<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
Commission File Number 0-2762
MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-1792842
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1118 Centennial Way
Lansing, Michigan 48917
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code:(517) 321-3130
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 12 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding twelve months and (2) has
been subject to the filing requirements for at least the past 90 days.
Yes ___X___ No _______
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at September 30, 1995
----- ---------------------------------
<S> <C>
Common Stock 4,244,942 shares
</TABLE>
1
<PAGE> 2
PART I
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
Maxco, Inc. and Subsidiaries
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 883 $ 3,029
Marketable Securities - current--Note D 2,294
Accounts receivable, less allowance
of $669,000 ($548,000 at March 31, 1995) 29,944 21,899
Inventories--Note B 26,151 19,581
Prepaid expenses and other 536 116
-------- -------
TOTAL CURRENT ASSETS 57,514 46,919
MARKETABLE SECURITIES - LONG-TERM--Note D 17,157 4,552
PROPERTY, PLANT AND EQUIPMENT:
Land 865 831
Buildings and improvements 9,192 8,419
Machinery, equipment and fixtures 20,249 17,920
-------- -------
30,306 27,170
Allowances for depreciation (deduct) (13,026) (11,825)
-------- -------
17,280 15,345
OTHER ASSETS:
Investments 2,617 7,396
Notes and contracts receivable and other 1,274 1,275
Intangibles 17,183 10,090
-------- -------
21,074 18,761
-------- -------
$113,025 $85,577
======== =======
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 236 $ 236
Accounts payable 20,164 16,240
Employee compensation 1,784 2,629
Taxes, interest and other liabilities 2,059 1,307
Current maturities of long-term obligations 4,320 2,594
-------- -------
TOTAL CURRENT LIABILITIES 28,563 23,006
LONG-TERM OBLIGATIONS, less current maturities 36,401 24,879
DEFERRED INCOME TAXES 8,834 5,515
INTERESTS OF MINORITY HOLDERS IN SUBSIDIARY 10,058 9,445
STOCKHOLDERS' EQUITY:
Preferred stock:
Series Two: 12% cumulative redeemable, convertible,
$50 par value; 18,000 shares issued 900 900
Series Three: 10% cumulative redeemable,
$60 face value; 16,219 shares issued 755 755
Common stock, $1 par value, 10,000,000
shares authorized, 4,244,942 shares issued
(4,289,652 shares at March 31, 1995) 4,245 4,290
Additional paid-in capital 811 1,190
Net unrealized gain (loss) on marketable securities 6,441 (60)
Retained earnings 16,017 15,657
-------- -------
29,169 22,732
-------- -------
$113,025 $85,577
======== =======
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended September 30,
1995 1994
---- ----
(Unaudited) (Unaudited)
(In thousands, except per share data)
<S> <C> <C>
Net sales $ 48,878 $ 40,392
Costs and expenses:
Cost of sales and operating expenses 41,615 34,048
Selling, general and administrative 4,921 3,915
Depreciation and amortization 1,008 733
--------- ---------
47,544 38,696
--------- ---------
OPERATING EARNINGS 1,334 1,696
Investment income 42 224
Interest expense (742) (432)
--------- ---------
INCOME BEFORE FEDERAL INCOME TAXES
AND EQUITY IN OPERATION OF AFFILIATES 634 1,488
Federal income taxes 220 521
--------- ---------
INCOME BEFORE EQUITY IN EARNINGS
AND MINORITY INTEREST 414 967
Equity in earnings of affiliates (net of deferred tax) 195
Minority interest in net earnings of subsidiary (308) (300)
--------- ---------
NET INCOME $ 106 $ 862
--------- ---------
Less preferred stock dividend and other (51) (51)
--------- ---------
NET INCOME APPLICABLE
TO COMMON STOCK $ 55 $ 811
========= =========
Net income per share - Note A $ .01 $ .18
========= =========
Weighted average number of shares of
common stock and common stock
equivalents outstanding 4,384 4,433
========= =========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended September 30,
1995 1994
---- ----
(Unaudited) (Unaudited)
(In thousands, except per share data)
<S> <C> <C>
Net sales $95,388 $78,886
Costs and expenses:
Cost of sales and operating expenses 80,735 66,481
Selling, general and administrative 9,777 7,738
Depreciation and amortization 1,935 1,438
--------- ---------
92,447 75,657
--------- ---------
OPERATING EARNINGS 2,941 3,229
Investment Income 150 453
Interest expense (1,440) (868)
Gain on issuance and sales of Medar Stock 3,100
--------- ---------
INCOME BEFORE FEDERAL INCOME TAXES
AND EQUITY IN OPERATIONS OF AFFILIATES 1,651 5,914
Federal income taxes 576 2,070
--------- ---------
INCOME BEFORE EQUITY IN EARNINGS
AND MINORITY INTEREST 1,075 3,844
Equity in earnings of affiliates (net of deferred tax) 364
Minority Interest in Net Earnings of Subsidiary (613) (591)
--------- ---------
NET INCOME $ 462 $ 3,617
Less preferred stock dividend and other (102) (92)
--------- ---------
NET INCOME APPLICABLE
TO COMMON STOCK $ 360 $ 3,525
========= =========
Net income per share - Note A $ .08 $ .77
========= =========
Weighted average number of shares of common stock and common
stock equivalents outstanding 4,392 4,433
========= =========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended September 30,
1995 1994
---- ----
(Unaudited) (Unaudited)
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 462 $ 3,617
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,935 1,438
Equity in earnings from affiliates (560)
Other gains (3,100)
Deferred taxes 928
Minority interest in subsidiary 613 591
Changes in operating assets and liabilities (5,557) (2,864)
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,547) 50
INVESTING ACTIVITIES
Purchase of business assets (6,567) (1,788)
Purchases of property and equipment (2,173) (1,261)
Investment in real estate development (2,588)
Net proceeds from sale of common stock 1,567
Sale of (investment in) marketable securities 6,906 (13,162)
Other 160 (229)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,262) (14,873)
FINANCING ACTIVITIES
Proceeds from long-term obligations 8,735 4,062
Repayments on long-term obligations (3,546) (981)
Proceeds from exercise of stock options 10 111
Acquisition and retirement of common stock (434) (322)
Dividends paid on preferred stock (102) (102)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,663 2,768
-------- --------
DECREASE IN CASH AND
CASH EQUIVALENTS (2,146) (12,055)
Cash and cash equivalents at beginning of period 3,029 14,822
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 883 $ 2,767
======== ========
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1995
NOTE A - Basis of Presentation
The accompanying unaudited, condensed, consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results of the interim
periods covered have been included. For further information, refer to the
consolidated financial statements and notes thereto included in Maxco's
annual report on Form 10-K for the year ended March 31, 1995.
The results of operations for the interim periods presented are not
necessarily indicative of the results for the full year. The effect of
stock options and potential conversion of redeemable convertible preferred
stock was anti-dilutive for the three and six months ended September 30,
1995.
NOTE B - Inventories
The major classes of inventories, at the dates indicated were as follows:
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Raw materials $ 1,799 $ 1,586
Finished goods and
work in progress 2,297 2,116
Purchased products
for resale 22,055 15,879
-------- --------
$26,151 $19,581
======== ========
</TABLE>
NOTE C - Acquisitions
During the six-months ended September 30, 1995, Maxco's FinishMaster
subsidiary acquired the assets of eight auto paint distributors for a
purchase price of approximately $14.6 million ($6.6 million net of
acquisition debt). These acquisitions have been accounted for as purchases
and accordingly, the acquired assets and liabilities have been recorded at
their estimated fair values at the dates of acquisition. Intangible assets
related to goodwill and covenants not to compete were recorded with each
acquisition. Operating results of these acquired organizations were
included in the Company's financial statements from the date of purchase.
These acquisitions were not material in size or scope relative to Maxco's
business.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
NOTE D - Marketable Securities
The Company classifies its marketable securities as securities available
for sale under FASB 115, Accounting for Certain Investments in Debt and
Equity Securities. Available-for-sale securities are carried at fair
value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity. During the first quarter of
1995, Maxco began to account for its investment in Medar stock as
marketable securities available for sale under FASB 115 because Maxco's
ownership of Medar was reduced to less than 20% of Medar's outstanding
shares. Application of this method resulted in an unrealized gain of
approximately $6.4 million, net of deferred tax of approximately $3.3
million, being reported as part of stockholders' equity at September 30,
1995.
The following is a summary of marketable securities available for sale at
September 30, 1995.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------- ------------ --------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Corporate Securities - Medar $7,396 $9,761 $17,157
</TABLE>
NOTE E - Long-Term Debt
Maxco's revolving credit agreement allows Maxco to borrow up to $20.0
million with limitations based on the value of certain assets. At
September 30, 1995, $1.8 million was available under this agreement. A
separate acquisition line of $5.0 million was secured by Maxco during the
second quarter. This facility was unused at September 30, 1995.
During the first quarter, the Company's FinishMaster subsidiary secured a
commitment for a $5.0 million unsecured line of credit to fund periodic
working capital requirements and a separate unsecured $12 million credit
facility to fund acquisitions. These facilities were unused at September
30, 1995. Approximately $12.9 million of Maxco's consolidated long-term
debt of $40.7 million at September 30, 1995 ($10.2 million net of current
maturities), were direct obligations of FinishMaster.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1995
MATERIAL CHANGES IN FINANCIAL CONDITION
Stockholders' equity increased by approximately $6.4 million to $29.2 million
at September 30, 1995, from $22.7 million at March 31, 1995. This increase was
due primarily to the application of FASB 115, Accounting for Certain
Investments in Debt and Equity Securities. Effective April 1995, Maxco changed
its method of accounting for its investment in Medar, Inc. from the equity
method to that of an equity security available for sale. This change is
required under the provisions of FASB 115 due to the reduction of Maxco's
ownership of Medar to less than 20%. Application of this method at September
30, 1995 resulted in an unrealized gain of approximately $6.4 million, net of
tax, being reported as a separate component of stockholders' equity. The
1,737,405 shares of Medar common stock which Maxco owns had an aggregate market
value of $17.1 million at September 30, 1995.
Net cash used in operating and investing activities was the primary reason that
cash and cash equivalents decreased by $2,100,000 during the six-months. Cash
was consumed during the six-months by increases in accounts receivable,
inventory, and other working capital items as a result of higher sales levels
and acquisitions.
Cash was used in investing activities during the six-months for the acquisition
of eight auto paint distributors by FinishMaster. Maxco also continued
development of a site for commercial office and retail use. In addition, two
construction projects consisting of new office, warehouse and manufacturing
facilities for Akemi and Wisconsin Wire & Steel were begun during this period
and related financing for these projects was obtained. Long-term debt issued
in conjunction with these projects, to purchase acquisitions and additional
borrowings under Maxco's revolving line of credit, resulted in long-term debt
increasing $11.5 million since year end.
Subsequent to September 30, 1995, FinishMaster agreed to purchase the assets of
several businesses in their existing regional markets. The aggregate purchase
price amounts to $7.2 million.
Maxco holds 4.0 million shares of FinishMaster which has a separate public
market for its stock. The aggregate market value of these shares was $61.7
million at September 30, 1995. The investments represent a substantial source
of capital which Maxco has available. The amount that could ultimately be
realized by Maxco on the sale of any of these shares will be dependent on the
amount offered, general market conditions, and various other factors.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
(CONTINUED)
During the six-months ended September 30, 1995, Maxco's revolving line of
credit was amended to allow Maxco to borrow up to $20.0 million with
limitations based on the value of certain assets. An additional facility of
$5.0 million was secured at the same time. Use of this facility is restricted
to acquisitions by the company and is subject to certain conditions. These
borrowings bear interest at rates approximating one-half percent below the
prime rate of interest.
The Company believes that its current financial resources, together with cash
generated from operations and its available resources under its lines of
credit, will be adequate to meet cash requirements for the next year. The
Company's FinishMaster subsidiary secured a commitment during the first quarter
for a $5.0 million unsecured line of credit to fund periodic working capital
requirements and a separate unsecured $12.0 million credit facility to fund
acquisitions.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 Compared to 1994
Net sales increased 21% to $48.9 million compared to $40.4 million in last
year's second quarter. Net income decreased to $0.1 million or $.01 per share
from last year's $0.9 million or $.18 per share.
The sales growth for the three months ended September 30, 1995 was primarily
attributable to FinishMaster as sales at this unit increased $7.3 million over
last year. Sales generated by recently acquired outlets accounted for
approximately $7.0 million of FinishMaster's increase offsetting flat
same-outlet sales and a slow down in the national market for automotive paint
products.
The decline in operating earnings of approximately $360,000 for the quarter
resulted primarily from lower volumes and margins at Wright Plastics due to
market constraints on margins and manufacturing inefficiencies at its two
facilities. Quarterly results were also impacted by higher staffing levels to
support anticipated growth at Wright as well as Akemi and Pak-Sak.
Proceeds from FinishMaster's initial public offering were used to fund recent
acquisitions which previously were invested in interest bearing investments.
The impact of this was a decrease of approximately $180,000 in investment
income in this year's second quarter.
The increase in interest expense was primarily due to increased borrowings
under the Company's line of credit and additional borrowings for acquisitions.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
(CONTINUED)
Six Months Ended September 30, 1995 Compared to 1994
Net sales increased 21% to $95.4 million compared to $78.9 million in last
year's six month period. Net income decreased to $0.4 million or $.08 per
share from last year's $3.6 million or $.77 per share.
The most significant impact on net income for the six months ended September
30, 1994 was a $3.1 million pre-tax gain recognized by Maxco as a result of the
sale by Medar of 1.3 million shares of Medar common stock to the public. This
gain represented the net increase in value of Maxco's investment in Medar and
the gain realized on the sale of 145,000 shares of Medar stock owned by Maxco
to cover the over allotments by the underwriter. No comparable event occurred
in the current year.
The sales growth for the six months ended September 30, 1995 was primarily
attributable to FinishMaster and the Construction Supplies group. Sales
increased $2.1 million at Maxco's construction supplies businesses as a result
of strong demand in their market area and additional value added products being
added to their steel and mesh lines. Sales at FinishMaster increased $12.0
million over last year. Sales at recently acquired outlets accounted for the
majority of the increase for the six-months for this unit offsetting flat same
outlet sales due to a slowdown in the national market for automotive paint
products.
The increased volumes at FinishMaster and the Construction Supplies group
allowed these units to have an increase in operating earnings over the
comparable period in the prior year. Acquisition related costs due to rapid
expansion into two new regions, coupled with flat same outlet sales, caused
operating income at FinishMaster to grow at a slower rate than sales.
The operating income improvements for these locations were offset by reduced
operating earnings at Maxco's other operations. Earnings at Wright Plastics
were $800,000 lower in the current period due to market constraints on margins
and manufacturing inefficiencies at its two facilities. Increased staffing
levels to support anticipated growth, which has not materialized at this point,
at Wright as well as Akemi and Pak-Sak also contributed to lower earnings for
the period.
Proceeds from FinishMaster's initial public offering which previously were
invested in interest bearing investments were used to fund recent acquisitions.
The impact of this was a decrease of approximately $300,000 in investment
income for the six-month period.
The increase in interest expense was primarily due to increased borrowings
under the Company's line of credit and additional borrowings for acquisitions.
11
<PAGE> 12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on August 29,
1995. The matters voted upon were the election of directors
and other business which may come before the meeting (of which
there was none). The results of the votes were as follows:
<TABLE>
<CAPTION>
For Withheld
---------- -----------
<S> <C> <C>
Max A. Coon 4,199,295 18,738
Eric L. Cross 4,200,315 17,718
Charles J. Drake 4,200,315 17,718
Joel I. Ferguson 4,199,235 18,798
Richard G. Johns 4,200,315 17,718
Vincent Shunsky 4,200,315 17,718
J. Michael Warren 4,200,315 17,718
James F. White 4,197,415 20,618
Andrew S. Zynda 4,199,615 18,418
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
3 Restated Articles of Incorporation and By-laws are hereby
incorporated by reference from Form S-4 dated November 4, 1991
(File No. 33-43855).
12
<PAGE> 13
4.1 Resolution establishing Series Two Preferred Shares is hereby
incorporated by reference from Form S-4 dated November 4, 1991
(File No. 33-43855).
4.2 Resolution establishing Series Three Preferred Shares is
hereby incorporated by reference from Form S-4 dated November
4, 1991 (File No. 33-43855).
10.1 Incentive stock option plan adopted August 15, 1983, including
the amendment (approved by shareholders August 25, 1987) to
increase the authorized shares on which options may be granted
by two hundred fifty thousand (250,000), up to five hundred
thousand (500,000) shares of the common stock of the company
is hereby incorporated by reference from the registrant's
annual report on Form 10-K for the fiscal year ended March 31,
1988.
10.3 Amended and restated loan agreement between Comerica Bank and
Maxco, Inc. dated as of October 31, 1994 is hereby
incorporated by reference from registrant's Form 10-K dated
June 13, 1995.
10.4 First amendment to the amended and restated loan agreement
between Comerica Bank and Maxco, Inc., dated as of May 9, 1995
is hereby incorporated by reference from registrants Form 10-K
dated June 13, 1995.
10.5* Second amendment to the amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated as of September 8,
1995.
11* Statement Re: Computation of Per Share Earnings
27* Financial Data Schedule
No reports on Form 8-K were filed during the quarter.
*Filed herewith
SIGNATURES
Pursuant to the requirements 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.
MAXCO, INC.
Date November 10, 1995 /S/ VINCENT SHUNSKY
------------------------- -------------------------------------
Vincent Shunsky, Vice President-Finance
and Treasurer (Principal Financial and
Accounting Officer)
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- -------------
<S> <C> <C>
3 Restated Articles of Incorporation and By-laws are hereby
incorporated by reference from Form S-4 dated November 4, 1991
(File No. 33-43855).
4.1 Resolution establishing Series Two Preferred Shares is hereby
incorporated by reference from Form S-4 dated November 4, 1991
(File No. 33-43855).
4.2 Resolution establishing Series Three Preferred Shares is
hereby incorporated by reference from Form S-4 dated November
4, 1991 (File No. 33-43855).
10.1 Incentive stock option plan adopted August 15, 1983, including
the amendment (approved by shareholders August 25, 1987) to
increase the authorized shares on which options may be granted
by two hundred fifty thousand (250,000), up to five hundred
thousand (500,000) shares of the common stock of the company
is hereby incorporated by reference from the registrant's
annual report on Form 10-K for the fiscal year ended March 31,
1988.
10.3 Amended and restated loan agreement between Comerica Bank and
Maxco, Inc. dated as of October 31, 1994 is hereby
incorporated by reference from registrant's Form 10-K dated
June 13, 1995.
10.4 First amendment to the amended and restated loan agreement
between Comerica Bank and Maxco, Inc., dated as of May 9, 1995
is hereby incorporated by reference from registrants Form 10-K
dated June 13, 1995.
10.5* Second amendment to the amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated as of September 8,
1995. 15
11* Statement Re: Computation of Per Share Earnings 24
27* Financial Data Schedule
No reports on Form 8-K were filed during the quarter.
*Filed herewith
</TABLE>
14
<PAGE> 1
Exhibit 10.5
SECOND AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (the "Second
Amendment") dated as of the 8th day of September, 1995, by and among Maxco,
Inc., a Michigan Corporation (hereinafter referred to as the "Borrower"), and
Comerica Bank (formerly known as Comerica Bank-Detroit), a Michigan banking
corporation (hereinafter referred to as the "Bank").
W I T N E S S E T H
WHEREAS, Borrower and Bank entered into a certain Amended and Restated
Loan Agreement dated October 31, 1994, as amended by First Amendment to Amended
and Restated Loan Agreement dated May 9th, 1995 (the "Agreement");
WHEREAS, Borrower, in addition to other credit facilities provided for in
the Agreement, desires to borrow up to $5,000,000 (subject to restrictions
provided herein) from the Bank from time to time for the acquisition financing
needs of the Borrower; and
WHEREAS, the Borrower and the Bank now desire to amend certain of the
covenants and restrictions set forth in the Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Borrower and the Bank hereby agree as follows:
1. In Paragraph 1.1 of Section 1 of the Agreement, the following
definitions are hereby deleted in their entirety and replaced by the following
or added entirely:
"Approved Borrower Acquisition(s)" shall mean business
acquisitions prepared by the Borrower, which are approved in
writing by the Bank, which approval
15
<PAGE> 2
shall not be unreasonably withheld, provided that Borrower has met
the special conditions outlined in the Bank's letter dated August
9, 1995, as accepted by Borrower on August 28, 1995.
"Acquisition Commitment Amount" shall mean the lesser of
$5,000,000 or 30% of the NASDAQ National Markets daily stock value
of the Medar, Inc. shares owned by Borrower.
"Borrowing Base" shall mean the sum of (a) 75 percent of the
aggregate outstanding principal balance of the Borrower's and the
Guarantors' Eligible Accounts, plus (b) the market value of the
capital stock of Finishmaster pledged to the Bank by the Borrower
or any Subsidiary, based on the most recent bid price for the
capital stock of Finishmaster quoted in the NASDAQ OTC Market
multiplied by the Finishmaster Loan Percentage and less (c) the
aggregate amounts of Letters of Credit then outstanding.
"Commitment Amount" shall mean $20,000,000 (or such lesser
amount to which the Commitment Amount may be reduced by the
Borrower from time to time under Section 2.8.1 of this Agreement).
"Eurodollar-based Rate" shall mean the Eurodollar-based Rate
as defined and determined in the Note.
"Finishmaster Loan Percentage" shall mean thirty (30%) percent.
"Guarantors" shall mean Akemi, CMC, Ersco, Pacer, Pak-Sak and
Wisconsin.
"Note" shall mean the Revolving Credit Note, the Revolving
Acquisition Note or the Term Note and "Notes" shall mean each of
the Revolving Credit Note, the Revolving Acquisition Note and the
Term Note.
"Pacer" shall mean Pacer Tool & Mold, Inc., a Michigan
corporation.
"Revolving Acquisition Note" shall mean a promissory note
conforming to Section 2.3(c) of this Agreement and in the form of
Exhibit A-3 to this Agreement.
"Revolving Acquisition Loan" shall mean an advance made by the
Bank to the Borrower under Section 2.1(d) of this Agreement on a
Disbursement Date.
16
<PAGE> 3
"Termination Date" shall mean, as to the Revolving Credit Loan
and the Revolving Acquisition Loan, August 1, 1997 (or such earlier
date on which the Borrower shall permanently terminate the Bank's
commitment under Section 2.8.1 of this Agreement).
2. The Revolving Credit Note dated October 31, 1994, (the "Note") in
the original face amount of Fourteen Million Dollars ($14,000,000), as amended
by the First Amendment to Amended and Restated Loan Agreement dated May 9th,
1995 shall be replaced by a new promissory note conforming with Section 2.3(a)
of the Agreement and in the form of Exhibit A-1 to this Second Amendment.
3. Paragraph 2.1(a) of Section 2 is hereby deleted in its entirety and
replaced by the following:
2.1 Commitment. (a) Subject to the terms and conditions of
this Agreement, the Bank agrees to make loans to the Borrower on a
revolving basis of such amount as the Borrower shall request
pursuant to Section 2.2 of this Agreement at any time from the date
of this Agreement until the Termination Date, up to an aggregate
principal amount outstanding at any time not to exceed the lesser
of the Commitment Amount or the Borrowing Base, provided that each
Disbursement Date under this Agreement must be a Business Day, and
the principal amount of each Revolving Loan made under this
Agreement shall be in the aggregate amount of $10,000 or an
integral multiple thereof, and provided further, that the principal
amount of each Revolving Loan made under this Agreement, for which
Borrower elects to pay interest at the Eurodollar-based Rate, shall
be in the aggregate amount of $1,000,000 or greater in $500,000
increments thereafter.
4. There shall be added a new Paragraph 2.1(d) to Section 2 which
shall read as follows:
2.1 Commitment. (d) Subject to the terms and conditions of
this Agreement, the Bank agrees to make loans to the Borrower for
Approved Borrower Acquisitions on a revolving basis of such amount
as the Borrower shall request pursuant to Section 2.2 of this
Agreement at any time from the date of this Agreement until the
Termination Date, up to an aggregate principal amount outstanding
at any time not to exceed the Acquisition Commitment Amount,
provided that each Disbursement Date under this Agreement must be a
Business Day, and the principal amount of each Revolving
Acquisition Loan made under this Agreement shall be in the
aggregate amount of
17
<PAGE> 4
$10,000 or an integral multiple thereof, and provided further, that
the principal amount of each Revolving Acquisition Loan made under
this Agreement, for which Borrower elects to pay interest at the
Eurodollar-based Rate, shall be in the aggregate amount of
$1,000,000 or greater in $500,000 increments thereafter.
5. Sub-paragraph 2.2.1 of Sub-Section 2.2 of Section 2 is hereby
deleted in its entirety and replaced by the following:
2.2.1 Notice of Request for Loan and Letters of Credit. The
Borrower may with the consent of the Bank request a Revolving Loan,
a Revolving Acquisition Loan, a Term Loan or a Letter of Credit and
make payments thereon by telephonic authorization to the Bank in
accordance with such terms and procedures as the Bank shall from
time to time establish or may give the Bank at least two Business
Days' prior written notice of the Borrower's desire for a Revolving
Loan, a Revolving Acquisition Loan, a Term Loan or a Letter of
Credit. Such notice shall be signed by an authorized officer of
the Borrower and shall specify the proposed Disbursement Date and
the principal amount of the proposed advance for such Revolving
Loan, Revolving Acquisition Loan, Term Loan or the amount of such
Letter of Credit.
6. Sub-paragraph 2.2.2(e) of Sub-Section 2.2 of Section 2 is hereby
deleted in its entirety and replaced by the following:
2.2.2 Bank Obligation to Make Loans or to Issue Letters of
Credit. The Bank agrees to make the Revolving Loan, the Revolving
Acquisition Loan or the Term Loan, or to issue the Letter of
Credit, on the Disbursement Date as set forth in a notice to the
Bank from the Borrower conforming to the requirements of Section
2.2.1 by crediting the Borrower's general deposit account with the
Bank in the amount of such Revolving Loan or Term Loan, or by
delivering the Letter of Credit to the Borrower, provided, however,
that the Bank shall not be so obligated if:
. . .
(e) Any such proposed Revolving Acquisition Loan would cause
the aggregate unpaid principal amount of the Revolving Acquisition
Loans outstanding under this Agreement to exceed the Acquisition
Commitment Amount.
7. There shall be added a new Paragraph (c) to Sub-Section 2.3 to
Section 2 which shall read as follows:
18
<PAGE> 5
(c) Revolving Acquisition Note. The Revolving Acquisition
Loans shall be evidenced by the Revolving Acquisition Note,
executed by the Borrower, dated the date of this Agreement, payable
to the Bank on the Termination Date (unless sooner accelerated
pursuant to the terms of this Agreement), and in the principal
amount of the original Acquisition Commitment Amount. The date and
amount of each Revolving Acquisition Loan made by the Bank and of
each repayment of principal thereon received by the Bank shall be
recorded by the Bank in its records. The aggregate unpaid
principal amount so recorded by the Bank shall constitute the best
evidence of the principal amount owing and unpaid on the Note,
provided, however, that the failure by the Bank so to record any
such amount or any error in so recording any such amount (whether
on the schedule attached to the Revolving Acquisition Note or
otherwise) shall not limit or otherwise affect the obligations of
the Borrower under this Agreement or the Revolving Acquisition Note
to repay the principal amount of all the Revolving Acquisition
Loans together with all interest accrued or accruing thereon.
8. Paragraph 2.4(c) to Section 2 is hereby deleted in its entirety and
replaced by the following:
(a) The Revolving Credit Note shall bear interest on the
outstanding principal balance from time to time outstanding at a
rate equal to the Prime Rate, less one-half of one percent (.5%),
or the Eurodollar-based Rate, as elected by the Borrower under the
terms of the Revolving Credit Note, until maturity, whether by
acceleration or otherwise, and thereafter at a rate equal to three
percent (3%) per annum plus the rate otherwise prevailing
hereunder. Interest shall be payable in accordance with the terms
of the Revolving Credit Note.
9. There shall be added a new Paragraph 2.4(c) to Section 2 which
shall read as follows:
(c) The Revolving Acquisition Note shall bear interest on the
outstanding principal balance from time to time outstanding at a
rate equal to the Prime Rate, less one-half of one percent (.5%),
or the Eurodollar-based Rate, as elected by the Borrower under the
terms of the Revolving Acquisition Note, until maturity, whether by
acceleration or otherwise, and thereafter at a rate equal to three
percent (3%) per annum plus the rate otherwise prevailing
hereunder. Interest shall be
19
<PAGE> 6
payable in accordance with the terms of the Revolving Acquisition
Note.
10. There shall be added a new Sub-Sub-Section 2.6.1.1 to Section 2
which shall read as follows:
2.6.1.1 Revolving Acquisition Credit Commitment Fee. The
Borrower agrees to pay to the Bank a revolving credit commitment
fee for the period from and including the date of this Agreement to
the Termination Date equal to one-half of one percent (.5%) of the
principal amount of each Revolving Acquisition Loan. Such
commitment fee shall be payable on the date each Revolving
Acquisition Loan.
11. Sub-Section 2.8 of Section 2 is hereby deleted in its entirety and
replaced by the following:
2.8 Changes in Commitment and Prepayments.
2.8.1 Termination or Reduction in Commitment. The Borrower
may, at any time and from time to time, upon at least five (5)
Business Days' prior written notice received by the Bank,
permanently terminate the Bank's commitments under this Agreement
or permanently reduce the Commitment Amount by an integral multiple
of $500,000, provided, however, that the Borrower, on the effective
date of such termination or reduction, (a) shall pay to the Bank,
in the case of a termination, the aggregate unpaid principal amount
of all Revolving Loans, Revolving Acquisition Loans and Term Loans
(together with, in the case of Term Loans, any prepayment penalty
or premium provided by the Term Notes or otherwise required by the
Bank) and shall deposit with the Bank in cash an amount (adjusted,
as deemed necessary by the Bank, for any applicable reserve or
other requirements) equal to the Bank's maximum liability under all
Letters of Credit then outstanding, or (b) shall pay to the Bank,
in the case of a reduction, the amount, if any, by which the
aggregate unpaid principal amount of all Revolving Loans exceeds
the then reduced Commitment Amount, together in either case with
all interest accrued and unpaid on the principal amounts so
prepaid. After any such reduction, the commitment fee provided
under Section 2.6.1 of this Agreement shall be calculated on the
Commitment Amount as so reduced and the Commitment Amount may not
be increased or otherwise reinstated without the express written
agreement of the Bank.
20
<PAGE> 7
2.8.2 Mandatory Prepayments. In addition to the mandatory
prepayment required under Section 2.8.1 of this Agreement, the
Borrower shall pay to the Bank the amount, if any, by which the
aggregate unpaid principal amount of all Revolving Loans from time
to time exceeds the lesser of the Commitment Amount or the
Borrowing Base, together with all interest accrued and unpaid on
the amount of such excess, but without other premium or penalty.
Such prepayment shall be immediately due and owing upon the
occurrence of any such excess, provided, however, that any
mandatory prepayment made under this Section 2.8.2 shall not reduce
the Commitment Amount.
2.8.3 Optional Prepayments. (a) The Borrower may, at any
time and from time to time, upon at least one (1) Business Day's
prior written notice received by the Bank, prepay the unpaid
principal amount of the Revolving Loans or Revolving Acquisition
Loans for which Borrower has elected the Prime-based Rate, in whole
or in part without premium or penalty, provided, however, that any
such optional prepayment shall be made in an integral multiple of
$10,000 and provided, further, that any optional prepayment made
under this Section 2.8.3 shall not reduce the Commitment Amount.
Prepayments of any Revolving Loans or Revolving Acquisition Loans
for which the Borrower has elected the Eurodollar-based Rate shall
be governed by the Note.
(b) The Borrower may prepay the unpaid principal amount of the
Term Loans only if permitted by, and on the terms of, the Term
Notes.
2.8.4 Payments Under Revolving Acquisition Loans. Principal
payments required under a Revolving Acquisition Loan will be
predicated on the amounts outstanding and will be defined prior to
any Revolving Acquisition Loan and shall provide for an
amortization period of up to seven (7) years, as determined by the
Bank.
12. Paragraphs 6.5, 6.6, 6.7 and 6.8 of Section 6 are hereby deleted in
their entirety and are replaced by the following:
6.5 Maintain Tangible Net Worth. On a Consolidated
Statement Basis, maintain a Tangible Net Worth of not less than
$7,000,000.
6.6 Maintain Consolidated Funded Debt to EBITDA. On a
Consolidated Basis, maintain the ratio of Consolidated Funded Debt
to earnings before interest, taxes, depreciation and amortization
(determined on a
21
<PAGE> 8
rolling four quarters basis) ("EBITDA") of not more than (a) 4.30
to 1.0 from the date of this Agreement to March 31, 1996, (b) 3.80
to 1.0 from April 1, 1996 through March 31, 1997, and (c) 3.50 to
1.0 from April 1, 1997 and thereafter. On a Consolidated Basis,
but specifically excluding Finishmaster and Medar, maintain the
ratio of Consolidated Funded Debt to EBITDA of not more than (a)
12.80 to 1.0 from the date of this Agreement to March 31, 1996, (b)
8.00 to 1.0 from April 1, 1996 through March 31, 1997, and (c) 5.00
to 1.0 from April 1, 1997 and thereafter.
6.7 Maintain Current Ratio. On a Consolidated Statement
Basis, maintain the ratio of Current Assets to Current Liabilities
of not less than 1.10 to 1.0.
6.8 Maintain Net Current Assets. On a Consolidated
Statement Basis, maintain Net Current Assets of not less than
$9,500,000.
13. Paragraphs 7.14 of Section 7 are hereby deleted in their entirety
and are replaced by the following:
7.14 Omitted Intentionally.
14. Except as specifically modified hereby, the terms and conditions of
the Agreement and the Notes remain in full force and effect and the undersigned
hereby ratify and agrees to be bound by the terms of the Agreement as hereby
amended.
15. Neither the extension of this Second Amendment by the Bank, nor any
other act or omission by the Bank in connection herewith, shall be deemed a
waiver by the Bank of any default under the Agreement.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Second
Amendment to be executed by their duly authorized officers as of the day and
year first written above.
MAXCO, INC.
BY /S/ Vincent Shunsky
----------------------------
VINCENT SHUNSKY
ITS VICE PRESIDENT
COMERICA BANK
BY /S/ David G. Grantham
---------------------------
DAVID G. GRANTHAM
ITS VICE PRESIDENT
22
<PAGE> 9
The Undersigned Guarantors hereby acknowledge and consent to the above
Second Amendment.
Akemi Plastics, Inc.
BY /S/ Vincent Shunsky
----------------------
VINCENT SHUNSKY
ITS TREASURER
ERSCO OF MICHIGAN, INC. PAK-SAK INDUSTRIES, INC.
BY /S/ Vincent Shunsky BY /S/ Vincent Shunsky
--------------------- ----------------------
VINCENT SHUNSKY VINCENT SHUNSKY
ITS TREASURER ITS TREASURER
WISCONSIN WIRE & STEEL, INC. CMC, INC.
BY /S/ Vincent Shunsky BY /S/ Vincent Shunsky
--------------------- ----------------------
VINCENT SHUNSKY VINCENT SHUNSKY
ITS TREASURER ITS PRESIDENT
PACER TOOL & MOLD, INC.
BY /S/ Vincent Shunsky
----------------------
VINCENT SHUNSKY
ITS TREASURER
23
<PAGE> 1
MAXCO, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF
PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended September 30,
1995 1994
---- ----
<S> <C> <C>
NET INCOME FOR COMPUTATION
OF PER SHARE AMOUNTS
- ----------------------------------------------------------------
Net income $ 106,000 $ 862,000
Preferred stock series 2 dividend (27,000) (27,000)
Preferred stock series 3 dividend (24,000) (24,000)
---------- ----------
NET INCOME ATTRIBUTABLE
TO COMMON STOCK--PRIMARY $ 55,000 $ 811,000
========== ==========
NET INCOME ATTRIBUTABLE
TO COMMON STOCK--FULLY DILUTED $ 82,000 $ 838,000
========== ==========
PRIMARY
- ----------------------------------------------------------------
Average shares outstanding 4,262,611 4,308,382
Net effect of dilutive stock options--based on
the Treasury Stock Method using average
market price 121,356 124,347
--------- ----------
TOTAL 4,383,967 4,432,729
PER SHARE AMOUNT $ 0.01 $ 0.18
FULLY DILUTED
- ----------------------------------------------------------------
Average shares outstanding 4,262,611 4,308,382
Net effect of dilutive stock options--based on
the Treasury Stock Method using the
quarter-end market price if higher than
average market price 121,356 124,347
Assumed conversion of series two 12%
cumulative redeemable convertible
preferred stock 231,840 231,840
---------- ----------
TOTAL 4,615,807 4,664,569
========== ==========
PER SHARE AMOUNT $ 0.02 $ 0.18
</TABLE>
24
<PAGE> 2
MAXCO, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF
PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six Months Ended September 30,
1995 1994
---- ----
<S> <C> <C>
NET INCOME FOR COMPUTATION
OF PER SHARE AMOUNTS
- ----------------------------------------------------------------
Net income $ 462,000 $3,617,000
Preferred stock series 2 dividend (54,000) (54,000)
Preferred stock series 3 dividend (48,000) (48,000)
---------- ----------
NET INCOME ATTRIBUTABLE
TO COMMON STOCK--PRIMARY $ 360,000 $3,515,000
========== ==========
NET INCOME ATTRIBUTABLE
TO COMMON STOCK--FULLY DILUTED $ 414,000 $3,569,000
========== ==========
PRIMARY
- ----------------------------------------------------------------
Average shares outstanding 4,272,052 4,307,565
Net effect of dilutive stock options--based on
the Treasury Stock Method using average
market price 119,559 125,127
---------- ----------
TOTAL 4,391,611 4,432,692
PER SHARE AMOUNT $ 0.08 $ 0.79
FULLY DILUTED
- ----------------------------------------------------------------
Average shares outstanding 4,272,052 4,307,565
Net effect of dilutive stock options--based on
the Treasury Stock Method using the
quarter-end market price if higher than
average market price 119,559 125,127
Assumed conversion of series two 12%
cumulative redeemable convertible
preferred stock 231,840 231,840
---------- ----------
TOTAL 4,623,451 4,664,532
========== ==========
PER SHARE AMOUNT $ 0.09 $ 0.77
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 883
<SECURITIES> 0
<RECEIVABLES> 30,613
<ALLOWANCES> (669)
<INVENTORY> 26,151
<CURRENT-ASSETS> 57,514
<PP&E> 30,306
<DEPRECIATION> (13,026)
<TOTAL-ASSETS> 113,025
<CURRENT-LIABILITIES> 28,563
<BONDS> 36,401
<COMMON> 4,245
0
1,655
<OTHER-SE> 23,269
<TOTAL-LIABILITY-AND-EQUITY> 113,025
<SALES> 95,388
<TOTAL-REVENUES> 95,388
<CGS> 80,735
<TOTAL-COSTS> 92,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,440
<INCOME-PRETAX> 1,651
<INCOME-TAX> 576
<INCOME-CONTINUING> 1,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
