins by minimizing costs.
Management has and continues to improve asset utilization and increase
manufacturing productivity by consolidating underperforming facilities and
streamlining Precise's workforce. These initiatives have resulted in an
increase in Precise's net sales per employee from $87,000 in 1991 to
$132,000 in 1999.
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, Precise recently opened
its third and fourth state-of-the-art Customer-Aligned-Production ("CAP")
facilities. The third CAP facility, Precise IML, is located in Bridgeport,
New Jersey. This facility was specifically designed to meet the needs of a
Fortune 500 customer. The fourth CAP facility was opened on January 10,
2000, in Steetsboro, Ohio (the "Streetsboro CAP Facility"). This facility
produces the Diaper Genie(TM) for Playtex.
The other two CAP facilities are the Delaware and Holden CAP facilities.
Located 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. At this facility, using state-of-the-art
molding machines, highly engineered stack molds and high speed automation,
Precise currently is the sole source manufacturer of polypropylene
containers for Baby Fresh(TM) baby wipes for Procter & Gamble. Precise's
second CAP facility is located in Holden, Massachusetts (the "Holden CAP
Facility") which is dedicated solely to the production of the Gillette
Mach3(TM) razor base tray. Precise is currently the sole source
manufacturer of trays for Gillette. Production at this facility includes
precision injection molding as well as sputter coating. Other downstream
automation in the production process includes pad printing, automatic
vision inspection, hot melt assembly and automated packing. Precise intends
to continue to pursue CAP opportunities and similar partnerships with these
and other customers.
Selectively Pursue Acquisition Opportunities. Selective acquisitions have
been, and management believes will continue to be, an important element in
Precise's growth and in its efforts to capitalize on favorable industry
trends. Precise's previous acquisitions have expanded its OEM customer
base, complemented its existing technological and manufacturing
capabilities, presented substantial cost savings opportunities and provided
significant growth opportunities. Precise 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. Despite 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
technological 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 other
materials due to design and
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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 Precise 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 the consolidation of suppliers has created
significant opportunities for injection molders such as Precise 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, substandard mold making 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
Precise is a leading supplier of plastic injection molded products and one
of the largest mold makers in the United States, producing a wide variety of
products for the healthcare, packaging and consumer/industrial markets. The
following is a description of the principal markets served by Precise as well as
the products Precise produces for those markets.
Healthcare
Plastic molded components for healthcare applications represented
approximately 11.3% and 14.4% of Precise's net sales and injection molding net
sales in 1999, respectively. Precise's primary healthcare products in 1999
included disposable diagnostic cards, syringes, sample systems and surgical
components. During 1999, Precise's four largest healthcare market customers were
bioMerieux Vitek, Abbott Labs, Mallinckrodt, Inc. and Kerr Corporation, with
bioMerieux Vitek having entered into a primary source supply agreement with
Precise.
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
Plastic molded components for packaging applications represented
approximately 58.8% and 74.8% of Precise's net sales and injection molding net
sales in 1999, respectively. Precise's primary packaging products in 1999
included caps, closures and packaging for shaving cream, deodorant, feminine
hygiene, and baby care products. During 1999, in
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the packaging market, Precise's four largest customers were Procter & Gamble,
Gillette, The Dial Corporation ("Dial") and Unilever with Proctor and Gamble and
Gillette having entered into primary source supply agreements with Precise.
Precise's packaging sales are primarily related to personal care and
household products. Given the intense competition among consumer products
companies, consumer goods marketers focus on packaging as a relatively
inexpensive method of creating brand differentiation.
Consumer/Industrial
Plastic molded components for consumer/industrial applications represented
approximately 8.5% and 10.8% of Precise's net sales and injection molding net
sales in 1999, respectively. Precise's primary consumer/industrial products in
1999 included printer components, electrical connectors and lighting fixtures,
termite traps, and air freshener components. During 1999, Precise's four largest
consumer/industrial market customers were Lexmark, Dow AgroSciences, Lutron
Electronics Co., Inc. and Invensys Corporation.
The consumer/industrial markets Precise serves primarily include consumer
containers and audio/electronics components. The consumer containers market 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 made 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.
Mold Making
Mold making operations represented approximately 21.4% of Precise's total
net sales in 1999. Products produced with the molds manufactured by Precise in
1999 included deodorant dispensers, personal care and laundry products, medical
disposables and thin-wall containers. Precise performs, or expects to perform,
the injection molding for a majority of the products for which it makes molds.
Plastic products for which Precise built the mold but which are not injection
molded by Precise are typically molded in-house by the customer. During 1999,
Precise's four largest mold making customers were Procter & Gamble, Abbott Labs,
Dial and Playtex.
Customers
Substantially all of Precise's injection molding sales are made to major
OEMs in the healthcare, packaging and consumer/industrial markets. During 1999,
Precise produced a wide variety of products for over 120 customers, with
Precise's ten largest customers accounting for approximately 74.8% of its
injection molding net sales. Precise's largest injection molding customers are
Procter & Gamble, Gillette, Dial and Lexmark, which represented approximately
24.2%, 20.4%, 8.2% and 6.1%, respectively, of Precise's injection molding net
sales in 1999.
Like the injection molding segment, substantially all of Precise's mold
making sales are made to major OEMs in the healthcare, packaging and
consumer/industrial markets. During 1999, Precise's five largest mold making
customers accounted for approximately 21.4% of its mold making net sales.
Precise's largest mold making customers are Procter & Gamble, Abbott Labs, Dial,
and Playtex, which represented approximately 25.2%, 9.0%, 7.9%, and 4.7%,
respectively, of Precise's mold making net sales in 1999.
As one of a limited number of full-service injection molders increasingly
relied upon by OEMs to provide total project management, Precise 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
Precise'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
remains highly competitive.
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Sales and Marketing
Substantially all of Precise's sales are made through Precise's direct
sales force which is located throughout the regions in which Precise operates.
Precise's sales and marketing teams in the injection molding segment are
organized according to Precise's target markets: healthcare, packaging and
consumer/industrial. In addition, Precise has a direct sales force concentrating
in the mold making segment. 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 Precise's full-service injection molding
capabilities to customers and focus on improving communication and coordination
between Precise'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, Precise has designated key account specialists to serve its largest
customers. By providing dedicated support, Precise believes it can better serve
these customers, who, in many cases, have a variety of different product
applications or production requirements in multiple locations. Precise'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 Precise's marketing
efforts. Precise'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 Precise's ability to provide reliable, on-time
delivery of high quality products. Customer service representatives are located
at each of Precise'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.
Engineering
Similar to the organization of the injection molding sales force, the
engineering department is structured according to Precise's target markets:
healthcare, packaging and consumer/industrial. Management believes that this
structure helps to focus the efforts of the engineers along those of the sales
force with which they interact to achieve the high expectations of Precise's
customers. One of the objectives of the engineering department structure is to
further develop expertise specific to the target markets. Precise feels that
this specialization helps to more appropriately serve new and existing
customers.
Manufacturing and Operations
Precise seeks to differentiate 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 (mold making segment)
through molding, decorating and assembly (injection molding segment). Large OEMs
increasingly rely on molders for total project management to enhance quality,
streamline production processes and to ensure timely completion of programs.
Injection Molding
Precise manufactures its products using the plastic injection molding
process. The molding operation processes are comparable at each of Precise'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 (barrel) where it is melted to a fluid
state. Coloring agents are added as appropriate and a reciprocating screw pushes
the hot fluid raw material at high pressure through a nozzle into a closed,
temperature-controlled mold. At the end of each molding cycle (ranging from six
to sixty 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.
Precise utilizes approximately 200 injection molding presses ranging in
capacity from 44 to 700
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tons, located within its eleven molding facilities, allowing customer's needs
to be met in a cost-effective and timely manner. Precise also operates eight
presses used in the qualification and testing of new molds. Precise's molding
operations include white room environments that offer controlled manufacturing
areas for components used in medical devices. Precises molds and molding
machines are continuously monitored through process and manufacturing systems.
Precise utilizes the most advanced molding capabilities available in the
industry. For customer specific projects, Precise has employed engineering and
automation systems, improving manufacturing efficiencies and lowering costs.
In 1994, Precise began production at its first CAP facility in Newark,
Delaware. Since that time, Precise has opened three additional CAP facilities;
the Holden CAP facility in 1998; Precise IML in Bridgeport, New Jersey, in 1999;
and Precise Streetsboro in Streetsboro, Ohio, in January 2000. These facilities
demonstrate Precise's commitment to developing strategic partnerships with key
customers.
Mold Making and Technical Capabilities
Precise's three mold making facilities offer a full range of services,
including conceptual part and mold design, building and testing. In addition,
Precise's mold manufacturing facilities provide mold and technical consulting
for troubleshooting, repair and preproduction evaluation of parts or drawings.
Precise's target markets, selected for their relatively long product life
cycles, demand durable molds. Precise'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, Precise can deliver molds that are produced to the proper specifications
and delivered on-time. Management views Precise'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 Precise'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
Precise's computer database and serves as the foundation for the mold that will
be built utilizing state-of-the-art CAD/CAM technology. Precise'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 Precise's ability to create high-tolerance molds and deliver its molds
on time. Moreover, after final assembly each of Precise's molds is tested for
performance.
Precise's St. Petersburg, Florida, mold making facility employs mold
makers with extensive experience in designing and manufacturing high cavitation
production molds and stack molds. Mold testing centers at this facility provide
qualification and testing of new molds. Precise's two other mold
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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.
Quality Assurance Programs
A commitment to quality is critical to the success of custom injection
molders serving Precise's target markets. 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, Precise has centered its
manufacturing philosophy on being the highest quality custom injection molder in
its targeted end markets. Each of Precise'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,
Precise has been recognized as a leading supplier of quality injection molded
parts to the majority of its key customers. Precise 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, Chesebrough-Pond's and Johnson & Johnson. In addition, eleven
of Precise's facilities are ISO 9000 registered, and Precise is actively
pursuing ISO certification in its remaining three 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
Precise faces intense competition throughout its product lines from
numerous competitors, a number of whom have greater financial resources than
Precise. Competitive factors include product quality, service and the ability to
supply products to customers in a timely manner. Precise 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 Precise competes with Nypro, Inc., which is headquartered
in Clinton, Massachusetts, and The Tech Group, Inc. ("The Tech Group"), which is
headquartered in Scottsdale, Arizona. Precise competes with Erie Plastics Corp.
in both the consumer/industrial and the packaging markets. In addition, in the
healthcare market, Precise 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, Precise also competes with The West
Company, Inc. and Plastek Industries Incorporated.
Raw Materials and Suppliers
The principal raw materials utilized by Precise'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 Precise 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 smaller
volumes are secured from large distributors that carry a wide variety of raw
material types and manufacturers.
Precise's purchasing strategy is to deal with high quality, dependable
suppliers. Precise's largest resin suppliers in 1999 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, Precise has
implemented a "preferred supplier" program which requires Precise's suppliers to
adhere to strict performance criteria, including satisfaction of high quality
standards, commitment to continuous improvement and participation in Precise'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
11
<PAGE>
can be effected by changing market conditions. Precise 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.
Precise does not anticipate having any material difficulties obtaining raw
materials in the foreseeable future. With respect to raw material pricing,
Precise has experienced price fluctuations comparable to industry trends, which
include increases in the cost of resins due to the recent increase in oil
prices. Pursuant to the terms of multi-year supply agreements and purchase
orders, Precise historically has had the ability to pass through a substantial
portion of resin price increases, although no assurances can be given that it
will continue to be able to do so. Other than typical price protection clauses
within its supply agreements, Precise does not otherwise hedge its exposure to
increases in raw material prices.
Regulation and Legislation
The past and present operations of Precise, 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. Precise believes that
it is in substantial compliance with applicable environmental laws and
regulations. However, Precise 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
Precise (including contamination caused by prior owners and operators of such
sites) and the off-site disposal of hazardous substances.
Sampling in 1995 at Tredegar Molded Products Company's ("Tredegar") 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 acquisition
of Tredegar in 1996, 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 Precise 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 Precise 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 Precise's facilities require permits and approvals from
certain federal, state and local authorities. In addition, Precise'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. Precise believes it has
all permits, licenses and approvals from governmental authorities material to
the operation of the facilities as currently configured. In addition, Precise
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 Precise. Although Precise has no reason to believe that 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 Precise 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 Precise'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 Precise. There can be no
assurance that any such future legislative or regulatory efforts or future
initiatives would not have a material adverse effect on Precise.
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<PAGE>
Employees
As of December 31, 1999, Precise employed 823 individuals, of whom 189
were salaried and 634 were hourly. Approximately 648 were in the injection
molding segment, 112 in the mold making segment and 63 were corporate employees.
Approximately 32 employees at Precise's Pittsburgh, Pennsylvania facility, or
3.9% of Precise's total employees, are members of a union and are covered by a
collective bargaining agreement that expires in February 2002. Precise believes
that its relationship with its employees is generally good.
ITEM 2. PROPERTIES
Precise operates fourteen facilities in twelve locations throughout the
eastern and midwestern United States. Management believes that these facilities
are adequate for its present needs. A summary of Precise's facilities is
presented in the chart below.
<TABLE>
<CAPTION>
Approximate
Location Square Footage Ownership Segment Markets Served
- -------- -------------- --------- ------- --------------
<S> <C> <C> <C> <C>
North Versailles (Pittsburgh), PA 70,000 Owned Injection molding, Healthcare, Packaging
(Headquarters) Mold making
West Lafayette, IN 35,000 Owned Injection molding Healthcare, Consumer/Industrial
Bridgeport, NJ 64,000 Leased (1) Injection molding Packaging
Newark, DE 80,000 Leased (2) Injection molding Packaging
Des Plaines, IL 30,000 (3) Injection molding, Healthcare, Consumer/Industrial
Mold making
Excelsior Springs, MO 70,000 Owned Injection molding Packaging, Consumer/Industrial
South Grafton, MA 127,000 (4) Injection molding Packaging, Consumer/Industrial
Holden, MA 35,000 Leased (5) Injection molding Packaging
St. Petersburg, FL 81,000 Owned Injection molding Packaging, Consumer/Industrial
St. Petersburg, FL 55,000 Owned Mold making Healthcare, Packaging,
Consumer/Industrial
State College, PA 31,000 Leased (6) Injection molding Healthcare, Consumer/Industrial
Streetsboro, OH 57,000 Leased (7) Injection molding Consumer/Industrial
</TABLE>
(1) Lease expires in December 2004.
(2) Lease expires in December 2004.
(3) This facility is partially owned and partially leased. Leased portion
expires in July 2000.
(4) This facility is partially owned and partially leased. Leased portion
expires in July 2003.
(5) Lease expires in June 2001.
(6) This facility leases space for operations and a separate warehouse lease.
The operations lease expires in July 2003 and the warehouse lease expires
in January 2003.
(7) Lease expires in December 2004.
ITEM 3. LEGAL PROCEEDINGS
Precise does not believe that it or any of its facilities are presently
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. Precise maintains liability insurance that Precise 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 fourth
quarter of 1999.
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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 Precise for the five-year period ended December 31, 1999. The selected
historical consolidated financial data for the five-year period ended December
31, 1999 were derived from audited consolidated financial statements of Precise.
The audited consolidated financial statements of Precise for each of the years
in the three-year period ended December 31, 1999 are included elsewhere in this
Report. The selected historical consolidated financial data for the years ended
December 31, 1996, and 1995 were derived from audited consolidated financial
statements of Precise 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 consolidated financial statements
of Precise, and the accompanying notes thereto, included elsewhere in this
Report.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1996(1) 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Statement of Income Data:
<S> <C> <C> <C> <C> <C>
Net sales $33,542 $93,289 $100,737 $98,025 $110,130
Cost of sales 25,877 76,477 87,232 77,459 85,809
----------- ----------- ------------------------- -----------
Gross profit 7,665 16,812 18,005 20,566 24,321
Selling, general and administrative 4,454 7,262 8,980 10,737 12,379
Plant closure costs -- 671 69 31 --
Amortization of intangible assets 37 1,042 1,224 1,155 1,015
----------- ----------- ------------------------- -----------
Operating income 3,174 7,837 7,732 8,643 10,927
Interest expense 810 6,131 8,771 10,311 10,365
Other (income) expense 148 (25) 873(2) (51) (243)
----------- ----------- ------------------------- -----------
Income (loss) before income taxes and extraordinary item 2,216 1,731 (1,912) (1,617) 805
Provision for income taxes 941 1,265 228 427 755
----------- ----------- ------------------------- -----------
Net income (loss) before extraordinary item 1,275 466 (2,140) (2,044) $ 50
Extraordinary item, net of tax -- -- (4,841)(3) -- --
----------- ----------- ------------------------- -----------
Net income (loss) $1,275 $ 466 $ (6,981) $ (2,044) $ 50
=========== =========== ========================= ===========
Cash Flow Data:
Net cash provided by operating activities $3,170 $9,602 $6,465 $7,659 $6,967
Net cash used in investing activities (excluding
Acquisitions)(4) (998) (1,829) (3,490) (2,875) (4,323)
Net cash provided by (used in) financing activities (2,202) 57,313 (3,726) (5,104) (2,566)
As of December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Balance Sheet Data:
Total assets $18,863 $99,059 $99,639 $93,408 $98,174
Long-term debt, including current maturities 7,538 64,512 92,752 90,224 91,551
Redeemable preferred stock -- 8,250 -- -- --
Total stockholder's equity (deficit) 5,400 6,953 (10,361) (12,493) (12,344)
Year Ended December 31,
-------------------------------------------------------------
1995 1996(1) 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Other Financial Data:
Depreciation and amortization $1,466 $5,353 $6,716 $7,769 $7,719
Capital expenditures(5) 1,582 6,376 9,760 5,570 8,282
</TABLE>
(1) The statement of income data, cash flow and other financial data for
1996 reflect the results of operations of Unity Mold Corporation ("Unity")
and Tredegar Molded Products Company ("Tredegar") since they were acquired
by Precise on January 25, 1996 and March 29, 1996, respectively.
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<PAGE>
(2) Includes (a) a non-recurring charge of $555,000 representing financial
advisory fees and out-of-pocket expenses paid to Mentmore Holdings
Corporation ("Mentmore") and (b) 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 (as defined below).
(3) Precise recorded an extraordinary loss of $4,841,000, 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 (as defined below) and the termination of the Prior Credit Agreement
in connection with the Refinancing Transactions.
(4) During 1996 net cash used 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
$536,000 in 1995, $4,201,000 in 1996, $4,810,000 in 1997, $2,576,000 in
1998, and $3,877,000 in 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Overview
Precise is a leading full-service, custom injection molder of precision
plastic products, focusing on three broad markets: healthcare, packaging and
consumer/industrial products. Precise 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. Precise operates in two segments: Injection Molding and Mold
Making.
Precise's operating data for fiscal years ended December 31, 1999, 1998
and 1997 are set forth below as percentages of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
Statements of Operations Data:
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 77.9 79.0 82.1
-------- -------- --------
Gross profit 22.1 21.0 17.9
Selling, general and administrative 11.2 11.0 8.9
Plant closure costs 0.0 0.0 0.1
Amortization of intangible assets 0.9 1.2 1.2
-------- -------- --------
Operating income 10.0 8.8 7.7
Interest expense 9.4 10.5 8.7
Other expense (income) (0.2) (0.1) 0.9
-------- -------- --------
Income (loss) before income taxes and 0.8 (1.6) (1.9)
extraordinary item
Provision for income taxes 0.7 0.5 0.2
-------- -------- --------
Net income (loss) before extraordinary 0.1 (2.1) (2.1)
item
Extraordinary item, net of tax 0.0 0.0 (4.8)
-------- -------- --------
Net income (loss) 0.1% (2.1)% (6.9)%
======== ======== ========
</TABLE>
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<PAGE>
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales. Precise's net sales increased to $110.1 million for the year
ended December 31, 1999, an increase of $12.1 million, or 12.3%, from the year
ended December 31, 1998. The increase was caused by the addition of new product
lines from existing customers as well as increased market demand for customer
products currently manufactured.
Injection molding sales for the year ended December 31, 1999 increased
$4.5 million, or 5.5%, to $86.5 million due to (a) the addition of new product
lines from existing customers and (b) increased demand for customer products
currently manufactured. These increases of approximately 6.8% and 1.8%,
respectively, were partially offset by decreased sales to certain customers of
approximately 3.1%, due to lower market demand for the customers'
end product line and the loss of some business to suppliers with closer
"ship-to" points.
Mold making sales for the year ended December 31, 1999 increased $7.6
million, or 47.7%, to $23.6 million. The increase was due to new molding
programs and increased mold sales related to the management of mold making
programs performed by outside vendors.
Gross profit. Precise's gross profit increased to $24.3 million for the
year ended December 31, 1999, an increase of $3.8 million, or 18.3%, over the
year ended December 31, 1998. Gross profit margin increased to 22.1% for the
year ended December 31, 1999 from 21.0% in the year ended December 31, 1998.
Injection molding's gross profit increased to $22.3 million for the year
ended December 31, 1999, an increase of $3.0 million, or 15.4%, over the prior
year. The increase in gross profit was primarily attributable to (a) increased
sales, (b) a favorable product mix, and (c) decreased raw material costs from
aggressive purchasing tactics and a favorable scrap rate.
Mold making's gross profit increased to $2.0 million, an increase of $0.8
million over the year ended December 31, 1998. The increase in gross profit is
primarily attributable to the higher sales, particularly subcontracted mold
making sales.
Selling, general and administrative. Selling, general and administrative
expenses increased to $12.4 million for the year ended December 31, 1999, an
increase of $1.6 million, or 15.3%, over the year ended December 31, 1998. The
increase in selling, general and administrative expenses was primarily
attributable to (a) increased professional fees and travel expenses due to the
addition of a new injection molding facility, (b) increased salaries, wages and
fringe benefits associated with merit increases and the hiring of additional
personnel, (c) costs associated with the implementation of a new Enterprise
Resource Planning system, and (d) additional fees for various engineering
services and other corporate activities.
Amortization. Precise's amortization of intangible assets decreased
slightly to $1.0 million for the year ended December 31, 1999 from $1.2 million
in the year ended December 31, 1998. This decrease resulted primarily from the
expiration of three non-compete agreements during 1998.
Operating income. Operating income increased to $10.9 million for the year
ended December 31, 1999, from $8.6 million for the year ended December 31, 1998,
representing an increase of 26.4%. Operating income as a percentage of net sales
increased to 10.0% for the year ended December 31, 1999 from 8.8% in the year
ended December 31, 1998. The increase is due primarily to the increase in gross
profit margin which was partially offset by the increase in selling, general and
administrative expenses.
Interest expense. Interest expense increased to $10.4 million for the year
ended December 31, 1999, an increase of $54,000, or 0.5% over the comparable
period in the prior year. This increase is primarily due to the third quarter
write off of $270,000 of deferred financing fees due to a reduced borrowing
capacity under Precise's revolving credit agreement (see "Liquidity and Capital
Resources" below).
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<PAGE>
Other expenses/(income). Other income increased to $243,000 for the year
ended December 31, 1999 from $51,000 in the year ended December 31, 1998. The
increase is due to income generated from engineering services related to a new
program with an existing customer.
Provision for income tax. Precise's effective tax rates differed from the
applicable statutory rates for the years ended December 31, 1999 and 1998
primarily due to nondeductible goodwill amortization, the realization of the
benefit of state losses due to an internal reorganization, and the settlement of
the Internal Revenue Service examination in 1999. At December 31, 1999, Precise
had approximately $7.0 million and $25.0 million of federal and state net
operating losses, respectively. The deferred tax benefit of these net operating
losses is $3.5 million. This loss carryforward is subject to limitations as to
the amount and timing of its use. Accordingly, a valuation allowance of $479,000
was provided.
During 1999, Precise merged several subsidiaries into Precise Technology,
Inc. Pursuant to this transaction, it is anticipated that the company may
realize the benefit of previously-generated state net operating losses.
Accordingly, a portion of the valuation reserve recorded against deferred tax
assets has been reversed.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales. Precise's net sales decreased to $98.0 million for the year
ended December 31, 1998, a decrease of $2.7 million, or 2.7%, from the year
ended December 31, 1997. The decrease was caused by decreased injection molding
sales which were partially offset by increased mold making sales.
Injection molding sales for the year ended December 31, 1998 decreased
$5.9 million, or 6.7%, to $82.1 million due to (a) customer insourcing, (b) the
loss of two customers to competitors with closer "ship-to" points, (c) lower
than anticipated volume requirements of certain customers' end product lines due
to product maturity and (d) two customers' being involved with business
combinations that have slowed their volume requirements. These decreases were
partially offset by increased volumes to certain customers due to higher demand
for the customers' end product line and the addition of a significant new
product line for one of Precise's largest customers.
Mold making sales for the year ended December 31, 1998 increased $3.2
million, or 25.3%, to $15.9 million. The increase is primarily attributable to
an increase in mold making projects with one of Precise's largest customers.
Gross profit. Precise's gross profit increased to $20.6 million for the
year ended December 31, 1998, an increase of $2.6 million, or 14.2%, over the
year ended December 31, 1997. The increase is primarily due to increased gross
profits at both the injection molding and mold making segments. Gross profit
margin increased to 21.0% for the year ended December 31, 1997 from 17.9% in the
year ended December 31, 1997.
Injection molding's gross profit increased to $19.3 million for the year
ended December 31, 1998, an increase of $1.0 million, or 5.2%, over the prior
year. The increase in gross profit was primarily attributable to (a) increased
employee utilization, (b) lower raw material costs from aggressive purchasing
tactics and (c) a favorable change in product mix.
Mold making's gross profit increased to $1.3 million, an increase of $1.6
million over the year ended December 31, 1997. The primary reason for the
increase in gross profit is due to increased expenses in 1997 that related to
cost overruns on certain projects.
Selling, general and administrative. Selling, general and administrative
expenses increased to $10.7 million for the year ended December 31, 1998, an
increase of $1.8 million, or 19.6%, over the year ended December 31, 1997. The
increase in selling, general and administrative expenses was primarily
attributable to (a) increased expenses due to a pursuit of potential
acquisitions, (b) increased salaries, wages and fringe benefits associated with
merit increases and the hiring of additional corporate personnel, (c) costs
associated with the implementation of a new Enterprise Resource Planning system
and Year 2000 preparation and (d) additional fees for various management
services and other corporate activities.
17
<PAGE>
Amortization. Precise's amortization of intangible assets decreased
slightly to $1.15 million for the year ended December 31, 1998 from $1.22
million in the year ended December 31, 1997. This decrease resulted primarily
from the expiration of three non-compete agreements during 1998.
Operating income. Operating income increased to $8.6 million for the year
ended December 31, 1998, from $7.7 million for the year ended December 31, 1997,
representing an increase of 11.8%. Operating income as a percentage of net sales
increased to 8.8% for the year ended December 31, 1998 from 7.7% in the year
ended December 31, 1997. The increase is due primarily to the increase in gross
profit margin which was partially offset by the increase in selling, general and
administrative expenses.
Interest expense. Interest expense increased to $10.3 million for the year
ended December 31, 1998, an increase of $1.5 million, or 17.6% over the
comparable period in the prior year. This increase is primarily a result of
interest due on an increased level of indebtedness outstanding as a result of
the change in Precise's capital structure, which included the issuance of the
Notes.
Other expenses/(income). Other expenses decreased to $(51,000) for the
year ended December 31, 1998 from $874,000 in the year ended December 31, 1997.
During 1997, Precise incurred (a) non-recurring charges of approximately
$555,000 representing financial advisory fees and out-of-pocket expenses paid to
Mentmore and (b) $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 change in Precise's capital structure.
Provision for income tax. Precise's effective tax rates differed from the
applicable statutory rates for the years ended December 31, 1998 and 1997
primarily due to nondeductible goodwill amortization. At December 31, 1998,
Precise had approximately $10.0 million and $24.1 million of federal and state
net operating losses, respectively. The deferred tax benefit of these net
operating losses is $4.5 million. This loss carryforward is subject to
limitations as to the amount and timing of its use. Accordingly, a valuation
allowance of $1.1 million was provided.
Liquidity and Capital Resources
Precise completed the $75.0 million offering of the Notes in June 1997
(the "Offering") and used the proceeds in part to repay indebtedness incurred in
connection with previous acquisitions. In connection with the Offering, Precise
entered into a $30 million 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 " Credit Agreement"). The Credit Agreement matures in June
2002. Borrowings under the Credit Agreement may be used to fund Precise's
working capital requirements, finance certain permitted acquisitions and general
corporate requirements of Precise and to pay fees and expenses related to the
foregoing. The Offering, the application of the net proceeds therefrom, the
consummation of the Credit Agreement and the other transactions entered into in
connection therewith are hereinafter collectively referred to as the
"Refinancing Transactions."
The Credit Agreement was amended effective March 31, 1999. The amendment
reduced the borrowing capacity of Precise by allowing for draws of a specified
percentage of certain assets, determined on a monthly basis, up to a maximum of
$30 million. As a result of the amendment, $270,000 of deferred financing fees
that related to the original Credit Agreement were written off and charged to
interest expense. The Credit Agreement provides for revolving loans to, and the
issuance of letters of credit on behalf of Precise Technology, Inc., in an
aggregate amount not to exceed $30 million, of which approximately $7.8 million
was outstanding on December 31, 1999. The Credit Agreement contains certain
covenants customary for a financing of this nature and 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 borrowing capacity of Precise
as of December 31, 1999, was approximately $13.9 million.
Precise generated cash flows from operations totaling $7.0 million, $7.7
million and $6.5 million in 1999, 1998 and 1997, respectively. The decrease in
cash flows from operations during the year ended December 31, 1999 compared to
the year ended December 31, 1998 resulted primarily from the increase in other
assets which represents deposits made on new equipment which will eventually be
financed. These cash deposits, approximately $5.3 million as of December 31,
1999, will be refunded at the time the associated capital leases are executed.
As of December 31, 1999,
18
<PAGE>
the balance of costs which have been accrued associated with the 1996 closure of
the Graham, North Carolina, facility, are expected to require cash payouts of
approximately $274,000 through March 2002.
Precise's cash flows used in investing activities totaled $4.3 million,
$2.9 million and $3.5 million, excluding capital lease agreements for equipment
totaling $3.9 million, $2.6 million and $4.8 million in 1999, 1998 and 1997,
respectively. During 1999, Precise expended $4.4 million on cash capital
expenditures, primarily for machinery and equipment and plant refurbishment. The
total cash capital expenditures for 1999 included $2.1 million for the start up
of Precise IML and expansion of Delaware facilities related to new programs at
those plants.
Precise's cash flows used in financing activities totaled $2.6 million,
$5.1 million and $3.7 million in 1999, 1998 and 1997, respectively. During 1999
and 1998, cash flows were used to repay indebtedness on capital leases and the
revolving line of credit. During 1997, the Refinancing Transactions contributed
to the cash used in financing activities.
Since the consummation of the Refinancing Transactions, Precise's
liquidity requirements have consisted primarily of capital expenditures,
required debt service under the Notes, the Credit Agreement and various capital
lease obligations and working capital needs. Precise currently estimates that
its cash requirements to service current debt will total $2.9 million in 2000
and $1.4 million in 2001. Precise estimates that its capital expenditures during
2000 will total approximately $17.5 million, of which approximately $12.5
million is expected to be in the form of capital leases. Of the $17.5 million of
total anticipated capital expenditures during 2000, $14.9 million is for the
injection molding segment. A portion of this amount relates machinery and
equipment and leasehold improvements relating to new programs awarded in 1999,
which will start up in the first half of 2000. Approximately $1.8 million is for
the mold making segment for machine and shop upgrades and $0.9 million is for
general corporate expenditures. Precise 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 Credit
Agreement and capital leases. Management believes that due to the capital
expenditures anticipated for 2000, Precise will be required to incur additional
indebtedness under the Credit Agreement or through capital leases. However,
certain equipment refurbishment programs could be delayed, if necessary. The
Credit Agreement and the Indenture place significant restrictions on Precise's
ability to, among other things, incur additional indebtedness, grant liens or
sell assets.
Capital leases are used extensively by Precise to finance new molding
presses and certain ancillary equipment. Capital lease obligations totaled $8.7
million as of December 31, 1999, and current maturities relating to these
obligations totaled $2.9 million.
Management believes that Precise's cash flow from operations, together
with borrowing availability under the Credit Agreement, which was approximately
$6.0 million at December 31, 1999, will provide it with sufficient liquidity
during 2000 to fund capital improvements, service indebtedness and meet working
capital requirements for Precise's existing operations. However, Precise is
highly leveraged and, as a result, funds available for working capital, capital
expenditures, and other purposes may be limited or unavailable in the event
Precise does not generate cash flow at or above expected levels, which could
have a material adverse effect on Precise's business, financial condition and
results of operations. In addition, borrowings under the Credit Agreement are
only available if Precise is in compliance with the covenants and borrowing
conditions contained in the agreement.
Impact of Year 2000
In prior years, Precise discussed the nature and progress of its plans to
become Year 2000 ("Y2K") ready. In late 1999, Precise completed its remediation
and testing of systems and completed the implementation of an Enterprise
Resource Planning ("ERP") system software package, which is Y2K compliant. As a
result of those planning and implementation efforts, Precise has not experienced
any business or systems interruptions attributable to the Y2K. Precise incurred
approximately $2.8 million in total costs in its Y2K compliance efforts. The
majority of those
19
<PAGE>
costs related to the ERP system installations and upgrades, a portion of which
have been capitalized and will be depreciated over the useful life of the
associated software and hardware. The remaining costs have been and will be
charged directly to expense. Precise is not aware of any problems with its
products, its internal systems, or the products or services of third parties.
Precise will continue to monitor its mission critical computer applications and
those of its suppliers and vendors throughout the year 2000 to ensure that any
latent Y2K matters that may arise are promptly addressed.
Recent Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The implementation of
SFAS No. 133 is not expected to have a significant impact on Precise's financial
statements. The standard will be effective for Precise for the year ended
December 31, 2001.
In December 1999, the Staff of the Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," to
provide guidance on the recognition, presentation and disclosure of revenues in
financial statements. The Company's revenue recognition practices are in
conformity with SAB No. 101.
Inflation and Changing Prices
Precise's sales and costs are subject to inflation and price fluctuations.
However, because a significant portion of changes in the cost of plastic resins,
Precise'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 Precise's results of operations.
Environmental Matters
Precise'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. Precise 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
Precise's facilities, Precise does not anticipate that any such capital and
operating expenses will have a material adverse effect on Precise'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.
Precise has been identified as one of 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
Precise's status as a PRP at the Envirotek II site, the New York State
Department of Environmental Conservation ("NYSDEC") identified Precise as a PRP
at the related Roblin Steel Complex, also a state cleanup site, which surrounds
the Envirotek II site. Precise 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. Precise 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, Precise entered into a Consent
Order with NYSDEC and a De Minimis Settlement Agreement with the other PRPs,
whereby Precise made an $11,626 lump-sum de minimis "buyout" payment in exchange
for a release 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 Precise 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
20
<PAGE>
regarding the intent, belief, or current expectations of Precise or its
management, are not guarantees of future performance and involve risks,
uncertainties and other factors, some of which are beyond Precise'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: (a) general economic conditions in the markets in which Precise
operates, (b) reliance on key customers and supply contracts, (c) volatility of
customer demand, (d) exposure to fluctuations in resin cost and supply as well
as the potential inability to pass through the increased costs to customers, (e)
customer outsourcing decisions, (f) reliance on key manufacturing facilities,
(g) the impact of significant competition from companies of varying sizes
including divisions or subsidiaries of larger companies and (h) other risks
detailed from time to time in Precise's Securities and Exchange Commission
filings. Precise does not intend to update these forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Precise is exposed to market risk from changes in interest rates.
Precise's primary interest rate risk relates to its long term debt obligations.
At December 31, 1999, Precise had total long term obligations, including the
current portion of those obligations, of $91,551,000. Of that amount,
$83,751,000 was in fixed rate obligations and $7,800,000 was in variable rate
obligations. Assuming a 10% increase in interest rates on Precise's variable
rate obligations (i.e., an increase from the December 31, 1999 weighted average
interest rate of 8.86% to a weighted average interest rate of 9.75%), annual
interest expense would be approximately $77,000 higher based on the December 31,
1999 outstanding balance of variable rate obligations. Precise has no interest
rate swap or exchange agreements.
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
21
<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 Precise. All directors and
executive officers of Precise 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......................................... 50 Chairman of the Board of Directors, Secretary
and Director
William L. Remley......................................... 49 Vice Chairman, Treasurer and Director
John R. Weeks............................................. 54 President and Chief Executive Officer
Michael M. Farrell........................................ 45 Executive Vice President
Ronald A. Seegers......................................... 52 Vice President, Mold Manufacturing
Clarence E. Stevens, Jr................................... 51 Vice President and Chief Operating Officer
Gregory R. Conley......................................... 39 Vice President and Chief Financial Officer
Raymond J. Veno........................................... 49 Vice President, Continuous Improvement
Gerald F. Duggan.......................................... 56 Vice President, Marketing and Sales
Michael D. Schenker....................................... 46 Director
Elaine E. Healy........................................... 37 Director
</TABLE>
Richard L. Kramer became the Chairman of the Board and a director of
Precise in April 1990 and Secretary of Precise in August 1991. Mr. Kramer is
also Chairman and a director of Mentmore Holdings Corporation, CPT Holdings,
Inc., a manufacturer of specialty structural steel profiles, Stellex
Technologies, Inc., a manufacturer of highly engineered subsystems and
components for the aerospace, defense and space industries, 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
Precise in April 1990 and Treasurer of Precise in August 1991. Mr. Remley is
also President, Chief Executive Officer and a director of Mentmore Holdings
Corporation, Vice-Chairman, Chief Executive Officer and a director Stellex
Technologies, Inc. and President and a director of CPT Holdings, Inc. Mr. Remley
is a director of J&L Structural, Inc., Republic Properties Corporation, Precise
Holding Corporation and Sunderland Industrial Holdings Corporation.
John R. Weeks became President and Chief Executive Officer of Precise in
August 1990. Prior to joining Precise Technology, Inc., 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 Executive Vice President, Mergers and
Acquisitions of Precise in 1998. Mr. Farrell previously held the position of
Vice President, Sales & Marketing from 1991 to 1998. Prior to joining Precise
Technology, Inc., 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, Mold Manufacturing in 1998.
Previously he held the position of Vice President, Engineering of Precise since
1993. Prior to joining Precise Technology, Inc., 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 Chief Operating Officer and Vice
President, Manufacturing of Precise in 1998. Previously he held the position of
Vice President, Manufacturing of Precise Technology, Inc. since 1994. Prior
thereto, he served as Director of Continuous Improvement of Precise Technology,
Inc. since 1991. Prior to joining Precise
22
<PAGE>
Technology, Inc., 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
Precise in February 1998. Prior to joining Precise Technology, Inc., 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.
Raymond J. Veno became Precise'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 Technology, Inc.,
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.
Gerald F. Duggan became Vice President, Sales & Marketing in July 1998.
Prior to joining Precise Technology, Inc., from 1991 to July 1998, Mr. Duggan
was employed as Director of Market Development for Nypro, Inc. Prior to joining
Nypro, Inc., Mr. Duggan held various molding and general management positions at
W.R. Grace, ICI Chemicals, and General Electric Plastics.
Michael D. Schenker became a director of Precise in May 1999. Mr.
Schenker is Managing Director and General Counsel of Mentmore Holdings
Corporation.
Elaine E. Healy became a director of Precise Holding Corporation and of
Precise Technology, Inc., 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.
Pursuant to the Warrant Purchase Agreement (as defined), the Pecks Funds
(as defined) are entitled to designate one member of Precise's board of
directors. Ms. Healy currently serves on Precise's board of directors as a
designee of the Pecks Funds.
23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table sets forth the compensation paid by Precise to (a) its
Chairman of the Board and Chief Executive Officer and (b) each of the four other
most highly compensated individuals who served as executive officers of Precise
during fiscal 1999 and received annual compensation in excess of $100,000
(collectively, the "Named Executives"), for services rendered in all capacities
to Precise during the periods indicated.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------------
Awards Payouts
--------------------- ----------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Salary Bonus sation Award(s) SARs Payouts sation
Name and Principal Position Year ($) ($) ($)(a) ($) (#) ($) ($)
- -------------------------------- -------- ------------ ------------ --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John R. Weeks 1999 $285,000 $111,240 -- -- -- -- $20,797 (b)
President and Chief 1998 290,000 25,000 -- -- -- -- 16,292 (c)
Executive Officer 1997 250,000 72,499 -- -- -- -- 16,812 (d)
Michael M. Farrell 1999 163,751 42,900 -- -- -- -- 12,939 (e)
Executive Vice President, 1998 150,000 25,800 -- -- -- -- 11,260 (f)
Mergers and Acquisitions 1997 147,000 32,430 -- -- -- -- 10,425 (g)
Ronald A. Seegers 1999 137,196 37,180 -- -- -- -- 8,194 (h)
Vice President, Mold 1998 130,000 22,360 -- -- -- -- 10,301 (I)
Manufacturing 1997 128,256 28,905 -- -- -- -- 9,702 (j)
Clarence E. Stevens, Jr. 1999 135,000 38,610 -- -- -- -- 12,455 (k)
Chief Operating Officer and 1998 129,375 22,020 -- -- -- -- 10,178 (l)
Vice President, 1997 113,505 25,614 -- -- -- -- 8,587 (m)
Manufacturing
Gregory R. Conley 1999 144,578 26,920 -- -- -- -- 11,850 (n)
Chief Financial Officer and 1998 121,760 12,420 -- -- -- -- 2,999 (o)
Vice President
</TABLE>
- -------------------
(a)Below amounts which would require disclosure under Commission rules and
regulations.
(b)Included in such amount is $9,769 representing an employer matching and
discretionary contribution under the 401(k) Plan (as defined), $1,642 in net
premiums for a life insurance policy on behalf of Mr. Weeks and $9,386
representing a profit sharing bonus.
(c)Included in such amount is $10,000 representing an employer matching and
discretionary contribution under the 401(k) Plan (as defined), $1,485 in net
premiums for a life insurance policy on behalf of Mr. Weeks and $4,807
representing a profit sharing bonus.
(d)Included in such amount is $11,458 representing an employer matching and
discretionary 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.
(e)Included in such amount is $7,547 representing an employer matching and
discretionary contribution under the 401(k) Plan and $5,392 representing a
profit sharing bonus.
(f)Included in such amount is $8,375 representing an employer matching and
discretionary contribution under the 401(k) Plan and $2,885 representing a
profit sharing bonus.
(g)Included in such amount is $8,159 representing an employer matching and
discretionary contribution under the 401(k) Plan and $2,266 representing a
profit sharing bonus.
(h)Included in such amount is $8,194 representing an employer matching and
discretionary contribution under the 401(k) Plan and $4,528 representing a
profit sharing bonus.
(i)Included in such amount is $7,801 representing an employer matching and
discretionary contribution under the 401(k) Plan and $2,500 representing a
profit sharing bonus.
24
<PAGE>
(j)Included in such amount is $7,696 representing an employer matching and
discretionary contribution under the 401(k) Plan and $2,006 representing a
profit sharing bonus.
(k)Included in such amount is $8,010 representing an employer matching and
discretionary contribution under the 401(k) Plan and $4,446 representing a
profit sharing bonus.
(l)Included in such amount is $7,672 representing an employer matching and
discretionary contribution under the 401(k) Plan and $2,506 representing a
profit sharing bonus.
(m)Included in such amount is $6,810 representing an employer matching and
discretionary contribution under the 401(k) Plan and $1,777 representing a
profit sharing bonus.
(n)Included in such amount is $7,096 representing an employer matching and
discretionary contribution under the 401(k) Plan and $4,754 representing a
profit sharing bonus.
(o)Included in such amount is $2,025 representing an employer matching and
discretionary contribution under the 401(k) Plan and $974 representing a
profit sharing bonus.
Compensation Committee Interlocks and Insider Participation
Precise'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 1999.
401(k) Pension Plan
Precise Technology, Inc. sponsors a defined contribution savings plan (the
"401(k) Plan") whereby eligible employees of Precise 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 Precise to the trustee under the 401(k) Plan.
Precise has a policy of (a) 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 (b) making matching contributions equal to 50% of the
first 5% of compensation deferred by employees. Precise's contributions are
subject to vesting and forfeiture. Precise's contributions to the accounts of
the Named Executive Officers during 1999 are included in the Summary
Compensation Table.
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") administered the 1997
Stock Option Plan, which provided 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 was to have been evidenced by a written option
agreement between the optionee and Sunderland, which agreement could have
contained additional terms not inconsistent with the 1997 Stock Option Plan.
Under Nonqualified Stock Option Agreements (the "1997 Option Agreements")
entered into in April 1997 pursuant to the 1997 Stock Option Plan, John R.
Weeks, President and Chief Executive Officer of Precise Technology, Inc., and
Michael M. Farrell, Vice President, Marketing & Sales of Precise Technology,
Inc., 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 Options, the "Weeks/Farrell Options"). The
Weeks/Farrell Options were exercisable at a price of $1,500 per share of
Sunderland Common Stock. The First Options were to become exercisable over a
three-year period following the grant date. The Second Options were to 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 1997
25
<PAGE>
Option Agreements) for the years ended December 31, 1997 through 2000 exceeded
certain annual targets. In addition, the Weeks/Farrell Options were to have been
exercisable 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 were to have
been exercisable during the ten business day period following notice of a Change
of Control (as defined in the 1997 Option Agreements). Once exercisable, the
Weeks/Farrell Options were to have been exercisable at any time, in whole or in
part, prior to the earlier of (a) the termination of the optionee's employment
with Sunderland or any of its subsidiaries or (b) January 31, 2005. It was
intended that the Weeks/Farrell Options should not constitute "incentive stock
options," as that term is used in Section 422 of the Internal Revenue Code of
1986, as amended.
Under a Nonqualified Stock Option Agreement (the "Conley Option Agreement"
and together with the 1996 Option Agreements, the "Option Agreements") entered
into as of April 1998, pursuant to the 1997 stock Option Plan, Gregory R.
Conley, Vice President and Chief Financial Officer of Precise, received options
to purchase 200 share of Sunderland Common Stock (the "Conley Options," and
together with the Weeks/Farrell Options, the "Options"). The Conley Options were
exercisable at a price of $1,500 per share of Sunderland Common Stock. The
Conley Options were to become exercisable over a five-year period following the
grant date. In addition, the Conley Options were to have been exercisable during
the one-year period following the optionee's retirement or above age 65, or upon
his death or disability, and all of the Conley Options were to have been
exercisable during the ten business day period following a Change in Control (as
defined in the Conley Option Agreement). Once exercisable, the Conley Options
were to have been exercisable at any time, in whole or in part, prior to the
earlier of (a) the termination of the optionee's employment with Sunderland or
any of its subsidiaries or (b) January 31, 2005. It was intended that the Conley
Options should 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 had 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 had a right of first refusal prior
to the sale to any third party of any Sunderland Common Stock purchased pursuant
to the Options. On October 8, 1998, the Option Agreements were amended to
further clarify and modify certain provisions of the Option Agreements.
By Assignment and Assumption Agreements dated as of December 14, 1998,
Sunderland assigned, and SIHC II LLC, a Delaware limited liability company
("SIHC II"), assumed, Sunderland's rights and obligations under the 1997 Stock
Option Plan. Pursuant to such agreements, Mr. Weeks, Mr. Farrell, and Mr. Conley
agreed to substitute the Options for the right to acquire an identical
percentage of the membership interests in SIHC II.
26
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Precise Technology, Inc. is a wholly owned subsidiary of Precise Holding
Corporation ("Parent"). The following table sets forth information concerning
the beneficial ownership of the common stock of Parent ("Parent Common Stock")
as of March 15, 2000 by (a) each person known to Precise to own beneficially
more than 5% of the outstanding Parent Common Stock, (b) by each Named Executive
Officer and (c) all directors and executive officers of Precise 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> <C>
SIHC I LLC (1) 8,035.00 97.0
SIHC II LLC (2) 8,035.00 97.0
John Hancock Mutual Life Insurance Company 570.00(3) 6.4
Rice Partners II, L.P. 570.00(3) 6.4
Delaware State Employees' Retirement Fund (4) 552.67(5) 6.4
Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc. (4) 110.33(6) 1.4
Declaration of Trust for Defined Benefit Plans of ICI American Holdings Inc. (4) 162.00(7) 2.0
Pecks Management Partners, Ltd. (4) 825.00(8) 9.3
Michael D. Schenker (9) -- --
William L. Remley (10) -- --
John R. Weeks -- --
Michael M. Farrell -- --
Ronald A. Seegers -- --
Clarence E. Stevens, Jr. -- --
Gregory R. Conley -- --
Gerald F. Duggan -- --
Elaine E. Healy (11) -- --
Total Executive Officers and Directors as a Group -- --
</TABLE>
(1) According to information supplied to Precise by SIHC I LLC ("SIHC I"), SIHC
I is a Delaware limited liability company whose managing member is Sunderland,
which owns a 1% membership interest in SIHC I. The other members of SIHC I are
the Abington Settlement ("Abington"), which owns an 89.1% non-managing
membership interest in SIHC I, and Blackhill Settlement ("Blackhill"), which
owns a 9.9% non-managing membership interest in SIHC I. The principal
beneficiaries of Abington and Blackhill (i.e., trusts) are certain relatives of
Richard L. Kramer and William L. Remley. According to information supplied to
Precise 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, 680 Fifth
Avenue, 8th Floor, New York, New York 10019-5429. Richard L. Kramer, Chairman
of the Board of Directors of Precise, and William L. Remley, Vice Chairman of
the Board of Directors of Precise, 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
Precise. Messrs. Kramer and William L. Remley are the sole executive officers
and directors of Mentmore. SIHC I owns a 100% membership interest in SIHC II
LLC. See footnote (2) below.
(footnotes continued on next page)
27
<PAGE>
(footnotes continued from previous page)
(2) According to information supplied to Precise by SIHC II LLC ("SIHC II"),
SIHC II is a Delaware limited liability company whose non-member manager is
Sunderland. SIHC I owns a 100% membership interest in SIHC II. See footnote (1)
above.
(3) 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.
(4) 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.
(5) Comprised of 167.67 shares of Parent Common Stock and Warrants to purchase
385 shares of Parent Common Stock.
(6) Comprised of 33.33 shares of Parent Common Stock and Warrants to purchase
77 shares of Parent Common Stock.
(7) Comprised of 49 shares of Parent Common Stock and Warrants to purchase 113
shares of Parent Common Stock.
(8) 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.
(9) Mr. Schenker is a director of Parent. See footnote (1) above.
(10) 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 SIHC II.
(11) Ms. Healy is a Vice President of Pecks Management Partners, Ltd. See
footnote (4) above. Ms. Healy disclaims beneficial ownership of the Parent
Common Stock and Warrants held of record by the Pecks Funds.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Tredegar Financing Transactions
In connection with the Tredegar Acquisition:
1. Precise 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 Precise'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;
2. Precise 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 Precise's
12.25% Senior
28
<PAGE>
Subordinated Notes due 2006 (the "Retired Notes");
3. 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
4. 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 Technology, Inc. and Parent entered into the Prior
Credit Agreement, under which Precise Technology, Inc. incurred approximately
$44.0 million of indebtedness to finance the Tredegar Acquisition, and Precise
Technology, Inc. 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, Precise
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 Technology, Inc.
Precise Technology, Inc. used a portion of the net proceeds from the
Offering to (1) redeem the Exchangeable Preferred Stock and the Seller Preferred
Stock and (2) repay the indebtedness outstanding under the Prior Credit
Agreement and the Retired Notes. In addition, Precise Technology, Inc. used a
portion of the net proceeds from the Offering to repurchase 124 shares of Common
Stock of Precise Technology, Inc. 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 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 (a) a change in control
(as defined in the Shareholder Agreement) of Parent, (b) a merger,
consolidation, share exchange or similar transaction involving Parent, (c) 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 (d) any
substantial change in the type of business conducted by Parent. The Shareholder
Agreement also provides Parent with an
29
<PAGE>
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 Technology, Inc. and its
subsidiaries pursuant to the Management Agreement dated March 15, 1996, as
amended (the "Management Agreement"), between Precise Technology, Inc. and
Mentmore. Pursuant to the Management Agreement, Mentmore provides Precise with
general management, advisory and consulting services with respect to Precise
Technology, Inc.'s business and with respect to such other matters as Precise
Technology, Inc. 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, Precise provides customary indemnification, reimburses certain costs
and pays Mentmore an annual management fee of $300,000 (subject to adjustment),
which is payable monthly. In addition, pursuant to the Management Agreement,
Mentmore is entitled to customary investment banking fees for services rendered
in connection with Precise'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 Technology, Inc., and Precise Technology, Inc. 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.
Precise has paid Mentmore fees of $300,000, $300,000, and $675,000 in
1999, 1998, and 1997, respectively, for management and other advisory services
and has reimbursed Mentmore for certain expenses incurred in connection with the
rendering of such services.
30
<PAGE>
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 34 are filed as part of this Report
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
3. List of Exhibits:
Exhibit
Number Description
-------- -----------
<TABLE>
<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.
**3.13 -- Certificate of Incorporation of Precise Intellectual Property Holdings Company, Inc.
**3.14 -- By Laws of Precise Intellectual Property Holdings Company, 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).
*4.4 -- 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 -- Amended and Restated Second Amendment and Consent to Credit Agreement as of March 31, 1999,
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.
**10.4 -- Consent and Third Amendment to Credit Agreement as of September 30, 1999, 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.
*10.5 -- 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.
*10.6 -- Securities Purchase Agreement dated March 29, 1996, among Precise Holding Corporation, Precise
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C>
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.
*10.7 -- 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.
*10.8 -- 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.
*10.9 -- 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.
*10.10 -- 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.
*10.11 -- 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.
*10.12 -- 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.
*10.13 -- Amended and Restated Management Agreement, dated as of June 13, 1997 between Precise Technology,
Inc. and Mentmore Holdings Corporation.
*10.14 -- Sunderland Industrial Holdings Corporation 1997 Key Employee Nonqualified Stock Option Plan dated
as of April 24, 1997.
*10.15 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial
Holdings Corporation and John R. Weeks.
*10.16 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial
Holdings Corporation and Michael M. Farrell.
+10.17 -- Memorandum of Agreement dated August 8, 1995 between The Procter & Gamble Manufacturing Company
and Tredegar Molded Products Company.
**10.18 -- License and Royalty Agreement between Precise Intellectual Property Holdings Company, Inc., and
Precise Technology, Inc.
10.19 -- Nonqualified Stock Option Agreement dated as of April 1, 1998, between Sunderland Industrial
Holdings Corporation and Gregory R. Conley.
21.1 -- Subsidiaries of the Registrants.
27.1 -- Financial Data Schedule.
</TABLE>
* Filed with Registration No. 333-32041 and incorporated herein by reference.
**Filed with Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, 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.
32
<PAGE>
PRECISE TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
PART I or Reference
------------------
<S> <C>
Report of Independent Accountant............................................................. 34
Consolidated Balance Sheets.................................................................. 35
Consolidated Statements of Income............................................................ 36
Consolidated Statements of Stockholder's Equity (Deficit) and Comprehensive Income........... 37
Consolidated Statements of Cash Flows........................................................ 38
Notes to the Consolidated Financial Statements............................................... 39
</TABLE>
33
<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, 1999 and 1998, and the related consolidated statements of
income, stockholder's equity and comprehensive income and cash flows for each of
three years in the period ended December 31, 1999. Our audit also includes the
financial statement schedule listed in the index at item 14(a). These financial
statements and schedule are the responsibility of Precise's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Precise
Technology, Inc. as of December 31, 1999 and 1998, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 24, 2000
34
<PAGE>
<TABLE>
<CAPTION>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
1999 1998
---- ----
(In thousands)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 318 $ 240
Accounts receivable, net 15,133 14,931
Inventories 6,352 6,510
Deposits on capital leases 5,276 --
Prepaid expenses and other 289 453
Deferred income taxes 683 806
------------- -------------
Total current assets 28,051 22,940
Property, plant and equipment, net 44,950 43,537
Intangible and other assets, net 25,173 26,931
------------- -------------
Total assets $98,174 $ 93,408
============= =============
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Current maturities of long-term debt $ 5,722 $ 10,193
Accounts payable 11,789 6,607
Accrued liabilities 4,639 4,109
Tooling deposits 1,292 3,963
------------- -------------
Total current liabilities 23,442 24,872
Long-term debt, less current maturities 85,829 80,031
Deferred income taxes 1,247 998
Commitments and contingencies -- --
Stockholder's (deficit) equity:
Common stock, no par value; 1,000 shares authorized, and 1 share issued
and outstanding at December 31, 1999 and 1998, respectively. 1 1
Additional paid-in-capital 3,555 3,555
Accumulated other comprehensive loss (193) (292)
Retained deficit (15,707) (15,757)
------------- -------------
Total stockholder's deficit (12,344) (12,493)
------------- -------------
Total liabilities and stockholder's deficit $ 98,174 $ 93,408
============= =============
</TABLE>
See accompanying notes
35
<PAGE>
<TABLE>
<CAPTION>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
------------------------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net sales $110,130 $98,025 $100,737
Cost of sales 85,809 77,459 82,732
------------- ------------- -------------
Gross profit 24,321 20,566 18,005
Selling, general, and administrative 12,379 10,737 8,980
Plant closure costs -- 31 69
Amortization of intangible assets 1,015 1,155 1,224
------------- ------------- -------------
Operating income 10,927 8,643 7,732
Other expense (income):
Interest expense 10,365 10,311 8,771
Other (243) (51) 873
------------- ------------- -------------
Income (loss) before income taxes and extraordinary item 805 (1,617) (1,912)
Provision for income taxes 755 427 228
------------- ------------- -------------
Net income (loss) before extraordinary item 50 (2,044) (2,140)
Extraordinary item, net of tax -- -- (4,841)
------------- ------------- -------------
Net income (loss) $ 50 $(2,044) $(6,981)
============= ============= =============
</TABLE>
See accompanying notes
36
<PAGE>
<TABLE>
<CAPTION>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) AND
COMPREHENSIVE INCOME
Other
Additional Compre- Retained Total
Common Stock Paid-in hensive (Deficit) Stockholders
Shares Amount Capital (Loss)/Income Earnings Equity
------ ------ ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 125 $ 3,316 $ 3,555 $-- $ 82 $ 6,953
Redemption of stock (124) (3,315) -- -- -- (3,315)
Dividends -- -- -- -- (6,814) (6,814)
Minimum pension liability, net
of tax of $136,000 -- -- -- (204) -- (204)
Net loss -- -- -- -- (6,981) (6,981)
-------------
Comprehensive loss (7,185)
---------- ---------- ----------- ---------------- ------------ -------------
Balance at December 31, 1997 1 1 3,555 (204) (13,713) (10,361)
Minimum pension liability, net
of tax of $58,000 -- -- -- (88) -- (88)
Net loss -- -- -- -- (2,044) (2,044)
-------------
Comprehensive loss (2,132)
---------- ---------- ----------- ---------------- ------------ -------------
Balance at December 31, 1998 1 1 3,555 (292) (15,757) (12,493)
Minimum pension liability, net
of tax of $65,000 -- -- -- 99 -- 99
Net income -- -- -- -- 50 50
-------------
Comprehensive loss 149
---------- ---------- ----------- ---------------- ------------ -------------
Balance at December 31, 1999 1 $ 1 $ 3,555 $ (193) $(15,707) $ (12,344)
========== ========== =========== ================ ============ =============
</TABLE>
See accompanying notes
37
<PAGE>
<TABLE>
<CAPTION>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 50 $(2,044) $(6,981)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item, net of tax -- -- 4,841
Depreciation and amortization 7,719 7,769 6,716
Amortization of original issue discount and
financing fees 688 558 702
Loss on sale of equipment 136 132 461
Deferred income taxes 372 (192) (120)
Changes in assets and liabilities:
Accounts receivable (202) (1,986) 475
Inventories 158 (654) 4,001
Prepaid expenses and other (4,995) (218) 126
Accounts payable 5,182 801 (1,091)
Tooling deposits (2,672) 2,411 (512)
Accrued liabilities 531 1,082 (2,153)
------------- ------------- -------------
Net cash provided by operating activities 6,967 7,659 6,465
INVESTING ACTIVITIES
Capital expenditures (4,405) (2,994) (4,950)
Proceeds from sale of fixed assets 82 119 1,460
------------- ------------- -------------
Net cash used in investing activities (4,323) (2,875) (3,490)
FINANCING ACTIVITIES
Borrowings on revolving line of credit 35,900 19,200 23,600
Payments on revolving line of credit (35,100) (20,700) (15,400)
Proceeds from bond issuance -- -- 75,000
Repayment of long-term debt (3,366) (3,604) (61,573)
Prepayment of debt premiums -- -- (2,399)
Payment of financing costs -- -- (4,575)
Redemption of common stock -- -- (3,315)
Redemption of preferred stock -- -- (8,250)
Dividends paid on common and preferred stock -- -- (6,814)
------------- ------------- -------------
Net cash (used in) financing activities (2,566) (5,104) (3,726)
------------- ------------- -------------
Net increase (decrease) in cash 78 (320) (751)
Cash at beginning of period 240 560 1,311
------------- ------------- -------------
Cash at end of period $ 318 $ 240 $ 560
============= ============= =============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (including $0, $0, and $170,620 capitalized
in 1999, 1998 and 1997, respectively) $9,497 $9,812 $ 7,969
============= ============= =============
Income taxes $ 526 $ 90 $ 774
============= ============= =============
Supplemental schedule of noncash investing and financing
activities
Capital lease agreements for equipment $3,877 $2,576 $ 4,810
============= ============= =============
</TABLE>
See accompanying notes
38
<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. ("Precise") and its wholly owned subsidiary.
Significant intercompany transactions have been eliminated.
In 1999, Precise caused each of its wholly-owned subsidiaries; Precise
Technology of Delaware, Inc., Precise Technology of Illinois, Inc., Precise TMP,
Inc., Precise Polestar, Inc., and Massie Tool, Mold & Die, Inc., to engage in a
series of mergers with Precise as the ultimate sole surviving corporation of the
mergers. Precise Polestar, Inc., and Massie Tool, Mold & Die, Inc., were merged
into Precise TMP, Inc., on June 30, 1999. Precise Technology of Delaware, Inc.,
and Precise Technology of Illinois, were merged into Precise Technology, Inc. on
June 30, 1999, and Precise TMP, Inc. was merged into Precise Technology, Inc. on
July 1, 1999. Upon consummation of the mergers, each of the subsidiaries'
separate corporate existence ceased.
In July 1999, Precise formed Precise Intellectual Property Holdings
Company, Inc., a Delaware holding company. In connection with the formation,
intangible assets were transferred to the holding company on October 1, 1999.
Precise Intellectual Property Holdings Company, Inc., is a wholly-owned
subsidiary of Precise.
Precise is a wholly owned subsidiary of Precise Holding Corporation
("Precise Holding") which is a wholly-owned subsidiary of SIHC II LLC ("SIHC
II"). In December 1998, Sunderland Industrial Holdings Corporation
("Sunderland") contributed 100% of its shares in Precise Holding to SIHC I LLC
("SIHC I"), which in turn contributed such shares to SIHC II in exchange for a
100% membership interest in SIHC II. Sunderland owns a 1% membership interest
and is the managing member of SIHC I.
Cash and Cash Equivalents
Precise 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.
Tooling 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 substantial 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.
39
<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)
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the straight-line
method based on estimated useful lives, as follows:
Building and improvements 5-40 years
Machinery and equipment 3-10 years
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.
Intangible Assets
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. Precise evaluates the carrying value of goodwill for potential
impairment on an ongoing basis. Such evaluation considers projected future
operating results, trends and other circumstances.
When factors indicate that goodwill could be impaired, Precise uses an
estimate of the related business's 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, Precise 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 debt outstanding.
Noncompete Agreements--Noncompete agreements relate to contracts executed
in conjunction with the acquisitions. Such agreements were amortized over the
life of the contracts.
Income Taxes
Precise 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.
40
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. Accounts Receivable
Accounts receivable are presented net of allowance for doubtful accounts
of approximately $142,000 and $166,000 as of December 31, 1999 and 1998,
respectively. Management continually evaluates its accounts receivable and
adjusts its allowance for doubtful accounts for changes in potential credit
risk. Precise does not require collateral for its trade accounts receivable.
3. Inventories
The major components of inventories were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Finished products $1,998 $1,309
Raw materials 1,815 2,085
Tooling and dies 2,539 3,116
------------ ------------
Total inventories $6,352 $6,510
============ ============
</TABLE>
4. Property, Plant and Equipment
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Land $2,194 $ 2,194
Buildings and leasehold improvements 15,951 11,453
Machinery and equipment 51,904 48,433
------------ ------------
70,049 62,080
Accumulated depreciation and amortization (25,099) (18,543)
------------ ------------
Net property, plant and equipment $44,950 $43,537
============ ============
</TABLE>
Depreciation and amortization expense on property, plant and equipment was
approximately $6,704,000 $6,614,000, and $5,513,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
5. Intangible and Other Assets
Intangible and other assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Goodwill $25,313 $25,313
Deferred financing costs 4,202 4,575
Intangible pension asset and other 684 739
------------ ------------
Total 30,199 30,627
Accumulated amortization (5,026) (3,696)
------------ ------------
Intangible and other assets, net $25,173 $26,931
============ ============
</TABLE>
41
<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,
--------------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
11 1/8% Senior Subordinated Notes (a) $75,000 $75,000
Credit Agreement (b) 7,800 7,000
Other notes (c) 66 214
Capitalized lease obligations (Note 10) 8,685 8,010
------------ ------------
$91,551 90,224
Less:
Current maturities on long-term debt (5,722) (10,193)
------------ ------------
Total $85,829 $80,031
============ ============
</TABLE>
(a) 11 1/8% Senior Subordinated Notes 2007 ("Notes")
On June 13, 1997, Precise issued $75,000,000 of Notes. 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 Precise and are guaranteed on a senior subordinated basis
by Precise's subsidiary.
The Notes are redeemable at the option of Precise 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. Precise is required to redeem the outstanding
notes based upon certain events as described in the Note Indenture.
The Note Indenture requires Precise and its subsidiary 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) Credit Agreement
On June 13, 1997, Precise entered into a $30 million Credit Agreement with
a financial institution, which expires in 2002. Borrowings under the Credit
Agreement may be used to fund Precise's working capital requirements, finance
certain permitted acquisitions and general corporate requirements of Precise and
pay fees and expenses related to the foregoing. The Credit Agreement was amended
effective March 31, 1999. The amendment reduced the borrowing capacity of
Precise by allowing for advances in an amount up to 85 percent of the
outstanding eligible accounts receivable plus 50 percent of the aggregate value
of eligible inventory, determined on a monthly basis, up to a maximum of $30
million. As a result of the amendment, $270,000 of deferred financing fees that
related to the original Credit Agreement were written off and charged to
interest expense. The borrowing capacity of Precise as of December 31, 1999, was
approximately $13.9 million.
Up to $2.0 million of the total Credit Agreement commitment is available
for the issuance of standby letters of credit, which borrowings reduce amounts
available under the Credit Agreement. Precise is required to pay a .50% fee on
the average daily unused portion of the Credit Agreement. Precise is also
subject to mandatory prepayment terms as described in the Credit Agreement.
42
<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 Credit Agreement accrue interest, at the option of
Precise, at either LIBOR (varying from 6.14% to 6.47% at December 31, 1999) plus
2.5% or the financial institution's prime rate (8.5% at December 31, 1999) plus
1.5%.
The Credit Agreement is guaranteed on a senior basis by Precise's parent
and holding company subsidiary and is collateralized by substantially all of the
assets of Precise and its subsidiary. The Credit Agreement contains certain
covenants which require Precise to maintain leverage ratios, fixed charge and
interest coverage ratios and minimum net worth. The Credit Agreement further
limits capital expenditures, declaration of dividends and other restricted
payments and additional indebtedness and the sale or transfer of Precise's
assets or capital stock.
(c) Other Notes
Precise has various other notes of approximately $66,000 at December 31,
1999. The notes are payable in monthly installments ranging from $350 to $5,200
through July 2003. The notes accrue interest at rates varying from 6.03% to
8.15%.
Five-year maturities of long-term debt are as follows (dollars in
thousands):
Debt Obligations
----------------
2000 $ 5,722
2001 2,087
2002 6,849
2003 1,192
2004 701
Thereafter 75,000
---------------
$ 91,551
===============
7. Fair Values of Financial Instruments
Precise, 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 Precise's borrowings under its
revolving credit agreements approximate their fair value. The fair values of
Precise's Notes are determined using quoted market prices.
The carrying amounts and fair values of Precise's financial instruments at
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1999 1998
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 318 $ 318 $ 240 $ 240
Long-term debt $ 91,551 $ 84,239 $ 90,224 $ 87,599
</TABLE>
43
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. Employee Benefit Plans
Precise sponsors a noncontributory defined benefit pension plan. The
following sets forth the funded status of Precise's defined benefit plan and
amounts recognized in the accompanying balance sheet as of December 31:
1999 1998
------- -------
(In thousands)
Change in benefit obligation
Benefit obligation at beginning of year $(1,545) $(1,324)
Service cost (36) (33)
Interest cost (106) (97)
Actuarial gains 105 (146)
Benefits paid 64 55
------- -------
Benefit obligation at end of year (1,518) (1,545)
Change in plan assets
Fair value of plan assets at beginning of year 1,308 1,216
Actual return on plan assets 88 81
Company contributions 72 66
Benefits paid (64) (55)
------- -------
Fair value of plan assets at end of year 1,404 1,308
------- -------
Funded status of the plan (underfunded) (114) (237)
Unrecognized net loss 322 486
Unrecognized prior service cost 124 82
Minimum pension liability adjustment (446) (568)
------- -------
Accrued benefit cost $ (114) $ (237)
====================
Precise has recognized the following amounts in its balance sheets at
December 31:
1999 1998
------- -------
(In thousands)
Prepaid benefit cost $ 333 $331
Accrued benefit liability (446) (568)
Intangible asset 124 82
Accumulated other comprehensive loss,
net of tax of $129 in 1999 and $194
in 1998. 193 292
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75% and 7.0%, at
December 31, 1999 and 1998, respectively. The expected long-term rate of return
on plan assets was 8.0% for both 1999 and 1998.
44
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. Employee Benefit Plans--(continued)
Precise's pension expense for its defined benefit pension plan consists of
the following components for the years ended December 31, 1999, 1998 and 1997:
December 31
-----------------------
1999 1998 1997
---- ---- ----
(In thousands)
Service cost for benefits $ 36 $ 33 $ 32
earned during the year
Interest cost on projected benefit obligation 106 97 88
Expected return on plan assets (105) (97) (96)
Amortization of prior service cost 33 23 15
----- ----- -----
Benefit cost $ 70 $ 56 $ 39
===== ===== =====
Precise also sponsors a defined contribution 401(k) plan ("Corporate
Plan") which covers substantially all non-union employees at the other Company
facilities. Under the terms of the 401(k) plan, Precise matches 50% of
employees' contributions up to 5% of employees' salaries, 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 Precise to the defined contribution 401(k) plan were approximately
$1,024,000, $1,035,000, and $343,000, for the years ended December 31, 1999,
1998, and 1997, respectively.
Prior to January 1, 1998, Precise sponsored a defined contribution 401(k)
plan which covered substantially all non-union employees at the Tredegar and
Unity facilities. Under the terms of the 401(k), Precise matched 25% of
employees' contributions up to 6% of employees' salaries. Contributions made by
Precise to the defined contribution 401(k) plan for the year ended December 31,
1997, were approximately $146,000. Effective January 1, 1998, the plan was
terminated and merged into the Corporate Plan.
9. Income Taxes
Income tax expense consisted of the following for the years ended December
31:
1999 1998 1997
---- ---- ----
(In thousands)
Current:
Federal $ 34 $ -- $ --
State 409 619 349
--------- --------- ---------
443 619 349
Deferred:
Federal 1,224 (364) (398)
State (912) 172 277
--------- --------- ---------
312 (192) (121)
--------- --------- ---------
$755 $ 427 $ 228
========= ========= =========
45
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. Income Taxes--(continued)
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>
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Amount computed at statutory $ 274 $(550) $(650)
rate
State and local taxes less applicable federal income tax 339 522 413
Goodwill and other amortization 411 396 386
Reversal of Valuation Reserve (670) -- --
Carryback of NOL Benefits 384 -- --
Other 17 59 79
----- ----- -----
$ 755 $ 427 $ 228
===== ===== =====
</TABLE>
The components of net deferred tax assets and liabilities at December 31
are as follows:
1999 1998
---- ----
(In thousands)
Deferred tax assets:
Receivables $ 55 $ 63
Inventory 121 33
Accrued expenses 854 952
Related party financing costs 219 218
Plant closing costs 105 131
Federal net operating losses 2,394 3,373
State net operating losses 1,149 1,154
Pension 113 173
AMT credit carryforward 160 119
Other 56 68
--------- ---------
Deferred tax assets 5,226 6,284
Valuation reserve (484) (1,154)
--------- ---------
Total deferred tax assets 4,742 5,130
Deferred tax liabilities:
Inventory -- --
Property, plant and equipment 5,292 5,322
Other 14 --
--------- ---------
Total deferred tax liabilities 5,306 5,322
--------- ---------
Net deferred tax liabilities $ 564 $ 192
========= =========
Precise had net operating losses for federal income tax purposes at
December 31, 1999 of approximately $7.0 million. Precise's net operating losses
expire in the years ending 2012 and 2017. Precise also has a significant state
net operating loss totaling approximately $25.0 million at December 31, 1999.
During 1999, Precise merged several subsidiaries into Precise Technology,
Inc. Pursuant to this transaction, it is anticipated that the company may
realize the benefit of previously-generated state net operating losses.
Accordingly, a portion of the valuation reserve recorded against deferred tax
assets has been reversed.
46
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Precise must generate approximately $2 million of taxable income during
the carryforward period in order to fully utilize the majority of the state tax
losses before expiration. The federal net operating loss benefit may be fully
utilized should Precise realize approximately $500,000 of taxable income during
the carryforward period. Precise has generated $805,000 of pretax earnings in
1999. Permanently nondeductible goodwill amortization serves to increase
currently taxable income to $1,700,000, all of which is offset with net
operating loss carryforwards.
Also, during 1999, Precise settled an examination of its 1996 and 1997 tax
returns with the Internal Revenue Service. Settlement of these years resulted in
the use of approximately $1,500,000 of net operating loss carrybacks. The tax
effect of the loss utilization was $384,000.
10. Commitments and Contingencies
(a) Lease Commitments
Precise 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, 1999:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
(In thousands)
<S> <C> <C>
2000 $3,594 $1,982
2001 2,516 1,522
2002 2,086 1,371
2003 1,298 1,165
2004 730 908
Thereafter -- 52
--------- ---------
Total minimum lease payments $10,224 $7,000
=========
Less amounts representing interest 1,539
---------
Present value of net minimum lease $ 8,685
payments
Less current maturities of capital lease obligations 2,925
---------
Capital lease obligations $ 5,760
=========
</TABLE>
Operating lease expense under such arrangements was approximately
$1,511,000, $1,859,000, and $1,606,000, for the years ended December 31, 1999,
1998 and 1997, respectively.
Precise subleases certain property under an agreement which expires on
March 31, 2002. Rental income under such agreement was approximately $209,000 in
both of the years ended December 31, 1999 and 1998. Future minimum rental
receipts under the non-cancelable sublease arrangement are approximately
$251,000, $265,000 and $66,000 in 2000, 2001 and 2002, respectively.
47
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. Commitments and Contingencies - (continued)
Equipment leased under capital leases is as follows:
1999 1998
---- ----
(In thousands)
Machinery and equipment $14,774 $15,466
Leasehold improvements 225 225
------------ ------------
$14,999 15,691
Accumulated amortization (3,072) (3,144)
------------ ------------
$11,927 $12,547
============ ============
Amortization expense related to capitalized leases was approximately
$1,234,000, $1,518,000, and $1,073,000, for the years ended December 31, 1999,
1998, and 1997, respectively.
Precise has three lease lines of credit in the amount of approximately
$3,443,000, $2,300,000 and $5,800,000, which expire on May 31, 2000, July 1,
2000 and August 20, 2000, respectively. These lease lines of credit are
available to support Precise's capital expenditures for certain machinery and
equipment. As of December 31, 1999, Precise had approximately $2,400,000,
$1,300,000 and $4,700,000 of borrowings outstanding under the lease lines.
(b) Litigation
Precise is involved from time to time in lawsuits that arise in the normal
course of business. Precise actively and vigorously defends all lawsuits.
Management believes that there are no lawsuits pending that will have a material
affect on Precise's financial position.
11. Related Party Transaction
The sole executive officers and directors of Mentmore Holdings Corporation
("Mentmore") are Richard L. Kramer and William L. Remley who are also directors
of Precise. Mentmore provides management services to Precise and its
subsidiaries pursuant to the Management Agreement dated March 15, 1996, as
amended (the "Management Agreement"). Pursuant to the Management Agreement,
Mentmore provides Precise with general management, advisory and consulting
services with respect to Precise's business and with respect to such 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. Precise paid Mentmore fees of
$300,000 for each of the years ended December 31, 1999 and 1998 and $675,000 for
the year ended December 31, 1997, for management and other advisory services and
reimbursed Mentmore for certain expenses incurred in connection with the
rendering of such services.
Precise paid the law firm of Michael D. Schenker, Co. L.P.A. whose
principal is a director of Precise and an officer of Mentmore, a total of
approximately $300,000 in legal fees for the year ended December 31, 1997. No
fees were paid to the law firm of Michael D. Schenker, Co. L.P.A. during the
years ended December 31, 1999 and 1998.
In April of 1997, two of Precise's executive officers were granted options
to purchase an aggregate of 1,900 shares of Sunderland common stock and
effective April 1998, an additional executive officer of Precise was granted
options to purchase 200 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 dates of the grants.
The majority of the options (1,600 of the 1,900 granted in 1997) are exercisable
over a three-year period following the grant date. The remainder of the options
granted in 1997 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. The 200 options
48
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. Related Party Transaction -- (Continued)
granted in 1998 are exercisable over a five-year period following the grant
date. On October 8, 1998, the Option Agreements were amended to further clarify
and modify certain provisions of the Option Agreements.
By Assignment and Assumption Agreement dated as of December 14, 1998,
Sunderland assigned, and SIHC II LLC, a Delaware limited liability company
("SIHC II"), assumed, Sunderland's rights and obligations under the Option
Agreements. Pursuant to such agreement, the three executive officers agreed to
substitute the options for the right to acquire an identical percentage of the
membership interests in SIHC II.
12. Segment Information
Precise has two reportable segments: injection molding and mold making.
Precise's injection molding segment produces highly engineered, close tolerance,
precision plastic products. Precise's mold making segment has extensive tool and
die manufacturing capabilities.
Precise evaluates performance and allocates resources based on gross
margin. As a result, Precise does not allocate certain general and
administrative expenses to its operating segments including depreciation,
amortization and interest expense. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
Information by industry segment is set forth below:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
--------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Items Consolidated
------- ------ ----- ------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external $ 86,562 $ 23,568 $ -- $110,130
customers
Segment gross profit 22,279 2,042 -- 24,321
Depreciation and amortization expense 5,295 1,092 1,332 7,719
Interest expense -- -- 10,365 10,365
Segment assets 55,101 13,006 30,067 98,174
Net capital expenditures 6,701 1,225 356 8,282
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Items Consolidated
------- ------ ----- ------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external $ 82,064 $ 15,961 $ -- $ 98,025
customers
Segment gross profit 19,302 1,264 -- 20,566
Depreciation and amortization expense 5,245 1,017 1,507 7,769
Interest expense -- -- 10,311 10,311
Segment assets 48,711 13,565 31,132 93,408
Net capital expenditures 4,167 806 597 5,570
</TABLE>
49
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY OWNED SUBSIDIARY OF PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. Segment Information--(continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Items Consolidated
------- ------ ----- ------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external $ 88,003 $ 12,734 $ -- $100,737
customers
Segment gross profit 18,350 (345) -- 18,005
Depreciation and amortization expense 4,341 948 1,427 6,716
Interest expense -- -- 8,771 8,771
Segment assets 50,413 10,587 32,639 93,639
Net capital expenditures 6,869 1,159 1,732 9,760
</TABLE>
Precise's marketing focus is to service a diverse base of original
equipment manufacturers in the health care, packaging and consumer/industrial
markets. Precise has twelve facilities located throughout the Eastern and
Midwestern United States.
For the year ended December 31, 1999, sales to two customers of Precise's
injection molding segment accounting for 10 percent or more of net sales were
$20,911,000 and $17,672,000. For the year ended December 31, 1998, sales to two
customers of Precise's injection molding segment, accounting for 10 percent or
more of net sales, were $20,326,000 and $15,549,000. For the year ended December
31, 1997, sales to one customer of Precise's injection molding segment,
accounting for 10 percent or more of net sales, were $21,337,000.
50
<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, Commonwealth of Pennsylvania, as of March 30, 2000.
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 30, 2000
--------------------- Secretary and Director
Richard L. Kramer
/s/ WILLIAM L. REMLEY Vice Chairman, Treasurer and Director March 30, 2000
---------------------
William L. Remley
/s/ JOHN R. WEEKS President and Chief Executive Officer March 30, 2000
-----------------
John R. Weeks
/s/ GREGORY R. CONLEY Vice President and Chief Financial Officer March 30, 2000
--------------------- (principal financial and accounting officer)
Gregory R. Conley
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
PRECISE TECHNOLOGY INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Additions
---------------------------
Charged to
Balance at Charged Other Balance
Beginning to Costs and Accounts- Deductions- at End of
of Period Expenses Describe Describe Period
------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 166,000 $ -- $ -- ($24,000) (1) $142,000
============ =========== ============ ============ ===========
YEAR ENDED DECEMBER 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 85,000 $ 81,000 $ -- $ -- $166,000
============ =========== ============ ============ ===========
YEAR ENDED DECEMBER 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $ 60,000 $ 25,000 $ -- $ -- $ 85,000
============ =========== ============ ============ ===========
</TABLE>
- -------------
(1) Adjustment of allowance as a result of uncollectible accounts written off.
S-1
<PAGE>
<TABLE>
<CAPTION>
LIST OF EXHIBITS
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.
**3.13 -- Certificate of Incorporation of Precise Intellectual Property Holdings Company, Inc.
**3.14 -- By Laws of Precise Intellectual Property Holdings Company, 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).
*4.4 -- Supplemental Indenture No. 1 to Indenture, dated as of October 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. 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 -- Amended and Restated Second Amendment and Consent to Credit Agreement as of March 31, 1999,
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.
**10.4 -- Consent and Third Amendment to Credit Agreement as of September 30, 1999, 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.
*10.5 -- 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.
*10.6 -- 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.
*10.7 -- 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.
*10.8 -- 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.
*10.9 -- 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.
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C>
*10.10 -- 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.
*10.11 -- 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.
*10.12 -- 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.
*10.13 -- Amended and Restated Management Agreement, dated as of June 13, 1997 between Precise Technology,
Inc. and Mentmore Holdings Corporation.
*10.14 -- Sunderland Industrial Holdings Corporation 1997 Key Employee Nonqualified Stock Option Plan dated
as of April 24, 1997.
*10.15 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial
Holdings Corporation and John R. Weeks.
*10.16 -- Nonqualified Stock Option Agreement dated as of April 24, 1997 between Sunderland Industrial
Holdings Corporation and Michael M. Farrell.
+10.17 -- Memorandum of Agreement dated August 8, 1995 between The Procter & Gamble Manufacturing Company
and Tredegar Molded Products Company.
**10.18 -- License and Royalty Agreement between Precise Intellectual Property Holdings Company, Inc., Precise
Technology, Inc.
10.19 -- Nonqualified Stock Option Agreement dated as of April 1, 1998, between Sunderland Industrial
Holdings Corporation and Gregory R. Conley.
21.1 -- Subsidiaries of the Registrants.
27.1 -- Financial Data Schedule.
</TABLE>
* Filed with Registration No. 333-32041 and incorporated herein by
reference.
** Filed with Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, 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.
54
<PAGE>
Exhibit 10.19
SUNDERLAND INDUSTRIAL HOLDINGS CORPORATION
Nonqualified Stock Option Agreement
-----------------------------------
This Nonqualified Stock Option Agreement (the "Agreement") is
entered into as of April 1, 1998 ("Grant Date"), between SUNDERLAND INDUSTRIAL
HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and GREGORY R.
CONLEY, an executive employee of the Company's indirect subsidiary, Precise
Technology, Inc. (the "Optionee").
1. Grant of Options. Pursuant to the Company's 1997 Key Employee
Nonqualified Stock Option Plan, a copy of which is attached hereto (the "Plan"),
and authorization by the Board of Directors of the Company ("Board"), the
Company hereby grants to the Optionee an option (the "Option") to purchase Two
Hundred (200) shares of the Company's common stock, par value $.01 per share
("Stock"), at the price and on such other terms and conditions as are
hereinafter provided. The Option shall not constitute an "incentive stock
option" as that term is used in Section 422 of the Internal Revenue Code of
1986, as amended ("Code"). The Optionee agrees that as holder of the Option such
Optionee shall have no rights of or as a shareholder or otherwise in respect of
any of the shares of Stock as to which the Option shall not have effectively
been exercised as herein provided.
2. Option Price. The Option shall be exercisable at a price of
$1,500 per share of Stock.
3. Exercise Period. Except as provided in Paragraph 13, the Option
may be exercised by the Optionee, in whole or in part, prior to the earlier of
(i) the termination of the Optionee's employment with the Company or any of its
subsidiaries for any reason, or (ii) January 31, 2005, in accordance with the
following schedule:
20% commencing on April 1, 1999
40% commencing April 1, 2000
60% commencing April 1, 2001
80% commencing April 1, 2002
100% commencing April 1, 2003
4. Exercise of the Option. The Option shall be exercised by delivery
to the Company of a written statement in the form attached hereto entitled
"Nonqualified Stock Option Exercise Form." At the time of exercise of the Option
by such delivery, the Optionee shall pay such amount as required under Paragraph
5 herein together with an amount in cash equal to the amount of all applicable
withholding taxes (or, in the Board's sole discretion, a withholding
authorization acceptable to the Board). Upon receipt of such payment for the
Stock being purchased and compliance by the Optionee with the terms and
conditions hereunder, the Company shall cause certificates for such Stock to be
delivered to the Optionee within ten (10) business days after the Company's
receipt of such payment.
5. Payment of the Option Price.
A. At the time of exercise of the Option, the Optionee shall pay
to the Company either: (i) the full Option Price for the Stock being purchased
in cash, or, (ii) with the consent of the Company in the sole discretion of the
Board, a minimum of ten per cent (10%) of the Option Price for the Stock being
purchased in cash together with delivery of a promissory note and pledge of the
Optionee's Stock in forms acceptable to the Board, in the Board's sole
discretion, providing for the payment of the balance of the Option Price.
B. Notwithstanding the foregoing, Optionee may elect to exercise
the Option, in whole or in part, to the extent the Option is then exercisable,
by receiving shares of Stock equal to the value (as herein determined) of the
portion of such Option then being exercised after deduction of the exercise
price, in which event the Company shall issue to Optionee the number of shares
of stock determined by using the following formula:
X = Y (A-B) x (100% - C)
-----
A
where: X = The number of shares of Stock to be issued to
Optionee under the provisions of this Paragraph 5.
Y = The number of shares of Stock that would otherwise
be issued upon such exercise.
A = The Fair Market Value (as hereinafter defined) of
one share of Stock.
B = The exercise price of the Option specified in
Paragraph 2.
C = Applicable income tax withholding rate.
Fair Market Value Defined. As used in this Agreement, "Fair Market
Value" shall mean (i) if the Stock is publicly traded, the average
closing market price (or if no shares of Stock are traded on any
date within such period, the average of the closing bid and asked
price on such date) for the twenty business days immediately prior
to the date on which such value is to be determined, or (ii) if the
Stock is not publicly traded, the fair market value, on the
applicable date, of the shares of Stock then being valued as
determined in good faith by the Board of Directors.
6. Compliance with Securities Laws. The exercise of the Option and
the issuance of Stock pursuant thereto shall be contingent upon either the prior
registration of the Stock under the Securities Act of 1933, as amended (the
"Securities Act"), and such federal and
2
<PAGE>
state laws, rules, and regulations as may be applicable or promulgated
thereunder, or a determination by the Company that the issuance of such Stock
will be a transaction exempt from such registration. The Company anticipates
that shares of Stock, when and if issued to the Optionee, will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act and,
accordingly, such shares of Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from
registration is available. The Optionee understands and agrees that the Company
is not under any obligation to register shares of Stock or to comply with
Regulation A or any other exemption under the Securities Act. As a condition to
the grant and/or exercise of the Option, the Optionee agrees to execute one or
more undertakings, in the form prescribed by the Board, that the Stock is being
acquired for investment only and without any present intention of resale or
other distribution, or that the Stock will not be offered for sale or other
distribution otherwise and pursuant to such condition or conditions as the Board
approves. The Company shall have the right to place upon any certificate or
certificates evidencing shares of Stock any such legends as the Board may
prescribe, including legends providing that the shares are subject to
registration requirements under the Securities Act and state securities laws and
that the shares are subject to the terms of this Agreement and the Plan.
7. Non-transferability and Termination of Option. Except as
otherwise provided in Paragraph 8, the Option shall not be transferable or
assignable and, during the Optionee's lifetime, shall be exercisable solely by
the Optionee. Except as otherwise provided in Paragraph 8, the Option shall
terminate upon termination of the Optionee's employment with the Company or its
subsidiaries for any reason or any attempted sale, transfer or assignment of any
such Option, whether voluntarily or involuntarily. A transfer of employment
between and among the Company and its subsidiaries shall be considered as
continuing employment and shall not be a termination of employment for purposes
of this Agreement. In addition, temporary interruptions in employment caused by
sickness or other approved leave of absence shall not constitute termination of
employment for purposes of this Agreement.
8. Retirement, Disability of Optionee or Death. If the Optionee
retires on or after the attainment of age 65, becomes permanently and totally
disabled within the meaning of Section 22(e)(3) of the Code or dies while in the
employ of the Company or one of its subsidiaries, the Option may be exercised
during the time period from the date of the Optionee's retirement, permanent and
total disability, or death until the expiration of one year after the date of
the Optionee's retirement, permanent and total disability, or death by the
Optionee or by the deceased Optionee's personal representative, as applicable,
or by any person who acquired the Option by bequest or inheritance as a result
of the death of the Optionee, subject to the terms and conditions set forth
herein.
9. Call. At any time after a "Call Event" (as hereafter defined) the
Company shall have the irrevocable right, but not the obligation, at its sole
discretion to repurchase some or all of the Stock Optionee purchased under the
Plan and this Agreement. The purchase price in connection with a Call Event
defined in paragraphs (1) and (2) below shall be the Fair Market Value per share
and the purchase price in connection with a Call Event defined in paragraphs (3)
through (8) below shall be seventy-five per cent (75%) of the Fair Market Value
per share. Such purchase price shall be payable in the discretion of the Board
either (i) in cash within ninety (90) days of the date of purchase, or (ii) by
the Company's delivery of a promissory note providing
3
<PAGE>
for equal annual installments of principal payments over a period of up to five
(5) years with interest on the unpaid balance at a rate determined by the Board
in its sole discretion; provided, however, that in the event any life insurance
on Optionee's life is obtained by the Company pursuant to paragraph 15.c.,
below, and as a result of Optionee's death, proceeds of such life insurance are
paid to the Company, the Company shall use such proceeds (up to the purchase
price) as and for a cash payment hereunder, with the balance of the purchase
price, if any, payable in the discretion of the Board as specified herein. As
used herein, the term "Call Event" shall mean any one or more of the following:
(1) The termination of the Optionee's employment with the Company
and its subsidiaries for any reason;
(2) The proposed or attempted voluntary sale, assignment,
transfer, conveyance or other disposition, mortgage, pledge,
grant of security interest in or other encumbrance of, any or
all shares of Stock by the Optionee;
(3) The Optionee making an assignment for the benefit of
creditors;
(4) The Optionee instituting, or having instituted against him,
any bankruptcy, insolvency, reorganization, arrangement, debt
adjustment, liquidation or receivership proceedings in which
he is alleged to be insolvent or unable to pay his debts as
they mature, and the Optionee shall consent thereto or admit
in writing the material allegations of the petitions filed in
said proceedings, or said proceedings shall remain undismissed
after ninety (90) days;
(5) The attachment of the Optionee's shares of Stock for any
reason and such attachment remains undismissed after ninety
(90) days;
(6) The rendering of a final judgment against the Optionee in any
legal or equitable proceeding which (i) purports to or
attempts to sell, assign, transfer, convey or otherwise
dispose of, mortgage, pledge, grant a security interest in or
otherwise encumber, any or all shares of Stock or (ii)
otherwise effects any of the foregoing;
(7) The institution of any execution process against the
Optionee's shares of Stock; or
(8) The existence of any other situation or legal proceeding
involving the Optionee such that the Optionee's shares of
Stock may be involuntarily sold, transferred, assigned, or
otherwise disposed of.
In the event the Company undertakes an initial public offering or
sells all or substantially all of its stock or assets within the six (6) month
period following such purchase, the Company shall pay to the Optionee (a) in the
case of a purchase in connection with a Call Event defined in paragraphs (1) or
(2), above, the difference between the purchase price and the Fair Market Value
of the Stock on the date of such transaction and (b) in the case of a purchase
4
<PAGE>
in connection with a Call Event defined in paragraphs (3) through (8) above,
seventy-five per cent (75%) of the difference between the purchase price and the
Fair Market Value of the Stock on the date of such transaction.
Notwithstanding the provisions of this Agreement to the contrary, in
the event the Optionee proposes to dispose of any or all of his shares of Stock
acquired as a result of the Optionee's exercise of the Option (the "Offered
Shares"), pursuant to a bona fide offer therefor from a third party (the
"Purchase Offer"), the Optionee shall give written notice to the Company (the
"Offer Notice"), stating that he has received the Purchase Offer, the terms
thereof (the "Purchase Offer Terms"), and the identity of the third party who
made the Purchase Offer. The Company shall have the right to purchase the
Offered Shares by delivering to the Optionee a written notice of its intention
to do so (a "Purchase Notice") within forty-five (45) days of having received
the Offer Notice. In such Purchase Notice, the Company shall advise the Optionee
as to whether it elects to purchase the shares of Stock on the Purchase Offer
Terms or for an amount equal to the Fair Market Value of such shares of Stock
and the Optionee shall sell such shares of Stock to the Company for such
consideration within two (2) days of the Optionee's receipt of such Purchase
Notice, with payment by the Company of such purchase price to be as specified in
the first paragraph of this Paragraph 9.
10. Adjustment for Stock Dividend, or Stock Split or Capital
Contribution. In the event that a stock dividend is hereafter paid on
outstanding Stock, or in the event that the number of outstanding shares of
Stock is hereafter increased as a result of a stock split, and the Option is
then unexercised, the number of shares of Stock subject to the Option shall
thereupon be increased by that number of shares of Stock which would have been
distributed with respect to the Stock subject to the Option if the Stock subject
to the Option had been outstanding at the time of the dividend or stock split
and the Option price per share shall be adjusted to reflect such increased
number of shares of Stock subject to the Option. If any shareholder of the
Company or any other person should make a contribution to the capital of the
Company without receiving any securities of the Company in exchange therefor,
then, and in such event, the Option price per share shall be increased by an
amount which is equal to the amount of such contribution to the capital of the
Company divided by the number of issued and outstanding shares of common stock
of the Company at the time of such contribution.
11. Additional Adjustments. In the event that there is any change in
the number of outstanding shares of Stock (other than issuance of Stock for
consideration approved by the Board) for which an adjustment is not provided by
Paragraph 10 of this Agreement, and the Option is then unexercised, the Board
may, in its sole discretion, require an adjustment in the number or kind of
shares of Stock subject to the Option and the option price and such adjustment
shall be binding and effective for all purposes hereof.
12. Elimination of Fractional Shares. Any addition or adjustment
provided for in Paragraphs 10 and 11 hereof may be limited to the extent
necessary to prevent fractions of shares of Stock from becoming available under
the Option.
13. Termination Upon Reorganization or Merger. In the event that
outstanding shares of Stock, are hereafter changed into or exchanged for a
different number or kind of shares of stock or securities of another corporation
or corporations, whether as a result of
5
<PAGE>
a reorganization, recapitalization, reclassification, merger, consolidation or
otherwise, or in the event all or substantially all of the Stock or assets of
the Company are sold to a third party (any such event being a "Change in
Control"), and any portion of the Option is not yet exercisable, then all of the
Option shall immediately become exercisable and the Company shall give at least
ten (10) business days' prior notice of such Change in Control to the Optionee.
The Optionee shall have ten (10) business days from the date of receipt of said
notice to exercise the Option. In the event any portion of the Option is not
exercised within the above-referenced ten (10) day period, such portion of the
Option shall automatically be cancelled. Upon cancellation of all of the Option,
this Agreement shall terminate.
14. Optionee Bound by the Plan. The Optionee hereby agrees to be
bound by all applicable provisions of the Plan. If any of the terms and
provisions of this Agreement are inconsistent or in conflict with the terms and
provisions of the Plan, the Plan shall supersede and prevail over such
inconsistent provisions hereof. The Board shall have authority, subject to the
express provisions of the Plan and this Agreement, to establish, amend, and
rescind rules and regulations relating to the Plan, and to make all other
determinations in the judgment of the Board necessary or desirable for the
administration of the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in this Agreement in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and it shall be the sole and final judge of such expediency. All actions by the
Board under the provisions of this Paragraph 14 shall be conclusive for all
purposes.
15. Miscellaneous.
a. No Shareholder Rights. The Optionee shall not, by virtue of
holding the Option, be entitled to any rights of a shareholder of the Company or
any of its subsidiaries.
b. Lock-Up. The Optionee agrees that in connection with an
initial public offering of the Stock he will, if required by the Board, agree to
such restrictions on the resale of his Stock as shall be agreed to by other
members of management in connection therewith.
c. Life Insurance. The Optionee understands that the Company
may, but shall not be required to, obtain a life insurance policy on Optionee's
life in order to enable the Company to comply with its obligations under the
Agreement and Optionee hereby agrees to cooperate with the Company in obtaining
any such insurance including submitting applications and submitting to physical
examinations in connection therewith.
d. Continued Employment. Nothing herein shall be deemed to
create any employment agreement or guaranty of continued employment or limit in
any way the Company's or any subsidiary's right to terminate the Optionee's
employment at any time.
e. Legend. The certificates for the shares of Stock issued
pursuant to exercise of the Option shall bear the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended,
or under any state
6
<PAGE>
securities laws, and may not be sold or otherwise disposed
of until the sale shall have been registered under said
Act and any applicable state securities laws, or until the
Corporation shall have received an opinion of counsel
satisfactory to it that such shares may be legally sold or
otherwise transferred without such registration. The
shares represented by this certificate have been issued
pursuant to the exercise of an option to purchase such
shares and are subject to certain restrictions on transfer
contained in the Corporation's 1997 Key Employee
Nonqualified Stock Option Plan and a Nonqualified Stock
Option Agreement entered into pursuant to such Plan.
f. Entire Agreement. This Agreement, together with the Plan,
constitutes the entire agreement of the Company and its subsidiaries and the
Optionee regarding the subject matter of this Agreement and the Plan; and all
prior or contemporaneous agreements, understandings, representations and
statements, written or oral, are hereby merged herein.
g. Binding Effect. This Agreement shall be binding upon the
parties hereto, their successors, heirs and permitted assigns.
16. Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to be part hereof.
17. Delaware Law to Apply. The place of administration of the Plan
and this Agreement shall be conclusively deemed to be within the State of
Delaware, and the validity, construction, interpretation, administration, and
effect of the Plan and this Agreement and the rights of any person having or
claiming to have an interest therein or thereunder shall be governed by and
determined exclusively and solely in accordance with the laws of the State of
Delaware.
18. Counterparts. This Agreement may be executed in multiple
counterparts; each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed.
OPTIONEE SUNDERLAND INDUSTRIAL HOLDINGS
CORPORATION
/s/ GREGORY R. CONLEY /s/ WILLIAM L. REMLEY
- ----------------------------- -----------------------------------
GREGORY R. CONLEY Title:
----------------------------
7
<PAGE>
SUNDERLAND INDUSTRIAL HOLDINGS CORPORATION
NONQUALIFIED STOCK OPTION EXERCISE FORM
---------------------------------------
The undersigned holder of an option to purchase shares of
common stock, par value $.01 per share, of Sunderland Industrial Holdings
Corporation (the "Company") under a Nonqualified Stock Option Agreement with the
Company dated ______________________ hereby exercises his Option to purchase
______________ (_______) shares of such common stock of the Company at the
option price of $__________ per share in accordance with the terms and
conditions of such Nonqualified Stock Option Agreement.
- ------------------------------- -------------------------------------
Date of Exercise Signature of Person Exercising Option
Please type or print legibly your name as you want it to
appear on your stock certificate, your address and your social security number
in the space provided below.
Name:
------------------------------------------------------------------
Address:
------------------------------------------------------------------
(Street)
------------------------------------------------------------------
(City) (State) (Zip Code)
Social Security Number:
----------------------------------------------------
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANTS
Subsidiaries of Precise Technology, Inc.
Precise Intellectual Property Holdings Company, Inc.
56
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 318 240
<SECURITIES> 0 0
<RECEIVABLES> 15,218 15,097
<ALLOWANCES> 85 166
<INVENTORY> 6,352 6,510
<CURRENT-ASSETS> 28,051 22,940
<PP&E> 70,049 62,080
<DEPRECIATION> 25,099 18,543
<TOTAL-ASSETS> 98,174 93,408
<CURRENT-LIABILITIES> 23,442 24,872
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (12,344) (12,493)
<TOTAL-LIABILITY-AND-EQUITY> 98,174 93,408
<SALES> 110,130 98,025
<TOTAL-REVENUES> 110,130 98,025
<CGS> 85,809 77,459
<TOTAL-COSTS> 99,203 89,382
<OTHER-EXPENSES> (243) (51)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,365 10,311
<INCOME-PRETAX> 805 (1,617)
<INCOME-TAX> 755 427
<INCOME-CONTINUING> 50 (2,044)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 50 (2,044)
<EPS-BASIC> 0.000 0.000
<EPS-DILUTED> 0.000 0.000
</TABLE>
