Page 29
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 2, 1997
Commission file number 0-12611
AULT INCORPORATED
MINNESOTA 41-0842932
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification No.)
7300 Boone Avenue North
Minneapolis, Minnesota 55428-1028
Address of principal executive offices
Registrant's telephone number: 612 493-1900
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing requirements
for the past 90 days.
YES __X___ NO _______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Outstanding at
Class of Common Stock March 2, 1997
No par value 3,989,776 shares
Total pages - - - -15
Exhibits Index on Page - - - -14
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in Thousands, Except Amounts Per Share)
<TABLE>
<CAPTION>
(UNAUDITED)
THIRD QUARTER
ENDED NINE MONTHS ENDED
MARCH 2, FEB 25, MARCH 2, FEB 25,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $10,578 $8,972 $28,504 $23,564
Cost of Goods Sold 7,760 6,913 21,167 17,936
Gross Profit 2,818 2,059 7,337 5,628
Operating Expenses
Marketing 870 660 2,365 1,935
Design Engineering 419 397 1,178 1,069
Genaral &
Administrative 771 587 1,993 1,635
2,060 1,644 5,536 4,639
Operating Income 758 415 1,801 989
Non-Operating Income
(Expense)
Other 89 40 109 125
Interest Expense (76) (185) (453) (582)
Income Before Income
Taxes 771 270 1,457 532
Income Taxes (Note 2) 151 320
Net Income $620 $270 $1,137 $532
Net Income Per Share $0.15 $0.12 $0.37 $0.24
Weighted Average Number
of Commom Shares &
Common Equivalent
Shares Outstanding 4,028,200 2,287,135 3,014,984 2,213,604
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION> (Unaudited)
March June 2,
2,1997 1996
<S> <C> <C>
Assets
Current Assets
Cash & Cash Equivalents (Note 3) $3,736 $412
Trade Receivables Less Allowance
for Doubtful Accounts of $97,000
at February 25, 1996 and $51,000
at June 2, 1996 8,383 7,376
Inventories:
Finished Goods 1,967 2,691
Work In Process 405 319
Raw Material 4,314 4,263
Total Inventories 6,686 7,273
Other Current Assets (Note 4) 799 460
Total Current Assets 19,604 15,481
Other Assets
Other Receivables, Less
Allowance Of $65,000(Note 5) 197 197
Patent (Note 6) 182 182
Other 54 21
433 400
Property, Equipment And
Leasehold Improvements, At Cost:
Land 870 826
Building 774 735
Machinery and Equipment 5,635 5,113
Office Furniture 742 593
E.D.P. Equipment 1090 1005
Leasehold Improvements 628 687
9,739 8,959
Less Accumulated Depreciation 6,444 6,110
Net Property Equipment and
Leasehold Improvements 3,295 2,849
Total Assets $23,332 $18,730
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 2, June 2,
1997 1996
<S> <C> <C>
Liabilities and Stockholders'Equity:
Current Liabilities
Note Payable to Bank (Note 7) $844 $5,618
Current Maturities of Long-
Term Debt (Note 7) 205 388
Accounts Payable 2,543 4,513
Accrued Expenses:
Compensation (Note 8) 390 556
Other (Note 9) 881 627
Income Taxes Payable (Note 307 25
Total Current Liabilities 5,170 11,727
Long-Term Debt, Less Current
Maturities (Note 7) 237 935
Deferred Rent Expense (Note 10) 134 164
Deferred Compensation (Note 11) 321 333
Stockholders' Equity:(Note 7)
Preferred Shares, No Par Value;
Authorized 1,000,000 Shares;
None Issued.
Common Shares, No Par Value,
Authorized 10,000,000 Shares;
Shares Outstanding:
March 2, 1997: 3,989,776 June
2, 1996; 2,119,776 Shares 17,661 6,967
Foreign Currency Translation
Adjustments (Note 12) (17) (84)
Retained Earnings (Deficit) (174) (1,312)
17,470 5,571
Total Liabilities and
Stockholders' Equity $23,332 $18,730
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
March 2, Feb. 25,
1997 1996
<S> <C> <C>
Cash Flows From OperatingActivities:
Net Income $1,137 $532
Adjustments to Reconcile Net
Income to Net Cash Used In
Operating Activities:
Depreciation 334 381
Provision for Doubtful Accounts 46 (25)
Provision for Inventory Allowance 49
Loss on Disposal of Equipment 1
Deferred Rent (30) (21)
Changes in Assets and Liabilities:
(Increase) Decrease In:
Trade Receivables (974) (875)
Inventories 468 (508)
Other Current Assets (339) (189)
Increase (Decrease) In:
Accounts Payable (1,970) (891)
Accrued Expenses 359 127
Net Cash Used in Operating
Activities (968) (1,420)
Cash Flows From Investing Activities:
Proceeds From Disposal Of Equipment 2
Purchase Of Equipment (783) (153)
Increase In Other Assets (33) (95)
Net Cash Used In Investing Activitie (814) (248)
Cash Flows From Financing Activities:
Net Borrowings (Payments)on
Revolving Credit Agreements (4,774) 1575
Proceeds From Issuance ofCommon
Stock 10,694 16
Principal Payments on Long-Term
Borrowings, Including Capital
Lease Obligations (1,181) (105)
Proceeds From Long-Term Borrowing 300
Net Cash Provided By Financing
Activities 5,039 1,486
Effect of Foreign Currency
Exchange Rate 67 (35)
Increase (Decrease)in Cash 3,324 (217)
Cash
Beginning 412 319
End $3,736 $102
</TABLE>
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AULT INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
FOR THIRD QUARTER ENDING MARCH 2, 1997
NOTE 1:
In the opinion of management, the accompanying
unaudited financial statements contain all adjustments
(which only include normal recurring adjustments)
necessary to present fairly Ault Incorporated's
consolidated financial position as of March 2, 1997,
and changes in financial position for the nine months
then ended. The consolidated financial statements
include the operations of the parent company, Ault
Incorporated (US operation), and its wholly owned
subsidiary, Ault Korea Corporation.
NOTE 2:
The Company established income tax provisions of
$151,00 and $320,000 for the third quarter and nine
months, respectively, of fiscal 1997 applying the
Alternative Minimum Tax. At June 2, 1996 the Company
had tax credits and net operating loss carryforwards
amounting to $633,000 and $190,000, respectively,
available for use in US and net operating loss
carryforwards amounting to $426,000 for use in South
Korea. No income taxes were accrued for the nine months
of fiscal 1996.
NOTE 3:
For the purpose of reporting cash and cash flows, the
Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be
cash equivalents.
NOTE 4:
Other Current Assets for both periods are principally
receivables from sub-assembly vendors of Ault Korea
Corporation, customs duty and value added taxes, and
certain deferred expenses that are related to and will
be absorbed against revenue in the fourth quarter
fiscal 1997. The customs duty and value added taxes
are paid by Ault Korea Corporation to the Korea
authority on products that manufactured for
exportation. These payments are refundable when the
subsidiary submits to the Korean Government the
appropriate claim and proof of exportation. Ault Korea
Corporation provides raw material to its subcontractors
of certain manufactured sub-assemblies that are
recorded as other current assets.
NOTE 5:
Other receivable of $197,000, net of allowance of
$65,000 and other amounts written off represents
portions of amounts due the Company for trade
receivable that was invoiced in fiscal 1991. The
customer had terminated its contract with the company
for reasons that were external and unrelated to the
Company, and refused to make compensation for cost that
the Company had incurred. The matter is in litigation
brought by the Company. Court hearings to date on
positions taken by the debtor were all determined
favorable to the Company's claim. Management believes
that the matter is nearing a conclusion that will be in
favor of the Company.
NOTE 6:
The Patent cost, which currently has no amortization
charges against it, represents the contract price of US
Patent #5,303,137,1 which was acquired by the Company
from a source external to and independent of the
Company. The Company believes that products using the
power conversion technology it represents will generate
significant revenues into fiscal 2002. For
amortization purposes, the patent has been assigned a
life of four years beginning in fiscal 1997.
NOTE 7:
The Company completed a public sale of its common
shares during the third quarter of fiscal 1997.
Certain portions of the proceeds were used to pay off
the Company's US bank debt at First Minneapolis N.A.
and mortgage liability on the South Korea facility.
The remaining long-term debt, including current
maturities is comprised of an equipment term loan and
equipment leases with various maturities through fiscal
2001. See MANAGEMENT DISCUSSION AND ANALYIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
Liquidity and Capital Resources.
NOTE 8:
Compensation consists principally of amounts accrued
for payment of employees' salaries, vacation and sick
leave.
NOTE 9:
Accrued expenses, other, are mainly undue amounts for
sales representatives' commission and agency fees, and
provisions for future payment of current warranty
commitments.
NOTE 10:
The lease on the Company's Minneapolis plant and office
facilities includes schedules base rent increases over
the term of the lease, which has a duration of ten
years expiring in August 1999. The total amount of the
base rent payments is being charged to expense on the
straight-line method over the term of the lease. The
difference between the payments and the expense is
recorded as deferred rent.
NOTE 11:
Deferred compensation is a provision by Ault Korea
Corporation, in accordance with requirement by the
Korea Authority, for the compensation of each current
employee when his/her employment with the subsidiary
terminates.
NOTE 12:
The Korean Won is considered the functional currency of
the Korean subsidiary. Accordingly, the effect of
translating the subsidiary's statements into US dollars
is recorded as separate component of shareholder's
equity.
ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
From time to time, in reports filed with the Securities
and Exchange Commission, in press releases, and in
other communications to shareholders or the investing
public, the Company may provide forward-looking
statements concerning possible or assumed future
results of operations or business developments which
are typically preceded by the words "believes",
"expects", "anticipates", "intends", or similar
expressions. For such forward-looking statements, the
Company claims the protection of the safe harbor for
forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Shareholders
and the investing public should understand that such
forward-looking statements are subject to risks and
uncertainties which could cause results to differ
significantly from those indicated in the forward-
looking statements. Such risks and uncertainties
include, but are not limited to, the overall level of
sales by OEMs in the telecommunications, date
communications, computer peripherals and the medical
markets; buying patterns of the Company's existing and
prospective customers; the impact of new products
introduced by competitors; higher than expected
expenses related to sales and new marketing
initiatives; availabilty of adequate supplies of raw
materials and components; and other risks involving the
Company's target markets generally.
Results of Operations
Net sales increased 17.9% in the third quarter of
fiscal 1997 to $10,578,000 from $8,972,000 for the
third quarter of fiscal 1996. For the nine months of
fiscal 1997, net sales were $28,504,000 up 21.0% from
$23,564,000 for the nine months of fiscal 1996. The
increase in sales for fiscal 1997 reflects continued
strength in the telecommunications and data
communications market segments that are served by the
Company. It also reflects the effectiveness of the
Company's strategies in partnering with OEM customers
to provide competitively priced power conversion
products, engineering and other services required in
the development of their new products. As a
contributing factor to that strategy, the Company
introduced eleven new products to customers during the
nine months and expects to introduce a total of
eighteen new products for all of fiscal 1997. During
the third quarter, also, the Company announced to its
OEM customers the availability of products from its
patented high density power supply technology. Their
competitive features and price are expected to generate
orders for shipment beginning in the first quarter of
fiscal 1998. Representing another important
achievement, the Company signed an agreement with
Shinko Shoji, a large Japanese international
distributor of electronic products. Under the
agreement, Shinko Shoji will act as an independent
representative and distributor of the Company's
products through out Asia. With the reputation and
experience of Shinko Shoji, this alliance represents an
excellent opportunity for sale of the Company's
products in the Japanese market and through out Asia.
Also, to augment its low cost production resources
being provided by its wholly owned South Korean
subsidiary and subcontracting in South Asian countries,
including China, the Company established a wholly owned
manufacturing operation in Northern China during the
third quarter. The new facility will commence
manufacturing for customer shipments during the fourth
quarter of fiscal 1997 and will be equipped to
manufacture all of the Company's products.
Order backlog was $11,768,000 at March 2, 1997, as
compared to $14,507,000 at February 25, 1996. The
lower order backlog reflects a nation wide change in
the procurement strategies of OEMs towards leaner
inventories because of improvements in the ability of
vendors to deliver material on shorter lead-times. As
of March 29, 1997, order backlog had improved to
$16,300,000, up by 6.1 % from $15,370,000 for the
comparable period in fiscal 1996.
Gross profit increased 36.9% in the third quarter of
fiscal 1997 to $2,818,000 as compared to $2,059,000 for
the third quarter of fiscal 1996. For the nine months,
gross profit increased by 30.4% to $7,337,000 in fiscal
1997 from $5,628,000 in fiscal 1996. As a percentage
of net sales, gross profit totaled 26.6% and 22.9% for
the third quarter of fiscal 1997 and fiscal 1996,
respectively. For the nine months, gross profit was
25.7% of net sales in fiscal 1997 compared to 23.9% in
fiscal 1996. The improvement in fiscal 1997 is due
principally to increased sales of higher margin
switching power supplies and a smaller per unit fixed
cost afforded by the increased sales.
Because of the continuing strong market conditions, the
improved order backlog, and the Company's strategy on
business development, it is anticipated that
performance for the fourth quarter of fiscal 1997 will
compare favorably with the performance for the quarter
just ended.
Operating expenses increased 25.3% in the third quarter
of fiscal 1997 to $2,060,000 from $1,644,000 in fiscal
1996, and increased by 19.3% to $5,536,000 for the
nine months of fiscal 1997 from $4,639,000 for the nine
months of fiscal 1996. The increase is due principally
to commissions paid to sales representatives on the
additional sales, expenditures to upgrade management
information system, for foreign manufacturing
administration and for sales promotional activities.
The Company also accrued approximately one week of
salaries and wages in anticipation off a bonus to be
paid to all of its employees for fiscal 1997
performance. As a percentage of net sales, operating
expenses were 19.5% for the third quarter and 19.4% for
the nine months of fiscal 1997, compared to 18.3% for
the third quarter and 19.7% for the nine months of
fiscal 1996.
Operating income increased by 82.7% to $758,000 for the
third quarter of fiscal 1997 from $415,000 for the
third quarter of fiscal 1996, and by 82.1% to
$1,801,000 for the nine months of fiscal 1997 from
$989,000 for the nine months of fiscal 1996.
Non-operating income of $109,000 in fiscal 1997 is
principally interest income from short-term investment
of cash and rental income from portions of the Korean
manufacturing facility. Non-operating income of
$125,000 in fiscal 1996 is principally earnings by the
South Korean subsidiary on short-term investment of
cash, currency exchange rate gains on the importation
of raw material, as well as rental income. Interest
expense of $453,000 in fiscal 1997 and $582,000 in
fiscal 1996 represent payments on short-term bank
borrowings made to support working capital and mortgage
interest payments on the manufacturing facility owned
by the South Korean subsidiary.
Although the Company has substantial amounts of net
operating loss carryforwards and business credits, it
established provisions for income taxes of $151,000 for
the third quarter and $320,000 for the nine months due
to anticipated tax liabilities from application of the
Alternative Minimum Income Tax. There were no tax
provisions for the nine months of fiscal 1996, due to
the utilization of net operating loss carryforwards.
Net income increased by 129.6% to $620,000 for the
third quarter of fiscal 1997, from $270,000 for the
third quarter of fiscal 1996. For the nine months, net
income increased by 113.7% to $1,137,,000 in fiscal
1997 from $532,000 in fiscal 1996.
Per share earnings for the third quarter totaled $0.15
in fiscal 1997 and $0.12 in fiscal 1996; and for the
nine months totaled $0.37 in fiscal 1997 and $0.24 in
fiscal 1996. Per share earnings for the third quarter
of fiscal 1997 reflect the additional common shares
(weighted) sold during the quarter through a public
offering. See Liquidity and Capital Resources.
Liquidity and Capital Resources
The Company's principal sources of working capital
relied on for normal growth in revenue and attainment
of profit goals have been its credit facilities and
cash flows from operations. Since fiscal 1995 however,
market conditions for sale of power conversion products
have significantly improved as strategies of the
Company to grow by offering to customers competitive
engineering and services were gaining success. The
Company recognized these factors as presenting
opportunities to enhance revenue and profits above that
which its existing sources of working capital would
support. Also, growth in trade receivables and
inventories that resulted from increased sales and
customer services were using greater amounts of cash
thereby placing greater reliance on credit facilities
to provide the needed working capital.
Public offering of Common Shares
In view of the opportunities available to the Company
for continued business growth, and the lack of adequate
supporting cash flows with which to pursue them, the
Company filed with the Securities and Exchange
Commission, during the second quarter, for approval
to seek additional capital through a secondary public
offering of its common shares. Sale of the stock was
completed on December 12, 1996, and together with the
underwriters' purchase of over-allotment shares, the
Company sold 1,840,000 common shares from which it
raised $10,621,000, after underwriters' discount and
commissions, and offering expenses.
The Net proceeds to the Company will be expended for
the following purposes:
(a) Repayment in the US of a First Bank debt totaling
$5.2million
(b) Investment in Ault Korea Corporation so that the
subsidiary may (1) upgrade its manufacturing and
management information system capabilities, (2)
purchase a manufacturing operation in Northern China
and equipment its leased facility for the manufacture
of power conversion products, (3) repay its mortgage
loan, and (4) reduce its short-term bank debt. These
expenditures represent approximately $2.5 million.
(c) Investment of $1.5 million in Thailand through a
joint venture with a current, major sub-contractor to
expand its capabilities and capacity to manufacture low
cost products for the Company.
(d) General corporate purposes, including working
capital of approxiametly $1.4 million.
At March 2, 1997, approximately $7,150,000 had been
utilized for the purposes stated above. Cash
remaining from the stock offering proceeds totaled
approximately $3,471,000. To date none of the proceeds
have been applied towards the Thailand joint venture.
Credit Facilities
The Company maintains two credit facilities; its
primary credit facility with First Bank and a smaller
facility with Korea Exchange Bank supporting the South
Korean subsidiary.
Prior to the public offering, the US credit facility
totaled $6.0 million collateralized by a security
interest in all of the Company's US assets. Indexed to
a percentage of trade receivable and other assets,
borrowing at December 12, 1996 amounted to $5.2 million
at an interest rate of .75% above the prime rate,.
Additionally, $400,000 of the credit facility was
allocated to a standby letter of credit provided to
Korea Exchange Bank as collateral for the credit
facility it provides to the South Korean subsidiary.
Following the public offering, the Company repaid all
indebtedness to First Bank, terminated the letter of
credit agreement and negotiated a new credit
arrangement. The new credit arrangement with First
Bank includes the following:
(a) A revolving credit facility in an amount of $2.0
million at prime rate of interest, secured by trade
receivable and terminating on October 1, 1997, although
it may be amended for an extended period. At the end
of the quarter, there were no borrowings against it.
(b) An equipment term loan in an amount of $300,000
that is repayable at 8.2% per annum over four years.
At March 2, 1997, all proceeds from this loan were
received by the Company.
The South Korean credit facility amounted to $1.5
million of which borrowings at March 2, 1997 at 9.0%
rate of interest were to $844,000, down from $1,113,000
owed prior to the public offering.
Cash Flows
Operations: Operations used $968,000 of net cash for
the nine months, which came from activities that
provided $2,315,000 of cash and activities that used
$3,283,000 of cash. The activities that provided
$2,315,000 of cash were:
(a) Net profit and non cash expenses provided
$1,488,000 of which net profit totaled $1,137,000. Non
cash expenses provided $351,000 of cash, of which
depreciation expenses contributed $334,000.
(b) Reduction in inventories which were principally
finished products that were held for customers
provided $468,000.
(c) Accrued expenses provided $359,000 of cash of
which accrued income taxes comprised $281,000
The activities that used $3,283,000 of cash were:
(a) Increase in trade receivables used $974,000 of
cash principally due to increased sales and timing in
collections.
(b) Increase in other current assets used $339,000,
which were principally amounts due from sub-contractors
for sale of raw material.
(c) Reduction in trade payables used $1,970,000 of
cash. The reduction occurred principally because of a
decision to improve the timing of payments to foreign
vendors and vendors of the Korean operation to ensure a
timely flow of material.
.
Investing Activities: Investing activities used net
cash of $814,000 mainly for the purchase of capital
equipment and tooling and for upgrading management
information systems.
Financing Activities: Financing activities provided
net cash of $5,039,000 which were comprised of the
following activities:
(a) Net cash amounting to $10,694,000 received from
issuance of common shares of which $10,621,000 is
related to the public offering discussed above and the
balance of $73,000 derived from exercise of common
stock options by employees of the Company.
(b) An equipment term loan, also discussed above
provided $300,000 of cash.
(c) Reduction in revolving credit borrowings that
were outstanding at June 2, 1996 used $4,774,000 of
cash.
(d) Reduction of long-term debt from balances
outstanding at June 2, 1996, used $1,181,000 of cash
which related principally to repayment of mortgage loan
on the manufacturing facility that houses the South
Koran subsidiary.
Current Working Capital Position:
At March 2, 1997, The Company had cash amounting to
$3,736,000, up by $3,324,000 from a balance of $412,000
at June 2, 1996. The Ratio of current assets to current
liabilities had increased to 3.8 to 1 from 1.3 to 1 at
June 2, 1996, and working capital had improved to
$14,434,000 from $3,754,000 during the same period..
As a result of the improved working capital situation,
management believes that the Company is better
positioned to pursue opportunities for growth and
profitability under its strategies and the prevailing
market conditions .
Impact of Recent Accounting Standard Changes
In October, 1995, the FASB issued SFAS No. 123,
Accounting for Stock-Based Compensation, which
establishes a fair-value-based method for financial
accounting and reporting for stock-based employee
compensation plans. However, the new standard allows
compensation to continue to be measured using the
intrinsic value-based method of accounting prescribed
by Accounting Principles Board Statement No. 25,
Accounting for Stock Issued to Employees, providing
that there were expanded disclosures. SFAS No. 123 is
effective in fiscal year 1997. The Company has elected
to continue to apply the intrinsic value-based method
of accounting for stock options.
Impact of Foreign Operations and Currency changes
Although products that were manufactured by Ault Korea
Corporation contributed a very significant portion of
total sales, conversion of the Won to US dollars had no
significant impact on profits because conversion rates
were relatively stable. Also, the Company is not
exposed to any significant currency exchange risk
related to its foreign manufacturing arrangements since
most transactions are conducted in US dollars.
Contracts that are in foreign currencies are not
significant in amounts at this time and therefore
exposure to currency exchange risk is minimal.
AULT INCORPORATED
PART II. OTHER INFORMATION
ITEM 1-3 Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The Company held a special meeting of shareholders on
February 11, 1997. The shareholders present in person
or by proxy voted their shares on matters presented at
the meeting as follows:
a) With respect to the proposal to amend the
Restated Articles of Incorporation of the
Company to increase the authorized number of
common shares to 10,000,000 common shares,
the shares present were voted as follows:
3,481,687 voted for the proposal; 55,375
voted against , and 9,736 abstained.
(b) With respect to the proposal to ratify and
approve the Company's 1996 Employee Stock
Purchase Savings Plan, the shares present
were voted as follows: 3,494,627
voted for the proposal; 41,736 voted
against; and 10,495 abstained.
ITEM 5 OTHER INFORMATION: Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Reference Title of Document Location
<C> <S> <S>
10.8 Agreement on Credit filed herewith
Facility
Part 1 Exhibits
11 Computation of Per Filed herewith
Share Earnings
27 Financial Data Filed Electronically
Schedule
</TABLE>
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter
ended March 2, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AULT INCORPORATED
(REGISTRANT)
<TABLE>
<S> <C> <C>
DATED: 4/14/97 /s/ Frederick M. Green
Frederick M. Green
President
Chief Executive Officer and
Chairman
DATED: 4/14/97 /s/ Carlos S. Montague
Carlos S. Montague,
Vice President
Chief Financial Officer, and
Controller
</TABLE>
EXHIBIT 10.8
LETTER LOAN AGREEMENT
January___,1997
Ault Incorporated
7300 Boone Ave. N.
Minneapolis, MN 55428
Attn: Frederick M. Green
RE: $2,000,000 Line of Credit and $300,000
Discretionary Term Loan
Dear Mr. Green:
Reference is made to that certain Financing
Agreement dated April 28, 1995 between Ault
Incorporated, a Minnesota corporation (the "Borrower")
and Republic Acceptance Corporation ("RAC") as amended
by a First Amendment to Financing Agreement, a Second
Amendment to Financing Agreement, a Third Amendment to
Financing Agreement and a Fourth Amendment to Financing
Agreement, and as assigned by RAC to First Bank
National Association (the "Lender") (as amended and
assigned, the "Prior Agreement"). This Letter Loan
Agreement (the "Agreement") is issued in replacement
and substitution of the Prior Agreement. All amounts
outstanding, if any, under the Prior Agreement as of
the date hereof, shall be deemed Advances (as defined
below) under this Agreement. The Lender agrees to make
(i) revolving advances ("Advances") to the Borrower, in
an aggregate amount outstanding from time to time of up
to the lesser of $2,000,000 or the Borrowing Base
(defined below), from now until October 1, 1997 under a
promissory note dated the date of this Agreement (as
the same may hereafter be amended, restated, extended,
renewed or otherwise modified from time to time, the
"Revolving Note"), and (ii) in its sole and absolute
discretion and without any commitment to do so, one or
more term loans of up to $300,000 in the aggregate,
(each a "Term Loan"). Each Term Loan shall be evidenced
by a term note dated the date of such Term Loan (as the
same may hereafter be amended, restated, or otherwise
modified from time to time, each a "Term Note") (the
Revolving Note and the Term Notes herein collectively
called the "Notes"). Each Term Note will be in the form
then in current use by the Lender for such fixed rate
installment obligations. Advances will be made, and
Term Loans may be made, upon the following terms and
conditions:
1.(a) The Term Loan and Advances. The Lender does not
have to make the any Advances until the
conditions of paragraph 6 have been satisfied.
The proceeds of the Advances will be the used by
the Borrower for its general business purposes.
All amounts outstanding under the Revolving Note will
bear interest at the rate or rates provided in the
Revolving Note. Term Loans may be made in the Lender's
sole and absolute discretion upon submission by the
Borrower of the information and documents required
under paragraph 7 below. Term Loans, if any, will bear
interest at a fixed rate determined on the date of the
Term Loan.
(b) Revolving Advances. The unpaid principal balance of
Advances outstanding at any time shall never exceed the
lesser of (a) $2,000,000, or (b) the Borrowing Base
(as defined below). The Lender does not have to make
any Advance if an Event of Default (as defined below)
has occurred, if the Lender has terminated its
commitment or such commitment has been automatically
terminated under this Agreement pursuant to paragraph
13 below or if any of the representations and
warranties in this Agreement would not be true if made
on the date of that Advance. The Borrower may prepay
all or a portion of the Revolving Note at any time,
without premium or penalty except as the Revolving Note
may otherwise provide. Amounts prepaid on the Revolving
Note may be reborrowed, within the limitations
specified above.
2. Borrowing Base. The Borrowing Base shall be equal
to SD% of Eligible Receivables. "Eligible
Receivables" means the book value of the
Borrower's accounts receivable, minus the sum of
(1) the book value of all receivables that remain
unpaid 90 days or more after the date of the
relevant invoice, plus (2) the book value of all
receivables due from officers, directors,
shareholders, partners, or affiliated
corporations, plus (3) the book value of all
receivables owed by debtors outside the United
States, plus (4) the book value of all receivables
owed by debtors 10% or more of the receivables
from which are otherwise ineligible, and excluding
all other accounts receivables or types of
accounts receivable the Lender may deem
ineligible. Any limitations on advances or
required prepayments relating to the Borrowing
Base shall be based on the latest borrowing base
certificate (described below) the Borrower shall
have delivered to the Lender.
3. Procedure for Advances. The Borrower may request
any Advance by telephone or in writing. The
Borrower agrees to repay each Advance, regardless
of whether the person requesting it was authorized
to do so. Each request for an Advance will be
deemed a representation by the Borrower that at
the time of such Advance and after giving effect
thereto, all conditions to Advances will be
satisfied.
4. Repayment. All amounts outstanding under the
Revolving Note shall be due and payable in full on
the earlier of October 1, 1997 or the date the
Lender terminates its commitment or such
commitment is automatically terminated under this
Agreement pursuant to paragraph 13 below. If the
principal balance of the Revolving Note at any
time exceeds the Borrowing Base, the Borrower
shall immediately prepay the Revolving Note by the
amount of that excess. Each Term Loan shall be
payable at the dates and in the amounts specified
in the Term Note evidencing that Term Loan. Term
Loans may be prepaid to the extent and upon the
terms, if any, set forth in the Term Notes.
5. Cleanup Period. For a Cleanup Period of 30
consecutive days during each calendar year the
Borrower shall pay in full the entire principal
balance of the Revolving Note and during such
period no Advances will be made.
6. Conditions. The Lender will not make a Term Loan
or the first Advance until the following
conditions have been satisfied:
a) The Lender shall have received the
Revolving Note substantially in the form
of Exhibit A hereto, duly executed by
the Borrower.
b) The Lender shall have received the
Security Agreement substantially in the
form of Exhibit B hereto, duly executed
by the Borrower. (The Security
Agreement, this Agreement and the Notes
are the "Loan Documents").
c) The Lender shall have received any
insurance certificates, stock
certificates, bonds, notes and other
documents required under any of the Loan
Documents, all in form satisfactory to
the Lender.
b) The Lender shall have received the
initial borrowing
base certificate completed as required.
e) The Lender shall have received the
following:
A certificate of good standing for
Borrower from the jurisdiction of
Borrower's incorporation.
An incumbency certificate for the
Borrower's officers.
A copy of the resolution of the Borrower's
Board of Directors authorizing those Loan
Documents executed by the Borrower and the
transactions contemplated hereby and thereby.
Each document listed above shall be certified to the
satisfaction of the Lender.
f) The priority and perfection of the
Lender's interest in any collateral
taken under the Loan Documents shall have been
established to the satisfaction of the Lender.
g) There shall not exist any Event of Default or
any event which, with the passage of time or
the giving of notice, would become an Event
of Default.
7. Additional Conditions for Term Loans. In addition
to the conditions set forth in paragraph 6. above,
the Lender will not make a Term Loan until the
following additional conditions have been
satisfied:
a) The Lender shall have received a Term Note
evidencing the requested Term Loan duly
executed by the Borrower.
b) The Lender shall have received a security
agreement in form and substance satisfactory
to the Lender duly executed by the Borrower
granting the Lender a security interest in
the equipment to be purchased with the
proceeds of such Term Loan together with any
financing statement the Lender may reasonably
request for perfection of the security
interest so granted.
SATISFACTION OF THE CONDITIONS OF THIS PARAGRAPH 7 DOES
NOT IN ANY WAY ALTER THE DISCRETIONARY NATURE OF THE
TERM LOANS. THE LENDER IS UNDER NO OBLIGATION TO MAKE
ANY TERM LOAN.
8. Presentations. The Borrower represents and
warrants to the Lender as follows:
a) The Borrower is a corporation duly organized,
validly existing and in good standing under
the laws of the State of Minnesota.
b) The Borrower's execution, delivery and
performance of this Agreement, the Notes and
the other Loan Documents have been properly
authorized by all necessary corporate action,
do not require governmental approval and do
not conflict with any agreement binding on
the Borrower or its property.
c) The Loan Documents have been properly
executed and constitute the Borrower's legal,
valid and binding obligations, enforceable
against the Borrower in accordance with their
terms.
d) The financial statements that the Borrower
has furnished to the Lender fairly represent
the Borrower's financial condition on the
date of those
statements and the results of the Borrower's
operations for the periods referred to in
those statements. Those statements were
prepared in accordance with generally
accepted accounting principles. There have
been no material adverse changes in the
Borrower's properties or financial condition
since the date of the latest statements.
e) There are no actions, suits or proceedings
pending or threatened against or affecting
the Borrower or the Borrower's properties
before any court or governmental agency.
f) All federal, state and local tax returns of
the Borrower required to be filed have been
filed and the Borrower has paid or made
provision for the payment of all taxes due
and payable pursuant to such returns and
pursuant to any assessments made against it
or any of its property.
g) The Borrower is in compliance with all
applicable requirements of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), and all rules and
regulations thereunder.
h) There are no security interests, mortgages,
encumbrances or other liens on any of the
Borrower's property except (i) as previously
disclosed to the Lender in writing, and
(ii) in favor of the Lender.
i) The Borrower is not in default under or in
violation of any law, statute, rule or
regulation, order, writ, judgment,
injunction, decree, determination or award or
any indenture, loan or credit agreement or
other agreement, lease or instrument in any
case in which the consequences of such
default or violation could have a material
adverse effect on the business, operations,
properties, assets or condition (financial or
otherwise) of the Borrower.
9. Reporting. The Borrower will not change its fiscal
year end from May 31, and will provide to the
Lender the following reports in a form acceptable to
the Lender:
a) The Borrower's annual financial statements
within 120 days after the end of each fiscal
year, audited by an independent certified
public accountant satisfactory to the Lender.
b) The Borrower's quarterly internally-prepared
financial statements within 30 days after the
end of each fiscal quarter, certified as
accurate by an officer of the Borrower.
c) A compliance certificate in the form attached
hereto as of the end of each month by the
thirtieth day of the following month.
d) Immediate notice of (i) any uninsured
litigation totaling over $50,000 or dealing
with the Loan Documents; (ii) any arbitration
or government investigation or development
(including notification of environmental or
pollution law violations) pending or
threatened that does or would materially
adversely affect the Borrower or its ability
to perform under this Agreement; (iii) any
Event of Default; or (iv) any reportable
event, prohibited transaction or impositions
of withdrawal liability under ERISA.
e) A borrowing base certificate in the form
attached hereto and an accounts receivable
aging in a form acceptable to the Lender.
Borrowing base certificates and agings shall
(i) be dated as of the last day of each month
and delivered to the Lender by the thirtieth
day of the next month and (ii) be dated as of
the date the Lender requests such a
certificate or aging and be delivered to the
Lender within 10 days of the Lender's request
therefor. Each borrowing base certificate
shall state the amount of Eligible
Receivables and the Borrowing Base as of the
end of
the previous month or the date of the
Lender's request, as appropriate. Each aging
shall be with respect to accounts receivable
as of the end of the previous month or the
date of the Lender's request, as appropriate.
f) From time to time, such other information
regarding the business, operation and
financial condition of the Borrower as the
Lender may reasonably request, including,
without limitation, an accounts payable
aging, upon request.
The financial statements described in clauses (a) and
(b) above shall be prepared in accordance with
generally accepted accounting principles, consistently
applied.
10. Other Affirmative Covenants. Unless the Lender
shall otherwise consent in writing, the Borrower
will:
a) Pay the Borrower's taxes (including payroll
and withholding taxes) when due.
b) Keep adequate and proper financial records,
and permit the Lender to examine those
records and inspect the Borrower's inventory
and other property, and discuss the
Borrower's affairs and finances with the
Borrower's officers, at any reasonable time.
Without limiting the generality of the
foregoing sentence, the Borrower shall pay
the costs of annual collateral audits by the
Lender or its agents.
c) Keep the Borrower's business adequately
insured in such amounts and against such
hazards as is customary in the case of
reputable organizations engaged in the same
or similar business and similarly situated,
and maintain the insurance required under any
other Loan
Document.
d) Maintain the Borrower's corporate existence
in good standing under the laws of the state
of Minnesota.
e) Maintain the Borrower's properties in good
condition, repair and working order.
f) Comply in all material respects with all
laws, rules and regulations to which the
Borrower may be subject.
g) When so requested by the Lender from time to
time, promptly cause any persons or entities
who have guaranteed the Borrower's
obligations under this Agreement or any part
thereof to execute and deliver to the Lender
reaffirmation's of their respective
guaranties in such form as the Lender may
require.
11. Negative Covenants. Unless the Lender shall
otherwise consent in writing, the Borrower will
not:
a) Grant any mortgage, security interest of any
other lien on any of the Borrower's assets
(including capitalized leases), or permit any
such lien to exist or continue, except for
(i) liens in the Lender's favor, (ii)
deposits or pledges to secure payment of
workers' compensation, unemployment
insurance, old age pensions or other social
security obligations and liens of carriers,
warehousemen, mechanics and materiaimen for
sums not due, in each case arising in the
ordinary course of business of the Borrower,
(iii) liens for taxes, fees, ssessments and
governmental charges not delinquent, (iv)
liens incurred or deposits or pledges made or
given in connection with, or to secure
payment of, indemnity, performance or other
similar bonds, (v) encumbrances in the nature
of zoning restrictions, easements and rights
or restrictions of record on the use of real
property and landlord's liens under leases on
the premises rented, which do not materially
detract from the value of such property or
impair the use thereof in the business of the
Borrower, (vi) capitalized leases provided
that the aggregate annual payments owed by
the Borrower under such capitalized leases do
not exceed $200,000, and (vii) purchase money
security interests, provided that, (A) the
debt secured thereby is otherwise permitted
by this Agreement and (B) such security
interests are limited to the property
acquired and do not secure debt other than
the purchase price of such property.
b) Borrow any money, or sign any promissory
note, except for loans from the Lender and
notes to the Lender, and indebtedness secured
by liens permitted under a) above.
c) Guarantee any obligations, except the
endorsement of checks for collection.
d) Invest in any other person or entity or hold
an investment other that (i) as presently
held in the Borrower's affiliates, if any,
(ii) investments in bank accounts, bank
certificates of deposit or bankers'
acceptances issued by any United States
commercial bank with a combined capital and
surplus and credit rating for unsecured
indebtedness satisfactory to the Lender,
(iii) commercial paper with the highest
rating by Moody's Investors Services of
Standard and Poor's or readily marketable
direct obligations of the United States
government (and repurchase agreements
relating to such securities), in each case
with a maturity or one year or less, and (iv)
travel advances to the Borrower's officers
and employees in the ordinary course.
e) Sell any of the Borrower's assets other than
inventory in the ordinary course of business.
f) Consolidate or merge with any other business,
acquire the assets of any other business or
liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution).
g) Engage in any line of business substantially
different from the Borrower's current
business.
h) Permit the Borrower's net after tax earnings
for any fiscal year to be less than $500,000
commencing with the fiscal year ending May
31, 1997.
i) Permit the ratio of liabilities (including
subordinated indebtedness) to tangible net
worth to be more than 1.0 to 1 at any time.
j) Pay any dividends or otherwise make any
distributions on, or redemption's of, any of
its outstanding stock.
"Tangible net worth" means net worth computed in
accordance with generally accepted accounting
principles less the book value of all intangible
items such as goodwill, trademarks, trade names,
service marks, copyrights, patents, licenses,
unamortized debt discount and expenses and the
excess of the purchase price of the assets of any
business acquired by the Borrower over the book
value of such assets and less any receivables due
from officers, managers, directors, shareholders,
partners, members or affiliated corporations or
other entities, the cost or value of any leasehold
improvements, or any organizational costs.
"Subordinated indebtedness" shall be any
indebtedness of the Borrower that is subordinated
to the Borrower's obligations to the Lender on
terms and conditions that have been reviewed by
and are satisfactory to the Lender. The other
accounting terms used above and elsewhere in this
Agreement shall be computed or
interpreted in accordance with generally accepted
accounting principles consistently applied.
12. Right to Charge Checking Account. The Borrower
authorizes the Lender to charge the Borrower's
checking account with the Lender for any amounts
due under the Notes.
13. Events of Default. Each of the following shall be
an Event of Default:
a) The Borrower shall fail to pay when due
(whether by acceleration or otherwise) any
amount owing on any Note or any other
indebtedness to the Lender that the Borrower
owes or has guaranteed and such failure shall
continue for more than the period of grace,
if any
applicable thereto.
b) The Borrower shall breach any of the
Borrower's other obligations under this
Agreement and such breach shall continue for
five days after the Lender gives the Borrower
notice thereof.
c) Any default shall occur under any security
agreement, mortgage or other document
securing any Note and such default shall
continue for more than the period of grace,
if any applicable thereto.
d) Any representation or warranty that the
Borrower has made under this Agreement or any
other Loan Document shall prove to have been
untrue when made.
e) The Borrower shall (i) become insolvent or
unable to pay its debts generally as they
mature; (ii) make a general assignment for
the benefit of creditors; (iii) admit in
writing its inability to pay its debts
generally as they mature; (iv) consent to the
appointment of a trustee or receiver for the
Borrower or for a substantial part of the
property thereof; (v)
have an order, judgment or decree entered
appointing, without its consent, a trustee or
receiver for the Borrower or for a
substantial part of the property thereof;
(vi) file a petition under the United States
Bankruptcy Code or any other state or federal
law relating to insolvency, reorganization,
receivership or relief of debtors; or (viii)
take any action for the purpose of effecting
or consent to any of the foregoing.
If (i) any Event of Default described in paragraph
13 e) shall occur with respect to the Borrower,
the Lender's commitment to make Advances under
this Agreement shall automatically terminate and
the Notes and all other obligations of the
Borrower to the Lender under this Agreement shall
automatically become immediately due and payable,
or (ii) upon occurrence of any other Event of
Default, the Lender may, without giving the
Borrower notice, declare the Lender's commitment
to make Advances under this
Agreement terminated and/or declare the principal
balance of the Notes and all accrued interest to
be immediately due, and, upon the occurrence of
the events described in either clause (i) or (ii)
of this sentence, the Lender may exercise any
other rights and remedies available to the Lender
by law or agreement. The Borrower hereby
irrevocably authorizes the Lender to set off all
sums owing by the Borrower to the Lender against
all deposits and credits the Borrower may have
with, and any claims the Borrower may have
against, the Lender at any time after an Event of
default occurs.
14. Fees and Expenses: Indemnity. The Borrower
agrees to pay all of the costs and expenses
incurred by the Lender in connection with the
negotiation, preparation, execution, perfection,
administration, amendment, or enforcement of this
Agreement and the other Loan Documents, including
attorney's fees and expenses and internal time
charges reasonably determined by the Lender for
lawyers employed by the Lender. The Borrower
agrees to indemnify the Lender, its employees,
agents and independent contractors from all
actions, losses, damages and expenses (including
attorneys' fees) arising out of or relating to
transactions under the Loan Documents, which
obligation survives the termination of this
Agreement and includes expenses and costs
associated with environmental and pollution laws
of any kind.
15. Miscellaneous.
a) If the Lender does not exercise some right the
Lender has against the Borrower, or if the
Lender delays in exercising a right, that does
not mean that the Lender gives up that right.
b) No Loan Document can be changed unless the
Lender signs a written amendment.
c) If any part of the Loan Documents is
unenforceable, the rest of their provisions
will still be enforceable.
d) The Lender may assign its rights or
obligations under the Loan Documents or grant
participation's therein at any time and share
information about the Borrower in connection
therewith, without the Borrower's consent.
e) Except when telephonic notice is expressly
authorized by this Agreement, any notice or
other communication to any party in connection
with this Agreement shall be in writing and
shall be sent by manual delivery, telegram,
telex, facsimile transmission, overnight
courier or United States mail (postage
prepaid) addressed to the Borrower at the
the address above and to the Lender at the
address on the signature page hereof, or at
such other address as such party shall have
specified to the othe party hereto in writing.
All periods of notice shall be measured from
the date of delivery thereof if manually
delivered, from the date of sending thereof if
sent by telegram, telex or facsimile
transmission, from the first business day
after the date of sending if sent by overnight
courier, or from four days after the date of
mailing if mailed; provided, however, that any
notice to the Lender regarding Advances or
rates of interest shall be deemed to have been
given only when received by the Lender.
f) This Agreement and the other Loan Documents
constitute the entire agreement between the
Lender and the Borrower with respect to the
subject matter hereof and thereof. This
Agreement takes the place of any
conversations, oral agreements and commitment
letters or other letters between the Lender
and the Borrower. This Agreement amends,
restates, supersedes and replaces the Prior
Agreement. The security agreement between the
Borrower and RAC dated April 28, 1995 as
assigned to the Lender remains in full force
and effect and secures all amounts and
obligations under this Agreement, except that
the Lender hereby releases its security
interest thereunder on all collateral except
accounts, contract rights and all other
rights to payments as set forth in Section
I(a) of such security agreement, and all
proceeds thereof.
g) This Agreement shall be binding upon the
Borrower, its successors and assigns (except
that the Borrower may not assign its rights
or delegate its obligations hereunder or
under the other Loan Documents without the
prior written consent of the Lender) and upon
the Lender and its successors and assigns and
shall inure to the benefit of, and be
enforceable by, the Lender and its
successors, transferees and assigns and also
by any person or entity to whom ail or any
part may be sold or transferred; provided.
however, that in the event such sale or
transfer covers only part of the Lender's
interest, the Lender shall have the right to
enforce this Agreement as to the remainder
retained and owned by the Lender.
16. Governing Law and Construction. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT
AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING
EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT
GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS.
17. Jurisdiction. AT THE OPTION OF THE LENDER, THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE
ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN OR RAMSEY COUNTY,
MINNESOTA; AND THE BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND
WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS
NOT CONVENIENT. IN THE Event THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR
VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING
DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP
CREATED BY THIS AGREEMENT, THE LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND
VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO
HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
18. Waiver of Jurv Trial. EACH OF THE BORROWER AND THE
LENDER
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY.
Agreement by signing the enclosed copy of this letter
and returning it to the undersigned.
Very truly yours,
FIRST BANK NATIONAL ASSOCIATION
By
Address:
2383 University Ave.
St. Paul, MN 55114
Fax: (612) 647-3530
Accepted this day of
,199
BORROWER:
Ault Incorporated
By
Its
Ault Incorporated
Borrowing Base Certificate for the period ended
,199
This Borrowing Base Certificate is delivered in
accordance with the Letter Loan Agreement dated as of
January , 1997 between First Bank National
Association (the "Lender") and Ault Incorporated ("the
Borrower"). Capitalized terms used herein which are
defined in the Loan Agreement shall have the meanings
set forth for such terms therein. All amounts are as
of the date shown above except as otherwise stated
herein.
I certify that the following amounts were
correctly determined according to the Loan Agreement:
Total Receivables $ (A)
Receivables 90 + Days $
Affiliated receivables $
Foreign receivables $
10% Rule $
Other ineligible $
Total Ineligible $ (B)
Eligible Receivables (A)-(B) $ (C)
Receivables Base (80% of (C)) $ (D)
Maximum Amount of Advances $2,000,000 (E)
Outstanding Advances $ (F)
Availability: Lesser of(D) or(E) minus
minus (F) $ (G)
I hereby certify that all payroll and unemployment
taxes are current as of this date.
For the purpose of inducing the Lender to extend
credit to the Borrower pursuant to the Loan Agreement,
the Borrower hereby certifies that the foregoing
information is true and correct in all respects. The
Borrower further certifies that all amounts outstanding
under the Revolving Note were properly authorized for
the benefit of the Borrower and constitute obligations
of the Borrower in accordance with the terms of the
Loan Agreement. The Borrower further certifies that no
circumstances or conditions exist at the date of the
Borrowing Base Certificate which constitutes an event
of Default.
Ault Incorporated
By:
Name:
Title:
Dated: 199
Ault Incorporated
Compliance Certificate for the period ended ,199
This Compliance Certificate is delivered in
accordance with the Letter Loan Agreement dated as of
January , 1997 between First Bank National Association
(the "Lender") and Ault Incorporated (the "Borrower").
Capitalized terms used herein which are defined in the
Loan Agreement shall have the meanings set forth for
such terms therein. All amounts are as of the date
shown above except as otherwise stated herein.
I certify that the following amounts were
correctly determined according to the Loan Agreement:
Covenant Compliance ACTUAL
Net Earnings after Taxes (minimum $500,000
as of May31, 1997)
Liabilities To Tangible Net Worth
(max. 1.0 : 1)
I hereby certify the actual status of the above
agreed upon loan covenants as of this date.
For the purpose of inducing the Lender to extend
credit to the Borrower pursuant to the Loan Agreement,
the Borrower hereby certifies that the foregoing
information is true and correct in all respects. The
Borrower further certifies that all amounts outstanding
under the Notes were properly authorized for thebenefit
of the Borrower and constitute obligations of the
Borrower in accordance with the terms of the Loan
Agreement. The Borrower further certifies that no
circumstances or conditions exist at the date of
the Compliance Certificate which constitute an Event of
Default.
Ault Incorporated
By:
Name:
Title:
Dated: 199
Exhibit A to Letter Loan
Agreement
PROMISSORY NOTE
$2,000,000 January 1997
FOR VALUE RECEIVED, AULT INCORPORATED (the
"Borrower") hereby
promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Lender") the principal sum of TWO
MILLION AND NO/100 DOLLARS
($2,000,000) or, if less, the unpaid principal of all
amounts advanced hereunder, together with interest
(calculated on the basis of actual days elapsed and a
year of 360 days) on the unpaid principal balance
hereof at the rate or rates set forth below.
Payments will be made to the Lender at its office at
St. Paul, Minnesota or at such other place as the
Lender may from time to time hereafter designate to the
Borrower in writing in immediately available, lawful
money of the United States of America.
INTEREST RATE
The unpaid principal balance hereof from time to time
outstanding shall bear interest at a floating rate per
annum equal to the "Reference Rate" of the Lender. In
the event of any changes in the Reference Rate, the
rate applicable hereto shall change effective as of
such change in the Reference Rate. The Reference Rate
is the
rate publicly announced by the Lender from time to time
as its Reference Rate; the Lender may lend to its
customers at rates that are at, above or below the
Reference Rate.
Upon the happening of any Event of Default the unpaid
balance of this Note shall, at the option of the
Lender, thereafter bear interest until paid in full at
a rate per annum equal to the rate of interest
applicable immediately prior to such Event of Default
plus 2.0%.
PROCEDURE FOR ADVANCES
Until the final maturity of this Note, the Borrower may
from time to time request an advance (an "Advance")
hereunder (in minimum amounts of $10,000 or integral
multiples thereof) and repay and, upon repayment,
reborrow, provided that the aggregate unpaid principal
amount f all Advances hereunder shall never exceed
$2,000,000 at any time. In order to request an Advance
hereunder the Borrower shall give the Lender written
notice of the requested Advance which must be received
by the Lender not later than 10:00 a.m. local time on
the date of the requested Advance. In giving such
notice the Borrower shall specify the amount and the
date for the requested Advance. The Lender shall not be
obligated to make any Advance hereunder at any time
when any Event of Default, or any event which with the
passage of time or the giving of notice, or both, would
become an Event of Default, exists. The making of any
Advance shall also be subject to the terms, conditions
and limitations of the Loan Agreement (defined below),
and in the case of any conflict between the terms of
this Note and the Loan Agreement with respect to the
making of any Advance, the terms of the Loan Agreement
shall prevail.
REPAYMENT
The principal hereof is payable in full on October
1,1997.
Interest shall be payable monthly in arrears on the
first day of each month commencing February 1, 1997,
and at final maturity.
This Note may be prepaid by the Borrower at any time in
whole or from time to time in part (in minimum partial
payments of at least $10,000) without premium or
penalty. Any prepayment shall be applied first against
accrued and unpaid interest and the balance shall be
applied to principal.
PAYMENT DATES
The Lender is authorized to charge any account the
Borrower maintains with the Lender for payment of any
amount owing on this Note when due. Whenever any
payment to be made on this Note shall be stated to be
due on a Saturday, Sunday or legal holiday, such
payment shall be made on the next succeeding business
day and such extension of time, in the case of a
payment of principal, shall be included in the
computation of any interest on such principal payment.
OTHER AGREEMENTS
This Note is issued pursuant to a Letter Loan Agreement
of even date herewith(as the same may hereafter be
amended, modified or supplemented, or any agreement
entered into in substitution or replacement thereof,
the "Loan Agreement") between the Borrower and the
Lender and is secured pursuant to a Security Agreement
of even date herewith, as well as other security
agreements (as the same may hereafter be amended,
modified or supplemented, or any agreement entered into
in substitution or replacement therefor, the "Security
Agreement") given by the Borrower to the Lender.
EVENTS OF DEFAULT: REMEDIES OF LENDER
The occurrence of any one or more of the following
events shall constitute an Event of Default, and upon
the occurrence of any Event of Default the Lender may
declare this Note to be, and the same shall forthwith
become, immediately due and payable and the Lender may
exercise all rights and remedies under the Loan
Agreement and theSecurity Agreement and as may
otherwise be allowed by law:
(a) The Borrower shall fail to make any payment of
principal or interest hereon when due.
(b) The Borrower shall fail to comply with any other
term of this Note.
(c) Any default shall occur under the terms of the
Loan Agreement or the the Security Agreement and
shall continue for more than the period of
grace, if any, applicable thereto.
If any Event of Default occurs the Borrower agrees
to pay all costs of collection, including attorneys'
fees, and the Lender shall have the right to set off
any indebtedness of the Lender to the Borrower against
the indebtedness on this Note.
OTHER TERMS
This Note cannot be amended or modified, or any
provisions hereof waived, except pursuant to a writing
signed by the Lender. The Lender does not, by failing
to exercise or delaying in exercising any right against
the Borrower give up that right. The Lender has no
obligation to renew or extend this Note. If part of
this Note is unenforceable, the rest of it will still
be enforceable. The Lender may assign this Note or
grant participations herein at any time without the
Borrower's consent and share information about the
Borrower in connection therewith.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT
OF LAWS PRINCIPLES THEREOF BUT GIVING EFFECT TO FEDERAL
LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
AT THE OPTION OF THE LENDER THIS NOTE MAY BE ENFORCED
IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING
IN HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH
COURT AND WAIVES ANY
ARGUMENT THAT THE VENUE IN SUCH FORUMS IS NOT
CONVENIENT. IF THE BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR
CONTRACTTHEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS NOTE, THE LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-
DESCRIBED, OR, IF SUCH TRANSFER CANNOT BE ACCOMPLISHED
UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED
WITHOUT PREJUDICE.
EACH OF THE BORROWER AND THE LENDER, BY ITS ACCEPTANCE
OF THIS NOTE, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THISNOTE OR THE TRANSA~IONS CONTEMPLATED
HEREBY.
The Borrower hereby waives presentment for payment,
notice of dishonor, protest and notice of protest.
AULT INCORPORATED
By
Title
AULT INCORPORATED & SUBSIDIARY
CALCULATIONS OF CONSOLIDATED EARNINGS PER SHARE
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
March 2, Feb 25,
1997 1996
<S> <C> <C>
Primary Earnings Per Common Share:
Net Income $1,137 $532
Average Shares of Common Stock and
Equivalent Outstanding:
Common Shares Beginning of
Period 2,119,776 2,083,776
Sale Of Common Shares by Public
Offering, Weighted 529,230
Common Shares From Warrants
Granted to Underwriters,
Weighted 4,904
Common Shares From Exercise of
Options Weighted 17,608 13,000
Additional Outstanding Common Shares
From Fully Dilutive Options,
Weighted 343,466 116,828
Total 3,014,984 2,213,604
Net Earnings Per Share Of Common
Stock $0.37 $0.24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARAY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 2 THRU 4 OF THE COMPANY'S FORM 10-Q FOR THIRD QUARTER ENDED 03-30-97 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-01-1997
<PERIOD-START> DEC-02-1996
<PERIOD-END> MAR-02-1997
<CASH> 3736
<SECURITIES> 0
<RECEIVABLES> 8383
<ALLOWANCES> 97
<INVENTORY> 6686
<CURRENT-ASSETS> 19604
<PP&E> 9739
<DEPRECIATION> 6444
<TOTAL-ASSETS> 23332
<CURRENT-LIABILITIES> 5170
<BONDS> 0
0
0
<COMMON> 17661
<OTHER-SE> (191)
<TOTAL-LIABILITY-AND-EQUITY> 23332
<SALES> 28504
<TOTAL-REVENUES> 28504
<CGS> 21167
<TOTAL-COSTS> 21167
<OTHER-EXPENSES> 5427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 453
<INCOME-PRETAX> 1457
<INCOME-TAX> 320
<INCOME-CONTINUING> 1137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1137
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
