FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________
to __________________
Commission file number: 1-14120
BLONDER TONGUE LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
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Delaware 52-1611421
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One Jake Brown Road, Old Bridge, New Jersey 08857
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (732) 679-4000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of Exchange on which registered
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Common Stock, Par Value $.001 American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant (computed by using the closing stock price on March 21, 2000, as
reported by the American Stock Exchange): $22,172,993.
Number of shares of common stock, par value $.001, outstanding as of March 21,
2000: 7,583,157
Documents incorporated by reference:
Certain portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 4, 2000 (which is expected to be filed
with the Commission not later than 120 days after the end of the registrant's
last fiscal year) are incorporated by reference into Part III of this report.
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Forward-Looking Statements
In addition to historical information, this Annual Report contains
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those matters
discussed herein in the sections entitled Item 1 - Business, Item 3 - Legal
Proceedings, and Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. The words "believe", "expect",
"anticipate", "project" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission.
PART I
ITEM 1. BUSINESS
Introduction
Blonder Tongue Laboratories, Inc. ("Blonder Tongue" or the "Company") is a
designer, manufacturer and supplier of a comprehensive line of electronics and
systems equipment for the cable television ("CATV") industry (both franchise and
non-franchise, or "private," cable). The Company's products are used to acquire,
distribute and protect the broad range of communications signals carried on
fiber optic and coaxial cable distribution systems. These products are sold to
customers providing an array of communications services, including television,
high-speed data (Internet) and telephony, to single family dwellings, multiple
dwelling units ("MDUs"), the lodging industry and institutions such as
hospitals, prisons, schools and marinas. The Company's products are also used in
surveillance systems ranging in complexity from simple in-home monitoring
systems to advanced business security systems with hundreds of cameras.
Blonder Tongue's product line can be separated, according to function, into
the following categories: (i) headend products used by a system operator for
signal acquisition, processing, monitoring, controlling and manipulation for
further transmission ("Headend Products"), (ii) distribution products used to
permit signals to travel to their ultimate destination in a home, apartment
unit, hotel room, office or other terminal location ("Distribution Products"),
(iii) subscriber products (which include interdiction products) used to control
access to television programs, voice channels and data channels and to interface
with multiple television receivers, personal computers and telephone hand sets
("Subscriber Products"), and (iv) microwave products used to transmit the output
of headend products to multiple locations using point-to-point communication
links in the 18GHz range ("Microwave Products").
The Company's principal customers are systems integrators that design,
package, install and in most instances operate cable systems.
The Company has historically enjoyed, and continues to enjoy, a dominant
market position in the private cable industry. Over the past few years, however,
the Company has recognized that its continued growth will depend upon
successfully penetrating and expanding its sales to the much larger franchise
cable industry. The Company has also observed a recent blurring of the historic
distinction between private and franchise cable operators, at least as it
relates to serving the MDU market, as large franchise cable companies have been
selectively acquiring large MDU systems from private cable operators.
Accordingly, the Company's recent development efforts have focused primarily on
substantially increasing the Company's sales to the franchise cable industry,
initially through marketing of its interdiction products which enable a system
integrator to control subscriber access to premium channels and other enhanced
services through jamming controlled by a computer located off-premises.
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To this end, during March, 1998, the Company acquired all of the assets and
technology rights of the interdiction business of Scientific-Atlanta, Inc.
("Scientific"), including the SMI Interdiction product line which has been
engineered for the franchise cable market, for a purchase price consisting of
(i) $19 million in cash, (ii) 67,889 shares of the Company's common stock, (iii)
a warrant to purchase 150,000 additional shares of the Company's common stock at
an exercise price of $14.25 per share and (iv) assumption by the Company of
certain obligations under executory contracts with vendors and customers and
certain warranty obligations and other current liabilities of Scientific's
interdiction business.
The Company is also attempting to expand its franchise cable market sales
by offering circuit-switched telephony, internet protocol telephony and
high-speed cable modem products to franchise cable system operators. On January
31, 2000, the Company signed distributorship and license agreements with GAD
Line, Ltd., a supplier of advanced telephone-over-cable and high-speed data
system products used in hybrid-fiber coaxial networks. Initially, the
arrangement provides Blonder Tongue immediate access to distribute
telephony-over-cable and high-speed cable modem products in North America under
its private label and follows with access to certain technology and a license to
manufacture high-speed cable modems.
Industry Overview
The broadband signal distribution industry (involving the high-speed
transmission of television, telephony and internet signals) is currently
dominated by CATV. The markets for wireless, direct-broadcast satellite ("DBS")
and digital subscriber line ("DSL") used for this purpose are small presently,
but are growing more rapidly. Within the CATV market there are an increasing
number of metropolitan areas that have awarded second CATV franchises to create
competition with the existing franchisee. This "overbuilder" market is also
growing rapidly. The government has been in favor of competition in this market
and has passed regulations to encourage it. Franchise cable companies are ever
watchful of DBS penetration in their franchise areas and react rapidly to
competition from overbuilders, all to the eventual benefit of the consumer. To
fight competition, the operators offer more services and more TV channels as
well as discounted prices. The lineup of services typically includes an analog
block of channels from 54 to 550 MHz, high speed data service using high-speed
cable modems, cable telephony either interfacing with switched networks or
internet protocol networks, and digital television in the 550 to 750 MHz range.
These upgraded services are possible in every system that has been rebuilt to
750 MHz of bandwidth. The standard architecture for these enhanced systems
contemplates a hybrid distribution network with a combination of fiber optic and
coaxial cable to nodes of 100 to 500 subscribers, with coaxial cable from the
node to the customer and full reverse-path capability for the data and phone
services.
The traditional customer targeted for these expanded services is a
homeowner likely to remain in the same home as a long-term subscriber. For a
variety of reasons, including the transient nature of the residents of many
areas, high levels of theft of service and excessive cost of replacing lost or
stolen converters and modems, approximately 35% of CATV subscribers not only are
not offered the new services, but are never offered the full analog lineup of
channels. Since converters, DBS receivers, digital converters and modems are
offered at very low prices to stimulate sales, the operational costs in these
demographic areas are too high to justify the advanced services. To retain
customers in these areas a technology must be found that minimizes the
operational losses due to theft and "churn" while providing a level of video,
data and phone service that compares favorably with DBS, DSL and wireless
providers.
The Company believes that its lineup of products, which includes
interdiction as well as cable and telephone modems, is the ideal solution for
deployment in these areas. The market size of this pocket deployment strategy is
more than $500 million per year with a total potential in the next few years of
several billion dollars. Overbuilders are ideal targets for the Company's
products, with a total market size over the next several years that is difficult
to quantify, but is in excess of $1 billion.
CATV
Most CATV operators are building fiber optic networks with alternative
combinations of fiber optic and coaxial cable to deliver television signal
programming data and phone services on one drop cable. CATV's deployment of
fiber optic trunk has been completed in more than 50% of existing systems. The
system architecture being employed to accomplish the combined provision of
television and telephone service is a hybrid
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fiber coaxial ("HFC") network. In an HFC network, fiber optic trunk lines
connect to nodes which feed 200 to 400 subscribers, using coaxial cable.
Extensive rebuilding of a CATV system is required to provide the full array of
expanded services. Consequently, not only are the overbuilders faced with
enormous capital expenditures to enter the broadband signal delivery business,
but existing CATV system operators are faced with similar expenditures to
compete with them (or to discourage them from entering the race) to provide the
"information superhighway".
The Company believes that most major metropolitan areas will eventually
have complex networks of two or more independent operators interconnecting the
homes while private cable operators will have large networks interconnecting
many multi-dwelling complexes. All of these networks are potential users of
Blonder Tongue headend and interdiction products.
MDU
Since 1991, the FCC has designated special frequency bands enabling private
cable operators to link multiple properties to one central headend system via
microwave signal transmission, thereby spreading the cost of headend electronics
over multiple MDUs and a wider potential subscriber base. 18 GHz service, which
is wide enough to support the transmission of 72 channels of television
programming, has fueled the growth and product investment of MDU system
operators, and caused a substantial increase in the demand for quality Headend
Products. The use of 18 GHz for future interconnections is questionable at this
time due to both legal and technological impediments. During 1999, the FCC
issued a Notice of Proposed Rulemaking proposing to grant primary status for use
of the 18 GHz frequency band to Fixed Satellite Service Operators. While this
matter has not yet been resolved, it has generated a degree of uncertainty over
the use of this technology in private cable systems. Coupling this uncertainty
with the complexity of making these systems two-way for data and telephony,
results in systems that are no longer competitive with fiber optic cable. The
Company believes that since fiber optic networks are expanding at a tremendous
rate, most private cable networks will eventually employ fiber optics to make
interconnections between building and development sites. In addition, provisions
of the Telecommunications Act of 1996 permit private cable system operators to
use coaxial cable or fiber optic connections between adjacent properties where
no access to public rights-of-way are required. Further, fiber optic networks
built by regional and long distance telephone service providers, which are
common carriers, could be used by private cable system integrators as
interconnects.
Through the use of interconnected networks, private cable operators can
target geographic areas with multiple properties, many of which would not
otherwise have been considered economically feasible, for inclusion as part of
an extensive private cable network. In the past, properties with 100 to 200
subscribers could not financially justify more than 15 to 20 channels, but can
now be linked to a central headend and justify a high channel carrier service of
60 channels or more. This allows private cable operators to supply a wide
variety of programming at a price which is competitive with CATV.
The economic feasibility of a private cable system depends on controlling
the headend cost and spreading that cost over as many subscribers as possible
using links to multiple MDUs. Electronic equipment providing the best possible
performance-to-cost ratio is key to successfully providing for the needs of
private cable operators. The Company believes that its products are
cost-effective and competitive with the products of other companies supplying
the CATV industry, in terms of quality, number of channels and price.
Lodging
Until the early 1990's, one system integrator dominated the lodging market
and manufactured much of its own equipment. During the last ten years, other
private cable integrators have successfully entered and expanded the lodging
market by offering systems with more channels, video-on-demand and
interactivity. These systems have been well received in the market, as property
owners have sought additional revenues and guests have demanded increased
in-room conveniences. The integrators leading this market evolution rely upon
outside suppliers for their system electronics and are Blonder Tongue customers.
These companies and others offer lodging establishments VCR-based systems which
provide true video-on-demand movies with a large selection of titles. To meet
these demands, the typical lodging system headend will include as many as 20 to
40 receivers and as many as 60 to 80 modulators, and will be capable of
providing the guest with more free channels, video-on-demand for a broad
selection of movie titles, and even interactive services such as remote
check-out and concierge services. This
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is in contrast to the systems which preceded them which typically had 10 to 12
receivers and modulators and provided six to ten free channels and two to five
channels of VCR-based movies running at published scheduled times.
There is an accelerating trend to substitute video file servers for VCRs,
which the Company believes will eventually replace VCRs in video-on-demand
systems. The timing and speed of this transition is dependent on availability of
lower cost servers.
Most of the systems with video-on-demand service were initially in large
hotels, where the economics of high channel capacity systems are more easily
justified. The conversion of hotel pay-per-view systems into video-on-demand is
increasing. Smaller hotels and motels are being provided with video-on-demand as
technology results in reduced headend costs, keeping the market growth
reasonably steady.
International
For much of the world, CATV service lags the United States, but is rapidly
expanding as technological advancement reduces the cost to consumers. In
addition, economic development in Latin America and Asia has allowed first time
construction of integrated delivery systems that utilize a variety of
electronics and broadband hardware. The pace of growth is difficult to predict,
but as more alternatives become available and television service becomes
increasingly affordable, it is likely that more equipment will be placed in the
field.
The Company utilizes several distributors in Florida and within Latin
America with an experienced international sales manager supervising this effort.
Earlier efforts to expand the market through exclusive distribution arrangements
were unsatisfactory but accelerated growth is anticipated in the year 2000 and
beyond. With regard to the European market, the Company's "CE" certification
process is essentially complete and the Company is currently initiating efforts
to develop distributors in each European country. Blonder Tongue has already
exhibited in several international trade shows.
Additional Considerations
The technological revolution taking place in the communications industry,
which includes DBS, is providing digital television to an increasing number of
homes. Wireless cable systems and DSL over twisted paired phone lines also
utilize digital compression to provide channel capacity which is competitive
with CATV and other television delivery systems. In addition, franchise cable
companies and overbuilders are building fiber optic networks to offer video,
data, and telephony. There is also the possibility of convergence of data and
video communications, wherein computer and television systems merge and the
computer monitor replaces the television screen. While it is not possible to
predict with certainty which technology will be dominant in the future, it is
clear that digitized video and advances in the ability to compress the digitized
video signal make both digital television and the convergence of computer,
telephone and television systems technically possible.
Since United States television sets are analog (not digital), direct
satellite television and other digitally compressed programming requires Headend
Products or expensive set-top decoding receivers or converters to convert the
digitally transmitted satellite signals back to analog. The replacement of all
television sets with digital sets will be costly and take many years to
complete. The Company believes that for many years to come, program providers
will be required to deliver an analog television signal on standard channels to
subscribers' television sets using Headend Products at some distribution point
in their networks or employ decoding receivers at each television set. Headend
Products are a large segment of Blonder Tongue's business and except for systems
deploying expensive digital decoders at each television set, the Company
believes interdiction is an ideal product for a system operator to use to
control access to the multitude of programming that will be available. In the
completely digital environment which may develop over the long term, all analog
Headend Products will need to be replaced with pure digital products. The
Company and all other suppliers to private cable, franchise cable and the
television industry generally will need to design and manufacture new products
for that environment.
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Products
Blonder Tongue's products can be separated, according to function, into the
four broad categories described below:
o Headend Products used by a system operator for signal acquisition,
processing and manipulation for further transmission. Among the
products offered by the Company in this category are satellite
receivers (digital and analog), integrated receiver/decoders,
transcoders, demodulators, modulators, antennas and antenna mounts,
amplifiers, equalizers, and processors. The headend of a television
signal distribution system is the "brain" of the system, the central
location where the multi-channel signal is initially received,
converted and allocated to specific channels for distribution. In some
cases, where the signal is transmitted in encrypted form or digitized
and compressed, the receiver will also be required to decode the signal
or, in the case where digital signals are to be carried on the
distribution system, transcode its modulation from QPSK (quadrature
phase shift key) to QAM (quadrature amplitude modulation) since one is
optimum for satellite transmission and the other optimum for
fiber/coaxial distribution. Blonder Tongue is a licensee of General
Instrument Corporation's VideoCipher(R) and DigiCipher(R) encryption
technologies, EchoStar Communication Corp.'s digital technologies and
Hughes Network Systems' digital technologies, and integrates their
decoders into integrated receiver/decoder products, where required. The
Company estimates that Headend Products accounted for approximately 60%
of the Company's revenues in 1999, 70% in 1998, and 80% in 1997.
o Distribution Products used to permit signals to travel from the headend
to their ultimate destination in a home, apartment unit, hotel room,
office or other terminal location along a distribution network of fiber
optic or coaxial cable. Among the products offered by the Company in
this category are optical transmitters, optical receivers, line
extenders, broadband amplifiers, directional taps, splitters and wall
taps. In CATV systems, the distribution products are either mounted on
exterior telephone poles or encased in pedestals, vaults or other
security devices. In private cable systems the distribution system is
typically enclosed within the walls of the building (if a single
structure) or added to an existing structure using various techniques
to hide the coaxial cable and devices. The non-passive devices within
this category are designed to ensure that the signal distributed from
the headend is of sufficient strength when it arrives at its final
destination to provide high quality audio/video images.
o Subscriber Products used to control access to programming at the
subscriber's location and to split and amplify incoming signals for
transmission to multiple sites and multiple television sets within a
site. Among the products offered by the Company in this category are
addressable interdiction devices, cable modems, telephony modems,
splitters, couplers and multiplexers. The Company believes that the
most significant products within this category are: (i) its
VideoMask(TM) addressable signal jammer, licensed from Philips
Electronics North America Corporation and its affiliate Philips
Broadband Networks, Inc. in August 1995 under certain non-exclusive
technology and patent license agreements (the "Philips License
Agreements"), (ii) the SMI Interdiction product line acquired from
Scientific as part of its interdiction business, and (iii) its recently
introduced circuit-switched telephony headend equipment and cable and
telephony modems for high-speed Internet access, telephony and data
transfers, which are available to the Company through its licensing and
distributorship agreements with GAD Line, Ltd. Interdiction products
limit, through jamming of particular channels, the availability of
programs to subscribers. Such products enable an integrator to control
subscriber access to premium channels and other enhanced services
through a computer located off-premises. They also eliminate the
necessity of an operator having to make a service call to install or
remove passive traps and eliminate the costs associated with damage or
loss of set-top converters in the subscribers' locations. Interdiction
products are also being successfully used by CATV operators as an
anti-piracy system in conjunction with set-top converters. The Company
believes that the reduction in operating costs, programming piracy, and
converter loss which can be obtained through the use of interdiction
will be a significant factor in further product penetration into the
franchise cable market. While it is not possible to predict the breadth
of market acceptance for these products, the Company believes the
potential is substantial in both the MDU market and franchise cable
market as alternatives to, or in conjunction with, set-top converters
and as a viable option for companies and municipalities, who are
overbuilding existing cable infrastructures and are seeking a more
consumer-friendly and more cost-effective way to compete with the
incumbent franchise cable operator.
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o Microwave Products used to transmit the output of a cable system
headend to multiple locations using point-to-point communication links
in the 18 GHz range of frequencies. Among the products offered by the
Company in this category are power amplifiers, repeaters, receivers,
transmitters and compatible accessories. These products convert the
headend output up to the microwave band and transmit this signal using
parabolic antennas. At each receiver site, a parabolic antenna-receiver
combination converts the signal back to normal VHF frequencies for
distribution to subscribers at the receiver site.
The Company will modify its products to meet specific customer
requirements. Typically, these modifications are minor and do not materially
alter the functionality of the products. Thus the inability of the customer to
accept such products does not generally result in the Company being otherwise
unable to sell such products to other customers.
Research and Product Development
The markets served by Blonder Tongue are characterized by technological
change, new product introductions, and evolving industry standards. To compete
effectively in this environment, the Company must engage in continuous research
and development in order to (i) create new products, (ii) expand the frequency
range of existing products in order to accommodate customer demand for greater
channel capacity, (iii) license new technology (such as digital satellite
receiver decoders, high-speed cable modems and telephony modems), and (iv)
acquire products incorporating technology which could not otherwise be developed
quickly enough using internal resources, to suit the dynamics of the evolving
marketplace. Research and development projects are often initially undertaken at
the request of and in an effort to address the particular needs of its customers
and customer prospects with the expectation or promise of substantial future
orders from such customers or customer prospects. Additional research and
development efforts are also continuously underway for the purpose of enhancing
product quality and engineering to lower production costs. For the acquisition
of new technologies, the Company may rely upon technology licenses from third
parties when the Company believes that it can obtain such technology more
quickly and/or cost-effectively from such third parties than the Company could
otherwise develop on its own, or when the desired technology is proprietary to a
third party. There were 23 employees in the research and development department
of the Company at December 31, 1999.
Recent research and development initiatives include a new line of fiber
optics distribution equipment, a transcoder line to convert satellite digital
signals to QAM digital signals, a single subscriber interdiction product for
single family dwellings and an internet connectivity device for use in cable
systems to allow MDU subscribers to access the internet using DirecTV's
DirecPC(TM) technology to download data through their cable connection at speeds
of up to 400 KBPS, almost 10 times the speed of the traditional 56 KBPS
telephone modem.
Marketing and Sales
Blonder Tongue markets and sells its products worldwide to private cable
integrators (which accounted for approximately 80% of the Company's revenues for
fiscal year 1999, approximately 65% for fiscal year 1998 and approximately 80%
for fiscal year 1997), to overbuilders, and to franchise cable integrators.
Sales are made directly to customers by the Company's internal sales force, as
well as through numerous domestic and international stocking distributors.
The Company's sales and marketing function is predominantly performed by
its internal sales force. Should it be deemed necessary, the Company may retain
independent sales representatives in particular geographic areas or targeted to
specific customer prospects. The Company's internal sales force consists of
approximately 29 employees, which currently includes eleven salespersons (six
salespersons in Old Bridge, New Jersey, one salesperson in each of Cincinnati,
Ohio, Cudahy, Wisconsin, Castle Rock, Colorado, Folsom, California, and Miami,
Florida) and 18 sales-support personnel at the Company headquarters in Old
Bridge, New Jersey.
The Company's standard customer payment terms are 2%-10, net 30 days. From
time to time where the Company determines that circumstances warrant, such as
when a customer agrees to commit to a large blanket purchase order, the Company
extends payment terms beyond its standard payment terms.
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The Company has several marketing programs to support the sale and
distribution of its products. Blonder Tongue participates in industry trade
shows and conferences. The Company also publishes technical articles in trade
and technical journals, distributes sales and product literature and has an
active public relations plan to ensure complete coverage of Blonder Tongue's
products and technology by editors of trade journals. The Company provides
system design engineering for its customers, maintains extensive ongoing
communications with many original equipment manufacturer customers and provides
one-on-one demonstrations and technical seminars to potential new customers.
Blonder Tongue supplies sales and applications support, product literature and
training to its sales representatives and distributors. The management of the
Company travels extensively, identifying customer needs and meeting potential
customers.
The Company had approximately $17.3 million and $5.4 million in purchase
orders as of December 31, 1999 and December 31, 1998, respectively. All of the
purchase orders outstanding as of December 31, 1999 are expected to be shipped
prior to December 31, 2000. The purchase orders are for the future delivery of
products and are subject to cancellation by the customer.
Customers
Blonder Tongue has a broad customer base, which in 1999 consisted of more
than 1,000 active accounts. Approximately 26%, 33% and 40% of the Company's
revenues in fiscal years 1999, 1998 and 1997, respectively, were derived from
sales of products to the Company's five largest customers. In 1999, sales to
Toner Cable Equipment, Inc. accounted for approximately 14% of the Company's
revenues. There can be no assurance that any sales to these entities,
individually or as a group, will reach or exceed historical levels in any future
period. However, the Company anticipates that these customers will continue to
account for a significant portion of the Company's revenues in future periods,
although none of them is obligated to purchase any specified amount of products
(beyond outstanding purchase orders) or to provide the Company with binding
forecasts of product purchases for any future period.
The complement of leading customers may shift as the most efficient and
better financed integrators grow more rapidly than others. The Company believes
that many integrators will grow rapidly, and as such the Company's success will
depend in part on the viability of those customers and on the Company's ability
to maintain its position in the overall marketplace by shifting its emphasis to
those customers with the greatest growth and growth prospects. Any substantial
decrease or delay in sales to one or more of the Company's leading customers,
the financial failure of any of these entities, or the Company's inability to
develop and maintain solid relationships with the integrators which may replace
the present leading customers, would have a material adverse effect on the
Company's results of operations and financial condition.
During 1999, several of the Company's customers experienced financial
difficulties and demonstrated the inability to pay. As of December 31, 1999,
these customers had outstanding accounts with the Company of approximately $1.6
million, which remained outstanding for more than ninety (90) days. Accordingly,
the Company provided for this exposure.
The Company's revenues are derived primarily from customers in the
continental United States, however, the Company also derives revenues from
customers outside the continental United States, primarily in underdeveloped
countries. Television service is less developed in many international markets,
particularly Latin America and Asia, creating opportunity for those participants
who offer quality products at a competitive price. Sales to customers outside of
the United States represented approximately 2%, 2% and 3% of the Company's
revenues in fiscal years 1999, 1998 and 1997, respectively. All of the Company's
transactions with customers located outside of the continental United States are
denominated in U.S. dollars, therefore, the Company has no material foreign
currency transactions.
Manufacturing and Suppliers
Blonder Tongue's manufacturing operations are located at the Company's
headquarters in Old Bridge, New Jersey. The Company's manufacturing operations
are vertically integrated and consist principally of the assembly and testing of
electronic assemblies built from fabricated parts, printed circuit boards and
electronic devices and the fabrication from raw sheet metal of chassis and
cabinets for such assemblies. Management
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continues to implement a significant number of changes to the manufacturing
process to increase production volume and reduce product cost, including
logistics modifications on the factory floor, an increased use of surface mount,
axial lead and radial lead robotics to place electronic components on printed
circuit boards, a continuing program of circuit board redesign to make more
products compatible with robotic insertion equipment and an increased
integration in machining and fabrication. All of these efforts are consistent
with and part of the Company's strategy to provide its customers with high
performance-to-cost ratio products.
Outside contractors supply standard components and etch printed circuit
boards to the Company's specifications. While the Company generally purchases
electronic parts which do not have a unique source, certain electronic component
parts used within the Company's products are available from a limited number of
suppliers and can be subject to temporary shortages because of general economic
conditions and the demand and supply for such component parts. If the Company
were to experience a temporary shortage of any given electronic part, the
Company believes that alternative parts could be obtained or system design
changes implemented. However, in such situations the Company may experience
temporary reductions in its ability to ship products affected by the component
shortage. The Company purchases several products from sole suppliers for which
alternative sources are not available, such as the VideoCipher(R) and
DigiCipher(R) encryption systems manufactured by General Instrument Corporation,
which are standard encryption methodologies employed on U.S. C-Band and Ku-Band
transponders, EchoStar digital satellite receiver decoders, which are
specifically designed to work with the DISH Network(TM), and Hughes Network
Systems digital satellite receivers for delivery of DIRECTV(TM) programming. An
inability to timely obtain sufficient quantities of these components could have
a material adverse effect on the Company's operating results. The Company does
not have a supply agreement with General Instrument Corporation or any other
supplier. The Company submits purchase orders to its suppliers on an as-needed
basis.
Blonder Tongue maintains a quality assurance program which tests samples of
component parts purchased, as well as its finished products, on an ongoing basis
and also conducts tests throughout the manufacturing process using commercially
available and in-house built testing systems that incorporate proprietary
procedures. Blonder Tongue performs final product tests on 100% of its products
prior to shipment to customers.
Competition
All aspects of the Company's business are highly competitive. The Company
competes with national, regional and local manufacturers and distributors,
including companies larger than Blonder Tongue which have substantially greater
resources. Various manufacturers who are suppliers to the Company sell directly
as well as through distributors into the franchise and private cable
marketplaces. Because of the convergence of the cable, telecommunications and
computer industries and rapid technological development, new competitors may
seek to enter the principal markets served by the Company. Many of these
potential competitors have significantly greater financial, technical,
manufacturing, marketing, sales and other resources than Blonder Tongue. The
Company expects that direct and indirect competition will increase in the
future. Additional competition could result in price reductions, loss of market
share and delays in the timing of customer orders. The principal methods of
competition are product differentiation, performance and quality, price and
terms, service, and technical and administrative support.
Intellectual Property
The Company currently holds 30 United States patents and 14 foreign patents
covering a wide range of electronic systems and circuits, of which 19 United
States patents and 10 foreign patents were obtained in the acquisition of
Scientific's interdiction business. Other than certain of the patents acquired
from Scientific, none of the Company's patents are considered material to the
Company's present operations because they do not relate to high volume
applications. Because of the rapidly evolving nature of the CATV industry, the
Company believes that its market position as a leading supplier to private cable
integrators derives primarily from its ability to develop a continuous stream of
new products which are designed to meet its customers' needs and which have a
high performance-to-cost ratio.
The Company is a licensee of Philips Electronics North America Corporation
and its affiliate Philips Broadband Networks, Inc., General Instrument
Corporation ("GI"), Houston Tracker Systems, Inc., a
9
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subsidiary of EchoStar Communications Corp. ("EchoStar"), Hughes Network
Systems, a Hughes Electronics Corporation ("Hughes"), GAD Line, Ltd., and
several smaller software development companies.
Under the Philips License Agreements, the Company is granted a
non-exclusive license for a term which expires in 2010, concurrently with the
last to expire of the relevant patents. The Philips License Agreements provide
for the payment by the Company of a one-time license fee and for the payment by
the Company of royalties based upon unit sales of licensed products.
The Company is a licensee of GI relating to GI's VideoCipher(R) encryption
technology and is also a party to a private label agreement with GI relating to
its DigiCipher(R) technology. Under the VideoCipher(R) license agreement, the
Company is granted a non-exclusive license under certain proprietary know-how,
to design and manufacture certain licensed products to be compatible with the
VideoCipher(R) commercial descrambler module for a term of ten years, expiring
in August, 2000. The VideoCipher(R) license agreement provides for the payment
by the Company of a one-time license fee for the Company's first model of
licensed product and additional one-time license fees for each additional model
of licensed product. The VideoCipher(R) license agreement also provides for the
payment by the Company of royalties based upon unit sales of licensed products.
Under the DigiCipher(R) private label agreement, the Company is granted the
non-exclusive right to sell DigiCipher(R) II integrated receiver decoders
bearing the Blonder Tongue name for use in the commercial market for a term
expiring in December, 2000. The DigiCipher(R) private label agreement provides
for the payment by the Company of a one-time license fee for the Company's first
model of licensed product and additional one-time license fees for each
additional model of licensed product.
In November, 1996, the Company entered into a license agreement with
EchoStar, pursuant to which the Company is licensed to manufacture and sell
digital satellite receiver systems which are compatible with digital programming
transmitted by EchoStar's DISH Network(TM), for use in the commercial market.
The agreement is for a term of five years, expiring in November, 2001. The
EchoStar license agreement provides for the payment by the Company of a one-time
license fee and for the payment of royalties based upon unit sales of licensed
products.
During 1996, the Company also entered into several software development and
license agreements for specifically designed controller and interface software
necessary for the operation of the Company's Video Central(TM) remote
interdiction control system, which is used for remote operation of VideoMask(TM)
signal jammers installed at subscriber locations. These licenses are perpetual
and require the payment of a one-time license fee and in one case additional
payments, the aggregate of which are not material.
In February, 1998, the Company entered into an exclusive license agreement
with Hughes, pursuant to which the Company is licensed to design, manufacture,
and market commercial digital satellite receivers which are compatible with
DIRECTV(TM) programming, for use in headend applications in both the franchised
and private cable markets. The agreement is for a term of five (5) years,
expiring in February 2003.
In January, 2000, the Company entered into distributorship and licensing
agreements with GAD Line, Ltd., a designer and manufacturer of advanced
telephony-over-cable and high-speed data system products used in HFC networks.
Under the agreements, the Company will obtain immediate distribution rights for
the sale of switched telephony-over-cable products and high-speed cable modems,
followed by access to certain proprietary technology and a license to
manufacture cable modems under the Company's private label. This license is
perpetual (subject to the payment of royalties) and provides for the payment by
the Company of royalties based upon unit sales of licensed products.
The Company relies on a combination of contractual rights and trade secret
laws to protect its proprietary technologies and know-how. There can be no
assurance that the Company will be able to protect its technologies and know-how
or that third parties will not be able to develop similar technologies and
know-how independently. Therefore, existing and potential competitors may be
able to develop products that are competitive with the Company's products and
such competition could adversely affect the prices for the Company's products or
the Company's market share. The Company also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are essential to establishing and maintaining its leadership position.
10
<PAGE>
Regulation
Private cable, while in some cases subject to certain FCC licensing
requirements, is not presently burdened with extensive government regulations.
Franchise cable operators had been subject to extensive government regulation
pursuant to the Cable Television Consumer Protection and Competition Act of
1992, which among other things provided for rate rollbacks for basic tier cable
service, further rate reductions under certain circumstances and limitations on
future rate increases. The Telecommunications Act of 1996 has deregulated many
aspects of franchise cable system operation and has opened the door to
competition among cable operators and telephone companies in each of their
respective industries. The Company believes that this legislation will increase
the base of potential customers for the Company's products.
In September, 1998, the FCC issued a Notice of Proposed Rulemaking
proposing to grant primary status for use of the 18 GHz frequency band to Fixed
Satellite Service Operators. If adopted, this rule would adversely affect sales
of 18 GHz microwave products to private cable operators. Pending release of the
FCC's Report and Order with respect to this matter, any applications filed by
private cable operators for use of the 18 GHz frequency band will be
grandfathered.
Environmental Regulations
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
processes. The Company did not incur in 1999 and does not anticipate incurring
in 2000 material capital expenditures for compliance with federal, state and
local environmental laws and regulations. There can be no assurance, however,
that changes in environmental regulations will not result in the need for
additional capital expenditures or otherwise impose additional financial burdens
on the Company. Further, such regulations could restrict the Company's ability
to expand its operations. Any failure by the Company to obtain required permits
for, control the use of, or adequately restrict the discharge of, hazardous
substances under present or future regulations could subject the Company to
substantial liability or could cause its manufacturing operations to be
suspended.
The Company presently holds a permit from the New Jersey Department of
Environmental Protection ("NJDEP"), Division of Environmental Quality, Air
Pollution Control Program relating to its operation of certain process
equipment, which permit expires in June, 2001. The Company has held such a
permit for this equipment on a substantially continuous basis since
approximately April, 1989. The Company also has authorization under the New
Jersey Pollution Discharge Elimination System/Discharge to Surface Waters
General Industrial Stormwater Permit, Permit No. NJ0088315. This permit will
expire January 2002.
Employees
The Company employs approximately 588 people, including 451 in
manufacturing, 23 in research and development, 17 in quality assurance, 46 in
production services, 29 in sales and marketing, and 22 in a general and
administrative capacity. 372 of the Company's employees are members of the
International Brotherhood of Electrical Workers Union, Local 2066, which has a
three year labor agreement with the Company expiring in February, 2002.
ITEM 2. PROPERTIES
The Company's principal manufacturing, engineering, sales and
administrative facilities consist of one building totaling approximately 130,000
square feet located on approximately 20 acres of land in Old Bridge, New Jersey
(the "Old Bridge Facility") which is owned by the Company. The Company also
leases office space in Cincinnati, Ohio and Cudahy, Wisconsin for which it pays
rent of approximately $260 and $300 per month, respectively.
Management believes that the Old Bridge Facility is adequate to support the
Company's anticipated needs in 2000. Subject to compliance with applicable
zoning and building codes, the Old Bridge real
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<PAGE>
property is large enough to double the size of the plant to accommodate
expansion of the Company's operations should the need arise.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain proceedings incidental to the ordinary
course of its business, none of which, in the current opinion of management, is
likely to have a material adverse effect on the Company's business, financial
condition, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1999, through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been traded on the American Stock Exchange
since the Company's initial public offering on December 14, 1995. The following
table sets forth for the fiscal quarters indicated, the high and low sale prices
for the Company's Common Stock on the American Stock Exchange.
Market Information
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1999: High Low
---- ---
<S> <C> <C>
First Quarter ................................................ 7 7/8 5
Second Quarter................................................ 7 3/8 4 7/8
Third Quarter ................................................ 9 3/4 5 11/16
Fourth Quarter ............................................... 8 5/8 4 3/4
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1998: High Low
---- ---
<S> <C> <C>
First Quarter................................................. 16 1/8 12 3/8
Second Quarter................................................ 14 1/4 9 3/8
Third Quarter................................................. 11 3/4 5 3/8
Fourth Quarter................................................ 9 1/4 5 1/4
</TABLE>
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "BDR".
Holders
As of March 21, 2000, the Company had approximately 68 holders of record of
the Common Stock. Since a portion of the Company's common stock is held in
"street" or nominee name, the Company is unable to determine the exact number of
beneficial holders.
Dividends
The Company currently anticipates that it will retain all of its earnings
to finance the operation and expansion of its business, and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Other
than in connection with certain "S" corporation distributions, the Company has
never declared or paid
12
<PAGE>
any cash dividends on its Common Stock. Any determination to pay dividends in
the future is at the discretion of the Company's Board of Directors and will
depend upon the Company's financial condition, results of operations, capital
requirements, limitations contained in loan agreements and such other factors as
the Board of Directors deems relevant. The Company's loan agreement with First
Union National Bank prohibits the payment of dividends by the Company on its
Common Stock, unless at the time of and after giving effect to any proposed
dividend payment, the Company is not in default under the loan agreement and is
in compliance with certain financial covenants relating to, among other things,
tangible net worth and debt service coverage.
13
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of earnings data presented below for
each of the years ended December 31, 1999, 1998 and 1997, and the selected
consolidated balance sheet data as of December 31, 1999 and 1998, are derived
from, and are qualified by reference to, the audited consolidated financial
statements of the Company and notes thereto included elsewhere in this Form
10-K. The selected consolidated statement of earnings data for the years ended
December 31, 1996 and 1995 and the selected consolidated balance sheet data as
of December 31, 1997, 1996 and 1995 are derived from audited consolidated
financial statements not included herein. The data set forth below is qualified
in its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, notes thereto and other financial and
statistical information appearing elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1999 1998(1) 1997 1996 1995
---- ------- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings Data:
Net sales............................... $56,805 $70,792 $62,057 $48,862 $51,982
Cost of goods sold...................... 39,074 45,344 39,656 30,613 32,528
------- ------- ------- ------- -------
Gross profit.......................... 17,731 25,448 22,401 18,249 19,454
------- ------- ------- ------- -------
Operating expenses:
Selling, general and administrative... 13,598 10,755 9,938 9,135 9,791
Research and development.............. 2,070 2,156 1,954 1,972 2,011
------- ------- ------- ------- -------
Total operating expenses.............. 15,668 12,911 11,892 11,107 11,802
------- ------- ------- ------- -------
Earnings from operations................ 2,063 12,537 10,509 7,142 7,652
Interest expense........................ 2,008 1,596 414 658 1,296
Other (income) expense, net............. (6) (40) (595) -- (60)
------- ------- ------- ------- -------
Earnings before income taxes ........... 61 10,981 10,690 6,484 6,416
Provisions for income taxes............. 2 3,868 4,276 2,601
------- ------- ------- -------
Net earnings............................ $ 59 $ 7,113 $ 6,414 $ 3,883
======= ======= ======= =======
Basic earnings per share................ $ 0.01 $ 0.86 $ 0.78 $ 0.48
Basic weighted average shares
outstanding(2).......................... 7,916 8,292 8,227 8,144
Diluted earnings per share.............. $ 0.01 $ 0.84 $ 0.77 $ 0.47
Diluted weighted average shares
outstanding(2)........................ 7,958 8,471 8,375 8,300
Pro Forma Data:
Pro forma provision for income taxes(3) 2,566
-------
Pro forma net earnings.................. $ 3,850
=======
Pro forma basic net earnings per share.. $ 0.66
Basic weighted average shares
outstanding(2)........................ 5,823
Pro forma diluted earnings per share.... $ 0.64
Diluted weighted average shares
outstanding(2)........................ 6,054
Other Data:
S Corporation distributions declared.... $ -- $ -- $ -- $ -- $ 7,896
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital....................... $25,456 $17,049 $26,055 $23,015 $14,407
Total assets.......................... 66,076 69,651 42,272 36,165 31,804
Long-term debt (including
current maturities) .................. 20,607 22,359 5,054 6,347 2,145
Stockholders' equity.................. 35,247 40,496 31,795 25,576 19,740
</TABLE>
- ------------------
(1) On March 26, 1998, the Company acquired all of the assets and technology
rights of Scientific-Atlanta, Inc.'s interdiction business. See Note 11 to
the Company's consolidated financial statements.
(2) Weighted average shares are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
(3) On December 11, 1995, the Company's status as an S Corporation terminated
and as a result the Company is now subject to corporate income taxes.
Accordingly, pro forma net earnings reflect a pro forma adjustment for
income taxes which would have been recorded had the Company been a C
Corporation.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's historical results
of operations and liquidity and capital resources should be read in conjunction
with "Selected Consolidated Financial Data" and the consolidated financial
statements of the Company and notes thereto appearing elsewhere herein.
Overview
The Company was incorporated in November, 1988, under the laws of Delaware
as GPS Acquisition Corp. for the purpose of acquiring the business of
Blonder-Tongue Laboratories, Inc., a New Jersey corporation which was founded in
1950 by Ben H. Tongue and Isaac S. Blonder (the "former Blonder-Tongue") to
design, manufacture and supply a line of electronics and systems equipment
principally for the Private Cable industry. Following the acquisition, the
Company changed its name to Blonder Tongue Laboratories, Inc.
The Company's success is due in part to management's efforts to leverage
the Company's reputation by broadening its product line to offer one-stop shop
convenience to private cable and franchise cable system integrators and to
deliver products having a high performance-to-cost ratio.
In December 1995, the Company successfully concluded an initial public
offering of 2,200,000 shares of its Common Stock. Thereafter, in January 1996,
the Company's underwriters exercised their over-allotment option, as a result of
which an additional 181,735 shares of the Company's Common Stock were sold. The
proceeds received by the Company from the sale of its Common Stock in the
offering (including shares sold pursuant to the over-allotment option), net of
expenses of the offering and certain S Corporation distributions to the
Company's principal stockholders, were approximately $14,045,000. These funds
were used to acquire the Company's Old Bridge Facility and to reduce the
Company's outstanding bank debt. The Company has further enhanced its liquidity
through a long-term loan secured by a mortgage against the Old Bridge Facility.
On March 26, 1998, the Company acquired all of the assets and technology
rights, including the SMI Interdiction product line, of the interdiction
business (the "Interdiction Business") of Scientific-Atlanta, Inc.
("Scientific") for a purchase price consisting of (i) $19 million in cash, (ii)
67,889 shares of the Company's common stock, (iii) a warrant to purchase 150,000
additional shares of the Company's common stock at an exercise price of $14.25
per share and (iv) assumption by the Company of certain obligations under
executory contracts with vendors and customers and certain warranty obligations
and other current liabilities of the Interdiction Business. The Company is
utilizing the SMI Interdiction product line acquired from Scientific, which has
been engineered primarily to serve the franchise cable market, as a supplement
to the Company's VideoMask(TM) Interdiction products, which are primarily
focused on the private cable market. In addition, the Company expects that the
technology acquired as part of the Interdiction Business will enhance its
ability to design products that meet the specific needs of all cable providers,
while improving its position in the franchise cable market.
In June, 1999, the Company purchased 750,000 shares of its outstanding
common stock from the holders thereof for a purchase price of $7.00 per share in
a "Dutch Auction" style issuer tender offer. The Company obtained the funds
necessary to purchase common stock in the issuer tender offer with a combination
of cash on hand and borrowings under its line of credit.
On September 13, 1999, the Company executed an agreement with CSC Holdings,
Inc., a wholly owned subsidiary of Cablevision Systems Corporation, to supply
HomeControl Interdiction units for an aggregate of approximately $16 million to
100,000 basic cable subscribers in the New York metropolitan area. The unit
being supplied is the latest HomeControl SLIU (Single Living Interdiction Unit).
Management believes that this contract is a significant contribution to the
Company's penetration of the franchise cable market and anticipates that current
efforts towards further penetration will favorably impact the Company's
operating results during fiscal year 2000.
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<PAGE>
Results of Operations
The following table sets forth, for the fiscal periods indicated, certain
consolidated statement of earnings data as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................ 100.0% 100.0% 100.0%
Costs of goods sold...................................... 68.8 64.1 63.9
Gross profit............................................. 31.2 35.9 36.1
Selling expenses......................................... 10.6 6.8 8.0
General and administrative expenses...................... 13.3 8.4 8.0
Research and development expenses........................ 3.6 3.0 3.2
Earnings from operations................................. 3.6 17.7 16.9
Other (income) expense, net.............................. 3.5 2.2 (.3)
Earnings before income taxes............................. 0.1 15.5 17.2
</TABLE>
1999 Compared with 1998
Net Sales. Net sales decreased $13,987,000, or 19.8%, to $56,805,000 in
1999 from $70,792,000 in 1998. The decrease in sales is primarily attributed to
the decrease in demand for the Company's products in the private cable market,
due in part to the consolidation of private cable systems operators in this
market which took place during 1999. In addition, the Company experienced a
decrease in sales of interdiction equipment to both the franchise and private
cable markets. Net sales included approximately $11,006,000 of interdiction
equipment for 1999 compared to approximately $15,938,000 for 1998. The decrease
in sales of interdiction equipment was related to a delay in fourth quarter
shipments as a result of the development of the SLIU-II interdiction product.
Cost of Goods Sold. Cost of goods sold decreased to $39,074,000 for 1999
from $45,344,000 for 1998, primarily due to decreased volume, and increased as a
percentage of sales to 68.8% in 1999 from 64.1% in 1998. The increase as a
percentage of sales was caused primarily by a greater proportion of sales during
the period being comprised of lower margin products, including the additional
start-up costs related to the Company's new SLIU-II interdiction product.
Selling Expenses. Selling expenses increased to $6,025,000 in 1999 from
$4,823,000 in 1998, and increased as a percentage of sales to 10.6% in 1999 from
6.8% in 1998. The $1,202,000 increase was primarily due to an increase in costs
incurred for advertising and marketing materials along with an increase in
salaries and employee benefit expenses as a result of an increase in headcount.
The increase in selling expenses is directly related to the Company's efforts to
increase market penetration within the franchise cable market and the promotion
of new product lines such as fiber optic products and interdiction. The Company
anticipates that these efforts will favorably impact operating results during
fiscal year 2000.
General and Administrative Expenses. General and administrative expenses
increased to $7,573,000 in 1999 from $5,932,000 for 1998 and increased as a
percentage of sales to 13.3% in 1999 from 8.4% in 1998. The $1,641,000 increase
can be attributed to an increase in the bad debt expense, an increase in the
amortization of intangibles related to the acquisition of Scientific's
Interdiction Business and an increase in expenditures for professional services
rendered, offset by a decrease in the accrual for executive bonuses. The
increase in the bad debt expense was directly attributable to customer accounts
experiencing financial difficulties related to the consolidation of the private
cable market during 1999.
Research and Development Expenses. Research and development expenses
decreased 4.0% to $2,070,000 in 1999 from $2,156,000 in 1998. The $86,000
decrease is primarily due to a reduction in the amortization of license and
patent agreements. Research and development expenses increased as a percentage
of sales to 3.6% from 3.0%.
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<PAGE>
Operating Income. Operating income decreased 83.5% to $2,063,000 for 1999
from $12,537,000 for 1998. Operating income as a percentage of sales decreased
to 3.6% in 1999 from 17.7% in 1998.
Interest and Other Expenses. Other expenses in 1999 consisted of $2,008,000
of interest expense offset by $6,000 of interest income. Other expenses in 1998
consisted of $1,596,000 of interest expense offset by $40,000 of interest
income. The increase in interest expense is primarily attributed to increased
borrowings under the Company's acquisition loan commitment (converted to a term
loan with the bank during 1999).
Income Taxes. The provision for income taxes for 1999 decreased to $2,000
from $3,868,000 for 1998 as a result of a decrease in taxable income. The
Company's effective tax rate decreased to 3% for 1999 from 35% for 1998 as a
result of state tax credits available to the Company not previously recognized,
along with the decrease in taxable income.
1998 Compared with 1997
Net Sales. Net sales increased $8,735,000, or 14.1%, to $70,792,000 in 1998
from $62,057,000 in 1997. International sales accounted for $1,137,000 (1.6% of
total sales) for 1998 compared to $1,620,000 (2.6% of total sales) for 1997.
The increase in sales is primarily attributed to the increase in sales of
interdiction equipment including sales to the franchise cable market. Net sales
included approximately $15,938,000 of interdiction equipment for 1998 compared
to approximately $7,567,000 for 1997.
Cost of Goods Sold. Cost of goods sold increased to $45,344,000 for 1998
from $39,656,000 for 1997, primarily due to increased volume, and increased as a
percentage of sales to 64.1% from 63.9%. The increase as a percentage of sales
was caused primarily by a greater proportion of sales during the period being
comprised of lower margin products.
Selling Expenses. Selling expenses decreased to $4,823,000 in 1998 from
$4,964,000 in 1997, and decreased as a percentage of sales to 6.8% in 1998 from
8.0% in 1997. The decrease was primarily due to a decrease in commissions and
promotional goods offset by an increase in shipping materials.
General and Administrative Expenses. General and administrative expenses
increased to $5,932,000 in 1998 from $4,974,000 for 1997 and increased as a
percentage of sales to 8.4% in 1998 from 8.0% for 1997. The $958,000 increase
can be attributed to an increase in the allowance for doubtful accounts along
with an increase in the amortization of intangibles related to the acquisition
of Scientific's Interdiction Business offset by a decrease in the accrual for
executive bonuses. The increase in the allowance for doubtful accounts is
primarily attributable to one account demonstrating the inability to pay within
the third quarter.
Research and Development Expenses. Research and development expenses
increased 10.3% to $2,156,000 in 1998 from $1,954,000 in 1997. The $202,000
increase is primarily due to an increase in purchased materials for research and
development and the reimbursement of costs incurred as a result of the
termination of the Pacific Bell contract in 1997. Research and development
expenses decreased as a percentage of sales to 3.0% from 3.2%.
Operating Income. Operating income increased 19.3% to $12,537,000 for 1998
from $10,509,000 for 1997. Operating income as a percentage of sales increased
to 17.7% in 1998 from 16.9% in 1997.
Interest and Other Expenses. Other expenses in 1998 consisted of $1,596,000
of interest expense offset by $40,000 of interest income. Other income in 1997
consisted of $535,000 related to the final payment received from Pacific Bell as
a result of the contract termination in July 1997, along with $60,000 of
interest income offset by $414,000 of interest expense. The increase in interest
expense is primarily attributed to increased borrowings under the Company's
acquisition loan commitment.
17
<PAGE>
Income Taxes. The provision for income taxes for 1998 decreased to
$3,868,000 from $4,276,000 for 1997 as a result of state tax credits available
to the Company related to 1997 activity which also reduced the Company's
effective tax rate to 35% from 40%.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the results of
operations of the Company. Fourth quarter sales in 1999 were slightly impacted
by fewer production days. The Company expects sales each year in the fourth
quarter to be impacted by fewer production days.
Year 2000
The Company previously assigned certain individuals to identify and correct
Year 2000 compliance issues. Information technology ("IT") systems with
non-compliant code were modified or replaced with systems that are Year 2000
compliant as they were identified. Similar actions were taken with respect to
non-IT systems, primarily systems embedded in manufacturing equipment and the
Company's products. The individuals were also responsible for investigating the
readiness of suppliers, customers and other third parties along with the
development of contingency plans where necessary.
All IT and non-IT systems were inventoried and assessed for compliance, and
remediation and testing activities completed with all systems compliant prior to
the end of 1999. The Company also identified critical suppliers, customers and
other third parties, surveyed their Year 2000 remediation programs, and
finalized risk assessments and contingency plans, where necessary, prior to the
end of 1999.
The Company's incremental costs directly related to Year 2000 compliance
issues were approximately $300,000. Approximately 90% of the total estimated
spending represented costs to modify existing systems.
To date, the Company has not experienced any material adverse effect on its
business resulting from Year 2000 compliance issues.
Liquidity and Capital Resources
As of December 31, 1999 and 1998, the Company's working capital was
$25,456,000 and $17,049,000, respectively. The increase in working capital is
attributable primarily due to the reclassification of the $19,000,000
acquisition loan commitment as long-term debt. Historically, the Company has
satisfied its cash requirements primarily from net cash provided by operating
activities and from borrowings under its line of credit.
The Company's net cash provided by operating activities for the period
ended December 31, 1999 was $7,383,000 as a result of the Company's net
earnings, increased by the $4,976,000 decrease in accounts receivable and the
$2,233,000 increase in accounts payable, offset by $2,576,000 to fund the
increase in inventory related to the new SLIU-II product, compared to cash
provided by operating activities for the period ended December 31, 1998 of
$921,000.
Cash used in investing activities was $1,197,000, which was attributable to
capital expenditures for new automated assembly and test equipment. The Company
does not have any present plans or commitments for material capital expenditures
for fiscal year 2000.
Cash used in financing activities was $6,680,000 for the period ended
December 31, 1999, comprised of $5,435,000 related to the acquisition of
treasury stock, $2,717,000 in repayments of long-term debt offset by $1,345,000
of borrowings under the revolving line of credit.
On November 12, 1999, the Company entered into a new $7.5 million revolving
line of credit with its bank, replacing its former revolving line of credit
("Former Credit Line"), on which funds may be borrowed at either the bank's base
rate plus a margin ranging from 0% to .625%, or LIBOR, plus a margin ranging
18
<PAGE>
from 1.50% to 2.625%, in each case depending upon the calculation of certain
financial covenants (7.88% at December 31, 1999). At December 31, 1999, the
Company had $3,172,000 outstanding under the line of credit. Borrowings under
the new line of credit are limited to certain percentages of eligible accounts
receivable and inventory as defined in the credit agreement. The new line of
credit is collateralized by a security interest in all of the Company's assets.
The agreement also contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of dividends.
Also as of November 12, 1999, the Company's acquisition loan commitment under
its Former Credit Line was converted to a term loan with its bank (the "S-A Term
Loan"). The S-A Term Loan bears interest at either the bank's base rate plus a
margin ranging from 0% to .875%, or LIBOR plus a margin ranging from 1.75% to
2.875%, in each case depending upon the calculation of certain financial
covenants (8.18% at December 31, 1999). At December 31, 1999, there was
$16,783,000 outstanding under the S-A Term Loan. The principal balance of the
S-A Term Loan is being amortized in monthly installments of $366,667 with a
final balloon payment of all remaining unpaid principal and accrued interest due
on June 30, 2002.
As a result of the Company's financial performance in 1999, the Company was
unable to meet certain financial covenants with its bank at December 31, 1999,
compliance with which was waived by the bank as of such date. Coincident with
obtaining the waiver by the bank, the bank agreed to extend the line of credit
until September 30, 2000 and to waive compliance by the Company with certain
financial covenants as of March 31, 2000, subject to the Company meeting certain
alternative financial covenants as of such date, and the Company agreed to
periodic reductions in the line of credit commencing in March, 2000, until the
line of credit has been reduced from $7.5 million to $5.5 million as of August
1, 2000. The Company anticipates that it will either conclude negotiations with
its bank and obtain a renewal of its current credit facilities, or enter into
new credit facilities with another bank, prior to September 30, 2000.
On February 3, 1999, the Company entered into an interest rate swap
agreement with a notional amount of $10,000,000. The swap agreement has a
maturity date of June 3, 2002 and requires the Company to make fixed rate
interest payments on the notional amount of 8.01% per annum in exchange for
floating rate payments equal to LIBOR plus 2.55%. The Company is exposed to
credit risk in the unlikely event of the nonperformance by the counterparties.
Interest to be paid or received is accrued over the life of the agreement at the
net effective interest rate for the swap and corresponding debt instrument.
On May 17, 1999, the Company commenced a tender offer to purchase up to
750,000 shares of its common stock at a purchase price ranging from $6.00 to
$8.00 per share. As of June 22, 1999, approximately 1,600,000 shares were
tendered and the Company accepted 750,000 shares for purchase at a price of
$7.00 per share. The Company paid for the shares purchased with a combination of
cash on hand and borrowings under its line of credit.
The Company currently anticipates that the cash generated from operations,
existing cash balances and amounts available under its existing or a replacement
line of credit, will be sufficient to satisfy its foreseeable working capital
needs.
New Accounting Pronouncements
In June, 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 standardizes accounting and reporting for
derivative instruments and for hedging activities. This statement was amended by
SFAS 137, which delays the effective date until 2001. The Company will be
reviewing this pronouncement to determine its applicability to the Company, if
any.
Additional Factors That May Affect Future Results and Market Price of Stock
Blonder Tongue's business operates in a rapidly changing environment that
involves a number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks which are not otherwise
addressed elsewhere in this Annual Report. There can be no assurance that the
Company will anticipate the evolution of industry standards in CATV or the
communications industry generally, changes in the market and customer needs, or
that technologies and applications under development by the Company will be
successfully developed, or if they are successfully developed, that they will
achieve market acceptance. The
19
<PAGE>
competition to attract and retain highly-skilled engineering, manufacturing,
marketing and managerial personnel is intense. Capital spending by cable
operators for constructing, rebuilding, maintaining or upgrading their systems
(upon which the Company's sales and profitability are dependent) is dependent on
a variety of factors, including access to financing, demand for their cable
services, availability of alternative video delivery technologies, and general
economic conditions. Factors such as announcements of technological innovations
or new products by the Company, its competitors or third parties, quarterly
variations in the Company's actual or anticipated results of operations, market
conditions for emerging growth stocks or cable industry stocks in general, or
the failure of revenues or earnings in any quarter to meet the investment
community's expectations, may cause the market price of the Company's Common
Stock to fluctuate significantly. The stock price may also be affected by
broader market trends unrelated to the Company's performance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes in interest
rates. At December 31, 1999 and 1998 the principal amount of the Company's
aggregate outstanding variable rate indebtedness was $22,086,333 and
$20,827,000, respectively. A hypothetical 10% adverse change in interest rates
would have had an annualized unfavorable impact of approximately $180,297 and
$156,000, respectively, on the Company's earnings and cash flows based upon
these year-end debt levels. To ameliorate these risks, in February, 1999, the
Company entered into an interest rate Swap Agreement with a notional amount of
$10,000,000. The specific terms of the Swap Agreement are more fully discussed
above in Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the consolidated financial statements and
notes thereto of the Company which are attached hereto beginning on page 24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10. through 13. INCORPORATED BY REFERENCE
The information called for by Item 10 "Directors and Executive Officers of
the Registrant," Item 11 "Executive Compensation," Item 12 "Security Ownership
of Certain Beneficial Owners and Management" and Item 13 "Certain Relationships
and Related Transactions" is incorporated herein by reference to the Company's
definitive proxy statement for its Annual Meeting of Stockholders scheduled to
be held May 4, 2000, which definitive proxy statement is expected to be filed
with the Commission not later than 120 days after the end of the fiscal year to
which this report relates. Note that the sections in the definitive proxy
statement entitled "Report of Compensation Committee on Executive Compensation
Policies" and "Comparative Stock Performance" pursuant to Regulation S-K, Item
402(a)(9), are not deemed "soliciting material" or "filed" as part of this
report.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements and Supplementary Data.
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants, BDO Seidman, LLP........................................... 25
Consolidated Balance Sheets as of December 31, 1999 and 1998................................................... 26
Consolidated Statements of Earnings for the Years Ended December 31, 1999, 1998 and 1997....................... 27
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997........... 28
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997..................... 29
Notes to Consolidated Financial Statements..................................................................... 30
</TABLE>
(a)(2) Financial Statement Schedules.
Included in Part IV of this report:
Schedule II Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
(a)(3) Exhibits
The exhibits are listed in the Index to Exhibits appearing below and are
filed herewith or are incorporated by reference to exhibits previously filed
with the Commission.
(b) No reports on Form 8-K were filed in the quarter ended December 31,
1999.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit # Description Location
--------- ----------- --------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of Blonder Incorporated by reference from Exhibit 3.1
Tongue Laboratories, Inc. to Registrant's S-1 Registration Statement
No. 33-98070 originally filed October 12,
1995, as amended.
3.2 Restated Bylaws of Blonder Tongue Laboratories, Incorporated by reference from Exhibit 3.2
Inc. to Registrant's S-1 Registration Statement
No. 33-98070 originally filed October 12,
1995, as amended.
4.1 Specimen of stock certificate Incorporated by reference from Exhibit 4.1
to Registrant's S-1 Registration Statement
No. 33-98070 originally filed October 12,
1995, as amended.
10.1 Consulting Agreement, dated January 1, 1995, Incorporated by reference from Exhibit
between Blonder Tongue Laboratories, Inc. and 10.3 to Registrant's S-1 Registration
James H. Williams. Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.2 1994 Incentive Stock Option Plan. Incorporated by reference from Exhibit
10.5 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit # Description Location
--------- ----------- --------
<S> <C> <C>
10.3 1995 Long Term Incentive Plan. Incorporated by reference from Exhibit
10.6 to Registrant's S-1 Registration
Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.4 Amended and Restated 1996 Director Option Plan. Incorporated by reference from Appendix B
to Registrant's Proxy Statement for its
1998 Annual Meeting of Stockholders
originally filed March 27, 1998.
10.5 Employment Agreement, dated August 1, 1995, Incorporated by reference from Exhibit
between Blonder Tongue Laboratories, Inc. and 10.9 to Registrant's S-1 Registration
Daniel J. Altiere. Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.6 Form of Indemnification Agreement entered into by Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. in favor of each 10.10 to Registrant's S-1 Registration
of its Directors and Officers. Statement No. 33-98070 originally filed
October 12, 1995, as amended.
10.7 VideoCipher(R)IICM Commercial Descrambler Module Incorporated by reference from Exhibit
Master Purchase and License Agreement, dated 10.11 to Registrant's S-1 Registration
August 23, 1990, between Blonder Tongue Statement No. 33-98070 originally filed
Laboratories, Inc. and Cable/Home Communication October 12, 1995, as amended.
Corp.
+10.8 Patent License Agreement, dated August 21, 1995, Incorporated by reference from Exhibit
between Blonder Tongue Laboratories, Inc. and 10.12 to Registrant's S-1 Registration
Philips Electronics North America Corporation. Statement No. 33-98070 originally filed
October 12, 1995, as amended.
+10.9 Interdiction Technology License Agreement, dated Incorporated by reference from Exhibit
August 21, 1995, between Blonder Tongue 10.13 to Registrant's S-1 Registration
Laboratories, Inc. and Philips Broadband Networks, Statement No. 33-98070 originally filed
Inc. October 12, 1995, as amended.
10.10 401(k) Savings & Investment Retirement Plan. Incorporated by reference from Exhibit
10.21 to S-1 Registration Statement No.
33-98070 originally filed October 12,
1995, as amended.
10.11 Bargaining Unit Pension Plan. Incorporated by reference from Exhibit
10.22 to S-1 Registration Statement No.
33-98070 originally filed October 12,
1995, as amended.
10.12 Mortgage, Assignment of Leases, and Security Incorporated by reference from Exhibit
Agreement dated May 23, 1996 by Blonder Tongue 10.2 to Registrant's Quarterly Report on
Laboratories, Inc. in favor of CoreStates Bank, Form 10-Q for the period ended June 30,
N.A., successor to Meridian Bank. 1996, filed August 14, 1996.
10.13 Real Estate Loan Note dated May 23, 1996 from Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. in favor of 10.3 to Registrant's Quarterly Report on
CoreStates Bank, N.A., successor to Meridian Bank. Form 10-Q for the period ended June 30,
1996, filed August 14, 1996.
10.14 Allonge to Real Estate Loan Note, dated September Incorporated by reference from Exhibit
26, 1996 from Blonder Tongue Laboratories, Inc., 10.3 to Registrant's Quarterly Report on
in favor of CoreStates Bank, N.A., successor to Form 10-Q for the period ended September
Meridian Bank. 30, 1996, filed November 14, 1996.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit # Description Location
--------- ----------- --------
<S> <C> <C>
+10.15 License Agreement dated November 12, 1996 between Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. and Houston 10.31 to Registrant's Annual Report on
Tracker Systems, Inc. Form 10-K for fiscal year ended December
31, 1996, filed March 27, 1997.
10.16 Executive Officer Bonus Plan Incorporated by reference from Exhibit
10.3 to Registrant's Quarterly Report on
Form 10-Q for the period ended March 31,
1997.
10.17 Second Amendment to 1995 Long Term Incentive Plan Incorporated by reference from Appendix A
to Registrant's Proxy Statement for its
1998 Annual Meeting of Stockholders
originally filed March 27, 1998.
10.18 Fifth Amended and Restated Loan Agreement dated Filed herewith.
November 12, 1999 between Blonder Tongue
Laboratories, Inc. and First Union National Bank
10.19 Fifth Amended and Restated Line of Credit Note Filed herewith.
dated November 12, 1999 by Blonder Tongue
Laboratories, Inc. in favor of First Union
National Bank
10.20 Third Allonge to Real Estate Note dated November Filed herewith.
12, 1999 from Blonder Tongue Laboratories, Inc. to
First Union National Bank
10.21 Term Note dated November 12, 1999 by Blonder Filed herewith
Tongue Laboratories, Inc. in favor of First Union
National Bank
21 Subsidiaries of Blonder Tongue Laboratories, Inc. Filed herewith.
23 Consent of BDO Seidman, LLP Filed herewith.
27 Financial Data Schedule Electronic filing only.
</TABLE>
- ------------------------------
+ Certain portions of exhibit have been afforded confidential treatment
by the Securities and Exchange Commission.
(d) Financial Statement Schedules:
Report of BDO Seidman, LLP on financial statement schedule.
The following financial statement schedule is included on page 47 of this
Annual Report on Form 10-K: Schedule II. Valuation and Qualifying Accounts and
Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the applicable
instructions or are inapplicable and therefore have been omitted.
23
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants, BDO Seidman, LLP...................................... 25
Consolidated Balance Sheets as of December 31, 1999 and 1998.............................................. 26
Consolidated Statements of Earnings for the Years Ended December 31, 1999, 1998 and 1997.................. 27
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997...... 28
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997................ 29
Notes to Consolidated Financial Statements................................................................ 30
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Blonder Tongue Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Blonder Tongue
Laboratories, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Blonder
Tongue Laboratories, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Woodbridge, New Jersey
February 18, 2000
25
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
------- -------
Assets (Note 4)
Current assets:
<S> <C> <C>
Cash....................................................................... $ 48 $ 542
Accounts receivable, net of allowance for doubtful
accounts of $683 and $1,201, respectively.................................. 9,969 15,988
Inventories (Note 2)....................................................... 26,793 24,540
Other current assets ...................................................... 2,007 597
Deferred income taxes (Note 13)............................................ 1,182 1,445
------- -------
Total current assets................................................... 39,999 43,112
Property, plant and equipment, net of accumulated
depreciation and amortization (Notes 3 and 5)............................... 8,740 7,968
Patents, net (Note 11).......................................................... 4,242 4,115
Goodwill, net (Note 11)......................................................... 12,437 13,157
Other assets.................................................................... 658 1,299
------- -------
$66,076 $69,651
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit (Note 4).......................................... $3,172 $1,827
Current portion of long-term debt.......................................... 4,470 19,494
Accounts payable........................................................... 4,644 2,134
Accrued compensation....................................................... 1,040 1,287
Other accrued expenses..................................................... 903 933
Income taxes (Note 13)..................................................... 314 388
------- -------
Total current liabilities.............................................. 14,543 26,063
------- -------
Deferred income taxes (Note 13)................................................. 149 227
Long-term debt (Note 4)......................................................... 16,137 2,865
Commitments and contingencies (Notes 5, 6 and 7)................................ - -
Stockholders' equity (Notes 9, 10, 11 and 12):
Preferred stock, $.001 par value; authorized 5,000 shares;
no shares outstanding...................................................... - -
Common stock, $.001 par value; authorized 25,000 shares, 8,392 shares
issued at December 31, 1999 and 8,370 shares issued at December 31, 1998.. 8 8
Paid-in capital............................................................ 23,870 23,743
Retained earnings.......................................................... 17,655 17,596
Treasury stock at cost, 831 shares at December 31, 1999
and 81 shares at December 31, 1998 (Note 9)................................ (6,286) (851)
------- -------
Total stockholders' equity............................................. 35,247 40,496
------- -------
$66,076 $69,651
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
26
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
=======================================
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net sales.............................................................. $56,805 $70,792 $62,057
Cost of goods sold..................................................... 39,074 45,344 39,656
------- ------- -------
Gross profit....................................................... 17,731 25,448 22,401
------- ------- -------
Operating expenses:
Selling expenses................................................... 6,025 4,823 4,964
General and administrative......................................... 7,573 5,932 4,974
Research and development........................................... 2,070 2,156 1,954
------- ------- -------
15,668 12,911 11,892
------- ------- -------
Earnings from operations............................................... 2,063 12,537 10,509
------- ------- -------
Other income (expense):
Interest expense................................................... (2,008) (1,596) (414)
Other income....................................................... 6 40 595
------- ------- -------
(2,002) (1,556) 181
------- ------- -------
Earnings before income taxes........................................... 61 10,981 10,690
Provision for income taxes (Note 13)................................... 2 3,868 4,276
------- ------- -------
Net earnings....................................................... $ 59 $ 7,113 $ 6,414
======= ======= ========
Basic earnings per share (Note 10)..................................... $ 0.01 $ 0.86 $ 0.78
======= ======= ========
Basic weighted average shares outstanding (Note 10).................... 7,916 8,292 8,227
======= ======= ========
Diluted earnings per share (Note 10)................................... $ 0.01 $ 0.84 $ 0.77
======= ======= ========
Diluted weighted average shares outstanding (Note 10).................. 7,958 8,471 8,375
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
27
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Stock
-------------------
Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997.................... 8,193 $ 8 $ 21,499 $ 4,069 $ - $ 25,576
Proceeds from exercise of stock options..... 80 - 303 - - 303
Acquisition of treasury stock............... - - - - (498) (498)
Net earnings................................ - - - 6,414 - 6,414
------- ------- -------- --------- ------- --------
Balance at December 31, 1997.................. 8,273 8 21,802 10,483 (498) 31,795
Proceeds from exercise of stock options.... 29 - 166 - - 166
Acquisition of treasury stock.............. - - - - (353) (353)
Issuance of common stock for acquired
business...................................... 68 - 1,000 - - 1,000
Issuance of warrant for acquired business.. - - 775 - - 775
Net earnings............................... - - - 7,113 - 7,113
------- ------- -------- --------- ------- --------
Balance at December 31, 1998.................. 8,370 8 23,743 17,596 (851) 40,496
Proceeds from exercise of stock options.... 22 - 127 - - 127
Acquisition of treasury stock.............. - - - - (5,435) (5,435)
Net earnings............................... - - - 59 - 59
------- ------- -------- --------- -------- --------
Balance at December 31, 1999.................. 8,392 $ 8 $ 23,870 $ 17,655 $ (6,286) $ 35,247
======= ======= ======== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
28
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
===================================
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings................................................................. $ 59 $ 7,113 $ 6,414
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization............................................ 2,994 2,365 1,130
Provision for doubtful accounts.......................................... 1,043 598 327
Deferred income taxes.................................................... 67 (576) (518)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable.................................................... 4,976 (3,456) (4,470)
Inventories............................................................ (2,576) (4,147) (1,847)
Other current assets................................................... (1,410) (279) 85
Other assets........................................................... (47) (428) (10)
Income taxes........................................................... 44 217 (452)
Accounts payable and accrued expenses.................................. 2,233 (486) 1,631
------- -------- --------
Net cash provided by operating activities........................... 7,383 921 2,290
------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures......................................................... (1,197) (879) (1,424)
Acquisition of licenses...................................................... - - (163)
Acquisition of business...................................................... - (19,000) -
------- -------- --------
Net cash used in investing activities............................... (1,197) (19,879) (1,587)
------- -------- --------
Cash Flows From Financing Activities:
Net borrowings (repayments) under revolving line of credit................... 1,345 1,827 (1,176)
Repayments of borrowings from stockholders................................... - - (313)
Proceeds from long-term debt................................................. - 19,199 683
Repayments of long-term debt................................................. (2,717) (1,894) (487)
Proceeds from exercise of stock options...................................... 127 166 303
Acquisition of treasury stock................................................ (5,435) (353) (498)
------- -------- --------
Net cash (used in) provided by financing activities ................ (6,680) 18,945 (1,488)
------- -------- --------
Net Decrease In Cash.............................................................. (494) (13) (785)
Cash, beginning of year........................................................... 542 555 1,340
------- -------- --------
Cash, end of year................................................................. $ 48 $ 542 $ 555
======= ======== ========
Supplemental Cash Flow Information:
Cash paid for interest....................................................... $ 2,025 $ 1,261 $ 397
Cash paid for income taxes................................................... 660 4,276 5,251
======= ======== ========
Non-cash transactions:
Common stock issued for acquired business.................................... $ - $ 1,000 $ -
Warrant issued for acquired business......................................... - 775 -
Capital lease obligations.................................................... 965 - -
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies
(a) Company and Basis of Presentation
Blonder Tongue Laboratories, Inc. (the "Company") is a designer,
manufacturer and supplier of electronics and systems equipment for the cable
television industry. The consolidated financial statements include the accounts
of Blonder Tongue Laboratories, Inc. and subsidiaries as discussed below.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
(b) Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out ("FIFO") method, or market.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation generally on the straight-line method based upon estimated useful
lives of 3 to 5 years for office equipment, 5 to 7 years for furniture and
fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building
improvements and 40 years for the manufacturing and administrative office
facility.
(d) Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred
income taxes are provided for temporary differences in the recognition of
certain income and expenses for financial and tax reporting purposes. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
(e) Intangible Assets
Intangible assets totaling $17,337 and $18,571 as of December 31, 1999 and
1998, respectively, consist of goodwill, prepaid licensing fees, and acquired
patent rights, and are carried at cost less accumulated amortization.
Amortization is computed utilizing the straight-line method over the estimated
useful life of the respective asset, 3 to 15 years. Accumulated amortization was
$3,589 and $1,985 for 1999 and 1998, respectively.
(f) Long-Lived Assets
The Company follows Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"). SFAS 121 standardized the accounting practices for
the recognition and measurement of impairment losses on certain long-lived
assets based on non-discounted cash flows. No impairment losses have been
recorded through December 31, 1999.
(g) Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with a maturity of less than three
months at purchase to be cash equivalents. The Company did not have any cash
equivalents at December 31, 1999, 1998 and 1997.
(h) Research and Development
Research and development expenditures for the Company's projects are
expensed as incurred.
30
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(i) Revenue Recognition
The Company records revenues when products are shipped. Customers do not
have a right to return products shipped.
(j) Earnings Per Share
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
provides for the calculation of "basic" and "diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing net earnings
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflect, in periods in which they have a dilutive
effect, the effect of common shares issuable upon exercise of stock options.
(k) Treasury Stock
Treasury Stock is recorded at cost. Gains and losses on disposition are
recorded as increases or decreases to additional paid-in capital with losses in
excess of previously recorded gains charged directly to retained earnings.
(l) Derivative Financial Instruments
The Company utilizes interest rate swaps to manage interest rate exposures.
The Company specifically designates interest rate swaps as hedges of debt
instruments and recognizes interest differentials as adjustments to interest
expense in the period they occur. The Company does not hold or issue financial
instruments for trading purposes.
(m) Significant Risks and Uncertainties
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Approximately 63% of the Company's employees are covered by a three year
collective bargaining agreement, which expires in February, 2002.
The Company estimates that headend products accounted for approximately 60%
of the Company's revenues in 1999, 70% in 1998 and 80% in 1997. Any substantial
decrease in sales of headend products could have a material adverse effect on
the Company's results of operations and financial condition.
The Company purchases several products from sole suppliers for which
alternative sources are not available, such as the VideoCipher(R) and
DigiCipher(R) encryption systems manufactured by General Instrument Corporation,
which are standard encryption methodologies employed on U.S. C-Band and Ku-Band
transponders and EchoStar digital satellite receiver decoders, which are
specifically designed to work with the DISH Network(TM) and Hughes Network
Systems digital satellite receivers for delivery of DIRECTV(TM) programming. An
inability to timely obtain sufficient quantities of these components could have
a material adverse effect on the Company's operating results. The Company does
not have a supply agreement with General Instrument Corporation or any other
supplier. The Company submits purchase orders to its suppliers on an as-needed
basis.
31
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(n) New Accounting Pronouncements
In June, 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 standardizes accounting and reporting for
derivative instruments and for hedging activities. This statement was amended by
SFAS 137, which delays the effective date to 2001. The Company will be reviewing
this pronouncement to determine its applicability to the Company, if any.
Note 2 - Inventories
Inventories are summarized as follows:
December 31,
-------------------------
1999 1998
------- -------
Raw materials.................................. $11,484 $ 9,550
Work in process................................ 5,058 2,463
Finished goods................................. 10,251 12,527
------- -------
$26,793 $24,540
======= =======
Note 3 - Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
December 31,
-----------------------
1999 1998
-------- -------
Land................................................ $ 1,000 $ 1,000
Building............................................ 3,361 3,361
Machinery and equipment............................. 6,534 5,158
Furniture and fixtures.............................. 398 395
Office equipment.................................... 1,412 764
Building improvements............................... 601 466
-------- -------
13,306 11,144
Less: Accumulated depreciation and amortization.... (4,566) (3,176)
-------- -------
$ 8,740 $ 7,968
======== =======
Note 4 - Debt
On November 12, 1999, the Company entered into a new $7,500 revolving line
of credit with its bank replacing its former revolving line of credit ("Former
Credit Line"), on which funds may be borrowed at either the bank's base rate
plus a margin ranging from 0% to .625%, or LIBOR, plus a margin ranging from
1.50% to 2.625%, in each case depending upon the calculation of certain
financial covenants (7.88% at December 31, 1999). At December 31, 1999, the
Company had $3,172 outstanding under the line of credit. Borrowings under the
new line of credit are limited to certain percentages of eligible accounts
receivable and inventory as defined by the credit agreement. The new line of
credit is collateralized by a security interest in all of the Company's assets.
The agreement also contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of dividends.
The average amount outstanding on the line of credit during 1999 was $1,832 at a
weighted average interest rate of 7.69%. The maximum amount outstanding on the
line of credit during 1999 was $4,531.
As a result of the Company's financial performance in 1999, the Company was
unable to meet certain financial covenants with its bank at December 31, 1999,
compliance with which was waived by the bank as of such date. Coincident with
obtaining the waiver by the bank, the bank agreed to extend the line of credit
until
32
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
September 30, 2000 and to waive compliance by the Company with certain financial
covenants as of March 31, 2000, subject to the Company meeting certain
alternative financial covenants as of such date, and the Company agreed to
periodic reductions in the line of credit commencing in March, 2000, until the
line of credit has been reduced from $7,500 to $5,500 as of August 1, 2000. The
Company anticipates that it will either conclude negotiations with its bank and
obtain a renewal of its current credit facilities, or enter into new credit
facilities with another bank, prior to September 30, 2000.
As of November 12, 1999, the Company's acquisition loan commitment under
its Former Credit Line was converted to a term loan with its bank (the "S-A Term
Loan"). The S-A Term Loan bears interest at either the bank's base rate plus a
margin ranging from 0% to .875%, or LIBOR plus a margin ranging from 1.75% to
2.875%, in each case depending upon the calculation of certain financial
covenants (8.18% at December 31, 1999). At December 31, 1999, there was $16,783
outstanding under the S-A Term Loan. The principal balance of the S-A Term Loan
is being amortized in monthly installments of $367 with a final balloon payment
of all remaining unpaid principal and accrued interest due on June 30, 2002.
On May 24, 1996, the Company borrowed $2,800 for a ten year term secured by
a mortgage against the Company's Old Bridge Facility. The loan accrued interest
at a fixed rate of 7.25% through May 1999. Effective June 1, 1999, the loan was
converted to a variable interest rate based upon the bank's base rate (8.5% at
December 31, 1999).
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
-------- --------
<S> <C> <C>
Term loan with a bank bearing interest at 7.25% until
May 30, 1999, converted on June 1, 1999 to a variable
interest rate based on the bank's base rate, payable
in monthly installments....................................... $ 2,131 $ 2,318
Loan with a bank bearing interest at LIBOR plus 2.875%........ 16,783 19,000
Capital leases (Note 5)....................................... 1,693 1,041
-------- --------
20,607 22,359
Less: Current portion........................................ (4,470) (19,494)
--------- --------
$ 16,137 $ 2,865
========= ========
</TABLE>
The fair value of the debt approximates the recorded value based on the
borrowing rates currently available to the Company for loans with similar terms
and maturities.
33
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Annual maturities of long-term debt at December 31, 1999 are:
2000....................... $ 4,470
2001....................... 4,384
2002....................... 11,157
2003....................... 143
2004....................... 153
Thereafter................. 300
-------
$20,607
=======
Note 5 - Commitments and Contingencies
Leases
The Company leases certain factory and automotive equipment under
noncancellable operating leases expiring at various dates through December,
2006.
Future minimum rental payments, required for all noncancellable leases are
as follows:
Capital Operating
------- ---------
2000............................................... $ 563 $ 160
2001............................................... 486 48
2002............................................... 318 14
2003............................................... 185 2
2004............................................... 183 -
Thereafter......................................... 337 -
------- ---------
Total future minimum lease payments................ 2,072 $ 224
=========
Less: amounts representing interest............... (379)
-------
Present value of minimum lease payments............ $ 1,693
=======
Property, plant and equipment included capitalized leases of $2,514, less
accumulated amortization of $758, at December 31, 1999, and $1,533, less
accumulated amortization of $449, at December 31, 1998.
Rent expense was $217, $295 and $194 for the years ended December 31, 1999,
1998 and 1997, respectively.
Litigation
The Company is a party to certain proceedings incidental to the ordinary
course of its business, none of which, in the current opinion of management, is
likely to have a material adverse effect on the Company's business, financial
condition, or results of operations.
34
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 6 - Benefit Plans
Defined Contribution Plan
The Company has a defined contribution plan covering all full time
non-union employees qualified under Section 401(k) of the Internal Revenue Code,
in which the Company matches a portion of an employee's salary deferral. The
Company's contributions to this plan were $254, $122 and $59 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Defined Benefit Pension Plan
Substantially all union employees who meet certain requirements of age,
length of service and hours worked per year are covered by a Company sponsored
non-contributory defined benefit pension plan. Benefits paid to retirees are
based upon age at retirement and years of credited service. Net periodic pension
cost for this plan includes the following components:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
Components of net periodic pension cost: 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost.............................. $ 121 $ 118 $ 81
Interest cost............................. 76 64 56
Actual return on plan assets.............. (29) (57) (90)
Recognized net actuarial (gain) loss...... (33) 6 42
------ ------ ------
Net periodic pension cost................. $ 135 $ 131 $ 89
====== ====== ======
</TABLE>
35
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The funded status of the plan and the amounts recorded in the Company's
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.......................... $ 1,106 $ 862
Service cost..................................................... 121 118
Interest cost.................................................... 76 64
Amendment to discount rate....................................... - 86
Actuarial (gain) loss............................................ (15) --
Benefits paid.................................................... (40) (24)
-------- --------
Benefit obligation at end of year................................ 1,248 1,106
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year................... 915 762
Actual return on plan assets..................................... 29 57
Employer contribution............................................ 254 120
Benefits paid.................................................... (40) (24)
-------- --------
Fair value of plan assets at end of year......................... 1,158 915
-------- --------
Funded status.................................................... (90) (191)
Unrecognized net actuarial loss.................................. 369 360
Unrecognized net transition liability............................ (69) (79)
-------- --------
Prepaid benefit cost............................................. $ 210 $ 90
======== ========
</TABLE>
Key economic assumptions used in these determinations were:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Discount rate.................................................... 7.0% 7.0%
Expected long-term rate of return................................ 7.0% 7.0%
</TABLE>
Note 7 - Related Party Transactions
On January 1, 1995, the Company entered into a consulting and
non-competition agreement for a period of five years with a director, who is
also the second largest stockholder. During this period, the director will
provide consulting services on various operational and financial issues and is
currently paid at an annual rate of $136 but in no event is such amount
permitted to exceed $150. The director also agreed to keep all Company
information confidential and will not compete directly or indirectly with the
Company for the term of the agreement and for a period of two years thereafter.
The termination date of this agreement has been extended until June 30, 2000.
Note 8 - Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash deposits, and trade
accounts receivable, and an interest rate swap agreement.
36
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The Company maintains cash balances at several banks located in the
northeastern United States. As part of its cash management process, the Company
periodically reviews the relative credit standing of these banks.
Credit risk with respect to trade accounts receivable is concentrated with
ten of the Company's customers. These customers accounted for approximately 55%
and 48% of the Company's outstanding trade accounts receivable at December 31,
1999 and 1998, respectively. These customers are distributors of
telecommunications and private cable television components, and providers of
franchise and private cable television service. The Company performs ongoing
credit evaluations of its customers' financial condition, uses credit insurance
and requires collateral, such as letters of credit, to mitigate its credit risk.
The deterioration of the financial condition of one or more of its major
customers could adversely impact the Company's operations.
For the year ended December 31, 1999, the Company's largest customer
accounted for approximately 14% of the Company's sales. At December 31, 1999,
this customer accounted for approximately 3% of the Company's outstanding trade
accounts receivable. Management believes these amounts to be collectible. This
customer also accounted for approximately 10% of the Company's sales in 1998
while a different customer accounted for approximately 16% of the Company's
sales in 1997.
Note 9 - Stockholders' Equity
On May 17, 1999, the Company commenced a self tender offer to purchase 750
shares of its common stock at a purchase price ranging from $6.00 to $8.00 per
share. As of June 22, 1999, approximately 1,600 shares were tendered and the
Company accepted 750 shares for purchase at a price of $7.00 per share. The
stock repurchase was funded by a combination of the Company's cash on hand and
borrowings against its revolving line of credit.
Stock Repurchase Program
On April 1, 1997, the Company announced that its Board of Directors
authorized management to purchase up to 100 shares of its common stock.
Purchases were made from time to time in the open market, funded from operating
cash flow and then-existing bank facilities. As of December 31, 1999, the
Company had repurchased 81 shares under this program.
37
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 10 - Earnings Per Share
Basic and diluted earnings per share for each of the three years ended
December 31, 1999, 1998 and 1997 are calculated as follows:
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
---------------------------------------------
<S> <C> <C> <C>
For the year ended December 31, 1999:
Basic earnings per share $ 59 7,916 $ 0.01
Effect of assumed conversion of employee
stock options - 42
---------------------------------------------
Diluted earnings per share $ 59 7,958 $ 0.01
=============================================
For the year ended December 31, 1998:
Basic earnings per share $ 7,113 8,292 $ 0.86
Effect of assumed conversion of employee
stock options - 179
---------------------------------------------
Diluted earnings per share $ 7,113 8,471 $ 0.84
=============================================
For the year ended December 31, 1997:
Basic earnings per share $ 6,414 8,227 $ 0.78
Effect of assumed conversion of employee
stock options - 148
---------------------------------------------
Diluted earnings per share $ 6,414 8,375 $ 0.77
=============================================
</TABLE>
The diluted share base excludes incremental shares of 837, 199 and 64
related to stock options and a warrant for December 31, 1999, 1998 and 1997,
respectively. There shares were excluded due to their antidilutive effect.
Note 11 - Acquisition
On March 26, 1998, the Company acquired all of the assets and technology
rights of the interdiction business (the "Interdiction Business") of
Scientific-Atlanta, Inc. ("Scientific") for a purchase price consisting of (i)
$19,000 in cash, (ii) 68 shares of the Company's common stock, (iii) a warrant
to purchase 150 additional shares of the Company's common stock at an exercise
price of $14.25 per share and (iv) assumption by the Company of certain
obligations under executory contracts with vendors and customers and certain
warranty obligations and current liabilities of the Interdiction Business. The
Interdiction Business generated approximately $16,000 in revenues for the prior
twelve month period. The Company believes that Scientific's interdiction
products, which have been engineered primarily to serve the franchise cable
market, will supplement the Company's VideoMask(TM) products, which are
primarily focused on the private cable market. In addition, the Company expects
38
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
that the technology acquired as part of the Interdiction Business will enhance
its ability to design products that meet the specific needs of all cable
providers, while improving its position in the franchise cable market.
The acquisition has been accounted for under the purchase method of
accounting in accordance with Accounting Principles Board No. 16 with the net
assets recorded at fair market value and operations included in the financial
statements from the date of acquisition. The allocation of the purchase price
was recorded to inventory $2,518, property, plant and equipment $472, patents
$4,200 and goodwill $13,585. In 1999, as a result of adjustments to inventory,
goodwill was increased by $323.
The following table presents the unaudited pro forma results of operations
as though the acquisition of Scientific-Atlanta, Inc.'s Interdiction Business
occurred on January 1, 1997:
Year Ended December 31,
-------------------------
1998 1997
------- -------
Net sales $76,782 $77,833
Earnings from operations 13,682 8,829
Net income 8,251 4,565
Basic earnings per share 1.00 0.55
Diluted earnings per share 0.97 0.55
Note 12 - Stock Option Plans
In 1994, the Company established the 1994 Incentive Stock Option Plan (the
"1994 Plan"). The 1994 Plan provides for the granting of Incentive Stock Options
to purchase shares of the Company's common stock to officers and key employees
at a price not less than the fair market value at the date of grant as
determined by the compensation committee of the Board of Directors. The maximum
number of shares available for issuance under the plan was 298. Options become
exercisable as determined by the compensation committee of the Board of
Directors at the date of grant. Options expire ten years from the date of grant.
In October, 1995, the Company's Board of Directors and stockholders
approved the 1995 Long Term Incentive Plan (the "1995 Plan"). The 1995 Plan
provides for grants of "incentive stock options" or nonqualified stock options,
and awards of restricted stock, to executives and key employees, including
officers and employee Directors. The 1995 Plan is administered by the
Compensation Committee of the Board of Directors, which determines the optionees
and the terms of the options granted under the 1995 Plan, including the exercise
price, number of shares subject to the option and the exercisability thereof, as
well as the recipients and number of shares awarded for restricted stock awards;
provided, however, that no employee may receive stock options or restricted
stock awards which would result, separately or in combination, in the
acquisition of more than 100 shares of Common Stock of the Company under the
1995 Plan. The exercise price of incentive stock options granted under the 1995
Plan must be equal to at least the fair market value of the Common Stock on the
date of grant. With respect to any optionee who owns stock representing more
than 10% of the voting power of all classes of the Company's outstanding capital
stock, the exercise price of any incentive stock option must be equal to at
least 110% of the fair market value of the Common Stock on the date of grant,
and the term of the option may not exceed five years. The term of all other
incentive stock options granted under the 1995 Plan may not exceed ten years.
The aggregate fair market value of Common Stock (determined as of the date of
the option grant) for which an incentive stock option may for the first time
become exercisable in any calendar year may not exceed $100. The exercise price
for nonqualified stock options is established by the Compensation Committee, and
may be more or less than the fair market value of the Common Stock on the date
of grant.
Generally, options granted under the 1995 Plan are exercisable over the
term of the option, as provided by the Compensation Committee. Upon any merger
or consolidation, if the Company is not the surviving corporation, all
outstanding options granted shall terminate unless such options are assumed or
other options are
39
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
substituted therefor by the successor corporation, or the vesting of such shares
is accelerated by the Compensation Committee.
Under the 1995 Plan awards may be made to key executive employees of
restricted stock which is forfeitable unless the employee remains in the employ
of the Company for five years and does not violate other terms of the award,
such as non-transferability. Exceptions to forfeiture are provided for the cases
of retirement at age 65 or death while in employment. No restricted shares have
been awarded under the 1995 Plan.
Stockholders have previously approved a total of 750 shares of common stock
for issuance under the 1995 Plan, as amended to date.
In December, 1995, the stockholders of the Company approved the adoption of
the Company's 1996 Director Option Plan (the "1996 Plan"). Under the 1996 Plan,
Directors who within the preceding 12 months have not been employed by the
Company and have not served as a consultant to the Company where annual
compensation exceeds $100, are eligible to receive options to purchase 0.5
shares of the Company's Common Stock for each year of service on the Board. The
exercise price for such shares is the fair market value thereof on the date of
grant (which is December 31 of each year) and the options are subject to a
one-year vesting requirement. The options become exercisable, in whole or in
part, during the second through sixth years from the date of grant. Under the
1996 Plan the grant of options is automatic to each eligible Director serving on
December 31 of any year provided the Director had served in such capacity since
June 30 of such year. A maximum of 25 shares may be awarded under the 1996 Plan
which expires January 2, 2006. The plan is administered by a committee presently
comprised of James A. Luksch and Robert J. Palle, Jr.
During October, 1997, subject to stockholder approval, the Board of
Directors amended the 1996 Plan to provide that it would be administered by the
Board of Directors rather than the 1996 Plan Committee, and that rather than
providing for annual automatic grants of options for a specified number of
shares to all non-employee Directors, the Board would have the power to grant
options to non-employee Directors at its discretion from time to time to
purchase the number of shares of Common Stock determined by the Board; provided,
however, that no Director would be permitted to receive options to purchase more
than 2 shares of Common Stock in any one calendar year.
During December, 1997, the Board of Directors adopted the Amended and
Restated 1996 Director Option Plan (the "Amended 1996 Plan") subject to
stockholder approval. The Amended 1996 Plan incorporates the amendments to the
1996 Plan the Board had approved in October, 1997, as well as certain additional
amendments, and restates the 1996 Plan as amended. Under the Amended 1996 Plan,
Directors who are not currently employed by the Company or any subsidiary of the
Company and have not been so employed within the preceding six months are
eligible to receive options from time to time to purchase the number of shares
of Common Stock determined by the Board; provided, however, that no Director is
permitted to receive options to purchase more than 5 shares of Common Stock in
any one calendar year. The exercise price for such shares is the fair market
value thereof on the date of grant, and the options vest as determined in each
case by the Board of Directors. Options granted under the Amended 1996 Plan must
be exercised within 10 years from the date of grant. A maximum of 100 shares of
Common Stock are subject to issuance under the Amended 1996 Plan. The plan will
be administered by the Board of Directors. Also subject to stockholder approval
and in keeping with the terms of the Amended 1996 Plan, in 1997 no Director
received the grant of an option to purchase 0.5 shares of Common Stock at year
end provided for in the original 1996 Plan.
In 1996, the Board of Directors granted a non-plan, non-qualified option
for 10 shares to an individual, who was not an employee or director of the
Company at the time of the grant. The option was originally exercisable at
$10.25 per share and expires in 2006. This option was repriced to $6.88 per
share on September 17, 1998.
40
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Stock Option Repricing
During the third quarter of 1998, the Compensation Committee of the Board
of Directors observed that, despite the strong financial performance of the
Company over the past several months attributable to the contributions of the
Company's employees, officers and Directors, the market price of the Company's
Common Stock had recently declined significantly due to market forces and other
outside factors. The decline in the Company's stock price caused many of its
outstanding stock options granted to employees, officers and Directors to have
exercise prices above (in many cases significantly above) the current market
price for the Common Stock. The Compensation Committee was of the view that
stock options with exercise prices well above the market value of the Company's
Common Stock do not serve any incentive function and do not serve to retain
employees of the Company. Accordingly, in an effort to ensure that the Company
continues to provide meaningful, long-term incentive compensation to and retains
its employees, officers and Directors through stock option grants, on September
4, 1998, the Compensation Committee recommended and the Board approve a
repricing (the "Repricing") of all outstanding, unexercised stock options held
by the Company's employees, officers and Directors having exercise prices
exceeding the fair market value of the Common Stock as of September 17, 1998
(the "Affected Options"), provided, that no options would be repriced if the
fair market value for the Common Stock exceeded $7.50 per share on September 17,
1998 (the "Effective Date"). The fair market value for the Common Stock as of
the Effective Date was determined by the Board to be $6.88 per share (the "New
Exercise Price"), which was the average of the high and low sales prices for the
Common Stock on the American Stock Exchange on the Effective Date.
All of the Company's optionholders were required to elect whether or not
they wished to have their Affected Options repriced as of the Effective Date.
Those who elected not to reprice their options retained their existing options
without change. Those who elected to have their Affected Options repriced had
such options cancelled as of the Effective Date, with new options (the "New
Options") being granted as of such date on the same terms and in the same
amounts except (i) all New Options have an exercise price equal to the New
Exercise Price and (ii) the New Options retained the same vesting schedule as
the options they replaced, except that (x) options which were already vested as
of the Effective Date were treated as first becoming vested on the Effective
Date and (y) in certain cases the vesting of a portion of the New Options was
delayed in order to preserve the "incentive stock option" status of such options
under the Internal Revenue Code.
Neither James A. Luksch nor Robert J. Palle, Jr. elected to reprice any of
their stock options in the Company. The Company has not conducted any other
repricings of stock options during the last ten fiscal years.
41
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Weighted-
Average Weighted-Average
1994 Exercise 1995 Exercise 1996 Weighted-Average
Plan (#) Price ($) Plan (#) Price ($) Plan (#) Exercise Price ($)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option:
Outstanding at
January 1, 1997 213 4.36 225 9.72 2 8.50
Granted - - 254(a) 9.27 -(b) -
Exercised (67) 2.77 (12) 9.63 - -
Canceled (5) 4.33 (33) 9.35 - -
Outstanding at
December 31, 1997 141 5.13 434 9.49 2 8.50
Granted 6 6.88 903 7.86 49 9.41
Exercised (19) 3.23 (11) 9.63 - -
Canceled (6) 9.38 (665) 9.74 (25) 11.90
Outstanding at
December 31, 1998 122 5.30 661 7.00 26 6.91
Granted - - 51 6.54 8 6.53
Exercised (8) 3.97 (14) 6.88 - -
Canceled (3) 4.33 (42) 6.88 - -
Outstanding at
December 31, 1999 111 5.42 656 6.97 34 6.82
Options exercisable
at December 31, 1999 111 5.42 356 7.09 26 6.91
Weighted-average fair
value of options granted
during: 1997 -- $5.81 --
1998 $4.67 $5.42 $4.88
1999 -- $4.93 $4.97
</TABLE>
- ------------
(a) Does not include options to purchase an aggregate of 30 shares of common
stock which were conditionally granted by the Compensation Committee of the
Board of Directors, subject to stockholder approval of an increase in the
number of shares of common stock subject to issuance under the 1995 Plan.
(b) Does not include options to purchase an aggregate of 4 shares of common
stock which were conditionally granted by the Board of Directors, subject
to stockholder approval of the Amended 1996 Plan.
42
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------------------------------
Number of
Options Weighted-Average Weighted-Average Number Weighted-
Range of Exercise Outstanding at Remaining Exercise Price Exercisable at Average
Prices ($) 12/31/99 Contractual Life ($) 12/31/99 Exercise Price ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 Plan:
2.57 39 4.6 years 2.57 39 2.57
4.33 38 5.4 4.33 38 4.33
6.88 6 6.9 6.88 6 6.88
10.59 28 1.6 10.59 28 10.59
--- ---
2.57 to 10.59 111 4.2 5.42 111 5.42
=== ===
1995 Plan:
5.88 3 9.4 5.88 - -
6.34 43 9.6 6.34 - -
6.88 584 8.1 6.88 335 6.88
8.63 5 9.7 8.63 - -
10.59 21 2.6 10.59 21 10.59
--- ---
6.88 to 10.59 656 7.3 6.97 356 7.09
=== ===
1996 Plan:
6.53 8 9.5 6.53 - -
6.88 25 7.5 6.88 25 6.88
8.50 1 3.0 8.50 1 8.50
- -
34 8.0 6.82 26 6.91
== ===
</TABLE>
The Corporation has adopted the disclosures only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost been recognized for the stock option plans been
determined based on the fair value at the date of grant consistent with the
provisions of SFAS No. 123, the Corporation's net earnings and net earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net earnings - as reported $ 59 $7,113 $6,414
Net (loss) earnings - pro forma (625) 6,851 5,957
Basic earnings per share - as reported 0.01 0.86 0.78
Basic (loss) earnings per share - pro forma (0.08) 0.83 0.72
Diluted earnings per share - as reported 0.01 0.84 0.77
Diluted (loss) earnings per share - pro forma (0.08) 0.81 0.71
</TABLE>
43
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The fair market value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants:
Year Ended December 31,
-------------------------------------
1999 1998 1997
Expected volatility 63% 61% 60%
Risk-free interest rate 5.7% 5.6% 6.0%
Expected lives 10 8 6
Dividend yield none none none
Note 13 - Income Taxes
The following summarizes the provision for income taxes:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
----- ------- ------
<S> <C> <C> <C>
Current:
Federal..................................................... $ 59 $ 3,844 $3,707
State and local............................................. 10 600 1,087
----- ------- ------
69 4,444 4,794
Deferred:
Federal..................................................... (58) (495) (399)
State and local............................................. (9) (81) (119)
----- ------- ------
(67) (576) (518)
----- ------- ------
Provision for income taxes..................................... $ 2 $ 3,868 $4,276
===== ======= ======
</TABLE>
The provision for income taxes on adjusted historical income differs from
the amounts computed by applying the applicable Federal statutory rates due to
the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Provision for Federal income taxes at the statutory rate............... $21 $3,734 $3,630
State and local income taxes, net of Federal benefit................... 6 549 641
Research and development credits....................................... - - (28)
Adjustment of prior year's accruals.................................... (25) (415) -
Other, net............................................................. - - 33
------ ------ ------
Provision for income taxes............................................. $2 $3,868 $4,276
====== ====== ======
</TABLE>
44
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31,
----------------------
1999 1998
------ -------
Deferred tax assets:
Allowance for doubtful accounts $252 $468
Inventory 686 785
Accrued vacation 265 233
Other 145 117
------ -------
Total deferred tax assets 1,348 1,603
------ -------
Deferred tax liabilities:
Tax accounting method - (80)
Depreciation (315) (305)
------ -------
Total deferred tax liabilities (315) (385)
------ -------
$1,033 $ 1,218
====== =======
Note 14 - Export Sales
The Company exports its products to countries in North and South America,
Europe, and Asia. The Company's export sales were approximately 2% in 1999, 2%
in 1998, and 3% in 1997. The Company's export sales were concentrated to
customers in North and South America for all periods presented.
Note 15 - Quarterly Financial Information - Unaudited
<TABLE>
<CAPTION>
1999 Quarters 1998 Quarters
-------------------------------------- --------------------------------------
First Second Third Fourth First Second Third Fourth
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $13,756 $14,656 $17,307 $11,086 $15,119 $20,525 $18,929 $16,219
Gross profit 4,766 4,766 5,620 2,579 5,095 6,739 7,362 6,252
Net earnings (loss) 443 333 691 (1,408) 1,005 1,776 2,274 2,058
Basic earnings (loss) per share .05 .04 .09 (.19) .12 .21 .27 .25
Diluted earnings (loss) per share .05 .04 .09 (.19) .12 .21 .27 .25
</TABLE>
Note 16 - Financial Instruments
On February 3, 1999, the Company entered into an interest rate swap
agreement with a notional amount of $10,000. The swap agreement has a maturity
date of June 3, 2002 and requires the Company to make fixed rate interest
payments on the notional amount of 8.01% per annum in exchange for floating rate
payments equal to LIBOR plus 2.55%. The Company is exposed to credit risk in the
unlikely event of the nonperformance by the counterparties. Interest to be paid
or received is accrued over the life of the agreement at the net effective
interest rate for the swap and corresponding debt instrument. At December 31,
1999, the notional amount was $8,333 and $15 was included in interest expense
related to the swap agreement.
45
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Blonder Tongue Laboratories, Inc.:
The audits referred to in our report dated February 18, 2000 relating to the
consolidated financial statements of Blonder Tongue Laboratories, Inc. and
subsidiaries, which is contained in Item 8 of this Form 10-K, included the audit
of the financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Woodbridge, New Jersey
February 18, 2000
46
<PAGE>
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged Charged
Allowance for Doubtful Beginning to to Other Deductions Balance at
Accounts of Period Expenses Accounts Write-Offs End of Period
-------- --------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999: $1,201 $1,043 - ($1,561) $683
Year ended December 31, 1998: $607 $598 - ($4) $1,201
Year ended December 31, 1997: $280 $366 - ($39) $607
</TABLE>
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
BLONDER TONGUE LABORATORIES, INC.
Date: March 27, 2000 By: /S/ JAMES A. LUKSCH
------------------------------------------------
James A. Luksch
President and Chief Executive Officer
By: /S/ PETER PUGIELLI
------------------------------------------------
Peter Pugielli, Senior Vice President - Finance,
Treasurer 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.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/S/ JAMES A. LUKSCH Director, President and Chief March 27, 2000
- ------------------------------------ Executive Officer (Principal
James A. Luksch Executive Officer)
/S/ PETER PUGIELLI Senior Vice President, Chief March 27, 2000
- ------------------------------------ Financial Officer, Treasurer and
Peter Pugielli Assistant Secretary (Principal
Financial Officer and Principal
Accounting Officer)
/S/ ROBERT J. PALLE, JR. Director, Executive Vice March 27, 2000
- ------------------------------------ President, Chief Operating
Robert J. Palle, Jr. Officer and Secretary
/S/ JOHN E. DWIGHT Director and Senior Vice March 27, 2000
- ------------------------------------ President
John E. Dwight
/S/ JAMES H. WILLIAMS Director March 27, 2000
- ------------------------------------
James H. Williams
/S/ JAMES F. WILLIAMS Director March 27, 2000
- ------------------------------------
James F. Williams
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C>
/S/ ROBERT B. MAYER Director March 27, 2000
- ------------------------------------
Robert B. Mayer
/S/ GARY P. SCHARMETT Director March 27, 2000
- ------------------------------------
Gary P. Scharmett
/S/ ROBERT E. HEATON Director March 27, 2000
- ------------------------------------
Robert E. Heaton
</TABLE>
49
FIFTH AMENDED AND RESTATED LOAN AGREEMENT
dated as of November 12, 1999
between
FIRST UNION NATIONAL BANK
and
BLONDER TONGUE LABORATORIES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................... 1
1.1 Definitions.................................................................... 1
ARTICLE II CREDIT ACCOMMODATIONS..........................................................10
2.1 The Line of Credit.............................................................10
2.2 Real Estate Loan...............................................................11
2.3 Term Loan......................................................................12
2.4 Interest.......................................................................12
2.5 Fees...........................................................................14
2.6 Mandatory Prepayments and Line of Credit Reductions............................15
2.7 Requirements of Law............................................................16
2.8 Determinations.................................................................16
2.9 Payments and Computations......................................................17
2.10 Prepayment and Repayment.......................................................17
ARTICLE III SECURITY.......................................................................18
3.1 Reaffirmation of Second Amended and Restated Security Agreement................18
3.2 Reaffirmation of Amended and Restated Patent Security Agreement................19
3.3 Reaffirmation of Amended and Restated Trademark Collateral Assignment..........19
3.4 Reaffirmation of Mortgage......................................................19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BORROWER.................................19
4.1 Good Standing of the Borrower; Authorization...................................19
4.2 Compliance with Laws and Other Agreements......................................19
4.3 No Conflict; Governmental Approvals............................................20
4.4 Financial and Other Information Regarding Borrower.............................20
4.5 Taxes..........................................................................20
4.6 Encumbrances and Guaranties....................................................20
4.7 Material Adverse Changes.......................................................21
4.8 Margin Securities..............................................................21
4.9 ERISA..........................................................................21
4.10 Pending Litigation.............................................................21
4.11 Valid, Binding and Enforceable.................................................22
4.12 Priority of Security Interests.................................................22
4.13 Environmental Matters..........................................................22
4.14 Year 2000......................................................................22
4.15 No Untrue Statements...........................................................23
ARTICLE V CONDITIONS PRECEDENT TO THE BANK'S OBLIGATIONS.................................23
5.1 Documents to be Delivered by the Borrower at Closing...........................23
5.2 Conditions Precedent to Making Line of Credit Loans............................24
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VI AFFIRMATIVE COVENANTS OF THE BORROWER..........................................24
6.1 Use of Proceeds................................................................24
6.2 Financial Statements...........................................................24
6.3 Ordinary Course of Business; Records...........................................26
6.4 Information for the Bank.......................................................26
6.5 Insurance......................................................................26
6.6 Maintenance....................................................................27
6.7 Taxes..........................................................................27
6.8 Leases.........................................................................27
6.9 Corporate Existence; Certain Rights; Laws......................................27
6.10 Notice of Litigation or Other Proceedings......................................27
6.11 Indebtedness...................................................................28
6.12 Notice of Events of Default....................................................28
6.13 ERISA..........................................................................28
6.14 Deposit Accounts...............................................................28
6.15 Management.....................................................................28
6.16 Compliance with Environmental Laws.............................................29
6.17 Interest Rate Protection.......................................................29
6.18 Further Actions................................................................29
6.19 Material Adverse Change........................................................29
6.20 Meeting Regarding Projections..................................................29
ARTICLE VII NEGATIVE COVENANTS.............................................................29
7.1 Financial Covenants............................................................29
7.2 Fundamental Corporate Changes..................................................30
7.3 Indebtedness...................................................................30
7.4 Encumbrances...................................................................31
7.5 Guaranties.....................................................................31
7.6 Sales and Lease-Backs..........................................................32
7.7 Loans, Investments.............................................................32
7.8 Change in Business.............................................................32
7.9 Sale or Discount of Receivables................................................32
7.10 Prepayment of Indebtedness.....................................................32
7.11 Limitation on Dividends; Stock Repurchases.....................................32
7.12 ERISA..........................................................................32
7.13 Compliance with Federal Reserve Board Regulations..............................33
7.14 Blonder International and Vu-Tech Communications, Inc..........................33
ARTICLE VIII EVENTS OF DEFAULT..............................................................33
8.1 Borrower's Failure to Pay......................................................33
8.2 Breach of Covenants or Conditions..............................................33
8.3 Defaults in Other Agreements...................................................34
8.4 Agreements Invalid.............................................................34
8.5 False Warranties; Breach of Representations....................................34
8.6 Judgments......................................................................34
8.7 Bankruptcy or Insolvency of the Borrower or Other Loan Parties.................34
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IX REMEDIES.......................................................................35
9.1 Further Advances; Acceleration; Setoff.........................................35
9.2 Further Remedies...............................................................36
ARTICLE X MISCELLANEOUS..................................................................36
10.1 Remedies Cumulative; No Waiver.................................................36
10.2 Notices........................................................................36
10.3 Costs, Expenses and Attorneys' Fees............................................37
10.4 Survival of Covenants..........................................................37
10.5 Counterparts; Effectiveness....................................................38
10.6 Headings.......................................................................38
10.7 Payment Due On A Day Other Than A Business Day.................................38
10.8 Judicial Proceedings...........................................................38
10.9 Governing Law..................................................................38
10.10 Integration....................................................................38
10.11 Amendment and Waiver...........................................................39
10.12 Successors and Assigns.........................................................39
10.13 Severability of Provisions.....................................................39
10.14 Consent to Jurisdiction and Service of Process.................................39
10.15 Indemnification................................................................40
10.16 Arbitration Provisions.........................................................40
</TABLE>
-iii-
<PAGE>
FIFTH AMENDED AND RESTATED LOAN AGREEMENT
This FIFTH AMENDED AND RESTATED LOAN AGREEMENT ("Agreement"), dated as
of November 12,1999 is between FIRST UNION NATIONAL BANK, a national banking
association (the "Bank"), and BLONDER TONGUE LABORATORIES, INC., a Delaware
corporation (the "Borrower").
BACKGROUND
----------
A. The Bank and the Borrower are parties to a Fourth Amended and Restated
Loan Agreement dated February 1, 1999 (as amended, modified and/or extended, the
"Existing Loan Agreement").
B. The Bank and the Borrower now desire to amend and restate in their
entirety the terms and conditions of the Existing Loan Agreement pursuant to the
terms hereof and set forth the terms and conditions upon which the Bank will
continue to make available to the Borrower certain credit facilities to be used
for the purposes specified in this Agreement. Accordingly, the Bank and the
Borrower, each intending to be legally bound hereby, agree as follows:
ARTICLE I DEFINITIONS
1.1 Definitions.
Terms used herein without definition that are defined in the Uniform
Commercial Code shall have the meanings ascribed to them therein, unless the
context requires otherwise. The following terms shall have the following
meanings in this Agreement:
"Account" shall have the meaning given to that term in the Uniform
Commercial Code and, in addition, shall include any right to payment for goods
sold or leased or services rendered which is evidenced by an instrument or
chattel paper.
"Account Debtor" shall mean a Person who is obligated under any Account.
"Accounts Receivable Report" shall have the meaning set forth in Section
6.2(c) of this Agreement.
"Accounts Payable Report" shall have the meaning set forth in Section
6.2(c) of this Agreement.
"Affiliate" shall mean any Subsidiary of the Borrower and any Person or
entity that, now or hereafter, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common ownership or
control with the Borrower. For purposes of this definition, the terms "control,"
"controls" and "controlled" shall refer to the power to determine the management
or policies of a Person, whether resulting from an official position or capacity
with such Person, direct or indirect beneficial ownership of at least twenty
percent (20%) of the voting securities or other equity interests of such Person,
or otherwise.
<PAGE>
"Agreement" shall mean this agreement, together with all exhibits,
amendments, modifications and supplements hereto as may be in effect from time
to time.
"Applicable Base Rate Line of Credit Margin" shall have the meaning set
forth in Section 2.4(b) of this Agreement.
"Applicable Base Rate Term Loan Margin" shall have the meaning set forth in
Section 2.4(b) of this Agreement.
"Applicable Law" shall mean all applicable provisions of (i) constitutions,
statutes, rules, regulations and orders of governmental authorities of any kind
having jurisdiction over the Bank or the Borrower, (ii) authorizations,
consents, approvals, and licenses of such governmental authorities, (iii)
Judgments, and (iv) common law and equity.
"Applicable LIBOR Line of Credit Margin" shall have the meaning set forth
in Section 2.4(b) of this Agreement.
"Applicable LIBOR Term Loan Margin" shall have the meaning set forth in
Section 2.4(b) of this Agreement.
"Bank" shall have the meaning specified in the initial paragraph of this
Agreement, together with its successors and assigns.
"Base Rate" shall mean the greater of (i) the Bank's Prime Rate, or (ii)
the overnight federal funds rate plus 0.50%. The Bank's Prime Rate is an index
or base rate announced from time to time by the Bank as its "Prime Rate" and is
not its lowest or best rate charged to its customers.
"Blonder International" shall mean Blonder Tongue International, Inc., a
Delaware corporation, together with its successors and assigns.
"Borrower" shall have the meaning specified in the initial paragraph of
this Agreement, together with its successors and assigns.
"Borrowing Base" shall mean the sum of (i) 75% of Eligible Accounts, and
(ii) the lesser of (A) 20% of Eligible Inventory, or (B) 50% of the sum of (1)
75% of Eligible Accounts and (2) 20% of Eligible Inventory.
"Borrowing Base and Loan Report" shall have the meaning set forth in
Section 6.2(c) of this Agreement.
"Business Day" shall mean any day upon which banks are open for business in
New Jersey, Pennsylvania and in London, U.K.
"Capital Lease" shall mean any lease of property which, in accordance with
GAAP, should be capitalized on the lessee's balance sheet.
-2-
<PAGE>
"Capital Lease Obligation" shall mean the amount of the liability which,
according to GAAP, should be capitalized or disclosed with respect to a Capital
Lease.
"Closing" shall mean the execution and delivery to the Bank of all of the
documents and instruments required by the terms of this Agreement and the
closing of the transactions contemplated by this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning set forth in the Second Amended and
Restated Security Agreement.
"Compliance Certificate" shall have the meaning set forth in Section
6.2(g).
"Default" shall mean any Event of Default, whether or not any requirement
for the giving of notice, the lapse of time, or both, or any other condition,
has been satisfied.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"EBITDA" shall have the meaning set forth in Section 7.1(a) of this
Agreement.
"Eligible Accounts" shall mean all Accounts evidenced by an invoice (valued
at the face amount of such invoice, less maximum discounts, credits and
allowances which may be taken by Account Debtors on such Accounts, and net of
any sales tax, finance charges or late payment charges or included in the
invoiced amount) created or acquired by Borrower arising from the sale of
Inventory and/or the provision of certain services in Borrower's ordinary course
of business (as approved by Bank) in which Bank has a first priority, perfected
security interest (subject only to Permitted Liens), but excluding (a) Accounts
outstanding for more than ninety (90) days from the date of original invoice;
(b) all Accounts owed by an Account Debtor if more than fifty percent (50%) of
the Accounts owed by such Account Debtor to Borrower are deemed ineligible
hereunder; (c) Accounts owing from any Affiliate of Borrower; (d) Accounts owed
by a creditor of Borrower to the extent of the amount of the indebtedness of
Borrower to such creditor; (e) Accounts which are in dispute or subject to any
counterclaim, contra-account or offset; (f) Accounts owing by any Account Debtor
which is not solvent; (g) Accounts arising from a sale on a bill-and-hold,
guaranteed sale, sale-or-return, sale-on-approval, consignment or similar basis
or which is subject to repurchase, return, rejection, repossession, loss or
damage; (h) Accounts owed by an Account Debtor located outside of the
continental United States of America, unless in Bank's sole and absolute
discretion, such Account is supported by a letter of credit or credit insurance
assigned to Bank and which is issued by a financial institution and in an amount
which is acceptable to Bank in its sole and absolute discretion; (i) Accounts
owed by the United States of America or other governmental or quasi-governmental
unit, agency or subdivision unless Borrower shall have complied with all
applicable federal and state assignment of claims laws; (j) Accounts as to which
the goods giving rise to the Account have not been delivered to and accepted by
the Account Debtor or the service giving rise to the Account has not been
completely performed or which do not represent a final sale; (k) Accounts for
which the total amounts owed thereunder by an Account Debtor (together with its
Affiliates) exceeds a credit limit established by Bank in its sole and absolute
discretion (to the extent of such excess); (l) Accounts evidenced by a note or
other instrument or chattel paper or reduced to judgment;
-3-
<PAGE>
(m) Accounts for which the total of all Accounts from an Account Debtor
(together with the Affiliates of the Account Debtor) exceed ten percent (10%) of
the total Accounts of Borrower (to the extent of such excess); (n) Accounts
which, by contract, subrogation, mechanics' lien laws or otherwise, are subject
to claims by Borrower's creditors or other third parties or which are owed by
Account Debtors as to whom any creditor of Borrower (including any bonding
company) has lien or retainage rights; (o) Accounts the validity,
collectibility, or amount of which is determined in good faith by Borrower or
Bank to be doubtful; (p) Accounts owed by an Account Debtor which is located in
a jurisdiction where Borrower is required to qualify to transact business or to
file reports, unless Borrower has so qualified or filed; (q) Accounts owed by an
Account Debtor who disputes the liability therefor; (r) Accounts owed by an
Account Debtor that shall be the subject of any proceeding of the type described
in Section 8.7; and (s) any other Account which Bank otherwise in its sole and
absolute discretion deems to be ineligible and with respect to which Bank has
provided ten (10) Business Days' prior written notice to the Borrower that it
deems such Account to be ineligible. No Account shall be an Eligible Account if
any representation, warranty or covenant herein relating thereto shall be
untrue, misleading or in default. Bank may determine, on a daily basis, whether
any Account constitutes an Eligible Account, and if an Eligible Account
subsequently becomes ineligible its ineligibility shall be immediate.
"Eligible Inventory" shall mean all Inventory acquired by Borrower in the
ordinary course of its business as presently conducted consisting of raw
materials (excluding Inventory for which any processing has occurred sometimes
refer-red to as "raw materials assembled") and finished goods in which Bank has
a first priority, perfected security interest (subject to Permitted Liens),
valued at the lower of cost or market on a first-in, first-out basis minus any
Inventory reserves, but excluding (a) damaged, obsolete or unmerchantable
Inventory, (b) Inventory not owned legally and beneficially by Borrower, (c)
consigned Inventory, (d) Inventory owned by the Borrower for more than 12
months, (e) Inventory not located at Borrower's property in Old Bridge, New
Jersey, (f) Inventory in-transit; provided, however, that in-transit Inventory
may be deemed Eligible Inventory if Borrower demonstrates that (1) Bank has a
perfected first priority security interest in such Inventory, (2) the Inventory
has been paid for in full (including all applicable freight charges), and (3)
the Inventory is fully insured against any casualty loss, (g) Inventory which
are "supplies", (h) "warranty" Inventory, (i) any Inventory with regard to which
a representation, warranty or covenant is untrue, misleading or in default), and
(j) which Bank otherwise in its sole and absolute discretion deems to be
ineligible and with respect to which Bank has provided ten (10) Business Days'
prior written notice to the Borrower that it deems such Inventory to be
ineligible. Bank may determine, on a daily basis, whether any Inventory
constitutes Eligible Inventory, and if Eligible Inventory subsequently becomes
ineligible its ineligibility shall be immediate. It is presently estimated that
the Inventory owned by the Borrower for more than 12 months has a value of
$204,000. That amount will be used in calculating the Borrowing Base until (x)
the Bank determines that the value of Inventory owned by the Borrower for more
than 12 months is greater, or (y) the Borrower demonstrates that the value of
Inventory owned by the Borrower for more than 12 months is less and that the
Borrower has established reasonable procedures for determining those values on
an ongoing basis.
"Encumbrance" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor,
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<PAGE>
lessor, lender to, or other secured party of the Person under any
conditional sale or other title retention agreement or Capital Lease with
respect to, any property or asset of the Person.
"Environmental Laws" shall mean all provisions of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss.9601 et
seq., as amended by the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499, 100 Stat. 1613 (October 17, 1986), the Resource Conservation
and Recovery Act, 42 U.S.C. ss.ss.6901 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. ss.ss.1801 et seq., the Clean Water Act, 33 U.S.C.
ss.ss.1251 et seq., the Clean Air Act, 42 U.S.C. ss.ss.7401 et seq., the Storage
Tank and Spill Prevention Act, 35 P.S. ss.ss.6021.101 et seq., the Solid Waste
Management Act, 35 P. S. ss.ss.6018.101 et seq., the Clean Streams Law, 35 P.S.
ss.ss.691.1 et seq., the Hazardous Sites Cleanup Act, 35 P.S. ss.ss.6021.101 et
seq., and all other federal, state and local legal requirements pertaining to
the environment or regulating or restricting the use, transfer, storage or
disposal of Hazardous Materials and applicable to the Borrower or its business,
operations or assets.
"ERISA" shall mean the federal Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall have the meaning set forth in ARTICLE VIII of this
Agreement.
"Extraordinary Receipts" shall mean any payments exceeding $50,000 or
series of related payments which in the aggregate total more than $100,000,
which payment or payments are received by the Borrower outside of the ordinary
course of business, including indemnity payments and payment on account of
insurance.
"Federal Reserve Board" shall mean the Board of Governors of the United
States Federal Reserve System.
"Financial Statements" shall have the meaning set forth in Section 4.4(a)
of this Agreement.
"Fixed Charge Ratio" shall have the meaning set forth in Section 7.1(b) of
this Agreement.
"GAAP" shall mean generally accepted accounting principles, as in effect at
the time of application to the provisions hereof, and consistently applied.
"Guarantor" shall mean any Person who guarantees the payment and
performance of all or any part of the Obligations.
"Guaranty" shall mean any guaranty or agreement to be a surety or other
contingent liability (other than any endorsement for collection or deposit in
the ordinary course of business), direct or indirect, with respect to any
obligation of another Person.
"Hazardous Materials" shall mean all materials of any kind which are
flammable, explosive, toxic, radioactive or otherwise hazardous to animal or
plant life or the environment, including, without limitation, "hazardous wastes"
"hazardous substances" and "contaminants," as such terms are defined by
Environmental Laws.
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<PAGE>
"Indebtedness" shall mean any obligation for borrowed money, including,
without limitation: (1) any obligation owed for all or any part of the purchase
price of property or other assets or for the cost of property or other assets
constructed or of improvements thereto, other than accounts payable included in
current liabilities and incurred in respect of property purchased in the
ordinary course of business; (ii) any Capital Lease Obligation; and (iii) any
reimbursement obligations and other obligations under any letter of credit,
currency swap agreement, interest rate swap, cap, collar or floor agreement or
other interest rate management device, or any forward sale or purchase agreement
for foreign currencies.
"Interest Period" shall mean the period commencing on the effective date of
any election to have all or a portion of the amounts outstanding under the Line
of Credit or the Term Loan bear interest at a rate determined with respect to
the LIBOR and ending one, two or three months thereafter, as selected by the
Borrower in its notice given with respect thereto; provided (i) if any Interest
Period would otherwise end on a day which is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the immediately
preceding Business Day; (ii) no Interest Period for amounts which are part of
the Line of Credit may extend beyond the Termination Date; (iii) no Interest
Period for amounts which are part of the Term Loan may extend beyond the Term
Loan Maturity Date; (iv) no Interest Period for amounts which are part of the
Term Loan may extend beyond a Term Loan Payment Date if the aggregate amount of
all of the amounts for which interest is determined in relation to the LIBOR
which are part of the Term Loan and are then scheduled to be outstanding on such
Term Loan Payment Date exceed the principal balance scheduled to be outstanding
after payment on such date is made; and (v) any Interest Period that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month.
"Interest Rate Tranche" shall have the meaning assigned to that term in
Section 2.4(a) hereof.
"Inventory" shall mean all goods, merchandise and other personal property
which is held for sale or lease or furnished or to be furnished under a contract
for services or raw materials, and all work in process and materials used or
consumed or to be used or consumed in a Person's business, and in addition,
includes all property included in the definition of "inventory" as used in the
Code.
"Inventory Report" shall have the meaning set forth in Section 6.2(c) of
this Agreement.
"Judgment" shall have the meaning set forth in Section 8.6 of this
Agreement.
"Letter of Credit Sublimit" shall have the meaning set forth in Section
2.1(b)(i) of this Agreement.
"Letters of Credit" shall have the meaning set forth in Section 2.1(b)(i)
of this Agreement.
"Leverage Ratio" shall have the meaning set forth in Section 7.1(a) of this
Agreement.
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"LIBO Base Rate" shall mean for each Interest Period the interest rate
(expressed as a decimal) for deposits in Dollars for such Interest Period, which
rate appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the
date that is two Business Days prior to the first Business Day of such Interest
Period. (If such rate does not appear on the Telerate Page 3750, the rate
utilized shall be the rate which appears, or if more than one such rate appears,
the average of the rates which appear on the Reuters Screen LIBO Page as of
11:00 a.m., London time, on the day that is two Business Days prior to such
date).
"LIBOR" shall mean with respect to each day during each Interest Period
pertaining to an election of the Borrower to have interest with respect to an
amount outstanding bear interest at the LIBOR, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
LIBO Base Rate
---------------------------------
1.00 - LIBOR Reserve Requirements
"LIBOR Reserve Requirement" shall mean the percentage amount (expressed as
a decimal) of reserves that applicable United States laws would require the Bank
to maintain with respect to liabilities incurred on the London Interbank Market
including, without limitation, reserves required under Regulation D of the Board
of Governors of the Federal Reserve System for euro-currency liabilities (as
defined in such regulation and deemed, for purposes of this Agreement, to
include the Bank's liabilities incurred on the London Interbank Market) without
benefit of or credit for pro-ration, exception, or offsets otherwise available
from time to time under such regulation.
"Line of Credit" shall mean the line of credit from the Bank to the
Borrower established pursuant to Section 2.1 of this Agreement.
"Line of Credit Commitment" shall have the meaning set forth in Section 2.1
of this Agreement.
"Line of Credit Loans" shall mean the loans made by the Bank to the
Borrower pursuant to the Line of Credit.
"Line of Credit Note" shall have the meaning set forth in Section 2.1 of
this Agreement, together with all replacements, amendments and renewals thereof.
"Loan Documents" shall mean this Agreement, the Second Amended and Restated
Security Agreement, the Notes, the Mortgage, the Amended and Restated Patent
Collateral Assignment, the Amended and Restated Trademark Collateral Assignment,
the Life Insurance Assignments and all agreements, amendments, certificates,
financing statements, schedules, reports, notices, and exhibits now or hereafter
executed or delivered in connection with any of the foregoing, as may be in
effect from time to time, provided, however, that the term "Loan Documents"
shall not include any Swap Agreements.
"Loans" shall mean the Line of Credit Loans, the Real Estate Loan and the
Term Loan.
"Make Whole Fee" shall have the meaning set forth in Section 2.5(e) of this
Agreement.
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<PAGE>
"Make Whole Rate" shall have the meaning set forth in Section 2.5(e) of
this Agreement.
"Mortgage" shall mean the Mortgage, Assignment of Leases, and Security
Agreement dated as of May 23, 1996 from the Borrower to the Bank, and
encumbering real and personal property located generally at Middlesex County,
New Jersey, as modified by the Modification of Mortgage, Assignment of Leases
and Security Agreement dated as of February 1, 1999 and any further amendments
and supplements thereto.
"Net Cash Proceeds" of any Person shall mean the amount of any cash
proceeds received by such Person from any sale of assets of such Person other
than in the ordinary course of business minus any normal and customary fees and
expenses related to such sale and any incremental amount of taxes payable or
estimated to be payable by such Person as a result of such sale.
"Notes" shall mean the Line of Credit Note, the Real Estate Loan Note, the
Term Note and all replacements, amendments, extensions and renewals thereof.
"Obligations" shall mean the obligations of the Borrower: (i) to pay the
principal, interest, commitment fees and any other liabilities of the Borrower
to the Bank under this Agreement, the Swap Agreement and the other Loan
Documents in accordance with the terms thereof; (ii) to satisfy all of the other
direct or indirect liabilities of the Borrower to the Bank, whether hereunder or
otherwise, whether now existing or hereafter incurred, whether or not evidenced
by any note or other instrument, matured or unmatured, direct, absolute or
contingent, joint or several, including any extensions, modifications, renewals
thereof and substitutions therefor; (iii) to repay the Bank all amounts advanced
by the Bank hereunder or otherwise on behalf of the Borrower, including, but
without limitation, advances for principal or interest payments to prior secured
parties, mortgagors or lienors, or for taxes, levies, insurance, rent, wages,
repairs to or maintenance or storage of any Collateral; and (iv) to reimburse
the Bank, on demand, for all of the Bank's expenses and costs, including the
reasonable fees and expenses of its counsel, in connection with the negotiation,
preparation, administration, amendment, modification, or enforcement of this
Agreement and the documents required hereunder, including all amounts payable
under Section 10.3 hereof.
"Other Loan Parties" shall mean any Guarantor, together with their
successors or assigns.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
governmental or political subdivision or agency thereof.
"Projections" shall mean Borrower's forecasted consolidated and
consolidating (i) balance sheets, (ii) profit and loss statements, (iii) cash
flow statements, and (iv) capitalization statements, all prepared on a month by
month basis and on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"Real Estate Loan" shall mean the loan referenced in Section 2.2 of this
Agreement.
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<PAGE>
"Real Estate Loan Note" shall have the meaning set forth in Section 2.2 of
this Agreement.
"Regulatory Change" shall mean (a) the enactment or effectuation after the
date of this Agreement of any new, or change in any existing, Applicable Law,
(b) the adoption after such date of any new, or the adoption or other
effectuation after such date of any change in any existing, interpretation,
directive or request (whether or not having the force of law), or (c) any change
after such date in the administration or enforcement of any Applicable Law to
which the Bank is subject. As used in this definition, the "effectuation" of a
change shall include, without limitation, that consisting of or resulting from a
determination of a court or regulatory authority.
"Remaining Term" shall have the meaning set forth in Section 2.5(e) of this
Agreement.
"Required Reduction Amount" shall have the meaning set forth in Section 2.6
of this Agreement.
"Securities Issuance Proceeds" shall mean the proceeds from the issuance of
equity or debt of the Borrower less any reasonable and customary fees, costs and
expenses related to such issuance.
"Senior Debt" shall have the meaning set forth in Section 7. 1 (a) of this
Agreement.
"Stockholder's Equity" has the meaning assigned under GAAP.
"Subsidiary" shall mean, as to any designated corporation, any corporation,
the outstanding shares of which having sufficient voting power (not depending on
the happening of a contingency) to elect at least a majority of the members of
its board of directors, are at the time owned by the designated corporation.
"Swap Agreement" shall mean any swap agreement (as defined in 11 USCss.
101) between the Borrower and the Bank.
"Tangible Net Worth" shall have the meaning set forth in Section 7.1(c) of
this Agreement.
"Tax" shall mean any federal, state or foreign tax, assessment or other
governmental levy or duty or other charge (including any withholding tax) upon a
person or entity or upon its assets, revenues, income or profits, other than
income and franchise taxes imposed upon the Bank by the jurisdictions (or any
political subdivision thereof) in which the Bank or any office of the Bank is
located.
"Term Loan" shall have the meaning set forth in Section 2.3(a) of this
Agreement.
"Term Loan Maturity Date" shall have the meaning set forth in Section
2.3(a) of this Agreement.
"Term Loan Payment Date" shall have the meaning set forth in Section 2.3(a)
of this Agreement.
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<PAGE>
"Term Note" shall have the meaning set forth in Section 2.3(b) of this
Agreement.
"Termination Date" shall have the meaning set forth in Section 2.1 of this
Agreement.
"Uniform Commercial Code" shall mean the Uniform Commercial Code of New
Jersey as codified at l2 NJSA ss.12A-1-10l et seq., as in effect on the date of
this Agreement.
ARTICLE II CREDIT ACCOMMODATIONS
2.1 The Line of Credit.
The Bank hereby makes available to the Borrower upon the terms and
conditions set forth herein, a Line of Credit in the maximum principal amount of
the lesser of (i) $7,500,000 or such lesser amount as determined in accordance
with this Agreement (the "Line of Credit Commitment"), and (ii) the then current
Borrowing Base.
(a) Generally.
At any time and from time to time during the period ending on June 30, 2000
(the "Termination Date"), upon the request of the Borrower, Bank shall provide
to the Borrower a loan or loans in multiples of $100,000, which shall be used by
the Borrower for working capital only. The indebtedness, if any, outstanding
under the Existing Line of Credit Note shall not be repaid or discharged, but
shall be deemed outstanding under the Line of Credit and shall be evidenced by
the Line of Credit Note. The Borrower may use the Line of Credit during the
period referred to above by borrowing, repaying and reborrowing in accordance
with the terms of this Agreement. The aggregate outstanding principal under the
Line of Credit at any time shall not exceed the Line of Credit Commitment. If,
at any time, the aggregate outstanding principal under the Line of Credit
exceeds the lesser of the Line of Credit Commitment or the Borrowing Base, then,
without any requirement of demand or notice from the Bank, the Borrower shall
immediately pay to the Bank the amount of such excess. Upon the Termination
Date, the Bank's commitment to make Line of Credit Loans shall terminate, all
Line of Credit Loans shall immediately mature and all Obligations under the Line
of Credit Loans shall be immediately due and payable in full. The Borrower shall
notify, by use of the form attached hereto as Exhibit A, the Bank of each
proposed borrowing under the Line of Credit not later than 10:00 a.m., Eastern
Standard or Daylight Savings as then in effect in Philadelphia, Pennsylvania
time on the day of the proposed borrowing.
(b) Letters of Credit.
(i) In addition to making loans to the Borrower under the Line of Credit
as provided in Section 2.1(a) hereof, the Bank shall, upon the request of the
Borrower and subject to the terms of this Agreement, also issue one or more
letters of credit ("Letters of Credit") for the account of the Borrower up to
an aggregate amount not to exceed $1,000,000 (the "Letter of Credit Sublimit").
All amounts drawn under Letters of Credit shall be deemed to be loans made under
the Line of Credit and evidenced by the Line of Credit Note, and the amount
available to be borrowed under the Line of Credit shall be reduced by the
aggregate amounts drawn and available to be drawn at any time under all
outstanding Letters of Credit. In no event shall the aggregate amount available
to be drawn on all outstanding Letters of Credit plus the outstanding
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<PAGE>
principal balance of Line of Credit Loans exceed the Line of Credit Commitment.
The duration of any Letters of Credit shall not extend beyond the Termination
Date without the written consent of the Bank.
(ii) Subject to the provisions of Section 2.1(b)(i), the Bank shall
issue Letters of Credit for the account of the Borrower, provided that the
Borrower (i) provides a written request for each such Letter of Credit
specifying the terms thereof, including, without limitation, the amount and
the name and address of the beneficiary of such Letter of Credit; (ii)
executes and delivers to the Bank an application for each such Letter of
Credit pursuant to the form provided for such purpose by the Bank; and (iii)
executes and delivers to the Bank such other documents and instruments which
the Bank, in its sole and absolute discretion, deems reasonable and
necessary.
(c) Line of Credit Note.
The obligations of the Borrower to repay the aggregate outstanding
principal under the Line of Credit and to pay accrued interest thereon shall
be evidenced by a Fifth Amended and Restated Line of Credit Note, in form and
substance satisfactory to the Bank, to be executed and delivered to the Bank
concurrently with the execution and delivery of this Agreement (the "Line of
Credit Note"). The Bank agrees to return to the Borrower the Fourth Amended
and Restated Line of Credit Note marked "cancelled."
(d) Termination or Permanent Reduction of Commitments.
The Borrower shall have the right, upon not less than five Business
Days' notice to the Bank, to terminate the Line of Credit or, from time to
time, reduce the amount of the Line of Credit to an amount not less than the
aggregate principal amount of the Line of Credit Loans then outstanding after
giving effect to any contemporaneous prepayment thereof. Any termination of
the Line of Credit shall be accompanied by the prepayment in full of the Line
of Credit together with accrued interest thereon to the date of such
prepayment and the payment of any unpaid commitment fee and any other fees
and commissions then accrued hereunder and any other amounts payable
hereunder. Any such reduction shall be in an amount of $ 1,000,000 or a whole
multiple thereof.
2.2 Real Estate Loan.
The Bank has made available to the Borrower a loan (the "Real Estate
Loan") in the initial principal amount of $2,800,000 the proceeds of which
were used to refinance the acquisition and/or improvement of certain land and
buildings and other improvements thereon owned by the Borrower and located at
One Jake Brown Road, Old Bridge, New Jersey. The Borrower has repaid and
shall continue to repay the obligations under that loan in monthly installments
of principal in the amount of $15,555.56 until April 1, 2006. On May 1, 2006
the Borrower shall make a final payment consisting of the entire remaining
principal balance of the loan, together with all accrued interest thereon.
Obligations of the Borrower to the Bank shall be evidenced by the Real
Estate Loan Note dated May 23, 1996 made by the Borrower in favor of the Bank
as amended by the Allonge to Real Estate Note dated September 26, 1996, the
Second
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Allonge to Real Estate Note dated as of February 1, 1999 and the Third
Allonge to Real Estate Note of even date (the "Real Estate Loan Note").
2.3 Term Loan.
(a) General.
Subject to the terms and conditions hereof, the Lender hereby agrees to
make a term loan to the Borrower in an amount of $17,100,001.18 (the "Term
Loan"). The Term Loan will be repaid in consecutive monthly principal
payments of $316,666.67 payable on the first Business Day of each month
beginning on December 1, 1999 (the date of each such payment being a "Term
Loan Payment Date") and a final principal payment of any amounts due under
this Agreement which remain unpaid on June 30, 2002 (the "Term Loan Maturity
Date"). The proceeds of the Term Loan will be used to refinance the amounts
owed under the Scientific Atlanta Loan, as that term is defined in the Fourth
Amended and Restated Loan Agreement.
(b) Note.
The obligations of the Borrower to repay the Term Loan will be evidenced
by a term note (the "Term Note") in the form attached hereto as Exhibit B.
The Bank agrees to return to the Borrower the note evidencing the Scientific
Atlanta Loan marked "cancelled".
2.4 Interest.
(a) Rates.
Interest shall accrue on all principal amounts outstanding under the
Real Estate Loan at the Base Rate. Interest shall accrue on all principal
amounts outstanding under the Line of Credit and the Term Loan as follows:
(i) in the absence of an effective election to the contrary any amounts
outstanding under (A) the Line of Credit shall each day bear interest at the
Base Rate plus the Applicable Line of Credit Base Rate Margin, and (B) the
Term Loan shall each day bear interest at the Base Rate plus the Applicable
Term Loan Base Rate Margin, and (ii) the Borrower may, from time to time, in
connection with a request for an advance under the Line of Credit, the
initial funding of the Term Loan or otherwise, elect that all or some portion
of the amounts outstanding under the Line of Credit or the Term Loan shall
bear interest during an Interest Period of one, two or three months at (A) in
the case of the Line of Credit, LIBOR plus the Applicable Line of Credit
LIBOR Margin, or (B) in the case of the Term Loan, LIBOR plus the Applicable
Term Loan LIBOR Margin. Each portion of the Line of Credit or Term Loan with
respect to which the amounts outstanding bear interest determined in relation
to the Base Rate or for which the Borrower has made an interest rate election
shall be referred to as an "Interest Rate Tranche". The minimum amount of any
Interest Rate Tranche for which the Borrower may make an interest rate
election shall be $500,000.00. No more than five Interest Rate Tranches may
be outstanding at any one time. The Borrower must give notice of an interest
rate election by 11:00 a.m., Philadelphia time, at least three Business Days
before the beginning of the requested Interest Period. In such notice the
Borrower must state the requested (i) beginning and length of the Interest
Period, (ii) the amount which is to bear interest determined with respect to
LIBOR, and (iii) whether such amount is part of the Line of Credit or the
Term Loan. In the event that such election is made in connection with a
request for an
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advance under the Line of Credit, notwithstanding anything in this
Agreement to the contrary, notice requesting such advance must be received by
11:00 a.m., Philadelphia time, at least three Business Days before such
advance is to be made.
(b) Applicable Margins.
The Applicable Base Rate Line of Credit Margin, the Applicable Base Rate
Term Loan Margin, the Applicable LIBOR Line of Credit Margin and the
Applicable LIBOR Term Loan Margin shall be determined and adjusted each
fiscal quarter based upon the Borrower's Leverage Ratio, as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Applicable Base Applicable Base Applicable Applicable
Rate Line of Rate Term Loan LIBOR Line of LIBOR Term
Leverage Ratio Credit Margin Margin Credit Margin Loan Margin
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Greater than or 0.625% 0.875% 2.625% 2.875%
equal to 3.0 to 1
- ---------------------------------------------------------------------------------------------------------
Less than 3.0 to 1 0.500% 0.750% 2.500% 2.750%
and greater than or
equal to 2.5 to 1
- ---------------------------------------------------------------------------------------------------------
Less than 2.5 to 1 0.250% 0.500% 2.250% 2.500%
and greater than or
equal to 2.0 to 1
- ---------------------------------------------------------------------------------------------------------
Less than 2.0 to 1 0 0.250% 2.000% 2.250%
greater than or
equal to 1.5 to 1
- ---------------------------------------------------------------------------------------------------------
Less than 1.5 to 1 0 0 1.750% 2.000%
and greater than or
equal to 1.0 to 1
- ---------------------------------------------------------------------------------------------------------
Less than 1.0 to 1 0 0 1.500% 1.750%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Any adjustment to the Interest Rate Margins shall be effective five
Business Days after the receipt of the quarterly Compliance Certificate.
(c) Default Interest Rates.
If a Default or an Event of Default shall occur and be continuing all
amounts due under the Loan Documents shall bear interest at a rate per annum
which is the rate that would otherwise be applicable thereto pursuant to the
foregoing provisions of this subsection plus 2% from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
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(d) Interest Payments.
Interest on amounts bearing interest at a rate determined by LIBOR shall
be payable on the last day of the applicable Interest Period. Interest on all
other amounts shall be payable monthly, in arrears, on the first Business Day
of each month.
(e) Computation of Interest and Fees.
Interest on Loans or commitment fees shall be calculated on the basis of
a 360 day year for the actual days elapsed. Any change in the interest rate
resulting from a change in the Base Rate or the LIBOR Reserve Requirement
shall become effective as of the opening of business on the day on which such
change in the Base Rate or the LIBOR Reserve Requirement becomes effective.
Each determination of an interest rate by the Bank pursuant to any provision
of this Agreement shall be conclusive and binding on the Borrower in the
absence of manifest error.
2.5 Fees.
(a) Commitment Fee.
The Borrower agrees to pay to the Bank a commitment fee from the date of
this Agreement, computed at the rate of 0.25% per annum on the average daily
unused portion of the Line of Credit during the period for which payment is
made, payable quarterly in arrears on the first Business Day of each fiscal
quarter and the Termination Date.
(b) Facility Fee.
The Borrower agrees to pay on the Closing Date to the Lender $73,000.00,
which amount represents the unpaid portion of the $123,000.00 facility fee
(which amount is 0.5% of the aggregate amount of the Line of Credit and the
Term Loan as of the Closing Date) of which $50,000 was previously paid by the
Borrower upon the signing of the commitment letter for the facility set forth
in this Agreement.
(c) Letter of Credit Fee.
The Borrower shall pay to the Bank a letter of credit fee with respect
to the Letters of Credit equal to the Applicable LIBOR Line of Credit Margin
then in effect on the average daily maximum amount available to be drawn by
the beneficiary of such Letters of Credit, computed on a quarterly basis in
arrears on the last Business Day of each calendar quarter based upon Letters
of Credit outstanding for that quarter as calculated by the Bank. Such letter
of credit fees shall be due and payable quarterly in arrears on the last
Business Day of each calendar quarter during which Letters of Credit are
outstanding, commencing on the first such quarterly date to occur after the
Closing Date, through the Termination Date (or such later date upon which the
outstanding Letters of Credit shall expire), with the final payment to be
made on the Termination Date (or such later expiration date).
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<PAGE>
(d) Fronting Fee, etc.
The Borrower shall pay to the Bank a letter of credit fronting fee for
each Letter of Credit issued by the Bank equal to 0.125% of the face amount
(or increased face amount, as the case may be) of such Letter of Credit. Such
Letter of Credit fronting fee shall be due and payable at the time the Letter
of Credit is issued. The Borrower shall pay to the Bank from time to time on
demand the normal processing fees, and other standard costs and charges, of
the Bank relating to letters of credit as from time to time in effect.
(e) Make Whole Fee.
In the event that the Borrower makes a prepayment against any principal
amounts outstanding prior to the end of the Interest Period elected by the
Borrower for such amounts, whether that payment is made voluntarily or by
reason of an acceleration of the payment date of said amount following the
occurrence of an Event of Default, the Borrower shall pay to the Bank a Make
Whole Fee. A certificate as to the amount of the Make Whole Fee submitted by
the Bank to the Borrower setting forth in reasonable detail the basis of
computation of such amounts shall be conclusive and binding, in the absence
of manifest error, as to the amount due. The "Make Whole Fee" shall mean, for
any prepayment of any principal amounts prior to the end of the Interest
Period elected by the Borrower for such amounts, an amount (not less than
zero) equal to a fraction, the numerator of which is the product of (i) the
amount of such prepayment, multiplied by (ii) the Make Whole Rate, multiplied
by (iii) the Remaining Term, and the denominator of which is 360, the entire
amount of which is discounted to present value using an interest rate set
within the reasonable discretion of the Lender. The "Make Whole Rate" shall
mean for any such prepayment (or portion thereof) the per annum rate of
interest equal to the difference between (i) interest rate which would have
been charged on the amounts prepaid, and (ii) the yield on obligations of the
United States Treasury as determined by the Lender as of the date of the
prepayment for such obligations having a maturity approximately equal to the
Remaining Term. "Remaining Term" shall mean the number of days until the end
of the Interest Period.
2.6 Mandatory Prepayments and Line of Credit Reductions.
The Borrower shall make prepayments under the Term Loan in the amount of
any Required Reduction Amounts, which prepayments are to be applied to any
principal amounts due under the Term Loan in inverse order of maturity. If
there are no amounts due under the Term Loan, or if the Required Reduction
Amount exceeds the amount due under the Term Loan, there shall be a reduction
in the amount outstanding under the Line of Credit and the amount of the Line
of Credit Commitment in the amount of the Required Reduction Amount or any
excess amount, as the case may be. In the event that the Required Reduction
Amount exceeds the Line of Credit Commitment then the Line of Credit shall
terminate. "Required Reduction Amount" shall mean all Net Cash Proceeds from
the sale of assets other than in the ordinary course of business,
Extraordinary Receipts and Securities Issuance Proceeds; provided, however,
in the case of proceeds from the sale of assets and Extraordinary Receipts
which are proceeds from insurance resulting from the loss of or damage to the
assets of the Borrower (i) the Borrower may elect to exempt up to an
aggregate of $100,000 of such amounts from being a Required Reduction Amount
during the term of this Agreement, and (ii) for any such amounts exceeding
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an aggregate of $100,000, the Borrower may elect to defer such amounts
from being a Required Reduction Amount for a period of up to 120 days in the
case of a sale of assets, and up to 180 days in the case of insurance
proceeds, during which period the Borrower may provide proof of the purchase
of new assets functionally replacing and otherwise comparable to the assets
sold, damaged or destroyed or proof of the repair of any assets damaged and
thereby permanently exempt such amounts from treatment as a Required
Reduction Amount.
2.7 Requirements of Law.
In the event that after the date hereof, any change in any law,
regulation or treaty or in the interpretation or application thereof or
compliance by the Bank with any request or directive (whether or not having
the force of law) from any central bank or other governmental authority,
agency or instrumentality: (i) subjects or shall subject the Bank to any tax
of any kind whatsoever with respect to this Agreement, the loans made
hereunder or the issuance or maintenance of the Letters of Credit hereunder,
or changes the basis of taxation of payments to the Bank of principal,
commitment fees, interest or any other amount payable hereunder (except for
changes in the rate of tax on the overall net income of the Bank); (ii)
imposes, modifies or holds or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or any other acquisition
of funds by, any office of the Bank, which reserve, special deposit,
compulsory loan or similar requirement is not otherwise included in
determination of the interest rate hereunder; (iii) imposes or shall impose
on the Bank any other condition; and (iv) the result of any of the foregoing
is to, directly or indirectly, increase the cost to the Bank of making,
renewing or maintaining advances or extensions of credit or issuing or
maintaining Letters of Credit or to reduce any amount receivable thereunder
then, in any such case, the Borrower shall promptly pay the Bank, upon its
demand, any additional amounts necessary to compensate the Bank for such
additional cost or reduced amount receivable. If the Bank becomes entitled to
claim any additional amounts pursuant to this subsection, it shall promptly
notify the Borrower of the event by reason of which it has become so
entitled. The good faith determination as to any additional amounts payable
pursuant to the foregoing sentence by the Bank shall be conclusive in the
absence of manifest error.
2.8 Determinations.
In making the determinations contemplated by Section 2.7 hereof the Bank
may make such estimates, assumptions, allocations and the like that it, in
good faith, determines to be appropriate. All such determinations shall be
final, binding and conclusive upon the Borrower, except to the extent of any
manifest error in computation or transmission, however, the Bank will permit
the Borrower to rebut such determinations if it does so in writing, with
appropriate evidence thereof, within ten (10) Business Days from the date of
notification thereof by the Bank. The Bank shall furnish to the Borrower a
certificate outlining in reasonable detail the computation of any amounts
claimed by it under Section 2.7 and the assumptions underlying such
computations, provided that the failure to deliver a certificate shall not
affect the Bank's right to such amounts, but shall extend the time for the
Borrower to respond thereto as required above.
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2.9 Payments and Computations.
All amounts payable by the Borrower to the Bank under this Agreement or
the Notes shall be paid directly to the Bank in immediately available funds
at the address of the Bank set forth in Section 10.2 hereof or at such other
address of which the Bank shall give notice to the Borrower pursuant to
Section 10.2 hereof. The Bank is authorized to charge any account of the
Borrower at the Bank for any payment due by the Borrower under this Agreement
or any of the Notes. All computations of interest hereunder shall be made by
the Bank on the basis of a year of 360 days for the actual number of days
elapsed. All payments under each of the Notes shall be applied first to the
payment of interest due and payable thereunder and then to the reduction of
the outstanding principal balance thereof.
2.10 Prepayment and Repayment.
(a) If prior to the first day of any Interest Period for any Interest
Rate Tranche, the Bank shall have determined (which determination shall be
conclusive and binding upon the Borrower absent manifest error) that, by
reason of circumstances affecting the interbank eurodollar market, adequate
and reasonable means do not exist for ascertaining LIBOR for the Interest
Period the Bank shall give telecopy or telephonic notice thereof to the
Borrower as soon as practicable thereafter. If such notice is given all
amounts due under the Loans shall bear interest at the Base Rate plus the
Applicable Base Rate Line of Credit Margin or the Base Rate plus the
Applicable Base Rate Term Loan Margin, as may be applicable. However, if the
Borrower has hedged the interest rate on the Loans with a Swap Agreement,
then the applicable rate with respect to the portion of the Loans for which
the interest rate has been hedged shall immediately be converted to the
floating rate payable by Bank under Swap Agreement plus the Applicable LIBOR
Line of Credit Margin or the Applicable LIBOR Term Loan Margin as may be
applicable.
(b) Notwithstanding any other provisions herein, if any Requirement of
Law or any change therein or in the interpretation or application thereof
shall make it unlawful for the Bank to make or maintain loans whose interest
rate is determined in relation to LIBOR, all amounts due shall bear interest
at the Bank's floating Base Rate plus the Applicable Base Rate Line of Credit
Margin or the Base Rate plus the Applicable Base Rate Term Loan Margin, as
may be applicable. However, if the Borrower has hedged the interest rate on
Loans with a Swap Agreement, then the applicable rate with respect to the
portion of the Loans for which the interest rate has been hedged shall
immediately be converted to the floating rate payable by Bank under Swap
Agreement plus the Applicable LIBOR Line of Credit Margin or the Applicable
LIBOR Term Loan Margin as may be applicable.
(c) The Borrower agrees to indemnify the Bank and hold the Bank harmless
from any loss or expense which the Bank may sustain or incur as a consequence
of (1) default by the Borrower in payment when due of the principal amount of
or interest on any Loans, (2) default by the Borrower in making any
prepayment after the Borrower has given a notice in accordance with
provisions of this Agreement, (3) the making of a prepayment on a Loan with a
fixed rate before the date such fixed rate is set to expire or the Loan is to
be repaid, (4) the making of a prepayment on a day which is not the last day
of an Interest Period with respect thereto, including, without limitation, in
each case, any such loss or expense arising from the
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reemployment of funds obtained by it to maintain the Loans or from fees
payable to terminate the deposits from which such funds were obtained. This
covenant shall survive termination of this Agreement, payment of the
outstanding Note and all other amounts payable hereunder. Any prepayment will
not affect the Borrower's obligation to continue making payments under any
Swap Agreement, which shall remain in full force and effect notwithstanding
such prepayment.
(d) All payments made by the Borrower under any Loan Document shall be
made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Bank as a result of a present or former
connection between the Bank and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Bank having executed, delivered or performed its obligations or received a
payment under, or enforced, any Loan Document). If any such non-excluded
taxes, levies, imposts, duties, charges, fees deductions or withholdings
("Non-Excluded Taxes") are required to be withheld from any amounts payable
to the Bank hereunder or under the Note, the amounts so payable to the Bank
shall be increased to the extent necessary to yield to the Bank (after
payment of all Non Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in any Loan Document.
Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as
possible thereafter the Borrower shall send to the Bank a certified copy of
an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Bank the required
receipts or other required documentary evidence, the Borrower shall indemnify
the Bank for any incremental taxes, interest or penalties that may become
payable by the Bank as a result of any such failure. The agreements in this
subsection shall survive the termination of this Agreement and the payment of
the Note and all other amounts payable hereunder.
ARTICLE III SECURITY
As security for the prompt payment, performance, satisfaction and
discharge when due of all the Obligations, the Borrower has granted to the
Bank a perfected security interest or mortgage lien on all of its assets.
3.1 Reaffirmation of Second Amended and Restated Security Agreement.
The Borrower hereby reaffirms the grant of the lien and security
interest made by it in the Second Amended and Restated Security Agreement
dated as of February 1, 1999 and confirms that, among other things, all the
obligations of the Borrower to the Bank under this Agreement are secured by
such lien and security interest. The Borrower restates each of the
representations and warranties contained in the Second Amended and Restated
Security Agreement as of the date hereof.
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3.2 Reaffirmation of Amended and Restated Patent Security Agreement.
The Borrower hereby reaffirms the grant of the lien and security
interest made by it in the Amended and Restated Patent Security Agreement
dated as of February 1, 1999 and confirms that, among other things, all the
obligations of the Borrower to the Bank under this Agreement are secured by
such lien and security interest.
3.3 Reaffirmation of Amended and Restated Trademark Collateral Assignment.
The Borrower hereby reaffirms the grant of the lien and security
interest made by it in the Amended and Restated Trademark Collateral
Assignment dated as of February 1, 1999 and confirms that, among other
things, all the obligations of the Borrower to the Bank under this Agreement
are secured by such lien and security interest.
3.4 Reaffirmation of Mortgage.
The Borrower hereby reaffirms the grant of the mortgage lien and
confirms its intention that, among other things, all the obligations of the
Borrower to the Bank under this Agreement are secured by such mortgage lien.
The Borrower restates each of the representations and warranties contained in
the Mortgage as of the date hereof.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Bank to execute and deliver this Agreement and to
make the Loans available to the Borrower, the Borrower represents and
warrants to the Bank that, as of the date hereof:
4.1 Good Standing of the Borrower; Authorization.
The Borrower is duly incorporated, organized and existing and in good
standing in the State of Delaware and is duly qualified as a foreign
corporation and authorized to do business in all other jurisdictions wherein
the nature of its business or property makes such qualification necessary,
and has the corporate power to own its properties and to carry on its
business as now conducted. As of the date hereof, the Borrower is not doing
business in and owns no property in the State of California. The execution,
delivery and performance of this Agreement, and the Loan Documents have been
duly authorized by all necessary corporate proceedings on the part of the
Borrower.
4.2 Compliance with Laws and Other Agreements.
The Borrower is in compliance with all laws, rules, regulations,
judgments, decrees, orders, agreements and requirements which affect in any
material way the Borrower, its assets or the operation of its business and
has not received, and has no knowledge of, any order or notice of any
governmental investigation or of any violation or claim of violation of any
law, regulation, judgment, decree, order, agreement, or other governmental
requirement.
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4.3 No Conflict; Governmental Approvals.
The execution, delivery, and performance of this Agreement and each of
the Loan Documents will not (i) conflict with, violate, constitute a default
under, or result in a breach of any provision of any applicable law, rule,
regulation, judgment, decree, order, instrument or other agreement, or (ii)
conflict with or result in a breach of any provision of the certificate of
incorporation or by-laws of the Borrower. No authorization, permit, consent
or approval of or other action by, and no filing, registration or declaration
with, any governmental authority or regulatory body is required to be
obtained or made by the Borrower for the due execution, delivery and
performance of this Agreement or any of the Loan Documents, except such as
have been duly obtained or made prior to the date of this Agreement and are
in full force and effect as of the date of this Agreement (copies of which
have been delivered to the Bank).
4.4 Financial and Other Information Regarding Borrower.
(a) The Borrower has delivered to the Bank true, correct and complete
copies of (i) the balance sheet of the Borrower as of December 31, 1998, and
related statements of income for the period then ended, together with notes
thereto and the unqualified opinion thereon, of BDO Seidman, LLP, and (ii)
the unaudited balance sheet of the Borrower as of June 30, 1999 and related
statements of income for the two fiscal quarters then ending. Those financial
statements ("Financial Statements") present fairly the financial position of
the Borrower and the results of the operations of the Borrower as of the
dates and for the periods indicated, in conformity with GAAP.
(b) Except as set forth on Schedule 4.4(b) hereto, the Borrower has no
Indebtedness other than as shown in the most recent Financial Statements, and
any subsequent interim financial statements which have been delivered to the
Bank.
(c) Except as set forth on Schedule 4.4(c) hereto, the Borrower has no
"investment" (as such term is defined under GAAP), whether by stock purchase,
capital contribution, loan, advance, purchase of property or otherwise, in
any Person, other than as shown in the most recent Financial Statements, and
any subsequent interim financial statements which have been delivered to the
Bank.
(d) As of September 30, l999 Borrower was in compliance with the
financial covenants set forth on Schedule 6.16 of the Fourth and Restated
Loan Agreement date as of February 1, 1999 between the Borrower and the Bank,
as amended.
4.5 Taxes.
The Borrower is not delinquent in payment of any income, property or
other tax, except for any delinquency in the payment of a tax which is
contested in good faith by the Borrower and for which appropriate reserves
have been established in accordance with GAAP.
4.6 Encumbrances and Guaranties.
(a) All properties and assets of the Borrower are owned by the Borrower
free and clear of all Encumbrances except (i) those for taxes or other
government charges either not yet
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delinquent or the nonpayment of which is permitted by Section 4.5 of
this Agreement; (ii) those arising in connection with Indebtedness that do
not materially impair the use or value of the properties or assets of the
Borrower in the conduct of its businesses; (iii) Encumbrances whose release
and termination is evidenced by the Borrower's delivery to the Bank of
appropriate documents; (iv) Encumbrances otherwise permitted under the Loan
Documents; and (v) Encumbrances disclosed in the most recent Financial
Statements.
(b) The Borrower is not obligated under any Guaranty.
4.7 Material Adverse Changes.
Since June 30, 1999, there has not been any material adverse change in
the business, operations, properties or financial position of the Borrower.
The Borrower does not know of any fact (other than matters of a general
economic or political nature) which materially adversely affects, or, so far
as the Borrower can now reasonably foresee, will materially adversely affect,
the business, operations, properties or financial position of the Borrower or
the performance by the Borrower of its obligations under this Agreement and
the other Loan Documents.
4.8 Margin Securities.
The assets of the Borrower do not include any "margin securities" within
the meaning of Regulations G or U of the Board of Governors of the Federal
Reserve System (12 C.F.R. 207, 221), and the Borrower does not have any
present intention of acquiring any margin security.
4.9 ERISA.
The provisions of each employee benefit plan as defined in Section 3(3)
of ERISA ("Plan") maintained by the Borrower complies with all applicable
requirements of ERISA and of the Code, and with all applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No reportable event, as defined in Section 4043 of ERISA,
has occurred with respect to any Plan; no Plan to which Section 4021 of ERISA
applies has been terminated; no Plan has incurred any liability to PBGC as
provided in Section 4062, 4063 and 4064 of ERISA; no Plan has been involved
in any prohibited transaction within the meaning of Section 406 of ERISA or
Section 4975 of the Code; and there are no unfunded liabilities with respect
to any Plan which are not disclosed in the Financial Statements.
4.10 Pending Litigation.
Except as listed on Schedule 4.10, there are no actions, suits,
proceedings or investigations pending, or, to the knowledge of the Borrower,
threatened against or affecting the Borrower, before any court, arbitrator or
administrative or governmental body which, in the aggregate, might adversely
affect any action taken or to be taken by the Borrower under this Agreement
and the other Loan Documents or which, in the aggregate, might materially
adversely affect the business, operations, properties or financial position
of the Borrower, or the ability of the Borrower to perform its obligations
under this Agreement and the other Loan Documents.
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4.11 Valid, Binding and Enforceable.
This Agreement and the Loan Documents to which the Borrower is a party
have been duly and validly executed and delivered by the Borrower and
constitute the valid and legally binding obligations of such parties
enforceable in accordance with their respective terms, except as enforcement
of this Agreement and the other Loan Documents may be limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights and except as enforcement is subject to
general equitable principles.
4.12 Priority of Security Interests.
The Second Amended and Restated Security Agreement dated as of February
1, 1999, together with the financing statements which have been filed in
connection therewith have created valid first perfected security interests in
the personal property of the Borrower described therein as collateral for all
the Obligations subject to no prior Encumbrances.
4.13 Environmental Matters.
(a) The Borrower has performed all of its obligations under, has
obtained all necessary approvals, permits, authorizations and other consents
required by, and is not in material violation of, any Environmental Laws.
(b) The Borrower has not received any notice, citation, summons,
directive, order or other communication, written or oral, from, and the
Borrower has no knowledge of the filing or giving of any such notice,
citation, summons, directive, order or other communication by, any
governmental or quasi-governmental authority or agency or any other Person
concerning the otherwise handle any Hazardous Material in violation of any
applicable Environmental Laws.
(c) To the best of the Borrower's knowledge, after due inspection, there
are no Hazardous Materials within, on or under any real property owned or
occupied by the Borrower in violation of any applicable Environmental Laws.
4.14 Year 2000.
On the basis of a review and assessment of the Borrower's systems and
equipment and inquiry made of its material suppliers, vendors and customers,
the Borrower reasonably believes that the "Year 2000 problem" (that is, the
inability of computers, as well as embedded microchips in non-computing
devices, to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999), including costs of remediation,
will not result in a material adverse effect on the Borrower. The Borrower
has developed feasible contingency plans which will adequately ensure
uninterrupted and unimpaired business operation in the event of failure of
its own or a third party's systems or equipment due to the Year 2000 problem,
including those of vendors, customers, and suppliers, as well as a general
failure of or interruption in its communications and delivery infrastructure.
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4.15 No Untrue Statements.
Neither this Agreement, the Loan Documents nor any other document,
certificate or statement furnished or to be furnished by the Borrower or by
any other party to the Bank in connection herewith contains, or at the time
of delivery will contain, any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading.
ARTICLE V CONDITIONS PRECEDENT TO THE BANK'S OBLIGATIONS
The Bank's obligations hereunder are conditioned upon the satisfaction
by the Borrower of the following conditions precedent:
5.1 Documents to be Delivered by the Borrower at Closing.
The Borrower shall deliver or cause to be delivered to the Bank at the
Closing the following:
(a) This Agreement duly executed by the Borrower;
(b) The Fifth Amended and Restated Line of Credit Note duly executed by
the Borrower;
(c) The Term Loan Note duly executed by the Borrower;
(d) Evidence of the Borrower's having complied with those covenants
regarding insurance as are contained in this Agreement and the other Loan
Documents;
(e) A certificate of the Secretary or an Assistant Secretary of the
Borrower appropriately dated including (i) resolutions duly adopted by the
Borrower authorizing the transactions under the Loan Documents; (ii) evidence
of the incumbency and signature of the officers executing on the Borrower's
behalf any of the Loan Documents and any other document to be delivered
pursuant to any such documents, together with evidence of the incumbency of
such officers; (iii) a certification that the by-laws and the articles of
incorporation of the Borrower have not been amended since December 11, 1995;
and (iv) certificates of authority or good standing for the Borrower from its
jurisdiction of incorporation and any other jurisdiction where the Borrower
is qualified to do business;
(f) a one year budget for capital expenditures of the Borrower;
(g) a listing of all of the Borrower's intangible assets;
(h) a copy of each and every authorization, pen-nit, consent, and
approval of and other action by, and notice to and filing with, every
governmental authority and regulatory body which is required to be obtained
or made by the Borrower for the due execution, delivery and performance of
this Agreement and the other Loan Documents; and
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(i) The opinion of Stradley, Ronon, Stevens & Young, LLP in form and
substance reasonably satisfactory to the Bank and its counsel.
5.2 Conditions Precedent to Making Line of Credit Loans.
The Bank shall not be obligated to make any Line of Credit Loans
hereunder unless:
(a) As of the date of the proposed advance, no Event of Default has
occurred and is continuing and no event has occurred and is continuing which,
with the giving of notice or lapse of time, or both, would constitute an
Event of Default;
(b) The representations and warranties contained in ARTICLE IV are true
and correct on the date of the proposed advance, except that the
representations and warranties in Section 4.4 shall refer to the financial
statements most recently supplied to the Bank pursuant to Section 6.2 of this
Agreement;
(c) No material adverse change has occurred in the business, property,
operations or condition (financial or otherwise) of the Borrower since the
date hereof; and
(d) The Borrower has delivered to the Bank, upon the Bank's request, a
certificate executed by the chief executive officer of the Borrower
confirming the statements made in paragraphs (a), (b), and (c) above. Whether
or not such a certificate has been requested, by requesting a Line of Credit
Loan Borrower will be deemed to have represented to the Bank that the
statements made in paragraphs (a), (b) and (c) above are true.
ARTICLE VI AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower hereby covenants and agrees that from the date hereof and
until satisfaction in full of the Obligations, unless the Bank shall
otherwise consent in writing, the Borrower shall do the following:
6.1 Use of Proceeds.
Use the proceeds of the borrowings hereunder only for the purposes
specified in Sections 2.1 and 2.3 of this Agreement.
6.2 Financial Statements.
Furnish to the Bank the following financial statements which shall be
prepared in accordance with GAAP and signed by the chief financial officer of
the Borrower:
(a) within ninety (90) days after the end of each fiscal year, the
consolidated and consolidating financial statements of the Borrower,
including a balance sheet, statement of income and statement of cash flows.
Such financial statements shall present fairly the financial condition of the
Borrower as of the close of such year and the results of its operations and
its cash flows during such year, in accordance with GAAP, and shall be
audited and accompanied by the opinion, satisfactory in form and substance to
the Bank, of BDO Seidman, LLP or another independent public accountant
acceptable to the Bank;
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(b) within forty five (45) days after the end of each fiscal quarter,
the financial statements of the Borrower, including a balance sheet,
statement of income and statement of cash flows, names, addresses and other
requested information for the ten Account Debtors which owe the most money to
the Borrower as of the end of such fiscal quarter, and such other financial
statements of the Borrower in such detail as the Bank may reasonably request
(such financial statements shall present fairly the financial condition of
the Borrower as of the close of such quarter and the results of its
operations and its cash flows during such quarter, in accordance with GAAP,
certified by the chief financial officer of the Borrower);
(c) within fifteen (15) days of the end of each month (or more
frequently if required by Bank), a completed Borrowing Base and Loan Report
in the form attached as Exhibit 6.2(c) (a "Borrowing Base and Loan Report").
Borrower shall attach the following to the Borrowing Base and Loan Report,
which shall be certified by the chief financial officer or president of
Borrower to be accurate and complete and in compliance with the terms of the
Loan Documents: (i) a report listing all Accounts and all Eligible Accounts
of Borrower as of the last Business Day of such month (an "Accounts
Receivable Report") which shall include the amount and age of each Account, a
detailing of all credits due such Account Debtor by Borrower stated in the
number of days since the original invoice date, and such other information as
Bank may require in order to verify the Eligible Accounts, all in reasonable
detail and in form acceptable to Bank, (ii) a report listing all Inventory
and all Eligible Inventory of Borrower as of the last Business Day of such
month, the cost thereof, specifying raw materials, work-in-process, finished
goods and all Inventory which has not been timely sold by Borrower in the
ordinary course of business, and such other information as Bank may require
relating thereto, all in form acceptable to Bank (an "Inventory Report"), and
(iii) a schedule of all accounts payable of Borrower setting forth for each
such account the number of days which have elapsed since the original date of
invoice and containing the name and address of each vendor and such other
detail requested by Bank (an "Accounts Payable Report");
(d) within ten (10) days after receipt, a copy of any management letter
issued to the Borrower by BDO Seidman, LLP or another independent public
accountant acceptable to the Bank;
(e) by each April 1, a budget (including amounts for capital
expenditures) for the current fiscal year and Projections for the following
three fiscal years;
(f) within a reasonable period of time, such other financial statements
of the Borrower, in such detail as the Bank may reasonably request, and such
other information in the Borrower's possession as the Bank may reasonably
request; and
(g) at the time the statements required in Sections 6.2(a) and 6.2(b)
are provided to the Bank the Borrower shall also furnish a certificate of the
chief financial officer of the Borrower, (i) certifying that no Default or
Event of Default has occurred and is continuing hereunder (including but not
limited to no default under any financial covenant or covenants contained
herein) or under any other instrument or agreement between the Borrower and
the Bank or, if such Default or Event of Default has occurred and in
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto, (ii) containing computations
demonstrating compliance with any financial covenant or covenants contained in
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this Agreement; (iii) and otherwise substantially in the form of, and covering
the matters set forth in, Exhibit 6.2(g) (a "Compliance Certificate").
6.3 Ordinary Course of Business; Records.
Conduct its business only in the ordinary course and keep accurate and
complete books and records of its assets, liabilities and operations
consistent with sound business practices and in accordance with GAAP.
6.4 Information for the Bank.
Make available during normal business hours for inspection by the Bank
or its designated representatives any of its books and records when
reasonably requested by the Bank to do so, and furnish the Bank any
information reasonably requested regarding its operations, business affairs
and financial condition within a reasonable time after the Bank gives notice
of its request therefor. In particular, and without limiting the foregoing,
the Borrower shall permit, during normal business hours, representatives of
the Bank's audit department to make a field inspection of the Borrower's
books, records and assets as such representatives deem necessary and proper.
The Borrower shall pay for the cost of any such inspections; provided,
however, that so long as no Event of Default shall have occurred, then
Borrower shall be required to pay for only one such field inspection during
any one fiscal year.
6.5 Insurance.
Carry at all times in financially sound and reputable insurers: (a) all
workers' compensation or similar insurance as may be required under the laws
of any jurisdiction; (b) public liability insurance against claims for
personal injury, death or property damage suffered upon, in or about any
premises occupied by it or occurring as a result of the ownership,
maintenance or operation by it of any automobile, truck or other vehicle or
as a result of the use of products manufactured, constructed or sold by it,
or services rendered by it; (c) business interruption insurance covering risk
of loss as a result of the cessation for all or any part of one year of any
substantial part of the business conducted by it; (d) hazard insurance
against such other hazards as are usually insured against by business
entities of established reputation engaged in like businesses and similarly
situated, including, without limitation, fire (flood, if applicable) and
extended coverage; and (e) such other insurance as the Bank may from time to
time reasonably require, and pay all premiums on the policies for all such
insurance when and as they become due and take all other actions necessary to
maintain such policies in full force and effect at all times. The insurance
specified in Subsections (b), (c) and (d) shall be maintained in such amounts
(and with co-insurance and deductibles) as such insurance is usually carried
by business entities of established reputation engaged in the same or similar
business and similarly situated, provided that the amount of such coverage
shall not be in an amount less than 80% of the insurable value of the
Borrower's assets or 100% of the amount of the Loans. The Borrower shall from
time to time, upon request by the Bank, promptly furnish or cause to be
furnished to the Bank evidence, in form and substance satisfactory to the
Bank, of the maintenance of all insurance required to be maintained hereby,
including, without limitation, such originals or copies as the Bank may
request of policies, certificates of insurance, riders and endorsements
relating to such insurance and proof of premium payments. The Borrower shall
cause each
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hazard insurance policy to provide, and the insurer issuing each such
policy to certify to the Bank, that (a) if such insurance be proposed to be
cancelled or materially changed for any reason whatsoever, such insurer will
promptly notify the Bank and such cancellation or change shall not be
effective for 30 days after receipt by the Bank of such notice, unless the
effect of such change is to extend or increase coverage under the policy; (b)
the Bank shall be named as lender loss payee with respect to personal
property and mortgagee with respect to real property; and (c) the Bank will
have the right, at its election, to remedy any default in the payment of
premiums within 30 days of notice from the insurer of such default. The
foregoing covenants regarding insurance are in addition to, and not intended
to supersede, those covenants regarding insurance set forth in the Loan
Documents. In the event and to the extent of any conflict between the
provisions of this Agreement and the provisions of the Loan Documents
regarding the insuring of Collateral, the provisions of the Loan Documents
with respect thereto shall govern.
6.6 Maintenance.
Maintain its equipment, real property and other properties in good
condition and repair (normal wear and tear excepted) and pay and discharge
the cost of repairs thereto or maintenance thereof.
6.7 Taxes.
Pay all taxes, assessments, charges and levies imposed upon it or on any
of its property, or which it is required to withhold and pay over, and
provide evidence of payment thereto to the Bank if the Bank so requests,
except where contested in good faith by lawful and appropriate proceedings
and where adequate reserves therefor have been set aside on its books;
provided, however, that the Borrower shall pay all such taxes, assessments,
charges and levies forthwith whenever foreclosure on any lien which attaches
or security therefor appears imminent.
6.8 Leases.
Pay all rent or other sums required by every lease to which the Borrower
is a party as the same becomes due and payable, perform all its obligations
as tenant or lessee thereunder except where contested in good faith by lawful
and appropriate proceedings and where adequate reserves therefor have been
set aside; and keep all such leases at all times in full force and effect
during the terms thereof.
6.9 Corporate Existence; Certain Rights; Laws.
Do all things necessary to preserve and keep in full force and effect in
each jurisdiction in which it conducts business the business existence,
licenses, permits, rights, patents, trademarks, trade names and franchises of
the Borrower and comply with all present and future laws, ordinances, rules,
regulations judgments, orders and decrees which affect in any material way
the Borrower, its assets or the operation of its business.
6.10 Notice of Litigation or Other Proceedings.
Give immediate notice to the Bank of (i) the existence of any dispute,
(ii) the institution of any litigation, administrative proceeding or
governmental investigation involving the
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Borrower or (iii) the entry of any judgment, decree or order against or
involving the Borrower, any of which would reasonably be expected to
materially and adversely affect the operation, financial condition, property
or business of the Borrower or affect the enforceability of this Agreement or
any of the other Loan Documents.
6.11 Indebtedness.
Pay or cause to be paid when due (or within applicable grace periods)
all Indebtedness of the Borrower.
6.12 Notice of Events of Default.
Give immediate notice to the Bank if the Borrower becomes aware of the
occurrence of any Event of Default, or of any fact, condition or event which
with the giving of notice or lapse of time, or both, would be an Event of
Default, or of the failure of the Borrower to observe or perform any of the
conditions or covenants to be observed or performed by it under this
Agreement or any of the other Loan Documents.
6.13 ERISA.
Maintain each Plan in compliance with all applicable requirements of
ERISA and of the Code and with all applicable rulings and regulations issued
under the provisions of ERISA and of the Code. As promptly as practicable
(but in any event not later than ten (10) days) after the Borrower receives
from the PBGC a notice of intent to terminate any Plan or to appoint a
trustee to administer any Plan, after the Borrower has notified the PBGC that
any reportable event, as defined in Section 4043 of ERISA, with respect to
any Plan has occurred, or after the Borrower has provided a notice of intent
to terminate to each affected party, as defined for purposes of Section
4041(a)(2) of ERISA, with respect to any Plan, a certificate of the chief
executive officer of the Borrower shall be furnished to the Bank setting
forth the details with respect to the events resulting in such reportable
event, as the case may be, and the action which the Borrower proposes to take
with respect thereto, together with a copy of the notice of intent to
terminate or to appoint a trustee from the PBGC, of the notice of such
reportable event or of the Borrower's notice of intent to terminate, as the
case may be.
6.14 Deposit Accounts.
Use the Bank as its primary depository institution, unless otherwise
agreed in writing by the Bank in writing.
6.15 Management.
Furnish to Bank within five (5) days of any election or appointment of
officers or directors, written notice of any change in the persons who from
time to time become officers and directors of Borrower and retain executive
management personnel at all times satisfactory to the Bank, it being
understood that management, which consists of James A. Luksch as President
and CEO, and Robert J. Palle as Executive Vice President, of the Borrower as
of the date hereof, is satisfactory.
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6.16 Compliance with Environmental Laws.
Comply fully with all Environmental Laws and not use any property which
it owns or occupies to generate, treat, store, transport, transfer, dispose
of, release or otherwise handle any Hazardous Material, except for ordinary
and customary amounts of such materials used during the ordinary course of
Borrower's business.
6.17 Interest Rate Protection.
The Borrower shall maintain in full force and effect one or more Swap
Agreements hedging the interest rate risks related to the obligations of the
Borrower under the Term Loan, in an aggregate notional amount of at least 50%
of the principal balance due under the Term Loan on terms and conditions
reasonably acceptable to the Bank.
6.18 Further Actions.
Cooperate and join with the Bank, at its own expense, in taking all such
further actions as the Bank, in its sole judgment, shall deem necessary to
effectuate the provisions of the Loan Documents and to perfect or continue
the perfected status of all Encumbrances granted to the Bank pursuant to the
Loan Documents, including, without limitation, the execution, delivery and
filing of financing statements, amendments thereto and continuation
statements, the delivery of chattel paper, documents or instruments to the
Bank, and the notation of Encumbrances in favor of the Bank on certificates
of title.
6.19 Material Adverse Change.
Notify the Bank in writing upon any material adverse change in the
business, operations, properties or condition (financial or otherwise) of the
Borrower.
6.20 Meeting Regarding Projections.
On or prior to June 1 of each fiscal year the Borrower shall participate
in a meeting with the Bank at which time the Borrower shall discuss with the
Bank the Borrower's financial statement projections for the then current
fiscal year, including without limitation, the Borrower's projected balance
sheet, statement of income and statement of cash flows for such fiscal year.
ARTICLE VII NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that until satisfaction in full
of the Obligations, it will not do any one or more of the following without
first obtaining the written consent of the Bank:
7.1 Financial Covenants.
(a) Have a Leverage Ratio of more than (i) 3.25 to 1 at December 31,
1999, (ii) 3.0 to 1 for March 31, 2000 and June 30, 2000, and (iii) 2.5 to 1
for September 30, 2000 and thereafter. "Leverage Ratio" of the Borrower as of
the last day of any fiscal quarter shall mean the ratio of
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(x) Senior Debt of the Borrower as of that date, to (y) EBITDA of the
Borrower for the four fiscal quarter period ending on that date. "Senior
Debt" of the Borrower as of any date means Indebtedness as of that date.
"EBITDA" of the Borrower for any period shall mean the Borrower's earnings
for such period before interest expense, income tax expense, depreciation and
amortization.
(b) Have a Fixed Charge Ratio of less than (i) 1.0 to 1 for December
3l,1999, (ii) 1.1 to 1 for March 31, 2000, (iii) 1.2 to 1 for June 30, 2000,
(iv) 1.3 to 1 for September 30, 2000 and December 31, 2000, and (v) 1.5 to 1
for March 31, 2001 and thereafter. "Fixed Charge Ratio" of the Borrower as of
the last day of any fiscal quarter shall mean the ratio of (x) EBITDA of the
Borrower for the four fiscal quarter period ending on that date, to (y) the
sum of (A) interest expense and income tax expense for the four fiscal
quarter period ending on that date, and (B) current maturities of long term
Indebtedness and obligations under capital and operating leases for the four
fiscal quarters following such date.
(c) Have a Tangible Net Worth of less than (i) $19,000,000 at December
31, 1999, and (ii) as of the end of each fiscal quarter thereafter, the sum
of (A) the Tangible Net Worth of the Borrower as of the end of the prior
fiscal quarter, plus (B) the income after taxes (as determined in accordance
with GAAP) of the Borrower during the fiscal quarter then ending (if such
amount is positive, otherwise zero). "Tangible Net Worth" shall mean, at any
time, the aggregate Stockholders' Equity, less all intangible assets of the
Borrower, including, without limitation, organization costs, securities
issuance costs, unamortized debt discount and expense, goodwill, excess of
purchase costs over net assets acquired, patents, trademarks, trade names,
copyrights, trade secrets, know how, licenses, franchises, capitalized
research and development expenses, amounts owing from officers and/or
Affiliates and any amount reflected as treasury stock.
7.2 Fundamental Corporate Changes.
(a) Change its name, enter into or effect any merger (except any merger
where the Borrower is the surviving corporation), consolidation, share
exchange involving in excess of 25% of the Borrower's capital stock, or
dissolve.
(b) Sell, transfer, lease or otherwise dispose of all or (except in the
ordinary course of business) any material part of its assets or any
significant product line or process;
(c) Have any Subsidiaries, except Blonder International, Vu-Tech
Communications, Inc., and a new subsidiary ("Newco") to be formed for the
purpose of holding certain intangible assets of Borrower, provided that prior
to the capitalization of Newco, the Bank shall have a first priority
perfected security interest in all of the assets of Newco, and Newco shall
have executed an unlimited guaranty of the Obligations in favor of the Bank.
7.3 Indebtedness.
Incur, create, assume or have any Indebtedness except:
(a) The Loans and any Swap Agreement; and
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(b) Indebtedness constituting either Capital Lease Obligations or
Indebtedness under agreements for the installment purchase of equipment,
provided that (i) such Indebtedness does not exceed 100% of the installment
purchase price of such equipment, and (ii) with respect to such Indebtedness
which, in the aggregate exceeds $500,000 from the date of this Agreement (as
determined on a capitalized basis), the Borrower has submitted at least three
Business Days prior to incurring such excess Indebtedness, a pro forma
Compliance Certificate demonstrating compliance with Section 7.1.
7.4 Encumbrances.
Create or allow any Encumbrances to be on or otherwise affect any of its
property or assets except:
(a) Encumbrances in favor of the Bank;
(b) Encumbrances for taxes, assessments and other governmental charges
incurred in the ordinary course of business which are not yet due and payable
or which are being properly contested in good faith by lawful and appropriate
proceedings;
(c) Pledges or deposits made in the ordinary course of business to
secure payment of workmen's compensation or to participate in any fund in
connection with workmen's compensation, unemployment insurance or other
social security obligations;
(d) Good faith pledges or deposits made in the ordinary course of
business to secure performance of tenders, contracts (other than for the
repayment of Indebtedness) or leases or to secure statutory obligations or
surety, appeal, indemnity, performance or other similar bonds required in the
ordinary course of business;
(e) Liens of mechanics, materialmen, warehousemen, carriers or other
similar liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable or are being contested in good
faith by appropriate and lawful proceedings;
(f) Encumbrances securing Indebtedness permitted under Section 7.3(b),
provided that (i)no other covenants of this Agreement are thereby violated
and (ii) no equipment other than the equipment so acquired secures such
Indebtedness;
(g) Encumbrances, if any, otherwise expressly permitted by the Loan
Documents; and
(h) Encumbrances disclosed in the Financial Statements or as set forth
on Schedule 7.4 attached hereto.
7.5 Guaranties.
Directly or indirectly make any Guaranty, other than for the benefit of
Blonder International.
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7.6 Sales and Lease-Backs.
Sell, transfer or otherwise dispose of any property, real or personal,
now owned or hereafter acquired, with the intention of directly or indirectly
taking back a lease on such property.
7.7 Loans, Investments.
Except as set forth on Schedule 4.4(c), purchase, invest in, or make any
loan in the nature of an investment in the stocks, bonds, notes or other
securities or evidence of Indebtedness of any person, or make any loan or
advance to or for the benefit of any Person except for (i) short-term
obligations of the Treasury of the United States of America; (ii)
certificates of deposit issued by banks with shareholders' equity of at least
$100,000,000; (iii) repurchase agreements not exceeding 29 days in duration
issued by banks with shareholders' equity of at least $100,000,000; and (iv)
notes and other instruments generally known as "commercial paper" which arise
out of current transactions, which have maturities at the time of issuance
thereof not exceeding nine months and which have, at the time of such
purchase, investment or other acquisition, the highest credit rating of
Standard & Poor's Corporation or Moody's Investors Service, Inc.
7.8 Change in Business.
Discontinue any substantial part, or change the nature of, the business
of the Borrower, or enter into any new business unrelated to the present
business conducted by the Borrower.
7.9 Sale or Discount of Receivables.
Sell any notes receivable or accounts receivable, with or without
recourse.
7.10 Prepayment of Indebtedness.
Make any voluntary prepayments of Indebtedness other than the Loans.
7.11 Limitation on Dividends; Stock Repurchases.
Declare or pay any dividend (other than dividends payable solely in
common stock of the Borrower) on, or make any payment on account of, or set
apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any shares of any
class of capital stock of the Borrower whether now or hereafter outstanding,
or make any other distribution in respect thereof, either directly or
indirectly, whether in cash or property or in obligations of the Borrower.
7.12 ERISA.
(a) Terminate any Plan maintained by the Borrower to which Section 4021
of ERISA applies;
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(b) Allow the value of the benefits guaranteed under Title IV of ERISA
to exceed the value of assets allocable to such benefits;
(c) Incur a withdrawal liability within the meaning of Section 4201 of
ERISA.
7.13 Compliance with Federal Reserve Board Regulations.
(i) Use any of the proceeds of the Loans, directly or indirectly, for
the purposes of purchasing or carrying any "margin security" within the
meaning of Regulations G or U of the Board of Governors of the Federal
Reserve System (12 C.F.R. 207, 221), (ii) use any of the proceeds of the
Loans, directly or indirectly, for the purpose of purchasing, carrying or
trading in any securities under such circumstances as to involve the Borrower
in a violation of Regulation X of such Board (12 C.F.R. 224), or (iii) take
or permit to be taken any other action which would result in the Loans or the
consummation of any of the other transactions contemplated hereby being
violative of such regulations or any other regulation of such Board.
7.14 Blonder International and Vu-Tech Communications, Inc.
Until satisfaction in full of all Obligations of the Borrower to the
Bank, unless the Bank shall otherwise consent in writing, the Borrower shall
not transfer assets having a value in excess of $200,000 in the aggregate to
Blonder International and Vu-Tech Communications, Inc., and shall not permit
Blonder International and Vu-Tech Communications, Inc. to have assets having
an aggregate book value in excess of $200,000.
ARTICLE VIII EVENTS OF DEFAULT
An event of default ("Event of Default") under this Agreement shall be
deemed to exist if any one or more of the following events occurs and is
continuing, whatever the reason therefor:
8.1 Borrower's Failure to Pay.
The Borrower fails to pay any amount of principal, interest, fees or
other sums as and when due under this Agreement, any other Loan Documents,
any other Obligation or any Swap Agreement, whether upon stated maturity,
acceleration, or otherwise.
8.2 Breach of Covenants or Conditions.
(a) The Borrower fails to perform or observe any covenant contained in
ARTICLE VII of this Agreement.
(b) The Borrower or any of the Other Loan Parties fails to perform or
observe any term, covenant, agreement or condition in this Agreement (other
than obligations, the breach of which are the basis of an Event of Default
under Sections 8.1 and Section 8.2(a)) any other Loan Documents or any Swap
Agreement or is in violation of non-compliance with any provision of this
Agreement, any other Loan Document or any Swap Agreement, and has not
remedied and fully cured such nonperformance, non-observance, violation of or
non-compliance within thirty (30) days thereafter; provided, however, that
during such thirty (30) day period the Bank's obligations to make further
Loans to the Borrower shall be suspended.
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8.3 Defaults in Other Agreements.
The Borrower or any of the Other Loan Parties fails to perform or
observe any term, covenant, agreement or condition contained in, or there
shall occur any default under or as defined in, any other agreement
applicable to the Borrower or any of the Other Loan Parties or by which any
of them is bound involving a material liability of the Borrower or any of the
Other Loan Parties which shall not be remedied within the period of time (if
any) within which such other agreement permits such default to be remedied,
unless such default is waived by the other party thereto or excused as a
matter of law.
8.4 Agreements Invalid.
The validity, binding nature of, or enforceability of any material term
or provision of any of the Loan Documents is disputed by, on behalf of, or in
the right or name of the Borrower or any of the Other Loan Parties or any
material term or provision of any such Loan Document is found or declared to
be invalid, avoidable, or non-enforceable by any court of competent
jurisdiction.
8.5 False Warranties; Breach of Representations.
Any warranty or representation made by the Borrower or any of the Other
Loan Parties in this Agreement or any other Loan Document or in any
certificate or other writing delivered under or pursuant to this Agreement or
any other Loan Document, or in connection with any provision of this
Agreement or related to the transactions contemplated hereby shall prove to
have been false or incorrect or breached in any material respect on the date
as of which made.
8.6 Judgments.
A final judgment or judgments is entered, or an order or orders of any
judicial authority or governmental entity is issued against the Borrower or
any of the Other Loan Parties (such judgments) and order(s) hereinafter
collectively referred to as "Judgment") (i) for payment of money, which
Judgment, in the aggregate, exceeds Two Hundred Thousand Dollars
($250,000.00) outstanding at any one time which is not covered by insurance;
or (ii) for injunctive or declaratory relief which would have a material
adverse effect on the ability of the Borrower or any of the Other Loan
Parties to conduct its business, and such Judgment is not discharged or
execution thereon or enforcement thereof stayed pending appeal, within thirty
days after entry or issuance thereof, or, in the event of such a stay, such
Judgment is not discharged within thirty days after such stay expires.
8.7 Bankruptcy or Insolvency of the Borrower or Other Loan Parties.
(a) The Borrower or any of the Other Loan Parties becomes insolvent, or
generally fails to pay, or is generally unable to pay, or admits in writing
its inability to pay, its debts as they become due or applies for, consents
to, or acquiesces in, the appointment of a trustee, receiver or other
custodian for the Borrower or any of the Other Loan Parties, as the case may
be, or a substantial part of its property, or makes a general assignment for
the benefit of creditors.
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(b) The Borrower or any of the Other Loan Parties commences any
bankruptcy, reorganization, debt arrangement, or other case or proceeding
under any state or federal bankruptcy or insolvency law, or any dissolution
or liquidation proceeding.
(c) Any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any state or federal bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is involuntarily commenced against or
in respect of the Borrower or any of the Other Loan Parties, or an order for
relief is entered in any such proceeding which is not terminated upon the
earlier of (i) the entry of an order to relief in any such proceeding or (ii)
within ninety (90) days after such case or proceeding is involuntarily
commenced.
(d) A trustee, receiver, or other custodian is appointed for the
Borrower or any of the Other Loan Parties or a substantial part of such
Person's property and such appointment is not terminated within ninety (90)
days thereafter.
ARTICLE IX REMEDIES
9.1 Further Advances; Acceleration; Setoff.
(a) Upon the occurrence of any one or more Events of Default, the Bank
may, in its sole discretion, refuse to make any further advances or Loans to
the Borrower;
(b) Automatically upon the occurrence of any Event of Default described
in Section 8.7 of this Agreement, and in the sole discretion of the Bank upon
the occurrence of any other Event of Default, the unpaid principal balance of
all Loans, all interest and fees accrued and unpaid thereon, and all other
amounts and Obligations payable by the Borrower under this Agreement and the
other Loan Documents shall immediately become due and payable in full, all
without protest, presentment, demand, or further notice of any kind to the
Borrower, all of which are expressly waived by the Borrower;
(c) If any of the Obligations shall be due and payable or any one or
more Events of Default shall have occurred, the Bank shall have the right, in
addition to all other rights and remedies available to it, without notice to
the Borrower, to apply toward and set-off against and apply to the then
unpaid balance of the Notes and the other Obligations any items or funds held
by the Bank, any and all deposits (whether general or special, time or
demand, matured or unmatured, fixed or contingent, liquidated or
unliquidated) now or hereafter maintained by the Borrower for its own account
with the Bank, and any other indebtedness at any time held or owing by the
Bank to or for the credit or the account of the Borrower. For such purpose
the Bank shall have, and the Borrower hereby grants to the Bank, a first lien
on all such deposits. The Bank is hereby authorized to charge any such
account or indebtedness for any amounts due to the Bank. Such right of
set-off shall exist whether or not the Bank shall have made any demand under
this Agreement, the Notes or any other Loan Document and whether or not the
Notes and the other Obligations are matured or unmatured. The Borrower hereby
confirms the Bank's lien on such accounts and right of set-off, and nothing
in this Agreement shall be deemed any waiver or prohibition of such lien and
right of set-off.
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9.2 Further Remedies.
Upon the occurrence of any one or more Events of Default, the Bank may
proceed to protect and enforce its rights under this Agreement and the other
Loan Documents by exercising such remedies as are available to the Bank in
respect thereof under applicable law, either by suit in equity or by action
at law, or both, whether for specific performance of any provision contained
in this Agreement or any of the other Loan Documents or in aid of the
exercise of any power granted in this Agreement or any of the other Loan
Documents.
ARTICLE X MISCELLANEOUS
10.1 Remedies Cumulative; No Waiver.
The rights, powers and remedies of the Bank provided in this Agreement
and the other Loan Documents are cumulative and not exclusive of any right,
power or remedy provided by law or equity, and no failure or delay on the
part of the Bank in the exercise of any right, power, or remedy shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power, or remedy preclude other or further exercise thereof, or the exercise
of any other right, power or remedy.
10.2 Notices.
Every notice and communication under this Agreement or any of the other
Loan Documents shall be in writing and shall be given by either (i)
hand-delivery, (ii) first class mail (postage prepaid), (iii) reliable
overnight commercial courier (charges prepaid), or (iv) telecopy or other
means of electronic transmission, if confirmed promptly by any of the methods
specified in clauses (i), (ii) and (iii) of this sentence, to the following
addresses:
If to the Borrower:
Blonder Tongue Laboratories, Inc.
One Jake Brown Road
Old Bridge, NJ 08857
Attn: Mr. James A. Luksch, President
Fax: (732) 679-4353
With a copy to:
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Attn: Gary P. Scharmett, Esquire
Fax: (215) 564-8120
If to the Bank:
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First Union National
370 Scotch Road
West Trenton, NJ 08628
Attn: Ellen Gibbin Dodel, Vice President
Elizabeth Perricone, Senior Vice President
Fax: (609) 771-5860
With a copy to:
McCarter & English, LLP
100 Mulberry Street
Newark, NJ 07102
Attn: Curtis A. Johnson, Esq.
Fax: (973) 624-7070
Notice given by telecopy or other means of electronic transmission shall
be deemed to have been given and received when sent. Notice by overnight
courier shall be deemed to have been given and received on the date scheduled
for delivery. Notice by mail shall be deemed to have been given and received
three (3) calendar days after the date first deposited in the United States
Mail. Notice by hand delivery shall be deemed to have been given and received
upon delivery. A party may change its address by giving written notice to the
other party as specified herein.
10.3 Costs, Expenses and Attorneys' Fees.
Whether or not the transactions contemplated by this Agreement and the
other Loan Documents are fully consummated, the Borrower shall promptly pay
(or reimburse, as the Bank may elect) all costs and expenses which the Bank
has incurred or may hereafter incur in connection with the negotiation,
preparation, reproduction, interpretation and enforcement of this Agreement
and the other Loan Documents, the collection of all amounts due hereunder and
thereunder, and any amendment, modification, consent or waiver which may be
hereafter requested by the Borrower or otherwise required. Such costs and
expenses shall include, without limitation, the fees and disbursements of
counsel to the Bank, the costs of appraisal fees, searches of public records,
costs of filing and recording documents with public offices, and similar
costs and expenses incurred by the Bank. Upon the occurrence of an Event of
Default, such costs shall also include the fees of any accountants,
consultants or other professionals retained by the Bank. The Borrower's
reimbursement obligations under this Section shall survive any termination of
this Agreement.
10.4 Survival of Covenants.
This Agreement and all covenants, agreements, representations and
warranties made herein and in any certificates delivered pursuant hereto
shall survive the making of the Loans and the execution and delivery of the
Notes and, subject to the provisions of Section 10.15 hereof, shall continue
in full force and effect until all of the Obligations have been fully paid,
performed, satisfied and discharged.
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10.5 Counterparts; Effectiveness.
This Agreement may be executed in any number of counterparts and by the
different parties on separate counterparts. Each such counterpart shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same Agreement. This Agreement shall be deemed to have been
executed and delivered when the Bank has received counterparts hereof
executed by all parties listed on the signature page(s) hereto.
10.6 Headings.
The headings of sections have been included herein for convenience only
and shall not be considered in interpreting this Agreement.
10.7 Payment Due On A Day Other Than A Business Day.
If any payment due or action to be taken under this Agreement or any
Loan Document falls due or is required to be taken on a day which is not a
Business Day, such payment or action shall be made or taken on the next
succeeding Business Day and such extended time shall be included in the
computation of interest.
10.8 Judicial Proceedings.
Each party to this Agreement agrees that any suit, action or proceeding,
whether claim or counterclaim, brought or instituted by any party hereto or
any successor or assign of any party, on or with respect to this Agreement or
any of the other Loan Documents or the dealings of the parties with respect
hereto, or thereto, shall be tried only by a court and not by a jury. EACH
PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. Further, each party
waives any right it may have to claim or recover, in any such suit, action or
proceeding, any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. THE BORROWER
ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT
OF THIS AGREEMENT AND THAT THE BANK WOULD NOT EXTEND CREDIT TO THE BORROWER
IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT.
10.9 Governing Law.
This Agreement shall be construed in accordance with and governed by the
internal laws of the State of New Jersey.
10.10 Integration.
This Agreement and the other Loan Documents constitute the sole
agreement of the parties with respect to the subject matter hereof and
thereof and supersede all oral negotiations and prior writings with respect
to the subject matter hereof and thereof.
-38-
<PAGE>
10.11 Amendment and Waiver.
No amendment of this Agreement, and no waiver of any one or more of the
provisions hereof shall be effective unless set forth in writing and signed
by the parties hereto.
10.12 Successors and Assigns.
(a) Generally. This Agreement (i) shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and (ii) shall inure to
the benefit of the Borrower and the Bank and its respective successors and
assigns, provided, however, that the Borrower may not assign its rights
hereunder or any interest herein without the prior written consent of the
Bank, and any such assignment or attempted assignment by the Borrower shall
be void and of no effect with respect to the Bank.
(b) Participations. The Bank may from time to time sell or otherwise
grant participations in the Loans and the Notes in minimum amounts of
$5,000,000 per participation, and the holder of any such participation, if
the participation agreement so provides, (i) shall, with respect to its
participation, be entitled to all of the rights of the Bank and (ii) may
exercise any and all rights of setoff or banker's lien with respect thereto,
in each case as fully as though the Borrower were directly indebted to the
holder of such participation in the amount of such participation. The Bank
may disclose to prospective participants such information regarding the
Borrower's affairs as the Bank possesses. The Bank shall give notice to the
Borrower of the grant of such participations; however, the failure to give
such notice shall not affect any of the Bank's rights hereunder.
10.13 Severability of Provisions.
Any provision in this Agreement that is held to be inoperative,
unenforceable, voidable, or invalid in any jurisdiction shall, as to that
jurisdiction, be ineffective, unenforceable, void or invalid without
affecting the remaining provisions, and to this end the provisions of this
Agreement are declared to be severable.
10.14 Consent to Jurisdiction and Service of Process.
The Borrower irrevocably appoints each and every officer of the Borrower
as its attorneys upon whom may be served, by regular or certified mail at the
address set forth in Section 10.2 hereof, any notice, process or pleading in
any action or proceeding against it arising out of or in connection with this
Agreement or any of the other Loan Documents; and, subject to Section 10.16
the Borrower hereby (i) consents that any action or proceeding against it be
commenced and maintained in any court within the State of New Jersey or in
the United States District Court for New Jersey by service of process on any
such officer; (ii) agrees that the courts of the State of New Jersey and the
United States District Court for the District of New Jersey shall have
jurisdiction with respect to the subject matter hereof and the person of the
Borrower and the Collateral, and (iii) waives any objection that such
Borrower may now or hereafter have as to the venue of any such suit, action
or proceeding brought in such a court or that such court is an inconvenient
forum. Notwithstanding the foregoing, the Bank, in its absolute discretion
may also initiate proceedings in the courts of any other jurisdiction in
which the Borrower may be found or in which any of its properties or the
Collateral may be located.
-39-
<PAGE>
10.15 Indemnification.
(a) If, after receipt of any payment of all or any part of the
Obligations, the Bank is compelled to surrender such payment to any Person or
entity for any reason (including, without limitation, a determination that
such payment is void or voidable as a preference or fraudulent conveyance, an
impermissible setoff, or a diversion of trust funds), then this Agreement and
the other Loan Documents shall continue in full force and effect, and the
Borrower shall be liable for, and shall indemnify, defend and hold harmless
the Bank with respect to the full amount so surrendered.
(b) The Borrower shall indemnify, defend and hold harmless the Bank with
respect to any and all claims, expenses, demands, losses, costs, fines or
liabilities of any kind, including reasonable attorneys' fees and costs,
arising from or in any way related to (i) acts or conduct of the Borrower or
any of the Other Loan Parties under, pursuant to or related to this Agreement
and the other Loan Documents, (ii) Borrower's or any Other Loan Party's
breach or violation of any representation, warranty, covenant or undertaking
contained in this Agreement or the other Loan Documents, and (iii) Borrower's
or any other Loan Party's failure to comply with any or all laws, statutes,
ordinances, governmental rules, regulations or standards, whether federal,
state, or local, or court or administrative orders or decrees, including
without limitation those resulting from any Hazardous Materials or dangerous
environmental condition within, on, from, related to or affecting any real
property owned or occupied by the Borrower, unless resulting from the acts or
conduct of the Bank constituting gross negligence or willful misconduct.
(c) The provisions of this section shall survive the termination of this
Agreement and the other Loan Documents and shall be and remain effective
notwithstanding the payment of the Obligations, the cancellation of any of
the Notes, the release of any Encumbrance securing the Obligations or any
other action which the Bank may have taken in reliance upon its receipt of
such payment. Any cancellation of any of the Notes, release of any
Encumbrance or other such action shall be deemed to have been conditioned
upon any payment of the Obligations having become final and irrevocable.
10.16 Arbitration Provisions.
(a) Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out
of, or relating to the Loan Documents (a "Dispute") shall be resolved by
binding arbitration conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions,
or claims arising from document executed in the future. A judgment upon the
award may be entered in any court having jurisdiction. Notwithstanding the
foregoing, this arbitration provision does not apply to disputes under or
related to Swap Agreements.
(b) All arbitration hearings shall be conducted in the city in which the
office of Bank first stated above is located. A hearing shall begin within
ninety (90) days of demand for arbitration and all hearings shall be
concluded within one hundred twenty (120) days of demand
-40-
<PAGE>
for arbitration. These time limitations may not be extended unless a
party shows cause for extension and then for no more than a total of sixty
(60) days. Arbitrators shall be licensed attorneys selected from the
Commercial Financial Dispute Arbitration Panel of the AAA. The parties do not
waive applicable Federal or state substantive law except as provided herein.
(c) Notwithstanding the preceding binding arbitration provisions, the
parties agree to preserve, without diminution, certain remedies that any
party may exercise before or after an arbitration proceeding is brought. The
parties shall have the right to proceed in any court of proper jurisdiction
or by self-help to exercise or prosecute the following remedies, as
applicable: (i) all rights to foreclose against any real or personal property
or other security by exercising a power of sale or under applicable law by
judicial foreclosure including a proceeding to confirm the sale; (ii) all
rights of self-help including peaceful occupation or real property and
collection of rents, set-off, and peaceful possession of personal property;
and (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding. Any claim or controversy with
regard to any party's entitlement to such remedies is a Dispute.
(d) Each party agrees that it shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute, whether the Dispute is resolved by
arbitration or judicially.
(e) The parties acknowledge that by agreeing to binding arbitration they
have irrevocably waived any right they may have to a jury trial with regard
to a Dispute.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized officers on the date first above written.
Blonder Tongue Laboratories, Inc.
By: /s/ Peter Pugielli
------------------------------
Peter Pugielli
Chief Financial Officer
First Union National Bank
By: /s/ Ellen Gibbin Dodel
------------------------------
Ellen Gibbin Dodel
Vice President
-41-
<PAGE>
Exhibit A Revolving Line Note
Exhibit B Term Note
Exhibit 6.2(c) Borrowing Base and Loan Report
Exhibit 6.2(g) Compliance Report
-42-
FIFTH AMENDED AND RESTATED LINE OF CREDIT NOTE
$7,500,000 As of November 12, 1999
FOR VALUE RECEIVED, BLONDER TONGUE LABORATORIES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of FIRST UNION
NATIONAL BANK (the "Bank") on the Termination Date the principal amount of SEVEN
MILLION, FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) or, if less, the aggregate
outstanding principal under the Line of Credit extended under the Fifth Amended
and Restated Loan Agreement dated the date hereof by and between the Borrower
and the Bank as may be amended, modified or restated from time to time (the
"Loan Agreement"). Terms capitalized but not defined herein shall have the
meanings given to them respectively in the Loan Agreement. Reference is made to
the Loan Agreement for a statement of the terms and conditions under which the
loans evidenced hereby have been made, secured, and may be prepaid or
accelerated. This Note amends and restates and replaces (but does not discharge)
the obligations of the Borrower under the Fourth Amended and Restated Line of
Credit Note dated as of February 1, 1999, as such note has been amended,
modified and/or extended.
Until maturity (whether by acceleration or otherwise) interest shall accrue
on the outstanding principal balance hereof at the rate set forth in the Loan
Agreement. Interest shall be calculated on the basis of a 360-day year, counting
the actual number of days elapsed. Subsequent to maturity or the occurrence of
any Event of Default, and continuing after entry of any judgment against the
Borrower with respect to the obligations evidenced by this Note, interest shall
accrue at an annual rate which shall be two percent (2%) above the rate of
interest otherwise payable hereunder. Accrued interest shall be payable monthly
on the first day of each month commencing with the month immediately following
the date hereof and if not paid when due, shall be added to the principal.
All amounts payable by the Borrower to the Bank hereunder shall be paid
directly to the Bank at 370 Scotch Road, West Trenton, New Jersey 08628 (or at
such other address of which the Bank shall give notice to the Borrower in
accordance with the Loan Agreement) in immediately available funds.
The Borrower hereby waives the requirements of demand, presentment,
protest, notice of protest and dishonor and all other demands or notices of any
kind in connection with the delivery, acceptance, performance, default, dishonor
or enforcement of this Note.
The construction, interpretation and enforcement of this Note shall be
governed by the internal law of the State of New Jersey.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Borrower
has caused this Note to be executed by its duly authorized officer as of the day
and year first above written.
BLONDER TONGUE LABORATORIES, INC.
By: /s/Peter Pugielli
----------------------------
Peter Pugielli
Chief Financial Officer
THIRD ALLONGE TO REAL ESTATE NOTE
This is the third allonge dated November 12, 1999 to the Real Estate Loan
Note dated May 23, 1996 (the "Note") from BLONDER TONGUE LABORATORIES, INC., a
Delaware corporation (the "Borrower"), payable to the order of MERIDIAN BANK
(predecessor to FIRST UNION NATIONAL BANK, hereinafter the "Bank") in the
original principal amount of Two Million Eight Hundred Thousand Dollars
($2,800,000.00). The Note was issued under the Amended and Restated Loan
Agreement dated October 2, 1995, as amended by a First Amendment and a certain
Second Amendment dated May 23, 1996 to the Amended and Restated Loan Agreement
and is the subject of an Allonge dated September 26, 1996 and a Second Allonge
dated as of February 1, 1999. This Allonge is being entered into in connection
with the Fifth Amendment and Restated Loan Agreement dated November 12, 1999 by
and between the Borrower and the Bank. The Fifth Amended and Restated Loan
Agreement dated November 12, 1999 as may be further amended, modified or
restated from time to time is hereafter referred to as the "Loan Agreement."
Terms capitalized but not defined herein shall have the meanings given to them
respectively in the Loan Agreement.
Now therefore, in consideration of the agreement of the parties contained
herein, and intending to be legally bound, the parties hereto agree as follows:
1. The term "Loan Agreement" as used in the Note shall have the meaning
assigned in the introductory paragraph to this Third Allonge.
2. All other terms of the Note and the Loan Agreement remain in full force
and effect.
3. The construction, interpretation and enforcement of this allonge to the
Note shall be governed by the internal laws of the State of New Jersey.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Borrower
and the Bank have caused this allonge to the Note to be executed by their duly
authorized officers as of the day and year first above written.
BLONDER TONGUE LABORATORIES, INC.
By: /s/Peter Pugielli
-----------------------------
Peter Pugielli
Chief Financial Officer
FIRST UNION NATIONAL BANK
By: /s/Ellen Gibbin Dodel
-----------------------------
Ellen Gibbin Dodel
Vice President
TERM NOTE
$17,100,001.18 November 12, 1999
FOR VALUE RECEIVED, BLONDER TONGUE LABORATORIES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of FIRST UNION
NATIONAL BANK (the "Bank") the principal amount of Seventeen Million, One
Hundred Thousand, One Dollar and Eighteen Cents ($17,100,001.18). This Term Note
is issued under the Fifth Amended and Restated Loan Agreement dated November 12,
1999 by and between the Borrower and the Bank, as may be further amended,
modified or restated from time to time (the "Loan Agreement"). Terms capitalized
but not defined herein shall have the meanings given to them respectively in the
Loan Agreement. The terms of the Loan Agreement are incorporated herein as if
set forth at length.
The Borrower hereby waives the requirements of demand, presentment,
protest, notice of protest and dishonor and all other demands or notices of any
kind in connection with the delivery, acceptance, performance, default, dishonor
or enforcement of this Note.
The construction, interpretation and enforcement of this Note shall be
governed by the internal laws of the State of New Jersey.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the Borrower
has caused this Note to be executed by its duly authorized officer as of the day
and year first above written.
BLONDER TONGUE LABORATORIES, INC.
By: /s/Peter Pugielli
-----------------------------
Peter Pugielli
Chief Financial Officer
EXHIBIT 21
List of Subsidiaries of Blonder Tongue Laboratories, Inc.
1. Blonder Tongue International, Inc.
2. Blonder Tongue Investment Company
3. Vu-Tech Communications, Inc. (79% - owned subsidiary)
EXHIBIT 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Blonder Tongue Laboratories, Inc.
We hereby consent to the incorporation by reference in Registration No.
333-15039 of Blonder Tongue Laboratories, Inc. on Form S-8 of our report dated
February 18, 2000, relating to the consolidated financial statements and
schedule of Blonder Tongue Laboratories, Inc. included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
BDO Seidman, LLP
Woodbridge, New Jersey
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLONDER
TONGUE LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND BALANCE SHEET AS AT DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 10,652
<ALLOWANCES> 683
<INVENTORY> 26,793
<CURRENT-ASSETS> 39,999
<PP&E> 13,306
<DEPRECIATION> 4,566
<TOTAL-ASSETS> 66,076
<CURRENT-LIABILITIES> 14,543
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 35,239
<TOTAL-LIABILITY-AND-EQUITY> 66,076
<SALES> 56,805
<TOTAL-REVENUES> 56,805
<CGS> 39,074
<TOTAL-COSTS> 39,074
<OTHER-EXPENSES> 14,625
<LOSS-PROVISION> 1,043
<INTEREST-EXPENSE> 2,008
<INCOME-PRETAX> 61
<INCOME-TAX> 2
<INCOME-CONTINUING> 59
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
