<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1995
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------- -----------
Commission File Number: 0-16249
CIMCO, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)
265 Briggs Avenue, Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
33-0251163 (I.R.S. Employer Identification No.)
Registrant's telephone number, including area code:
(714) 546-4460
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 ninety (90) days.
Yes X No
--- ---
The registrant had 2,970,481 shares of common stock outstanding as of December
11, 1995.
<PAGE> 2
CIMCO, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
October 31, 1995 (Unaudited) and April 30, 1995 3
Consolidated Statements of Operations (Unaudited) -
Three Months and Six Months Ended October 31, 1995 and 1994 4
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 1995 and 1994 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Recent Developments 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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<PAGE> 3
PART 1- FINANCIAL INFORMATION
CIMCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 31, 1995 APRIL 30, 1995
---------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,799,620 $ 802,887
Short-term cash investments -- --
Accounts receivable, less allowance for doubtful accounts of
$214,000 at October 31, 1995 and $204,000 at April 30, 1995 18,875,323 16,451,712
Federal income tax receivable -- 761,000
Inventories - at lower of cost or market
Raw materials 7,690,081 6,234,425
Work in process 1,235,284 1,010,435
Finished goods 4,418,738 4,014,030
----------- -----------
13,344,103 11,258,890
Prepaid expenses 689,332 408,132
----------- -----------
Total current assets 36,708,018 29,682,621
PROPERTY, PLANT AND EQUIPMENT - at cost
Land 3,459,712 3,459,712
Buildings 9,014,680 9,074,966
Machinery and equipment 35,674,875 34,260,057
Leasehold improvements 1,915,015 2,077,330
----------- -----------
50,064,282 48,872,065
Less accumulated depreciation and amortization 23,599,408 22,570,610
----------- -----------
26,464,874 26,301,455
OTHER ASSETS
Other 2,227,502 2,598,734
----------- -----------
$65,400,394 $58,582,810
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $14,668,400 $14,390,500
Notes payable to bank 4,324,327 3,816,327
Accounts payable 16,846,351 10,177,863
Accrued expenses 2,430,264 2,427,811
Income taxes payable (18,601) 325,950
----------- -----------
Total current liabilities 38,250,741 31,138,451
LONG-TERM DEBT, net of current portion -- --
DEFFERRED INCOME TAXES 1,881,000 2,129,000
COMMITMENTS -- --
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value; authorized 5,000,000 shares;
issued and outstanding, none -- --
Preferred stock - Series A Junior Participating - $.01 par value;
authorized 100,000 shares; issued and outstanding, none -- --
Common stock - $.01 par value; authorized 10,000,000 shares;
issued and outstanding, 2,965,481 shares at October 31, 1995 and
2,960,481 at April 30, 1995 29,655 29,605
Capital in excess of par value 7,294,332 7,258,757
Retained earnings 18,120,410 18,323,858
Foreign currency translation adjustment 26,859 (24,598)
----------- -----------
25,471,256 25,587,622
Less note receivable from Employee Stock Ownership Plan (202,603) (272,263)
----------- -----------
25,268,653 25,315,359
----------- -----------
$65,400,394 $58,582,810
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 4
CIMCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------- -------------------------
1995 1994 1995 1994
------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales $29,906,468 $20,276,376 $55,119,256 $38,544,069
Costs and expenses:
Manufacturing costs 25,151,200 17,614,781 47,040,807 33,366,715
Engineering and tooling expenses 1,507,901 898,188 2,769,289 2,030,239
Selling, general and administrative expenses 2,599,809 2,335,563 4,887,027 4,359,668
Operating profit (loss) 647,558 (572,156) 422,133 (1,212,553)
Interest income (6,440) (20,158) (18,563) (39,882)
Interest expense 364,623 297,626 735,144 566,632
----------- ----------- ----------- -----------
358,183 277,468 716,581 526,750
----------- ----------- ----------- -----------
Income (loss) before provision/benefit for income taxes 289,375 (849,624) (294,448) (1,739,303)
Provision (benefit) for income taxes 93,000 (308,000) (91,000) (628,000)
----------- ----------- ----------- -----------
Net income (loss) $ 196,375 $ (541,624) $ (203,448) $(1,111,303)
=========== =========== =========== ===========
Earnings (loss) per common share $ 0.07 $ (.18) $ (.07) $ (.37)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
CIMCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
1995 1994
--------------------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flow from operating activities:
Net income (loss) $ (203,448) $(1,111,303)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,837,917 1,722,002
(Gain) loss on sale of property, plant and equipment (5,583) (15,671)
Provision for bad debts 10,000 --
(Increase) decrease in accounts receivable (2,433,611) (2,615,282)
(Increase) decrease in federal income tax receivable 761,000 --
(Increase) decrease in inventories (2,085,213) (796,948)
(Increase) decrease in prepaid expenses (281,200) (395,598)
(Increase) decrease in other assets 371,232 (256,562)
Increase (decrease) in accounts payable 6,668,488 2,229,350
Increase (decrease) in accrued expenses 2,453 36,217
Increase (decrease) in income taxes payable (344,551) 274,718
Increase (decrease) in deferred income taxes (248,000) (1,008,000)
----------- -----------
Net cash provided by (used in) operating activities 4,049,484 (1,937,077)
----------- -----------
Cash flow from investing activities:
Proceeds from the sale of property, plant and equipment 182,078 921,577
Redemption of short-term cash investments -- 889,460
Purchase of short-term cash investments -- (11,058)
Capital expenditures (2,177,831) (1,577,776)
----------- -----------
Net cash provided by (used in) investing activities (1,995,753) 222,203
----------- -----------
Cash flow from financing activities:
Net increase (decrease) in short-term borrowings 508,000 2,994
Proceeds from issuance of common stock 35,625 --
Proceeds from issuance of long-term debt 1,420,000 1,835,000
Principal payments on long-term debt (1,142,100) (1,621,267)
Repurchase of common stock -- (112,483)
Loan to Employee Stock Ownership Program 69,660 --
----------- -----------
Net cash provided by (used in) financing activities 891,185 104,244
----------- -----------
Foreign currency translation gain (loss) 51,457 51,889
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,996,373 (1,558,741)
Cash and cash equivalents at beginning of the year 802,887 2,284,191
----------- -----------
Cash and cash equivalents at end of the year $ 3,799,260 $ 725,450
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 736,617 $ 552,661
Income taxes $ 91,626 $ 19,510
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
CIMCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF INTERIM INFORMATION
The consolidated balance sheet as of October 31, 1995 and the related
consolidated statements of operations and cash flows for the three month and
six month periods ended October 31, 1995 and 1994 are unaudited; in the opinion
of management, all adjustments for a fair presentation of such financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative of results for
a full year.
The financial statements and notes are presented as permitted by Form
10-Q, and do not contain certain information included in the Company's audited
financial statements and notes for the fiscal year ended April 30, 1995.
2. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are based on the weighted average
number of shares of common stock outstanding during the related periods.
Primary and fully diluted earnings (loss) per share do not differ materially
from net earnings (loss) per common share, and thus have not been presented.
Weighted average shares outstanding were 2,961,133 and 2,966,506 for
the three month periods and 2,960,805 and 2,973,550 for the six month periods
ended October 31, 1995 and 1994, respectively.
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<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
A. RESULTS OF OPERATIONS
Three Months Ended October 31, 1995 vs. October 31, 1994
The following table shows the amounts of certain items included in the
Company's statements of operations and percentages of these items as they
relate to net sales for the three months ended October 31, 1995 and 1994; also
shown are the amounts and percentages of increase or decrease of these items in
the current period as compared to the corresponding period in the preceding
year.
AMOUNTS AND PERCENTAGES OF CERTAIN ITEMS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------- INCREASE (DECREASE)
OCTOBER 31, 1995 OCTOBER 31, 1994 1995 VS. 1994
---------------- ----------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $29,906 100.0 $20,276 100.0 $9,630 47.5
------- ----- ------- ----- ------
Manufacturing costs 25,151 84.1 17,615 86.9 7,536 42.8
Engineering and tooling expenses 1,508 5.0 898 4.4 610 67.9
Selling expenses 977 3.3 721 3.6 256 35.5
General and administrative expenses 1,623 5.4 1,615 7.9 8 0.5
Interest expense, net 358 1.2 277 1.4 81 29.2
------- ----- ------- ----- ------
Income (loss) before for income taxes 289 1.0 (850) (4.2) 1,139 134.0
Provision (benefit) for income taxes 93 0.3 (308) (1.5) 401 130.2
------- ----- ------- ----- ------
Net income (loss) $ 196 0.7 $ (542) (2.7) $ 738 136.2
======= ===== ======= ===== ======
</TABLE>
Net sales increased 47.5% to $29,906,000 in the current quarter from
$20,276,000 in the second quarter of fiscal 1995 after eliminating intersegment
sales of $443,000 and $883,000, respectively, in those quarters. Costs and
expenses did not increase at the same rate as sales, largely for the reasons
discussed below.
The restructuring of the Company's Commercial/Industrial Segment and
Medical Segment was completed during the second quarter of the current fiscal
year. The restructuring included, among other things, the integration of the
commercial and medical molding operations, sale of equipment, and manufacturing
personnel reductions. This Segment has been renamed the Molding Segment. As a
result, the Medical Segment now primarily consists of proprietary respiratory
care products and, as such, has been renamed the Respiratory Segment (see also
Recent Developments). There have been no changes made to the reporting of the
Compounding Segment. Operating segment results of operations for prior periods
have been restated for comparability to conform to the new configuration:
Compounding, Molding and Respiratory Segments.
The Compounding Segment's gross sales were $21,403,000 for the second
quarter of this year, up 105% from $10,466,000 during the same quarter last
year. The greater sales were primarily the result of higher sales volumes and
prices to the Segment's largest customer and its molders. Sales to several
other customers also increased, in both volume and price, but not at the same
magnitude as sales to the largest customer. Sales were up at all of the
Compounding Segment's facilities, particularly Singapore and Corona.
Operating profit increased 424% to
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<PAGE> 8
$2,107,000 in the current quarter versus $402,000 for the same quarter a year
ago. The increase in operating profit is primarily attributable to the
increase in sales as noted above, and the resulting greater utilization of
plant capacity. All major manufacturing cost components, as well as selling,
general and administrative expenses, increased at a lesser rate than did gross
sales, except raw material costs which increased slightly as a percentage of
sales.
Gross sales of the Molding Segment decreased 18.3% to $7,761,000 in
the current quarter from $9,499,000 of a year ago. The decrease was largely the
result of the continued downward trend of sales to the segment's three largest
customers, partially offset by sales to new customers and price increases to
existing customers. The operating loss for the current quarter was $1,470,000
versus a loss of $1,082,000 for the same quarter last fiscal year.
Underutilization of molding plant capacity, resulting from the previously
mentioned decrease in sales volume, as well as costs associated with the
restructuring of the Company's Southern California molding operations, reduced
operating profit for the current quarter. These cost increases were partially
offset by improvements in raw material and direct labor costs as a percentage
of sales.
The Respiratory Segment's gross sales decreased less than 1% to
$1,185,000 in the current quarter from $1,194,000 during the same period last
year. The operating profit for the current quarter was $11,000 compared to
$108,000 for the same quarter last year. The reduction in operating profit in
the current quarter was primarily due to increases in outside costs related to
product mix changes and increases in selling expenses.
Engineering and tooling expenses, which are reflected exclusively in
the Molding Segment, increased 67.9% to $1,508,000 in the current quarter from
$898,000 during the same quarter last year as tooling sales increased 73.5%.
Selling expenses increased 35.5% to $977,000 in the current quarter
from $721,000 in the same quarter last year. The increase resulted primarily
from greater sales and commission expense in connection with the 47.5% increase
in net sales. The expenses were 3.3% of net sales in the current quarter and
3.6% of net sales for the quarter last year.
General and administrative expenses increased 0.5% to $1,623,000 in
the current quarter from $1,615,000 the same quarter last year. The expenses
decreased to 5.4% of net sales in the current quarter from 7.9% for the same
quarter last year.
Net interest expense increased to $358,000 or 1.2% of net sales in the
current quarter from $277,000 or 1.4% of net sales in the same quarter a year
ago. Interest expense increased as a result of greater debt and higher costs
of borrowed funds in the current quarter.
The income tax expense in the current quarter relates to the pre-tax
income in the current quarter. The income tax benefit in the same quarter of
last year relates to the pre-tax loss in that period.
The net income for the second quarter of the current year was $196,000
versus a net loss of $542,000 for the same quarter last year. The current
period's net income compared to the net loss of a year ago resulted primarily
from the continued trend of increased sales and operating profit of the
Compounding Segment, partially offset by the continued trend of declining sales
and resulting underutilization of the Molding Segment's plant capacity.
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<PAGE> 9
Six Months ended October 31, 1995 vs. October 31, 1994
The following table shows the amounts of certain items included in the
Company's statements of operations and percentages of these items as they
relate to net sales for the six months ended October 31, 1995 and 1994; also
shown are the amounts and percentages of increase or decrease of these items in
the current period as compared to the corresponding period in the preceding
year.
AMOUNTS AND PERCENTAGES OF CERTAIN ITEMS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------- INCREASE (DECREASE)
OCTOBER 31, 1995 OCTOBER 31, 1994 1995 VS. 1994
---------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $55,119 100.0 $38,544 100.0 $16,575 43.0
------- ----- ------- ----- -------
Manufacturing costs 47,041 85.4 33,367 86.6 13,674 41.0
Engineering and tooling expenses 2,769 5.0 2,030 5.3 739 36.4
Selling expenses 1,839 3.3 1,360 3.5 479 35.2
General and administrative expenses 3,048 5.5 3,000 7.7 48 1.6
Interest expense, net 716 1.3 526 1.4 190 36.1
------- ----- ------- ----- -------
Loss before credit for income taxes (294) (0.5) (1,739) (4.5) 1,445 83.1
Credit for income taxes (91) (0.1) (628) (1.6) 537 85.5
------- ----- ------- ----- -------
Net earnings (loss) $ (203) (0.4) $(1,111) (2.9) $ 908 81.7
======= ===== ======= ===== =======
</TABLE>
Net sales increased 43.0% to $55,119,000 in the first six months of
the current year from $38,544,000 in the same period of fiscal 1995 after
eliminating intersegment sales of $864,000 and $1,667,000, respectively, in
those periods. Costs and expenses did not increase at the same rate as sales,
largely for the reasons discussed below.
The restructuring of the Company's Commercial/Industrial Segment and
Medical Segment was completed during the second quarter of the current fiscal
year. The restructuring included, among other things, the integration of the
commercial and medical molding operations, sale of equipment, and manufacturing
personnel reductions. This Segment has been renamed the Molding Segment. As a
result, the Medical Segment now primarily consists of proprietary respiratory
care products and, as such, has been renamed the Respiratory Segment (see also
Recent Developments). There have been no changes made to the reporting of the
Compounding Segment. Operating segment results of operations for prior periods
have been restated for comparability to conform to the new configuration:
Compounding, Molding and Respiratory Segments.
The Compounding Segment's gross sales were $38,610,000 for the first six
months of the current year, up 92.9% from $19,858,000 during the same period
last year. The greater sales were primarily the result of higher sales volumes
and prices to the Segment's largest customer and its molders. Sales to several
other customers also increased, but not to the same magnitude as sales to the
largest customer. Sales increased at all of the Compounding Segment's
facilities, particularly Singapore and Corona. Operating profit increased 471%
to $3,709,000 in the current six month period versus $649,000 for the same
period a year ago. The increase in operating profit is primarily attributable
to the increase in sales as noted above, and the resulting greater utilization
of plant capacity. All major manufacturing cost components, as well as selling,
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<PAGE> 10
general and administrative expenses, increased at a lesser rate than did gross
sales, except raw material costs which increased slightly as a percentage of
sales.
Gross sales of the Molding Segment decreased 17.4% to $15,110,000 in
the current six month period from $18,285,000 of a year ago. The decrease was
largely the result of the continued downward trend of sales to the segment's
three largest customers, partially offset by sales to new customers and price
increases to existing customers. The operating loss for the current six months
was $3,245,000 versus a loss of $1,962,000 for the same period last fiscal
year. Underutilization of molding plant capacity, resulting from the
previously mentioned decrease in sales volume, as well as an increase in
workers' compensation expense, loss on sale of obsolete inventory, employee
relocation expenses and costs associated with the restructuring of the
Company's Southern California molding operations, reduced operating profit for
the current six months. These cost increases were partially offset by
improvements in raw material and direct labor costs as a percentage of sales.
The Respiratory Segment's gross sales increased 9.5% to $2,263,000 in
the current six month period from $2,067,000 during the same period last year.
The operating loss for the current six months was $42,000 compared to an
operating profit of $100,000 for the same period last year. The reduction in
operating profit in the current six months was primarily due to increases in
outside costs relating to product mix changes and increases in selling
expenses.
Engineering and tooling expenses, which are reflected exclusively in
the Molding Segment, increased 36.4% to $2,769,000 in the current six month
period from $2,030,000 during the same period last year as tooling sales
increased 39.8%.
Selling expenses increased 35.2% to $1,839,000 in the current six
month period from $1,360,000 in the same period last year. The increase
resulted primarily from greater sales and commission expense in connection with
the 43.0% increase in net sales. The expenses were 3.3% of net sales in the
current period and 3.5% of net sales for the same period last year.
General and administrative expenses increased 1.6% to $3,048,000 in
the current six month period from $3,000,000 the same period a year ago. The
expenses decreased to 5.5% of net sales in the current period from 7.7% for the
same period last year.
Net interest expense increased to $716,000 or 1.3% of net sales in the
current six month period from $526,000 or 1.4% of net sales in the same period
a year ago. Interest expense increased as a result of greater debt and higher
costs of borrowed funds in the current period.
The decreased tax benefit in the current six month period versus the
same period a year ago was the result of the decreased pre-tax loss in the
current period versus a year ago.
The net loss for the first six months of the current year was $203,000
versus a net loss of $1,111,000 for the same period last year. The current
period's reduced net loss compared to the net loss of a year ago resulted
primarily from the continued trend of increased sales and operating profit of
the Compounding Segment, partially offset by the continued trend of declining
sales and resulting underutilization of the Molding Segment's plant capacity.
B. LIQUIDITY AND CAPITAL RESOURCES
The Company has previously financed its capital expenditures and
working capital requirements from operating cash flow, trade credit, cash
reserves, and borrowings under its line of credit. In fiscal 1994, the Company
borrowed $5,625,000 through an industrial development revenue bond ("IDRB")
issued by the state of Nevada. The proceeds of this bond were used to
construct and equip the new molding facility in Dayton, Nevada.
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<PAGE> 11
On February 1, 1995, the Company renegotiated its credit agreement
with its bank. The new credit agreement ("Credit Agreement") provides for a
$6,000,000 (as amended on June 9, 1995) revolving line of credit ("Line of
Credit") expiring September 15, 1995 (extended as described below), a
$7,500,000 term loan ("Term Loan"), and a standby letter of credit in the
amount of $5,736,000 which secures the $5,625,000 IDRB discussed above. As of
October 31, 1995, the Company had borrowed $4,324,000 under the Line of Credit,
which bears interest at the bank's prime rate plus 1/4%. The Term Loan is
payable in forty-eight equal monthly installments commencing March 1, 1995, and
bears interest at the bank's prime rate plus 1/2%. Borrowings under the Credit
Agreement are collateralized by substantially all of the Company's assets,
except for certain of the Costa Mesa land and buildings and all of the
Singapore assets. In addition to the borrowings described above the Company
has a standby letter of credit in favor of the State of California for Workers'
Compensation, as well as various other letters of credit.
The Credit Agreement contains various covenants that, among other
things, require the maintenance of certain balance sheet ratios, minimum levels
of net worth (as defined in the agreement), restrictions which limit the
payment of dividends to $100,000 annually, and limitations on the acquisition
of, or investment in, other entities. At October 31, 1995, the Company was not
in compliance with certain financial covenants of the Credit Agreement.
On August 24, 1995, the Company amended the Credit Agreement with its
bank which extended the expiration of the Credit Agreement until November 1,
1995 (extended as discussed below), waived financial covenant requirements,
provided for additional revolving borrowings of $1,800,000 at the banks' prime
rate plus 2%, and required the Company to pledge 100% of the outstanding
capital stock of Compounding Technology, Inc.
On October 27, 1995, the Company amended the Credit Agreement with its
bank which extends the expiration of the Credit Agreement until December 28,
1995, waived certain financial covenants, and obtained the bank's consent to
allow the Company to sell certain real and personal property, with the proceeds
applied to the outstanding principal balance of the Term Loan, in inverse order
of payment maturity.
Available sources of funds at October 31, 1995 consisted of
approximately $3,799,000 in cash and cash equivalents, and $380,000 in unused
lines of credit with its bank. The increased sales activity of the Company's
Singapore operations has resulted in a substantial increase in bank balances
subject to foreign clearings, thereby increasing the amount of cash recorded in
the Company's financial statements at October 31, 1995.
Statement of Financial Accounting Standards No. 78 (SFAS No. 78)
requires that long-term obligations that are callable by the creditor within a
one-year period subsequent to year end be classified as current liabilities.
Accordingly, the Company has reclassified all long-term debt to the current
portion of long-term debt, resulting in a working capital deficit. Working
capital was $(1,543,000) at October 31, 1995 versus $(1,456,000) at April 30,
1995.
Capital expenditures aggregated $2,178,000 and $1,558,000 in the first
six months of the current and last fiscal year. Compounding Segment capital
expenditures were $1,238,000 for the first half of the current year. The
Compounding Segment has made a commitment to establish a facility in Saint
Etienne, France, which will require approximately $3,500,000 in capital
expenditures for a building, machinery and equipment in fiscal 1996. Capital
expenditures relating to the France facility for the first six months of the
current year were $457,000. The Company anticipates funding the remaining
$3,000,000 in expenditures via a mortgage note, working capital generated
from the other Compounding Segment operations and additional borrowings.
The balance of the Compounding Segment's expenditures were to upgrade existing
equipment at the other facilities. The purchase of new molding machines per
a customer contract comprised the majority of the
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<PAGE> 12
Molding Segment's $876,000 in capital expenditures. The balance of the
expenditures were used to upgrade machinery in the Respiratory Segment.
The Company has sustained substantial losses from operations in fiscal
1994, fiscal 1995, and the first half of fiscal 1996, used cash in its
operations in fiscal 1995, and at October 31,1995, had a deficit in working
capital caused by a reclassification of debt as per SFAS No. 78. The Company's
continuation as a going concern is dependent upon its ability to secure
sufficient additional financing. Management has implemented measures to reduce
operating costs, reduce debt through sales of certain real and personal
property, and is currently negotiating a proposed acquisition of the Company by
M.A. Hanna Company, as discussed in Recent Developments. If the proposed
acquisition is not consummated, the Company will resume discussions with its
primary lender and others regarding extension and expansion of the Company's
credit facilities. Of the alternatives available, management believes that bank
financing is the most desirable option if the acquisition is not consummated.
Subject to the Company's ability to secure additional financing and
successfully replace its existing credit facility, management believes that
financial resources will be adequate to support working capital requirements
and planned capital expenditures during the next twelve months. However, there
can be no assurance that the Company will be successful in securing additional
financing and renewing or replacing its existing credit facility.
-12-
<PAGE> 13
RECENT DEVELOPMENTS
On November 8, 1995, the Company announced a preliminary agreement for
M.A. Hanna Company to make a tender offer to acquire all of the Company's
outstanding capital stock for $10.50 per share. The preliminary agreement
obligates the Company to work exclusively with M.A. Hanna Company on the
proposed acquisition up to and including December 15, 1995, as amended. The
transaction is subject to approval by the board of directors of both
corporations, negotiation and execution of definitive agreements, obtaining
government approvals and other conditions.
On November 20, 1995, the Company sold the real property located at
13435 Estelle, Corona, CA in a sale-leaseback transaction for $1,130,000. The
initial cash proceeds of $489,000 were used to reduce outstanding debt. The
Company also accepted a mortgage note for $555,000, plus interest, due in full
no later than July 20, 1996, the proceeds of which will be used to reduce
outstanding debt.
On December 5, 1995 the Company sold substantially all of the assets
and liabilities relating to the Misty Ox proprietary respiratory care product
line to Vital Signs CA, Inc. for $2,150,000 in cash, which was used to reduce
outstanding debt. Sales of the Misty Ox product line were approximately
$1,900,000 for the six months ended October 31, 1995 and are reflected in the
Respiratory Segment. The sale also resulted in a workforce reduction of
approximately 40 employees.
-13-
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's annual meeting of stockholders was held on
October 17, 1995.
(b) The directors elected at the meeting were:
Russell T. Gilbert
Utta K. Harrison
Adolph Posnick
Franklin I. Remer
Frederick M. Swenson
(c) Other matters voted upon at the meeting and the results of
those votes were as follows:
<TABLE>
<CAPTION>
For Against Abstain
------------ ------- -------
<S> <C> <C> <C>
Ratification of the Appointment
of Deloitte & Touche LLP as
Auditors for the Fiscal Year
Ending April 30, 1996 .............. 2,343,180 6,739 7,149
</TABLE>
While Deloitte & Touche LLP have been appointed by
the Company as its auditors, Deloitte & Touche LLP
has declined engagement as a result of the Company's
proposed merger.
The foregoing matters are described in detail in the Company's proxy statement
dated September 18, 1995 for the 1995 Annual Meeting of Stockholders.
-14-
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Letter of intent, dated November 2, 1995, from M.A. Hanna to
the Company offering to acquire all of the capital stock of
the Company.
2.2 Press release, dated November 8, 1995, regarding the
preliminary agreement for M.A. Hanna to acquire all of the
Company's outstanding capital stock.
2.3 Amendment, dated December 4, 1995, to the M.A. Hanna letter
of intent dated November 2, 1995, extending the exclusivity
period.
2.4 Press release, dated December 5, 1995, regarding the sale of
the Misty Ox product line to Vital Signs CA, Inc.
2.5 Amendment, dated December 11, 1995, to the M.A. Hanna letter
of intent dated November 2, 1995, extending the exclusivity
period.
10.25 Third Amendment dated October 27, 1995 to Credit Agreement
between Wells Fargo Bank, National Association and
Registrant.
27 Financial Data Schedule.
(b) Reports on Form 8-K
1) Report on Form 8-K dated August 12, 1995.
-15
<PAGE> 16
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.
CIMCO, INC.
(Registrant)
Date: December 14, 1995 /s/ RUSSELL T. GILBERT
----------------------
Russell T. Gilbert
President and Chief Executive Officer
Date: December 14, 1995 /s/ L. RONALD TREPP
-------------------
L. Ronald Trepp
Chief Financial Officer
(Principal Financial and Accounting Officer)
-16-
<PAGE> 1
Exhibit 2.1
[M.A. Hanna Company Letterhead]
HIGHLY CONFIDENTIAL
VIA TELECOPIER AND OVERNIGHT COURIER
November 2, 1995
The Board of Directors
CIMCO, Inc.
265 Briggs Avenue
Costa Mesa, CA 92626-4555
Dear Madam and Sirs:
We hereby offer to acquire all of the capital stock of CIMCO for $10.50 per
share in cash on the following terms and conditions:
1. Subject to the conditions set forth in this letter, Hanna will promptly
negotiate with CIMCO a Merger Agreement containing provisions standard in such
agreements. After approval of the Merger Agreement by the Boards of Directors of
Hanna and CIMCO, Hanna will make a tender offer to acquire all of the
outstanding stock of CIMCO (the "Acquisition"). Concurrently with the approval
of the Merger Agreement, the CIMCO Board will also approve the Hanna option to
acquire in the tender the CIMCO shares owned by Russell T. Gilbert and the CIMCO
shares subject to acquisition by exercise of stock options held by Mr. Gilbert,
and the amendment of CIMCO's stockholder rights plan to exclude Hanna's
transaction from its operation. It is understood that the proposed acquisition
is not contingent upon Mr. Gilbert's purchase of the molding division.
2. For purposes of this offer, we have assumed that (a) Phase 1
environmental audits of CIMCO's properties being prepared for CIMCO will not
indicate any actual or potential substantial liabilities, (b) the Respiratory
Medical Products business will be sold for a cash consideration of at least
$2,568,000, the purchaser will assume trade liabilities relating to the business
of no less than $290,000 and CIMCO will not retain any substantial liabilities
arising out of that business and (c) the two Corona properties of CIMCO will be
sold for at least a gross price of $1,130,000 and $650,000 each and the cash
proceeds of the sales will be used to reduce CIMCO's indebtedness and the
purchaser of the Corona property now
<PAGE> 2
occupied by Compounding Technology, Inc. will enter into a lease with
Compounding Technology, Inc. on arms-length, commercial terms.
3. Hanna reserves the right to complete its due diligence investigation and
requests delivery of definitive documentation reflecting the audits and
transactions referred to in paragraph 2 above.
4. After reviewing the PaineWebber engagement letter dated August 16, 1995,
Hanna requests that CIMCO obtain written confirmation from PaineWebber that it
agrees that in the event that the transaction described in this letter is
consummated, its M & A Advisory Fee will not apply to transactions executed
subsequent to the date of acceptance of this letter.
5. For a period of 30 days commencing with the acceptance of this letter,
subject customary fiduciary out provisions based upon advice of counsel, CIMCO
will work exclusively with Hanna on the Acquisition and will not directly or
indirectly encourage, invite, pursue or take any action to facilitate other
offers to purchase CIMCO and/or its subsidiaries or any assets of CIMCO and/or
its subsidiaries or effect any other business combination involving CIMCO and/or
its subsidiaries. In the event CIMCO shall receive such an offer, it will
immediately notify Hanna and provide details of the offer. For a period of one
year after the date of this letter CIMCO also agrees to reimburse Hanna for its
expenses incurred in connection with the transactions proposed in this letter,
not to exceed $500,000, if CIMCO closes an alternative transaction within such
year and Hanna has not terminated its participation for reasons other than the
fault of CIMCO.
6. From and after the date of receipt of this letter, CIMCO agrees to
conduct its businesses in the ordinary course consistent with past practice and
will grant Hanna the right to review and veto any disposal or acquisition of
stock or assets having a value in excess of $500,000 proposed to be made after
the acceptance of this letter, which veto rights shall not be used unreasonably.
7. CIMCO will not make any press releases, announcement, report, disclosure
or filing with respect to the transaction described in this letter without prior
written consent of Hanna, except as required by law based on the advice of
counsel.
8. Closing of the Acquisition transaction described in this letter is
subject among other things to:
* Approval by governmental agencies and regulatory authorities; and
* the absence at the time of the Acquisition of any environmental,
health, safety, product or other liabilities known to CIMCO's management
which, if realized, would have a material adverse effect on the financial
condition of CIMCO.
9. It is the intention of Hanna, and by signing this letter CIMCO
acknowledges that it is CIMCO's intention as well, that this letter and any
actions of the parties with respect hereto, not be deemed to constitute legally
binding obligations except with respect to the matters described in paragraphs
5, 6 and 7 above, or an obligation or
2
<PAGE> 3
commitment to enter into any definitive agreements. Any legal obligation binding
upon the parties hereto with respect to the transactions described in this
letter, except with the respect to paragraphs 5, 6 and 7 above, is subject to,
and shall exist only upon, the due execution and delivery of the definitive
agreements with respect to such transactions, and all obligations and rights of
the parties hereto (except as aforesaid) shall be governed by such agreements.
Your signature below shall indicate your intentions and obligations with respect
to the matters discussed above; please return a fully signed copy to us. Upon
your execution of this letter, we will deliver to you a draft Merger Agreement
which we have already prepared.
If we have not received a fully signed copy of this letter by 5:00 p.m. EST on
Friday, November 3, 1995, this offer will expire and the intentions stated in
this letter shall be null and void.
Whether or not you elect to accept this letter, please by kind enough to provide
a written response.
Very truly yours,
M.A. HANNA COMPANY
MARTIN D. WALKER
Martin D. Walker
Chairman and Chief Executive Officer
cc: PaineWebber, incorporated, Attention: G. R. Brundage
Accepted this 3rd day of November, 1995.
CIMCO, Inc.
RUSSELL T. GILBERT
Russell T. Gilbert
President and CEO
3
<PAGE> 1
Exhibit 2.2
[CIMCO, INC. LETTERHEAD]
FOR IMMEDIATE RELEASE
M.A. Hanna Contacts: CIMCO Contacts:
(Investor) (Media) Cecilia Wilkinson Jennifer Shea
Barb Gould Andy Opila Pondel Parsons & Wilkinson Vice President
216 589-4085 216 589-4018 310 207-9300 714 546-4460
CIMCO ANNOUNCES PRELIMINARY AGREEMENT
TO BE ACQUIRED BY M.A. HANNA
COSTA MESA, California -- November 8, 1995 -- CIMCO, Inc. (Nasdaq:CIMC), a
producer of thermoplastic compounds and plastic components, and M.A. Hanna
Company, an international specialty chemicals company, jointly announced today a
preliminary agreement for M.A. Hanna Company to acquire for $10.50 a share all
of the outstanding capital stock of CIMCO.
The transaction is subject to approval by the board of directors of
both corporations, negotiation and execution of definitive agreements,
obtaining governmental approvals and other conditions. The CIMCO board of
directors established a special committee of independent directors to evaluate
and make recommendations to the board as to whether the transaction as finally
negotiated is in the best interests of the Company and its stockholders.
Russell T. Gilbert, president and chief executive officer of CIMCO and
CIMCO's largest stockholder, has stated that he intends, subject to approval of
the acquisition as finally negotiated by the special committee and board of
CIMCO, to sell his 615,984 shares, or 21 percent of CIMCO's shares outstanding,
to M.A. Hanna on the same terms offered to other CIMCO stockholders.
Consistent with its strategy of being an intermediary between the polymer
producer and the end product manufacturer, M.A. Hanna intends to sell CIMCO's
plastics components business and retain its plastics compounding operations.
M.A. Hanna has received an offer from Gilbert to purchase the molded components
business as a going concern. M.A. Hanna has advised Gilbert that it intends to
sell the molded components business to him promptly after completing the
acquisition of CIMCO. The transaction would be subject to negotiation and
execution of definitive agreements and other conditions, but the sale of the
molded components business is not a condition of the proposed CIMCO acquisition
by M.A. Hanna.
CIMCO's plastics compounding businesses, which operate as Compounding
Technology, Inc. (CTi), are located in Singapore; Corona, California; and
Charlotte, North Carolina. "The acquisition of CTi helps us on three fronts to
have a more balanced market profile. First, we will grow our international
business. CTi provides M.A. Hanna with an excellent base for growth in Asia. In
fact, the operation in Singapore is CTi's largest," said Martin D. Walker, M.A.
Hanna
<PAGE> 2
chairman and chief executive officer. "CTi is also in the process of expanding
its production capabilities into Europe to service one of its global customers."
"Second, CTi's strong engineering plastics compounding business will add
breadth to our specialty compounding portfolio throughout the world," Walker
continued. "Finally, we are able to build a stronger position in the electrical
and electronics and business machines markets." CTi, formed in 1980, had sales
of $44 million in fiscal 1995 and has 95 employees. In addition to the facility
in Asia and the two in the United States, accounting for 31 million pounds of
capacity, a facility is under construction in France.
CTi develops and produces engineering plastic compounds with an emphasis
on polycarbonate resins, which are used in the electrical/electronics, business
machine and appliance markets because of the material's toughness, clarity and
heat resistance. "CTi's expertise in polycarbonate complements our leadership
position as the number one independent compounder of nylon, another engineering
plastic. In addition, CTi provides us with access to compounding technologies to
offer conductive, internally lubricated and reinforced thermoplastics for
demanding specialty applications, and this fits with our capabilities in flame
retardant materials, which are developed for the same markets," said Douglas J.
McGregor, president and chief operating officer of M.A. Hanna.
"Additionally, the management team of CTi has an excellent track record
of growing the compounding business -- especially in Southeast Asia -- and we
are looking forward to having them on our team," he added.
Founded in 1959, CIMCO, Inc. with headquarters in Costa Mesa, California,
reported sales of $83 million for fiscal 1995. CIMCO is a major developer and
manufacturer of high performance plastic components for commercial, industrial
and medical markets. CIMCO supplies more than 100 original equipment
manufacturers in the computer, commercial irrigation, automotive safety,
residential products, telecommunications and health care industries.
M.A. Hanna Company is a leading international specialty chemicals
company. Its primary businesses are plastics and rubber compounding, color and
additive concentrates and distribution of plastic resins and engineering shapes.
###
<PAGE> 1
Exhibit 2.3
[M.A. Hanna Company Letterhead]
HIGHLY CONFIDENTIAL
December 4, 1995
The Board of Directors
CIMCO, Inc.
265 Briggs Avenue
Costa Mesa, CA 92626-4555
Attention: Mr. Russell T. Gilbert
President and Chief Executive Officer
Dear Madam and Sirs:
Please reference our letter dated November 2, 1995 to you, accepted by CIMCO,
Inc. on November 3, 1995.
This will confirm our agreement reached on December 1, 1995 to amend the first
sentence of paragraph 5 of the letter to extend the period of exclusivity to and
including December 11, 1995. All other provisions of the November 2, 1995 letter
shall remain in full force and effect.
Your signature below shall indicate your obligations with respect to the matters
discussed above; please return a fully signed copy to us.
Thank you.
Very truly yours,
M.A. HANNA COMPANY
JOHN S. PYKE, JR.
John S. Pyke, Jr. Accepted the 4th day
Vice President, General Counsel and Secretary of December, 1995
CIMCO, Inc.
RUSSELL T. GILBERT
Russell T. Gilbert
President and CEO
<PAGE> 1
Exhibit 2.4
[Vital Signs Inc. Letterhead]
FOR IMMEDIATE RELEASE
Contact: Terence D. Wall Tony Dimun Judy Santiago
Vital Signs, Inc. Vital Signs, Inc. Torrance Group
201/ 790-1330 201/ 790-1330 212/ 508-3460
VITAL SIGNS ACQUIRES RESPIRATORY PRODUCT LINE AND ENTERS
INTO MULTI-YEAR MANAGED CARE CONTRACT
TOTOWA, N.J. -- December 5, 1995 -- Vital Signs, Inc. (Nasdaq: VITL) announced
today that it has signed a definitive agreement to acquire the respiratory
product line from Medical Molding Corporation of America Inc., a subsidiary of
CIMCO, Inc.
The respiratory product line, consisting of nebulizer and humidifier
products are sold under the trademark Misty Ox (R) with sales of approximately
$3.3 million by Medical Molding for its fiscal year ended April 30, 1995.
Terence D. Wall, president and chief executive officer of Vital Signs,
stated: "The Mist Ox respiratory products line expands our respiratory product
offering for the Vital Signs direct sales force. Given the strong market share
presence that Vital Signs enjoys in the anesthesia and respiratory market, the
Mist Ox product line with its established niche, will enable our sales personnel
to present an even broader menu of respiratory products to our hospital
customers. Opportunities for increased sales of Mist Ox products exist in the
domestic hospital and home care markets where Misty Ox products have been sold
and in the international markets where sales efforts have just started."
Additionally, Vital Signs announced that it has entered into a multi-year
sole source contract to sell anesthesia and critical care products to Tenet
Healthcare through October 1, 1998. Products under contract include anesthesia
face masks, circuits and circuit components for three years. A sole source
two-year contract for single patient blood pressure cuffs has also been awarded.
"We believe supplier/provider partnerships will be a key to success in
the future," stated Dan Reuvers, vice president of sales for Vital Signs. "The
Tenet relationship is an exciting stride in that direction."
Tenet is the second largest investor owned hospital group in the United
States with nearly one-hundred hospital under ownership. These facilities, along
with some of their affiliate groups (ORNDA,BRIM) will participate in this
relationship.
Vital Signs, was recognized in the November, 1995 issue of Forbes
Magazine as one of "The 200 Best Small Companies in America"; signifying Vital
Signs continual commitment to design the highest quality single-patient use
medical product for anesthesia and critical care applications.
# # #
<PAGE> 1
Exhibit 2.5
[M.A. Hanna Company Letterhead]
HIGHLY CONFIDENTIAL
December 11, 1995
The Board of Directors
CIMCO, Inc.
265 Briggs Avenue
Costa Mesa, CA 92626-4555
Attention: Mr. Russell T. Gilbert
President and Chief Executive Officer
Dear Madam and Sirs:
Please reference our letter dated November 2, 1995 to you, accepted by CIMCO,
Inc. on November 3, 1995, as amended by our letter dated December 4, 1995.
This will confirm our agreement reached today to amend the first sentence of
paragraph 5 of the letter to extend the period of exclusivity to and including
December 15, 1995. All other provisions of the November 2, 1995 letter shall
remain in full force and effect.
Your signature below shall indicate your obligations with respect to the matters
discussed above; please return a fully signed copy to us.
Thank you.
Very truly yours,
M.A. HANNA COMPANY
MICHAEL S. DUFFY
Michael S. Duffy Accepted the 11th day
Vice President, Chief Financial of December, 1995
Officer and Treasurer
CIMCO, Inc.
RUSSELL T. GILBERT
Russell T. Gilbert
President and CEO
<PAGE> 1
EXHIBIT 10.25
THIRD AMENDMENT TO CREDIT DOCUMENTS
This Third Amendment to Credit Documents (this "Amendment") is entered
into as of October 27, 1995, by and among CIMCO, INC., a Delaware corporation
("Borrower"), WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") and MEDICAL
MOLDING CORPORATION OF AMERICA, a California corporation ("MMC").
Recitals
--------
WHEREAS, Borrower and Bank are parties to that certain Credit
Agreement, dated as of February 1, 1995, as heretofore amended by that certain
First Amendment to Credit Agreement, dated as of June 9, 1995, and as further
heretofore amended pursuant to that certain Second Amendment to Credit
Agreement and Revolving Line of Credit Note, dated as of August 24, 1995, and
as may be further amended from time to time (the "Credit Agreement").
WHEREAS, pursuant to the terms of the Credit Agreement, Borrower has
executed a Revolving Line of Credit Note in favor of Bank, dated as of June 9,
1995 and in the original principal amount of $6,758,500 (as amended from time
to time, the "Revolving Note").
WHEREAS, pursuant to the terms of the Credit Agreement, Borrower has
executed a Promissory Note in favor of Bank, dated as of February 1, 1995 and
in the original principal amount of $7,500,000 (as amended from time to time,
the "Term Note").
WHEREAS, on or about August 24, 1995, Borrower executed in favor of
Bank that certain Promissory Note, dated as of August 24, 1995 and in the
original principal amount of $1,800,000 (as amended from time to time, the
"Bridge Note").
WHEREAS, on or about August 24, 1995, Borrower entered into a Pledge
Agreement in favor of Bank, dated as of August 24, 1995 (the "Pledge
Agreement").
WHEREAS, on or about October 14, 1994, MMC executed in favor of Bank a
Third Party Security Agreement: Rights to Payment and Inventory, dated as of
October 14, 1994 (as amended from time to time, the "MMC Rights to Payment
Security Agreement"). The MMC Rights to Payment Security Agreement was given to
secure obligations of Borrower to Bank.
WHEREAS, on or about October 14, 1994, MMC executed in favor of Bank a
Third Party Security Agreement: Equipment, dated as of October 14, 1994 (as
amended from time to time, the "MMC Equipment Security Agreement"). The MMC
Equipment Security Agreement was given to secure obligations of Borrower to
Bank.
WHEREAS, Borrower and Bank are parties to that certain Reimbursement
Agreement, dated as of September 1, 1993 (as amended from time to time, the
"Reimbursement Agreement"). Pursuant to the terms of the Reimbursement
Agreement, a
-1-
<PAGE> 2
letter of credit was issued by Bank for the account of Borrower in the stated
amount of $5,735,960.
WHEREAS, pursuant to the terms of the Reimbursement Agreement, Borrower
has executed in favor of Bank a Deed of Trust with Assignment of Rents, dated
as of September 1, 1993 and recorded in the Official Records of the Riverside
County, California Recorder on September 13, 1993 (the "California Deed of
Trust").
WHEREAS, Borrower and MMC have requested that Bank consent to certain
matters and modify or waive certain provisions of the foregoing credit
documents, including:
A. An agreement to extend of the maturity date of the
Revolving Note and the Bridge Note;
B. A waiver of certain financial covenants contained in the
Credit Agreement;
C. A consent to the sale of two parcels of real property owned
by Borrower and the release of the lien of the California Deed of
Trust on one such parcel;
D. A consent to the extension of credit and the incurrence of
a lease obligation by Borrower in conjunction with the foregoing sale
of real property; and
E. A consent to the sale by MMC of certain assets of MMC and
the release of the lien of Bank on such assets.
WHEREAS, Bank has agreed to certain of Borrower's requests in accordance
with the terms and subject to all conditions set forth in this Amendment.
NOW THEREFORE, the parties hereto agree as follows:
1. The second sentence of the first full paragraph on page 2 of the
Revolving Note is amended to read "The outstanding principal balance of this
Note shall be due and payable in full on December 28, 1995."
2. The "Maturity Date," as defined in the Bridge Note, is amended to
be December 28, 1995 instead of November 1, 1995.
3. Compliance with the financial covenants specified in Section 4.9 of
the Credit Agreement is hereby waived by Bank for the period from November 1,
1995 through December 28, 1995 only. For all points of time from and after
December 28, 1995, full compliance with such Section 4.9 shall be required as
though this waiver had not occurred.
4. The effectiveness of the modifications and waivers specified in
Sections 1, 2 and 3, above, is expressly conditioned upon the due execution of
this Amendment by Bank, Borrower, MMC, and Compounding Technology Inc., a
California corporation and the delivery to Bank by Borrower of a restructure
fee of $12,500. Borrower agrees to pay such a restructure fee to Bank upon the
execution of this Amendment by Bank, and such restructure fee is fully earned
at such time and is nonfundable.
-2-
<PAGE> 3
5. Borrower hereby requests the consent of Bank to the sale by
Borrower to Jack M. Langson, an individual, of certain real property owned by
Borrower and located at 13435 Estelle Street, Home Gardens, California. Bank
hereby gives its consent to such sale subject to the satisfaction of each of
the following conditions:
a. There shall exist at the time the sale is completed no
Event of Default as defined in the Credit Agreement, nor any condition,
act or event which with the giving of notice or passage of time or both
would constitute any such Event of Default.
b. Bank shall be paid the net cash proceeds to Borrower of
such sale directly out of the closing escrow for the sale. Such net
cash proceeds shall in no event be less than $518,500 and shall be
applied in reduction of outstanding indebtedness of Borrower to Bank,
with first application to the outstanding principal balance of the Term
Note, in inverse order of payment maturity;
c. The sale shall in all events be completed, and the payment
described in Section 5(b) made, no later than November 15, 1995.
d. All contractual arrangements between Borrower and the buyer
pertaining to the sale of the property, including any lease-back by
Borrower of the property sold, shall be subject to the prior review and
reasonable approval of Bank.
e. Borrower shall receive, as partial compensation for the
sale, a promissory note (the "Langson Note") from the buyer secured by
a first priority trust deed on the property sold. The Langson Note
shall be in the principal amount of no less than $555,000 and shall (i)
provide for interest at the rate of no less than nine percent (9%) per
annum, (ii) provide that outstanding principal is all due and payable
on or before July 2, 1996 and (iii) be evidenced by credit
documentation subject to the prior review and reasonable approval of
Bank. The Langson Note (and associated credit documents and a title
insurance policy reasonably acceptable to Bank) shall be delivered to
Bank directly out of the sale escrow at the time of the sale closing
and shall serve as additional Pledged Collateral pursuant to the terms
of the Pledge Agreement. The Langson Note shall be accompanied by a
written confirmation by the obligor thereunder to Bank that such
obligor will make all principal payments under said Note directly to
Bank for application against obligations of Borrower in accordance with
terms of the Pledge Agreement. Borrower shall execute and deliver to
Bank an appropriate endorsement to the Langson Note at the time of its
delivery.
6. Borrower hereby requests the consent of Bank to the sale by
Borrower to Rene Jacober, an individual, of certain real property owned by
Borrower consisting of approximately 4.9 acres in Corona, California and
further requests the release of Bank's lien on such property at the time of
such sale. bank hereby gives its consent to such sale, and agrees to reasonably
cooperate in releasing the lien of the California Deed of Trust on such
property, subject to the satisfaction of each of the following conditions:
a. There shall exist at the time the sale is completed no
Event of Default as defined in the Credit Agreement, nor any condition,
act or event which with the giving of notice or passage of time or
both would constitute any such Event of Default.
-3-
<PAGE> 4
b. Bank shall be paid the net cash proceeds to Borrower of
such sale directly out of the closing escrow for the sale. Such net
cash proceeds shall in no event be less than $292,500 and shall be
applied in reduction of outstanding indebtedness of Borrower to Bank,
with first application to the outstanding principal balance of the
Term Note, in inverse order of payment maturity.
c. The sale shall in all events be completed, and the payment
described in Section 6(b) made, no later than December 20, 1995.
d. All contractual arrangements between Borrower and the buyer
pertaining to the sale of the property shall be subject to the prior
review and reasonable approval of Bank.
e. Borrower shall receive, as partial compensation for the
sale, a promissory note (the "Jacober Note") from the buyer secured by
a first priority trust deed on the property sold. The Jacober Note
shall be in the principal amount of no less than $325,000 and shall (i)
provide for interest at the rate of no less than nine percent (9%) per
annum, (ii) provide that principal is payable in twelve (12) equal
monthly installments, beginning January 15, 1996 and (iii) be evidenced
by credit documentation subject to the prior review and reasonable
approval of Bank. The Jacober Note (and associated credit documents and
a title insurance policy reasonably acceptable to Bank) shall be
delivered to Bank directly out of the sale escrow at the time of the
sale closing and shall serve as additional Pledged Collateral pursuant
to the terms of the Pledge Agreement. The Jacober Note shall be
accompanied by a written confirmation by the obligor thereunder to Bank
that such obligor will make all principal payments under said Note
directly to Bank for application against obligations of Borrower in
accordance with terms of the Pledge Agreement. Borrower shall execute
and deliver to Bank an appropriate endorsement to the Jacober Note at
the time of its delivery.
7. Borrower and MMC hereby requests the consent of Bank (pursuant to
Section 6(b)(v) of the MMC Rights to Payment Security Agreement and Section
6(b)(vi) of the MMC Equipment Security Agreement) to the sale by MMC to Vital
Signs, Inc., a corporation, of certain personal property (along with the
assumption of certain liabilities) owned by MMC pertaining to its respiratory
care products line and further requests the release of Bank's lien on such
property at the time of such sale. Bank hereby gives its consent to such sale,
and agrees to reasonably cooperate in releasing its lien on such property,
subject to the satisfaction of each of the following conditions:
a. There shall exist at the time the sale is completed no
Event of Default as defined in the Credit Agreement, nor any condition,
act or event which with the giving of notice or passage of time or both
would constitute any such Event of Default.
b. Bank shall be paid the net cash proceeds to MMC of such
sale directly out of the closing escrow for the sale. Such net cash
proceeds shall in no event be less than $2,000,000 and shall be applied
in reduction of outstanding indebtedness of Borrower to Bank, with
first application to the outstanding principal balance of the Term
Note, in inverse order of payment maturity.
c. The sale shall in all events be completed, and the payment
described in Section 7(b) made, no later than November 29, 1995.
-4-
<PAGE> 5
d. The form and financial condition of the buyer and all
contractual arrangements between MMC and the buyer pertaining to the
sale of the property shall be subject to the prior review and
reasonable approval of Bank. In addition, Bank shall have approved in
its sole and absolute discretion the assets to be transferred to and the
liabilities to be assumed by the buyer in connection with the sale.
8. The Pledge Agreement is amended by adding a new Section 6.3
thereto, reading as follows:
"6.3 Distribution Rights Re Pledged Collateral.
Notwithstanding any provision hereof to the contrary (except as
expressly provided in Section 6.2), all collections, payments
and recoveries of any nature with respect to the Pledged
Collateral, whether before or after any Event of Default, shall
be paid directly to Secured Party for application against
indebtedness secured hereby in such order and manner as Secured
Party shall determine in its sole and absolute discretion. Any
and all collections or other amounts received by Grantor with
respect to Pledged Collateral, or with respect to any security
therefore, shall be received in trust for the benefit of Secured
Party, shall be segregated from other funds of Grantor, and
shall immediately be paid over to Secured Party for such
application in the same form as so received by Grantor (with
any necessary endorsements)."
9. Borrower acknowledges that all costs and expenses of Bank incurred
in connection with the negotiation and preparation of this Amendment, or in
connection with any document or transaction contemplated herein, are, without
limitation, obligations of Borrower pursuant to Section 7.3 of the Credit
Agreement.
10. Except as specifically provided herein, all terms and conditions of
the agreements referenced herein remain in full force and effect, without
waiver or modification.
11. Borrower hereby remakes all representations and warranties
contained in the credit documents identified herein and reaffirms all covenants
set forth therein. Borrower further certifies as of the date of this Amendment,
other than is heretofore disclosed in writing to Bank, there exists no Event of
Default as defined in the Credit
-5-
<PAGE> 6
Agreement, nor any condition, act or event which with the giving of notice or
the passage of time or both would constitute any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first written above.
Date: October 27, 1995
CIMCO, INC., a Delaware corporation
By: RUSSELL T. GILBERT
-----------------------------------
Russell T. Gilbert
President
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: ART BROKX
-----------------------------------
Art Brokx, VP
-----------------------------------
Printed Name and Title
MEDICAL MOLDING CORPORATION OF AMERICA,
a California corporation
By: RUSSELL T. GILBERT
-----------------------------------
Russell T. Gilbert
President
REAFFIRMATION OF SECURITY AGREEMENTS
By their execution hereof, Medical Molding Corporation of America, a
California corporation and Compounding Technology Inc., a California
corporation do hereby consent to all terms and provisions contained in all
transactions contemplated by the foregoing
-6-
<PAGE> 7
Amendment and hereby reaffirm that all security agreements and other
undertakings heretofore made by them in favor of Bank remain in full force and
effect.
Date: October 27, 1995
MEDICAL MOLDING CORPORATION OF AMERICA,
a California corporation
By: RUSSELL T. GILBERT
-----------------------------------
Russell T. Gilbert
President
COMPOUNDING TECHNOLOGY INC.,
a California corporation
By: RUSSELL T. GILBERT
-----------------------------------
Russell T. Gilbert
Chairman of the Board
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 3,799,260
<SECURITIES> 0
<RECEIVABLES> 19,089,323
<ALLOWANCES> 214,000
<INVENTORY> 13,344,103
<CURRENT-ASSETS> 36,708,018
<PP&E> 50,064,282
<DEPRECIATION> 23,599,408
<TOTAL-ASSETS> 65,400,394
<CURRENT-LIABILITIES> 38,250,741
<BONDS> 0
<COMMON> 29,655
0
0
<OTHER-SE> 25,238,998
<TOTAL-LIABILITY-AND-EQUITY> 65,400,394
<SALES> 55,119,256
<TOTAL-REVENUES> 55,119,256
<CGS> 47,040,807
<TOTAL-COSTS> 47,040,807
<OTHER-EXPENSES> 7,646,316
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 716,581
<INCOME-PRETAX> (294,448)
<INCOME-TAX> (91,000)
<INCOME-CONTINUING> (203,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (203,448)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
