KEY PLASTICS INC, 10-K405, 1997-03-28

KEY PLASTICS INC
10-K405, 1997-03-28
MOTOR VEHICLE PARTS & ACCESSORIES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the fiscal year ended December 31, 1996 Commission File Number 33-56048
or
__ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from __________ to ___________

KEY PLASTICS, INC.
(exact name of registrant as specified in its charter)

Michigan 38-2653726
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

21333 Haggerty Road
Suite 200 48375
Novi, Michigan (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (810) 449-6100

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X__ No ____

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _X_

The aggregate market value of the registrant's voting stock held by
non-affiliates: Not Applicable. The Company is privately held.

The number of shares outstanding of the registrant's common stock as
of March 24, 1997, was 320,908.

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ITEM 1. BUSINESS

THE COMPANY - BACKGROUND

Key Plastics, Inc. (the "Company") was formed in January 1986 to
acquire the plastics manufacturing operations of Key International
Manufacturing, Inc., which operations had been involved in plastics
manufacturing for over 20 years. In 1995, the Company established
operations in Chihuahua, Chihuahua, Mexico.

In May 1996, the Company, through its subsidiary Key Plastics, U.K.,
acquired substantially all of those assets and the business of Clearplas, a
U.K. plastic parts supplier (the "Clearplas Acquisition"). In addition, in
November 1996, the Company acquired control of Materias Plasticas, S.A.
("MaP"), a Portuguese plastic parts supplier (the "MaP Acquisition"), by
acquiring 38% of its voting stock with an option to acquire the remaining
voting stock. The Clearplas Acquisition and the MaP Acquisition enabled the
Company to establish a European manufacturing presence as a part of its
globalization strategy, to leverage its engineering and manufacturing expertise
and to enhance its existing customer relationships.

On March 7, 1997, the Company signed an asset purchase agreement to
acquire three manufacturing facilities of Aeroquip, a division of TRINOVA
Corporation (the "Aeroquip Acquisition"), for approximately $17.3 million in
cash, subject to certain adjustments, and the assumption of $3.1 million of
current liabilities. The acquisition is subject to certain closing conditions,
and is expected to close by the end of the first quarter of 1997.

The Company is a global supplier of highly engineered plastic
components and assemblies to automotive original equipment manufacturers and
Tier I suppliers. The Company believes it is the largest independent supplier
of plastic door handle assemblies, decorative bezels and pressurized bottles in
North America for the automotive industry. Other products manufactured by the
Company include interior trim components, precision molded parts, instrument
cluster components, electrical connector covers, air louvers, speaker grilles
and underhood functional components.

The Company provides the automotive industry with comprehensive
plastics manufacturing capabilities, including design and engineering,
high-precision injection molding, automated manufacturing and assembly, plastic
painting and material and product testing. The Company operates its world
headquarters and technical center, nine manufacturing and two paint facilities
in North America and two facilities in Europe with painting and manufacturing
capabilities. The Company also has extensive tool making capabilities and
designs and builds approximately one-third of the tooling used in the
manufacturing of its principal products.

Management believes that the Company has achieved its current
leadership position and is well positioned to benefit from emerging trends in
the global automotive markets as a result of several key competitive strengths,
including: (i) demonstrated technological expertise and innovation in
developing highly engineered systems and components; (ii) strong relationships
with major OEMs; (iii) an emphasis on quality management; (iv) the ability to
supply its customers globally; and (v) state of the art equipment and
facilities.

Since 1992, the Company has invested over $93.8 million to upgrade its
existing facilities and to acquire and build new facilities. Since that time,
the Company has established its world headquarters and technical center, has
constructed a new paint facility in Hartford City, Indiana, has brought on line
four molding facilities in Grand Rapids, Michigan, York, Pennsylvania, South
Bend, Indiana and Chihuahua, Mexico, has acquired the assets and business of
Clearplas and has acquired control of MaP.

The Company is privately owned by management and employees. Since its
incorporation in 1986, the Company has elected to be taxed as a corporation
under Subchapter S (a "Subchapter S corporation") of the Internal Revenue Code
of 1986, as amended (the "Code"). The Company has made, and intends to
continue to

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make, distributions to its shareholders to pay their income tax
obligations as a result of the Company's status as a Subchapter S corporation.

The principal executive offices of the Company are located at 21333
Haggerty Road, Novi, Michigan, 48375 and its telephone number is (810)
449-6100.

RISK FACTORS

This Annual Report contains forward-looking statements which involve known
and unknown risks, uncertainties and other factors including, without
limitation, those set forth in the following Risk Factors and elsewhere in this
Annual Report that may cause the actual results of the Company to be materially
different from the results expressed or implied in such forward-looking
statements.

SIGNIFICANT LEVERAGE AND ABILITY TO SERVICE OUTSTANDING DEBT

The Company has indebtedness which is substantial in relation to its
shareholders' deficit, as well as interest and debt service requirements which
are significant compared to its cash flow from operations. The level of the
Company's indebtedness could have important consequences, including, but not
limited to, the following: (i) a substantial portion of the Company's cash flow
from operations must be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional debt financing
in the future for working capital, capital expenditures, acquisitions and
general corporate or other purposes may be limited; (iii) certain of the
Company's borrowings may be at variable rates of interest, which could result
in higher interest expense in the event of increases in interest rates; and
(iv) the Company will be subject to a variety of restrictive covenants, the
failure to comply with which could result in events of default that, if not
cured or waived, could restrict the Company's ability to make payments of
principal, interest and liquidated damages, if any, on its indebtedness.

The Company's ability to pay interest, and to satisfy, its obligations will
depend upon its future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors, many
of which are beyond its control. The Company anticipates that its operating
cash flow together with available borrowings under its Credit Agreement (the
"Senior Credit Facility")dated March 24, 1997 from time to time will be
sufficient to meet its operating expenses, to service interest requirements on
its debt obligations as they become due and to implement its business strategy.
There can be no assurance, however, that the Company's business will generate
sufficient cash flow from operations or that future borrowings will be available
in an amount sufficient to enable the Company to service its indebtedness, to
make anticipated capital expenditures or to implement its business strategy.
The Company may be required to refinance portions of its indebtedness at or
prior to maturity. No assurance can be given that, if required, the Company
will be able to refinance such indebtedness on terms acceptable to it, if at
all. If the Company is unable to service its indebtedness, it will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on terms acceptable to the
Company, if at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."

RESTRICTIONS IN DEBT INSTRUMENTS ON COMPANY'S OPERATIONS

The Indenture dated March 24, 1997 between the Company, the Guarantors
thereunder from time to time (the "Guarantors") and Marine Midland Bank as
Trustee (the "Indenture") contains certain restrictive covenants which will
affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to incur indebtedness, make prepayments of
certain indebtedness, make investments, engage in transactions with affiliates,
create liens, sell assets and engage in mergers and acquisitions. The Senior
Credit Facility contains similar and more restrictive covenants and also
requires the Company to meet certain financial ratios and tests. These
covenants may

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significantly limit the operating and financial flexibility of
the Company and may limit its ability to respond to changes in its business or
competitive activities. The ability of the Company to comply with such
provisions may be affected by events beyond its control. In the event of any
default under the Senior Credit Facility, the lenders thereunder could elect to
declare all amounts borrowed under the Senior Credit Facility, together with
accrued interest, to be due and payable. If the Company were unable to repay
such borrowings, the lenders thereunder could proceed against the collateral
securing the Senior Credit Facility, which consists of substantially all of the
assets of the Company. If the indebtedness under the Senior Credit Facility
were to be accelerated, there can be no assurance that the assets of the
Company would be sufficient to repay such indebtedness and the notes issued
under the Indenture (the " Senior Subordinated Notes") in full.

SUBORDINATION AND COMPANY STRUCTURE

The Senior Subordinated Notes are unsecured and subordinated in right of
payment to all Senior Debt (as defined in the Indenture) of the Company,
including borrowings under the Senior Credit Facility. Further, the Senior
Credit Facility is secured by liens on substantially all of the assets of the
Company. In the event of the bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Senior Subordinated Notes only after all Senior Debt, including borrowings under
the Senior Credit Facility, has been paid in full and sufficient assets may not
remain to pay amounts due on any or all of the Notes then outstanding. In
certain circumstances, provisions of the Senior Debt could prohibit payments of
amounts due to holder of the Notes. Subject to certain limitations, the
Company, from time to time, may incur additional Senior Debt, including secured
indebtedness, which secured indebtedness will effectively rank senior to the
Notes to the extent of the value of the assets securing such indebtedness.

The Indenture requires that all domestic subsidiaries become guarantors of
the Notes unless such subsidiaries are Unrestricted Subsidiaries (as defined in
the Indenture). None of the Company's foreign subsidiaries are required to
become guarantors of the Notes. As of March 24, 1997, Key Plastics
International LLC, Key Plastics Automotive LLC and Key Plastics Technology, LLC
will be Guarantors. Any right of the holders of the Senior Subordinated Notes
to participate in the assets of an international subsidiary of the Company upon
any liquidation or reorganization of such subsidiary will be subject to the
prior claims of such subsidiary's creditors, including trade creditors.
Accordingly, the Senior Subordinated Notes will be structurally subordinated to
all liabilities, including trade payables, of the international subsidiaries of
the Company with respect to the assets of such subsidiaries. The Company's
Mexican subsidiary will be a restricted subsidiary for purposes of the
Indenture. The Indenture limits the ability of the Company's subsidiaries
which are not guarantors to borrow money.

Three of the Company's subsidiaries, MaP, Key Plastics U.K. and Clearplas
Ltd., will be Unrestricted Subsidiaries for purposes of the Indenture and,
therefore, will not be subject to the restrictive covenants which will be
contained in the Indenture. The Company derived approximately 13.6 % of its
fiscal year 1996 net sales, from these subsidiaries. Accordingly, the Company
will be able to incur additional indebtedness at the Unrestricted Subsidiary
level, which could have a material adverse effect on the cash flow, if any, to
the Company. In addition, under certain circumstances, the Company may be
able to designate current and future subsidiaries as Unrestricted Subsidiaries.

INTERNATIONAL OPERATIONS

The Company derived approximately 13.6% of its fiscal year 1996 net sales,
from its operations in the United Kingdom and Portugal. The Company's
international operations are subject to risks inherent in international
business activities, including, in particular, compliance with a variety of
foreign laws and regulations, unexpected changes in regulatory requirements,
overlap of different tax structures, foreign currency exchange rate
fluctuations and general economic conditions.

The Company prices its products in the United Kingdom and Portugal in the
currency of the country in which the product is sold and, in the United States
and Mexico, in United States dollars. To the extent that prices are in the

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currency of the country in which the products are sold, the prices of such
products in dollars will vary as the value of the dollar fluctuates against
such currencies. There can be no assurance that there will not be increases in
the value of the dollar against such currencies that will reduce the dollar
return to the Company on the sale of its products in such countries. The
Company is presently engaged in limited currency hedging transactions in
Mexico, involving the purchase of Mexican pesos to make local payments. There
can be no assurance that such hedging transactions will protect the Company
against losses in the event of fluctuations in the value of the dollar.

THE OEM SUPPLIER INDUSTRY

The Company competes in the global automotive original equipment
manufacturer supplier industry. The OEM supplier industry is highly cyclical
and, in large part, dependent upon the overall strength of consumer demand for
light trucks and passenger cars. There can be no assurance that the automotive
industry for which the Company supplies components and systems will not
experience downturns in the future. An economic recession typically impacts
substantially leveraged companies such as the Company more than similarly
situated companies with less leverage. A decrease in overall consumer demand
for light trucks or passenger cars could have a material adverse effect on the
Company's financial condition and results of operations.

The automotive industry is characterized by a small number of OEM customers
that are able to exert considerable pressure on component and system suppliers
to reduce costs, improve quality and provide additional design and engineering
capabilities. In the past, OEMs have generally demanded and received price
reductions and measurable increases in quality by implementing competitive
selection processes, rating programs and various other arrangements. Also,
through increased partnering on platform work, OEMs have generally required
component and system suppliers to provide more design engineering input at
earlier stages of the product development process, the costs of which have, in
some cases, been absorbed by the suppliers. Although the Company historically
has regained the loss caused by price reductions to the OEMs through cost
reduction initiatives and assistance from the OEMs, there can be no assurance
that future price reductions, increased quality standards or additional
engineering capabilities required by OEMs will not have a material adverse
effect on the financial condition or results of operations of the Company.

Many of the Company's OEM customers and their Tier I suppliers are
unionized. Work stoppages and slow downs experienced by OEMs and their Tier I
suppliers, as a result of labor disputes, could have a material adverse effect
on the Company's financial condition or results of operations.

RAW MATERIALS

The principal raw materials used by the Company are engineered plastic
resins such as nylon, polypropylene and ABS, all of which are available from
several suppliers, except that the customer generally specifies a single
supplier to be used by the Company in connection with a specific program. The
Company has no reason to believe that there will not be an ample supply of its
raw materials for the reasonably foreseeable future, but the Company cannot
make any prediction as to the future price of such raw materials. The Company
is generally not able to pass on to its customers any increase in raw material
costs; however, the Company, in the past two years, has not experienced any
significant increases in the prices of its raw materials as result of the
consolidation of procurement and supply of raw materials. A substantial
interruption in the Company's supply of plastic resins, or a material increase
in the price thereof, could have a material adverse effect on the Company's
financial condition or results of operation.

RELIANCE ON PRINCIPAL CUSTOMERS

The Company's direct sales to its principal customers, Ford Automotive
Operations ("Ford"), Chrysler Corporation ("Chrysler") and General Motors
Corporation ("GM"), accounted for approximately 58.4%, 9.2% and 8.2%,
respectively, of the Company's consolidated net sales in fiscal year 1996. If
sales to such OEMs' Tier I suppliers are included, the Company's sales to Ford,
Chrysler and GM accounted for 63.9%, 11.9% and 9.1%, respectively, of the
Company's consolidated net sales in fiscal year 1996. Although the Company has
ongoing supply relationships

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with its principal customers, and is considered by Ford and Chrysler to
be a preferred supplier of door handles and pressurized bottles, there can be
no assurance that sales to Ford, Chrysler and GM will continue at the same
level. Furthermore, continuation of these relationships is dependent upon the
customers' satisfaction with the price, quality and delivery of the Company's
products. In addition, the Company's agreements to produce parts are fixed to
specific models or product lines of its customers. Accordingly, the Company's
business, and estimates for future business, are dependent upon consumer demand
for the specific models and product lines that incorporate the Company's parts.
The Company's arrangements with its OEMs are typically in the form of purchase
orders that may be canceled by the OEMs. However, the Company believes that
cancellation of purchase orders is rare, due, in part, to the OEM production
interruption likely to be caused by changing suppliers. While management
believes the Company's relationships with its customers are mutually
satisfactory, if any of these customers were to reduce substantially or
discontinue their purchases from the Company, the financial condition and
results of operations of the Company would be materially adversely affected.
See "Business-Customers, Marketing and Engineering Support."

COMPETITION

The Company operates in an industry which is highly competitive. The
Company competes on the basis of quality, cost, timely delivery and customer
service and, increasingly, on the basis of design and engineering capability,
painting capability, new product innovation and product testing capability.
There can be no assurance that the Company's products will continue to compete
successfully with the products of competitors, including the automotive OEMs
themselves, many of which are significantly larger and have greater financial
and other resources than the Company. Management believes that the Company's
experience in design engineering and its ability to control manufacturing and
development costs should allow the Company's product prices to remain
competitive. However, there can be no assurance that the Company will be able
to improve or maintain its profit margins on sales to OEM customers. See
"Business-Competition."

UNCERTAINTY OF FUTURE ACQUISITIONS; INTEGRATION OF ACQUIRED COMPANIES AND
POTENTIAL EFFECT OF ACQUISITIONS

In fiscal 1996, the Company completed the MaP Acquisition and the Clearplas
Acquisition, and has entered into a purchase agreement for the Aeroquip
Acquisition. Further, the Company has designated a portion of availability
under its Senior Credit Facility for use by the Company to make future
acquisitions. There can no assurance that the Company will consummate the
Aeroquip Acquisition or will be able to locate and acquire additional
businesses to enable it to so utilize that portion of the Senior Credit
Facility. To the extent that any future acquisitions require the incurrence or
assumption of additional indebtedness, a waiver of certain covenants in its
new Indenture or an amendment of the Senior Credit Facility may be required.
There can be no assurance that any acquisition will be permissible under these
loan agreements or that waivers of any such covenants could be obtained.

In certain instances, a consummated acquisition may adversely affect the
Company's financial condition and reported results, depending on many factors,
including capital requirements and the accounting treatment of such
acquisitions. There can be no assurance that recent acquisitions, the Aeroquip
Acquisition or future acquisitions, if completed, will perform as expected,
will not result in significant unexpected liabilities or will contribute
significant revenues or profits to the Company. Further, integration of the
acquired businesses is subject to numerous contingencies, some of which are
beyond management's control. Accordingly, no assurance can be given that the
Company will be able to successfully integrate any business it acquires.
Further, as the Company continues to grow, the increasing size of its
operations will place additional demands on existing management resources,
which will require the Company to effectively redeploy such resources and, at
times, to hire new personnel. If the Company is unable to manage growth
effectively, the Company's financial condition or operating results could be
materially adversely affected.

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CONTROL BY PRINCIPAL SHAREHOLDERS

Joel D. Tauber, George Mars and David C. Benoit, directors and shareholders
of the Company (the "Shareholders"), hold beneficially 67.4% of the outstanding
capital stock of the Company. Circumstances may occur in which the interests
of the Shareholders could be in conflict with the interests of the holders of
the Notes. For example, if the Company encounters financial difficulties or is
unable to pay certain of its debts as they mature, the interests of the
Shareholders might conflict with those of the holders of the Company's
indebtedness. In addition, the Shareholders may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their judgment, could
enhance their equity investment, even though such transactions might involve
risks to the holders of the Company's indebtedness.

CHANGE OF CONTROL

The Indenture provides that, upon the occurrence of a Change of Control (as
defined in the Indenture), the Company will be required to make an offer to
purchase all of the Senior Subordinated Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages thereon, if any, to the date of purchase. Such
a Change of Control constitutes an event of default under the Senior Credit
Facility. Accordingly, if a Change of Control were to occur, the subordination
provisions contained in the Indenture could prohibit the Company from
satisfying its obligation to repurchase the Senior Subordinated Notes until all
Senior Debt

(as defined in Indenture), including all indebtedness under the Senior Credit
Facility, is repaid. There can be no assurance that the Company would have
adequate financial resources to repay all of its obligations under the Senior
Subordinated Notes upon the occurrence of a Change of Control.

FRAUDULENT CONVEYANCE

The incurrence by the Company or the Guarantors of indebtedness, such as
the Senior Subordinated Notes or the Subsidiary Guarantees (as defined in the
Indenture), as applicable, may be subject to review under relevant state and
federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced
by or on behalf of unpaid creditors of the Company or the Guarantors. Under
these laws, if a court were to find that, after giving effect to the sale of
the Notes or the Subsidiary Grantees, as the case may be, and the application
of the net proceeds therefrom, either (a) the Company or any Guarantor incurred
such indebtedness with the intent of hindering, delaying or defrauding
creditors or (b) the Company or any Guarantor received less than reasonably
equivalent value or consideration for incurring such indebtedness and (i) was
insolvent or was rendered insolvent by reason of such transaction, (ii) was
engaged in a business or transaction for which the property remaining with the
Company or any Guarantor constituted unreasonably small capital or (iii)
intended to incur, or believed that it would incur, debts beyond its ability to
pay as they matured, such court may subordinate such indebtedness to presently
existing and future indebtedness of the Company or any Guarantor, as the case
may be, avoid the issuance of such indebtedness and direct repayment of any
amounts paid thereunder to the company's or the Guarantor's creditors, as the
case may be, or take other action detrimental to the holders of the Notes and
the Subsidiary Guarantees.

The definition of insolvency for purposes of determining whether a transfer
is avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all of its liabilities, including contingent
liabilities, were greater than the value of all of its property at a fair
valuation, or if the present saleable value of the debtor's assets were less
than the amount required to repay its probable liabilities on its debt,
including contingent liabilities as they become absolute and matured. There
can be no assurance as to what standard a court would apply in order to
determine solvency.

The Company and the guarantors believe that they will receive reasonably
equivalent value at the time the indebtedness under the Notes and the
Subsidiary Guarantees is incurred. In addition, neither the Company nor the
Guarantors believe, that after giving effect to the offering of Senior
Subordinated Notes and the application of the net proceeds therefrom, they (i)

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were or will be insolvent or rendered insolvent, (ii) were or will be
engaged in a business or transaction for which their respective remaining
property constituted unreasonably small capital or (iii) intend or intended to
incur, or would incur debts beyond their respective ability to pay such debts
as they mature. There can be no assurance, however, that a court determining
the merits of these issues would reach the same conclusion.

ENVIRONMENTAL MATTERS

The Company and its operations are subject to comprehensive and frequently
changing federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing emissions
of air pollutants, discharges of waste and storm water, and the disposal of
hazardous wastes. The Company is also subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates
and at other properties where the Company or predecessors have arranged for the
disposal of hazardous substances. As a result, the Company is involved, from
time to time, in administrative and judicial proceedings and inquiries relating
to environmental matters. The Ohio Environmental Protection Agency has raised
questions about the air permit status of the Company's facility in Montpelier,
Ohio. The Company expects to resolve these questions without making
significant financial expenditures, although there can be no assurance thereof.
The Company does not believe there are any other pending investigations at the
Company's plants or sites relating to environmental matters. However, there
can be no assurance that the Company will not be involved in other such
proceedings in the future and that the aggregate amount of future clean-up
costs and other environmental liabilities will not be material.

Federal, state and local governments could enact laws or regulations
concerning environmental matters that increase the cost of producing, or
otherwise adversely affect the demand for, the Company's products. The Company
cannot predict the environmental liabilities that may result from legislation
or regulations adopted in the future. Nor can the Company predict how existing
or future laws and regulations will be administered or interpreted or what
environmental conditions may be found to exist. The enactment of more
stringent laws or regulations or stricter interpretation of existing laws and
regulations could require additional expenditures by the Company, some of which
could be material.

BUSINESS STRATEGY

The automotive industry is currently characterized by a number of factors
which affect the Company and its business strategy. These factors include (i)
OEMs' demand for suppliers with efficient, comprehensive research and
development, design and manufacturing capabilities, (ii) consolidation of
suppliers as a result of increasing OEM demands, and (iii) the globalization of
the OEM supplier base. As a result of these factors, suppliers must (i)
continually demonstrate the ability to satisfy, in cost efficient ways, the
OEMs' design and manufacturing demands and (ii) establish international
positions which can effectively supply and service the OEMs.

The Company seeks to maintain its leadership position in the industry and
maximize its revenues and net income by employing its operating strategy, which
has the following principal components.

Focus on Highly Engineered, Value-added Products. The Company believes
highly engineered, value-added components are typically more difficult for a
customer to produce in-house or a competitor to replicate due to the
substantial investment required in specialized engineering, design and
manufacturing capabilities. Management believes such products have strong
worldwide growth potential and high margins. Further, the Company capitalizes
on the specialized design and manufacturing expertise it has developed for one
customer by marketing such expertise across its customer base. For example,
the Company has recently utilized its CAD/CAM systems, including finite element
analysis, to verify the Dodge Dakota door handle design, eliminating the need
for prototype tools, and thereby saving one year of product development time
and the corresponding required investment. The Company expects to be able to
utilize this expertise as more OEMs move away from tooling in designing
prototypes.

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Company has a strong quality assurance program and has made substantial
investments in technology to monitor and improve quality. Included among these
investments are CAD/CAM equipment, statistical process control systems, failure
mode and effect systems, process-controlled molding machines and automated
assembly equipment. In addition, the Company has material and product test
laboratories that monitor product reliability and which are accredited by its
major OEM customers, and the Company's engineering functions are ISO 9001
certified. The Company has exceeded the supplier criteria established by Ford
and, since January 1996, the Company has experienced a monthly average of only
twenty-eight rejects per million parts. Under Ford's criteria for the
Company's parts, Ford requires less than 300 rejects per million parts.
Because the Company has substantially exceeded such goals, it considers itself
to be a world class supplier.

Provide Comprehensive Manufacturing and Engineering Capabilities while
Improving Cost Competitiveness. In response to increasingly rigorous OEM
purchasing and manufacturing policies, the Company has developed comprehensive
plastics manufacturing capabilities, including design and engineering,
automated manufacturing and assembly, painting and materials and product
testing, prototype production and tooling. For example, the Company has
developed a manufacturing process which eliminates work-in-progress inventory
for its door handle assemblies. Door handle assemblies move directly from the
paint line to a work station where they are assembled and packaged as finished
products. The Company produces 36 different door handles in 98 different
colors for five OEMs. The Company expects to produce approximately 7 million
door handle assemblies, consisting of approximately 14 million molded- and
painted parts, in 1997 at its Hartford, Indiana facility. In addition to
requiring comprehensive manufacturing capabilities, OEMs are demanding
market-driven pricing and long-term productivity commitments, which demands are
forcing suppliers to eliminate waste and optimize productivity. The Company
has invested in and successfully implemented lean manufacturing methodologies,
including the use of cell-based manufacturing and automation through state of
the art "poke-yoked" (fail safed) devices which have made significant
contributions to the Company's product quality and have assisted in the
reduction of labor costs and work-in-progress inventory. Cell-based
manufacturing utilizes machine vision, robotics and a palletized approach in
the production of components. Conversion of a work cell from one application
to another is easily accomplished through reprogramming and the installation of
new pallets at significantly less cost than a traditional approach to
manufacturing products. The Company utilizes a work cell approach to produce
pressurized bottles for Ford's F-Series pickup trucks and Taurus/Sable models
and to assemble air louvers. To produce pressurized bottles, two halves of the
pressurized bottles are molded by two injection molding machines and then fed
into fully automated, computerized and "poke-yoked" (fail safed) work cells,
which, at the end of the process, assign a serial number to each bottle to
allow for lot traceability. In addition, the use of these work cells has
enabled the Company to reduce manpower required to assemble air louvers by
approximately 50% to 15 people per shift and reduce the number of operators in
the production of pressurized bottles from 5 to 1.

Establish a Global Position. The Company has acquired strategic positions
in Europe in order to serve its customers on a global basis. Several OEMs have
announced certain models designed for the world automobile market. As a
result, certain domestic and European OEMs have encouraged their existing
suppliers to establish foreign production support for World Car programs.
During 1996, the Company acquired a manufacturing presence in the UK and
Portugal. The ability to produce product in both locations has resulted in the
award of new programs from the existing customer base in North America and
Europe. This expansion has also resulted in the addition of new customers such
as Rover. The Company will use its presence in Europe as a base to establish
opportunities for further expansion through acquisition.

Enhance Tier I Relationships. The OEMs continue to give more
responsibility for total program management to large Tier I suppliers. These
suppliers are evaluating the available supply of parts and whether the
manufacturers who are currently supplying them are qualified. As Tier I
suppliers shift to more qualified automotive parts manufacturers, the Company
believes that it is well positioned to take advantage of such change. The
Company has recently received programs from TRW Inc., Lear Corp., United
Technologies Automotive, Magna International, Inc., and Johnson Controls, Inc.
which represent an expansion of the Company's traditional customer base of OEMs
and transplants.

9
<PAGE> 10
Make Selected Acquisitions. Inr ecent years, OEMs have instituted
policies which have resulted in the consolidation of the automotive supplier
industry. Through strategic acquisitions, the Company believes it can
leverage off of its existing engineering and manufacturing capabilities,
quality focus and relationships with its customers by adding complementary
product lines and achieving greater economies of scale. In 1996, the Company
acquired Clearplas and MaP. The Clearplas Acquisition resulted in the Company
adding Rover to its customer base and enhanced the Company's global position.
The MaP Acquisition furthered the globalization of the Company's decorative
bezel business.

PRODUCTS

The Company manufactures the variety of highly engineered plastic
components described below. In 1996, revenues from door handle assemblies,
pressurized bottles and decorative bezels represented approximately 45% of the
Company's net sales. No other product represented more than 10% of the
Company's sales.

Door Handle Assemblies (22.0% of 1996 net sales). The Company's principal
products are interior and exterior door handle assemblies. The Company is the
largest independent manufacturer of plastic door handles in North America. The
Company estimates that it currently supplies approximately 57% of all plastic
door handles used by Ford, approximately 50% of the outside plastic door
handles used by Chrysler and approximately 31% of the door handle assemblies
used by GM.

Pressurized Bottles (13.5% of 1996 net sales). Since 1990, the Company has
produced underhood pressurized coolant bottles and remote power steering
reservoirs with integral filters and assembled caps. The manufacture of these
products require newly engineered plastic resins, automated assembly machines
and special testing equipment. The pressurized coolant bottles are replacing
blow molded coolant bottles on new aluminum overhead cam engines.

Decorative Bezels (9.2% of 1996 net sales). Decorative bezels consist of
the face plate and speaker button assembly. The Company's decorative bezel
components, also introduced in 1990, utilize its plastic molding, painting,
robotic assembly and laser etch marking capabilities for high-volume production
and a near zero-defect rate. Laser etch marking technology is more cost
efficient than traditional marking techniques for imprinting decorative bezel
push buttons.

Interior Trim Components. The Company's interior trim components include
seat shields, seat track covers, seat belt trim and switch housing.

Precision Molded Parts. The Company's precision molded parts consist of
mass airflow housing units, throttle bobbins and cam assemblies.

Instrument Cluster Components. Instrument clusters consist of backplates,
trim masks, and clear plastic lenses which house the vehicle's odometer, oil,
temperature and other gauges.

Electrical Connector Covers. These components are used as the casing for
multiple electrical connector systems and are supplied to wire harness system
manufacturers for automotive and communication applications.

Air Louvers. Air louvers provide directional air control for automotive
heating and cooling systems and are supplied as subsystems to instrument panel
and door system manufacturers. The Company continues to make substantial
improvements in the design and development of intricate new tooling and robotic
assembly equipment used in the manufacture of its air louver products.

Speaker Grilles. The Company uses advanced manufacturing technology to
mold decorative speaker grilles which are thin, highly contoured and have
intricate hole patterns. These characteristics provide clear sound
transmission and enable the Company to market its plastic speaker grilles as a
lower cost alternative to metal ones.

10
<PAGE> 11
Underhood Functional Components. The Company's underhood functional
products consist of various sophisticated electronic and fuel delivery
components including speed control housings, remote anti-skid brake system
modules, and distributorless ignition systems. OEMs are increasingly
substituting plastic for metal in the underhood components and systems in an
effort to reduce cost, noise, weight, to improve airflow and to increase
aesthetic appeal.

Other Products: The Company also manufacturers a variety of other
automotive components, such as shift knobs, air dams, insulators, light
housings, fuel shields and hood latches. Plastic components manufactured for
non-automotive use include electrical and office supply products.

CUSTOMERS, MARKETING AND ENGINEERING SUPPORT

The Company's principal customers are Ford, Chrysler, GM, Rover, Honda and
their respective Tier I suppliers. The approximate net sales and percentage of
net sales to the Company's principal customers, including respective Tier I
suppliers, for the year ended December 31, 1996 are shown below:

<TABLE>
<CAPTION>
SALES % 1996 SALES
----- ------------
(IN MILLIONS)
<S> <C> <C>
Ford ............................... $138.8 63.9%
Chrysler ........................... 25.9 11.9
GM ................................. 19.9 9.2
Rover .............................. 16.0 7.4
Honda .............................. 3.2 1.5
Other .............................. 13.3 6.1
------ -----
Total .......................... $217.1 100.0%
</TABLE>

Sales to OEMs and Tier I suppliers are made directly by the Company's
sales staff, consisting of 31 individuals, of which 8 were added through the
MaP Acquisition and Clearplas Acquisition and 3 have been added in 1997. In
North America, the Company is expanding its sales effort to Tier 1 suppliers
and domestic transplant customers and, in Europe, is augmenting its sales
efforts to capture opportunities available in Europe. The Company's
engineering personnel are an integral part of the Company's sales effort
because of the need to be involved in the early stages of product design and
development.

Because OEMs demand early involvement of suppliers in the design and
engineering aspects of product development, the Company, in recent years, has
substantially increased its design, engineering and tooling capabilities. The
Company maintains a 67-person mold building operation for construction of
complex production tooling and, in 1996, the Company established a new
technical center which is ISO 9000 certified and which houses its engineering
and design group. The Company has 74 product engineers and 34 CAD/CAM
engineers, in addition to the manufacturing engineers located at the Company's
facilities. The Company has an advanced computer aided design and computer
aided manufacturing (CAD/CAM) system with multiple work stations and a product
test laboratory which supports its engineering and manufacturing operations.
The Company provides complete black box (in which the Company has principal
design responsibility) and gray box (in which the customer has principal design
responsibility) engineering capabilities for door handles, power steering
reservoirs, air louvers, pressurized coolant bottles and decorative bezels.
The Company's engineering staff works closely with customers' engineers in
designing the specifications of the product material, the part to be produced
and the tooling required to produce the finished product. The Company's
engineering functions have been ISO 9000 certified and the Company believes its
design, engineering and tooling expertise has been an important factor in its
ability to broaden its product lines, maintain its existing customer base, and
attract a new customer base.

11
<PAGE> 12

The Company obtains most of its new orders through a presourcing
process by which the customer invites one or a few preferred suppliers to
manufacture and design a component or assembly that meets certain price, timing
and functional parameters. Upon selection at the development stage, the
Company and the customer typically agree to cooperate in developing the product
to meet the specified parameters. Upon completion of the development stage and
the award of the manufacturing business, the Company receives a blanket
purchase order that covers parts to be supplied for a particular car model.
Such supply arrangements normally extend over the life of the model, which is
generally four to seven years. In addition, the Company competes to supply
parts for successor models even though the Company may currently supply parts
on the predecessor model.

Products under development are assigned a target sale price which is
reevaluated from time to time during the product development cycle. Prior to
the Company's commitment for full production, the Company and the customer must
agree on a final price, which, in some instances, may be subject to negotiated
price reductions over the term of the project. Consequently, the Company's
ability to improve operating performance is dependent primarily on its ability
to reduce costs and operate more efficiently. Although the Company
historically has regained the loss caused by price reductions to the OEMs
through cost reduction initiatives and assistance from the OEMs, there can be
no assurance that future price reductions, increased quality standards or
additional engineering capabilities required by OEMs will not have a material
adverse effect on the financial condition or results of operations of the
Company.

MANUFACTURING OPERATIONS

Product Manufacturing. The Company's core manufacturing technologies
are small press injection molding, automated assembly, pad printing, painting,
laser etching, sonic welding and hot plate welding. As part of its strategy to
supply highly engineered, value-added components, the Company has substantially
expanded the use of automation and robotics in its assembly operations. For
example, robotics are used in the assembly of door handle latching systems and
decorative bezels, and the Company's "poke-yoked" (fail safed) system is
utilized in the production of air louvers. These capabilities enhance quality
and reliability and reduce labor costs.

The Company has organized its production process to minimize the
number of manufacturing functions and the frequency of material handling,
thereby reducing labor costs. In addition, the Company utilizes, where
practical, a flexible manufacturing process which uses cellular manufacturing
to allow a continuous flow of parts with minimal set-up time. Such cellular
manufacturing utilizes machine vision, robotics and a pelletized approach and
can be easily converted from one product application to the other with
re-programming and new pallets at a cost lower than traditional work cell
approach. The Company also utilizes just-in-time manufacturing and sourcing
systems in an attempt to meet its customers' requirements for faster deliveries
while minimizing inventory levels.

The Company believes, its broad base of class A paint application
capabilities positions it well for supplying the domestic and foreign exterior
trim market. The Company is able to provide both high-bake, high solids
painting, which is traditionally preferred by domestic OEMs, and low-bake, two
component painting, which is preferred by foreign OEMs. The Company has also
developed paint application technology utilizing innovative robotic
applications which has enabled the Company to reduce costs by improving paint
transfer efficiency.

Tooling and CAD/CAM Design. The Company's plastic components have
sophisticated tooling requirements, the costs for which are generally billed to
the customer at preauthorized levels. Development of the tooling typically
begins approximately two to three years before production, after the Company is
selected by the customer to develop a particular component or assembly At that
time, the Company commences its tooling design and development work and
accumulates in inventory the costs incurred. The production tooling and gauges
are ordered generally one year prior to production. Upon completion of the
development stage and delivery of the tooling, the customer is billed. The
Company supplies approximately one-third of its tooling requirements from its
own advanced tooling operation. The remaining tooling requirements are
purchased from other tool makers.

12
<PAGE> 13
Although tooling costs are preauthorized by the customer pursuant to
specified guidelines, such costs are subject to audit and acceptance by the
customer. In addition, tooling cost guidelines are subject to interpretation
by the OEMs and are changed from time to time without prior notice to the
Company.

Recently, OEMs have begun the process to eliminate tooling because of
the high costs and long lead time the tooling process involves in the
development of new products. To assist OEMs in this need and to further
strengthen its customer relationships, the Company is utilizing more CAD/CAM
systems in product design. For example, the Company utilized its CAD/CAM
systems, including finite element analysis, to design and verify prototypes for
Chrysler's Dodge Dakota door handle program. Management believes that
additional opportunities exist to utilize its CAD/CAM expertise.

Product Quality. Among the most important factors in maintaining
preferred supplier status with OEMs is product quality. The Company has a
strong quality assurance program and has made substantial investments in
technology to monitor and improve quality. Included among these investments
are CAD/CAM equipment, statistical process control systems, failure made and
effect systems and Process-controlled molding machines. The Company encourages
employee participation in quality improvement through the use of quality
circles and team-oriented problem solving techniques.

In addition, the Company has material and product test laboratories
accredited by its major OEM customers, which monitor production efficiency and
product reliability. In cooperation with its customers, the Company regularly
conducts tests on its raw materials to reduce variability and inconsistencies
in properties such as melt flow, filler content, moisture and tensile strength
to meet the requirements of the Company's major OEM customers. The Company
also conducts a variety of engineering specification and climate testing on new
and existing products.

Raw Materials

Employees

At December 31, 1996, the Company employed approximately 2,780 persons
in North America and Europe. The Company believes that relations with its
employees are good. Hourly employees at the Company's Plymouth, Michigan
facility (approximately 12% of all employees) and Key U.K. (approximately 11%
of all employees) are the only employees represented by collective bargaining
units. The Plymouth employees are represented by Local 7639 International
Union of United Paper Workers pursuant to a collective bargaining agreement
which expires on December 7, 2000. The workforce at Key's Coventry facility is
represented by two unions: Amalgamated Electrical and Engineering Union
("AEEU") and Manufacturing, Scientific and Finance Union ("MSF"). Both AEEU
and MSF follow the traditional negotiation patterns seen in Great Britain by
renegotiating terms and conditions on an annual basis. The AEEU contract is
generally re-negotiated in January/February of each year. Those negotiations
are currently being conducted and are expected to conclude without incident.
The Company expects to begin renegotiation of the MSF contract in April.

13
<PAGE> 14

ENVIRONMENTAL MATTERS

The Company and its operations are subject to comprehensive and
frequently changing federal, state and local environmental and occupational
health and safety laws and regulations, including laws and regulations
governing emissions of air pollutants, discharges of waste and storm water, and
the disposal of hazardous wastes. The Company is also subject to liability for
the investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates
and at other properties where the Company or predecessors have arranged for the
disposal of hazardous substances. As a result, the Company is involved, from
time to time, in administrative and judicial proceedings and inquiries relating
to environmental matters. The Ohio Environmental Protection Agency has raised
questions about the air permit status of the Company's facility in Montpelier.
The Company expects to resolve these questions without making significant
financial expenditures, although there can be no assurance thereof. The
Company does not believe there are any other pending investigations at the
Company's plants or sites relating to environmental matters. However, there
can be no assurance that the Company will not be involved in other such
proceedings in the future and that the aggregate amount of future clean-up
costs and other environmental liabilities will not be material.

COMPETITION

The Company's business is highly competitive. Competition generally
occurs on the basis of product groups. A large number of actual or potential
competitors exist, including the internal component operations of the OEMs as
well as independent suppliers, many of which are larger than the Company. Some
of the Company's competitors include Donnelly Corporation, Lear Corp., TRINOVA
Corporation, Summit Plastic Co., LDM Technologies, Inc., Fawn Industries, Inc.,
Lacks Industries, Inc., United Technologies, Inc., and Geiger Technik.,
although none of these competitors compete with the Company along all product
lines. In addition, the Company's business is increasingly competitive due to
the supplier consolidation resulting from changing OEM policies. The Company
principally competes for new business both at the beginning of the development
of new models and upon the redesign of existing models by its major customers.
New model development generally begins two to four years prior to the marketing
of such models to the public. Because of the large investment by OEMs in
tooling and the long lead time required to commence production, OEMs generally
do not change a supplier during a program.

The Company competes on the basis of quality, cost, timely delivery
and customer service and, increasingly, on the basis of design and engineering
capability, painting capability, new product innovation and product testing
capability.

Some of the OEMs have adopted supplier management policies designed to
strengthen their supply base. These policies include designating only some of
the suppliers as preferred future suppliers and, in some cases, encouraging new
suppliers to begin to supply selected product groups.

14
<PAGE> 15

ITEM 2. PROPERTIES

All of the Company's facilities are owned by the Company, except for
the Company's world headquarters and the Company's facilities in Grand Rapids,
Michigan and Coventry, U.K., which are leased. Management believes that its
facilities are adequate for its present needs. The Company's operations are
located in the following communities.

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE DESCRIPTION OF USE
- -------- -------------- ------------------
<S> <C> <C>
Novi, MI ..... 29,000 World Headquarters and
Technical Center
Plymouth, MI ........................ 168,000 Manufacturing
Felton, PA (Plant 1) ................ 53,000 Manufacturing
Felton, PA (Plant 2) ................ 39,060 Manufacturing
Hamilton, IN ........................ 54,000 Manufacturing
York, PA (Plant 1) .................. 22,000 Manufacturing
York PA (Plant 2) ................... 40,000 Manufacturing
Montpelier, OH ...................... 79,000 Painting
Hartford City, IN ................... 50,000 Painting and Assembly
Chihuahua, MX ....................... 65,000 Manufacturing
Grand Rapids, MI .................... 56,000 Manufacturing
South Bend, IN ...................... 80,000 Manufacturing
Coventry, UK ....................... 100,000 Manufacturing and Painting
Leiria, Portugal ................... 84,000 Manufacturing and Painting
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

The Company is, from time to time, involved in routine litigation
arising out of the ordinary course of its business. The Company believes
currently pending or threatened litigation will not have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SEURITY HOLDERS.

Not Applicable.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Common equity is privately held by 26 persons and,
therefore, has no established public trading market. The Company has elected
to be taxed as an S-Corporation. Under the provisions of this election, the
Company is not subject to federal income taxes. The Company's policy is to pay
dividends to the shareholders for the income taxes due on the shareholders'
share of the Company's taxable income. See Note 1 to Notes to Consolidated
Financial Statements.

15
<PAGE> 16

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical consolidated
financial data of Key Plastics, Inc. for the five year period ended December
31, 1996. The selected consolidated financial data for such fiscal years were
derived from the audited consolidated financial statements of the Company. The
audited consolidated financial statements of the Company for each of the three
years in the period ended December 31, 1996 are included elsewhere in this
Annual Report on Form 10-K together with the report thereon of Coopers &
Lybrand, L.L.P., independent accountants. The following table should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical consolidated financial
statements of the Company presented elsewhere in this Annual Report on Form
10-K.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1992 1993 1994(a) 1995(a) 1996(b)
---- ---- ---- ---- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ................................... $ 119,600 $149,658 $194,112 $179,251 $217,087
Cost of sales ............................... 95,646 120,902 158,052 141,707 177,635
--------- -------- -------- -------- --------
Gross profit ............................. 23,954 28,756 36,060 37,544 39,452
Selling, general and administrative
expenses................................... 9,721 10,362 13,955 15,531 16,532
Amortization ................................ 1,841 899 784 641 658
--------- -------- -------- -------- --------
Operating income ......................... 12,392 17,495 21,321 21,372 22,262
Interest expense ............................ 10,553 11,575 12,752 14,292 15,211
Extraordinary item-loss on early retirement
of debt (c) .............................. 5,840 --- --- --- ---
Cumulative effect of accounting change (d) .. 354 --- --- --- ---
--------- -------- -------- -------- --------
Net income ............................... $ (4,355) $ 5,920 $ 8,569 $ 7,080 $ 7,051
========= ======== ======== ======== ========

Ratio of earnings to fixed charges (e) ...... --- 1.5x 1.6x 1.5x 1.4x

OTHER FINANCIAL DATA:

EBITDA (f) .................................. $ 18,370 $ 23,305 $ 27,588 $ 28,984 $ 32,095
Depreciation and amortization ............... 5,978 5,810 6,267 7,612 9,833
Capital expenditures:
Acquisitions of property, plant and
equipment, net ....................... 6,911 16,816 16,1891 4,047 16,738
Property, plant and equipment from
acquired business .................... --- --- --- --- 23,109

BALANCE SHEET DATA:

Total assets ................................ $ 74,625 $ 96,556 $121,853 $126,090 $193,204
Total debt .................................. 92,748 102,859 111,060 119,640 149,062
Long-term debt .............................. 87,168 85,818 103,522 102,467 84,578
Total shareholders' equity (deficit) (g) .... (42,504) (29,841) (23,427) (20,875) (15,563)
</TABLE>

_______________

(a) The Company's financial statements for the years ended December 31, 1994
and 1995 have been restated to reflect errors in previously reported
amounts. See Note 11 of Notes to Consolidated Financial Statements.

(b) The income statement data and other financial data for 1996 reflect the
results of the Clearplas Acquisition as of May 1, 1996 and the MaP
Acquisition as of November 1, 1996.

16
<PAGE> 17

(c) Reflects a non-cash charge representing unamortized original issue discount
on certain subordinated notes of the Company which were retired in 1992 at
their fair value.

(d) Reflects the adoption of the requirements of Statement of Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions."

(e) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges. Fixed charges consist of interest on
indebtedness plus that portion of lease rental expense representative of
the interest factor. The Company's earnings were insufficient to cover
fixed charges for the fiscal year ended December 31, 1992 by approximately
$4.4 million. Net income for 1992 includes a $5.8 million non-cash
extraordinary loss item which reflects unamortized original issue discount
on certain subordinated notes of the Company which were retired at their
face value.

(f) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is presented because it is widely accepted financial indicator of a
company's ability to incur and service debt. However, EBITDA should not be
considered in isolation or as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity.

(g) Shareholders' deficit results primarily from a distribution in 1988 to the
Company's shareholders of approximately $57 million as a dividend and a
repurchase of stock held by persons who were not employees of the Company
at such time, partially offset by the Company's cumulative net income,
dividends and other capital transactions.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following management's discussion and analysis of financial
condition and results of operations should be read in conjunction with the
Company's Consolidated Financial Statements (including the notes thereto)
appearing elsewhere in this Annual Report on Form 10-K. The Company's
financial statements for the years ended December 31, 1994 and 1995 have been
restated to reflect errors in previously reported amounts. See Note 11 of
Notes to Consolidated Financial Statements.

1996 FISCAL YEAR COMPARED TO 1995 FISCAL YEAR

Net sales of the fiscal year ended December 31, 1996 (the "1996 Fiscal
Year") increased by $37.8 million, or 21.1%, over net sales for the fiscal year
ended December 31, 1995 (the "1995 Fiscal Year"). The increase is primarily
attributable to the Clearplas Acquisition, which accounted for $24.2 million of
the increase in net sales of the Company from the 1995 Fiscal Year, and to the
MaP Acquisition, which accounted for $5.3 million of the increase in net sales
of the Company from the 1995 Fiscal Year. In addition, North American product
sales increased by $10.2 million, or 6.6%, primarily due to new program
launches. Tooling sales declined by $1.9 million, or $7.3%. This decline,
however, is not indicative of future program activity in that tooling related
inventory at December 31, 1996 increased by $7.4 million to $17.6 million from
$10.2 million at December 31, 1995.

Gross profit for the 1996 Fiscal Year increased by $1.9 million, or
5.1%, over gross profit for the 1995 Fiscal Year. Gross profit margin
decreased by 2.7%, from 20.9% in the 1995 Fiscal Year to 18.2% in the 1996
Fiscal Year. This decrease stemmed primarily from increased price concessions
(1.4%) and lower European margins compared to North American Margins (1.3%).

Selling, general and administrative expenses (SG&A) for the 1996
Fiscal Year increased by $1.0 million, or 6.4%. The increase results from
addition SG&A resulting from the MaP Acquisition and the Clearplas Acquisition
or $2.3 million, partially offset by lower North American SG&A. As a percent
of net sales, SG&A decreased from 8.7% in the 1995 Fiscal Year to 7.6% in the
1996 Fiscal Year. The percentage point reduction relates primarily to
increased 1996 Fiscal Year sales.

17
<PAGE> 18

Interest expense increased from $14.3 million in the 1995 Fiscal Year
to $15.2 in the 1996 Fiscal Year as a result of higher average debt, resulting
primarily from borrowings related to acquisitions and capital asset purchases.

Net income for the 1996 Fiscal Year remained substantially unchanged
from the 1995 Fiscal Year as a result of the foregoing.

18
<PAGE> 19

1995 FISCAL YEAR COMPARED TO 1994 FISCAL YEAR

Net sales for the 1995 Fiscal Year decreased by $14.9 million, or
7.7%, over net sales for the fiscal year ended December 31, 1994 (the "1994
Fiscal Year"). The decrease is attributable to a $18.4 million, or 10.7%,
decrease in the sales of injection molded plastic parts partially offset by a
$3.6 million, or 16.2%, increase in tooling revenues. The decrease in
injection-molded plastic part revenues resulted primarily from related vehicle
production decreases.

Gross profit for the 1995 Fiscal Year increased by $1.5 million, or
4.1%, from gross profit for the 1994 Fiscal Year. Gross profit margin for the
1995 Fiscal Year increased by 2.3 percentage points, from 18.6% in the 1994
Fiscal Year to 20.9% in the 1995 Fiscal Year. Gross margin improvement
resulted primarily from the Hartford City, Indiana, Grand Rapids, Michigan and
Chihuahua, Mexico facilities which were launched in 1994, and became fully
operational in the 1995 Fiscal Year.

SG&A expenses for the 1995 Fiscal Year increased by $1.6 million, or
11.3%, over the same period in the 1994 Fiscal Year. As a percent of net
sales. SG&A increased to 8.6% from 7.2% in the 1994 Fiscal Year. This increase
is primarily attributable to the aforementioned start-up facilities.

Interest expense increased from $12.8 million to $14.3 million in the
1995 Fiscal Year as a result of higher average debt, resulting primarily from
$14.0 million of capital asset purchases and a $2.9 million increase in net
working capital, excluding debt obligations.

Net income for the 1995 Fiscal Year decreased by $1.5 million, or
17.4%, from net income for the 1994 Fiscal Year as a result of the foregoing.

LIQUIDITY AND CAPITAL RESOURCES

The working capital deficit at December 31, 1996 was $40.2 million
reflecting a decrease in working capital of $49.3 million over December 31,
1995. The decrease is primarily a result of current maturities of long-term
debt obligations increasing to $64.5 million at December 31, 1996 compared to
$17.2 million at December 31, 1995.

Net cash provided from operations totaled $14.5 million and $11.7
million in the 1996 Fiscal Year and the 1995 Fiscal Year, respectively. Net
cash provided by operating activities in the 1996 Fiscal Year was comprised
primarily of $16.8 million from net income, depreciation and amortization.

Net cash used in investing activities of $47.9 million consisted of
$39.8 million of capital spending, $23.1 million of which related to
acquisitions. The Company believes that its 1997 capital expenditures
(exclusive of any potential acquisitions) will be approximately $15 million, or
which approximately $11 million will be for new programs and related capacity.
However, the Company's capital expenditures may be greater than currently
anticipated as a result of new business opportunities.

Net cash provided by financing activities was $33.5 million.
Additional borrowings less principal payments provided $31.1 million. Cash
dividends attributable to shareholder tax payments of $1.8 million were paid in
1996.

At December 31, 1996, the Company had total indebtedness of $149.1
million, of which $45.5 million was incurred pursuant to the Company's existing
credit facility and $65.0 million was incurred pursuant to the notes issued
under the Indenture dated November 17, 1992 by and between the Company and
Society Bank (now known as Mellon Bank), as amended (the "Old Notes").

The Company's principal cash requirements are to meet debt payments, fund
its capital plan (including, where necessary, acquisitions) and for working
capital needs. On February 19, 1997, the Company commenced a tender offer to
repurchase all of the Old Notes. On March 24, 1997, the Company entered into
the Senior Credit Facility, which provides for borrowings of up to $140.0
million, and completed a private offering of Senior Subordinated Notes in the
aggregate principal amount of $125.0

19
<PAGE> 20

million, with proceeds of approximately $121 million, after discounts,
commissions and expenses. Loans under the Senior Credit Facility are secured
by substantially all of the assets of the Company and constitute Senior Debt of
the Company.

The revolving credit portion of the Senior Credit Facility (the
"Revolving Credit Facility") constitutes $125.0 million of the Senior Credit
Facility of which $30.0 million of availability may be used to issue letters of
credit. A portion (the "Acquisition Portion") of the Revolving Credit Facility
in an amount equal to approximately $30 million will only be available
simultaneous with the consummation of certain acquisitions. Such Acquisition
Portion may be funded no later than July 22, 1997 (unless extended by the
requisite lenders). A portion of the Revolving Credit Facility in an amount
equal to the amount of Old Notes which are not tendered pursuant to the tender
offer will be available to make principal payments on the Old Notes.
Borrowings under the Revolving Credit Facility will be subject to a number of
conditions, including the satisfaction of a borrowing base formula.

The remaining $15.0 million of availability will be term indebtedness
(the "Term Facility Tranche"). The Company drew the full amount of the Term
Facility Tranche on March 24, 1997 to repay certain indebtedness of the
Company.

The Company has used, and intends to use, the net proceeds of the
offering of Senior Subordinated Notes and borrowings under the Senior Credit
Facility to repay, in full, borrowings under the existing credit facility and
certain other indebtedness including the Company's repurchase of $40.1 million
in aggregate principal amount of Old Notes validly tendered and not withdrawn
pursuant to a Tender Offer. After such repurchase on March 24, 1997,
approximately $24.9 million in aggregate principal amount of the Old Notes
remain outstanding.

The Company anticipates that its operating cash flow, together with
additional available borrowings under the Senior Credit Facility, will be
sufficient to meet the aforementioned requirements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and supplementary financial information
included in this Annual Report on Form 10-K are set forth on the Index to
Consolidated Financial Statements appearing on page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

ITEM 10. DIRECTORS AND OFFICERS

The following are the directors and executive officers of the Company:

<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Joel D. Tauber .......................... 61 Director
George Mars ............................. 59 Director
David C. Benoit ......................... 48 Chief Executive Officer and a Director
Leonard R. Griffin ...................... 45 President and Chief Operating Officer
A.E. "Gene" Stull ....................... 49 Vice President, Sales and Marketing
Calvin A. Saur .......................... 45 Vice President, Engineering
Douglas C. Chapple ...................... 45 Vice President, Eastern Group
Henry J. Wojtaszek ...................... 53 Vice President, Western Group

</TABLE>

20
<PAGE> 21

<TABLE>
<S> <C> <C>
E.R. "Skip" Autry ....................... 42 Chief Financial Officer
William J. Luka ......................... 50 Vice President, Quality
Richard J. Blough ....................... 50 Vice President, Administration and Human Resources
Mark J. Abbo ............................ 44 Treasurer
</TABLE>

Joel D. Tauber formed the Company with Messrs. Mars and Benoit in
1986 and has been a director and Chairman of the Board since that time. The
Company was formed to acquire the assets of the plastics division of Key
International Manufacturing, Inc. ("KIMI" ), a company involved in plastics
manufacturing for over twenty years and in which Mr. Tauber served as
President. Mr. Tauber is a manufacturing executive, business consultant and
investor. Mr. Tauber is President of Keyco Bond Fund, Inc. and serves as
Chairman of the Board of Complex Tooling & Molding, Inc., Keywell Corporation
and KMGl, Inc.

George Mars formed the Company with Messrs. Tauber and Benoit in
1986, has been a director since that time and Co-Chairman of the Board since
1995. Prior to his retirement, Mr. Mars served as President of the Company
from 1986 to 1995. Mr. Mars was a General Manager of the plastics division of
KIMI.

David C. Benoit formed the Company with Messrs. Tauber and Mars and
has been a director since the Company's formation in 1986. Mr. Benoit was
Executive Vice President of the Company from 1986 to 1995, when he was
appointed to his current position of Chief Executive Officer. Mr. Benoit was
Chief Financial Officer of KIMI and has 16 years experience in the automotive
industry.

Leonard R. Griffin, President and Chief Operating Officer of the
Company, joined the Company in April 1995. Prior to joining the Company, Mr.
Griffin served for five years as President of Woodbridge Inoac, Inc., a joint
venture partnership formed by Woodbridge Group, a Canadian plastics company and
Inoac, Ltd., a Japanese automotive parts supplier. Prior to serving as
President of Woodbridge, Mr. Griffin was General Manager of Rockwell
International's Automotive Plastics Products Operations. Mr. Griffin's
business experience consists of over 27 years in the automotive industry,
including the foregoing, and years spent in management, manufacturing and
quality control capacities at Libbey Owens Ford (now known as TRINOVA
Corporation) and Allen Industries.

A.E. Stull has been Vice President, Sales and Marketing of the Company
since November 1991, and has served in various other capacities at the Company
since 1988. Mr. Stull joined the Company in November 1988 and served as Vice
President, Sales and Marketing of the Company's Plymouth Division until
November 1991 when he became Vice President, Sales and Marketing for all
Company operations. Prior to joining the Company, Mr. Stull was Director of
Sales for Magna International, Inc., Tesma Group, an automotive supplier.

Calvin A. Saur has been employed at the Company since 1986 and, since
May 1995, has been Vice President, Engineering of the Company. Prior to
attaining his present position, Mr. Saur held various other positions at the
Company, including Vice President, Research and Development. Mr. Saur has been
employed in the automotive industry for 26 years.

Douglas C. Chapple has been Vice President, Eastern Group of the
Company since November 1996. Prior to joining the Company, Mr. Chapple was,
from 1994 to 1996, Vice President, Manufacturing of Dott Industries, Inc., a
privately owned finisher and decorator of plastic products, including painted
interior components, exterior grilles and encapsulated assemblies. Before
joining Dott Industries, Inc., Mr. Chapple was employed, for over 17 years, by
General Motors Corporation in a variety of manufacturing and engineering
capacities, including Director of Engineering at GM's Inland Fisher Guide
Division.

Henry J. Wojtaszek has been employed at the Company for 11 years in
various manufacturing capacities, and since 1996, has been Vice President,
Western Group. Mr. Wojtaszek has been employed in the automotive industry for
34 years and has been a president of the Society of Plastics Engineers.

21
<PAGE> 22

E.R. "Skip" Autry, Vice President, Finance and Procurement, is the
Chief Financial Officer of the Company and joined the Company in 1995. Prior
to joining the Company, Mr. Autry held various finance positions at Chrysler
Corporation from 1986 to 1995, including, Director, Corporate Accounting,
Manager, Corporate Investments and Analysis and Controller, Corporate Staff.
From 1976 to 1986, Mr. Autry held various positions at Coopers & Lybrand,
specializing in manufacturing and publicly held companies.

William J. Luka has been Vice President, Quality of the Company since
1993. Prior to joining the Company, Mr. Luka was employed at Ford Motor
Company for three years as a Supplier Quality Engineer Auditor, where he was
actively involved in the development of Ford's QOS Methodology. Among his
various duties, Mr. Luka is responsible for implementing ISO-9000 throughout
the Company. Mr. Luka has been employed in the automotive industry for 26
years and has been certified as a QS Auditor by the QS 9000 Registration
Accreditation Board.

Richard J. Blough has been Vice President, Administration and Human
Resources of the Company since 1996. Prior to joining the Company, Mr. Blough
was Vice President, Human Resources at Electro-Wire Products, Inc., for two
years, Electro-Wire Products supplies wiring and electrical components to the
automotive and heavy truck industries. Prior to joining the Company, from 1989
to 1994, Mr. Blough was Director of Human Resources for the corporate office at
American Brass Company Incorporated. Mr. Blough has 27 years experience in the
automotive industry.

Mark J. Abbo has been Treasurer of the Company since 1993. Mr. Abbo
joined the Company in 1988 as Corporate Controller and held that position until
he was appointed Treasurer in 1993.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information as to the cash
compensation earned by each of the Company's five most highly paid current
executive officers who earned more than $100,000 for services rendered to the
Company during the three years ended December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ALL OTHER
NAME AND TITLE YEAR SALARY BONUS COMPENSATION
- -------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
David C. Benoit ...................... 1996 $275,000 $125,000 $ 1,300(a)
Chief Executive Officer 1995 361,000 37,500 1,500(a)
1994 306,000 50,000 16,509(b)

Leonard R. Griffin ................... 1996 240,000 106,000 700(a)
President (c) 1995 156,125 76,042 ----
1994 ---- ---- ----

A.E. Stull ........................... 1996 137,000 39,200 1,300(a)
Vice President, Sales & Marketing 1995 137,000 35,000 1,500(a)
1994 130,000 20,000 1,500(a)

Calvin A. Saur ....................... 1996 117,000 24,250 1,300(a)
Vice President, Engineering 1995 110,000 20,000 1,500(a)
1994 110,000 10,000 1,500(a)

Henry J. Wojtaszek ................... 1996 96,500 40,950 1,300(a)
Vice President, Western Group 1995 90,000 21,042 1,500(a)
1994 85,000 54,438 1,500(a)

</TABLE>

22
<PAGE> 23

_____________
(a) Represents profit sharing amounts paid to the named executive
officers.

(b) Represents fees earned in capacity as a director of the Company and/or
amounts contributed to the Company's retirement savings plan on behalf
of the named executive officer.

1996 FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED EXERCISABLE
UNEXERCISED EXERCISABLE OPTIONS IN-THE-MONEY OPTIONS
NAME AT 1996 FISCAL YEAR-END AT 1996 FISCAL YEAR-END(A)
- ---- ----------------------- --------------------------
<S> <C> <C>
David C. Benoit ................. --- $---
Leonard R. Griffin .............. 1,250 26,000
A. E. Stull ..................... 5,500 318,550
Calvin A. Saur .................. --- ---
Henry J. Wojtaszek .............. --- ---
</TABLE>

(a) The dollar values in this column are calculated by determining the
difference between the fair market value of the securities underlying
the options and the exercise price of the options at December 31,
1996. The Company is privately held and no public market exists for
the Company's Common Stock. Fair market value has been determined by
the Company's Board of Directors.

CHANGE OF CONTROL ARRANGEMENTS - LONG TERM INCENTIVE PLAN

The Company's Long Term Incentive Plan (the "LTIP") is intended to
provide additional incentive to officers, including the executive officers
named in the Summary Compensation Table, and other eligible key employees of
the Company. The LTIP provides compensation to the employees who are included
in the LTIP and who remain employees as of the date of the occurrence of a
Third Party Transaction (as defined) of the Company. A Third Party Transaction
is defined as an initial public offering of the Company's Common Stock, a sale
of all or substantially all of the Company's Common Stock or a sale of all or
substantially all of the Company's assets. In the event that a Third Party
Transaction occurs, each eligible employee will be entitled to payment based on
a formula equal to the Total Incentive Pool (as defined) multiplied by the
result obtained by multiplying a factor assigned to each employee at the time
such employee is included in the LTIP times the employee's Cumulative Base
Compensation. Cumulative Base Compensation means the total base compensation
earned by such employee from the date of inclusion in the LTIP to the date of
occurrence of a Third Party Transaction. The factor assigned to each employee
is based upon the level of management in which the employee is included. Total
Incentive Pool means the total of all Cumulative Base Compensation of every
eligible employee. The LTIP will fund upon the occurrence of a Third Party
Transaction and terminates as of the date of such occurrence.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of the
Company's Common Stock as of January 31, 1997 owned by the directors of the
Company, the named executive officers, and all directors and officers as a
group, and by other holders known to the Company as having beneficial ownership
of more than 5% of the Common Stock.

23
<PAGE> 24

Each person exercises sole investment and voting rights with respect to the
shares of Common Stock shown in the table below unless otherwise stated. The
address of each of the following persons is Suite 200, 21333 Haggerty Road,
Novi, Michigan 48375.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK OUTSTANDING
DIRECTORS, OFFICERS AND FIVE PERCENT HOLDERS OWNED BENEFICIALLY SHARES(A)
- -------------------------------------------- ------------------ ---------
<S> <C> <C>
Joel D. Tauber .................................. 90,828 26.3%
David C. Benoit ................................. 79,833(b) 23.1%
George Mars ..................................... 62,065 18.0%
Kenneth A. Dishell .............................. 18,700 5.4%
Henry A. Wotjaszek .............................. 11,578 3.4%
Calvin A. Saur .................................. 8,924 2.6%
A.E. Stull ...................................... 6,000(c) 1.7%
Leonard R. Griffin .............................. 5,100(d) 1.5%
All directors and officers as a group (12 persons) 269,695(a) 78.2%
</TABLE>

(a) Includes 2,898 shares of Common Stock and options to acquire an
aggregate of 2,468 shares of Common Stock of the Company held by the
executive officers not otherwise included in the table.

(b) 79,833 shares are held by the David C. Benoit Trust, of which Mr.
Benoit is the Trustee and beneficiary.

(c) Includes options to acquire 5,500 shares of Common Stock of the
Company, which options are exercisable within 60 days of January 31,
1997.

(d) Includes options to acquire 2,500 shares of Common Stock of the
Company, which options are exercisable within 60 days of January 31,
1997.

Messrs. Tauber, Mars and Benoit, if they vote their shares in a
combination which exceeds 50% of the outstanding Common Stock, have the ability
to elect the entire Board of Directors of the Company and determine the outcome
of any other matter submitted to shareholders for approval. There are no
arrangements, however, among any of the shareholders of the Company, including
such persons, with respect to the voting or disposition of the Common Stock and
there are no arrangements between the shareholders and the Company, except that
shareholders may not make any dispositions which could result in the
termination of the Company's S Corporation status.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Shareholder Agreement. Each Shareholder, including Messrs. Tauber,
Mars and Benoit, has entered into a shareholder agreement with the Company.
Pursuant to such agreement, a shareholder may not transfer shares of the
Company's Common Stock without the written consent of the Company, except that
no consent is required for transfers to a decedent shareholder's beneficiaries,
but only if such transfers would not result in the disqualification of the
Company as a Subchapter S corporation.

Tax Allocation Agreement. The Company has entered into a Tax
Allocation Agreement with each of its shareholders relating to federal and
certain state and local income tax liabilities of the Company. This agreement
generally provides that (i) in any fiscal year in which the Company has a net
operating loss for tax purposes, each shareholder will pay to the Company an
amount equal to the net tax benefit realized by the shareholder as a result of
the allocation to the shareholder of such net operating loss incurred by the
Company, up to the amount of dividends received by the shareholders and not
previously repaid to the Company, (ii) if in any fiscal year the Company

24
<PAGE> 25

distributes dividends relating to the shareholders' tax liability which exceed
the actual liability at the highest marginal tax rated based on the Company's
net taxable income for such fiscal year, each shareholder will pay to the
Company, as a contribution to capital, an amount equal to the difference
between the dividends paid to the shareholder during such fiscal year and the
actual liability at the highest marginal tax rate based on the net taxable
income allocated to the shareholder for such fiscal year, and (iii) if the
Company's S election is disallowed or revoked for any taxable year for which
such election was in effect, each shareholder will pay to the Company the full
amount of any distribution -made to the shareholder with respect to such
taxable year for payment of taxes for income of the Company allocated to the
shareholder. Each shareholder has pledged the shareholder's common stock in
the Company to secure any debt that the shareholder may owe to the Company
pursuant to the Tax Allocation Agreement. In addition, the Company has the
right to set off any amounts owed to the Company by the shareholder under the
Tax Allocation Agreement against any future dividends or redemption payments
payable by the Company to the shareholder.

Consulting Arrangements. The Company has a consulting arrangements
with each of Messrs. Tauber and Mars. Mr. Tauber and Mr. Mars are each paid
$10,000 per month for services provided to the Company. In addition, Mr. Mars
receives compensation at a rate of $1,000 per diem, plus out-of-pocket
expenses, for each day of services provided, which services are not compensated
for by the $10,000. In 1996, Mr. Tauber and Mr. Mars earned $120,000 and
$178,000, respectively.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements:

The Consolidated Financial Statements filed with this report
are listed on Page F-1.

2. Financial Statement Schedules:

No financial statement schedules, for which provision is made
in the applicable accounting regulations of the Securities
and Exchange Commission, are required under the related
instructions or are immaterial and, therefore, have been
omitted.

3. Exhibits:

The exhibits filed with this Report are listed on the
"Exhibit Index" on page E-1.

(b) Reports on Form 8-K.

The Company filed no reports on Form 8-K during the period
ended December 31, 1996.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K, including,
without limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
international, national and local general economic and market conditions;
demographic changes; the size and growth of the automobile market or the plastic
automobile component market; consumer demand for the particular models or lines
that use the Company's parts; the ability of the Company to sustain, manage or
forecast its growth; the size, timing and mix of purchases of the Company's
products; new product development and introduction; existing

25
<PAGE> 26

government regulations and changes in, or the failure to comply with,
government regulations; adverse publicity; dependence upon OEMs (as defined);
liability and other claims asserted against the Company; competition; the loss
of significant customers or suppliers; fluctuations and difficulty in
forecasting operating results; changes in business strategy or development
plans; business disruptions; product recalls; warranty costs; the ability to
attract and retain qualified personnel; the ability to protect technology; the
ability to realize planned cost savings in its acquisitions; retention of
earnings; and other factors referenced in this Annual Report on Form 10-K.
Certain of these factors are discussed in more detail elsewhere in this Annual
Report on Form 10-K, including, without limitation, under the captions "Risk
Factors," "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Given these uncertainties, users of this Annual Report on Form 10-K are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained or incorporated by reference herein to reflect future events or
developments.

26
<PAGE> 27

KEY PLASTICS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets -- December 31, 1996 and 1995... F-3
Consolidated Statements of Income -- Years Ended December
31, 1996, 1995, and 1994.................................. F-4
Consolidated Statements of Shareholders' Deficit -- Years
Ended December 31, 1996, 1995,
and 1994.................................................. F-5
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1996, 1995 and 1994.......................... F-6
Notes to Consolidated Financial Statements.................. F-7-15
</TABLE>

F-1
<PAGE> 28

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of Key Plastics, Inc.:

We have audited the accompanying consolidated balance sheets of Key
Plastics, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, shareholder's equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Key
Plastics, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

As discussed in Note 11, the accompanying financial statements for the
years ended December 31, 1995 and 1994 have been revised.

Coopers & Lybrand Sig.

Detroit, Michigan
March 3, 1997, except as to the information
presented in paragraph 2 in Note 12,
for which the date is March 19, 1997.

F-2
<PAGE> 29

KEY PLASTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net.................................. $ 43,131,344 $ 29,406,392
Inventories............................................... 35,634,636 22,063,953
Prepaid expenses.......................................... 2,075,589 1,169,835
------------ ------------
Total current assets................................. 80,841,569 52,640,180
Property, plant and equipment, net.......................... 98,908,150 68,183,780
Intangibles, net............................................ 8,516,123 2,844,297
Other assets................................................ 4,938,500 2,421,728
------------ ------------
Total assets......................................... $193,204,342 $126,089,985
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt...................... $ 64,484,121 $ 17,172,590
Accounts payable.......................................... 35,706,663 19,189,716
Outstanding checks in excess of cash balances............. 5,371,686 1,017,869
Accrued interest.......................................... 5,275,094 3,771,017
Accrued payroll........................................... 3,527,258 1,570,546
Other accrued liabilities................................. 6,699,633 865,009
------------ ------------
Total current liabilities............................ 121,064,455 43,586,747
Capital lease obligation.................................... 2,057,059 2,669,133
Long-term debt.............................................. 82,520,618 99,797,587
Other long-term obligations................................. 3,124,779 911,332
Shareholders' equity (deficit):
Common stock, par value $.30 per share; 450,000 shares
authorized and 315,908 and 316,834 shares issued and
outstanding for 1996 and 1995, respectively............ 94,772 95,050
Additional paid-in capital................................ 9,786,603 10,002,725
Accumulated deficit....................................... (25,703,244) (30,972,589)
Currency translation...................................... 259,300 --
------------ ------------
Total shareholders' equity (deficit)................. (15,562,569) (20,874,814)
------------ ------------
Total liabilities and shareholders' equity
(deficit)......................................... $193,204,342 $126,089,985
============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-3
<PAGE> 30

KEY PLASTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales.......................................... $217,086,635 $179,250,924 $194,111,889
Cost of sales...................................... 177,634,483 141,707,160 158,051,681
------------ ------------ ------------
Gross profit.................................. 39,452,152 37,543,764 36,060,208
Selling, general and administrative expenses....... 16,532,360 15,531,393 13,955,313
Amortization....................................... 657,495 640,811 783,686
------------ ------------ ------------
Operating income.............................. 22,262,297 21,371,560 21,321,209
Interest expense................................... 15,211,183 14,292,010 12,752,054
------------ ------------ ------------
Net income.................................... $ 7,051,114 $ 7,079,550 $ 8,569,155
============ ============ ============
Net income per common share and common share
equivalents...................................... $21.33 $21.18 $25.42
============ ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-4
<PAGE> 31

KEY PLASTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED CURRENCY
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION TOTAL
------ ------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994............ 326,781 $98,035 $10,557,995 $(40,497,359) $(29,841,329)
Issuance of common stock............. 1,694 508 82,498 83,006
Dividend distributions, $6.45 per
share.............................. (2,098,745) (2,098,745)
Purchase and constructive retirement
of common stock.................... (3,074) (923) (138,257) (139,180)
Net income........................... 8,569,155 8,569,155
------- ------- ----------- ------------ -------- ------------
Balances, December 31, 1994.......... 325,401 97,620 10,502,236 (34,026,949) (23,427,093)
Dividend distributions, $6.54 per
share.............................. (4,025,190) (4,025,190)
Purchase and constructive retirement
of common stock.................... (8,567) (2,570) (499,511) (502,081)
Net income........................... 7,079,550 7,079,550
------- ------- ----------- ------------ -------- ------------
Balances, December 31, 1995.......... 316,834 95,050 10,002,725 (30,972,589) (20,874,814)
Dividend distributions, $5.63 per
share.............................. (1,781,769) (1,781,769)
Purchase and constructive retirement
of common stock.................... (926) (278) (216,122) (216,400)
Currency translation................. $259,300 259,300
Net income........................... 7,051,114 7,051,114
------- ------- ----------- ------------ -------- ------------
Balances, December 31, 1996.......... 315,908 $94,772 $ 9,786,603 $(25,703,244) $259,300 $(15,562,569)
======= ======= =========== ============ ======== ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE> 32

KEY PLASTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 1996, 1995, AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 7,051,114 $ 7,079,550 $ 8,569,155
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 9,174,944 6,971,368 5,483,469
Amortization................................... 657,495 640,811 783,686
Decrease (increase) in assets:
Accounts receivable............................ (13,724,952) (737,030) (7,940,450)
Inventories.................................... (13,570,683) 4,784,426 (4,540,689)
Prepaid expenses............................... (905,754) (35,551) 315,762
Increase (decrease) in liabilities:
Accounts payable............................... 16,516,947 (7,317,872) 9,804,905
Other accrued liabilities...................... 9,295,413 309,973 780,468
------------ ------------ ------------
Total adjustments............................ 7,443,410 4,616,125 4,687,151
------------ ------------ ------------
Net cash provided by operating
activities.............................. 14,494,524 11,695,675 13,256,306
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment,
net............................................ (16,738,353) (14,046,654) (16,189,222)
Property, plant and equipment from acquired
businesses..................................... (23,108,961) -- --
Increase in other assets, net..................... (8,102,038) (1,814,835) (261,969)
------------ ------------ ------------
Net cash used in investing activities..... (47,949,352) (15,861,489) (16,451,191)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings under debt agreements.............. 45,464,204 14,124,549 8,644,378
Principal payments under debt agreements and
capital lease obligations...................... (16,041,717) (5,546,172) (3,228,038)
Long-term agreements to finance acquisitions...... 1,676,693 -- --
Purchase of common stock.......................... (216,400) (502,081) (139,179)
Dividend distributions............................ (1,781,769) (4,025,190) (2,098,746)
Change in outstanding checks...................... 4,353,817 114,708 16,470
------------ ------------ ------------
Net cash provided by financing
activities.............................. 33,454,828 4,165,814 3,194,885
------------ ------------ ------------
Net increase in cash................................ 0 0 0
Cash, beginning of year............................. 0 0 0
------------ ------------ ------------
Cash, end of year................................... $ 0 $ 0 $ 0
============ ============ ============
Supplemental disclosure of cash flow information --
Cash paid during the year for interest............ $ 13,888,749 $ 13,209,030 $ 12,722,511
============ ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-6
<PAGE> 33

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION -- The consolidated financial statements include the accounts of
Key Plastics, Inc. and its majority-owned or controlled subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.

INVENTORIES -- Inventories are stated at the lower of cost or market with cost
determined using the FIFO (first-in, first-out) method.

REVENUE RECOGNITION:

Manufactured Parts -- Sales are recognized on manufactured parts when the
parts are shipped to the customer. Returns and allowances are recorded as a
reduction of sales in the period they occur.

Tooling -- Costs of tooling purchased or produced are included in
work-in-progress inventory. Generally, such tooling is owned by the customer and
used by the Company for the production of parts for the respective customer.
Income from contracts for the manufacture of customer tooling is accounted for
under the completed-contract method of accounting, which recognizes revenue upon
completion of contracts or identifiable segments. Costs in excess of customer
reimbursement are capitalized and amortized over the related part's production
period. Such capitalized costs, net of amortization, are included in other
assets.

PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. Depreciation is determined using the straight-line method over the
estimated useful lives of the assets.

The general ranges of lives are as follows:

<TABLE>
<S> <C>
Building and improvements................................... 25 to 30 years
Machinery and equipment..................................... 3 to 15 years
Furniture and fixtures...................................... 3 to 10 years
</TABLE>

Maintenance and repairs are expensed; renewals and betterments are
capitalized. Upon retirement, replacement, or sale, gains or losses are included
in income. The costs of major refurbishments and improvements to tools, utilized
in the manufacturing process, are capitalized in property, plant and equipment
and amortized over the lesser of three years or the remaining useful life of the
tool.

INTANGIBLES:

Goodwill -- Goodwill represents the excess of amounts paid and liabilities
assumed over the fair value of identifiable tangible and intangible assets
acquired. This amount is amortized using the straight-line method over a period
of 15 years. The company evaluates the carrying value of goodwill for potential
impairment on an ongoing basis. Such evaluations compare operating income before
amortization of goodwill to the amortization recorded for the operations to
which the goodwill relates. The company also considers projected future
operating results, trends and other circumstances in making such estimates and
evaluations.

Deferred Financing Costs -- Deferred financing costs represent costs
incurred in connection with obtaining financing. These costs are amortized over
the period the loans are outstanding.

Other Intangibles -- Other intangibles are amortized using the
straight-line method over five to 10 years.

Preproduction Costs -- Preproduction costs associated with the start-up of
manufacturing activities related to new parts are included in the cost of sales
in the period incurred.

INCOME TAXES -- The Company has elected to be taxed as an S-Corporation. Under
the provisions of this election, the Company is not subject to federal income
taxes. The Company's policy is to pay dividends to shareholders for the income
taxes due on the shareholders' share of the Company's taxable income. Under the
terms of a shareholder tax allocation agreement, the shareholders are required
to make additional capital

F-7
<PAGE> 34

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

1. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
contributions to the Company equivalent to the income tax benefit resulting from
their share of the Company's taxable losses. The additional capital
contributions are recorded when received.

EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS -- Earnings per share is
based on the weighted average number of shares of common stock outstanding and,
to the extent dilutive, common stock equivalents (relating to stock options and
warrants) outstanding during the period.

MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK -- The Company manufactures
injection molded plastic parts for sale primarily to domestic automobile
manufacturers and their suppliers. Substantially all of the Company's net sales
and accounts receivable are with three domestic automobile manufacturers and
their suppliers. Net sales to one of these customers accounted for approximately
58 percent of net sales in 1996, approximately 57 percent of 1995 sales and
approximately 62 percent in 1994. Net sales to a second one of these customers
accounted for approximately 9 percent of sales in 1996, approximately 10 percent
in 1995 and approximately 11 percent in 1994.

ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.

RECLASSIFICATIONS -- Certain reclassifications have been made to the 1995
financial statements to conform with classifications used in 1996.

2. INVENTORIES

The components of inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Raw materials....................................... $ 7,859,701 $ 5,645,958
Work in process..................................... 2,584,080 1,975,308
Finished goods...................................... 7,586,917 4,217,179
Customer tooling in process......................... 17,603,938 10,225,508
----------- -----------
Total.......................................... $35,634,636 $22,063,953
=========== ===========
</TABLE>

F-8
<PAGE> 35

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Land........................................................ $ 2,159,746 $ 1,563,585
Building and improvements................................... 35,182,494 19,994,952
Machinery and equipment..................................... 102,724,181 69,984,842
Furniture and fixtures...................................... 4,641,092 2,961,868
Construction-in-progress.................................... 1,844,632 5,546,328
------------ ------------
Total.................................................. 146,552,145 100,051,575
Less accumulated depreciation............................... 47,643,995 31,867,795
------------ ------------
Total.................................................. $ 98,908,150 $ 68,183,780
============ ============
</TABLE>

4. INTANGIBLES

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Goodwill.................................................... $6,592,469 $ 498,965
Deferred financing costs.................................... 4,164,458 3,831,958
Other intangibles........................................... 836,002 916,002
---------- ----------
Total....................................................... 11,592,929 5,246,925
Less accumulated amortization............................... 3,076,806 2,402,628
---------- ----------
Total....................................................... $8,516,123 $2,844,297
========== ==========
</TABLE>

F-9
<PAGE> 36

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

5. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Senior Notes due November 1999 requiring semiannual interest
payments at the rate of 14%............................... $ 65,000,000 $ 65,000,000
Revolving credit loan, bank, due May 1, 1997 requiring
monthly interest payments at prime (8.25% at December 31,
1996)..................................................... 28,988,307 16,260,684
Demand note, bank requiring monthly interest payments at
prime plus .5% (8.75% at December 31, 1996)............... 9,000,000 9,000,000
Installment financing, payable in monthly installments of
$250,000 plus interest at prime (8.25% at December 31,
1996)..................................................... 7,500,000 10,500,000
Industrial Development Revenue Bond, due August 1999,
requiring semiannual interest payments at rates ranging
from 6.9% to 7.2% and annual principal payments of
$465,000 to $1,000,000.................................... 2,465,000 3,265,000
Economic Development Revenue Bonds, payable on demand and
due July 1, 2004, requiring monthly interest payments at a
floating interest rate (3.8% at December 31, 1996)........ 3,600,000 4,050,000
Installment notes, due from January 1995 to April 1997,
requiring monthly principal payments plus interest at
prime plus 1.5% (9.25% at December 31, 1996).............. 64,809 359,405
Bank note payable, due April 1997, requiring monthly
interest payments at prime (8.25% at December 31, 1996)... 5,500,000 --
Installment notes, due from June 1998 to December 2003,
requiring semiannual principal payments plus interest of
8% or 11.64%, payable in Portuguese Escudos............... 895,761 --
1992 & 1994 series bonds, requiring semiannual principal
payments plus interest of 11.75%, payable in Portuguese
Escudos................................................... 2,903,226 --
Working capital loan collateralized by accounts receivable
of MaP (Portugal) operation. Interest for these loans
averages 12%.............................................. 2,721,548 --
Term loan and revolving credit facility, bearing interest at
LIBOR plus 2.5% (8.75% at December 31, 1996), payable in
British Pounds Sterling................................... 9,831,000 --
Subordinated Shareholders' Notes due August 2000, requiring
semiannual interest payment at the rate of 12%............ 8,535,088 8,535,088
------------ ------------
Total.................................................. 147,004,739 116,970,177
Less current maturities..................................... 64,484,121 17,172,590
------------ ------------
Total.................................................. $ 82,520,618 $ 99,797,587
============ ============
</TABLE>

Principal payments of long-term debt for each of the next five years is as
follows:

<TABLE>
<S> <C>
Current maturities.......................................... $64,484,121
1998........................................................ 4,955,736
1999........................................................ 67,759,452
2000........................................................ 9,329,540
2001........................................................ 475,890
</TABLE>

The Company's financing agreements contain many restrictive loan covenants,
some of which require the Company to maintain minimum levels of working capital,
require the maintenance of specified financial ratios,

F-10
<PAGE> 37

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

LONG-TERM DEBT -- (CONTINUED)
and restrict specified payments, including dividends. Under the most restrictive
covenant, the Company can only distribute dividends to shareholders equal to
their respective tax liabilities generated from the Company.

Substantially all of the Company's assets are pledged as collateral for
long-term debt.

The Economic Development Revenue Bonds are classified within current
maturities of long-term debt because the bonds are redeemable at the option of
the bondholders. Management believes the bonds can be remarketed in the event
the bondholders require redemption. The Bonds are collateralized by a $3.6
million letter of credit issued by a bank.

At December 31, 1996, the Company had the following additional open letters
of credit. The Industrial Development Revenue Bond is collateralized by a $2.5
million bank letter of credit. The Company is self-insured in the State of
Michigan for workers' compensation. As such, the Company has a bank letter of
credit in the amount of $815,000 to serve as collateral for any potential
claims. The Company pays commitment fees on the above letters of credit in the
amount of 1.5 percent per year of the committed amount.

The Company has a $41.0 million working capital line of credit. Interest
under the facility is at prime. Additional available borrowings under the
facility are limited primarily to a percentage of accounts receivable and
inventory and were approximately $1.0 million on December 31, 1996.

The Subordinated Shareholders' Notes are uncollateralized and subordinate
to all present and future bank indebtedness of the Company. Payments of
principal or interest to shareholders are subject to certain restrictions under
the terms of the Company's Senior Notes. If an employee-shareholder breaches the
terms of certain noncompete provisions, that person may forfeit any amount due
and owing to him or her under the Subordinated Shareholders' Notes. Interest
expense includes $1,024,000 in 1996, $1,099,000 in 1995 and $1,200,000 in 1994
related to the Subordinated Shareholders' Notes.

On February 19, 1997 the Company commenced an offer to repurchase the
Senior Notes at an expected 11% premium. As such, the Company estimates the fair
value of those notes at $72.2 million from February 19, 1997 until the offer
expires on March 18, 1997. See Note 12, Subsequent Events, for a more detailed
discussion of the transaction.

The carrying amount of the bank debt and the remaining other long-term debt
instruments approximate fair value as the floating rates inherent in this debt
reflect changes in overall market interest rates. The estimated fair value of
the Industrial Revenue Bond is approximately the book value of $3,265,000 as
estimated by discounting future cash flows based on the Company's incremental
borrowing rate for similar types of debt instruments. The carrying amount of the
Company's Subordinated Shareholders' Notes approximates fair value.

F-11
<PAGE> 38

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

6. LEASES

During 1994, the Company entered into four capital leases for a production
plant and various equipment in Mexico. The assets recorded under the capital
leases as included in property plant and equipment in the accompanying
consolidated balance sheets consist of the following:

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land........................................................ $ 406,965 $ 406,965
Production facility......................................... 2,170,914 2,170,914
Equipment................................................... 207,567 207,567
---------- ----------
Total.................................................. 2,785,446 2,785,446
---------- ----------
Less accumulated amortization............................... 130,373 35,917
---------- ----------
Total....................................................... $2,655,073 $2,749,529
========== ==========
</TABLE>

Present value of net minimum lease payments under the capital leases is
$1,894,640.

During 1995, the Company entered into a 10 year operating lease for Novi,
Michigan. The executive, engineering and sales departments moved to this
location. The Company also holds a renewable 4 year operating lease for the
Grand Rapids, Michigan plant that expires in 1998. The rental expense related to
these leases amounted to $530,454 in 1996 and $405,536 in 1995. Rental expense
for the Company's subsidiary in the United Kingdom was $617,000 in 1996.

Minimum future lease obligations on capital and operating leases in effect
at December 31, 1996 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1997........................................................ $865,084 $1,607,263
1998........................................................ 865,084 1,531,914
1999........................................................ 648,813 1,415,674
2000........................................................ 0 1,300,231
2001........................................................ 0 901,022
Thereafter.................................................. 0 2,262,155
</TABLE>

7. EMPLOYEE BENEFITS AND COMPENSATION COMMITMENTS

PENSION AND PROFIT-SHARING PLAN - The Company has a profit-sharing plan
covering a majority of its employees who are not covered by the defined
contribution plan. The plan provides for contributions determined at the Board
of Directors' discretion from current or accumulated net income. Contributions
are allocated on the basis of salaries and are funded as accrued.

STOCK OPTIONS - During 1995, the Company issued options to employees to
purchase shares of common stock at an exercise price of $61. No new options were
issued in 1996. The exercise price represents management's estimate of fair
market value of the shares at the date of issuance of the option. At December
31, 1996, options outstanding and exercisable totaled 22,668 shares.

F-12
<PAGE> 39

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

7. EMPLOYEE BENEFITS AND COMPENSATION COMMITMENTS -- (CONTINUED)
The following table summarizes the activity related to the Company's stock
option plans:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding at January 1, 1994.............................. 20,812 $24.01
====== ======
Granted................................................... 1,000 $49.00
------ ------
Exercised................................................. --
Forfeited................................................. --
Outstanding at December 31, 1994............................ 21,812 $25.15
====== ======
Granted................................................... 5,556 $61.10
Exercised................................................. --
Forfeited................................................. --
Outstanding at December 31, 1995............................ 27,368 $32.45
====== ======
Granted................................................... --
Exercised................................................. 4,700 24.40
Forfeited................................................. --
Outstanding at December 31, 1996............................ 22,668 $34.12
====== ======
</TABLE>

CHANGE IN CONTROL AGREEMENT -- LONG TERM INCENTIVE PLAN

Certain key management are included in a long term incentive plan. The plan
provides for payments upon the occurrence of an initial public offering, sale of
all or substantially all of the Company's stock or sale of all or substantially
all of the Company's assets. Payment is based upon a formula specified in the
plan.

8. LITIGATION AND CLAIMS

The Company is subject to various legal and regulatory proceedings and
claims which arise in the ordinary course of business. In the opinion of
management, the amount of any liability which may result with respect to these
actions will not materially affect the financial position of the Company.

Additionally, the Company is under investigation by the Ohio Environmental
Protection Agency ("OEPA") for possible violations of environmental emission
standards and permitting regulations at its Ohio facility. The Company is in the
process of providing the information requested by the OEPA and is taking the
necessary steps to comply with the regulations. At this point, no fines and
penalties have been assessed against the Company. However, based on current
information, management believes that the results of the investigation will not
materially affect the financial position of the Company.

9. ACQUISITIONS

During 1996, the Company acquired Clearplas, Ltd. (Clearplas) and Materias
Plasticas, S.A. (MaP). Both companies are automotive suppliers specializing in
injection molding, painting and assembly. The results of operations for
Clearplas and MaP are included in the Consolidated Statement of Income beginning
May 1 and November 1, respectively. These acquisitions were accounted for using
the purchase method. At December 31, 1996, Other Long-Term Obligations include
$1.7 million, representing the present value of deferred payments for the
acquired shares from one of these acquisitions.

F-13
<PAGE> 40

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

9. ACQUISITIONS -- (CONTINUED)
The Company acquired MaP pursuant to an agreement which provided for the
Company's acquisition of 38% of the voting stock of the Company and an option to
purchase all of the remaining shares of MaP. Commencing in 1996, the agreement
gives the Company significant operational control, including the appointment of
a majority of the Board of Directors, appointment of the general manager and the
ability to influence significant operational decisions. The option is subject to
MaP meeting certain performance criteria during 1998, with payment of the
purchase price for the option and the 38% to occur in 1999.

Prior to the acquisition, the Company had operated a joint venture with MaP
which began during 1993. The joint venture allowed the Company to establish a
base in Europe and transfer certain technologies it had developed to MaP. During
1995 the Company loaned MaP approximately $300,000 in cash. Additionally, during
1996 and 1995, the Company recognized royalties related to the provision of
technical, sales and management support of approximately $1,600,000 and
$400,000, respectively. During 1996 and 1995, the Company sold products totaling
approximately $1,400,000 and $400,000, respectively, of products to MaP for
finishing and sale to customers in Portugal.

10. SEGMENT DATA

The Company is a global supplier of highly engineered plastic components
for the automotive industry. Its comprehensive plastics manufacturing
capabilities include design and engineering, high-precision injection molding,
automated manufacturing and assembly, plastic painting and material and product
testing. The Company conducts manufacturing and painting operations from eleven
facilities in North America and two facilities in Europe. All of these
activities constitute a single business segment. Prior to 1996, nearly all of
the Company's operations and assets were within North America.

Financial information summarized by geographic area is as follows:

<TABLE>
<CAPTION>
1996
----
<S> <C>
Net Sales:
North America............................................. $187,636,306
Europe.................................................... 29,450,329
------------
$217,086,635
============
Operating Income:
North America............................................. $ 21,706,703
Europe.................................................... 555,594
------------
$ 22,262,297
============
Identifiable Assets:
North America............................................. $150,147,448
Europe.................................................... 43,056,894
------------
$193,204,342
============
</TABLE>

F-14
<PAGE> 41

KEY PLASTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

11. FINANCIAL STATEMENT REVISIONS RELATED TO PRIOR YEAR'S

Certain adjustments have been made to prior periods to correct errors in
previously reported amounts.

The balance sheet at December 31, 1994 had previously included at full
value, approximately $900,000 of uncollectible accounts receivable for which no
provision was established and excluded certain accrued liabilities totaling
approximately $200,000. A portion of the uncollectible accounts receivable had
been subsequently written off in 1995. Previously issued financial statements
for 1995 and 1994 have been restated to reflect the above matters, as follows:

<TABLE>
<CAPTION>
RESTATED PREVIOUSLY
AMOUNT ADJUSTMENT PRESENTED
-------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
1995:
Accounts receivable, net.................................. $ 29,406 $ (300) $ 29,706
Total current assets...................................... 52,640 (300) 52,940
Total assets.............................................. 126,090 (300) 126,390
Accrued liabilities....................................... 865 200 665
Total current liabilities................................. 43,587 200 43,387
Total shareholders' deficit............................... 20,875 500 20,375
Total liabilities and shareholders' deficit............... 126,090 (300) 126,390
Cost of sales............................................. 141,707 (600) 142,307
Net income................................................ 7,080 600 6,480
Net income per common share............................... $21.18 $1.79 $19.39
1994:
Accounts receivable, net.................................. 28,669 (900) 29,569
Accrued liabilities....................................... 682 200 482
Total shareholders' deficit............................... 23,427 1,100 22,327
Cost of sales............................................. 158,052 1,100 156,952
Net income................................................ 8,569 (1,100) 9,669
Net income per common share............................... $25.42 $(3.26) $28.68
</TABLE>

12. SUBSEQUENT EVENTS

On February 19, 1997 the Company commenced an offer to purchase its 14%
Senior Notes due 1999 (the "Old Notes"). Concurrently, the Company is in the
process of offering, in a private placement, New Senior Subordinated Notes with
a face amount of $125 million (the "New Notes"). Simultaneously, the Company
expects to enter into a new $140 million Senior Credit Facility. The proceeds
from the New Notes are expected to approximate $121 million. The Company expects
that proceeds from the New Notes together with borrowings under the Senior
Credit Facility will be used to repurchase a portion of the Old Notes and repay
indebtedness under its existing credit facility and certain other obligations.

On March 19, 1997, $40,135,000 of the Old Notes had been validly tendered
and not withdrawn pursuant to the Tender Offer. The premium related to the
repurchase of the Old Notes and the consent fees in the aggregate will be
$4,436,650 and the write-off of unamortized debt issuance costs related to the
Tender Offer will be $1,167,000.

During January 1997, the Company declared and paid approximately $733,000
in dividends to satisfy shareholders' income tax obligations.

* * * * * *

F-15
<PAGE> 42

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company, as amended. Incorporated herein by reference to Exhibit 3.1 to the
Company's Registration Statement No. 33-56048.

3.2 Bylaws of the Company, as amended. Incorporated herein by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.

4.1 Indenture, dated November 17, 1992, by and between the Company and Society National Bank, as Trustee (the
"Indenture"), (including 14% Senior Notes issued thereunder. Incorporated herein by referenced to Exhibit 4.1
to the Company's Registration Statement No. 33-56048.

4.2 Form of 12% Subordinated Notes due 2000. Incorporated herein by reference to Exhibit 4.4 to the Company's
Registration Statement No. 33-56048.

4.3 Loan Agreement, dated as of August 1, 1989, between the Company and the Town of Hamilton, Indiana.
Incorporated herein by reference to Exhibit 4.5 of the Company's Registration Statement 33-56048.

4.4 Reimbursement Agreement, dated as of November 17, 1992, between the Company and Comerica Bank. Incorporated
herein by reference to Exhibit 4.6 to the Company's Registration Statement No. 33-56048.

4.5 Loan Agreement, dated as of December 1, 1987, between the Company and the Economic Development Corporation of
the Township of Plymouth, Michigan. Incorporated herein by reference to Exhibit 4.7 to the Company's
Registration Statement No. 33-56048.

4.6 Reimbursement Agreement, dated as of December 1, 1987, between the Company and Manufacturers Bank of Detroit,
as amended. Incorporated herein by reference to Exhibit 4.8 to the Company's Registration Statement
33-56048.

10.1 Amended and Restated Tax Allocation Agreement dated as of August 9, 1988 between the Company and each of its
shareholders, as amended. Incorporated herein by reference to Exhibit 10.1 to the Company's Registration
Statement No. 33-56048.

10.2 Second Amended and Restated Loan Agreement, dated November 17, 1992, between the Company and Comerica Bank,
as amended. Incorporated herein by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.

11* Statement regarding computation of per share earnings.

21* Subsidiaries of the Registrant.

27* Financial Data Schedule (EDGAR version only).
</TABLE>

- -----------------
* Filed herewith

E-1
<PAGE> 43

SIGNATURES

Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

KEY PLASTICS, INC.

Dated: March 27, 1997 By: /s/ E.R. Autry
----------------------------
E.R. Autry
Vice President and Chief
Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date
<S> <C> <C>

- -------------------- Chief Executive Officer and Director March __, 1997
David C. Benoit (Principal Executive Officer)

/s/ E.R. Autry Vice President (Principal Financial March 27, 1997
- --------------------
E.R. Autry and Accounting Officer)

/s/ Joel D. Tauber
- -------------------- Director March 27, 1997
Joel D. Tauber

/s/ George Mars
- -------------------- Director March 27, 1997
George Mars

</TABLE>

<PAGE> 1

EXHIBIT 11

KEY PLASTICS, INC.

COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1995
---------------------------------- --------------------------------

INCOME ATTRIBUTABLE INCOME ATTRIBUTABLE
AVE. SHARES TO COMMON STOCK AVE. SHARES TO COMMON STOCK
OF COMMON ------------------- OF COMMON --------------------
STOCK PER STOCK PER
OUTSTANDING TOTAL SHARE OUTSTANDING TOTAL SHARE
----------- --------- ----- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
AS PRESENTLY REPORTED 325,812 8,569,155 28.30 321,131 7,079,550 22.05

ADD: COMMON STOCK EQUIVALENTS:

TREASURY STOCK ASSUMED TO BE
PURCHASED WITH OPTION PROCEEDS (11,955) (14,317)

WEIGHTED AVERAGE OF STOCK OPTIONS
ASSUMED TO BE EXERCISED 23,312 27,368
------- -------

NET COMMON STOCK EQUIVALENTS 11,357 13,051
------- -------

PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE 337,169 8,569,155 25.42 334,182 7,079,550 21.18
======= ========= ===== ======= ========= =====

<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------

INCOME ATTRIBUTABLE
AVE. SHARES TO COMMON STOCK
OF COMMON -------------------
STOCK PER
OUTSTANDING TOTAL SHARE
----------- --------- -----
<S> <C> <C> <C>
AS PRESENTLY REPORTED 316,401 7,051,114 22.29

ADD: COMMON STOCK EQUIVALENTS:

TREASURY STOCK ASSUMED TO BE
PURCHASED WITH OPTION PROCEEDS (10,163)

WEIGHTED AVERAGE OF STOCK OPTIONS
ASSUMED TO BE EXERCISED 24,368
-------

NET COMMON STOCK EQUIVALENTS 14,205
-------

PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE 330,606 7,051,114 21.33
======= ========= =====
</TABLE>

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES OF REGISTRANT

<TABLE>
<CAPTION>
Jurisdiction of Organization
Name of Subsidiary or Incorporation
- ------------------ ----------------------------
<S> <C>
Key Plastics International L.L.C Michigan

Key Plastics Automotive L.L.C Michigan

Key Plastics Technology, L.L.C Michigan

Key Plastics de Mexico S. del. C.V. Mexico

Materias Plasticas, S. A. Portugal

Key Plastics, U.K. United Kingdom

Clearplas, Ltd. United Kingdom

</TABLE>

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KEY PLASTICS,
INC.'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENEDED DECEMBER 31, 1996, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 43,131,344
<ALLOWANCES> 0
<INVENTORY> 35,634,636
<CURRENT-ASSETS> 80,841,569
<PP&E> 98,908,150
<DEPRECIATION> 0
<TOTAL-ASSETS> 193,204,342
<CURRENT-LIABILITIES> 121,064,455
<BONDS> 82,520,618
0
0
<COMMON> 94,772
<OTHER-SE> (15,657,341)
<TOTAL-LIABILITY-AND-EQUITY> 193,204,342
<SALES> 217,086,635
<TOTAL-REVENUES> 217,086,635
<CGS> 177,634,483
<TOTAL-COSTS> 177,634,483
<OTHER-EXPENSES> 17,189,855
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,211,183
<INCOME-PRETAX> 7,051,114
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,051,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,051,114
<EPS-PRIMARY> 21.33
<EPS-DILUTED> 21.33

</TABLE>