SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to _________________
Commission file number 0-935
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BELL NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
California 94-1451828
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
4209 Vineland Road, Suite J-1, Orlando, FL 32811
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (407) 849-0290
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
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. [ X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
Company as of March 8, 1996 was $581,000 based upon the average bid and asked
prices of shares of the Company's common stock, no par value per share ("Common
Stock"), of $0.125 per share as reported in the Electronic Bulletin Board. The
number of shares of Common Stock outstanding at March 8, 1996 is 5,283,114.
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PART I
ITEM 1. BUSINESS
General
Bell National Corporation ("Bell National" and together with its subsidiaries,
the "Company") was incorporated in California on October 1, 1958. Through 1985,
its principal subsidiary was Bell Savings and Loan Association ("Bell Savings"),
a state chartered savings and loan association. On July 25, 1985, the Federal
Home Loan Bank Board appointed the Federal Savings & Loan Insurance Corporation
("FSLIC") as receiver of Bell Savings. At the same time, the assets of Bell
Savings were transferred to a new, unrelated, federally chartered mutual savings
and loan association, Bell Federal. The FSLIC's appointment followed shortly
after a determination that Bell Savings had a negative net worth. On August 20,
1985, Bell National filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. A Plan of Reorganization (the "Plan") was approved by the
Bankruptcy Court, and became effective June 29, 1987.
After emerging from bankruptcy proceedings in June 1987, and after a vote by
shareholders to continue the operations of Bell National in October 1988, the
Company reached an agreement ("Stock Purchase Agreement") with Milley Management
Incorporated ("MMI"), a private investment firm, in 1989 whereby Bell National
sold to a group of private investors Common Stock totaling approximately 41% of
the outstanding voting shares on a fully diluted basis.
On June 15, 1990, Bell National purchased 100% of the common stock of Payne
Fabrics, Inc. ("Payne"), a designer and distributor of decorative drapery and
upholstery fabrics, for a purchase price of $6,493,000 and the issuance of stock
appreciation rights. Bell National's other wholly owned subsidiaries, Bell
Savings and Pacific Coast Holdings Insurance Company, have no operations or any
significant assets or liabilities.
Payne Business Summary
Payne, a designer and distributor of high quality fabric and wall coverings
since 1865, sells to the home furnishing industry. The Company's products
include printed and plain textured drapery fabric, woven upholstery fabric,
sheer-casement window fabrics, trimmings and wallpaper. The selection, design
and distribution of decorative cut fabrics comprise approximately 90% of the
Company's annual revenues. The Company also custom manufactures draperies and
bedding items primarily for institutions; these sales represent the remaining
10% of total revenue.
Payne keeps in stock more than 7,100 different fabrics, composed of as many
as 1,520 patterns, of which roughly half represent exclusive Payne designs. Most
patterns are produced in four to five color combinations. Payne's fabrics
reflect classical and traditional patterns adapted to
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contemporary color combinations and weave blends. The Company's product line
offers the decorator the ability to purchase fabric from a single source.
The Company introduces approximately twenty collections, composed of 1,500
fabrics, or 20% of its product line each year in its fall and spring fabric
introductions. Each fabric collection is organized around a common theme which
is generally built upon in subsequent introductions as well as being designed to
coordinate with other collections. The Company believes that its current number
of fabrics and patterns represent an appropriate product mix for its targeted
markets, the medium and upper price ranges, of the decorative cut fabric market.
The Company plans to maintain its current level of patterns by retiring
approximately the same number of patterns that it introduces each year in its
semiannual collections. To facilitate the inventory reductions, the Company
maintains an outlet store in Dayton, Ohio where remnant fabric pieces of less
than five yards and obsolete inventory are sold.
Payne focuses the price range of its products on the medium and high end of the
market which represents approximately 60% of the entire decorative fabric
market. Approximately 70% of the Company's fabric patterns are considered to be
in the medium price range, with the remaining 30% in the upper price range.
Payne's line is primarily targeted to interior designers. Interior designers are
generally independent individuals whose taste and quality requirements can only
be met with a unique high-quality fabric or wall covering. Payne currently
services 12,000 U.S. based designers through a network of independent agents,
independent mini-show rooms, company show rooms and company sales
representatives. Payne's other major customers are hospitality and institutional
agencies such as hotels, universities, government agencies and similar
organizations responsible for facilities maintenance and decoration. Printed
fabrics are also supplied to top quality furniture manufacturers for their
production needs.
The Company markets its products principally through the use of four Company
leased showrooms (including one located at the Company's Dayton facility), as
well as sixteen U.S. and six foreign independent agent showrooms. The Company's
leased showrooms feature Payne's fabric exclusively, whereas the independent and
mini showrooms, which are operated by the Company's sales agents, display other
fabric lines in addition to those of the Company. The Company believes that it
is the dominant line for each of the independent showrooms, with the exception
of those in Boston, Seattle, San Francisco and Los Angeles. In these showrooms
it is the secondary line, after three fabric companies with products positioned
in a higher price segment than the Company. Payne's showrooms are supported by
nine Company salaried sales people and twenty-one independent commissioned sales
agents.
The following sets forth Payne's sales by major product category for 1995, 1994
and 1993, respectively: Upholstery fabrics accounted for 29.0%, 32.5% and 33.0%
of Payne's sales. The decrease in the upholstery sales percentage was due to an
increase in trim sales, while upholstery sales declined slightly. Drapery fabric
represented 30.5%, 29.7% and 30.6% of Payne's sales in 1995, 1994 and 1993,
respectively. The slight increase in 1995 drapery fabric sales is the result of
the Company's emphasis on adding new institutional customers to replace the loss
in residential
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customers. The 1994 decrease in sales of drapery fabrics represents a
continuing trend by consumers and decorators in the residential market toward
"hard" window treatments such as mini blinds, window shades and a change in
distribution from decorators to retail fabric discount stores. Supplies,
consisting of trim, rods, etc., represented 16.2%, 15.7% and 14.4% in 1995, 1994
and 1993, respectively. The increase in the percentage of trim sales is
attributable to customer acceptance of the product and decreasing sales of
upholstery and draperies. A wider range of products and variety offered by Payne
accounts for the increased trim sales.
Sources of Raw Materials
Many of Payne's fabrics, wall coverings and woven fabrics are designed at its
New York City design studio and are exclusive to Payne. Other fabrics sold by
Payne are licensed under exclusive arrangements with independent designers.
Product offerings are contracted for manufacture by a network of independently
owned printing and weaving mills primarily located in the United States and
Europe. Occasionally product is also provided from sources in Africa, Asia, as
well as Central and South America.
Payne's fabrics are printed by a variety of processes, such as hand-screening
and rotary printing. The type of process used in the printing of a fabric is the
major determinant of the cost of the product, the quality of the print design
and the color schemes employed. The hand-screening process is typically used for
the more expensive fabric products, as it gives a finer design and color imprint
than is possible with a rotary printer.
The Company is not dependent on any one single source for the manufacture of its
fabric or the printing of its designs. Sourcing of product from outside of the
U.S. is subject to fluctuations in foreign currency exchange rates.
Licenses
The Company has exclusive copyrights on all designs developed in its New York
City studio. In addition, the Company obtains exclusivity on the sale of certain
Company selected designs from the manufacturers. Although not evidenced by
written agreements these manufacturers, by industry standards, have maintained
exclusivity until notified otherwise by the original exclusive distributor.
Seasonality
New product has traditionally been introduced in semi-annually in periods
referred to as the spring and fall introductions because the timing has roughly
coincided with these seasons. Sample lengths and books are produced to meet
these introduction periods. The Company's sales have generally not been subject
to significant seasonality fluctuations.
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Customers
The Company's business is not dependent upon any single customer. The average
customer sale is approximately three hundred dollars.
Competitive Conditions
Because the Company has the exclusive copyright, contract or exclusivity
arrangements on the designs that it markets, there is no direct competition for
the sale of those designs. However there are numerous competitors who market
different fabric designs in the medium to high price range categories and are
therefore in competition with the Company for a share of the decorative fabric
market.
The Company's designs are influenced by current fashion, home furnishing
lifestyles and consumer trends. The process from design inception to actual
production takes approximately eighteen months. The Company believes that after
production, six months are required before it can begin to determine a product's
degree of success or failure.
The long time frame necessary for the design of exclusive fabrics gives rise to
a greater risk of obsolescence for these products. Since Payne has to guarantee
minimum order commitments from its source mills before it receives any market
feedback on its product line, it runs the risk that it may misjudge the market,
thus creating an exclusive product for which there may be little demand and for
which it will have to hold significant inventory. When the fabric is not
exclusive to Payne, reorder of open stock fabrics directly from its milling
source alleviates the requirement that it carry the product in its own
inventory.
Employees
As of December 31, 1995, the Company had a total of 89 full and part time
employees (including officers). None of the employees are represented by a
union.
Environmental
Management believes that environmental compliance will have no material effect
on capital expenditures, earnings and competitive position.
ITEM 2. PROPERTIES
Payne's leased facilities in Dayton, Ohio serve as their principal offices,
storage and distribution facility, as well as housing an outlet store and a
showroom. Payne's facility in Dayton includes a workroom where customer
specified draperies and window appointments can be custom built. Bell National
rents office space for its corporate headquarters in Orlando, Florida from
Milley Management Incorporated. The Chairman of the Company is the President,
Chairman and
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majority shareholder of Milley Management Incorporated. In addition, certain of
the other officers of the Company are also officers of Milley Management
Incorporated.
Payne also leases a New York City design studio. In addition, Payne leases
various showroom facilities at which its product line is displayed. The
showrooms are located in strategic cities that have provided strong acceptance,
or potential acceptance, of Payne's line. Whenever possible, the showrooms are
located in design centers that various furniture, fabric and design companies
also use to display their goods and services. Designers, Payne's principal
customers, often use these centers as a "one stop" approach to shopping for
their needs. Location in these design centers provide Payne's line with maximum
exposure to its principal customers. Loss of Payne's current locations, or
inability to locate new facilities could negatively impact sales volume in the
affected region. With the exception of these design center showrooms, facilities
relocation would not affect the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party
or of which any of their property is subject nor are there any proceedings known
to be contemplated by government authorities against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is presently no established public trading market for the common stock of
the Company and trading activity is limited. The following dealers have
indicated an interest in trading the stock on the Electronic Bulletin Board:
Wedbush Securities, Inc.; Troster Singer Corporation; and Carr Securities
Corporation.
Holders
As of March 8, 1996 there were approximately 1,075 holders of record of Bell
National's common stock.
Dividend History
Bell National does not pay a cash dividend and is not allowed to pay a dividend
under term of its credit agreement with Bank One, Dayton, National Association.
In the absence of such an agreement, it is likely that Bell National would
retain its earnings for use in the development of its business.
Stock Transfer Agent
The Company's stock transfer agent is Continental Stock Transfer and Trust Co.,
2 Broadway, New York, New York 10004. (212) 509-4000.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data is derived from, and qualified by reference, to the
audited Financial Statements and Notes included elsewhere in this Annual Report
on Form 10-K.
The following table sets forth the selected financial data as of the dates shown
and for the periods shown:
Balance Sheet Data (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $ 7,910 $ 7,505 $ 7,298 $ 7,596 $ 7,621
Notes Payable 3,042 2,921 3,139 4,019 4,153
Stockholders' Equity 1,574 1,526 1,203 1,005 980
</TABLE>
Statement of Operations Data (dollars in thousands except per share amounts):
Years Ended December 31,
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1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net sales $ 13,653 $ 13,877 $ 14,107 $ 14,000 $ 13,715
Operating income 469 675 643 463 188
Net income (loss) before
extraordinary item 48 177 198 25 321)
Net income (loss) after
extraordinary item 48 320 198 25 (321)
Net income (loss) per share
before extraordinary item .01 .03 .04 -- (.06)
Net income (loss) per share
after extraordinary item .01 .06 .04 -- (.06)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues and Expenses See Note 1 to the Consolidated Financial Statements for
background on the Company. The Company's 1995, 1994 and 1993 revenues and
expenses result from the operation of Payne, which was acquired in June 1990.
The Company's 1995 sales were $13,653,000 compared to sales of $13,877,000 in
1994. The 1995 sales decrease of $224,000 was attributable to decreased sales of
drapery and upholstery fabrics partially offset by increased drapery
fabrications sales. Gross profit decreased $328,000 from $6,854,000 in 1994 to
$6,526,000 in 1995. The decrease in gross profit was due to the sales volume
decrease and a 1.6% decrease in the gross profit percentage from 49.4% in 1994
to 47.8% in 1995. This is identifiable to the loss of high margin drapery and
upholstery fabric sales somewhat replaced with the lower margin drapery
fabrication sales. Selling, general and administrative expenses decreased
$122,000 from $6,179,000 in 1994 to $6,057,000 in 1995. The decrease was
identifiable to decreased stock appreciation rights accruals and decreased
sample book amortization expense partly offset by increased sample length
expense. During 1995 sample book amortization decreased as a result of a
decrease in the total expenditures for deferred sample books during the three
year period ended December 31, 1995 as compared to the three year period ended
December 31, 1994. The increased sample length expense in 1995 over 1994
reflects the larger number of new products introduced year to year. As a result
of the decrease in gross margin offset by a decrease in selling, general and
administrative expense, operating income decreased by $206,000. The decrease in
sales in 1995 reflects continuing weakness in the fabric market. Management
believes that significant earnings growth is dependent upon an increase in
sales. In comparison to prior years, both 1995 and 1994 sales are down.
Interest expense increased $39,000 from $308,000 in 1994 to $347,000 in 1995 due
mainly to the higher average debt balance in 1995. The provision for taxes
decrease $117,000 to $29,000 in 1995 from $146,000 in 1994 due to the lower
reported profit in 1995. Taking into account these items, 1995 income before
extraordinary items was $48,000 in 1995, down $129,000 from 1994 income before
extraordinary items of $177,000. In 1994 there was an extraordinary gain of
$143,000, net of taxes, due to the retirement of the senior subordinated note.
After taking this into account the net income in 1995 of $48,000 is down
$272,000 from 1994 net income of $320,000. 1995 earnings per share were $0.01
versus $0.06 in 1994, however 1994 earnings per share included $0.03 from the
non-recurring extraordinary item. Earnings per share before extraordinary items
in 1995 were $0.01 versus $0.03 in 1994.
The Company's 1994 sales were $13,877,000 compared to sales of $14,107,000 in
1993. The sales decrease of $230,000 was attributable to a combined decrease in
sales of drapery and upholstery fabrics along with a decrease in wallpaper
fabrics. Gross profit decreased $148,000 in 1994 from $7,002,000 in 1993 to
$6,854,000 in 1994. The decrease in gross profit was due to a combination of the
sales volume decrease and a 0.2% decrease in the gross profit percentage from
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49.6% in 1993 to 49.4% in 1994. Selling, general and administrative expenses
decreased $180,000 from $6,359,000 in 1993 to $6,179,000 in 1994. The decrease
was almost entirely due to the drop is Payne's selling expenses of $344,000
consisting of a decrease in sample book amortization and lower showroom rent due
to renegotiated lease terms. During 1994, sample book amortization decreased as
a result of a decrease in expenditures for deferred sample books during the
three year period ended December 31, 1994 as compared to the three year period
ended December 31, 1993. The decrease in Payne's selling expense was partially
offset by an increase in the corporate general and administrative expense of
$180,000 due mainly to the increase in expense related to the SAR's accrual. As
a result of the decrease in gross margin offset by a decrease in selling,
general and administrative expense, operating income increased by $32,000. The
company will continue to attempt to reduce costs but does not anticipate being
able to find additional cost savings of the same magnitude in the future. The
slight decrease in sales in 1994 and the continuing flat sales over the last few
years reflects the continuing weakness in the fabric market.
Furthermore interest expense decreased by $112,000 from $420,000 in 1993 to
$308,000 in 1994 due mainly to a decrease in the subordinated debt interest as a
result of the May 1994 prepayment partially offset by a $10,000 increase in bank
interest. The provision for taxes increased by $132,000 from $14,000 in 1993 to
$146,000 in 1994. This increase is a result of higher pre-tax income and a
higher effective tax rate in comparison to 1993. Management has taken a
conservative approach to reporting income taxes in the financial statement by
eliminating the utilization of Federal net operating loss benefit carryforwards
from the income tax provision calculation. As a result of the above, the Company
recorded net income before the extraordinary item in 1994 of $177,000 ($0.03 per
share) compared to a net income in 1993 of $198,000 ($0.04 per share). During
1994, the Company prepaid the senior subordinated note with a face value of
$600,000 for $570,000, which was the book value net of the discount at the
closing date. In connection with the prepayment, the holder of the note forgave
all unpaid interest totaling $252,000 as of December 31, 1993. As a result of
the interest forgiveness, the Company recorded an extraordinary item of $143,000
(net of $109,000 of tax). Earnings after this extraordinary item in 1994 were
$320,000 or $.06 per share.
The Company's 1993 sales were $14,107,000 compared to sales of $14,000,000 in
1992. The sales increase of $107,000 was mainly attributable to an increase in
sales of woven cut fabric used for furniture coverings and sales by Payne of
fabric under a license and distribution agreement partially offset by a decline
in wall covering and drapery fabric. Gross profit increased $76,000 in 1993 from
$6,926,000 in 1992 to $7,002,000 in 1993. The increase in gross profit was due
to the sales volume increase and a .1% increase in the gross profit percentage
from 49.5% in 1992 to 49.6% in 1993. Selling, general and administrative
expenses decreased $104,000 from $6,463,000 in 1992 to $6,359,000 in 1993 due to
personnel related expense reductions.
As a result of the increase in gross margin and the decrease in selling,
general and administrative expenses, operating income increased by 39% or
$180,000 in 1993. Furthermore interest expense decreased by $25,000 from
$445,000 in 1992 to $420,000 in 1993 due to a decrease in the average bank debt
balance somewhat offset by an increase in subordinated debt interest due to the
effect of the penalty rates on late payments of interest. As a result of the
above, the Company
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recorded net income in 1993 of $198,000 ($0.04 per share) compared to a net
income in 1992 of $25,000 ($0.0 per share).
The Company has a remaining Goodwill balance net of amortization of $683,000 and
$703,000 at December 31, 1995 and 1994. The Company believes this asset is
fairly valued and continues to amortize it over a 40 year period. A
determination contrary to this would require that the amortization period be
shortened and profitability effected by an adjustment which could be as much as
the then remaining balance. In the unlikely event of such an occurrence certain
financial covenants of the Company's Revolving Agreement (see below) would
likely be violated.
The Company is not a party to any derivative or interest swap agreement.
LIQUIDITY AND CAPITAL RESOURCES
Available Resources. The Company's consolidated unrestricted cash position at
December 31, 1995 and December 31, 1994 was $0. The Company has instituted a
cash management system whereby the net cash generated by operations is
immediately used to reduce bank debt. The immediate reduction of outstanding
debt provides the Company with a greater reduction in interest expense than
could be offset with interest income from alternative investments. In the
absence of the Agreement requiring such a system, the Company would continue to
use excess funds to immediately reduce bank debt. A review of the financial
statements, summary data, working capital and discussion of liquidity must take
into consideration that the Company does not maintain any cash balances in any
of its accounts by design. Working capital needs, when they arise, are met by
daily borrowings.
During 1995, the Company had cash flow from operations before working capital
changes of $1,099,000. Working capital and other changes increased cash flow by
$638,000 resulting in cash flow provided by operating activities of $1,737,000.
The cash flow from operations and net borrowings under the bank credit
facilities of $121,000 funded the spending for sample books of $1,727,000,
property and equipment of $76,000, payment of deferred debt commitment fees of
$52,000 and capital lease obligations of $3,000. On May 17, 1995 the Company
entered into a new credit agreement (see below). Through May 17, 1995 the
Company made scheduled monthly installment payments totaling $275,000 and
borrowed $346,000 on the revolver loan facility with Bank of America, Illinois.
On May 17, 1995 the Company borrowed $2,992,000 under its new credit agreement
with Bank One, Dayton, N.A. to extinguish the then existing debt with Bank
America, Illinois. The Company thereafter made scheduled quarterly installment
payments totaling $200,000 and borrowed $250,000 on the new revolving loan
facility. The increase in 1995 working capital was due primarily to decreases of
$390,000 in inventory and increases of $312,000 in accounts payable.
During 1994, the Company had cash flow from operations before working capital
changes of $1,444,000. Working capital and other changes decreased cash flow by
$401,000 resulting in cash flow provided by operating activities of $1,043,000.
The cash flow from operations and net borrowing on the bank credit facility of
$338,000 funded the spending for sample books of
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$784,000, property, plant and equipment of $24,000, the prepayment of the
senior subordinated note in the amount of $570,000 and the payment of capital
lease obligations of $3,000. The net borrowing on the bank credit facility
consisted of scheduled monthly installment payments totaling $645,000 on the
term loan facility, plus the increase in the term facility of $570,000, to
prepay the senior subordinated note, and an increase in the revolver loan
facility of $413,000. During 1994, working capital decreased primarily due to an
increase in inventory of $605,000 due to the receipt of the spring line in the
fourth quarter of 1994 that was greater than the spring line in the prior year.
During 1993, the Company had cash flow from operations before working capital
changes of $1,600,000. Working capital and other changes added $172,000 of cash
flow to operations resulting in cash flow provided by operating activities of
$1,772,000. The cash flow from operations funded the spending for sample books
of $741,000, property, plant and equipment of $55,000, and repaid long term bank
debt of $910,000, and capital leases obligations of $66,000. The repayment of
long term bank debt consisted of scheduled monthly installments of $50,000 on
the term loan facility and voluntary reductions in the revolver loan facility
totaling $210,000. During 1993, current assets, primarily inventory increased by
$284,000. Inventory increased due to the receipt of the spring line in the
fourth quarter of 1993 that was greater than the spring line in the prior year.
The increase in inventory was offset by a $450,000 increase in current
liabilities, excluding the change in the current portion of long term debt and
capitalized leases. The increase primarily related to accounts payable growth as
a result of the increase in the inventory at year end.
Future Needs For and Sources of Capital. Management believes that cash to be
provided by operations and funds available under the Revolving Agreement (see
below) will be sufficient to fund the Company's, 1996 cash needs.
As of December 31, 1995, the Company is in compliance with all covenants of the
Revolving Agreement.
On May 1 1995, the Company entered into a Revolving Credit Agreement with Bank
One, Dayton, National Association (the "Revolving Agreement"). The terms of the
Revolving Agreement provide for a total loan facility of $4,125,000 consisting
of a term loan of $1,025,000, payable in seven quarterly installment of $100,000
and a balloon payment of $325,000 due on June 30, 1997. The remaining portion of
the Revolving Agreement consists of a revolving line of credit, which matures
three years from the loan closing date. Borrowings under the revolving line of
credit are based on a percentage of Payne's eligible accounts receivable and a
percentage of Payne's eligible inventory, as defined in the Revolving Agreement.
The Revolving Agreement is collateralized by all of the assets of Payne,
guaranteed by the Company and subject to certain restrictive covenants.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company for each of the fiscal
years in the three-year period ended December 31, 1995, together with the report
thereon of Ernst & Young LLP dated March 27, 1996, are filed as part of this
report commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During 1995, 1994 and 1993, the Company neither changed its accountants nor
reported a disagreement on Form 8-K on any matter of accounting principle or
practice or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information regarding the executive officers and directors of
Bell National, including information furnished by them as to principal
occupations for the last five years, certain other directorships held by them,
and their ages. Directors are elected to serve until the next annual meeting.
Officers are elected annually by Bell National's Board of Directors and serve at
the discretion of the Board, unless otherwise indicated.
Name Age Position
Alexander M. Milley 43 Chairman and Secretary
Robert C. Shaw 43 Director, President and Treasurer
Raymond O'S. Kelly 61 Director
Nicholas E. Toussaint 58 Director
Thomas R. Druggish 40 Director and Chief Financial Officer
Alexander M. Milley became Chairman of the Board of Directors and Secretary
on November 20, 1989. Mr. Milley is the founder, president and majority
shareholder of Milley Management Incorporated ("MMI"), a private investment and
management consulting firm incorporated on September 25, 1990. Mr. Milley is
also the founder and President of Winchester National, Inc. ("Winchester"),
another private investment and management consulting firm. From August 1985 to
May 1986, Mr. Milley was Chairman of Neoax, Inc. ("Neoax"), now an environmental
services company known as EnviroSource, Inc. and then a diversified custom
vehicle and precision metal
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manufacturing company. Mr. Milley was Senior Vice President-Acquisitions from
December 1983 until July 1986, of The Dyson-Kissner-Moran Corporation ("DKM"), a
private investment company. Mr. Milley is Chairman of the Board, President and
Chief Executive Officer of Azimuth Corporation ("Azimuth"), a producer of trade
show exhibits and a distributor of fuses and aerospace fasteners, and Chairman
and President of Cadmus Corporation ("Cadmus"), a management consulting firm.
Each of Azimuth and Cadmus is a privately held company, a majority of the
directors of which are officers of Winchester. Mr. Milley has been Chairman of
the Board, Chief Executive Officer and President of ELXSI Corporation ("ELXSI")
since September 1989. ELXSI owns and operates a chain of family restaurants in
New England and a manufacturer of sewer inspection equipment incorporating video
technology in Orlando, Florida.
Robert C. Shaw became President, Treasurer and a Director on November 20, 1989,
as well as serving as Chief Financial Officer from November 20, 1989 to June 17,
1990. Mr. Shaw has been a Vice President of MMI since March, 1989. Prior
thereto, he was Vice President Berkeley Softworks, Incorporated ("Berkeley")
from September 1987 to March 1989. From January 1987 to September 1987, he was
Vice President, and July 1985 until January 1987, he was Director of Finance and
Operations, at Ansa Software, Incorporated ("Ansa"). Berkeley and Ansa developed
and produced personal computer software. Mr. Shaw has been Chief Financial
Officer and Executive Vice President of ELXSI since September 1989.
Raymond O'S. Kelly has been a Director since October 1987, and was a Vice
President of the Company from October 1987 to November 1989. Since January 1,
1982, Mr. Kelly has been the President and Chief Executive of Raymond O'S.
Kelly, Inc., a firm specializing in providing financial, tax advisory, and tax
compliance services. Mr. Kelly has over thirty years of experience with
international and domestic accounting firms.
Nicholas E. Toussaint has been a Director since October 1987, and served as
President and Chief Executive of the Company from August 1985 to November 1989.
Since 1979, Mr. Toussaint has been President of N.E. Toussaint & Associates,
Ltd., a San Francisco consulting firm which advises banks, other institutions,
and individuals concerning the feasibility of real estate investments. The firm
specializes in planning corporate real estate portfolios, and in this
connection, performs investment analysis. Mr. Toussaint has over twenty-five
years of experience in real estate asset management, has held a senior
management position with the Bank of California, and was a founding Director of
a national bank and its associated bank holding company.
Thomas R. Druggish became a Director effective June 1, 1992 and became Chief
Financial Officer of the Company on June 17, 1990. He currently serves as Vice
President, Treasurer and Secretary of ELXSI, Secretary and Treasurer of MMI
since September 1990. Prior thereto, Mr. Druggish was Assistant Controller at
Borland International from April 1987 to December 1989. Borland, which acquired
Ansa in September 1987, develops and markets personal computer software.
Val G. Blaugh has served as President of Payne Fabrics, Inc. since its
inception in July, 1988, when the assets of the Payne Fabrics Division of
Stanley Interiors Corporation were purchased by Azimuth Corporation. From
December 1983 to July, 1988, Mr. Blaugh was President of the Payne Fabrics
Division of Stanley Interiors Corporation. Mr. Blaugh originally joined Payne
Fabrics as a Vice President of Sales and Marketing in January 1977.
14
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation of each of the most highly
compensated executive officers of the Company and of all executive officers as a
group during the years ended December 31, 1995, 1994 and 1993.
Summary Compensation Table
Annual Compensation
--------------------------------------
Name and Principal Other Annual
Position Year Salary Bonus Compensation
-------- ---- ------ ----- ------------
Robert C. Shaw 1995 $ -- $ -- $ --
Director, President and 1994 -- -- --
Treasurer 1993 -- -- -- (1)
Val G. Blaugh (2) 1995 102,000 -- 2,230 (3)
President of Payne 1994 102,000 -- 1,570 (3)
1993 102,000 -- 1,170 (3)
(1) Mr. Shaw had been retained as of November 20, 1989 under a employment
agreement for three years, which expired in November 1992, at an annual
compensation of $50,000. As specified in the agreement, the remaining balance of
the compensation has been deferred by the Company. The amounts payable are
reflected in the attached Consolidated Balance Sheets for the years ended
December 31, 1995 and 1994.
(2) Mr. Blaugh is a participant in the Company's defined benefit pension plan
(see Note 7 to the Consolidated Financial Statements for more detail). As of
January 1, 1995 his vested benefit was $281,000.
(3) Represents calculated taxable value of leased vehicle used by Mr. Blaugh.
15
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
Bell National's capital stock as of March 8, 1996 by (i) all those known by Bell
National to be beneficial owners of more than 5% of the Common Stock, (ii) all
Directors and highly compensated executive officers and (iii) all executive
officers and Directors as a group. Ownership information is based upon
information furnished by the respective beneficial owners. Of the 5,283,114
shares of common stock of Bell National outstanding on March 8, 1996, 696,570 of
such shares of common stock have been designated "Class 4-B shares" (Class 4-B
shares are essentially without value) pursuant to certain legal proceedings.
Class 4-B shares do not have voting rights and are not entitled to any
distributions from Bell National on liquidation or otherwise. James Grauer is
currently the owner of all of the Class 4-B shares outstanding. Each person has
sole voting and sole investment power with respect to the shares listed below
and described in the footnotes to the table, below (or shares such power with
his or her spouse).
Percent of
Name and Address Amount and Nature Voting
of Beneficial Owner of Beneficial Ownership* Shares (1)
- ------------------- ------------------------ -----------
The Airlie Group L.P. 453,176 9.9%
115 East Putnam Avenue
Greenwich, CT 06830
Alexander M. Milley 1,512,514 (2) 27.3%
(Director, Chairman of
the Board and Secretary)
Milley & Company
4209 Vineland Road, Suite J-1
Orlando, FL 32811
Robert C. Shaw, 37,084 0.8%
(Director, President and
Treasurer)
Raymond O'S. Kelly 45,781 (3) 1.0%
(Director)
Santa Fe Mortgage and
Development Company 648,485 14.1%
Don Hancock
Carol G. Avakian Hancock
dba C.G.A. Avakian Co.
Post Office Box 2540
Fair Oaks, CA 95628
16
<PAGE>
All officers and directors** 1,595,379 (2) 28.8%
as a group (3 persons)
* To the best of the Company's knowledge each of the persons and group has
sole voting and dispositive power with respect to the shares shown. (All
such shares are held directly.)
** The persons owning these shares, including Mr. Milley, may represent a
group under section 13(d) of the Securities Exchange act of 1934, as
amended.
(1) These percentages are based upon 4,577,616 shares of common stock
outstanding and entitled to vote (excluding Class 4-B shares).
(2) Mr. Milley's ownership assumes the exercise of warrants for the purchase
of 957,373 shares for the Company's Common Stock, which expire in 1999.
(3) Consists entirely of shares held in trust for Mr. O'S. Kelly.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bell National retained Alexander M. Milley, as Chairman of the Board and
Secretary, and Robert C. Shaw, as President and Treasurer under the terms of the
Stock Purchase Agreement and related Employment Agreements. The Employment
Agreements, which became effective on November 20, 1989 and expired in November
1992, provided for annual compensation of $50,000 to Mr. Shaw and $20,000 to Mr.
Milley, of which only a portion of Mr. Shaw's agreement was paid. Under the
terms of the Employment Agreements, Mr. Shaw and Mr. Milley are free to pursue
other business ventures, investments and personal matters as long as such
activities do not unreasonably interfere with their respective obligations to
Bell National.
In 1988, Mr. Toussaint was granted stock options to purchase 360,000 shares of
common stock under the terms of Bell National's Stock Option Plan at $.30 per
share. Under the same Stock Option Plan, Mr. Kelly, a Director, was also granted
stock options to purchase 90,000 shares at $.30 per share. In November 1989,
such options granted under the Bell National Stock Option Plan to Toussaint and
Kelly as well as former directors, were canceled and replaced with Stock
Appreciation Rights ("SAR's"). In general, the number of stock options
previously granted were replaced with an equal number of SAR's. Each SAR
entitles the holder to receive upon exercise an amount equal to the excess, if
any, of the market value per share at the date of exercise over the exercise
price of the SAR, plus any dividends or distributions per share made by Bell
National prior to the exercise date. On November 15, 1995 Messrs. Kelly and
Toussaint's SAR agreements were amended to extend the term of their agreements
to November 20, 2001.
17
<PAGE>
On June 15, 1990, Bell National completed the purchase of 83% of the stock of
Payne from Azimuth Corporation ("Azimuth") for $6,493,000, which was based upon
the net asset value of Payne as reflected on its unaudited balance sheet as of
the close of business on June 3, 1990. Of the total purchase price paid to
Azimuth, $600,000 was supported by a five-year senior subordinated note bearing
interest at the rate of 10% per annum. The balance of the purchase price was
paid in cash, partially with funds obtained under a bank credit agreement
between Bell National and Continental Bank N.A. (the "Bank"). The principals of
MMI currently owns 14% of Bell National's outstanding voting capital stock and
would own 29% upon their full exercise of stock warrants currently held. Certain
members of MMI, including among others, Alexander M. Milley and Robert S. Shaw,
who are principals of MMI and the Chairman and President as well as Directors of
Bell National, respectively, also own in the aggregate 16% of the outstanding
voting and non-voting common stock of Azimuth. Messrs. Milley and Shaw, together
with certain other members of MMI, also own approximately 4% of the combined
classes of non-voting preferred stock of Azimuth. In addition, Messrs. Milley
and Shaw are directors of Azimuth.
In connection with the acquisition of Payne, the remaining 17% of the
outstanding capital stock was acquired from four individual stockholders, some
of whom are current management employees of Payne. The Capital Stock was
acquired pursuant to separate stock purchase agreements, each dated June 14,
1990, in exchange for an aggregate of 455,357 SAR's of Bell National. The
aggregate number of SAR's issued in exchange for their Payne stock was
determined based upon the initial investment paid by these individuals for their
holdings in Payne stock in relation to the initial investment price paid by MMI
for its shares of Bell National's common stock. SAR's were allocated among
individuals in accordance with the ratio of the percentage of each individual's
initial investment in Payne to the total investment of all four. The terms and
conditions of the SAR's are set forth in stock appreciation rights agreements.
Bell National currently rents office space in Orlando, Florida from Milley
Management Incorporated. Rent and administrative support expenses were
approximately $120,000 in each of the years ended December 31, 1995 , 1994 and
1993. The Chairman of the Company is the President, Chairman and majority
shareholder of Milley Management Incorporated. In addition, certain of the other
officers of the Company are also officers of Milley Management Incorporated.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 10-K
Index to Financial Statements
Page
1. Financial Statements Number (s)
----------
Report of Independent Auditors F-1
Consolidated Balance Sheets at December 31,
1995 and 1994 F-2 to F-3
Consolidated Statements of Operations for the
years ended
December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995,
1994 and 1993 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-15
2. Financial Statement Schedules
Schedule Page
Number Description Number
------ ----------- ------
VIII Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the consolidated financial
statements or notes thereto.
3. Exhibits
Exhibit
Number Description
- ------ -----------
2.1 Bell National Corporation Plan of Reorganization (Annex I).
(Incorporated herein by reference to Item 1 of the Company's Annual
Report on Form 10-K for the period from August 20, 1985 to December
31, 1985 and for the years ended December 31, 1986 and 1987 (File
No. 3-935)).
3.1 Restated Articles of Incorporation. (Incorporated herein by
reference to Exhibit 3.1 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1988 (File No. 3-935)).
19
<PAGE>
3.2 Bylaws of the Company. (Incorporated herein by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No. 3-935)).
4.1 Registration Rights Agreement dated as of November 20, 1989 among
the Company, The Airlie Group L.P., Liberty Associates Limited
Partnership, Winchester National, Inc., Alexander M. Milley, Alan D.
Gordon, Kim G. Davis, Brian E. Kinsman, Kevin P. Lynch and Robert C.
Shaw (collectively, the "Purchasers"). (Incorporated herein by
reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (File No. 3-935)).
4.2 Warrant to purchase 957,373 shares of common stock of the Company
issued by the Company on November 20, 1989 to Liberty Associates
Limited Partnership. (Incorporated herein by reference to Exhibit
4.4 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 (File No. 3-935)).
9.1 Voting Trust Agreement dated as of May 11, 1989 between Santa Fe and
Mr. Nicholas E. Toussaint, as amended. (Incorporated herein by
reference to Exhibit 9.1 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 (File No. 3-935)).
10.1 Standstill Agreement between Bell National Corporation, Santa Fe
Development and Mortgage Company, Inc., Donald Hancock, Carol G.
Avakian Hancock, and Fred L. Harris, dated October 20, 1988.
(Incorporated herein by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988 (File No. 3-935)).
10.2 Stock Purchase Agreement dated as of August 17, 1989 by and among
the Company and the Purchasers. (Incorporated herein by reference to
Annex I of the Company's Proxy Statement dated October 2, 1989
delivered to shareholders of the Company in connection with a
Special Meeting of Shareholders of Company held on November 3, 1989.
(File No. 3-935)).
10.3 Stock Appreciation Rights Agreement dated as of November 20, 1989
between the Company and Edward B. Collins. (Incorporated herein by
reference to Exhibit 10.3 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (File No. 3-935)).
10.4 Stock Appreciation Rights Agreement dated as of November 20, 1989
between the Company and Charles J. Hart. (Incorporated herein by
reference to Exhibit 10.4 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (File No. 3-935)).
10.5 Stock Appreciation Rights Agreement dated as of November 20, 1989
between the Company and Raymond O'S. Kelly. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (File No. 3-935)).
10.6 Stock Appreciation Rights Agreement dated as of November 20, 1989
between the Company and Edward K. Taapken. (Incorporated herein by
reference to Exhibit 10.6 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (File No. 3-935)).
10.7 Stock Appreciation Rights Agreement dated as of November 20, 1989
between the Company and Nicholas E. Toussaint. (Incorporated herein
by reference to Exhibit 10.7 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (File No. 3-935)).
10.8 Stock Appreciation Rights Agreement dated as of November 20, 1989
between the Company and John Vida. (Incorporated herein by reference
to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No. 3-935)).
10.9 Stock Appreciation Rights Agreement dated as of November 20, 1989
between the Company and Robert A. Huret. (Incorporated herein by
reference to Exhibit 10.9 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (File No. 3-935)).
10.10 Stock Appreciation Rights Agreement dated as of November 20, 1989
between the Company and Alan E. Rothenberg. (Incorporated herein by
reference to Exhibit 10.10 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989 (File No. 3-935)).
20
<PAGE>
10.11 Stock Purchase Agreement dated as of June 15, 1990 by and among the
Company, as purchaser, and Azimuth Corporation, as seller.
(Incorporated herein by reference to Exhibit 2(a) of the Company's
Form 8-K filed June 15, 1990. (File No. 3-935)).
10.12 Loan Agreement dated as of June 14, 1990 between the Company, the
borrower, and Continental Bank N.A., the lender. (Incorporated
herein by reference to Exhibit 10.12 of the Company's Form 8-K filed
June 29, 1990.
(File No. 3-935)).
10.13 Stock Appreciation Rights Agreement dated as of June 14, 1990
between the Company and Val G. Blaugh. (Incorporated herein by
reference to Exhibit 4 of the Company's Form 8-K filed June 15,
1990. (File No. 3-935)).
10.14 Stock Appreciation Rights Agreement dated as of June 14, 1990
between the Company and Mark van der Kloet. (Incorporated herein by
reference to Exhibit 4 of the Company's Form 8-K filed June 15,
1990. (File No. 3-935)).
10.15 Stock Appreciation Rights Agreement dated as of June 14, 1990
between the Company and Roy D. Rafalco. (Incorporated herein by
reference to Exhibit 4 of the Company's Form 8-K filed June 15,
1990. (File No. 3-935)).
10.16 Stock Appreciation Rights Agreement dated as of June 14, 1990
between the Company and Jeffrey Pratt. (Incorporated herein by
reference to Exhibit 4 of the Company's Form 8-K filed June 15,
1990. (File No. 3-935)).
10.17 Employment Agreement between the Company and Alexander M. Milley
dated November 20, 1989. (Incorporated herein by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (File No. 3-935)).
10.18 Employment Agreement between the Company and Robert C. Shaw dated
November 20, 1989. (Incorporated herein by reference to Exhibit
10.18 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 (File No. 3-935)).
10.19 Revolving Credit Agreement, dated as of May 1, 1995, among Payne
Fabrics, Inc., Bell National Corporation and Bank One, Dayton,
National Association.
10.20 SAR Agreement Extension, dated November 15, 1995, between the
Company and Raymond O'S. Kelly.
10.21 SAR Agreement Extension, dated November 15, 1995, between the
Company and Nicholas E. Toussaint.
21.1 Subsidiaries of the Company. (Incorporated herein by reference to
the exhibits filed with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No. 3-935)).
27 Financial data schedule.
(b) Reports on Form 8-K
Reports on Form 8-K filed during the fourth quarter of 1995.
None
21
<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.
BELL NATIONAL CORPORATION
Date: March 20, 1996 BY: /s/ Alexander M. Milley
-------------------------------------
Alexander M. Milley
Chairman of the Board and Secretary
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Alexander M. Milley Director, Chairman of the March 20, 1996
- --------------------------- Board and Secretary
Alexander M. Milley Board and Secretary
/s/ Robert C. Shaw Director, President and March 20, 1996
- --------------------------- Treasurer (Principal
Robert C. Shaw Executive Officer)
/s/ Raymond O'S. Kelly Director March 20, 1996
- ---------------------------
Raymond O'S. Kelly
/s/ Nicholas E. Toussaint Director March 20, 1996
- ---------------------------
Nicholas E. Toussaint
/s/ Thomas R. Druggish Director, Chief Financial March 20, 1996
- --------------------------- Officer (Principal Financial
Thomas R. Druggish Officer and Accounting Officer)
22
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Bell National Corporation
We have audited the accompanying consolidated balance sheets of Bell National
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the accompanying index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bell
National Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Ernst & Young LLP
Dayton, Ohio
March 27, 1996
F-1
<PAGE>
BELL NATIONAL CORPORATION
Consolidated Balance Sheets
(Dollars in Thousands)
ASSETS
December 31,
--------------------------
1995 1994
---- ----
Current assets:
Cash and cash equivalents $ -- $ --
Accounts receivable, net 1,082 1,085
Inventory, net 4,083 4,473
Prepaid expenses and other current assets 114 113
--------- ---------
Total current assets 5,279 5,671
Property and equipment, net 212 199
Goodwill, net 683 703
Deferred sample books, net 1,696 924
Other assets 40 8
--------- ----------
$ 7,910 $ 7,505
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
BELL NATIONAL CORPORATION
Consolidated Balance Sheets
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
------------------------
1995 1994
---- ----
Current liabilities:
Accounts payable $ 1,901 $ 1,589
Current portion of capitalized lease obligations 3 3
Current portion of long-term debt 400 300
Accrued compensation and employee benefits 449 515
Accrued expenses 381 335
---------- ----------
Total current liabilities 3,134 2,742
Long-term debt 2,642 2,621
Accrued stock appreciation rights 356 356
Capital lease obligations, less current portion 3 6
Other liabilities 201 254
---------- ----------
6,336 5,979
Stockholders' equity:
Common stock, no par value;
authorized 12,000,000 shares, issued and
outstanding 5,283,114 at December 31, 1995
and 5,283,114 at December 31, 1994 15,800 15,800
Additional paid-in capital 10 10
Accumulated deficit (14,236) (14,284)
--------- --------
Total stockholders' equity 1,574 1,526
--------- ---------
$ 7,910 $ 7,505
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BELL NATIONAL CORPORATION
Consolidated Statements of Operations
(Amounts in Thousands, Except Share and Per Share Data)
Year Ended December 31,
----------------------------------
1995 1994 1993
---- ---- ----
Net sales $ 13,653 $ 13,877 $ 14,107
Costs and expenses:
Cost of sales 7,127 7,023 7,105
Selling, general and administrative 6,057 6,179 6,359
---------- ---------- ----------
Operating income 469 675 643
Other income (expenses):
Interest expense (347) (308) (420)
Other (45) (44) 11
---------- ---------- ----------
Income before income taxes and
extraordinary item 77 323 212
Provision for income taxes (29) (146) (14)
---------- ---------- ----------
Income before extraordinary item 48 177 198
Extraordinary item, net of taxes of $109 -- 143 --
---------- ---------- ----------
Net Income $ 48 $ 320 $ 198
========== ========== ==========
Earnings per common share
Income before extraordinary item $ .01 $ .03 $ .04
Extraordinary item -- .03 --
---------- ---------- ----------
Net income $ .01 $ .06 $ .04
========== ========== ==========
Weighted average number of common
shares outstanding 5,283,114 5,280,790 5,274,186
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BELL NATIONAL CORPORATION
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional Accum- Total
-------------------- Paid-In ulated Stockholders'
Shares Dollars Capital Deficit Equity
------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1993 5,274,186 $ 15,797 $ 10 $(14,802) $ 1,005
Net income -- -- -- 198 198
--------- -------- ------- -------- --------
December 31, 1993 5,274,186 15,797 10 (14,604) 1,203
Issuance of common
stock in connection
with exercise of SAR's 8,928 3 -- -- 3
Net income -- -- -- 320 320
--------- -------- ------- -------- --------
December 31, 1994 5,283,114 15,800 10 (14,284) 1,526
Net income -- -- -- 48 48
--------- -------- ------- -------- --------
December 31, 1995 5,283,114 $ 15,800 $ 10 $(14,236) $ 1,574
========= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BELL NATIONAL CORPORATION
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Year Ended December 31,
-----------------------------
1995 1994 1993
---- ---- ----
Operating activities:
Net income $ 48 $ 320 $ 198
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 63 80 146
Amortization of goodwill 20 20 26
Amortization of deferred sample books 955 1,003 1,190
Accretion of discount on notes payable to
Azimuth -- 14 30
Amortization of deferred debt commitment fee 20 17 16
Provision for doubtful accounts and sales
returns (7) (10) (6)
(Increase) decrease in assets:
Accounts receivable 10 117 30
Inventory 390 (605) (293)
Prepaid expenses and other current assets (1) (21) (15)
Increase (decrease) in liabilities:
Accounts payable 312 (53) 584
Accrued compensation and employee benefits (66) 47 (132)
Accrued expenses 46 (286) (2)
SAR accrual -- 146 --
Other liabilities (53) 254 --
------ ------ ------
Net cash provided by operating activities 1,737 1,043 1,772
------ ------ ------
Investing activities:
Acquisition of property and equipment (76) (24) (55)
Production and purchase of deferred
sample books (1,727) (784) (741)
------ ------ ----
Net cash used in investing activities (1,803) (808) (796)
------ ------ ----
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BELL NATIONAL CORPORATION
Consolidated Statements of Cash Flows (Continued)
(Dollars in Thousands)
Year Ended December 31,
----------------------------------
1995 1994 1993
---- ---- ----
Financing activities:
Proceeds from the issuance of
long-term debt 5,994 14,783 13,800
Principal payments on long-term debt (5,873) (15,015) (14,710)
Principal payments on capital leases (3) (3) (66)
Payment of deferred debt commitment fee (52) -- --
------- ------- -------
Net cash provided by (used in)
financing activities 66 (235) (976)
------- ------- -------
Net increase in cash and cash equivalents -- -- --
Cash and cash equivalents at
beginning of year -- -- --
------- ------- -------
Cash and cash equivalents at end of year $ -- $ -- $ --
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 371 $ 267 $ 283
Income taxes 77 55 15
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
BELL NATIONAL CORPORATION
Notes To Consolidated Financial Statements
December 31, 1995
NOTE 1. The Company and Basis of Presentation
Bell National Corporation ("Bell National" and together with its subsidiaries
the "Company") was incorporated in California on October 1, 1958. Through 1985,
its principal subsidiary was Bell Savings and Loan Association ("Bell Savings"),
a state chartered savings and loan association. On July 25, 1985, the Federal
Home Loan Bank Board appointed the Federal Savings & Loan Insurance Corporation
("FSLIC") as receiver of Bell Savings. At the same time, the assets of Bell
Savings were transferred to a new, unrelated, federally chartered mutual savings
and loan association, Bell Federal. The FSLIC's action followed shortly after a
determination that Bell Savings had a negative net worth. On August 20, 1985,
Bell National filed a voluntary petition under Chapter 11 of the Bankruptcy
Code. A plan of reorganization was approved by the Bankruptcy Court, and became
effective June 29, 1987.
On June 15, 1990, Bell National purchased 100% of the common stock of Payne
Fabrics, Inc. ("Payne"), a designer and distributor of decorative drapery and
upholstery fabrics, for a purchase price of $6,493,000 and the issuance of stock
appreciation rights. Bell National's other wholly-owned subsidiaries, Bell
Savings and Pacific Coast Holdings Insurance Company, have no significant assets
or liabilities .
NOTE 2. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include Bell
National and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated.
Use of Estimates. The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company has instituted a cash management system,
whereby cash generated by operations is immediately used to reduce debt.
Accordingly the Company maintains no cash or cash equivalents.
Inventories. Inventories are carried at the lower of cost (first-in, first-out)
or market and consist totally of finished goods. The reserve for obsolete
inventory at December 31, 1995 and 1994 is $106,000 and $132,000, respectively.
F-8
<PAGE>
Property and Equipment. Property and equipment are stated at cost and are
depreciated using the straight-line method over the assets' estimated useful
lives. Principal useful lives are as follows:
Furniture and fixtures 10 years
Machinery and equipment 12 years
Leasehold improvements Useful life or life of lease, whichever is shorter
Computer equipment and software 5 years
Normal maintenance and repairs are charged to expense as incurred, significant
improvements are capitalized.
Goodwill. Assets and liabilities related to the Payne business combination have
been accounted for as a purchase transaction and were recorded at their
respective fair values at the date of acquisition. Goodwill arising from the
excess of the purchase cost, plus related acquisition expenses, over the fair
value of aggregate net assets acquired is recorded as an asset and amortized on
a straight-line basis over 40 years. Accumulated amortization at December 31,
1995 and 1994 is $135,000 and $115,000, respectively.
The Company has not yet adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
but believes the impact of adopting the standard will be immaterial to the
results of operations.
Deferred Sample Books. The cost of producing and purchasing sample books are
initially recorded as an asset and amortized over a three year period, 20% in
the year of manufacture and initial distribution and 40% in each of the two
subsequent years. Accumulated amortization at December 31, 1995 and 1994 is
$816,000 and $601,000, respectively. The Company prefers to produce these books
internally due to cost advantages over outside vendor production. Distribution
scheduling often requires the use of outside vendors causing a varying mix of
sources for sample books from period to period. Costs included in the
development of sample books include labor, material, freight and supplies. Labor
including internal and subcontracted, together with fabric costs, constitute
approximately 85% of total sample book costs.
Revenue Recognition. The Company recognizes revenue upon shipment of product
to customers.
Income Taxes. The Company follows the liability method in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using tax rates and laws that are expected to be in
effect when the differences are expected to reverse. Valuation allowances are
provided against deferred tax assets if it is more likely than not that the
deferred tax assets will not be realized.
Income Per Common Share. Income per common share is computed using the weighted
average number of common shares outstanding during the respective periods. The
exercise of outstanding warrants, which are common stock equivalents, are not
included in the computation as their effect would be antidilutive. The fully
diluted per share calculation was anti-dilutive for each year.
F-9
<PAGE>
NOTE 3. Accounts Receivable
Accounts receivable are net of allowances for sales returns and doubtful
accounts of $69,000 and $76,000 at December 31, 1995 and 1994, respectively. The
Company markets its decorative drapery and upholstery products principally to
interior designers located throughout the United States.
NOTE 4. Property and Equipment Property and equipment consists of the following
at December 31:
1995 1994
------------ ------------
Furniture and fixtures $ 213,000 $ 201,000
Machinery and equipment 228,000 166,000
Leasehold improvements 153,000 151,000
Computer equipment and software 286,000 286,000
------------ ------------
880,000 804,000
Less accumulated depreciation and
amortization 668,000 605,000
------------ ------------
$ 212,000 $ 199,000
============ ============
NOTE 5. Long-Term Debt Long-term debt is summarized as follows at December 31:
1995 1994
------------ ------------
Bank revolving and term facility $ 3,042,000 $ 2,921,000
Less current portion 400,000 300,000
------------ ------------
Long-term debt less current portion $ 2,642,000 $ 2,621,000
============ ============
Aggregate maturities of long-term debt as of December 31, 1995 are as follows:
1996 $ 400,000
1997 425,000
1998 2,217,000
------------
$ 3,042,000
On May 1, 1995 the Company entered into a Revolving Credit Agreement with Bank
One, Dayton, National Association ("Revolving Agreement"). The terms provide for
a total loan facility of $4,125,000 consisting of a term loan of $1,025,000,
payable in seven quarterly installment of $100,000 and a balloon payment of
$325,000 due on June 1, 1997. The remaining portion of the Revolving Agreement
consists of a revolving line of credit, which matures on June 1, 1998.
Borrowings under the revolving line of credit are based on a percentage of
Payne's eligible accounts receivable and a yet to be determined percentage of
Payne's eligible inventory, as defined. The Revolving Agreement is
collateralized by all of the assets of Payne, guaranteed by the Company and
subject to restrictive covenants.
As of December 31, 1995, the Company is in compliance with all covenants under
its existing loan facility.
In connection with the 1990 acquisition of Payne the Company entered into a
$450,000 senior subordinated note, net of a $150,000 discount (the "Note"). The
note which bore interest at 10% per
F-10
<PAGE>
NOTE 6. Leases
Future minimum lease payments under noncancelable operating leases as of
December 31, 1995 are as follows:
1996 $ 523,000
1997 534,000
1998 498,000
1999 479,000
2000 413,000
2001 and thereafter 635,000
------------
Total $ 3,082,000
============
The noncancelable operating leases are primarily for Payne's warehouse and
office space and expire over the next nine years. Rent expense charged to
operations for the year ended December 31, 1995, 1994 and 1993 was $472,000,
$455,000 and $563,000, respectively.
NOTE 7. Employee Pension Plans
Payne has a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and annual compensation of
the employee calculated on the projected unit credit method. Payne makes annual
contributions to the plan equal to the maximum amount that can be deducted for
income tax purposes. No contributions were required for the years ended December
31, 1995, 1994 and 1993.
Effective January 31, 1994, the plan was frozen and no additional benefits will
accrue nor additional employees become eligible for the plan beyond that point.
The individual employees currently eligible at that time became 100% vested in
their accumulated benefits as of that date.
F-11
<PAGE>
The following table sets forth the plan's funded status, amounts recognized in
the Consolidated Balance Sheet at December 31, 1995 and 1994 and the net
periodic pension cost recognized for the years then ended.
December 31,
--------------------------
1995 1994
----------- -----------
Actuarial present value of accumulated
benefit obligation $ 1,689,000 $ 1,444,000
Projected benefit obligation $ 1,689,000 $ 1,444,000
Plan assets at fair value 1,618,000 1,502,000
----------- -----------
Plan assets in excess of (less than) projected
benefit obligation (71,000) 58,000
Unrecognized net (gain) loss 93,000 (49,000)
Unrecognized prior service gain -- --
Unrecognized transitional asset (51,000) (76,000)
----------- ----------
Net pension liability $ (29,000) $ (67,000)
=========== ==========
Net pension costs include the following components:
Service cost $ -- $ 7,000
Interest on projected benefit obligation 119,000 127,000
Actual return on plan assets (132,000) (151,000)
Other (25,000) (24,000)
----------- ----------
Net periodic pension (income) $ (38,000) $ (41,000)
=========== ==========
Plan assets consist primarily of fixed income securities, commingled investment
funds, commercial paper, and short-term securities.
The following is a summary of significant actuarial assumptions used as of
December 31:
1995 1994
----------- -----------
Discount rate 7.5% 8.5%
Rate of increase in compensation levels 0.0% 0.0%
Expected long-term rate of return on assets 9.0% 9.0%
The Company changed the assumed discount rate by adoption of the GATT pension
provisions in 1995 resulting in the increase in the December 31, 1995 benefit
obligation of $123,000.
Payne maintains an employee retirement savings plan under Section 401(k) of the
Internal Revenue Code. Under the terms of such plan, eligible employees may
contribute up to 20% of their annual compensation, up to a ceiling of $9,240.
The Plan allows Payne to make matching contributions. In 1995 and 1994 Payne
made matching contributions of $27,988 and $7,782, respectively. Payne made no
matching contribution to the plan in 1993 or 1992. Payne has the ability to
activate sections of the plan in order to allow for discretionary contributions.
As of December 31, 1995, such sections have not been activated.
F-12
<PAGE>
NOTE 8. Income Taxes
The effective income tax rates differed from the Federal Statutory income tax
rates as follows for the year December 31:
1995 1994 1993
--------- ---------- ---------
Statutory Federal income tax expense $ (26,000) $ (195,000) $ (72,000)
(Increase) Decrease resulting from:
Effect of nondeductible expenses (16,000) (14,000) (43,000)
Deferred tax benefits not recognized 42,000 -- --
Other -- -- (11,000)
Utilization of tax loss carryforwards -- -- 126,000
State income tax expense (29,000) (46,000) (14,000)
--------- ---------- ---------
Reported Income tax expense $ (29,000) $ (255,000) $ (14,000)
========= ========== =========
The components of income tax expense are as follows:
1995 1994 1993
--------- ---------- ---------
Current federal income tax expense $ -- $ (209,000) $(120,000)
Deferred benefit -- -- 120,000
State and local (29,000) (46,000) (14,000)
--------- ---------- ---------
$ (29,000) $ (255,000) $ (14,000)
========= ========== =========
At December 31, 1995, the Company has federal income tax net operating loss
carryforwards ("NOL's") of approximately $115,000,000 which expire from 1996
through 2010. These NOL's primarily arose from income tax returns which were
subject to rulings by the Bankruptcy Court. The Internal Revenue Service has
objected to the Bankruptcy Court's ability to rule as to the amount and
character of the carryforwards. In addition, under the Internal Revenue Code
("IRC"), the benefit of these NOL's could be limited, or eliminated, if the IRS
determines there was an "ownership change" involving more than 50% of the
Company's stock. There is risk that the Company does not meet the continuity of
business requirements of the IRC. These matters create doubt as to whether these
carryforwards will be utilized by the Company. For financial reporting purposes,
the Company does not recognize the benefit of these NOL's.
F-13
<PAGE>
Significant components of the Company's deferred tax asset and liability as of
December 31 were as follows:
1995 1994
----------- -----------
Deferred tax assets related to:
Net operating loss carryforwards $39,100,000 $39,100,000
Accrued stock appreciation rights 121,000 121,000
Reserve for obsolete inventory 36,000 45,000
Inventory 330,000 381,000
Accounts receivable reserves 24,000 26,000
Accrued vacation 30,000 40,000
Other 27,000 30,000
----------- ----------
39,668,000 39,683,000
Less valuation allowance 39,604,000 39,683,000
----------- ----------
64,000 60,000
Deferred tax liability related to:
Depreciation 64,000 60,000
----------- ----------
Net deferred tax asset $ -- $ --
=========== ==========
The Company has taken a conservative approach to the valuation of it's deferred
assets and has recorded valuation allowances to offset the amount of the
deferred tax asset in it entirety.
NOTE 9. Stockholders' Equity
On November 20, 1989, Bell National sold 1,317,373 shares of common stock to a
group of investors for approximately $443,000 or $0.34 per share. In addition,
Bell National issued a warrant to acquire 957,373 shares of common stock. The
warrant is exercisable through November 20, 1999 at $0.37 per share. The warrant
agreement, among other things, provides for the repurchase of unexercised
warrants. The obligation of Bell National is determined by multiplying the
unexercised number of shares subject to the warrant by the excess of the current
market price (as defined) per share of common stock and the current warrant
price (as defined) per share of common stock. Since the exercise price of the
warrant is greater than the fair market value of the stock at December 31, 1995
and 1994, no liability has been recorded for this obligation.
In addition to the warrant, the Company has issued, under various agreements,
1,470,357 stock appreciation rights (SAR's). 810,000 of these SAR's, are
exercisable at $0.30 and expire in 1999. The remaining 660,357 SAR's, which
include the 455,357 SAR's issued in connection with the acquisition of 17% of
the outstanding shares of Payne common stock, have an exercise price of zero and
are exercisable at varying exercise dates through June 1997. In general, each
SAR entitles the holder to receive upon exercise an amount equal to the excess,
if any, of the market value per share at the date of exercise over the exercise
price of the SAR, plus any dividends or distributions per share made by Bell
National prior to the exercise date. On November 15, 1995 the SAR
F-14
<PAGE>
agreements of Messrs. Kelly and Toussaint for 90,000 and 360,000 SAR's
respectively, was amended to extend the termination date to November 20, 2001.
During 1994, the Company issued 8,928 shares of Common Stock in connection with
the exercise of vested SAR's that had a zero exercise price. The accrued value
of such SAR's were transferred from the SAR liability to equity upon the
exercise and the related stock issuance.
At December 31, 1995, 1994 and 1993 the value of all issued and outstanding
SAR's has been estimated to be $356,000, $356,000 and $213,000, respectively.
NOTE 10. Related Party Transactions
The Company currently rents corporate office space on a month-to-month basis in
Orlando, Florida from Milley Management Incorporated, a private investment and
management consulting firm. The Chairman and Secretary of the Company is the
President and sole stockholder of Milley Management Incorporated. Rent and
administrative support expenses were approximately $120,000 in each of the years
ended December 31, 1995, 1994 and 1993, respectively.
F-15
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
BELL NATIONAL CORPORATION AND SUBSIDIARIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C - Additions Col. D Col. E
------ ------ ------------------------ ------ ------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accts. Deductions End of
Description of period Expenses (Describe) (Describe) Period
----------- --------- -------- ---------- ---------- ------
Year ended December 31, 1995:
Deducted from asset accounts:
<S> <C> <C> <C> <C> <C>
Allowance for sales returns $ 18 $ 332 $ -- $ 334 (A) $ 16
Allowance for doubtful accounts 58 25 -- 30 (B) 53
------ ------- ------ ------ ------
$ 76 $ 357 $ -- $ 364 $ 69
====== ======= ====== ====== ======
Reserve for obsolete inventory $ 132 $ 15 $ -- $ 41 (C) $ 106
====== ======= ====== ====== ======
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for sales returns $ 19 $ 321 $ -- $ 322 (A) $ 18
Allowance for doubtful accounts 67 29 -- 38 (B) 58
------ ------- ------ ------ ------
$ 93 $ 350 $ -- $ 360 $ 76
====== ======= ====== ====== ======
Reserve for obsolete inventory $ 157 $ 75 $ -- $ 100 (C) $ 132
====== ======= ====== ====== ======
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for sales returns $ 27 $ 331 $ -- $ 339 (A) $ 19
Allowance for doubtful accounts 66 58 -- 57 (B) 67
------ ------- ------ ------ ------
$ 155 $ 389 $ -- $ 396 $ 86
====== ======= ====== ====== ======
Reserve for obsolete inventory $ 270 $ 170 $ -- $ 168 (C) $ 157
====== ======= ====== ====== ======
<FN>
(A) Returns by customers during the year.
(B) Uncollectible accounts written off during the year.
(C) Obsolete inventory written off during the year.
</FN>
</TABLE>
S-1
<PAGE>
Exhibit
Number Description Page No
- ------ ----------- --------
2.1 Bell National Corporation Plan of Reorganization
(Annex I). (Incorporated herein by reference to Item
1 of the Company's Annual Report on Form 10-K for the
period from August 20, 1985 to December 31, 1985 and
for the years ended December 31, 1986 and 1987 (File
No. 3-935)).
3.1 Restated Articles of Incorporation. (Incorporated
herein by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 (File No. 3-935)).
3.2 Bylaws of the Company. (Incorporated herein by
reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 3-935)).
4.1 Registration Rights Agreement dated as of November
20, 1989 among the Company, The Airlie Group L.P.,
Liberty Associates Limited Partnership, Winchester
National, Inc., Alexander M. Milley, Alan D. Gordon,
Kim G. Davis, Brian E. Kinsman, Kevin P. Lynch and
Robert C. Shaw (collectively, the "Purchasers").
(Incorporated herein by reference to Exhibit 4.3 of
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No.
3-935)).
4.2 Warrant to purchase 957,373 shares of common stock of
the Company issued by the Company on November 20,
1989 to Liberty Associates Limited Partnership.
(Incorporated herein by reference to Exhibit 4.4 of
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No.
3-935)).
9.1 Voting Trust Agreement dated as of May 11, 1989
between Santa Fe and Mr. Nicholas E. Toussaint, as
amended. (Incorporated herein by reference to Exhibit
9.1 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (File No.
3-935)).
10.1 Standstill Agreement between Bell National
Corporation, Santa Fe Development and Mortgage
Company, Inc., Donald Hancock, Carol G. Avakian
Hancock, and Fred L. Harris, dated October 20, 1988.
(Incorporated herein by reference to Exhibit 3.1 of
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988 (File No.
3-935)).
10.2 Stock Purchase Agreement dated as of August 17, 1989
by and among the Company and the Purchasers.
(Incorporated herein by reference to Annex I of the
Company's Proxy Statement dated October 2, 1989
delivered to shareholders of the Company in
connection with a Special Meeting of Shareholders of
Company held on November 3, 1989. (File No. 3-935)).
<PAGE>
10.3 Stock Appreciation Rights Agreement dated as of
November 20, 1989 between the Company and Edward B.
Collins. (Incorporated herein by reference to Exhibit
10.3 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (File No.
3-935)).
10.4 Stock Appreciation Rights Agreement dated as of
November 20, 1989 between the Company and Charles J.
Hart. (Incorporated herein by reference to Exhibit
10.4 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (File No.
3-935)).
10.5 Stock Appreciation Rights Agreement dated as of
November 20, 1989 between the Company and Raymond
O'S. Kelly. (Incorporated herein by reference to
Exhibit 10.5 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989
(File No. 3-935)).
10.6 Stock Appreciation Rights Agreement dated as of
November 20, 1989 between the Company and Edward K.
Taapken. (Incorporated herein by reference to Exhibit
10.6 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (File No.
3-935)).
10.7 Stock Appreciation Rights Agreement dated as of
November 20, 1989 between the Company and Nicholas E.
Toussaint. (Incorporated herein by reference to
Exhibit 10.7 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989
(File No. 3-935)).
10.8 Stock Appreciation Rights Agreement dated as of
November 20, 1989 between the Company and John Vida.
(Incorporated herein by reference to Exhibit 10.8 of
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989 (File No.
3-935)).
10.9 Stock Appreciation Rights Agreement dated as of
November 20, 1989 between the Company and Robert A.
Huret. (Incorporated herein by reference to Exhibit
10.9 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (File No.
3-935)).
10.10 Stock Appreciation Rights Agreement dated as of
November 20, 1989 between the Company and Alan E.
Rothenberg. (Incorporated herein by reference to
Exhibit 10.10 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989
(File No. 3-935)).
10.11 Stock Purchase Agreement dated as of June 15, 1990 by
and among the Company, as purchaser, and Azimuth
Corporation, as seller. (Incorporated herein by
reference to Exhibit 2(a) of the Company's Form 8-K
filed June 15, 1990. (File No. 3-935)).
10.12 Loan Agreement dated as of June 14, 1990 between the
Company, the borrower, and Continental Bank N.A., the
lender. (Incorporated herein by reference to Exhibit
10.12 of the Company's Form 8-K filed June 29, 1990.
(File No. 3-935)).
<PAGE>
10.13 Stock Appreciation Rights Agreement dated as of June
14, 1990 between the Company and Val G. Blaugh.
(Incorporated herein by reference to Exhibit 4 of the
Company's Form 8-K filed June 15, 1990. (File No.
3-935)).
10.14 Stock Appreciation Rights Agreement dated as of June
14, 1990 between the Company and Mark van der Kloet.
(Incorporated herein by reference to Exhibit 4 of the
Company's Form 8-K filed June 15, 1990. (File No.
3-935)).
10.15 Stock Appreciation Rights Agreement dated as of June
14, 1990 between the Company and Roy D. Rafalco.
(Incorporated herein by reference to Exhibit 4 of the
Company's Form 8-K filed June 15, 1990. (File No.
3-935)).
10.16 Stock Appreciation Rights Agreement dated as of June
14, 1990 between the Company and Jeffrey Pratt.
(Incorporated herein by reference to Exhibit 4 of the
Company's Form 8-K filed June 15, 1990. (File No.
3-935)).
10.17 Employment Agreement between the Company and
Alexander M. Milley dated November 20, 1989.
(Incorporated herein by reference to Exhibit 10.17 of
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (File No.
3-935)).
10.18 Employment Agreement between the Company and Robert
C. Shaw dated November 20, 1989. (Incorporated herein
by reference to Exhibit 10.18 of the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 3-935)).
10.19 Revolving Credit Agreement, dated as of May 1, 1995,
among Payne Fabrics, Inc., Bell National Corporation
and Bank One, Dayton, National Association.
10.20 SAR Agreement Extension, dated November 15, 1995,
between the Company and Raymond O'S. Kelly.
10.21 SAR Agreement Extension, dated November 15, 1995,
between the Company and Nicholas E. Toussaint.
21.1 Subsidiaries of the Company. (Incorporated herein by
reference to the exhibits filed with the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 3-935)).
27 Financial data schedule.
<PAGE>
Bell National Corporation
4209 Vineland Road, Suite J-1
Orlando, Florida 32811
(407) 849-2090
November 15, 1995
Raymond O'S. Kelly
114 Sansome Street, Suite 602
San Francisco, California 94104
SAR Agreement Extension
-----------------------
Dear Mr. Kelly:
Reference is made to that certain Stock Appreciation Rights Agreement,
dated as of November 20, 1989 (the "SAR Agreement"), by and between Bell
National Corporation, a California corporation, as the "Company", and yourself,
as the "Recipient". Capitalized terms used and not defined herein shall have the
respective meanings ascribed to such terms under the SAR Agreement.
The purpose of this letter is to set forth our agreement, and to implement
the direction of the Board of Directors of the Company, that the term of the
SARs granted under the SAR Agreement be extended for five years. The "term" of
the SARs is established under Section 2(d) of the SAR Agreement, which provides
that all SARs not previously exercised shall be deemed to be exercised in full
upon the seventh anniversary of the Closing Date. Such Closing Date was November
20, 1989, and so the seventh anniversary thereof is November 20, 1996.
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by both of the parties hereto, and
intending to be legally bound, it is hereby agreed as follows:
1. Extension of Term. Section 2(d) of the SAR Agreement is hereby amended
by deleting the terms "seventh anniversary" each time they appear therein and
inserting in their place the terms "twelfth anniversary".
2. Further Actions. Each of the Company and Recipient agree from time to
time to execute and deliver such documents and instruments, and to take such
other and further actions, as the other party hereto may reasonably request in
order to further give effect to or evidence the amendment to the SAR Agreement
as set forth in this letter agreement.
3. Governing Law. This letter agreement shall be governed by and construed
in all respects in accordance with the laws of the State of New York.
<PAGE>
4. Entire Agreement. This letter agreement sets forth the entire agreement
between the parties hereto with respect to the extension of the SARs and may be
changed only by a written agreement signed by both of the parties hereto.
If the foregoing is acceptable to you, kindly execute a counterpart of
this letter in the space provided below and return at least one of the same to
the undersigned, whereupon this letter shall become a binding agreement between
us.
Very truly yours,
BELL NATIONAL CORPORATION
By:________________________________
Title:
Acceptance and Spousal Consent
The foregoing is accepted and agreed to, as of the date first above written, by:
___________________________________
Raymond O'S. Kelly
The undersigned has read and is familiar with the SAR Agreement and the above
letter agreement (the "Amendment") and hereby consents to and agrees to be bound
by all the terms and conditions of the SAR Agreement (as amended by the
Amendment) and the Amendment. Without limiting the generality of the foregoing,
the undersigned specifically agrees that the Company may rely on any
authorization, instruction or election made under the SAR Agreement (as amended
by the Amendment) or the Amendment by the Recipient alone and that all of his or
her right, title and interest, if any, in the cash or securities received by the
Recipient under the SAR Agreement (as amended by the Amendment) or the
Amendment, whether arising by operation of community property law, by property
settlement or otherwise shall be subject to all such terms and conditions.
___________________________________
Elsie M. Kelly
<PAGE>
Bell National Corporation
4209 Vineland Road, Suite J-1
Orlando, Florida 32811
(407) 849-2090
November 15, 1995
Nicholas E. Toussaint
c/o Toussaint Associates
155 Sansome Street, Suite 600
San Francisco, California 94104
SAR Agreement Extension
-----------------------
Dear Mr. Toussaint:
Reference is made to that certain Stock Appreciation Rights Agreement,
dated as of November 20, 1989 (the "SAR Agreement"), by and between Bell
National Corporation, a California corporation, as the "Company", and yourself,
as the "Recipient". Capitalized terms used and not defined herein shall have the
respective meanings ascribed to such terms under the SAR Agreement.
The purpose of this letter is to set forth our agreement, and to implement
the direction of the Board of Directors of the Company, that the term of the
SARs granted under the SAR Agreement be extended for five years. The "term" of
the SARs is established under Section 2(d) of the SAR Agreement, which provides
that all SARs not previously exercised shall be deemed to be exercised in full
upon the seventh anniversary of the Closing Date. Such Closing Date was November
20, 1989, and so the seventh anniversary thereof is November 20, 1996.
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by both of the parties hereto, and
intending to be legally bound, it is hereby agreed as follows:
1. Extension of Term. Section 2(d) of the SAR Agreement is hereby amended
by deleting the terms "seventh anniversary" each time they appear therein and
inserting in their place the terms "twelfth anniversary".
2. Further Actions. Each of the Company and Recipient agree from time to
time to execute and deliver such documents and instruments, and to take such
other and further actions, as the other party hereto may reasonably request in
order to further give effect to or evidence the amendment to the SAR Agreement
as set forth in this letter agreement.
3. Governing Law. This letter agreement shall be governed by and
construed in all respects in accordance with the laws of the State of New York.
<PAGE>
2
4. Entire Agreement. This letter agreement sets forth the entire
agreement between the parties hereto with respect to the extension of the SARs
and may be changed only by a written agreement signed by both of the parties
hereto.
If the foregoing is acceptable to you, kindly execute a counterpart of
this letter in the space provided below and return at least one of the same to
the undersigned, whereupon this letter shall become a binding agreement between
us.
Very truly yours,
BELL NATIONAL CORPORATION
By:______________________________
Title:
Acceptance and Spousal Consent
The foregoing is accepted and agreed to, as of the date first above written, by:
______________________________
Nicholas E. Toussaint
The undersigned has read and is familiar with the SAR Agreement and the above
letter agreement (the "Amendment") and hereby consents to and agrees to be bound
by all the terms and conditions of the SAR Agreement (as amended by the
Amendment) and the Amendment. Without limiting the generality of the foregoing,
the undersigned specifically agrees that the Company may rely on any
authorization, instruction or election made under the SAR Agreement (as amended
by the Amendment) or the Amendment by the Recipient alone and that all of his or
her right, title and interest, if any, in the cash or securities received by the
Recipient under the SAR Agreement (as amended by the Amendment) or the
Amendment, whether arising by operation of community property law, by property
settlement or otherwise shall be subject to all such terms and conditions.
______________________________
Susan S. Toussaint
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S><C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,082,000
<ALLOWANCES> 0
<INVENTORY> 4,083,000
<CURRENT-ASSETS> 5,279,000
<PP&E> 212,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,910,000
<CURRENT-LIABILITIES> 3,134,000
<BONDS> 0
0
0
<COMMON> 15,800,000
<OTHER-SE> (14,226,000)
<TOTAL-LIABILITY-AND-EQUITY> 7,910,000
<SALES> 13,653,000
<TOTAL-REVENUES> 13,653,000
<CGS> 7,127,000
<TOTAL-COSTS> 13,184,000
<OTHER-EXPENSES> (45,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 347,000
<INCOME-PRETAX> 77,000
<INCOME-TAX> 29,000
<INCOME-CONTINUING> 48,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<PAGE>
</TABLE>
