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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1995
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 0-16677
______________
MID-WEST SPRING MANUFACTURING COMPANY INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2661683
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer identification No.)
1404 Joliet Road, Suite C, Romeoville, IL 60446
(Address of principal executive offices) (Zip Code)
(708) 739-3800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
(Title of Class)
As of February 28, 1996, the aggregate market value of the Company's $0.0001
par value Common Stock held by non-affiliates was approximately $1,592,689 based
on average closing bid and asked prices for the stock.
As of February 28, 1996, there were 9,314,139 common shares of $0.0001 par
value Common Stock outstanding.
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES NO__X_
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 [ ]
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PART I
ITEM 1. BUSINESS.
GENERAL
Mid-West Spring Manufacturing Company, Inc.(formerly Pathe Technologies,
Inc.), a Delaware corporation, was organized on August 4, 1983 for the purpose
of acquiring all the issued and outstanding common stock of Multi-Needle
Equipment Corporation, the successor company to Pathe Equipment Corporation
founded in 1932. On March 8, 1993, Pathe Technologies Inc. acquired all the
issued and outstanding stock of Mid-West Spring Manufacturing Company in a stock
exchange agreement which has been accounted for as a "reverse" purchase.
The Company generates revenues from (i) sales of a complete range of
manufactured cold and hot formed, specialty springs, wire forms and metal
stamping products; (ii) sales of aluminum and zinc die casting parts; (iii)
sales of specially designed and manufactured computer controlled sewing/quilting
machinery and attendant sale of spare parts and service; (iv) sales of stitching
fabrication services for advanced composite materials and (v) sales of computer
controlled spring coiler machines. Revenues from the sales of specialty springs
represented 84.9%, 96.1%, 98.5% for 1995, 1994, and 1993 respectively.
The Company through its subsidiary, Mid-West Spring and Stamping Corp.,
("Spring"), one of the largest non-bedding spring companies in the United
States, manufactures and sells a complete line of cold and hot formed, specialty
springs, wire forms and metal stamping products. These products include
compression, extension, torsion and flat springs, spring washers, clock springs,
wire forms and precision stampings. Within each category there is a variety of
spring products that differ with size and strength and vary according to the
product's use. The key characteristics of basic spring design are force,
deflection, stress, and the inter-relationships of the three. Also important are
dimensions, types of material, and types of end. Spring's products are sold to a
diverse customer base in the industrial sector of the economy primarily located
in the midwestern United States. This customer base includes over 3,500 active
customers with an average order size of less than $1,000. Spring's sales are
spread over a wide range of industries and no single customer accounts for more
than 5% of sales.
In late 1989, Spring embarked on a major technological modernization
program to significantly automate and modernize its manufacturing operations,
including systematic replacement of old mechanical spring/coiler machines with
new or retrofitted computer controlled, spring/coiler machines, on-line job
scheduling, costing and monitoring systems and customer access, via modem, to
job status reports. These capital expenditures involve the continuation of
Spring's plant modernization program by systematically replacing existing
equipment, through retrofit or purchase, to new, computer controlled equipment
and modular accessory equipment. These capital expenditures, which have
aggregated $15.7 million (including tools and dies) since 1989, have been
funded with medium-term equipment financing, bank lines of credit and cash from
Spring's operations. The major components of the modernization program were
completed in September 1995. Future capital expenditures, primarily for tools
and dies, are expected to be modest and funded from cash from Spring s
operations.
The Company, at its Irvington NJ facility, manufactures several models of
computer controlled multi-needle and single needle quilting machines for sale to
the mattress, bedspread, comforter quilted garment manufacturing industry,
various models of computer controlled spring coilers for exclusive sale to
Spring, and, equipment design and manufacture and fabrication stitching of
advanced composite materials, primarily to the aerospace industry. It has
developed proprietary computer aided design and computer aided manufacturing
(CAD/CAM) software which it refers to as the Direct Interface System. This
software, which is incorporated in all new machinery (and may be retrofitted to
existing machinery), reduces the time and cost necessary to alter
quilting/stitching patterns for the stitching of nongeometric irregular and
interrupted patterns of almost unlimited length and complexity. This software
also reduces the time and cost of spring manufacturing set-up, reduces scrap and
maintains high tolerance specifications through continuous monitoring and "on
the fly" corrections. Pathe continually explores new applications for utilizing
the CAD/CAM technology embodied in its Direct Interface System programming in a
variety of applications where the ability to input, complete designs and
patterns, simply and economically, and to automatically control and monitor
mechanical operations, would be valuable.
In December 1994, Spring formed a die casting division located in Denville,
NJ, initially, to cast aluminum and zinc parts. The Denville plant manufactures
a limited range of aluminum and zinc die cast parts in varying weights up to
7lbs. Spring intends to utilize its existing sales force and existing customer
base to sell and market its die casting capabilities.
For the foreseeable future, the Company's proposed plan of operation
includes (i) the search for acquisition candidates to complement and expand the
Company's present spring business activities including new products and markets;
(ii) the search for joint venture arrangements which will enable the Company to
expand its stitching and composite fabrication expertise and more rapidly
advance its present composite fabrication and equipment design activities; (iii)
the continuation of integrating new manufacturing processes to maximize the
"rated" efficiencies of the new equipment investments; (iv) the conversion of
preferred stock to common stock and (v) the continuation of its present
manufacturing activities. Through 1995, the Company has made important progress
in accomplishing many of its stated objectives, however, there can be no
assurance that the Company will continue to make progress in accomplishing any
or all of these stated objectives. These planned activities are intended to be
financed from working capital and cash flow from operations and capital
infusions through private and public share offerings. The Company does not
intend to commit material amounts of research and development in connection with
these proposed activities nor does it presently envision material increases in
personnel levels.
PRODUCTS AND SERVICES
Spring generates revenues from the manufacture and sale of a complete range
of cold formed and hot formed, specialty springs and metal stamping products, as
well as, the manufacture and sale of aluminum and zinc die cast parts. The
spring products include compression, extension, torsion and flat springs, spring
washers, clock springs, wire forms and precision stampings. In addition, Spring
provides a complete line of "stock" springs and metal die springs which are
marketed primarily through its catalogue, Mid-West Express. Generally, all these
products are sold to manufacturers to serve as component parts of other
products. Within each category there is a variety of spring products that differ
with size and strength and vary according to the product's use. The key
characteristics of basic spring design are force, deflection, stress, and the
inter-relationships of the three. Also important are dimensions, types of
material, and types of end.
Compression Springs - A compression spring is an open-coil helical spring
that offers resistance to a compressive force applied axially. Compression
springs are the most common type of spring and are found in countless products,
such as home appliances, touch-tone phones, light machinery, and computer
keyboards. The coils of compression springs are open when the spring is in the
relaxed state. Compression springs are usually coiled as a constant-diameter
cylinder. Other common forms of compression springs include conical, tapered,
concave, convex, or various combinations of the foregoing as required by the
proposed application. Because performance irregularities are concentrated at
the spring's two ends, the ends of higher-performance compression springs are
generally ground so that the spring will seat itself evenly at each end. End
grinding also reduces the amount of space required for a given spring force.
Spring makes compression springs, in production wire sizes, ranging from .004
inches through .200 inches.
Extension Springs - Extension springs are springs that absorb and store
energy by offering resistance to a pulling force. Extension springs are more
commonly found in mechanical applications such as the old fashioned screen door
spring. This group includes the complex draw-bar spring and the constant-force
extension spring. Extension springs absorb and store energy by offering
resistance to extension; that is, they are used to keep things closed. They are
generally "close wound", with each coil touching its neighbors -- one way by
which the layman can visually distinguish an extension spring from a compression
spring. Various types of ends are used to attach the extension spring to the
source of the force. Spring makes extension springs, in production wire sizes,
ranging from .004 inches through .200 inches. A wide range of end styling is
available in extension springs including basic "hook and loop" types together
with special-end treatments.
Torsion Springs - Torsion springs, whose ends are rotated perpendicularly
from the body of the spring, offer resistance to externally applied torque. The
wire itself is subjected to bending stresses rather than torsional stresses, as
might be expected from the name. Hinge springs are the most common example of a
torsion spring. Springs of this type are usually closely wound and reduced in
coiled diameter and increase in body length as they are deflected. The design
must consider the effects of friction and arm deflection on the torque. Special
types of torsion springs include double torsion springs and springs having a
space between the coils to minimize friction. Spring makes torsion springs, in
production wire sizes, ranging from .004 inches to 2.00 inches in diameter. End
treatment can be almost any shape or form and is usually designed to accommodate
assembly into other piece parts. The major use of torsion springs is
mechanical. They are seldom used in high-speed engineering processes, although
torsion springs are found in use as clutches in engines of various sorts.
Because of the nature of torsion springs, they tend to be highly engineered.
Volute Springs - Volute springs are conical shaped compression springs made
of rectangular cross-sectional material constructed so that the coils telescope
into each other. They are used where an increase in stiffness is desired as
deflection approaches solidity. Many variables are given consideration in
meeting specifications in volute spring design and, therefore, they require a
high degree of engineering. The use of volute springs has decreased, due to
their relative high cost, but, are still used in "clipping" applications such as
certain toe nail or garden clippers.
Belleville Springs - A Belleville spring is a conical disc having constant
material thickness and used as a compression spring. Belleville springs may be
used where loads are heavy and space and deflection requirements are limited.
Discs may be installed singularly or stacked in sets. When serving as
lock-washers and the like, single discs are common but when piled together, they
exhibit a range of properties. For example, the stacks can be made to sustain
heavy forces in limited space, with small deflections. These deflections can be
restricted, while multiplying the force they apply, by nesting them like a stack
or pile of saucers. The deflection can be increased with the same applied force
by stacking the washers so that the "saucers" alternate. In-between variations
can be effected by mixing the "saucers" in various orderly ways.
Single Belleville washers (sometimes small stacks) are used in fastening
and bolting. A large proportion of them, for example, are formed out of
non-ferrous metals and used in power transformers, bus bars and other electric
distribution-system components, where it is necessary for bolted assemblies to
accommodate the differential expansion of metals or alloys, such as copper and
aluminum.
Spring Washers - Spring washers are used to keep fasteners secure, to
distribute loads, absorb vibrations, compensate for temperature changes,
eliminate side and end play, and control end pressure. Spring washers are
becoming more widely used because of trends toward miniaturization and greater
compactness of design. They afford space and weight advantages over
conventional wire springs and, when compared on an installed cost basis, they
are often more economical to use.
Garter Springs - A garter spring is a special closed coiled, long extension
spring with its ends fastened together and used in the form of a ring. It is
used principally in mechanical seals on shafting and as belts and holding
devices. Garter springs are customarily ordered in straight lengths and their
ends fastened at assembly.
Clock Springs - Clock springs are constant force springs made from strips
of flat spring material wound to a given curvature so that in its related
condition it is in the form of a tightly wound coil or spiral. A constant force
is obtained when the outer end of a spring is extended tangent to the coiled
body of the spring. A constant torque is obtained when the outer end of the
spring is attached to another spool and caused to wind in either the reverse or
same direction as it is originally wound.
Flat Springs and Stampings - The term "flat springs" covers a wide range of
springs and stampings fabricated from flat strip material which, on being
deflected by an external load, will store and then release energy. They are
omnipresent and polymorphous, being found in virtually every electric light
switch, in appliances, in automotive suspensions and elsewhere, and in shapes
ranging from a simple bar or strip fastened at one end to the cross-section of a
flattened bubble, a key, a latch, or (as in the leaf spring), a stack of
pancakes. Only a small portion of a complex shaped stamping may actually be
functioning as a spring. Their manufacture involves machines as well as
materials which differ markedly from those used for wire spring -- multi-slide
presses instead of coilers and strip metal instead of wire. Flat springs with
critical shapes and forms are usually made from annealed materials and must be
hardened and tempered after they are completed.
Wire Forms - The range of possibilities and applications in wire forms is
limitless. Clips, clamps and collars are the most elementary types of wire
forms, although contemporary engineering has greatly expanded the product line.
Spring manufacturers wire forms from .004 inches and higher.
The Company also generates revenues from its subsidiary, Pathe Technologies
Inc. ("Pathe") in Irvington, NJ., through the sale of computer controlled
industrial multi-needle and single needle stitching equipment and parts,
specialty advanced composite textile stitching machinery and manufacturing
services, and computer controlled wire forming and spring making machinery.
QUILTING MACHINE PRODUCT LINES
The Company presently manufactures several models of computer controlled
multi-needle and single needle quilting machines for use primarily in mattress
manufacturing, bedspread and comforter manufacturing and quilted garment
manufacturing. All such machines are manufactured to order, with delivery
usually within 120 days of order. In the case of quilting/stitching machines,
the various models which are manufactured differ from each other insofar as they
are designed to accommodate various thicknesses of material, various degrees of
complexity of stitching design, and different material handling systems. All of
the Company s quilting machines are computer controlled using the Company s
proprietary software for Computer Aided Design/Computer Aided Manufacturing
("CAD/CAM"). Pathe s (a division of the Company) methodology consists of the
Direct Interface System ("DIS") programming and the associated hardware. The
system is centered around a touch screen interface and runs under Windows NT.
This development is the basis for Pathe s strategy of replacing mechanical
linkages with electronic linkages to greatly improve the reliability and at the
same time greatly increase the capability of the machine. In Pathe s multi-
needle machine, servo motors now control all movements of the machine -
horizontal, vertical and rotational. In the case of the fixed frame, single
needle machine there are 5 separate axis under computer control In the case of
spring coiler machines, there are 4 or more servo motors under computer control
regulating torsion, pitch, diameter and wire feed operations.
Quilted goods are manufactured either by: (i) quilting an entire roll of
fabric (e.g. mattress panels), or (ii) stitching one complete design throughout
a pre-cut piece of fabric (e.g. a bed quilt). The first method is accomplished
with a roll-fed, multi-needle machine (Pathe Models MCCS 5000 and MDI 4500)
where several layers of materials (i.e. ticking, foam, and backing) are fed
continuously and the needle carriage moves laterally to sew the desired design
as well as sew the several layers together. The second method utilizes a single
needle technique (Pathe Model SDI 5000) where the materials are held in a frame
which moves in a preprogrammed pattern. Some applications require more
versatility from the sewing equipment. To meet this demand, particularly for
the aerospace industry, Pathe has developed a series of stitching machines of
various sizes with a fixed frame where the fabric remains stationary and sewing
head moves (Pathe Models CFQ 9100 and 9400).
The Company also services the machinery sold by it. It does not provide
service contracts, but charges users for parts, labor and travel for each
service call. Pathe s machinery is equipped with electro/mechanical safety
control devices as well as operator manual intervention controls for possible
operating malfunctions. For the past fifteen years that Pathe has manufactured
or sold computer controlled equipment, it has not experienced any actual or
threatened claims arising from software malfunctions. Accordingly, Pathe s
management believes that its liability, if any, is limited to replacement value
of the software and that it will not incur any liability for consequential
damages resulting from malfunctions of the software. There can never be any
assurance that this will continue to be the case. Pathe has not encountered
significant expenses for servicing its machines under warranty, and its
experience, for the past sixty-seven years, has shown its products to be
comparatively trouble-free and serviceable by user personnel.
ADVANCED COMPOSITE MATERIALS
Stitch-Bonded Composite Materials - In December 1990, Pathe first received
contracts from McDonnell Douglas Aerospace of Long Beach, CA., in connection
with NASA s ICAPS program (Innovative Compositry Aircraft Primary Structures),
to develop, design and manufacture special stitching machinery for the stitching
and fabrication sewing of dry-form carbon fiber material composites for use in
aircraft wings and airframes. In addition, in August 1992, NASA took delivery
of a smaller/testing lab version (2 x4 sewing area) of the CFQ 9100C for its
ongoing studies into advanced composite material technology. These composite
materials will be 30% lighter, but equally as strong and damage resistant as the
metal sections they replace. In 1995, MDA purchased another specialty carbon
fiber stitching machine (10 x 15 part size) for their own internal aircraft
research and development purposes. In 1994 and 1995 McDonnell Douglas Aerospace
Transport Aircraft ("MDA"), under a NASA program, contracted with Pathe for the
design and manufacture of special sewing equipment and computer control systems
for a full-scale prototype production sewing machine capable of stitching carbon
fiber preforms for commercial aircraft wing cover panels (10 x70 part size) in
connection with the NASA ICAPS program. Pathe has also performed stitching
fabrication services for Dow-UT, Hamilton Standard and University of Michigan.
Since 1994, this composite work totaled over $2.5 million. Management believes
that Pathe is currently considered the world leader in stitched composite
machinery, and is well positioned to take advantage of this potential developing
market.
Aerospace Insulation Sewing Equipment
In 1990, the Company designed and developed a special machine for aerospace
insulation. In 1991, the Company completed engineering and manufacturing of
this machine and shipped one unit to Rockwell International. While the need for
this specialized equipment is unique, and the Company continues to provide
service and parts for this equipment, it demonstrates the Company s ability to
design and manufacture specialized stitching equipment for the aerospace
industry.
OPERATIONS
The spring manufacturing process varies significantly with the type of
spring being produced, although the procedures can be described generally for
most coiled springs. Orders placed with Spring are assigned to an engineer for
review. The product may require assisted engineering by Spring, or little or no
engineering, as is the case in simple or previously designed springs. The design
of springs is an iterative process requiring knowledge of raw material
characteristics and involves extensive use of tables, charts and computer-
assisted calculations.
Once a spring's design has been completed, it is sent onto the shop floor
and assigned to a "set-up" person to prepare a coiling machine or machines to
produce the actual product. The "set-up" person's function is to translate the
design formulae for a particular spring to the mechanics of the coiling machine.
This process is now being simplified through the use of computer controlled
equipment such as the Pathe computer controlled spring coiler.
After set up and initial testing, the production machines are capable of
coiling on a fully automated basis. Large spools of wire are fed into the coiler
where they are stretched straight and then coiled and cut. Finished coiled
springs are tested periodically throughout each run, against customer
specifications, for, among other things, size, fatigue, tensile strength and
shape. In addition to standard quality control procedures, certain customers may
require more rigorous testing, such as statistical process control ("SPC").
Spring offers SPC and other quality control protocols as required by its
customers. The SPC program uses process capability control charts. These charts
are a statistical tool that can be used to display graphically and to describe
quantitatively a specific process to study adverse changes in a process, the
cause of such changes and remedial steps.
When the production run is completed, the springs are collected and mounted
in metal baskets for stress relieving (heat treatment). Almost without
exception, all springs receive some sort of heat treatment. After heating, many
springs are ground to flatten the ends. This treatment is typical with
compression springs and other torsion type springs that need particular
treatment to their ends. In the case of hot formed springs, the steel wire or
rod is heated (to facilitate forming), formed to specifications, and then
quenched and, if required, ground to flatten the ends.
The Company also designs and manufactures computer controlled sewing and
quilting machinery, computer controlled spring coiler machines, performs
stitching fabrication services, and provides various services relating to the
machinery. All machines are manufactured to order, with delivery usually within
120 days of order. A substantial portion of the components of the machinery sold
by Pathe are also manufactured by Pathe. The machines are typically sold to
producers and users of textile products and, in the case of stitch bonded
composites, the US government and the commercial aerospace industry. Production
of spring coiler machines is currently being dedicated to satisfy the needs of
Spring but, future production may involve sales to third parties. Pathe
stitching fabrication services are performed as part of machine test procedures
and to customer specifications. Consistent with the Company's strategic plans,
Pathe continues to explore additional joint venture opportunities to expand its
existing and developmental products and markets.
SALES AND MARKETING
Wire spring products are sold primarily to manufacturers as a component
part of another product. Set forth below, as a percentage of Spring's 1995, 1994
and 1993 sales, are the general industry classifications served by Spring:
<TABLE>
<CAPTION>
% of Sales
Industry 1995 1994 1993
<S> <C> <C> <C>
Pumps, hydraulics 21.4% 22.0% 19.0%
Transportation Equipment 16.7 16.5 16.9
Electronic Equipment 9.5 9.5 9.2
Industrial M & E 14.3 14.2 14.1
Farm M & E 3.9 4.0 3.6
Construction M & E 4.5 4.7 8.4
Fabricated Metal Products 5.1 5.0 5.0
Sporting & Athletic Goods 1.0 .7 1.2
Batteries .3 .3 1.7
Garden & Lawn Equipment 3.9 3.6 3.4
Furniture & Fixture 3.2 3.1 2.5
All Other 16.2 16.4 15.0
TOTAL 100.0% 100.0% 100.0%
</TABLE>
Spring's products including die cast parts are sold and distributed by
sales personnel at each of its eight plants through direct customer inquiries
and orders and, the Mid-West Express Catalogue. Spring's products are sold
throughout the United States, usually within a 200 mile radius of one of its
plants. Spring has 26 sales representatives, 14 of whom are Spring employees,
and 12 of whom are outside sales representatives. All salespeople are
compensated primarily by a commission that varies between 1% and 5% of sales.
A complete line of the most commonly used raw materials is carried at all
plants. Under normal conditions, a three month material inventory is on hand. In
addition to certain warehousing arrangements for customers, a minimum level of
inventory is kept of particular finished products usually related to blanket
customer orders. The majority of all products are made to specification.
Spring's fifteen largest customers represent approximately 27% of Spring's
sales, and no single customer accounts for more than 5% of sales. Export sales
are not significant.
The Company's automated equipment products and stitching fabrication
services are sold directly by its own personnel from customer and/or equipment
broker inquiries. Pathe promotes these products and services through
participation in national trade shows, product brochures and, to a lesser
extent, through advertisements in trade journals. Pathe also conducts equipment
demonstrations for prospective customers, either in-house or at customer's
facilities. Since the vast majority of equipment sales are custom orders, rarely
is an inventory of finished goods maintained. Pathe's equipment payment terms,
generally, are one-third upon placement of order, an interim progress payment
(30-50%) and the balance at time of delivery. In certain instances, sales are
made against letters of credit. Export sales are not significant.
PATENTS
Due to the rapidly changing nature of the underlying technology in the
electronic and computer controlled equipment industries, patents may be expected
to be of substantially less significance in Pathe's specialty automated
equipment business than the timely application of its technology and the
attendant design, engineering and development capabilities of its personnel.
While Pathe's CAD/CAM technology is not protected by any patents or copyrights,
it has developed a built-in secrecy mode to discourage its duplication. The
system's hardware circuitry may be analyzed and reconstructed by an aggressive
competitor at great cost and time. Pathe will continue its policy of seeking
patent protection where such protection is deemed to be appropriate. In 1992,
Pathe obtained a patent on its Pathe "Decorative Art" process. Notwithstanding
the foregoing, no assurances can be given that Pathe's competitors will not
successfully copy, duplicate or surpass Pathe's technology nor that the lack of
patent protection will not have an adverse effect upon Pathe's specialty
automated equipment business.
BACKLOG
The Company, in the ordinary course of business, manufactures springs, die
casted parts and specialty equipment against firm purchase orders. Specialty
equipment backlog is measured as orders for which purchase contracts have been
received and for which deposits have been signed, paid or are due. At December
31, 1995,1994 and 1993, the log of unfilled orders to third parties was
approximately $8,300,000 , $10,500,000 and $7,100,000 and respectively.
Generally, spring and die cast part orders are filled within three months and
equipment orders within three to five months. The Company expects to fill all of
its present backlog during the 1996 year. The existence of a backlog at any time
is not necessarily indicative of profitable business or that such backlog will
continue. Pathe unveiled it s new MCCS 5000 computer controlled double lock
multi-needle chain stitch quilting machine at the ISPA show in New Orleans in
March of 1996. This resulted in $1.5 million in new equipment purchase
commitments.
SUPPLIES AND SUPPLIERS
The primary components of Spring's products are wire, steel and aluminum
and zinc ingots. Spring purchases wire and ingots from a large number of service
centers and directly from mills. Historically, Spring has never experienced a
severe shortage of wire, steel and ingots as it has access, both domestically
and internationally, to numerous wire and steel distributors and manufacturing
mills. In the extreme situation, were these raw materials not to be generally
available, it would have a material adverse effect on the operations of Spring,
as it would on any segment of the economy that is dependent on steel, wire and
ingot production. Purchases are made against specific orders and to maintain a
small, base inventory.
Spring has no long term contractual agreements regarding the supply of raw
materials. Raw material prices have not increased significantly over the last
five years.
A substantial portion of the components of the machinery sold by Pathe are
also manufactured by Pathe. This does not include electronic components that are
purchased from electronic suppliers. Pathe is not dependent upon any one
supplier for any components which are purchased. All mechanical, electrical and
software design, assembly and testing is conducted at Pathe's plant in
Irvington, NJ. Pathe maintains an inventory of certain of these parts for both
manufacturing and servicing purposes. Pathe has found the components which it
purchases to be readily available, in sufficient quantities, at competitive
prices, and of required quality from numerous contractors or distributors and
has experienced no difficulties with respect to this procurement.
GOVERNMENT REGULATION
The Company's facilities and operations are subject to regulation by
various federal and state agencies, including, but not limited to, the
Environmental Protection Agency and the Occupational Safety and Health
Administration and corresponding state agencies. The Company has never been
cited for material violations by any of these agencies. Compliance with current
regulations has not negatively impacted the Company's earnings or competitive
position. The Company's management believes that the Company is in material
compliance with current laws and regulations relating to the operations of its
facilities. Management of the Company is not aware of any major capital
expenditures necessary to comply with federal and state environmental, health
and safety regulations.
COMPETITION
The Company competes with other firms which manufacture and sell precision
springs, wire forms and metal stamping products. The precision spring industry
is highly fragmented and competitive. In the United States there are nearly 500
spring manufacturers less than half of which operate from more than one location
and less than twenty of which have annual sales in excess of $20,000,000.
Nationally, the wire spring industry (excluding bedding and furniture) employs
over 20,000 people and has total revenues of approximately $1.9 billion. The
Company believes that Spring competes effectively based on quality, price,
service, turnaround of orders and its ability to assist in spring design and
manufacture a complete range of spring products. It sells its products through
20 salespersons, catalogues, trade shows and advertising in trade magazines.
Based on revenues, the Company believes that Spring is one of the top five
spring manufacturing companies in the United States. Two of Spring's competitors
are significantly larger than Spring and have significantly greater revenues.
The spring manufacturing industry produces a broad range of products for
sale to most every type of original equipment manufacturer.
Sales of cold-formed, precision coil springs can generally be grouped into
the following three categories:
(i) Specialty precision springs, ranging in size from .004" to .625" wire
diameter, are manufactured from a variety of materials from low carbon steel to
gold wire. Usual production runs are under 100,000 units. Typically, the
customer requires significant design engineering help and the end product must
conform to the closest tolerances attainable.
(ii) Volume precision springs, commonly found in automotive applications,
are denoted by high production runs, typically in excess of 100,000 units and
often over one million units per run. Tolerances are less critical than for
specialty precision springs, but high tolerances may still be required.
Typically, sizes range from .100" to .300" wire diameter, and the raw material
is almost exclusively high carbon steel.
(iii) Commodity precision springs, such as used in ball point pens, have
low tolerances and the required applications are not critical. Volumes are very
high and the raw material is typically low carbon steel.
Sales of hot-formed, specialty coil springs can be generally grouped into
the following single category:
Specialty precision springs, ranging in size from .625" to 2.00" wire
diameter, are manufactured primarily from high carbon steel. Usual production
runs are less than 100,000 units and require design engineering assistance so as
to maximize attainable tolerances for end uses. Compression, extension and
torsion springs are primary end products of hot formed coilings for use on heavy
equipment, such as trucks, motorhomes and railroad cars.
The Company competes with three major categories of wire spring
manufacturers: (1) the "full-line" producers, such as itself; (2) "specialty
shops" that produce large lot sizes of similarly sized springs; and (3)
"in-house" producers or integrated companies that make their own springs as a
component of another internally produced product.
The "FULL LINE" producers, like Spring, are capable of manufacturing a wide
variety of springs in terms of size and material used. Production runs vary
from short "odd lot" runs to the long, high volume runs. Typically, the
customer base served is large and diversified.
The "SPECIALTY SHOP" generally employs under twenty people and relies
heavily on extended production runs from a limited customer base. Because of
production limitations, the range of products that they are capable of producing
is extremely narrow.
The "IN-HOUSE" producers can compete directly and/or indirectly with the
full-line and specialty shop producers by producing their own spring components
individually and supplying their excess capacity to the marketplace. Like the
specialty shop, the in-house producer may have a limited line of equipment and
may require additional spring products from outside sources.
Over the past several years, in the opinion of management, the precision
spring industry has been impacted by four significant trends. Smaller spring
manufacturers have lost market share due to more stringent demands by customers
for timely service, better quality control and in-house computer support.
Just-in-time delivery has become, among customers, a common practice forcing
manufacturers to carry more inventory and respond more quickly to customers'
needs. Second, the demand for domestically manufactured products that require
springs has increased as the value of the dollar has fallen against the
currencies of other industrialized nations. US manufactured goods are replacing
imports and capturing an increased share of the foreign markets. Third, the
spring industry is largely composed of small, and in many cases,
undercapitalized companies with annual sales of less than $2.5 million. These
companies cannot justify or afford the cost or cash outlay of new
state-of-the-art computer controlled equipment which in some instances can cost
more than $150,000 per machine. Consequently, the margins of these smaller
companies are being squeezed because of the lower manufacturing costs and
improved quality enjoyed by the larger, better-equipped companies. Fourth, the
consolidation by original equipment manufacturers of its vendors that supply raw
materials and parts. The Company believes that it is well-positioned to take
advantage of these trends but there can be no assurance that this will be the
case.
Spring, through its newly formed die casting division, has made an initial
and exploratory entry into the die casting industry - a highly fragmented
industry with total annual revenues estimated at $8 billion. The die casting
process competes with other similar, but different, metal forming processes e.g.
roll forming, investment casting, forging, extrusion, sand casting and stamping.
After some initial success in improving the production process this division and
business has posted substantial losses. The lead time from drawings to
manufactured part is 3 to 6 months. It took until November of 1995 to begin to
sell our first new part. Management is evaluating all options regarding this
plant and it s performance(see item 7 Management Discussion and Analysis).
Pathe also competes with several firms which manufacture and sell similar
textile quilting/stitching machinery. Many of these competitors are larger,
better known and have greater financial resources than Pathe. Accordingly, the
Company's growth and profitability has, at times, been limited by its inability
to successfully withstand the competition of these larger, better financed,
better equipped and better staffed firms in this industry. On the other hand,
Pathe believes that it has made advances in respect to the designing and
manufacture of machinery for the stitch bonding of dry, knitted or uniwoven,
advanced composite materials by virtue of its contractual relationships with
NASA, McDonnell Douglas and Rockwell International. While the stitching of
advanced composite material is still an emerging technology, it is possible that
other companies with greater human and financial resources can gain, over time,
this expertise.
CONFLICTS OF INTEREST
Certain officers and directors of the Company may engage in other business
activities similar and dissimilar to those engaged in by the Company. To the
extent that such officers and directors engage in such activities, they will
have possible conflicts of interest in diverting opportunities to other
companies, entities, or persons with which they are or may be associated or have
an interest, rather than diverting such opportunities to the Company. Such
potential conflicts of interest include, among other things, the time, effort,
and corporate opportunity involved in their participation in other business
transactions, with which they are affiliated. The Company may be adversely
affected should these individuals choose to place their other business interests
before those of the Company. No assurance can be given that such potential
conflicts of interest will not cause the Company to lose potential
opportunities.
The Company is not presently aware of the existence of any actual
conflicts. Consequently, the Company believes that no corporate opportunities
have been lost and that it has not been adversely affected by the potential for
conflict. No formal policies have been established for the resolution of such
conflicts but should they ever develop the Company intends to adopt formal
policies for their resolution.
PERSONNEL
As of December 31, 1995, The Company has approximately 475 employees,
including 68 salaried and 407 hourly-paid employees, of which Spring operations
represent approximately 446 employees, including 56 salaried and 390 hourly-paid
employees. All of the Company's operations are nonunion with the exception of
the hourly-paid workers at its Denville, NJ die casting facility. The Company
considers its relationship with its employees to be satisfactory. The wages of
the Company's hourly-paid employees depends upon job classification and
seniority.
Spring provides a bonus plan for hourly-paid employees, except for those
employees at its Denville, NJ facility which is a discretionary, non-qualified,
profit sharing plan. Spring also has a 401(k) plan to which all full-time
employees are eligible. Discretionary contributions do not exceed the income tax
deduction allowed by the Internal Revenue Service. Spring also provides an
informal discretionary bonus plan for salaried and key employees and, generally
represent 10% to 20% of annual salary. Pathe's Irvington, NJ operation provides
its employees with medical and hospital insurance coverage, but does not
maintain pension or profit sharing plans.
The Company employs certain highly skilled workers including engineers,
draftsmen, coilers and machinists. The Company believes that it has access to an
ample labor pool, on both full-time and part-time basis, in respect to qualified
engineers, draftsmen, coilers and machinists.
Pathe Advanced Composites Inc. and Pathe Home Furnishings, Inc. utilize the
human and financial resources of their parent.
ITEM 2. PROPERTIES.
The Company maintains its corporate headquarters and Spring s
administrative headquarters in Romeoville, IL. Pathe Advanced Composites Inc.
maintains its automated equipment and stitching fabrication operation in one
facility in Irvington, NJ. Spring conducts its manufacturing operations from
eight facilities which are located in close proximity to its customers and
markets in the Midwest, California, Texas, New Jersey and Pennsylvania. Each
plant functions independently with regard to designing and producing springs and
die cast parts and establishing and maintaining relations with both customers
and suppliers. Each of Spring's plants is a profit center operating
autonomously for all functions except for long range planning and all accounting
and bookkeeping functions, including billings, payroll and payables, which are
handled by the corporate staff at Spring's Romeoville, Illinois administrative
headquarters. Each plant is fully equipped with a job shop computer system, and
is staffed with professional managers, design engineers and an hourly-paid labor
force of highly skilled machine operators and apprentices. The following table
provides information on each of the facilities:
<TABLE>
<CAPTION>
Facility Site Opened Expansion Square Feet Leased/ Owned Major Categories of Work
Processed
<S> <C> <C> <C> <C> <C>
Irvington, NJ 1984 20,000 Leased(1) Automated equipment
manufacturing; stitching
fabrication of advanced
composite materials
Mentone, 1946 1979 78,000 Owned Heavy wire coiling;
IN forming and stamping
Romeoville, IL 1967 1982 33,000 (2) Owned Light wire coiling
St. Paul, 1948 1989 28,000 Owned Medium wire coiling
MN
Muskegon, 1965 1975 42,000 Owned Medium/heavy wire coiling;
MI forming and stamping
Romeoville, 1994 - 5,000 Leased(2) Corporate headquarters
IL
Dallas, 1970 1989 29,000 Leased(3) Medium coiling
TX
Collingdale, PA 1960 None 23,000 Leased(4) Light/medium wire coiling
Azusa, 1956 None 23,000 Leased(5) Hot formed, heavy wire
CA coiling
Denville, 1982 None 57,500 Leased(6) Aluminum/zinc die casting
NJ
338,500
</TABLE>
(1) These premises are leased semi-annually for $108,000 per year pursuant to a
lease which expires in September 1996. The Company expects to continue to renew
the lease on a semi-annual basis. Under the terms of the lease, the Company is
responsible for incremental real estate taxes and assessments levied against the
premises for the period under occupancy.
(2) Includes space used as Spring's Administrative headquarters through December
1994. The corporate and Spring administrative headquarters are leased by the
Company for $38,000 per year pursuant to a lease which expires December 31,
1999.
(3) These premises are leased by Spring for $79,000 per year pursuant to a lease
which expires December 31, 1998. Spring has an option to renew the lease for
two three year periods. Under the terms of the lease, Spring is responsible for
additional rent for incremental real estate taxes and assessments levied against
the premises for the period under occupancy.
4) These premises are leased by Spring for $81,000 per year pursuant to a lease
which expires December 31, 1996. Spring has an option to renew the lease for
one four year period. Under the terms of the lease, Spring is responsible for
additional rent for incremental real estate taxes and assessments levied against
the premises for the period under occupancy.
(5) These premises are leased by Spring for $38,400 per year pursuant to a
lease which expires in September 1998. Spring has the option to renew the lease
for an additional five year period. Under the terms of the lease, Spring is
responsible for additional rent for incremental real estate taxes and
assessments levied against the premises for the period under occupancy.
(6) These premises are leased by Spring for $200,000 per year pursuant to a
lease which expires December 31, 1999. Spring has the option to renew the lease
for one five year period, as well as, the option, in the first seven years, to
purchase the facility for $1,850,000. Under the terms of the lease, Spring is
responsible for the additional rent for incremental real estate taxes, and
assessments levied against the premises during the period of occupancy.
There are four major groups of equipment used in the manufacture of
precision springs and die cast parts: (i) coilers, (ii) annealing furnaces,
(iii) grinders and (iv) casting machines. In addition, the manufacture of flat
springs, stampings and die cast parts require stamping presses, tumbling, wheel-
a-brater and/or multi-slide machines. Spring coiler machines are used to wind
wire or metal strips into specified shapes and casting machines are used to mold
die cast parts into specified shapes. There are several manufacturers of spring
coiling and casting equipment. New or used machines are readily available to
purchase. New spring coilers and casting machines are available with computer
controls to improve precision and reduce scrap and set-up time. Annealing
furnaces are used to relieve the stress in a spring through heat treatment.
There are several manufacturers of annealing furnaces and new and used equipment
is readily available. Grinders are used to flatten the ends of springs so that
the force applied by the spring is equally distributed. There are several
manufacturers of grinders and new and used equipment is readily available. In
addition, the Company owns all if its metal working equipment (including,
lathes, milling machines, drill presses and similar equipment) to support all of
its manufacturing operations including the manufacture of automated equipment
and owns the stitching equipment, which it builds, utilized in the stitching
fabrication of advanced composite materials.
The Company considers all its facilities to be adequately equipped and of
suitable size to handle all of its current and foreseeable production
requirements. The Company estimates it has ample productive capacity to
increase, through additional shifts, production by 15-30% (based on sales
dollars).
ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is currently quoted on the NASDAQ Small Cap Market under
the symbol MWSS.
The Company has not paid cash dividends and the Board of Directors of the
Company does not expect to declare cash dividends and anticipates, for the
foreseeable, future cash resources will be used in the Company's operations and
for future possible acquisitions. In addition, the Company s long-term debt
provision places limitations on the payment of dividends.
The following table sets forth the high and low closing bid prices for the
Common Stock by quarter as reported by NASDAQ Small Cap Market and/or the OTC
Bulletin Board during the period from January 1, 1993 through December 31, 1995.
<TABLE>
<CAPTION>
QUARTER ENDED 1995* 1994*
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
March 1-1/2 3/4 1-3/4 1
June 3/4 3/4 1-3/16 5/8
September 3/4 1/2 1-1/8 5/8
December 5/8 1/4 1-1/4 5/8
</TABLE>
* All prices represent prices between dealers, and do not include retail mark-up
or mark-down or other fees or commissions and do not necessarily represent
actual transactions.
On February 28, 1996, the closing bid price of the Common Stock was $3/8. As
of February 28, 1996, there were approximately 350 shareholders of record of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The table below sets forth selected Statement of Operations data and Balance
Sheet data and should be read in conjunction with the audited Financial
Statements and Notes thereto included in Item 8, herein. The 1994 and 1993
purchases of businesses are included in the financial data from respective dates
of purchase.
<TABLE>
STATEMENT OF OPERATIONS DATA:
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $38,387,000 $32,583,000 $28,080,000 $25,104,000 $22,485,000
Operating Income $ 1,915,000 $ 3,098,000 $ 1,282,000 A $ 2,284,000 $ 1,934,000
Net (Loss) Income $ (1,196,000) $ 906,000 $(2,274,000)B $ 54,000 $ (503,000)
Preferred Stock of
Mid-West Spring
Dividend Benefit
(Requirement):
Current Year ( 229,000) ( 205,000) ( 731,000) ( 580,000) --
Prior Year 1,147,000
(Loss) Income
Attributable to
Common Shares (C) $ (1,425,000) $ 1,848,000 $(3,005,000) $ ( 526,000) $ (503,000)
(Loss) Income
Per Share :
Current Year $ (0.15) $ 0.07 $( 0.33) $( 0.07) $ ( 0.07)
Prior Year ---- 0.12 -- -- --
$ ( 0.15) $ 0.19 $( 0.33) $( 0.07) $ ( 0.07)
Average Number of
Shares Outstanding 9,308,253 9,913,833 9,142,672 7,150,000 7,150,000
(D)
BALANCE SHEET DATA:
As At December 31,
1995 1994 1993 1992 1991
Current Assets $14,480,000 $ 12,166,000 $ 9,468,000 $ 7,031,000 $ 6,383,000
Total Assets $44,326,000 $ 40,867,000 $35,269,000(B) $29,780,000 $28,880,000
Current Liabilities $ 9,345,000 $ 4,337,000 $ 9,392,000 $ 5,710,000 $ 2,959,000
Total Liabilities $41,704,000 $ 37,029,000 $33,112,000(B) $26,918,000 $21,907,000
Common Stockholders'
Equity $ 2,622,000 $ 3,838,000 $ 2,157,000 $ 2,862,000 $ 6,973,000
(A) Excludes special charges in 1993 of $1,910,000.
(B) The 1993 data includes $540,000 (.06 per share) cumulative effect of changes
in accounting for income taxes and corresponding increase to fixed assets of
$2.8 million and deferred tax liability of $3.34 million.
(C) The 1994 total and per share net income include $775,000 dividend
requirement and $570,000 benefit in respect to the adjustment for redemption of
Preferred Stock at less than carrying value plus undeclared dividends for the
current year or $.07 per share and $1,147,000 benefit in respect to the
adjustment for redemption of Preferred Stock at less than carrying value plus
undeclared dividend for the prior years or $.12 per share. The 1994 share and
per share amounts include common stock equivalents.
(D) Gives effect to the reverse purchase (in 1993) and reflects the number of
shares of Pathe Technologies common stock outstanding for the indicated periods.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In March 1993, Mid-West Spring Manufacturing Company, Inc. (formerly Pathe
Technologies Inc.) acquired all of the outstanding stock of Mid-West Spring and
Stamping Inc. (formerly Mid-West Spring Manufacturing Co.) ("Spring") in a stock
exchange agreement which has been accounted for as a "reverse" purchase.
Accordingly, all discussions and the financial statements of the Company reflect
the assets, liabilities and operations of Spring as if Spring had been the
reporting entity from inception, and include the assets, liabilities and
operations of Pathe Technologies Inc. only from the date of the share exchange
(March 8, 1993).
</TABLE>
RESULTS OF OPERATIONS
Overview:
The Company s net sales have increased 36% over the past two years (18% in
1995 and 18% in 1994) to $38.4 million in 1995. Approximately 65% of the 1995
increase was attributable to the inclusion of the 1994 acquisition of the die
casting division and the balance from the increased unit sales of Spring s
operations. Operating income decreased $1.2 million to $1.9 million in 1995
compared to $3.1 million in 1994. The decrease in operating income was
attributable to increased manufacturing and operating costs as the Company
integrates equipment and processing technologies with its spring operations and
continues to assimilate into its business the start-up die cast division.
Net income decreased $2.1 million to a net loss of $1.2 million on revenue
increase of $5.8 million to $38.4 million in 1995 compared to net income of
$906,000 on revenues of $32.6 million in 1994. The decrease was attributable to
the reason set forth above and to the $1.7 million increase in interest expense
related to the December 1994 refinancing.
1995 COMPARED TO 1994
Net Sales:
The Company s net sales increased by $5,804,000 or 17.8% to $38,387,000 in
1995 compared to $32,583,000 in 1994. Approximately $3,808,000 of the net sales
increase was attributable to the die casting division.
All spring plants recorded an increase in net sales, except for the Romeoville
plant which continues to source certain customer orders to other plants better
equipped to handle unique wire size orders. The Company s total booked orders at
December 31, 1995, was $8.3 million compared to $10.2 a year ago, reflecting the
Company s ongoing initiatives to accelerate the "turnaround" of orders.
Operating Income:
Operating income decreased $1,183,000 to $1,915,000 compared to $3,098,000 in
1994. The decrease in operating income was primarily attributable to net
operating losses of $635,000 at the die cast division and increases in the self-
insured portion of the Company s health insurance approximating $535,000 in
1995.
Cost of Sales, as a percentage of sales, for the year increased 3.8% to 81.0%
compared to 77.2% in 1994. Cost of sales as a percentage of sales, for Spring
operations (excluding the die cast division) increased slightly from 78.3% in
1994 to 78.8% in 1995 primarily due to increases in raw material costs.
Selling and Administrative expenses increased approximately $1,073,000 to
$5,107,000 (13.3% of sales) compared to $4,034,000 (12.4% of sales) in 1994.
The increase in selling and administrative expense was attributable to the full
year inclusion of the die casting division s selling and administrative
expenses of $456,000 and increases in advertising expenses.
Interest Expense:
Interest expense increased $1,734,000 to $3,466,000 compared to $1,732,000 in
1994. The increase reflects the full year effect of the December 1994
refinancing which repaid preferred stock and variable rate short- and long-term
debt with fixed rate long-term debt.
Income Taxes:
The Company s 1995 tax rate for its income tax benefit was approximately
23%. This was primarily due to the Company s net loss and also by the
non-deductible amortization of cost in excess of net assets acquired.
Income Attributable to Common Shares:
The reconciliation of net income used in computation of income per share
includes $229,000 dividend requirement compared to $775,000 in 1994. The
reduction in the dividends requirement reflects the reduced level of preference
stock as a result of the December 1994 refinancing.
1994 COMPARED TO 1993
Net Sales:
The Company s net sales increased by $4,503,000 or 16% to $32,583,000 in 1994
compared to $28,080,000 in 1993. All of the Company s nine manufacturing
operations recorded increases in sales in 1994, primarily on increased unit
sales. Approximately $1,800,000 of the net sales increase was attributable to
1993 acquisitions and the formation, in December 1994, of the die casting
division. The latter represented $276,000 in net sales increase. The Mentone
and Muskegon operations (medium/heavy wire coiling and stamping) recorded net
sales increases of $2,130,000, in large measure, due to new equipment purchases
at both locations and the plant expansion of the Muskegon facility.
The Company s total booked orders at December 31, 1994, was $10.2 million
compared to $7.0 a year ago. Booked orders (including blanket orders) for
Springs increased $3.0 million to $9.7 million including $1.2 million for then
newly formed die casting operation. Booked orders for the Pathe, Irvington,
operation increased $.5 million to $.8 million primarily related to design and
engineering contracts for McDonnell Douglas Aerospace. The MDA contracts have
been released in contemplation of MDA awarding a contract to a large equipment
manufacturer for design, engineering and manufacture of a large prototype
production stitching machine for jet aircraft transport size wing span in which
specifications require design for stitching hardware and software and machine
check-out and acceptance tests. If this contract is awarded to a prime
contractor, it is anticipated that Pathe s involvement would approximate $1.0 -
$1.5 million.
Operating Income:
Operating income, excluding $1.9 million in special charges in 1993,
increased $1,816,000 to $3,098,000 compared to $1,282,000 in 1993. The increase
in operating income was attributable to: 1) The reduction of $920,000 in
amortization of non-compete agreements which became fully amortized in the
fourth quarter of 1993; 2) increase of $570,000 from Spring operations which
are benefiting for improved operating efficiencies as a result of increased
sales and, the Logansport close down in the fourth quarter 1993, and, includes
operating losses from Spring s Collingdale and Azusa 1993 acquisitions of
$400,000 and; 3) increase of $326,000 from the Pathe Irvington operation
(acquired in 1993) due to increased production volume, in the first six months,
from manufacturing of spring coilers for Spring and increased stitching design
and fabrication services of advanced composite materials for the aerospace
industry.
Cost of Sales, as a percentage of sales, for the year improved 1.1% to 77.2%
compared to 78.3% in 1993. The improvement for the year was attributable to
increased manufacturing overhead absorption due to increased unit volume. In the
third and fourth quarter of 1994, improvements in raw material and direct labor
utilization were offset by raw material price increases and overtime premiums as
the Spring operations paid for air freight transportation on raw materials and
incurred manufacturing overtime charges in order to meet customer s needs for
"just in time" deliveries and reduce an increasing back order condition. In
order to continue to realize improved gross margins, the Company will need to
balance its backorders with customer expectations (i.e. extend lead times)
and/or raise prices to compensate for premium charges related to short lead time
orders.
Selling and Administrative expenses increased approximately $433,000 to
$4,034,000 (12.4% of sales) compared to $3,601,000 (12.8% of sales) in 1993.
Selling expenses increased $225,000 to $1,728,000 (5.3% of sales) compared to
$1,506,000 (5.3% of sales) in 1993, reflecting increased commission expense
commensurate with increased net sales. Administrative expenses increased
$208,000 to $2,306,000 (7.1% of sales) compared to $2,095,000 (7.5% of sales) in
1993. Administrative expenses included: 1) $80,000 in increased performance
compensation; 2) $60,000 in additional expenses (not accrued in 1993 special
charges) related to the close-down of the Logansport operation; and 3) $125,000
incremental administrative expenses related to 1993 acquisitions and the new die
casting division. Selling and Administrative expenses include $150,000 in 1994
and 1993 paid to an affiliate of the company.
Interest Expense:
Interest expense decreased $158,000 to $1,732,000 compared to $1,890,000 in
1993. Excluding the effect, which was not significant in 1994, on average debt
balances of the December 1994 long-term debt financing, the higher average debt
balance in 1994 compared to 1993 and the associated increase in interest expense
was more than offset by the lower effective interest rate on borrowings
(including the effects of the interest rate swap agreement) as a direct
consequence of the Company s debt refinancing in 1994. At December 31, 1994 the
Company does not have any open interest rate swap agreements or derivative
financial instruments.
Income Taxes:
The effective tax rate in 1994 approximates the statutory tax rate of 34%
with the benefit of changes in deferred tax asset reserve offsetting the
amortization of pre-1993 intangibles which are not deductible for income tax
purposes. Net loss in 1993 includes a charge of $540,000 for a change in
accounting for income taxes.
Income Attributable to Common Shares:
The reconciliation of net income used in computation of income per share
includes $775,000 dividend requirement and $570,000 (current year) and
$1,147,000 (prior Years) benefit for adjustment of redemption of Preferred Stock
at less than carrying value plus undeclared dividends.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company's current assets ($14.5 million) exceeded
current liabilities ($9.3 million) by $5.2 million as compared to $7.8 million
excess of current assets over current liabilities at December 31, 1994. Included
in current liabilities at December 31, 1995 is $4.1 million (compared to $.5
million in 1994) borrowed under the Company's $5 million revolving credit
agreement which expires in June 1996. As discussed below, the Company in
December 1994 refinanced its long term debt and has successfully, in each of the
past five years, been able to "roll over" its revolving credit agreement.
In December 1994, the Company acquired a die cast operation (primarily
equipment) for $.5 million. In March 1993, the Company acquired $1 million
current operating net assets and $.1 million in equipment from the "effective"
issuance of 2,442,000 common shares. Also, in 1993, the Company acquired the
Collingdale, PA and Azusa, CA facilities (primarily equipment) for an aggregate
of $1.0 million. In January 1992, to facilitate Spring's growth and planned
capital spending program, Spring completed a plan of recapitalization and
refinancing in which $1.7 million (after expenses) was received in cash and $4.8
million in common stock and debt was exchanged for preferred stock. Since
inception (June 1989), the Company has generated approximately $8.9 million in
operating cash flow which has been used to fund a continuing modernization and
automation program through capital equipment purchases, increased product
offerings and increased working capital requirements. Before the reduction for
changes in net operating assets and liabilities of $1.5 million and $1.9 million
for the years ended December 31, 1995 and 1994, respectively, cash flow from
operating activities were $.4 million and $3.6 million for 1995 and 1994,
respectively. Included in loss from operations is interest expense, which in
1995 increased $1.7 million to $3.5 million compared to $1.8 million in 1994.
The reduction to operating cash flow from changes in net operating assets and
liabilities was attributed, in major part to the increase in receivables,
inventory, and prepaid expense offset by payables related to the working capital
requirements of the recently formed die cast division.
Short term debt at December 31, 1995 includes $4.1 million borrowed under the
Company's $5 million revolving credit line which was renewed in June 1995. The
revolving line of credit expires in June 1996. The Company expects, as it has
successfully done in the past, to renew or refinance its revolving credit line
prior to expiration.
In 1995, the Company invested approximately $2.2 million in new equipment
(excluding tools and dies of $.7 million) and currently plans capital
expenditures of approximately $1.5 in each of 1996 and 1997 of which $.7 million
is for annual tool and dies requirements. The 1995 expenditures include, the
purchase of computer controlled spring coilers and other ancillary spring
operation equipment, the expansion of the Mentone plant and the relocation of
corporate headquarters. Future capital expenditures are expected to be funded
by cash from operations. The Company believes it has a sufficient operating
cash flow and working capital base to meet all of its obligations for the
foreseeable future.
In connection with obtaining covenant amendments in May, 1996, the Company
committed to dispose of its APC Division (diecasting division) because of net
losses sustained by the Division since its 1994 acquisition. Management is
formulating its plans for this disposition and anticipates finalizing its plans
by June, 1996. Management estimates preliminarily that a 1996 loss from this
disposition could range from $400,000 to $1,050,000.
In December 1994, the Company completed an important objective toward
improving its total capitalization and long-term liquidity and reducing its
exposure to fluctuating interest rates with a $27.0 million 11.25% fixed rate,
long-term debt financing including $.5 million of detachable warrants, and $.5
million private equity offering. The net proceeds (after expenses) were used to
repay; 1) all variable interest rate short-term and medium-term borrowings; 2)
all the 14% subordinated and junior subordinated notes; 3) $4.6 million in
redeemable preferred and preferred stock of Mid-West Spring and; 4) repurchase
1,256,150 shares of the Company s Common Stock. The new long-term debt facility
permits the Company to maintain up to $5 million revolving line of credit. The
new debt facilities require the Company, among other things, to maintain a
current ratio of 1:1 or greater; tangible net worth, as defined, greater than
$1.5 million, as amended (increasing to $3.5 million after December 31,1996);
fixed charges coverage ratio of 1.0:1.0 or greater (as amended, increasing from
1:1 to 1.4:1 through December 31,1996; 2:1 after December 1996); and debt
coverage ratio of 6:1 or less (as amended, this covenant has been temporarily
substituted with a provision for the maintenance of EBITDA of $1.0 million
increasing to $1.3 million through December 31,1996); decreasing to 4.5:1 after
December 1996). In addition, the debt facility provides that the prepayment of
principal may, under certain circumstances, result in additional interest
charges of up to approximately 8.75%. These amended debt covenants should allow
the debt facility to be in compliance through out 1996. However it is
anticipated that once the covenants revert back to the original agreement March
30,1997 the Company will need to seek additional waivers. The effect of the new
fixed rate refinancing, as expected, causes interest expense, which is
deductible for income tax purposes, to increase over 1994 levels of $1.7 million
and the Preferred Stock of Mid-West Spring dividend requirement, which is not
deductible for income tax purposes, to decrease below 1994 levels of $.8 million
- - an amount that was increasing at a 10% compound rate.
Revolving line of credit and long-term debt refinancing at increased amounts,
have been the Company s main source of capital to fund its operating and
investing activities. Increased cash flow from operations and/or additional
equity capital will most likely be required if the Company is to increase or
accelerate its capital spending or acquisition programs.
At December 31,1995, the Company was not in compliance with certain of its
restrictive financial covenants to its debt agreements; however, it has met all
of its obligations in respect to the payment of principal and interest. In May
1996, the Company obtained amendments and waivers to its debt agreements in
order to remedy these conditions of non-compliance. In respect to the Senior
Notes, the fixed rate of interest has been increased by .50% to 11.75% for the
period December 24,1995 through December 23,1996.
Inflation
The Company's major saw material (steel) is subject to periodic inflationary
pressures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
THE COMPANY:
Report of Independent Auditors.....................
Consolidated Balance Sheets at December 31, 1995
and 1994.......................................
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993.........
Consolidated Statements of Changes in Common
Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993...............
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.........
Notes to Consolidated Financial Statements.........
Report of Independent Auditors
The Board of Directors and Stockholders
Mid-West Spring Manufacturing Company
We have audited the accompanying consolidated balance sheets of Mid-West Spring
Manufacturing Company (formerly Pathe Technologies Inc.) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, changes in common stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1995. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mid-
West Spring Manufacturing Company and subsidiaries as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement 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.
As discussed in Note 1 to the financial statements, in 1993, the Company changed
its method of accounting for income taxes.
/s/ Ernst & Young LLP
March 6, 1996,
except for Notes 2 and 6 as to which the date is
May 16, 1996
<TABLE>
MID-WEST SPRING MANUFACTURING COMPANY, INC. (FORMERLY PATHE TECHNOLOGIES INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
AT DECEMBER 31,
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 564,000 $ 408,000
Trade Accounts Receivable, less allowance 4,380,000 3,846,000
for doubtful accounts of $87,000 and $52,000
in 1995 and 1994 respectively
Inventories 8,936,000 7,329,000
Prepaid Expenses and Other 600,000 583,000
TOTAL CURRENT ASSETS 14,480,000 12,166,000
Property, Plant & Equipment, Net 19,934,000 18,695,000
Purchase Cost in Excess of Net Assets
Acquired 8,328,000 8,610,000
Other, primarily deferred loan expenses 1,584,000 1,396,000
$ 44,326,000 $ 40,867,000
LIABILITIES AND COMMON STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Cash Overdraft $ 622,000 $ --
Notes Payable to Bank 4,121,000 500,000
Accounts Payable 2,872,000 2,840,000
Accrued Payroll & Other Expenses 1,698,000 945,000
Income Taxes Payable 32,000 52,000
Current Maturities of Long-Term Debt -- --
TOTAL CURRENT LIABILITIES 9,345,000 4,337,000
Long Term Debt 26,468,000 26,437,000
Deferred Income Taxes and Other 3,664,000 4,028,000
Preferred Stock of Mid-West Spring and Stamping Corp.
2,227,000 2,227,000
COMMON STOCKHOLDERS' EQUITY:
Common Stock, par value-$.0001; 31,000,000 and
20,000,000 common shares authorized in 1995 and 1994
respectively; 10,570,289 shares -- --
issued (including shares held in treasury)
Additional Paid-in-Capital 6,559,000 6,559,000
Retained Earnings Deficit ( 3,038,000) ( 1,842,000)
Treasury Stock, at Cost (1,279,695 shares and (
1,256,150 shares in 1995 and 1994 ( 899,000) 879,000)
respectively)
TOTAL COMMON STOCKHOLDERS' EQUITY 2,622,000 3,838,000
$ 44,326,000 $ 40,867,000
See accompanying notes.
</TABLE>
<TABLE>
MID-WEST SPRING MANUFACTURING COMPANY INC.AND SUBSIDIARIES
(FORMERLY PATHE TECHNOLOGIES Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For The Years Ended
December 31,
1995 1994 1993
<S> <C> <C> <C>
NET SALES $38,387,000 $ 32,583,000 $ 28,080,000
COSTS and EXPENSES:
Cost of Sales 31,083,000 25,158,000 21,992,000
Selling, and Administrative 5,107,000 4,034,000 3,601,000
Amortization of Intangibles 282,000 293,000 1,205,000
Special Charges -- -- 1,910,000
36,472,000 29,485,000 28,708,000
OPERATING INCOME (LOSS) 1,915,000 3,098,000 ( 628,000)
Interest Expense 3,466,000 1,732,000 1,890,000
(Loss) Income Before Income Taxes (1,551,000) 1,366,000 ( 2,518,000)
Benefit (Provision) for Income Taxes 355,000 ( 460,000) 784,000
(Loss) Income before cumulative effect of _________ __________ ___________
change in accounting for income taxes (1,196,000) 906,000 ( 1,734,000)
Cumulative effect of change in
accounting for income taxes -- -- ( 540,000)
__________ ___________ ___________
NET (LOSS) INCOME (1,196,000) 906,000 ( 2,274,000
Preferred Stock of Mid-West Spring and
Stamping Co. Dividend Requirement ( 229,000) ( 775,000) ( 731,000)
Effect on Dividend Requirement for
redemption of Preferred Stock at less
than carrying value plus undeclared
dividends (current year) 570,000 --
Effect on Dividend Requirement for
redemption of Preferred Stock at less
than carrying value plus undeclared
dividends (prior years) 1,147,000 --
___________ ___________ ___________
(Loss) Income attributable to Common Shares $(1,425,000)$ 1,848,000 $( 3,005,000)
(LOSS) INCOME PER COMMON SHARE
(Loss) Income before effect of reversal
of prior year dividend requirements and
accounting change ($0.15) $0.07 ($0.27)
Prior year reversal of dividend
requirements 0.12 --
Accounting Change -- -- ( 0.06)
($0.15) $0.19 ($0.33)
AVERAGE NUMBER OF SHARES OUTSTANDING 9,308,253 9,913,833 9,142,672
See accompanying notes.
</TABLE>
<TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
(Formerly Pathe Technologies Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<CAPTION>
ADDITIONAL RETAINED TREASURY
COMMON STOCK PAID-IN- EARNINGS STOCK, AT
SHARES AMOUNT CAPITAL DEFICIT COST TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 7,150,000 $3,336,000 $(474,000) $2,862,000
Issuance of Common Stock re.
Reverse Purchase 2,442,000 -- 1,220,000 1,220.000
Reversal of accrued dividends
(undeclared) at December 31,
1992 re. former Redeemable
Preferred Stock of Mid-West 478,000 478,000
Spring and Stamping Corp.
Redeemable Preferred Stock
dividend requirement ( 129,000) ( 129,000)
NET LOSS ___________ _______________ (2,274,000) ________ (2,274,000)
BALANCE, DECEMBER 31, 1993 9,592,000 --$4,905,000 (2,748,000) 2,157,000
Issuance of Common Stock:
- Private Placement 654,973 500,000 500,000
- Payment of $250,000
note Re. Collingdale,
PA acquisition 285,000 250,000 250,000
- Exercise of stock options 10,000 5,000 5,000
- Payment for consulting fees28,316 23,000 23,000
Issuance of Class A warrants 563,000 563,000
Redeemable Preferred Stock
dividend requirement (135,000) (135,000)
Gain on redemption of preferred
stock of Mid-West Spring and
Stamping including reversal 448,000 448,000
of undeclared dividends
Purchase of Treasury stock at (879,000) (879,000)
cost
NET INCOME 906,000 906,000
BALANCE, DECEMBER 31, 1994 10,570,289 -- 6,559,000 (1,842,000) (879,000) 3,838,000
Purchase of Treasury stock, at ( 20,000) ( 20,000)
cost
NET LOSS (1,196,000) (1,196,000)
BALANCE, DECEMBER 31, 1995 10,570,289 $--$6,559,000 $(3,038,000) (899,000) $ 2,622,000
See accompanying notes.
</TABLE>
<TABLE>
MID-WEST SPRING MANUFACTURING COMPANY, INC.
(FORMERLY PATHE TECHNOLOGIES INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOW (USED IN) FROM OPERATING ACTIVITIES: $(1,196,000) $ 906,000 $(2,274,000)
Net (loss) Income
Adjustments to reconcile net (loss) income to
net cash (used in) from operating activities:
Change in accounting for taxes -- -- 540,000
Depreciation and amortization 2,098,000 2,197,000 3,167,000
Deferred income taxes (417,000) 487,000 ( 784,000)
Deferred Compensation -- -- 375,000
Changes in operating assets and liabilities:
Receivables ( 534,000) ( 320,000) ( 486,000)
Inventories ( 1,607,000) ( 1,531,000) ( 701,000)
Prepaid and other ( 307,000) ( 359,000) 63,000
Payables/accruals 838,000 580,000 1,004,000
Other liabilities -- ( 220,000) --
Income taxes ( 20,000) ( 56,000) ( 114,000)
( 1,145,000) 1,684,000 790,000
CASH FLOWS USED IN INVESTING ACTIVITIES
Cash acquired in reverse purchase of the -- -- 232,000
Company
Other acquisitions, net of 12,000 cash acquired ( 400,000) ( 787,000)
(in 1993)
Purchase of equipment ( 2,953,000) ( 3,340,000) (2,073,000)
( 2,953,000) ( 3,740,000) (2,628,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of Common Stock 505,000
--
Purchase of Common Stock ( 20,000) ( 879,000) --
Issuance of Warrants re. debt financing 563,000 --
Revolving line of credit, net 3,621,000 ( 3,718,000) 1,534,000
Proceeds from long-term debt, net of debt
issuance expense of $1,056,000 (in 1994) -- 25,381,000 751,000
Principal payments on long-term debt -- (13,751,000) (1,165,000)
Purchase of Preferred Stock of Subsidiary ( 4,666,000) --
Cash overdraft 622,000 ( 733,000) 629,000
Other 31,000 ( 354,000) 136,000
4,254,000 2,348,000 1,885,000
NET INCREASE IN CASH $ 156,000 $ 292,000 $ 47,000
Cash, Beginning $ 408,000 $ 116,000 $ 69,000
Cash, End $ 564,000 $ 408,000 $ 116,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3,483,000 $ 1,796,000 $ 1,694,000
Income taxes, net of refunds 37,000 ( 50,000) 119,000
Noncash investing and financing activities:
Reverse purchase of Company 988,000
"Effective" issuance of stock re. Reverse
purchase of Company 1,220,000
Notes issued re other acquisitions 100,000 250,000
Issuance of Stock re. other acquisitions 250,000 --
Redeemable Preferred Stock of Subsidiary
dividend requirement 135,000 129,000
Gain on repurchase of Preferred Stock 448,000 --
Interest converted to Preferred Stock 370,000 --
See accompanying notes.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION The financial statements include the
accounts of the Company and its wholly owned subsidiaries, Mid-West Spring and
Stamping Corp. ("Mid-West Spring"), Pathe Advanced Composites Inc. and Pathe
Home Furnishings, Inc. All intercompany accounts and transactions have been
eliminated.
The Company operates in one industry segment.
INVENTORIES Inventories are valued at the lower of cost or market. At December
31, 1995 and 1994, cost for 76% and 82% , respectively of total inventories was
determined using the last in, first out method and the balance of total
inventories was determined using the first in, first out method.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment
are stated at original cost. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets.
DEFERRED LOAN FEES AND DISCOUNT Debt discount and costs incurred to obtain debt
financing are being amortized over the terms of the financing arrangements,
utilizing a level-yield method.
COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED AND COVENANT NOT TO COMPETE
The excess of purchase price, including related acquisition costs, over net
assets acquired is being amortized by the straight-line method over periods
ranging from 20 to 40 years. (Accumulated amortization at December 31, 1995 and
1994, was $1,682,000 and $1,400,000, respectively.) Covenant not to compete was
being amortized over five years utilizing the straight line method and was fully
amortized at December 31, 1993.
INCOME TAXES The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109).
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
REVENUE SOURCES The Company's sources of revenues are: a)sales of specialty
springs, metal stampings, wire forms and aluminum/zinc die castings; b)sales of
specially designed and manufactured computer controlled sewing/quilting
machinery and attendant sale of spare parts and service; and c)sales of special
stitching services primarily to third party research and development contracts.
All revenues are generated domestically. A division of the Company designs and
manufacturers proprietary computer controlled spring coiler machines only for
sale to Mid-West Spring. In 1995, 1994 and 1993, sales of $150,000, $636,000 and
$270,000 (cost), respectively, were eliminated from sales in connection with
this activity.
CREDIT RISK Credit is extended to customers based on management's evaluation of
the customer's financial condition and, generally, collateral is not required.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include
trade accounts receivable, accounts payable, accrued expenses, notes payable and
long-term debt. The fair value of all financial instruments are not materially
different than their carrying value.
(LOSS) INCOME PER SHARE (Loss) income per common share amounts are computed
using the weighted average number of shares of common stock and dilutive common
stock equivalents outstanding during the year. Common stock equivalents include
all outstanding stock options and warrants. All common stock equivalents have
been excluded for 1995 because their assumed exercise would be antidilutive.
The Company's Class B, C, and D warrants have been excluded for 1994 and 1993
because their assumed exercise would be antidilutive. The 1994 preferred stock
dividend requirement adjustment to compute income attributable to common and
common equivalent shares in the statement of operations reflects the effect of
the redemption of preferred stock at an amount less than its carrying value
including undeclared cumulative dividends.
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.
RECLASSIFICATION Certain reclassifications have been made in 1994 in order to
conform to the 1995 presentation.
2. LOSS CONTINGENCIES
In connection with obtaining covenant amendments, in May, 1996, from holders of
Senior and Senior Subordinated Notes (see Note 6), the Company committed to
dispose of its APC Division (diecasting Division) by August 31, 1996. This
division has incurred net losses since its 1994 acquisition (see Note 3).
Management is formulating its plans with regard to this disposition and
anticipates finalizing its plans by June 30, 1996. Management estimates
preliminarily that a 1996 loss from disposing of Division assets could range
from $400,000 to $1,050,000.
Condensed financial information of the Division as of and for the year ended
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Balance Sheet:
<S> <C>
Trade accounts receivable $ 741,000
Inventories 741,000
Equipment 1,016,000
Other 332,000
Total Assets $2,830,000
Accounts payable $ 415,000
Accrues expenses 211,000
Payable to Parent 2,204,000
Total Liabilities $2,830,000
Operating:
Net Sales $4,085,000
Net losses (644,000)
</TABLE>
3. BUSINESS ACQUISITION
On March 8, 1993, the Company completed its stock exchange agreement with Mid-
West Spring. In exchange for all of the issued and outstanding common stock of
Mid-West Spring, the Company issued 7,150,000 restricted common shares, par
value $.0001 per share (including 949,520 common shares that do not have voting
rights). In addition, up to 814,200 Company Class B warrants were issued to the
Company shareholders of record on March 5, 1993, (one warrant was issued for
each three shares of Company Common Stock, exercisable for one common share of
Company at $2 per share). The acquisition was accounted for under the purchase
method of accounting. Because the stockholders of Mid-West Spring emerged with
the majority of voting stock of the Company, Mid-West Spring was deemed to be
the acquirer and the acquisition was accounted for as a reverse purchase of the
Company by Mid-West Spring. Accordingly, the financial statements of the Company
reflect the assets, liabilities and operations of Mid-West Spring as if Mid-West
Spring had been the reporting entity from inception, and include the assets,
liabilities and operations of the Company only from the date of exchange the
Company had (March 8, 1993). At the date of exchange, the Company had 2,442,000
common shares outstanding with an estimated fair market value of $.50 per share
representing a purchase cost of $1,220,000 (Tangible book value of the Company
at date of purchase was $961,000). The fair values of the Company's assets and
liabilities at the date of acquisition are presented below:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 232,000
Receivables 91,000
Inventories 790,000
Prepaid expenses and other 52,000
Equipment 105,000
Goodwill 259,000
Accounts payable and
accrued expenses ( 309,000)
$1,220,000
</TABLE>
In December 1994, the Company formed it's die casting division, including the
purchase of the Denville, NJ die casting business (primarily equipment) for cash
and notes aggregating $500,000. In January 1993 and October 1993, the Company
purchased the Collingdale, PA and Azuza, CA, coiler businesses (primarily
equipment) for cash and notes aggregating $1,000,000. These acquisitions and the
resulting impact on results of operation were not considered material.
4. INVENTORIES
The components of inventories as at December 31, were:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Finished Goods $ 4,913,000 $ 2,811,000
Work-In-Process 1,609,000 1,762,000
Raw Materials,including Finished Parts 2,831,000 2,836,000
Inventories at FIFO 9,353,000 7,409,000
LIFO Reserve 417,000 80,000
TOTAL INVENTORIES $ 8,936,000 $ 7,329,000
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Major classes of Property, Plant and Equipment as at December 31, were:
<TABLE>
<CAPTION>
USEFUL LIVES 1995 1994
<S> <C> <C> <C>
Land -- $ 639,000 $ 639,000
Buildings and
Improvements 33-1/2 Years 4,328,000 4,201,000
Machinery and Equipment 5-20 Years 16,596,000 14,631,000
Furniture & Fixtures 5-7 Years 1,419,000 1,243,000
Tools and Dies 5 Years 4,544,000 3,906,000
SUBTOTAL 27,526,000 24,620,000
Less:
Accumulated Depreciation
and Amortization 7,592,000 5,925,000
PROPERTY, PLANT AND
EQUIPMENT, NET $ 19,934,000 $ 18,695,000
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was
$1,714,000, $1,612,000 and $1,453,000, respectively.
6. DEBT
The components of Debt as at December 31, were:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Notes payable to bank (revolving
credit agreement) $ 4,121,000 $ 500,000
11.25% Senior Notes 20,000,000 20,000,000
11.25% Senior Subordinated Notes
(12.7% imputed interest rate) 7,000,000 7,000,000
31,121,000 27,500,000
Less: current maturities 4,121,000 500,000
Face value of long-term debt
outstanding 27,000,000 27,000,000
Original issue discount
(Sr. Sub. Notes) (532,000) (563,000)
Book value of long term debt
outstanding $26,468,000 $26,437,000
</TABLE>
The Company's note payable to bank consists of a $5,000,000 revolving credit
facility due on June 30, 1996 and bears interest at the bank's prime rate (8.5%
at December 31, 1995 and 1994) plus 1/2%, payable monthly. At December 31, 1995,
$4,121,000 was outstanding under this facility. The revolving credit facility
provides for a 1/4% per annum commitment fee, payable quarterly. Total
borrowings available under this facility are computed based on a formula of
accounts receivable and inventory balances. This facility is secured by accounts
receivable and inventory, as defined. Under this facility Mid-West Spring is
precluded from making loans to the Company. Accordingly, approximately $1.4
million of the Company's net assets are restricted at December 31, 1995.
The Senior Notes and Senior Subordinated Notes (together, the Notes) issued
December 23, 1994 are payable to an insurance company. Interest on these notes
is payable semi-annually in arrears. Principal payments of $6,750,000 on the
Senior Notes are due on December 23, 2002 and 2003. The remaining principal
balance on the Notes is due on December 23, 2004. If the Company prepays any
principal amounts, such payments may be subject to an additional interest charge
of up to approximately 8.75%. In connection with the issuance of the Senior
Notes, the Company incurred $1,266,000 of fees and expenses which are included
in deferred loan fees.
Each of the above credit facilities requires, among other things, that the
Company maintain specified levels, as defined, of tangible net worth, working
capital, cash flows, indebtedness, and capital expenditures; and limits the
payment of dividends, redemption of stock, and mergers or acquisitions.
At December 31, 1995, because of net losses sustained in the quarter then ended,
the Company was in violation of those restrictive covenants covering tangible
net worth, working capital, cash flow, and others. The Company was not in
arrears relative to the payment of principal or interest. By May 16, 1996, the
Company received satisfactory waivers from lenders for 1995 debt covenant
violations and, obtained amendments which will permit the Company to more easily
comply with such covenants through December 31, 1996. The amendments also
require the Company to cease operating APC Division (see Note 2) by August 31,
1996 and pay an additional 1/2% of annual interest for 1996 (additional 1996
interest of $135,000).
The Company's revolving credit facility expires June 30, 1996, and management
expects to renegotiate this facility with its bank lender at terms no less
favorable than those described above.
7. PREFERRED STOCK OF SUBSIDIARY AND COMMON STOCKHOLDERS' EQUITY
Preferred stock of Mid-West Spring and Stamping consists of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Preferred stock:
Class A 22,269 $2,227,000 22,269 $2,227,000
</TABLE>
In January 1992, Mid-West Spring and Stamping authorized 150,000 shares and
issued 67,186 shares of $.01 par value, $100 liquidation value preferred stock.
The preferred stock of Mid-West Spring is comprised of three classes: Class A,
Class B, and Class C. Class A and Class B maintain a dividend rate at 10% of the
liquidation preference value of $100 per share with cumulative dividends. The
Class C maintains a 0% dividend rate. The preferred stock, except as noted
below, is subject to mandatory redemption requirements beginning in 2002 for
Class A and in 1996 for Class B and C.
Effective March 8, 1993, the Company issued 1,095,906 the Company Class C
warrants to all (except for one) of the Class A shareholders, in consideration
for their deleting the mandatory redemption date requirement. One warrant was
issued for each $5 of redemption value, as defined, of such preferred stock.
Accordingly, such Class A preferred stock has been classified on the balance
sheet as Preferred Stock of Mid-West Spring and Stamping. Accrued dividends
(undeclared) at December 31, 1992 of $478,000 in respect to these preferred
shares have been reversed in 1993 as a credit to paid-in-capital.
In conjunction with the 1994 issuance of the Senior Notes (Note 6), the Company
paid $4,666,000 to repurchase 37,458 shares of Class A preferred stock, and
2,806 shares and 8,156 shares of Class A and Class B redeemable preferred stock,
respectively, with a total aggregate redemption value, including accrued
dividends of $5,114,000. The redemption value in excess of the purchase price,
of $448,000, was recorded as a credit in 1994 to additional paid-in-capital.
Upon repayment of the principal of the Company's Junior Subordinated Notes, the
holder converted $370,000 of accrued interest to 3,700 shares of Class A
redeemable preferred stock and converted 4,830 shares of Class C redeemable
preferred stock to 4,830 shares of Class A redeemable preferred stock. The
shareholder, in consideration for the exchange of Class C to Class A Preferred
Stock, has agreed to waive the cumulative dividends on 4,830 shares of the Class
A redeemable preferred stock until June, 1996 (which was the original redemption
date of the Class C redeemable preferred stock)and has waived the mandatory
redemption date requirement. This exchange was at fair value. Accordingly, such
Class A preferred stock has been classified as Preferred Stock in Mid-West
Spring.
As of December 31, 1995, there were $692,000 of undeclared (and not accrued)
dividends in arrears in respect to the preferred stock of Mid-West Spring.
COMMON STOCK
In conjunction with the 1994 issuance of the Senior Notes (Note 6), the Company
repurchased 1,256,150 shares of Common Stock for $879,000 and sold 654,973
shares of Common Stock for $500,000.
At December 31, 1995, a total of 9,127,695 shares of Common Stock were reserved
for possible future issuance in respect to conversion of warrants (2,127,695)
and for future acquisitions (7,000,000).
During 1995, the Company amended its Certificate of Incorporation to increase
the total authorized shares of all capital stock to 40,000,000 shares of which
31,000,000 shares will be common stock and 9,000,000 shares shall be
unclassified stock with a par value of $.0001 per share. The unclassified
common stock may be issued from time to time in one or more classes or series as
determined by the Board of Directors.
WARRANTS
The Company had the following warrants to purchase common stock outstanding at
December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Class A warrants 755,738 755,738
Class B warrants - - 828,074
Class C warrants 1,121,957 1,121,957
Class D warrants 250,000 250,000
2,127,695 2,955,769
</TABLE>
The Class A warrants were issued in 1994 in conjunction with the issuance of
the $7,000,000 Senior Subordinated Notes. These warrants had an estimated value
of $563,000 at the time of issuance, are exercisable at $.01 per share and
expire on December 23, 2004.
The Class B warrants were issued in 1993, without any consideration being paid
by the holders. The warrants were exercisable at $1.86 per share, and expired
on December 5, 1995.
The Class C warrants were issued in 1993 in consideration for the deletion of
the mandatory redemption requirement related to certain Class A preferred stock
of Mid-West Spring and Stamping. These warrants are exercisable at $4.65, as
adjusted, per share which may be paid in Mid-West Spring and Stamping preferred
stock and expire one-third in each of 2002, 2003 and 2004.
The Class D warrants were issued in 1994 as additional fees related to the
issuance of the Senior Notes. These warrants had no estimated value at the time
of issuance, are exercisable at $1 per share and expire on April 15, 1997.
STOCK OPTION PLANS
On June 12,1995, the Company adopted, subject to stockholder approval, a 1995
Stock Incentive Plan which replaced the 1987 Incentive Stock Option Plan. The
1995 Plan permits the issuance of options, stock awards, and stock appreciation
rights (SARs) and provides for the granting of up to 600,000 shares of the
Company's common stock to officers and other key employees with the terms of
each award to be determined by the Compensation and Benefits Committee of the
Board of Directors (Committee). Under the terms of the 1995 Plan, options
granted may be either nonqualified or incentive stock options and the option
price, determined by the Committee, shall not be less than the fair market value
of the shares on the date of grant, SARs may be granted in tandem with or
independent of the granting of a stock option. Each SAR will entitle the holder
to elect to receive the appreciation in the fair market value of the shares
subject thereto up to the date the right is exercised. No SAR or stock option
may be exercisable prior to six months after the grant date nor later than ten
years after the grant date. Stock awards will consist of common stock without
payment and will be considered additional compensation for an employees service
to the Company. No options, SARs, or stock awards have been granted under the
1995 plan.
Under the 1987 Plan, 10,000 options were exercised at $.50 per share (bid price
$.875) in 1994 and, no options were exercised in 1995 or 1993. In 1995, 10,000
options in respect to a former director expired. At December 31, 1995, there
were no options outstanding under 1987 plan.
8. TAXES
On January 1, 1993, the Company adopted Statement No. 109 "Accounting for
Income Taxes". The effect of Statement No. 109 was a charge to Earnings of
$540,000, representing the cumulative effect of the change in accounting
principle, an increase to Fixed Assets of $2,800,000 and an increase to Deferred
Tax Liability of $3,340,000. As permitted under Statement 109, prior years'
financial statements were not restated.
For the year ended December 31, 1993, application of Statement 109 decreased
the pretax income by $181,000 and the net income by $111,000 because of
increased depreciation expense as a result of Statement 109's requirement to
report assets acquired in prior business combinations at their pretax amounts.
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal -- ( 53,000) --
State $ 62,000 26,000 --
62,000 ( 27,000) --
Deferred
Federal $(351,000) $ 410,000 (660,000)
State (66,000) 77,000 (124,000)
$(417,000) 487,000 (784,000)
$(355,000) $ 460,000 $(784,000)
</TABLE>
A reconciliation between the Company's effective tax rate and the US statutory
rate (34%) at December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory tax (benefit) expense $(527,000) $464,000 $(856,000)
Nondeductible amortization
of cost in excess of net
assets acquired 93,000 92,000 97,000
Change in valuation reserve -- (200,000) 60,000
Other, primarily state taxes 79,000 104,000 (85,000)
$(355,000) $460,000 $(784,000)
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards of $6.4
million for income tax purposes that expire in the years 2000 through 2010. The
timing of utilization of these carryforwards may be subject to annual
limitations. $2.0 million of carryforwards related to the 1993 acquisition of
the Company (see Note 3).
Significant components of the Company's deferred tax liabilities and assets as
at December 31, were:
<TABLE>
<CAPTION>
Deferred tax liabilities: 1995 1994
<S> <C> <C>
Tax over book depreciation and bases
differences of property, plant
and equipment 4,997,000 4,649,000
Inventories 414,000 418,000
Other 9,000 ---
Total deferred tax liabilities 5,420,000 5,067,000
Deferred tax assets:
Net operating loss carryforwards 2,437,000 1,725,000
Provisions for special charges -- 94,000
Other 393,000 241,000
Total deferred tax assets 2,830,000 2,060,000
Valuation allowance for deferred
tax assets (424,000) (424,000)
Net deferred tax assets 2,406,000 1,636,000
Net deferred tax liabilities $ 3,014,000 $3,431,000
</TABLE>
9. COMMITMENTS
The Company leases six of its ten facilities (including Corporate offices)
under non-cancelable leases expiring through December 1999. All the leases
include renewal provisions at the Company's option. The Company pays the
property taxes, insurance and maintenance costs related to these leased
properties, where applicable. Rent expense under the operating leases for 1995,
1994 and 1993 were $579,000, $428,000 and $503,000, respectively.
Future minimum commitments under leasing arrangements at December 31, 1995,
were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
<S> <C>
1996 $ 480,000
1997 $ 380,000
1998 $ 362,000
1999 $ 244,000
Total $1,466,000
</TABLE>
10. SPECIAL CHARGES
The special pretax charge to income in 1993 of $1.9 million reflects the
closing down costs of the Logansport operation ($646,000); the write-off of the
balance at December 31, 1993 of non-compete agreement ($460,000), and accrual of
future payments to retired executive ($727,000) and; the write-off of redundant
legal and appraisal expenses associated with the Company's long-term financing
arrangement ($77,000). At December 31, 1995, accrued liabilities in respect to
special charges of $100,000 and $50,000 were included in current liabilities and
non current liabilities, respectively.
11. FOURTH QUARTER ADJUSTMENTS
1995 fourth quarter adjustments caused net loss attributable to common shares
and net loss per share attributable principally to inventory, increase $559,000
or $.06 per common share, respectively.
1993 fourth quarter adjustments related to special charges (see Note 9) caused
net loss attributable to common shares and net loss per common share to increase
by $913,000 and $.10 per common share, respectively.
12. EMPLOYEE BENEFIT PLANS
The Company has a contributory 401(k)plan for the benefit of its nonunion
employees. Each year the Company may make discretionary contributions based on
a percentage of employee deductions. Company contributions to the plan were
$121,000 in 1995 (none in 1994 and 1993).
The Company is required to contribute to a defined-contribution plan under a
labor contract (APC Division) covering union employees. Expense related to the
union plan was $49,000 in 1995 (none in 1994 and 1993).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages, and positions with the Company of the
executive officers and directors of the Company. The directors hold office
until the next annual meeting of shareholders and until their successors are
elected and qualified.
<TABLE>
<CAPTION>
Name Age Position(s) with Company
<S> <C> <C>
C. Stephen Clegg (2)(3) 44 Chairman of the Board of
Directors and Chief
Executive Officer
Kenneth Scipta (3) 55 President and Director
William V. Codos (3) 73 Director and Chairman Emeritus
Michael B. Curran 43 Chief Financial Officer
Richard N. Codos 40 Vice President
George A. Stinson (1) 81 Director
Jacob Pollock (1) 70 Director
_________________________________
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation and Benefits Committee of the Board of
Directors
(3) Member of the Executive Committee of the Board of Directors
</TABLE>
FAMILY RELATIONSHIPS
William V. Codos is the father of Richard N. Codos. No other family
relationship exists between any director or executive officer of the Company or
any person contemplated to become such.
BUSINESS EXPERIENCE
C. STEPHEN CLEGG has served as the Company's chairman of the board of
directors and chief executive officer since April 22, 1993. He has served as a
director of the Company since September 1991 and as a director of the Company's
wholly owned subsidiary, Pathe Advanced Composites Inc., since its formation in
April 1993. From June 1989 to the present Mr. Clegg has also served as the
chairman of the board of directors and chief executive officer of Spring. Mr.
Clegg is president of Clegg Industries, Inc., a private investment firm which he
founded in September 1988. Prior to founding Clegg Industries, Inc., he was a
managing director of AEA Investors, Inc. From April 1989 to the present Mr.
Clegg has also served as chairman of the board of directors and chief executive
officer of Globe Building Materials, Inc. and its 80% owned subsidiary, Diamond
Home Services, Inc. He is currently a director of two other public companies,
Birmingham Steel Corporation and Ravens Metal Products, Inc. Mr. Clegg received
a B.S. Degree from the United States Air Force Academy in 1972 and a M.B.A.
Degree from the University of Chicago in 1975.
WILLIAM V. CODOS has served a director of the Company since December 1987.
From December 1987 through April 22, 1993 he served as the chairman of the board
of directors and from 1987 through September 1991 he also served as president of
the Company. From 1978 to December 1993 Mr. Codos has acted as a consultant to
the Company on both a paid and unpaid basis. He has also served as a director
of the Company's wholly owned subsidiary, Pathe Advanced Composites Inc., since
its formation in April 1993. From 1951 until 1965 Mr. Codos worked for Pathe
Equipment Co. Inc. where he served as vice president and subsequently
president. In 1965 Pathe Equipment Co. Inc. was merged into a division of
Walter Kidde, Inc. and Mr. Codos was appointed president of the textile
machine division. In 1971 Mr. Codos became the corporate vice president of
operations for all divisions of Walter Kidde, Inc., a position he held until
1978.
KENNETH SCIPTA has served as a director of the Company since April 1993.
From June 1994 to present Mr. Scipta has served as President of the Company and
from April 22, 1993 to the present Mr. Scipta has also served as the president
of Spring where he is responsible for Spring's day to day operations, planning,
administration and financial reporting. Mr. Scipta is also a director of Spring
and has been employed by Spring since 1979. He served as Spring's vice
president of finance from 1979 to 1986 and as vice president of sales and
marketing from 1986 to April 22, 1993. Mr. Scipta is a certified public
accountant. Mr. Scipta resigned as president of the Company effective January
1, 1996 to assume the duties of president of the Special Products Division of
Mid-West Spring. This division includes catalog sales, die springs, Kenlock
clamps (patented new product) and the development of international sales.
MICHAEL B. CURRAN has served as Chief Financial Officer since November of
1995. Prior to this Mr. Curran was the corporate controller for Marshall &
Huschart Inc. a machine tool builder and distributor. Mr. Curran is a certified
public accountant.
GEORGE A. STINSON has served as a director of the Company since April
1993. He has also served as a director of Spring since February 1990.
Currently and during the past eight years, Mr. Stinson has been retired from
active corporate management and the practice of law. From 1961 until 1982
he served as chief executive officer of National Steel Corporation and from
1965 to 1981 he was also chairman of the board of directors. From 1981 to
1985 he was of counsel to the law firm of Thorp Reed & Armstrong in
Washington, D.C. Mr. Stinson presently serves on the board of directors of
Birmingham Steel Corporation, a steel production company and Globe Building
Materials, Inc., a company which manufacturers shingles and roofing and, had
served, in the past five years, on the board of directors of M.A. Hanna
Company. Mr. Stinson was a practicing attorney from 1939 until 1961.
JACOB POLLOCK has served as a director of the Company since April 1993. He
has also served as a director of Spring since February 1990. From May 3, 1991
to the present Mr. Pollock has been chairman of the board of directors, chief
executive officer and treasurer of Ravens Metal Products, Inc. From April 1989
to the present Mr. Pollock has been chairman of the board of directors and
president of J. Pollock & Co., a company which is principally engaged in the
sale of aluminum, private investment and consulting. From 1949 to 1989 Mr.
Pollock served as chief executive officer of Barmet Aluminum Corporation. He is
vice president of the Manufacturers Industrial Relations Association, a member
of its negotiating team, and trustee for its retirement fund. He has served on
the board of the Aluminum Association Inc. and is past chairman of its Recycling
Division. Mr. Pollock is a past president of the Midwestern Division of the
National Association of Recycling Industries (NARI), which was a precursor to
the present Institute of Scrap Recycling Industries. Mr. Pollock also serves as
a director of Summit Bank and several non-public companies including Globe
Building Materials, Inc.
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued by the
Company during the three years ended December 31, 1995, to its Chief Executive
Officer and to each executive officer of the Company whose aggregate
remuneration exceeded $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation
(a) (b) (c) (d) (e)
Name and Principal Other Annual
Position (1)______ Year Salary ($) Bonus ($) Compensation ($)
<S> <C> <C> <C> <C>
C. Stephen Clegg 1995 * * $153,500(1)
Chairman & CEO 1994 * * $150,000(1)
1993 * * $150,000(1)
Kenneth E. Scipta 1995 $150,000 $ 50,000 * (2)
President 1994 $150,000 $ 48,139 *
1993 $144,328 $ 50,075 *
Robert L. Chase 1994 $112,478 * *
Vice President 1993 * * *
1992 * * *
Richard N. Codos 1994 $126,850 * *
Vice President 1993 $125,000 $ 9,523 *
1992 $107,186 * *
Samuel O. Lowry 1995 $115,000 $15,000 *
Vice President 1994 $115,000 15,000 *
1993 $ 91,035 9,500 *
_______________________________________________________________________
(1) Mr. Clegg receives no compensation from the Company and is not expected to receive compensation from the Company in the
foreseeable future other than pursuant to attendance at meetings of the Company's board of directors and pursuant to participation
in future executive stock option and bonus plans, if any. Clegg Industries Inc., a corporation in which Mr. Clegg is the chief
executive officer and controlling shareholder receives annual management fees from Spring of $150,000 plus reimbursement of
expenses incurred by Clegg Industries Inc. in performing its duties under the management agreement between Spring and Clegg
Industries Inc. (see "Certain Relationships and Related Transactions"). Clegg Industries can increase its management fees by no
more than 5% in each consecutive year after 1994. Mr. Clegg receives no other compensation, directly or indirectly from Spring
or the Company.
(2) Mr. Scipta resigned as president of the Company effective January 1, 1996 to assume the duties of president of the Special
Products Division of Mid-West Spring. This division includes catalog sales, die springs, Kenlock Clamps (patented new product)
and the development of international sales.
</TABLE>
OPTIONS/SAR GRANTS
The Company did not grant any stock options or freestanding stock
appreciation rights ("SARs") during 1995. The Company will not grant stock
options in the future with an exercise price of less than the fair market value
of the stock on the date of the grant.
AGGREGATE OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE
There were no exercises of stock options or freestanding SARs by the chief
executive officer or any named executive officer of the Company during 1993.
However, in February 1994, William V. Codos exercised all of his options for
the purchase of 10,000 shares of Common Stock at an exercise price of $.50 per
share. On the date of exercise the closing bid price was $1 per share and the
net realized gain $5,000.
LONG TERM INCENTIVE PLAN AWARDS
The Company does not have any Long Term Incentive Plans. Accordingly, the
Company did not make any long-term incentive plan awards during the 1995.
REPORT ON REPRICING OF OPTIONS/SARS
The Company did not, in 1995, adjust or amend the exercise price of any
stock options or SARs.
PENSION PLANS
The Company does not presently provide any of its officers or directors
with pension plans.
COMPENSATION OF DIRECTORS
The directors of the Company, excluding those who are either employees or
consultants of the Company, are paid a fee of $500 for each meeting of the board
of directors or committees thereof which they attend. All directors are
reimbursed for reasonable expenses incurred by them in connection with their
attendance at board or committee meetings. No other compensation is paid to the
Company's directors for their serving as such.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of February 28, 1996 with
respect to the share ownership of the Company's Common Stock by its officers and
directors, both individually and as a group, and by the record and/or beneficial
owners of more than 10% of the outstanding amount of such stock. Unless
otherwise noted each person named has sole voting and investment power with
respect to the shares noted.
<TABLE>
<CAPTION>
Beneficial Ownership
Percent of
Name and Address Number of Shares Class (5)
<S> <C> <C>
C. Stephen Clegg
500 N. Western Ave
Suite 212
Lake Forest, IL 60045 4,598,225(1) 50.0%
William V. Codos
17 Camptown Road
Irvington, NJ 07111 505,816(2) 5.4%
Kenneth Scipta
1404 Joliet Rd.-Suite C
Romeoville, IL 60441 336,050(3) 3.6%
Richard N. Codos
17 Camptown Road
Irvington, NJ 07111 211,250 2.3%
George Stinson
1404 Joliet Rd.-Suite C
Romeoville, IL 60441 152,295(4) 1.6%
Jacob Pollock
1404 Joliet Rd.-Suite C
Romeoville, IL 60441 125,125(5) 1.3%
All officers and
directors as a group
(8 persons) 6,128,761 65.3%
(1) Of these shares, 2,979,605 are owned directly by Mr. Clegg and 1,618,620 are
owned by others. Pursuant to a 5 year voting agreement which commenced August
29, 1991, the shares owned by others must be voted in accordance with the
direction of Mr. Clegg. The voting agreement further provides that any
additional shares acquired will be included under the agreement. Mr. Clegg has
the right of first refusal to purchase these shares and certain investors have
the right to terminate the voting agreement upon 180 days notice, and all
investors after two years, owning more than 10% of the outstanding stock of the
Company, can terminate the voting agreement upon 180 days notice. This amount
does not include up to 30,758 shares which may be issued to others under
operational voting agreements upon the exercise of 30,758 Class C Common Stock
Purchase Warrants.
(2) This amount includes 38,316 shares of Common Stock owned by Mr. Codos,
351,250 shares of Common Stock owned by Sonia Codos, the wife of Mr. Codos and
116,250 shares of Common Stock owned by Elaine Kranich, the daughter of Mr.
Codos, as to all of which shares Mr. Codos has investment and voting power.
(3) This amount does not include up to 9,568 shares of Common Stock which may be
issued to Mr. Scipta upon his exercise of up to 9,568 Class C Common Stock
Purchase Warrants.
(4) This amount does not include up to 15,561 shares of Common Stock which may
be issued to Mr. Stinson upon his exercise of up to 15,561 Class C Common Stock
Purchase Warrants.
(5) This amount does not include up to 10,338 shares of Common Stock which may
be issued to Mr. Pollock upon his exercise of up to 10,338 Class C Common Stock
Purchase Warrants.
(6) This percentage is based upon 9,314,139 shares of Common Stock being issued
and outstanding as of February 28, 1995. This percentage does not include shares
of Common Stock which may be issued upon exercise of the Company's outstanding
Class A, Class C and Class D Common Stock Purchase Warrants.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 8, 1993 a closing was held regarding an August 28, 1992 agreement
among the Company, Mid-West Spring and the Common Shareholders of Mid-West
Spring pursuant to which the Company acquired all of the issued and outstanding
common stock of Mid-West Spring in exchange for 7,150,000 shares of the Company
Common Stock (see "The Company - Acquisition of Mid-West Spring"). Following
such exchange, Mid-West Spring became a wholly owned subsidiary of the Company
and Mid-West Spring's former common shareholders owned approximately 74.5% of
the Company issued and outstanding Common Stock. Prior to the closing of and
completion of the share exchange, C. Stephen Clegg, then an officer and director
of Mid-West Spring and a director of the Company, controlled through direct
ownership and voting agreements approximately 51% of the issued and outstanding
voting common stock of Mid-West Spring and controlled through direct ownership
and voting agreements approximately 40.9% of the issued and outstanding Common
Stock of the Company (all of which shares were voting). Consequently, following
the exchange, and as at February 28, 1995, Mr. Clegg controlled approximately
50.0% of the issued and outstanding voting Common Stock of the Company.
In June 1989, Mid-West Spring entered into a management agreement with
Clegg Industries Inc. ("CI"), a corporation in which C. Stephen Clegg is the
chief executive officer and controlling shareholder, which provides for the
payment of annual management fees to CI of $150,000 payable in quarterly
installments plus reimbursement of expenses incurred by CI in performing its
duties under the management agreement. In connection with the management
agreement CI provides advisory and consulting services to Mid-West Spring. The
term of the management agreement is indefinite but will terminate at such time
that neither CI nor any of its affiliates have an equity interest in Mid-West
Spring. In the event additional businesses are acquired by Mid-West Spring, the
management fee may be increased to compensate CI for its additional obligations.
However, pursuant to the Senior Notes agreement, management fees paid to CI
cannot exceed $150,000 plus 5% in each succeeding year after 1994.
C. Stephen Clegg, chairman and CEO of the Company, Ken Scipta, president of
Mid-West Spring and a director of the Company and Leo Wysocki, the former
president and director of Mid-West Spring, are shareholders of Spring Systems
Inc. ("SSI"), a corporation engaged in the sale and distribution of third party
spring coiling machinery and ancillary spring manufacturing and metal forming
equipment and tools. From time to time these individuals offer advice and
provide consulting services to SSI regarding the spring business and general
business matters. In 1993 and in 1995, Mid-West Spring purchased $120,000 and
$78,000, respectively, of equipment at dealer cost, as a result of SSI's
relationships with machinery manufacturers. Mr. Clegg is also a shareholder of
H.I., Inc. which provides catalog and market research support for the Company.
William V. Codos is employed by Pathe (a division) on a month-to-month
basis to provide consulting services related to technical efforts and new
business development. Prior to 1994, Mr. Codos was employed pursuant to a
consulting agreement which provided for an annual consulting fee of up to
$46,000. The agreement was renewed every year since its inception on July 17,
1989 and was terminated on December 31, 1993. The consulting agreement provided
for among other things, reimbursement of business related expenses, the
ownership by the Company of all inventions and technology in the field of the
Company's business developed by Mr. Codos during the term of the agreement (of
which there have been none to date), the non-disclosure by Mr. Codos of
technological and business information which the Company deems to be secret and
confidential to it, and for non-competition by Mr. Codos with the Company for a
three year period following termination of the agreement. In February 1994, Mr.
Codos purchased 10,000 shares of Common Stock at $.50 per share pursuant to the
exercise of all 10,000 stock option shares. The closing bid price at date of
exercise was $1 per share. Also, in February 1994, Mr. Codos received 28,316
shares of Common Stock in lieu of cash payment for outstanding amounts owed Mr.
Codos pursuant to his consulting agreement. In addition, in 1995 and 1994 Mr.
Codos received $47,041 and $7,760, respectively, for consulting fees related to
work with McDonnell Douglas.
Kenneth E. Scipta was employed by the Company pursuant to an employment and
non-competition agreement, dated May 14, 1993, which provides, among other
things, for: 1) an annual salary of $150,000; 2) an annual bonus to be
determined by the Board of Directors of not less than $50,000; 3) deferred
incentive compensation for each year of service of the lesser of $100,000 or 5%
of operating cash flow, as defined, and 4) reimbursement of related business
expenses. The employment and non-competition agreement expire June 21, 1996.
Mr. Scipta resigned as president of the Company effective January 1, 1996 to
assume the duties of president of the Special Products Division of Mid-West
Spring. This division includes catalog sales, die springs, Kenlock Clamps
(patented new product) and the development of international sales.
Richard N. Codos is employed by Pathe pursuant to a three year employment
and non-competition agreement which provides for annual compensation of $125,000
and runs through July 17, 1997. The employment agreement is renewable on a year
to year basis, thereafter, and provides for, among other things, reimbursement
of business related expenses, the ownership by the Company of all inventions and
technology in the field of the Company's business developed by the employee
during the term of the agreement (of which there have been none to date), the
non-disclosure by the employee of technological and business information which
the Company deems to be secret and confidential to it. No other officers of
Pathe have written employment agreements.
All transactions in 1995 between the Company and any affiliate are on terms
at least as favorable as could be obtained from unaffiliated independent third
parties and have been approved by a majority of the Company's independent,
disinterested directors.
The Company has obtained or commenced application for inventions or
technology that are currently used in the business or reasonably expected to be
used in the business. Further, it is unaware of any other invention or
technology used in the business that would be subject to protection pursuant to
any employment agreements or non-competition/non-disclosure agreements entered
into in the normal course of business.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial Statements
(a)(1) The following financial statements filed as part of this report are
included in Item 8.:
THE COMPANY:
A. Report of Independent Auditors
B. Consolidated Financial Statements
a. Balance Sheets --
As at December 31, 1995 and 1994
b. Statements of Operations --
For the years ended December 31, 1995, 1994 and 1993.
c. Statements of Changes in Common Stockholders' Equity --
For the years ended December 31, 1995, 1994 and 1993.
d. Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993.
C. Notes to Consolidated Financial Statements
(a)(2) The following consolidated financial statement schedules of the Company
included in this report on pages 58 and 59 as filed herewith as part hereof:
Schedule I - Condensed Financial Information of Registrant
Schedules other than those listed are omitted because they are not required or
are not applicable, or the required information is included in the financial
statements or notes thereto.
EXHIBITS
The following exhibits are filed herewith or incorporated by reference as
part of this report:
Exhibit No. as filed
with registration
statement or report
specified below
2(a) Stock Exchange Agreement (the "Agreement"),
dated as of August 28, 1992, among Pathe
Technologies Inc., Mid-West Spring
Manufacturing Company and the common
shareholders of Mid-West Spring Manufac-
turing Company (1)
(b) First Addendum to the Agreement, dated
October 28, 1992 (1)
3(a) Certificate of Incorporation, as amended
on July 20, 1992 (2)
(b) By-Laws (3)
4(a) Specimen Common Stock Certificate (3)
(b) Form of Class B Common Stock Purchase
Warrant (5)
(c) Class C Common Stock Purchase Warrant(5)
(d) Warrant Agreement, dated as of March 8, 1993,
between Pathe Technologies Inc. and
Continental Stock Transfer & Trust Company(5)
(e) Certificate of Designation, filed March 8, 1993(5)
(f) Third Amended Restate Secured Credit Agreement,
dated as of December 23, 1994 between the Company
and American National Bank and Trust Company of
Chicago
(g) Note and Share Purchase Agreement, dated December
23, 1994, between the Company and JHMLCO (6)
(h) Waiver and amendment agreement, Note and Share Purchase
Agreement, dated Decemnber 23, 1994, between the Company
and JHMLCO (6)
(i) First Amemdment and Waiver to Third Amended and Restated
Secured Credit Agreement, dated June 30, 1995 between the
Company and American ank and Trust Company of Chicago (7)
(j) Second Amendment, Waiver and Forbearance to Third Amended
and Restated Secured Credit Agreement, dated May 16, 1996
between the Company and American Bank and Trust Company of
Chicago (7)
(k) Waiver Agreement, dated May 16, 1996 between the Company
and HMLCO (7)
9(a) Voting Trust Agreement, dated as of August 29,
1991 between C. Stephen Clegg and John M.
McMahon, Richard G. Reece, Jaime Sohacheski,
Nathan Bernstein and Raggio Di Sole
International S.A.H. Luxembourg(5)
10(a) Employment Agreement, dated March 21, 1987,
between the Company and Richard N. Codos (3)
(b) Consultant Agreement, dated February 25, 1987,
between the Company and William V. Codos (3)
(c) Lease Agreement, dated June 20, 1984, between
the Company and Olympic Industrial Park (3)
(d) Incentive Stock Option Plan (3)
(e) Consultant Agreement, dated December 1, 1991,
between the Company and Janet T. Codos (4)
(f) Management Agreement, made as of June 21, 1989,
between Clegg Industries Inc. and Mid-West
Spring Manufacturing Company(5)
(g) Employment and Non-Competition agreement, dated
May 14, 1993, between the Company and Kenneth
E. Scipta (6)
(h) Employment and Non-Competition agreement, dated
May 30, 1994, between the Company and Richard
N. Codos (6)
21(a) Mid-West Spring and Stamping Corp. is the only
Subsidiary of Registrant
27 Financial Data Schedule(7)
(1) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to Form 8-K of the Company dated November 4, 1992, which
exhibit is incorporated herein by reference.
(2) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to Form 8-K of the Company, dated July 20, 1992 which
exhibit is incorporated herein by reference.
(3) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of the Company on Form S-18,
File No. 33-12629-NY, which exhibit is incorporated herein by reference.
(4) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to Form 10-K of the Company for the year ended October 31,
1991, which exhibit is incorporated herein by reference.
(5) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the registration statement of the Company on Form S-1,
File No. 33-68848, which exhibit is incorporated herein by reference.
(6) Filed with the Securities and Exchange Commission as an exhibit, numbered
as indicated above, to the Form 10-K of the Company for the year ended
December 31, 1994, which exhibit is incorporated herein by reference.
(7) Filed herewith.
MID-WEST SPRING MANUFACTURING, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MID-WEST SPRING MANUFACTURING, INC.
Date:
May 3, 1996 BY /s/ C. Stephen Clegg
C. Stephen Clegg, Chairman, Board
of Directors and Chief Executive
Officer
/s/ Michael B. Curran 5/3/96 Chief Financial Officer
Michael B. Curran Date
/s/ Kenneth Scipta 5/3/96 Director, President
Kenneth Scipta Date
/s/ Richard N. Codos 5/3/96 Director, Vice President
Richard N. Codos Date
/s/ William V. Codos 5/3/96 Director
William V. Codos Date
/s/ Jacob Pollock 5/3/96 Director
Jacob Pollock Date
/S/ George Stinson 5/3/96 Director
George Stinson Date
SCHEDULE I
<TABLE>
MID-WEST SPRING MANUFACTURING INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
<CAPTION>
CONDENSED BALANCE SHEETS AT DECEMBER 31,
1995 1994
<S>
Assets <C> <C>
Current assets
Cash $ 6,000 $ 78,000
Trade accounts receivable 274,000 264,000
Inventories 1,400,000 1,036,000
Prepaid expenses and other 21,000 162,000
Total current assets 1,701,000 1,540,000
Property, plant and equipment, Net 123,000 103,000
Deferred Income Taxes 143,000 344,000
Other 151,000 --
Investment in Mid-West Spring 324,000 1,805,000
11.75% Note Receivable from Mid-West Spring
(Due 2002, 2003, and 2004) 27,250,000 27,250,000
Total assets $29,692,000 $31,042,000
Liabilities and stockholders' equity
Current liabilities
Cash Overdraft $ 23,000 $ --
Due to Mid-West Spring 240,000 535,000
Accounts payable 298,000 161,000
Accrued payroll and other expenses 41,000 71,000
Total current liabilities 602,000 767,000
Long Term Debt 26,468,000 26,437,000
Stockholders' Equity:
Paid-in capital 6,559,000 6,559,000
Retained earnings deficit (3,038,000) (1,842,000)
Treasury Stock, at cost ( 899,000) ( 879,000)
Total stockholders' equity 2,622,000 3,838,000
Total liabilities and stockholders' equity $29,692,000 $31,042,000
CONDENSED STATEMENTS OF OPERATIONS
Year Ended Year Ended
December 31, December 31,
1995 1994
Net sales (including sales to Mid-West
Spring of $ 150,000 and $636,000,
respectively) $ 1,710,000 $ 1,649,000
Costs and expenses
Cost of Sales 1,182,000 1,114,000
Selling and administrative expenses 173,000 376,000
1,355,000 1,490,000
Interest expense ( 30,000) ( 67,000)
Interest income from Mid-West Spring 161,000 95,000
Net interest income 131,000 28,000
Income before equity in net (loss)
income of Mid-West Spring and
income tax benefit 486,000 187,000
Equity in net (loss) income of Mid-West ( 1,481,000) 827,000
Spring
Income tax benefit ( 201,000) ( 108,000)
Net (loss) income ( 1,196,000) 906,000
Preferred stock of Mid-West Spring
dividend (requirement) benefit ( 229,000) 942,000
(Loss) Income attributable to common $(1,425,000) $ 1,848,000
shares
CONDENSED STATEMENT OF CASH FLOWS
Net cash (used in) provided by operating
activities during the year $ ( 73,000) $ 400,000
Proceeds from long-term debt - Financing 26,437,000
Purchase of Equipment (33,000)
Issuance of Warrants re refinancing - --
Financing -- 563,000
Proceeds from sale of Common 505,000
Stock-Financing
Purchase of Common Stock - Financing ( 20,000) ( 879,000)
Cash of Company acquired by Mid-West
Spring in reverse purchase - Investing -- --
Proceeds lent to Mid-West Spring - (27,000,000)
Investing 54,000
Other financing activities
(Decrease) Increase in cash $ ( 72,000) $ 26,000
Note - Basis of Presentation
In the parent company-only financial statements, the Company's investment in
Mid-West Spring and Stamping is stated at equity in net assets of Mid-West
Spring. The Company's share of income of Mid-West Spring and Stamping is
included in parent company - only operating results using the equity method. The
equity in net income of Mid-west Spring and Stamping is for the year ended
December 31, 1995 and 1994.
Parent company-only financial statements should be read in conjunction with the
Company's consolidated financial statements.
</TABLE>
FIRST AMENDMENT AND WAIVER TO
THIRD AMENDED AND RESTATED SECURED CREDIT AGREEMENT
This First Amendment and Waiver to Third Amended and Restated Secured
Credit Agreement, dated as of June 30, 1995 (this "Amendment"), is by and
between Mid-West Spring Manufacturing Company, a Delaware corporation (the
"Company") and American National Bank and Trust Company of Chicago, a national
banking association (the "Bank"). Capitalized terms used herein and not
otherwise defined have the meanings assigned to such terms in the Credit
Agreement (as defined below).
WITNESSETH:
WHEREAS, the Company and the Bank are parties to the Third Amended and
Restated Secured Credit Agreement dated as of December 23, 1994 (as such
agreement may be amended, modified, restated or supplemented from time to time,
the "Credit Agreement");
WHEREAS, the Bank has extended credit under the Credit Agreement
evidenced by the Sixth Amended and Restated Revolving Note made by the company
in favor of the Bank in the principal amount of $5,000,000 (the "Existing
Note");
WHEREAS, the Company and the Bank desire to amend and restate the
Existing Note to extend the maturity date thereof; and
WHEREAS, the Company and the Bank desire to amend the Credit Agreement
to, among other things, (i) reflect the amendment to the Existing Note and (ii)
waive compliance with certain covenants;
NOW, THEREFORE, in consideration of the foregoing recitals, the
actions contemplated therein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. AMENDMENT TO CREDIT AGREEMENT
On the date this Amendment becomes effective, after satisfaction by
the Company of each of the conditions set forth in Section 5 hereof (the
"Closing date"), Section 1.1 of the Credit Agreement will be amended by amending
and restating the definition of "Revolving Credit Termination Date" set forth
therein in its entirety as follows:
Revolving Credit Termination Date means the earlier of (i)
June 30, 1996 and (ii) such other date on which the Revolving Credit
Commitment shall terminate pursuant to Section 10.2.
SECTION 2. AMENDMENT TO EXISTING NOTE AND EXHIBITS
On the Closing Date, the Existing Note will be amended, restated and
replaced in its entirety by the Seventh Amended and Restated Revolving Note
executed by the Company in favor of the Bank substantially in the form of
Exhibit 1 hereto (the "Amended Note") and Exhibit A to the Credit Agreement will
be replaced by Exhibit 1 hereto. Upon receipt of the executed Amended Note, the
Bank shall mark the Existing Note "superseded" and return it to the Company.
SECTION 3. WAIVER
The Bank hereby waives any Event of Default under Section 10.1(d) of
the Credit Agreement due to the Company's noncompliance with the covenant set
forth in Section 7.28 of the Credit Agreement for the fiscal quarter ended
March 31, 1995.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to extend future
credit under the Credit Agreement, as amended hereby, the Company represents and
warrants to the Bank that:
4.1 Due Authorization, Etc. The execution, delivery and performance
by the Company of this Amendment and the Amended Note are within its corporate
powers, have been duly authorized by all necessary corporate action, have
received all necessary governmental, regulatory or other approvals (if any shall
be required), and do not and will not contravene or conflict with any provision
of (a) any law, (b) any judgment, decree or order, or (c) the Company's
Certificate of Incorporation or By-Laws, and do not and will not contravene or
conflict with, or cause any lien to arise under any provision of any agreement
or instrument binding upon the company or upon any property of the Company.
This Amendment, the Credit Agreement, as amended by this Amendment, and the
Amended Note are the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
4.2 No Default, Etc. As of the date hereof, (a) except as set forth
in Section 3 hereof, no Event of Default or Unmatured Event of Default under the
Credit Agreement, as amended hereby, has occurred and is continuing or will
result from the amendments set forth herein, and (b) the representations and
warranties of the Company contained in the Credit Agreement are true and correct
as of the date hereof.
4.3 Litigation. As of the date hereof, except as previously
disclosed by the Company to the Bank in writing, no claims, litigation
(including, without limitation, derivative actions), arbitration proceedings,
governmental investigations or proceedings or regulatory proceedings are
pending, or to the knowledge of the Company, threatened against the Company, nor
does the Company know of any basis for the foregoing. In addition, there are no
inquiries, formal or informal, which might give rise to such actions,
proceedings or investigations.
SECTION 5. CONDITIONS TO EFFECTIVENESS
The obligation of the Bank to make the amendments contemplated by this
Amendment and the effectiveness thereof, are subject to the following:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in this Amendment shall be true and correct
as of the date hereof and as of the date of the effectiveness of this Amendment.
5.2 Documents. The Bank shall have received all of the following,
each duly executed and dated as of the date hereof (or such other date as shall
be satisfactory to the Bank) in form and substance satisfactory to the Bank:
(a) First Amendment. This Amendment;
(b) Amended Note. The Amended Note executed by the Company
substantially in the form of Exhibit A attached hereto;
(c) Secretary's Certificate. A certificate of the Secretary of
the Company as to (i) incumbency of officers, authorizing or ratifying
the execution, delivery and performance of this Amendment and the
Amended Note and (iii) no amendments or modifications to the Company's
Articles of Incorporation or By-Laws since March 16, 1994.
(d) Consents, Etc. Certified copies of all documents evidencing
any necessary corporate action, consents and governmental approvals,
if any, with respect to this Amendment and the Amended Note, or any
other document provided for hereunder;
(e) Opinion of Counsel. The opinion of counsel for the Company,
addressed to the Bank in form and substance satisfactory to the Bank
and its counsel; and
(f) Other. Such other documents as the Bank may reasonably
request.
SECTION 6. MISCELLANEOUS
6.1 Captions. The recitals to this Amendment (except for
definitions) and the section captions used in this Amendment are for convenience
only, and shall not affect the construction of this Amendment.
6.2 Governing Law; Severability. THIS AMENDMENT SHALL BE A CONTRACT
MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES. Wherever possible, each provision of this
Amendment shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
6.3 Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Amendment.
6.4 Successors and Assigns. This Amendment shall be binding upon the
Company and the Bank and their respective successors and assigns, and shall
inure to the sole benefit of the Company and the Bank and their successors and
assigns. The Company shall have no right to assign its rights or delegate its
duties under this Amendment.
6.5 References. From and after the date hereof, each reference in
the Credit Agreement or the Revolving Note to "this Agreement," "this Note,"
"hereunder," "hereof," "herein," or words of like import, and each reference in
the Credit Agreement or the Revolving Note to the Credit Agreement, the
Revolving Note or to any term, condition or provision contained "thereunder,"
"thereof," "therein," or words of like import, shall mean and be a reference to
the Credit Agreement or the Revolving Note, as applicable (or such term,
condition or provision, as applicable) as amended, supplemented or otherwise
modified by this Amendment or the Amended Note, as applicable.
6.6 Continued Effectiveness. Notwithstanding anything contained
herein, the terms of this Amendment are not intended to and do not serve to
effect a novation as to the Credit Agreement or the Revolving Note. The parties
hereto expressly do not intend to extinguish the Credit Agreement or the
Revolving Note. Instead, it is the express intention of the parties hereto to
reaffirm the indebtedness created under the Credit Agreement, which is evidenced
by the Revolving Note. The Credit Agreement, as amended hereby, and the
Existing Note, as amended and restated by the Amended Note, remain in full force
and effect.
6.7 Costs, Expenses and Taxes. The Company affirms and acknowledges
that Section 11.5 of the Credit Agreement applies to this Amendment and the
transactions and agreements and documents contemplated hereunder.
Delivered at Chicago, Illinois, as of the day and year first above
written.
MID-WEST SPRING MANUFACTURING COMPANY
By: /s/ C. Stephen Clegg
Name: C. Stephen Clegg
Title: Chairman and
Executive Officer
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
By: /s/ John W. Patterson
Name:
Title: 2VP
EXHIBIT 1
FORM OF AMENDED NOTE
[Attached]
SEVENTH AMENDED AND RESTATED REVOLVING NOTE
$5,000,000 Chicago, Illinois
June 30, 1995
On or before June 30, 1996 (or, if such day is not a Business Day, on
the next following Business Day), the undersigned, for value received, promises
to pay to the order of American National Bank and Trust Company of Chicago
(herein, together with its successors and assigns, called the "Bank") at the
Bank's principal office in Chicago, Illinois, FIVE MILLION AND 00/100 DOLLARS
($5,000,000) or, if less, the aggregate unpaid principal amount of all Revolving
Loans made by the Bank to the undersigned pursuant to that certain Third Amended
and Restated Secured Credit Agreement, dated as of December 23, 1994 (as the
same may be amended, modified or supplemented form time to time, the "Credit
Agreement"), between the undersigned and the Bank, as shown either on the
schedule attached hereto (and any continuation thereto) or in the Bank's
records.
The undersigned further promises to pay interest on the unpaid
principal amount hereof from time to time outstanding at such rates and at such
times as are provided in the Credit Agreement.
Payments of both principal and interest are to be made in the lawful
money of the Unites States of America.
This Seventh Amended and Restated Revolving Note (the "Note")
evidences indebtedness incurred under, and is subject to the terms and
provisions of, the Credit Agreement. The Credit Agreement, to which reference
is hereby made, sets forth said terms and provisions, including those under
which this Note may or must be paid prior to its due date or may have its due
date accelerated. Capitalized terms used herein and not otherwise defined have
the meanings assigned such terms in the Credit Agreement. This Note is secured
pursuant to the Credit Agreement and the various Collateral Documents referred
to therein, and reference is made thereto for a statement of terms and
provisions.
This Note amends and restates that certain Sixth Amended and Restated
Revolving Note dated December 23, 1994 (the "Existing Note"), in the maximum
principal amount of $5,000,000 executed by the undersigned payable to the order
of the Bank on or before June 30, 1995, pursuant to the Credit Agreement between
the undersigned and the Bank. Execution and delivery of this Note and any
document executed pursuant thereto are not intended and should not be construed
(i) to deem to have repaid or otherwise discharged any amount of principal of or
interest on the Existing Note, (ii) to effect a novation or otherwise to release
the obligation f the undersigned under or extinguish the debt evidenced by the
Existing Note, or (iii) to release, cancel terminate or otherwise impair the
status or priority of all or any part of any liens or security interests granted
to the Bank (or any person acting for the benefit of the Bank) as collateral
security for the obligations of the undersigned under or in connection with the
Existing Note.
In addition to, and not in limitation f, the foregoing and the
provisions of the Credit Agreement hereinabove referred to, the undersigned
further agrees, subject only to any limitation impose by applicable law, to pay
all expenses, including reasonably attorneys' fees and expenses, incurred by the
holder of this Note in seeking to collect any amounts payable hereunder which
are not paid when due, whether by acceleration or otherwise.
This Note is binding upon the undersigned and its successors and
assigns, and shall inure to the benefit of the Bank and its successors and
assigns. THIS NOTE IS MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF ILLINOIS.
MID-WEST SPRING MANUFACTURING
COMPANY
By:__________________________
Name:
Title:
Address:
8 Greenwood Avenue
Romeoville, Illinois 60441
Schedule Attached to Seventh Amended and Restated Revolving Note dated as of
June 30, 1995 of Mid-West Spring Manufacturing Company payable to the order of
American National Bank and Trust Company of Chicago.
LOANS AND PRINCIPAL PAYMENTS
Amount of Unpaid
Amount of Principal Principal Notation
Date Loan Made Repaid Balance Made by
EXHIBIT 4(j)
SECOND AMENDMENT, WAIVER AND FORBEARANCE TO
THIRD AMENDED AND RESTATED SECURED CREDIT AGREEMENT
This Second Amendment, Waiver and Forbearance to Third Amended and Restated
Secured Credit Agreement, made as of May __, 1996 (this "Amendment"), is by and
between Mid-West Spring Manufacturing Company (the "Company") and American
National Bank and Trust Company of Chicago (the "Bank"). Capitalized terms used
in this Amendment and not otherwise defined have the meanings assigned to such
terms in the Loan Agreement (as defined below).
WITNESSETH:
WHEREAS, the Company and the Bank are parties to the Third Amended and
Restated Secured Credit Agreement dated as of December 23, 1994 (as such
agreement may be amended, modified, restated or supplemented from time to time,
the "Credit Agreement");
WHEREAS, the Company has requested that the Bank waive certain Events of
Default due to the Company's noncompliance with certain covenants contained in
the Credit Agreement;
WHEREAS, the Company and the Bank desire to amend the Credit Agreement to,
among other things, amend certain financial covenants as of March 31, 1996 (the
"Effective Date"), on the terms and subject to the conditions of this Amendment;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained in this Amendment, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the Company and the Bank
agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT
On the date this Amendment becomes effective, after completion by the
Company of the conditions set forth in Section 4 of this Amendment (the "Closing
Date"), as of the Effective Date, the Credit Agreement is amended as follows:
1.1 Section 7.7 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
7.7 Tangible Net Worth. Not permit the Tangible Net Worth to be, at
any time, less than ($8,000,000).
1.2 Section 7.8 of the Credit Agreement is amended by deleting the first
sentence of such section in its entirety and replacing it as follows:
Not permit Total Indebtedness to exceed $41,000,000 at any time.
1.3 Section 7.10 of the Credit Agreement is amended by deleting the first
sentence of such section in its entirety and replacing it as follows:
Not permit the Company's Working Capital to be less than $3,500,000 at
any time.
1.4 Section 7.11 of the Credit Agreement is amended by deleting the first
sentence of such section in its entirety and replacing it as follows:
Not permit the Company's Current Ratio to be, at any time, to be less
than 1.4 to 1.
1.5 Section 7.19 of the Credit Agreement is amended by deleting the such
section in its entirety and replacing it as follows:
7.19 Capital Expenditures. Not expend in any fiscal year an amount
for capital expenditures in excess of $1,500,000.
1.6 Section 7.28 of the Credit Agreement is amended by deleting the such
section in its entirety and replacing it as follows:
7.28 Cash Flow Coverage Ratio. Not permit the ratio of (x) Cash Flow
to (y) the sum of all principal payments, tax payments, interest payments
and payments made with respect to Capitalized Lease Obligations as set
forth in the Company's financial statements for such period that the
Company shall deliver pursuant to Sections 7.1(a) or 7.1(b) (the "Cash Flow
Coverage Ratio") to be, as of the end of any month, less than 1.0 to 1.
SECTION 2. WAIVER AND CONSENT
(A) On the Closing Date, the Bank waives any Event of Default under
Section 10.1(d) of the Credit Agreement due to the Company's noncompliance as of
December 31, 1995, with the financial covenants set forth in Sections 7.7, 7.8,
7.10, 7.11, 7.19 and 7.28 of the Credit Agreement. On the Closing Date, the
Bank waives any Event of Default under Section 10.1(e) of the Credit Agreement
due to the Company's non-compliance with Section 7.1(a) of the Credit Agreement
for the fiscal year ending December 31, 1995; provided, however, that the
Company complies with Section 7.1(a) of the Credit Agreement within 15 days of
the Closing Date. The Bank agrees that any one-time expenses associated with
the shut down of the Advance Pressure Castings plant will be exempt from the
calculation of the financial covenant set forth in Section 7.28 of the Credit
Agreement.
(B) The Company has notified the Bank of events which may constitute an
Event of Default under Section 10.1(e) of the Credit Agreement due to the
Company's noncompliance with Section 7.21 of the Credit Agreement. The Bank
agrees that as of the Closing Date, it will not exercise any of its remedies
under the Credit Agreement, the Collateral Documents or the Related Documents
with respect to Events of Default under such sections prior to June 30, 1996.
(C) Nothing in this Agreement should in any way be deemed a (i) waiver of
any other Event of Default under the Credit Agreement or (ii) an agreement to
forbear from exercising any remedies with respect to any such other Event of
Default.
SECTION 3. REPRESENTATION AND WARRANTIES
To induce the Bank to enter into this Amendment and to extend future credit
under the Credit Agreement, as amended by this Amendment, the Company represents
and warrants to the Bank that:
3.1 Due Authorization; No Conflict; No Lien; Enforceable Obligation. The
execution, delivery and performance by the Company of this Amendment are within
its corporate powers, have been duly authorized by all necessary corporate
action, have received all necessary governmental, regulatory or other approvals
(if any are required), and do not and will not contravene or conflict with any
provision of (i) any law, (ii) any judgment, decree or order, or (iii) the
Company's articles or certificate of incorporation or by-laws, and do not and
will not contravene or conflict with, or cause any lien to arise under any
provision of any agreement or instrument binding upon the Company or upon any of
its property. This Amendment and the Credit Agreement, as amended by this
Amendment, are the legal, valid and binding obligations the Company, enforceable
against the Company in accordance with their respective terms.
3.2 No Default; Representations and Warranties. As of the Closing Date,
except as set forth in Section 2 of this Amendment, (a) no Event of Default or
Unmatured Event of Default under the Credit Agreement, as amended by this
Amendment, has occurred and is continuing or will result from the amendments set
forth in this Amendment, and (b) the representations and warranties of the
Company contained in the Credit Agreement are true and correct.
SECTION 4. CONDITIONS TO EFFECTIVENESS
The obligation of the Bank to make the amendments contemplated by this
Amendment and the effectiveness thereof, are subject to the following:
4.1 Representations and Warranties. The representations and warranties of
the Company contained in this Amendment are true and correct as of the Closing
Date.
4.2 Documents. The Bank has received all of the following, each duly
executed and dated as of the Closing Date (or such other date as is satisfactory
to the Bank) in form and substance satisfactory to the Bank:
(a) Second Amendment. This Amendment;
(b) Resolutions. Resolutions of the board of directors of the
Company authorizing or ratifying the execution, delivery and performance of
this Amendment;
(c) Consents, Etc. Certified copies of all documents evidencing any
necessary corporate action, consents and governmental approvals, if any,
with respect to this Amendment or any other document provided for under
this Amendment; and
(d) Other. Such other documents as the Bank may reasonably request.
SECTION 5. MISCELLANEOUS
5.1 Captions. The recitals to this Amendment (except for definitions) and
the section captions used in this Amendment are for convenience only, and do not
affect the construction of this Amendment.
5.2 Governing Law; Severability. THIS AMENDMENT IS A CONTRACT MADE UNDER
AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES. Wherever possible, each provision of this Amendment must be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Amendment is prohibited by or invalid under such
law, such provision is only ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Amendment.
5.3 Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart is deemed to be an original, but all such counterparts together
constitute but one and the same Amendment.
5.4 Successors and Assigns. This Amendment is binding upon the Company
and the Bank and their respective successors and assigns, and inures to the sole
benefit of the Company and the Bank and their successors and assigns. The
Company has no right to assign its rights or delegate its duties under this
Amendment.
5.5 References. From and after the Closing Date, each reference in the
Credit Agreement to "this Agreement," "hereunder," "hereof," "herein," or words
of like import, and each reference in any Collateral Document to the Credit
Agreement or to any term, condition or provision contained "thereunder,"
"thereof," "therein," or words of like import, mean and are a reference to the
Credit Agreement (or such term, condition or provision, as applicable) as
amended, supplemented or otherwise modified by this Amendment.
5.6 Continued Effectiveness. Notwithstanding anything contained in this
Amendment, the terms of this Amendment are not intended to and do not serve to
effect a novation as to the Credit Agreement. The parties to this Amendment
expressly do not intend to extinguish the Credit Agreement. Instead, it is the
express intention of the parties to this Amendment to reaffirm the indebtedness
created by and secured under the Credit Agreement. The Credit Agreement, as
amended by this Amendment, remains in full force and effect.
5.7 Costs, Expenses and Taxes. The Company affirms and acknowledges that
Section 11.5 of the Credit Agreement applies to this Amendment and the
transactions and agreements and documents contemplated under this Agreement.
Delivered at Chicago, Illinois, as of the day and year first above written.
MID-WEST SPRING MANUFACTURING COMPANY
By:__________________________________
Name:
Title:
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
By:__________________________________
Name:
Title:
EXHIBIT 4(k)
WAIVER AND AMENDMENT AGREEMENT
THIS WAIVER AGREEMENT is entered into May 16, 1996 between MID-WEST SPRING
MANUFACTURING COMPANY (formerly, Pathe Technologies Inc.) (the "Company") and
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY (the "Purchaser"). The Company and
the Purchaser are parties to a Note and Share Purchase Agreement dated as of
December 23, 1994 (the "Note Agreement") relating to the issuance and sale by
the Company of its 11.25% Senior Notes in the aggregate principal amount of
$20,000,000 due December 23, 2004 (the "Senior Notes"), 11.25% Senior
Subordinated Notes in the aggregate principal amount of $7,000,000 due December
23, 2004 (the "Senior Subordinated Notes") with Class A Warrants for 755.738
shares of common stock of the Company (the "Warranties") and 654,973 shares of
common stock of the Company (the "Shares"). As of the date of this Agreement,
the Purchaser is the holder of 100% of the outstanding principal amount of the
Senior Notes, the Senior Subordinated Notes, the Warrants, and the Shares. The
Company has advised the Purchaser that it is currently unable to meet certain of
the negative covenants contained in the Note Agreement. The Purchaser is
willing to waive, through December 31, 1996, compliance with those certain
negative covenants on the terms and conditions of this Agreement.
NOW, THEREFORE, the parties agree:
1. Defined Terms.
(i) Terms not otherwise defined below or elsewhere in this Agreement
have the meanings given therefor in the Note Agreement.
(ii) For the purposes of this Agreement, the term "Consolidated
EBITDA" means, for any period the amount of which is to be determined,
Consolidated Net Income for such period plus (but only to the extent such
amounts were deducted in the computation of Consolidated Net Income)
Interest Expense, income taxes (including deferred income taxes),
depreciation, and amortization of the Consolidated Group for such period as
determined in accordance with GAAP on a consolidated basis.
(iii) For the purposes of this Agreement, the term "Available Amount"
means $500,000 less the aggregate amount of any final judgment or judgments
for the payment of money (net of insurance proceeds, if any) rendered
against any member of the Consolidated Group from the Closing Date through
the date the Liability Amount (defined in Section 3, below) has been
finally determined.
(iv) For the purposes of this Agreement, the term "401k Plans" means
the Company's "Mid-West Spring 401(k) and Profit Sharing Plan" and the
Company's "Mid-West Spring 401(k) Plan".
2. Financial Covenant Waiver. Provided that the Company:
(i) ceases the conduct of the business conducted by the Company's
Advanced Pressure Castings division, and divests itself of all assets
acquired from Advanced Pressure Castings Corp., a New Jersey corporation
(the "APC Assets") on or before August 31, 1996;
(ii) does not permit Consolidated EBITDA (calculated for purposes of
this Agreement without reduction for expenses up to, but not in excess of
$400,000 incurred in the sale of the APC Assets and exclusive of any gains
resulting from the sale of the APC Assets) as of the last day of any fiscal
quarter ended after December 31, 1995 and through December 31, 1996 to be
less than the amount specified below for such fiscal quarter:
Fiscal Quarter ending March 31, 1996 $1,000,000
Fiscal Quarter ending June 30, 1996 $1,000,000
Fiscal Quarter ending September 30, 1996 $1,250,000
Fiscal Quarter ending December 31, 1996 $1,300,000
(iii) shall not incur and shall not permit any of its Subsidiaries to
incur Funded Debt or issue any Preferred Stock constituting Funded Debt
(whether or not otherwise permitted under the Note Agreement) during the
fiscal year ending December 31, 1996 in excess of $260,000 in the
aggregate, (excluding advances to the Company under the Secured Credit
Agreement dated December 9, 1994, as amended between the Company and
American National Bank and Trust Company of Chicago not exceeding at any
time $5,000,000 in the aggregate);
(iv) does not permit, as of the last day of any fiscal quarter ending
after December 31, 1995 and through the fiscal quarter ending December 31,
1996, the average of the ratios of Consolidated Cash Flow (calculated for
purposes of this subsection (iv) without reduction for expenses up to, but
not in excess of $400,000 incurred in the sale of the APC Assets and
exclusive of any gains resulting from the sale of the APC Assets) to Fixed
Charge Expenses for the 4 most recently ended fiscal quarters, taken as a
single accounting period, to be less than the ratio specified below for
such fiscal quarter:
Fiscal Quarter ending March 31, 1996 1.05 to 1.00
Fiscal Quarter ending June 30, 1996 1.00 to 1.00
Fiscal Quarter ending September 30, 1996 1.10 to 1.00
Fiscal Quarter ending December 31, 1996 1.40 to 1.00;
(v) does not, at any time through December 31, 1996, make or declare
any Restricted Payment (whether or not otherwise permitted under the Note
Agreement);
(vi) in addition to the interest required to be paid under the Notes,
pays Purchaser additional interest, on the aggregate principal amount
outstanding under the Notes, at the rate of 0.50% per annum for the period
beginning December 24, 1995 and ending December 23, 1996, which additional
interest shall be paid on June 23, 1996 and December 23, 1996, together
with payments of interest due under the Notes; and
(vii) does not permit Consolidated Tangible Net Worth as of the last
day of any fiscal quarter ended after December 31, 1995 through December
31, 1996 to be less than $1,500,000.
the Purchaser will waive compliance by the Company with its covenants in
paragraph 6A(1), 6A(3) and 6A(4) of the Note Agreement from September 30, 1995
through December 31, 1996 (the "Financial Covenants") and any Default or Event
of Default under the Note Agreement caused by the failure of the Company so to
comply. If the Company shall fail to comply with any condition set forth above
in this Section 2, the agreement of the Purchaser in this Section 2 to waive
compliance with the Financial Covenants shall immediately terminate and the
requirement that the Company comply with, and have been in compliance with, the
Financial Covenants shall be automatically reinstated and the Purchaser shall be
entitled to exercise, without prejudice, any and all rights and remedies it may
have under the Note Agreement as a result of any failure of the Company to
comply with, or have been in compliance with, any of the Financial Covenants.
3. ERISA Covenant Waiver. Provided that the Company:
(i) promptly files all tax, reporting or other filings required of it
or any Related Person under ERISA or the Code in connection with either
401k Plan which were due prior to the date hereof and were not timely filed
(the "Required Filings");
(ii) promptly completes all discrimination testing (including without
limitation actual deferral percentage, actual contribution, top-heavy,
coverage and participation testing) required under the Code to confirm that
the 401k Plans have been operated prior to the date hereof as tax-qualified
plans under Section 401 of the Code (the "Required Tests"); and
(iii) on or before October 31, 1996, provides the Purchaser with
evidence satisfactory to it that (a) the Company has made all the Required
Filings; (b) either the 401k Plans have been operated in compliance with
the Required Tests and other requirements for tax-qualification, or the
Company has obtained the agreement of the Internal Revenue Service that any
non-compliance with the Required Tests or other requirements for tax-
qualification will not cause either 401k Plan to be determined not to be a
tax-qualified plan under Section 401 of the Code; and (c) the penalties and
fines assessed by the Department of Labor and the Internal Revenue Service
in connection with the Required Filing and any non-compliance with the
Required Tests or other requirements for tax-qualification, together with
the cost and expense to the Company in complying with any conditions or
corrections required by the Internal Revenue Service in obtaining the
agreement described in clause (b) of this Section 3(iii) (collectively, the
"Liability Amount") has not and will not exceed in the aggregate, the
Available Amount;
the Purchaser will waive any Default or Event of Default under the Note
Agreement arising as a result of the Company's or such Related Person's failure
to have timely made any of the Required Filings, or as a result of either of the
401k Plans being determined to not have been in compliance with any of the
Required Tests during the period covered thereby (each such Default, an "ERISA
Default" and each such Event of Default an "ERISA Event of Default"). If the
Company shall fail to comply with any of the conditions set forth above in this
Section 3, the waivers by the Purchaser in this Section 3 shall immediately
terminate and Purchaser shall be entitled to exercise, without prejudice, any
and all rights and remedies it may have under the Note Agreement in respect of
any such ERISA Default or ERISA Event of Default.
4. Amendment to Note Agreement. From and after the date of this
Agreement, the amount of $500,000 set forth in paragraph 7A(xii) of the Note
Agreement shall be reduced by the Liability Amount if, as and when paid by the
Company or any member of the Consolidated Group.
5. No Other Amendments or Waivers. Except as specifically stated in this
Agreement, this Agreement shall not constitute a waiver of or amendment to any
term or condition of the Note Agreement or a waiver of any Event of Default or
Default now existing or hereafter arising under the Note Agreement and in all
respects the Note Agreement shall remain in full force and effect and
unmodified.
6. Governing Law. THIS AGREEMENT IS TO BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING EFFECT TO ANY LAWS OR RULES
RELATING TO CONFLICTS OF LAWS THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS).
7. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
This Agreement is executed under seal as of the date first above written.
MID-WEST SPRING MANUFACTURING
COMPANY
By:_______________________________
Title:
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY
By:_______________________________
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Mid-West
Spring Manufacturing, Inc.'s Form 10-K and is qualified in its entirety by
reference to such Form 10-K filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 564,000
<SECURITIES> 0
<RECEIVABLES> 4,293,000
<ALLOWANCES> 87,000
<INVENTORY> 8,936,000
<CURRENT-ASSETS> 14,480,000
<PP&E> 27,526,000
<DEPRECIATION> 7,592,000
<TOTAL-ASSETS> 44,326,000
<CURRENT-LIABILITIES> 9,345,000
<BONDS> 0
0
2,227,000
<COMMON> 0
<OTHER-SE> 2,622,000
<TOTAL-LIABILITY-AND-EQUITY> 44,326,000
<SALES> 38,387,000
<TOTAL-REVENUES> 38,387,000
<CGS> 31,083,000
<TOTAL-COSTS> 31,083,000
<OTHER-EXPENSES> 5,389,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,466,000
<INCOME-PRETAX> (1,551,000)
<INCOME-TAX> 355,000
<INCOME-CONTINUING> (1,196,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,196,000)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
