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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended June 30, 1997
Commission file number 1-9429
ROTONICS MANUFACTURING INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2467474
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17022 South Figueroa Street
Gardena, California 90248
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (310) 538-4932
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK ($.01 STATED VALUE) AMERICAN STOCK EXCHANGE
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Titles of each class Name of each Exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for 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 has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of September 11, 1997, was $11,935,000 (1).
The number of shares of common stock outstanding at September 11, 1997 was
13,987,564.
(1) Excludes 6,349,157 shares held by directors, officers and stockholders
whose ownership exceeded 5% of the outstanding shares at September 11, 1997.
Exclusion of such shares should not be construed to indicate that the holders
thereof possess the power, direct or indirect, to direct the management or
policies of registrant, or that such persons are controlled by or under
common control with the registrant.
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DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K
- -------- ---------
Part
----
Definitive Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on December 9, 1997 III
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TABLE OF CONTENTS
PART I Page
----
Item 1 Business 4
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 6
PART II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters 7
Item 6 Selected Financial Data 8
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 13
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 10 Directors and Executive Officers of the Registrant 14
Item 11 Executive Compensation 14
Item 12 Security Ownership of Certain Beneficial Owners
and Management 14
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 15
SIGNATURES 16
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Rotonics Manufacturing Inc. (the "Company") was founded as an Illinois
Corporation, and was reincorporated in Delaware in December 1986. Effective
July 1, 1991, the Company merged with Rotonics Molding, Inc.-Chicago
("Rotonics"), with the Company being the surviving entity. In accordance
with the 1991 merger agreement, the Company issued 2,666,666 (after giving
effect to a 1-for-3 reverse stock split) shares of its common stock and
4,999,997 shares of a newly issued non-voting preferred stock in exchange for
all the outstanding voting stock of Rotonics. The preferred stock, which has
subsequently been redeemed, was entitled to cumulative dividends of $.09 per
share per annum and had a liquidation value of $1.00 per share, plus accrued
unpaid dividends in preference to any payment on the common stock.
Rotonics had operations in Itasca, Illinois; Deerfield, Wisconsin; Denver,
Colorado; and Bartow, Florida. These operations currently conduct business as
divisions of the Company using the trade names RMI-C, RMI-W, RMI-D and RMI-F,
respectively. Rotonics was a privately held California Corporation which was
52% owned by Mr. Sherman McKinniss. Mr. McKinniss became president and chief
executive officer of the Company on August 12, 1991.
In September 1991 the Company's wholly owned subsidiary, Rotational Molding,
Inc. ("RMI"), was merged into the Company and now operates as two divisions
using the trade names RMI-G and RMI-I with manufacturing operations in
Gardena, California and Caldwell, Idaho, respectively.
Effective January 1, 1992 the Company acquired Plastech Holdings, Inc.
("Plastech"), and its wholly owned subsidiary, Plastech International, Inc.,
for $1,777,070 in cash. Plastech was headquartered in Warminster,
Pennsylvania with an additional operation in Gainesville, Texas. In July
1992, Plastech was merged with the Company and now operates as two divisions
of the Company using the trade names RMI-P and RMI-T.
Effective April 1, 1995 the Company purchased certain assets and assumed
certain liabilities of Custom Rotational Molding, Inc. ("CRM") for 300,000
shares of the Company's common stock. The Company assumed CRM's operations
in Arleta, California and currently operates this business as a division of
the Company at this location using the trade name RMI-A.
In September 1994, the Company purchased a larger manufacturing facility in
Bensenville, Illinois and subsequently relocated its Itasca, Illinois
operations into this new facility. In December 1995 the Company discontinued
its operations at its Deerfield, Wisconsin location and combined these
operations into its newly purchased Bensenville, Illinois operation. The
Wisconsin facility is currently being leased on a month-to-month term basis
at $6,250 per month.
In February 1997, the Company purchased a 9.73 acre facility consisting of
63,000 square feet of manufacturing and office building space in Commerce
City, Colorado. The Company has since expended significant resources to
refurbish and prepare the facility to house its Colorado operations. By
fiscal year end the Company had substantially relocated its operations into
this new facility. Management anticipates the remaining improvements to be
completed during the second quarter of fiscal 1998. In addition to the new
facility the Company added two state of the art roto-molding machines and a
CNC router to increase and enhance existing manufacturing capacity. This
relocation is pivotal to the Company's growth. Also, the facility is located
within an enterprise zone which should provide additional benefits as we move
forward.
The Corporate office of the Company is located at the same site as the RMI-G
(Gardena, California) facility.
DESCRIPTION OF BUSINESS
The Company currently has eight manufacturing locations and was again listed
by a plastics industry periodical as one of the top ten Rotational Molders in
North America. These operating divisions manufacture a variety of plastic
containers for commercial, agricultural, pharmaceutical, point of purchase
display, medical waste, refuse, marine,
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health care and residential use, as well as a vast number of custom plastic
products for a variety of industries, utilizing the roto-molding process and,
on a smaller scale, the dip molding process. Roto-molding is a process for
molding plastic resin by rotating a mold in a heated environment while the
plastic resin powder placed inside the mold melts and evenly coats the inner
wall of the mold. The roto-molding process has been used for many years and
continues to be recognized as a growth industry in recent years as a result
of numerous ongoing business consolidations and the development of new
resins. These new resins allow roto-molded items to compete with more
traditional materials such as carbon and stainless steel, especially in the
fabrication of large, lightweight, one-piece molded items such as storage
tanks. Roto-molding is a particularly advantageous process for users of
molded plastic products who may want to test different prototypes, or who
do not require sufficient numbers of such products to justify a more
expensive manufacturing process. The Company's products include various
types of storage tanks, bin lids, refuse containers for automated removal,
medical waste containers, point-of-purchase displays, agricultural /
livestock products and containers and other molded items.
The Company purchases resin from six major suppliers in the U.S. and Canada.
There are six additional suppliers of minor significance. As the resin used
in the manufacturing process is a polyethylene derived from natural gas,
resin price is not directly related to the price for petrochemicals and until
recent years has not been generally subject to volatile fluctuations which
are often experienced by the petroleum industry. The Company also
incorporates the use of post-consumer plastic products blended with virgin
materials in the manufacturing of products that call for its use.
The Company holds several patents on storage containers used for
pharmaceutical and commercial applications. The patents expire through the
year 2010. Although the Company has been able to capture its share of this
niche market and expects to see continued growth, no one patent or groups of
patents is considered material to the business as a whole.
Competition for the Company's products is governed by geography and region
since large capacity tanks are expensive to ship long distances and, as such,
any prospective competitor is constrained by shipping costs. There are
numerous single-location as well as a growing trend to structure
multi-location roto-molding businesses throughout the United States.
However, each of these businesses still competes in a geographic region as
determined by customer demand within that region, a constraint inherent to
the industry. Due to its nationwide presence, the Company has substantially
alleviated such constraint as the Company's operations are located within
approximately 500 miles of all potential customers in the continental United
States. The Company's sales are usually not subject to large seasonal
fluctuations as the business typically operates on significant backlogs with
a diverse product mix. Peak season is usually experienced in the period from
April through June. Historically the quarter from January through March is
the slowest production period of the year. The Company's backlog was
$4,313,400 and $4,936,400 as of June 30, 1997 and 1996, respectively. All of
the backlog orders of June 30, 1997 are expected to be filled during fiscal
1998.
The products are marketed through the Company's in-house sales and
engineering staff, various distributors and outside commission-based sales
representatives. The Company continues to build a strong, broad customer base
which covers a multitude of industries. As such, since fiscal 1991, no sales
to any one single customer represented a material part of the Company's
business.
Research and development expenditures for the Company were insignificant for
the last three fiscal years.
REGULATION
The Company believes that it is in compliance with all applicable federal,
state and local laws relating to the protection of the environment and does
not anticipate that any such laws will have any material effect on its
financial position, capital expenditures, or competitive position.
EMPLOYEES
As of June 30, 1997, the Company employed a total of 450 individuals. The
Company maintains, for its respective employees who are eligible, a medical
insurance plan (some of which is contributory), a group life insurance plan,
an annual bonus plan and a semi-annual attendance bonus plan..
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ITEM 2. PROPERTIES
The Company's corporate office occupies a separate building comprising
approximately 2,500 square feet of the facilities of RMI-G in Gardena,
California.
The operating divisions lease warehouse, production and office space as
follows:
<TABLE>
<CAPTION>
Building Total Facility Annual
Property Square Square Base Expiration
Location Footage Footage Rent Date (2)
- -------- -------- -------------- -------- ---------------
<S> <C> <C> <C> <C>
Gardena, California (1) 42,800 183,300 $259,300 October 2001
Arleta, California 29,000 59,000 $184,400 October 1997
Caldwell, Idaho 21,250 71,200 $ 73,900 September 2000
Warminster, Pennsylvania (1) 39,100 217,800 $113,000 May 1998
Bartow, Florida 34,000 150,600 $103,800 September 1999
Gainesville, Texas (3) - 108,900 $ 1,000 April 2001
</TABLE>
(1) The Company has an option to purchase these facilities.
(2) Does not give effect to an renewal options.
(3) Represents a 2.5 acre ground lease adjacent to Texas facility.
The Company owns 2.1 unencumbered acres (including 38,000 square feet of
warehouse, production and office space) in Gainesville, Texas. In September,
1994 the Company purchased 3.1 acres (including 63,300 square feet of
warehouse, production and office space) currently encumbered by a $1.15
million mortgage in Bensenville, Illinois for the Company's Illinois
manufacturing operations. In February 1997 the Company purchased for cash
9.73 acres (including 63,000 square feet of warehouse, production and office
space) in Commerce City, Colorado for the Company's Colorado manufacturing
operations. The Company also owns approximately 1.59 unencumbered acres
(including 35,100 square feet of warehouse, production and office space) in
Deerfield, Wisconsin which was vacated in December 1995 by the Company and
its operations incorporated into the Illinois facility. The Wisconsin
facility is currently leased to an unrelated lessee for $6,250 per month.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company encounters certain litigation
matters, which in the opinion of management, will not have a significant
adverse effect on the financial position or the results of operations of the
Company.
On April 16, 1996, the Company was named as defendant in a complaint filed by
Bonar U.S., Inc. in Delaware Superior Court. The complaint alleged claims
for breach of contract and promissory estoppel relating to an Agreement in
Principle entered into in connection with a proposed acquisition of the
Company by Bonar U.S., Inc. On April 3, 1996 the Company announced that it
had terminated the Agreement in Principle pursuant to its terms. The
complaint requested damages of $7,011,484. On May 17, 1996, the Company filed
a counterclaim against Bonar U.S., Inc. and Bonar Plastics, Inc. seeking
damages totaling $25,237,725 for breach of the Confidentiality Agreement with
the Company, misappropriation of trade secrets, intentional interference with
a prospective economic advantage which the Company obtained as a result of an
indication of interest from a third party and breach of a Royalty Agreement
between Bonar Plastics, Inc. and one of the Company's operating divisions
(formally known as Custom Rotational Molding, Inc.). In March 1997, the
Company reached an amicable out of court settlement with Bonar. The
settlement involved mutual general releases by the parties, dismissals of the
actions brought by the parties and payments to Bonar of $400,000 in March
1997 and $350,000 in September 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock ($.01 stated value) is traded on the American
Stock Exchange ("AMEX") under the symbol "RMI". The number of stockholders
of record of the Company's Common Stock was approximately 6,600 at
September 11, 1997.
PRICE RANGE OF COMMON STOCK
The following table sets forth the quarterly price ranges of the Company's
Common Stock in Fiscal 1997 and 1996, as reported on the composite
transactions reporting system for AMEX listed stocks.
High Low
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Fiscal 1996
First Quarter Ended September 30, 1995 $ 3 $1-15/16
Second Quarter Ended December 31, 1995 2-7/16 1-3/8
Third Quarter Ended March 31, 1996 2-13/16 1-1/2
Fourth Quarter Ended June 30, 1996 2-1/4 1-5/16
Fiscal 1997
First Quarter Ended September 30, 1996 $ 1-1/2 $ 1-5/16
Second Quarter Ended December 31, 1996 1-3/4 1-1/4
Third Quarter Ended March 31, 1997 1-11/16 1-3/8
Fourth Quarter Ended June 30, 1997 1-1/2 1-1/4
In fiscal 1997 and 1996 the Company paid a regular cash dividend of $.04 per
share on its Common Stock. Any future cash dividends or other distributions
of stock will be determined solely by the Board of Directors and will be
based on the Company's future financial ability to declare and pay such
dividends. Additionally, certain lending agreements restrict the Company from
declaring or paying dividends on its Common Stock. (See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations: Liquidity and Capital Resources.") According to the lending
agreement with its bank, the Company may not declare or pay any dividend or
distribution on any stock or redeem, retire, repurchase or otherwise acquire
any of such shares unless the Company can obtain prior bank authorization and
appropriate waivers.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended June 30,
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1997 1996 1995(B) 1994 1993
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<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $ 39,385,100 $ 35,703,600 $ 35,887,600 $ 31,346,300 $ 27,983,800
Cost of goods sold 29,292,100 26,443,700 26,298,900 23,312,300 20,817,400
Gross margin 10,093,000 9,259,900 9,588,700 8,034,000 7,166,400
Selling, general and
administrative expenses 6,239,600 6,313,100 5,767,900 5,636,800 5,905,700
Interest expense 556,500 696,500 766,500 592,500 577,700
Income from continuing operations
before change in accounting principle
for income taxes (C) 1,441,800 1,472,700 3,287,600 1,873,000 203,000
Loss on disposal of
discontinued operations - - - - (167,800)
Cumulative effect of change in account-
ting principle for income taxes (D) - - - 4,013,000 -
Net income $ 1,441,800 $ 1,472,700 $ 3,287,600 $ 5,886,000 $ 35,200
Income/(loss) from
continuing operations
per common share $ .10 $ .10 $ .24 $ .13 $ (.03)
Average common shares
outstanding (A) 14,135,200 13,858,300 12,607,900 11,959,600 9,942,700
OTHER FINANCIAL DATA
Income from continuing
operations as a percent of sales 3.7% 4.1% 9.2% 6.0% 0.7%
</TABLE>
(A) Computed on the basis of the weighted average number of common shares
outstanding during each year, including dilutive common stock
equivalents and adjusted to reflect a 1-for-3 reverse stock split
effective December 17, 1992.
(B) Includes the results of operations of CRM since the effective date of
acquisition.
(C) Fiscal years 1997 and 1993 include $1,010,800 and $469,000,
respectively, in costs relating to two different lawsuit settlements.
(D) Represents the recognition of a net deferred tax asset in conjunction
with the adoption of FAS 109, "Accounting for Income Taxes" (see
Note 13 of Notes to Financial Statements).
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<TABLE>
<CAPTION>
At June 30,
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1997 1996 1995(B) 1994 1993
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<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Current assets $ 12,814,000 $ 13,023,000 $ 11,903,200 $ 9,244,500 $ 6,811,000
Current liabilities 5,099,700 4,864,500 4,766,000 7,256,300 7,734,300
Working capital surplus/(deficit) 7,714,300 8,158,500 7,137,200 1,988,200 (923,300)
Total assets 30,634,400 29,055,700 30,359,400 24,939,000 19,418,100
Long-term debt 6,486,100 5,864,100 7,707,700 2,834,400 1,982,500
Total liabilities 11,589,800 10,732,600 12,477,700 10,095,700 9,790,500
Preferred stock - - 3,000,000 3,875,000 4,250,000
Current ratio 2.5 to 1 2.7 to 1 2.5 to 1 1.3 to 1 .9 to 1
Net book value per
common share (A) $ 1.35 $ 1.29 $ 1.15 $ .92 $ .46
</TABLE>
(A) Computed on the basis of the actual number of common shares outstanding
at the end of the fiscal year, adjusted to reflect a 1-for-3 reverse
stock split effective December 17, 1992.
(B) Includes the effect of the acquisition of CRM.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
To the extent that this 10-K Annual Report discusses matters which are not
historical, including statements regarding future financial results,
information or expectation about products or markets, or otherwise makes
statements about future events, such statements are forward-looking and are
subject to a number of risks and uncertainties that could cause actual
results to differ materially from the statements made. These include, among
others, fluctuations in costs of raw materials and other expenses, costs
associated with plant closures, downturns in the markets served by the
Company, the costs associated with new product introductions, as well as
other factors described under the heading "Item 3 - Legal Proceedings", under
this Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and Footnote 1 to Financial Statements.
OPERATIONS
Net sales increased $3,681,500 or 10.3% to $39,385,100 in fiscal 1997
compared to $35,703,600 in fiscal 1996. The majority of the Company's
product lines sustained relatively level sales volumes as compared to fiscal
1996 with the increased volumes related directly to increases in marine,
custom molded products and customer tooling. Custom molded products reported
an impressive 40% increase over prior year volumes. Management attributes
this gain to its experienced sales/engineering staff's ability to expand the
Company's marketshare of these products. During the last several years the
Company has also capitalized on the roto-molding industry's overall expanding
marketplace for its products. In fiscal 1996, we experienced a lackluster
marketplace due to the volatile resin prices and then what appeared to be a
return of consumer confidence in fiscal 1997. However, certain analysts in
the industry have indicated that the industry appears to have reached a
temporary plateau. Management is watching these trends to ascertain what
impact, if any, it will have on the Company's growth projections. In fiscal
1997, the Company continued to reinvest a large portion of its cashflows to
expand its manufacturing capacity and operations. In the later part of
fiscal 1997, the Company also purchased a new facility in Commerce City,
Colorado and by year end had relocated its Colorado operations into this
larger facility. Management believes this region offers great growth
potential and will strive for similar performance that the Illinois facility
has obtained since its relocation in fiscal 1996.
Net sales for fiscal 1996 were relatively consistent with prior year results
reporting net sales of $35,703,600 compared to $35,887,600 for fiscal 1995.
Fiscal 1996 was a challenging year for the Company as well as the
roto-molding industry in general due to tremendous fluctuations in raw
material which in turn caused confusion and anxiety in the marketplace.
Management was pleased that in spite of these adverse conditions it was still
able to maintain its overall market share. In fiscal 1996, the Company
closed its Wisconsin facility and combined the operations into its Illinois
facility. During this transition the Company did realize an overall
reduction in sales volumes. However, since completion of the relocation
process during the fourth quarter of fiscal 1996, the restructured Illinois
facility is primed to handle increased sales volumes. Management anticipates
realizing increased volumes in this region as it capitalizes on Illinois
facilities resources, increased capacity and growth potential. Again, due to
a lackluster marketplace in fiscal 1996, several of the Company's proprietary
product lines fell below fiscal 1995 sales volume levels but, the Company
also reported notable increases in marine, custom, customer tooling and
medical waste sales which aided to minimize any shortfalls realized. The
Company continues to see future growth potential in these aforementioned
product lines as well as continued focus to increase market share for its
material handling and agricultural product lines.
Cost of goods was $29,292,100 or 74.4% of net sales in fiscal 1997 compared
to $26,443,700 or 74.1% and $26,298,900 or 73.3% of net sales in fiscal 1996
and 1995. Since fiscal 1995, the Roto-molding Industry has experienced
extreme volatility in plastic resin prices. These price increases have
resulted in approximately a 50% increase in raw material prices per pound
since the beginning of this three year period. The price increases were
enacted by the various resin suppliers in response to domestic and foreign
material demands as well as various natural and internal disasters
experienced by the resin suppliers. The cost of plastic resin represents a
significant portion of the Company's manufacturing costs and has continually
challenged the Company to effectively mitigate these increases. Since fiscal
1995, the Company was relatively successful in mitigating these resin price
increases by initiating customer price increases and various raw material
purchasing strategies. In fiscal 1997, the Company also benefited from
increased volumes of custom molded products. Pricing structures for custom
molded products
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typically follow market trends and allow the Company to obtain gross margin
levels consistent with Company objectives. Between fiscal 1995 and 1996, the
Company experienced increased costs as it depleted lower priced resin
reserves and replaced them with resin purchased at higher market prices.
These costs were partially mitigated during the remainder of fiscal 1996
using the strategies mentioned above coupled with temporary restructure in
resin prices and improved customer buying trends. As the Company moves
forward into fiscal 1998, management will continue to monitor and take the
necessary defensive tactics to minimize future increases in resin prices. If
resin prices do not stabilize and the marketplace reacts adversely to future
pricing structures these factors could have an effect on the Company's gross
profit margin in fiscal 1998.
Selling, general and administrative expenses were $6,239,600 or 15.8% of net
sales in fiscal 1997 compared to $6,313,100 or 17.7% of net sales in fiscal
1996. The overall decrease is primarily attributable to the 10.3% increase
in 1997 sales volumes and management's ability to keep these costs in synch
with the current sales volume levels. Management continued the restructuring
of its sales/engineering staff in fiscal 1997. The changes enacted have had
a positive impact on the Company's sales growth with a minimal impact to
increased selling costs. The Company has also benefited from the operating
efficiencies realized since the completed consolidation of the Illinois and
Wisconsin facilities.
Selling, general and administrative expenses were $6,313,100 or 17.7% of net
sales in fiscal 1996 compared to $5,767,900 or 16.1% in fiscal 1995. The
increase is substantially attributed to approximately $435,000 in additional
expenses incurred associated with the Arleta, California facility which was
acquired during the fourth quarter of fiscal 1995. The remaining increase is
attributed to increased professional fees of approximately $110,000
associated with a proposed acquisition of the Company and approximately
$50,000 in excess administrative expenses incurred during the Wisconsin
facility consolidation. The latter costs have been partially mitigated due to
improved operating efficiencies realized subsequent to the consolidation of
the two plants.
Income from operations was $3,853,400 or 9.8% of net sales in fiscal 1997
compared to $2,946,800 or 8.3% and $3,820,800 or 10.6% of net sales in fiscal
1996 and 1995. Management is pleased with the progress the Company has made
in fiscal 1997 to improve the level of income from operations in relation to
current sales volumes. The Company continues to face industry challenges but
will strive to obtain the same satisfactory results which were obtained
between fiscal 1997 and 1996 by mitigating the effect of resin price
increases, maintaining consistent levels of selling, general and
administrative and expanding marketshare of its products.
Interest expense decreased $140,000 to $556,500 in fiscal 1997 compared to
$696,500 in fiscal 1996. The decrease is attributed to reductions in the
Company's overall debt structure during the first half of fiscal 1997 coupled
with stable interest rates during the majority of the year and the Company's
extensive use of optional bank LIBOR interest rates. During later part of
fiscal 1997, the Company made significant machinery and equipment purchases
and purchased a 9.73 acre facility in Commerce City, Colorado to expand and
relocate its Colorado operations. These expenditures set the stage for the
Company's future growth and were funded by operating cashflows and the
issuance of additional bank financing. The later has increased the Company's
overall debt structure by approximately $725,000 at fiscal year end and will
result in additional interest costs in fiscal 1998.
Interest expense decreased $70,000 to $696,500 in fiscal 1996 compared to
$766,500 in fiscal 1995. The decrease is attributed to a overall
reduction in the Company's debt structure of approximately $1.8 million as
of June 30, 1996 coupled with last years renegotiated interest rates and
reductions in the bank's prime lending interest rate which lowered interest
rates by 1.75% - 2%.
Income before income taxes remained relatively consistent at $2,384,600 or
$.17 per common share in fiscal 1997 compared to $2,407,200 or $.17 per
common share in fiscal 1996. Although consistent with prior year, the
Company's 1997 results included costs of $1,010,800 or $.07 per common share
related to litigation settlement expenses (see Note 14 of "Notes to Financial
Statements"). Total litigation costs represent an out of court settlement of
$750,000 plus additional related legal costs of $260,800.
Income before income taxes decreased $784,800 to $2,407,200 or $.17 per
common share in fiscal 1996 compared to $3,192,000 or $.23 per common share
in fiscal 1995. The decrease is due to slightly lower sales volumes during
the current fiscal year coupled with the resin cost increase and increases in
selling, general and administrative expenses outlined above. Although
operating results were below prior years' levels, management feels the
current year's results were satisfactory when one considers the challenging
events which plagued fiscal 1996. Income tax expense was $942,800 or $.07
per common share for fiscal 1997 compared to $934,500 or $.07 per common
share
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in fiscal 1996. Since fiscal 1996 when the Company depleted its federal
valuation allowance reserve, the Company's income tax provision has included
a significant deferred tax component of $786,200 or $.06 per common share and
$743,100 or $.05 per common share in fiscal 1997 and 1996, respectively. The
Company will continue to report a large deferred tax provision until such
time that the Company's NOL's ($9.3 million at June 30, 1997) and
corresponding deferred tax assets are fully utilized. Management also notes
that the deferred tax provision does not result in current outlays of
cashflows due to the utilization of its NOL's. These cashflow savings are
then available to supplement funding of the Company's expansion projects, pay
common stock dividends and reduce outstanding debt.
Income tax expense was $934,500 or $.07 per common share for fiscal 1996
compared to income tax benefits of $95,600 for fiscal 1995. The increase is
due to the recognition of deferred income taxes during fiscal 1996 which in
prior years were minimized by the reversal of the Company's deferred tax
asset valuation allowance. During fiscal 1996, the Company depleted the
remaining $590,300 valuation allowance reserve based on management's
continuing assessment and belief that the Company will continue to utilize
its NOL's in the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased $444,200 to $7,714,300 at June 30, 1997 compared to
$8,158,500 at June 30, 1996. The decrease was primarily due to reductions in
accounts receivable and current deferred tax assets and an increase in
accounts payable, net of decreases in accrued liabilities and an increase in
inventories. The decrease in accounts receivable was due to improvements in
the Company's days sales outstanding in fiscal 1997. The increases in
inventories and accounts payable are primarily due to the higher transaction
levels related to increased sales volumes and also to raw material purchasing
strategies initiated at fiscal year end.
Cash provided by operations was $3,778,900 for fiscal 1997 which was
consistent with fiscal 1996 results of $3,774,100. The main source of funds
were net income and non-cash expense items including depreciation,
amortization and deferred income taxes.
The Company expended a total of $3,797,800 for property, plant and equipment
during fiscal 1997 compared to $981,100 for fiscal 1996. This reflects an
increase of $2,816,700 over prior period expenditures. The increase is
partially attributed to the purchase of the Commerce City, Colorado facility
in February 1997. The facility consists of 9.73 acres of land and 63,000 sq.
feet of manufacturing and office building space. The facility was purchased
for $825,000 and to date the Company has expended an additional $325,000 on
building and facility improvements. Management anticipates spending an
additional $250,000 in fiscal 1998 to complete the project. In January 1997,
we also completed a 13,800 sq. foot facility expansion at our Texas facility.
The Company spent approximately $222,700 on this expansion project. Fiscal
1997 has also been a record period for machinery and equipment acquisitions.
The Company added six additional roto-molding machines and five automated
routers to its manufacturing operations. Since the 1991 merger, management
has been very committed to expanding and improving its operations. This
commitment has allowed the Company to stay in the forefront of the industry
and optimizes our position for future growth.
In March and June 1997, the Company borrowed $500,000 and $1,000,000,
respectively against its machinery and equipment term loan commitments. The
proceeds were used to pay down the Company's revolving line of credit which
had been used to temporarily finance approximately $1.9 million in machinery
and equipment purchases. The notes are each due in sixty monthly principal
installments plus interest at the bank's prime or optional LIBOR interest
rates. In addition, the Company received an additional $1.2 million machinery
and equipment term loan commitment from the bank for the financing of future
capital expenditures.
In July 1997, the Company renewed its $5 million secured line of credit with
the bank which extended its maturity date to July 15, 1999. Net borrowings
under the line of credit increased $389,900 to $2,373,400 between June 30,
1996 and June 30, 1997. Current increases in the line are primarily related
to ongoing capital expenditures, including the building improvement in
Commerce City, until such time these costs are refinanced under long-term
debt arrangements.
12
<PAGE>
The Company's financial position continues to strengthen. Stockholder's
equity increased $721,500 to $19,044,600 in fiscal 1997 and since fiscal 1992
stockholder's equity has more than doubled. This increase is net of the
Company's second annual common stock dividend of $.04 per common share, or
$565,400, which was declared on December 10, 1996 and paid on January 24,
1997 to stockholders of record on January 6, 1997. In fiscal 1997, the
Company initiated and completed a common stock buy back program which
resulted in the repurchase and subsequent retirement of 100,000 shares of
common stock at a cost of $161,000.
On April 16, 1996, the Company was named as a defendant in a complaint filed
by Bonar U.S., Inc. in Delaware Superior Court. The complaint alleged claims
for breach of contract and promissory estoppel relating to an Agreement in
Principle entered into in connection with a proposed acquisition of the
Company by Bonar U.S., Inc. On April 3, 1996, the Company announced that it
had terminated the Agreement of Principle pursuant to its terms. The
complaint requested damages of $7,011,484. On May 17, 1996, the Company
filed a counterclaim against Bonar U.S., Inc. and Bonar Plastic, Inc. seeking
damages totaling $25,237,725 for breach of the Confidentiality Agreement with
the Company, misappropriation of trade secrets, intentional interference with
a prospective economic advantage which the Company obtained as a result of an
indication of interest from a third party and breach of a Royalty Agreement
between Bonar Plastic, Inc. and one of the Company's operating divisions
(formally known as Custom Rotational Molding Inc.) In March 1997, the
Company reached an amicable out of court settlement with Bonar. The
settlement involved mutual general releases by the parties, dismissals of the
actions brought by the parties and payments to Bonar of $400,000 in March
1997 and $350,000 in September 1997.
Cashflows from operations in conjunction with the Company's revolving line of
credit and machinery and equipment loan commitment are expected to meet the
Company's needs for working capital, capital expenditures and repayment of
long-term debt for the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Financial Statement Schedules listed in Item
14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In September 1995, the Registrant replaced Price Waterhouse LLP with Arthur
Andersen LLP as the Registrant's Independent Certified Public Accountants, as
more fully described in the Company's 8-K filing dated September 20, 1995
incorporated herein by reference.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The Company incorporates by reference the information set forth under the
caption "Election of Directors" in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission, and mailed to stockholders in
connection with the Company's Annual Meeting of the Stockholders to be held
on December 9, 1997 ("the Proxy Statement")
EXECUTIVE OFFICERS
As of September 11, 1997, the executive officers of the Company were as
follows:
Name Age Position
- ---- --- --------
Sherman McKinniss 61 President, Chief Executive Officer,
Chairman of the Board
E. Paul Tonkovich 59 Secretary, Director
Douglas W. Russell 36 Chief Financial Officer,
Assistant Secretary/Treasurer
SHERMAN MCKINNISS. Mr. McKinniss has served as President, Chief Executive
Officer and a Director of the Company since August 1991 and was appointed as
Chairman of the Board in December 1994. He was President and a Director of
Rotonics from 1987-1991. Previously, he owned and operated RMI, which he
sold to the Company in 1986 and was a partial owner of Rotational Molding,
Inc.-Florida which was merged into Rotonics in 1988.
E. PAUL TONKOVICH. Mr. Tonkovich has served as Secretary and a Director of
the Company since August 1991. He has been a practicing attorney since
January 1966. He was legal counsel to Rotonics and to Mr. McKinniss and is
now legal counsel for the Company.
DOUGLAS W. RUSSELL. Mr. Russell has served as Chief Financial Officer and
Assistant Secretary/Treasurer of the Company since 1991. Prior to that he
was a Senior Auditor for the accounting firm Hallstein & Warner from 1988
until 1991, and was Assistant Controller of RMI from September 1985 to
September 1987.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information set forth under the
captions "Compensation of Executives", the "Summary Compensation Table" and
related disclosure information, "Certain Transactions", "Compensation of
Directors", and "Compensation Pursuant to Plans" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information set forth under the
caption "Security Ownership by Certain Beneficial Holders" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information set forth under the
headings "Information Concerning the Board of Directors" under the caption
"Election of Directors", "Executive Officers", and "Certain Transactions" in
the Proxy Statement.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Page
----
(1) Financial Statements:
Report of Independent Public Accountants F-1 - F-2
Balance Sheet, June 30, 1997 and 1996 F-3
Statement of Income,
Years Ended June 30, 1997, 1996 and 1995 F-4
Statement of Changes in Stockholders' Equity,
Years Ended June 30, 1997, 1996, and 1995 F-5
Statement of Cash Flows,
Years Ended June 30, 1997, 1996, and 1995 F-6
Notes to Financial Statements F-7
(2) Financial Statement Schedules:
VIII Valuation and Qualifying Accounts,
Years Ended June 30, 1997, 1996, and 1995 F-17
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the last quarter of fiscal
year ended June 30, 1997.
(c) The following exhibits are filed as part of this report:
Exhibit
Number Exhibit Title
- ------- -------------
3.1 Restated Certificate of Incorporation, as amended February 11, 1997
10.1 Credit Agreement and related Promissory notes between registrant and
Wells Fargo Bank dated July 16, 1997
23(a) Consent of Independent Public Accountants - Arthur Andersen LLP
23(b) Consent of Independent Accountants - Price Waterhouse LLP
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ROTONICS MANUFACTURING INC.
By /s/ SHERMAN MCKINNISS
------------------------------
Sherman McKinniss
President, Chief Executive Officer
Date 09/15/1997
By /s/ DOUGLAS W. RUSSELL
------------------------------
Douglas W. Russell
Chief Financial Officer
Assistant Secretary/Treasurer
Date 09/15/1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ L. JOHN POLITE, JR. Director 09/15/1997
- --------------------------------
L. John Polite, Jr.
/s/ E. PAUL TONKOVICH Secretary, Director 09/15/1997
- --------------------------------
E. Paul Tonkovich
/s/ DAVID C. POLITE Director 09/15/1997
- --------------------------------
David C. Polite
/s/ LARRY DEDONATO Director 09/15/1997
- --------------------------------
Larry DeDonato
/s/ JAMES E. EVANS Director 09/15/1997
- --------------------------------
James E. Evans
16
<PAGE>
ROTONICS MANUFACTURING INC.
FINANCIAL STATEMENTS
* * * * *
JUNE 30, 1997
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of Rotonics Manufacturing Inc.:
We have audited the accompanying balance sheets of ROTONICS MANUFACTURING
INC. (a Delaware corporation) as of June 30, 1997 and 1996, and the related
statements of income, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rotonics Manufacturing Inc.
as of June 30, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index
appearing under Item 14(a)(2) is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Orange County, California
August 21, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Rotonics Manufacturing Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) and (2) present fairly, in all material aspects, the results of
operations of Rotonics Manufacturing Inc. and its cash flows for the year
ended June 30, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Los Angeles, California
September 11, 1995
F-2
<PAGE>
ROTONICS MANUFACTURING INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 12,100 $ 11,600
Accounts receivable, net of allowance for doubtful accounts
of $90,000 (Notes 7 and 8) 5,334,400 5,790,700
Current portion of notes receivable (Note 3) 48,100 46,900
Inventories (Notes 4 , 7 and 8) 5,602,700 4,939,400
Deferred income taxes, net (Note 13) 1,574,600 2,015,900
Prepaid expenses and other current assets 242,100 218,500
---------- ------------
Total current assets 12,814,000 13,023,000
Notes receivable, less current portion (Note 3) 455,000 455,000
Deferred income taxes, net (Note 13) 1,441,400 1,786,300
Property, plant and equipment, net (Notes 5, 7 and 8) 10,799,500 8,316,900
Intangible assets, net (Note 6) 5,065,500 5,382,100
Other assets 59,000 92,400
------------ ------------
$ 30,634,400 $ 29,055,700
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 8) $ 1,281,300 $ 1,176,700
Accounts payable 2,953,100 2,686,100
Accrued liabilities (Note 10) 865,300 1,001,700
------------- -------------
Total current liabilities 5,099,700 4,864,500
Bank line of credit (Note 7) 2,373,400 1,983,500
Long-term debt, less current portion (Note 8) 4,112,700 3,880,600
Other liabilities 4,000 4,000
------------- -------------
Total liabilities 11,589,800 10,732,600
------------- -------------
------------- -------------
Commitments and contingencies (Note 14)
Stockholders' equity:
Common stock, stated value $.01: authorized 20,000,000 shares;
issued and outstanding 14,065,995 and 14,158,517 shares, respectively,
net of treasury shares (Notes 9 and 12) 24,422,500 24,577,400
Accumulated deficit (5,377,900) (6,254,300)
------------- -------------
Total stockholders' equity 19,044,600 18,323,100
------------- -------------
$ 30,634,400 $ 29,055,700
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ROTONICS MANUFACTURING INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended June 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 39,385,100 $ 35,703,600 $ 35,887,600
------------- ------------- -------------
Costs and expenses:
Cost of goods sold 29,292,100 26,443,700 26,298,900
Selling, general and administrative expenses 6,239,600 6,313,100 5,767,900
------------- ------------- -------------
Total costs and expenses 35,531,700 32,756,800 32,066,800
------------- ------------- -------------
Income from operations 3,853,400 2,946,800 3,820,800
------------- ------------- -------------
Other (expense)/income:
Interest expense (556,500) (696,500) (766,500)
Lawsuit settlement (Note 14) (1,010,800) - -
Other income, net 98,500 156,900 137,700
------------- ------------- -------------
Total other expense (1,468,800) (539,600) (628,800)
------------- ------------- -------------
Income before income taxes 2,384,600 2,407,200 3,192,000
Income tax (provision)/benefit (Note 13) (942,800) (934,500) 95,600
------------- ------------- -------------
Net income 1,441,800 1,472,700 3,287,600
Preferred stock dividends - (62,000) (301,600)
------------- ------------- -------------
Net income applicable to common and equivalent shares $ 1,441,800 $ 1,410,700 $ 2,986,000
------------- ------------- -------------
------------- ------------- -------------
Net income per common and equivalent shares (Note 1) $ .10 $ .10 $ .24
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ROTONICS MANUFACTURING INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated Deficit Total
------------------------ ------------------------ ------------------- ----------
Shares Amount Shares Amount
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1994 3,875,000 $ 3,875,000 11,968,745 $ 21,053,100 $ (10,084,800) $ 14,843,300
Stock issued in connection with
Custom Rotational Molding, Inc. purchase - - 300,000 412,500 - 412,500
Redemptions of preferred stock (500,000) (500,000) 615,384 500,000 - -
Stock issued in connection with
exercise of outstanding options - - 19,623 14,900 - 14,900
Repurchase of preferred shares (375,000) (375,000) - - - (375,000)
Preferred stock dividends - - - - (301,600) (301,600)
Net income - - - - 3,287,600 3,287,600
---------- ------------ ---------- ------------- -------------- -------------
Balances, June 30, 1995 3,000,000 3,000,000 12,903,752 21,980,500 (7,098,800) 17,881,700
Redemptions of preferred stock (2,749,800) (2,749,800) 1,374,884 2,749,800 - -
Stock issued in connection with
exercise of outstanding options - - 5,333 4,200 - 4,200
Repurchase of preferred shares (250,200) (250,200) - - - (250,200)
Repurchase of common stock - - (125,452) (157,100) - (157,100)
Preferred stock dividends - - - - (62,000) (62,000)
Common stock dividends - - - - (566,200) (566,200)
Net income - - - - 1,472,700 1,472,700
---------- ------------ ---------- ------------- -------------- -------------
Balances, June 30, 1996 - - 14,158,517 24,577,400 (6,254,300) 18,323,100
Stock issued in connection with
exercise of outstanding options - - 7,500 6,100 - 6,100
Repurchase of common stock - - (100,022) (161,000) - (161,000)
Common stock dividends - - - - (565,400) (565,400)
Net income - - - - 1,441,800 1,441,800
---------- ------------ ---------- ------------- -------------- -------------
Balance, June 30, 1997 - $ - 14,065,995 $ 24,422,500 $ (5,377,900) $ 19,044,600
---------- ------------ ---------- ------------- -------------- -------------
---------- ------------ ---------- ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ROTONICS MANUFACTURING INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended June 30,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,441,800 $ 1,472,700 $ 3,287,600
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,617,000 1,588,100 1,484,100
Loss on sales of equipment 21,800 - -
Deferred income tax expense/(benefit) 786,200 743,100 (304,000)
Provision for doubtful accounts 63,900 58,800 24,200
Changes in assets and liabilities, net of
effect from purchase of business:
Decrease/(increase) in accounts receivable 392,400 (508,000) (182,600)
(Increase)/decrease in inventories (663,300) 412,700 (1,725,600)
(Increase)/decrease in prepaid expenses and other current assets (23,600) (103,700) 127,100
Decrease/(increase) in other assets 23,200 2,900 (17,100)
Increase/(decrease) in accounts payable 243,700 329,000 (318,500)
(Decrease)/increase in accrued liabilities (124,200) (198,100) 50,900
(Decrease)/increase in income taxes payable - (23,400) 6,300
Decrease in other liabilities - - (1,000)
------------ ------------ ------------
Net cash provided by operating activities 3,778,900 3,774,100 2,431,400
------------ ------------ ------------
Cash flows from investing activities:
Cash obtained from purchase of Custom Rotational Molding, Inc. - - 106,200
(Advances)/repayments on notes receivable (1,200) 5,800 93,700
Capital expenditures (3,797,800) (981,100) (3,023,100)
Proceeds from sales of equipment 3,200 - -
------------ ------------ ------------
Net cash used in investing activities (3,795,800) (975,300) (2,823,200)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings under line of credit 9,700,000 7,758,800 12,384,500
Repayments under line of credit (9,310,100) (8,835,600) (12,291,700)
Proceeds from issuance of long-term debt 1,526,400 500,000 6,080,000
Repayments of long-term debt (1,189,700) (1,264,600) (5,019,100)
Redemption of preferred stock - (250,200) (375,000)
Payment of preferred stock dividends - (85,400) (307,700)
Payment of common stock dividends (554,300) (554,000) -
Proceeds from exercise of stock options and warrants 6,100 4,200 14,900
Repurchases of common stock (161,000) (157,100) -
------------ ------------ ------------
Net cash provided by/(used in) financing activities 17,400 (2,883,900) 485,900
------------ ------------ ------------
Net increase/(decrease) in cash 500 (85,100) 94,100
Cash at beginning of year 11,600 96,700 2,600
------------ ------------ ------------
Cash at end of year $ 12,100 $ 11,600 $ 96,700
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ROTONICS MANUFACTURING INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1- ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND OPERATIONS
Rotonics Manufacturing Inc. (the "Company"), a Delaware corporation
manufactures and markets plastic containers and vessels for commercial,
agricultural, refuse, pharmaceutical, marine, health care and residential
use, as well as an array of custom molded plastic products to customers in a
variety of industries located in diverse geographic markets. No single
customer accounted for more than 10% of the Company's net sales in fiscal
1997, 1996, or 1995. In fiscal 1997 the Company purchased in aggregate
approximately 89% of its plastic resin from four vendors. Plastic resin
represents a significant portion of the Company's manufacturing costs. As
such, economic factors which affect the Company's plastic resin vendors will
have a potential impact on the Company's future operations.
The Company's significant accounting policies are as follows:
REVENUE RECOGNITION
Revenues are recognized upon shipment to the customer or when title passes to
the customer based on the terms of the sales, and are recorded net of sales
discounts, returns and allowances.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivable and trade payables approximates the
fair value due to their short-term maturities. The carrying value of the
Company's line of credit and notes payable is considered to approximate fair
market value because the interest rates of these instruments are based
predominately on variable reference rates.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method and the estimated
useful lives of the assets range from five to thirty-nine years. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
included in income for the period. The cost of maintenance and repairs is
charged to income as incurred; costs relating to significant renewals and
betterments are capitalized.
INTANGIBLE ASSETS
The excess of the aggregate purchase price over the fair value of the net
assets of businesses acquired is amortized on the straight-line basis over
periods ranging from twenty to forty years. Patents are amortized on the
straight-line basis over their useful lives of seventeen years, or at their
remaining useful life from date of acquisition.
F-7
<PAGE>
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes".
FAS 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or
tax returns. In estimating future tax consequences, FAS 109 generally
considers all expected future events other than enactments of changes in tax
laws or rates.
EARNINGS PER SHARE
Earnings per share are calculated based on the weighted average outstanding
number of common and dilutive common equivalent shares. Common equivalent
shares include outstanding stock options and warrants. The weighted average
number of shares used in determining income per common share was 14,135,200,
13,858,300 and 12,607,900 in fiscal 1997, 1996 and 1995, respectively.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived
Assets and Long-lived Assets to be Disposed of" and SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 requires the Company to disclose
proforma net income and earnings per share as if the fair value based
accounting method of SFAS No. 123 had been used for stock based compensation.
The adoption of these pronouncements had no impact to the Company's financial
position or results of operations.
Effective December 31, 1997, the Company will be required to adopt SFAS No.
128, "Earnings per Share". SFAS No. 128 replaces primary EPS with basic EPS
and fully diluted EPS with diluted EPS. Basic EPS is computed by dividing
reported earnings by weighted average shares outstanding. Diluted EPS is
computed the same way as fully diluted EPS except that the calculation now
uses the average share price for the reporting period to compute dilution
from options under the treasury stock method. The adoption of this
promouncement is not expected to have a significant impact on the Company's
earnings per share.
NOTE 2 - ACQUISITIONS:
On May 31, 1995 the Company purchased certain assets and assumed certain
liabilities, including $700,000 of debt, of Custom Rotational Molding, Inc.
("CRM") for 300,000 shares of the Company's common stock with a fair value of
$412,500. The acquisition was accounted for as a purchase and in accordance
with the Agreement and Plan of Reorganization was effective April 1, 1995.
The Company's results of operations include those of CRM since the effective
date of the acquisition. The purchase price allocation, resulted in no
recognition of goodwill. The Company's results of operations in fiscal 1995
would not have been materially different had the acquisition of CRM been
effective as of the beginning of the respective period. CRM currently
conducts business as a division of the Company using the trade name RMI-A and
primarily manufactures custom molded products for a variety of industries.
NOTE 3 - NOTES RECEIVABLE:
On March 31, 1995, the Company and a customer entered into an agreement under
which the Company acquired from this customer certain assets, including molds
and trade accounts receivable, at their total estimated fair value of
$357,800, which was applied against the principal of a 1993 Promissory Note
owed by this customer to the Company. The remaining unpaid principal,
together with accrued interest and open trade receivable from this customer
as of March 31, 1995, were exchanged for a new note with a principal balance
of $455,000, bearing interest at 8% per annum and maturing on March 31, 2005.
Effective March 31, 1995, the Company sold products manufactured using these
molds directly to end users. The Company shall pay to this former customer
royalties at the initial rate of 10% of the Company's net sales of these
products. Half of the royalty payments shall be applied to reduce principal
and interest until the former customer has received a total of $300,000 in
royalty payments or March 31, 1998, whichever is earlier. Subsequently, all
royalty payments shall be applied to principal and interest until such
principal and interest are paid in full, at which time the royalty rate will
be reduced to 5% through March 31, 2005. As of June 30, 1997 and 1996, the
total balance of this note amounted to $503,100 and $487,100 including
accrued interest of $48,100 and $32,100, respectively. The Company intends
to hold this note until maturity.
F-8
<PAGE>
NOTE 4 - INVENTORIES:
Inventories consist of: June 30,
------------------------
1997 1996
---------- ----------
Raw materials $3,160,000 $2,691,300
Finished goods 2,442,700 2,248,100
---------- ----------
$5,602,700 $4,939,400
---------- ----------
---------- ----------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of: June 30,
--------------------------
1997 1996
----------- -----------
Land $ 1,039,500 $ 574,200
Buildings and building improvements 3,274,500 2,701,500
Machinery, equipment, furniture and fixtures 13,762,700 11,376,200
Construction in progress 359,900 93,800
----------- -----------
18,436,600 14,745,700
Less - accumulated depreciation (7,637,100) (6,428,800)
----------- -----------
$10,799,500 $ 8,316,900
----------- -----------
----------- -----------
NOTE 6 - INTANGIBLE ASSETS:
Intangible assets consist of: June 30,
--------------------------
1997 1996
----------- -----------
Patents, net of accumulated amortization
of $95,200 and $79,600 $ 35,200 $ 50,800
Goodwill, net of accumulated amortization
of $2,070,000 and $1,768,900 5,030,300 5,331,300
---------- ----------
$5,065,500 $5,382,100
---------- ----------
---------- ----------
The carrying values of long-lived assets are reviewed if the facts and
circumstances suggest that an item may be impaired. If this review indicates
that a long-lived asset will not be recoverable, as determined based on the
future undiscounted cash flows of the asset, the Company's carrying value of
the long-lived asset is reduced to fair value.
NOTE 7 - BANK LINE OF CREDIT:
The Company has a $5,000,000 revolving line of credit with Wells Fargo Bank,
which matures on July 15, 1999. The line is secured by the Company's
machinery and equipment, accounts receivable and inventories. Interest is
payable monthly at the bank's prime rate. The bank's prime rate at June 30,
1997 was 8.5% per annum. In addition, the loan agreement allows the Company
to convert the outstanding principal balance in increments of $250,000 to a
LIBOR-based loan for up to 90-day periods. At June 30, 1997 total borrowings
under the Company's line of credit was $2,373,400 of which $2,250,000 was
borrowed under the LIBOR option. The LIBOR borrowings consist of two
borrowings of $1,250,000 and $1,000,000 both bearing a LIBOR interest rate of
8.1875% per annum and maturing on July 16, 1997 and July 28, 1997,
respectively. Proceeds from the loan were used for working capital purposes.
At June 30, 1997 the Company had approximately $2,625,000 available for
future borrowings under the revolving line of credit. The loan agreement
contains various covenants pertaining to tangible net worth, net income and
liquidity ratios, capital expenditures, payments of dividends, payment of
subordinated debt as well as various other restrictions. The Company was in
compliance with these covenants for fiscal 1997.
F-9
<PAGE>
NOTE 8 - LONG-TERM DEBT:
Long-term debt consists of: June 30,
-------------------------
1997 1996
---------- ----------
Note payable - Bank (A) $2,333,300 $3,133,300
Note payable - Bank (B) - 197,500
Note payable - Bank (C) 391,700 491,700
Note payable - Bank (D) 491,500 -
Note payable - Bank (E) 1,000,000 -
Note payable - Bank (F) 1,147,100 1,213,600
Other 30,400 21,200
---------- ----------
5,394,000 5,057,300
Less-current portion (1,281,300) (1,176,700)
---------- ----------
$4,112,700 $3,880,600
---------- ----------
---------- ----------
(A) In May 1995 the Company restructured its credit agreement with Wells
Fargo Bank. The loan consists of a $4,000,000 sixty-month term loan.
The note is due in monthly principal installments of $66,700 plus
interest at the bank's prime rate (8.5% at June 30, 1997). In addition,
the loan agreement allows the Company to convert all or a portion of the
outstanding principal in increments of $250,000 to a LIBOR-based loan for
periods up to 180 days. At June 30, 1997 the Company had $2,250,000 of
the outstanding principal balance under the LIBOR option at 8.1875% per
annum maturing on July 16 1997. The note is secured by the Company's
machinery and equipment, accounts receivable and inventories and matures
on May 16, 2000.
(B) This note was issued to the First State Bank of Gainesville in the
original amount of $250,000. The loan was due in monthly
installments of $3,000 including interest at 8% per annum beginning
September 1993 and continuing for 36 months at which time the entire
balance of unpaid principal plus accrued interest was due and payable.
The note was secured by a deed of trust on the Company's real property in
Gainesville, Texas. Proceeds from the loan were used for working capital
purposes and to finance the majority of a fixed asset expansion project
at the Company's Idaho facility. In August 1996 the note was repaid in
full and the lien on the Texas property was removed.
(C) In fiscal 1996 the Company was advanced $500,000 on its machinery and
equipment term-loan commitment with Wells Fargo Bank. The proceeds were
used to repay amounts originally borrowed under the Company's revolving
line of credit to finance approximately $700,000 in machinery and
equipment purchases. The note is due in monthly principal installments
of approximately $8,300 plus interest at the bank's prime rate (8.5% at
June 30, 1997) or LIBOR interest rate option for periods up to six
months. At June 30, 1997 the total outstanding principal was under the
LIBOR option at 8.1875% per annum maturing July 16, 1997. The note is
secured by the Company's machinery and equipment and matures on May 15,
2001.
(D) In March 1997 the Company was advanced $500,000 on its second machinery
and equipment term-loan commitment with Wells Fargo Bank. The proceeds
were used to repay amounts originally borrowed under the Company's
revolving line of credit to finance approximately $625,000 in machinery
and equipment purchased. The note is due in monthly principal
installments of approximately $8,500 plus interest at the bank's prime
rate (8.5% per annum at June 30, 1997) or LIBOR interest rate option for
periods up to six months. At June 30, 1997 the total outstanding
principal was under the LIBOR option at 8.1875% per annum maturing July
24, 1997. The note is secured by the Company's machinery and equipment
and matures on May 15, 2002.
(E) In June 1997, the Company was advanced $1,000,000 on its third machinery
and equipment term-loan commitment with Wells Fargo Bank. The proceeds
were used to repay amounts originally borrowed under the Company's
revolving line of credit to finance approximately $1,250,000 in
machinery and equipment purchases. The note is due in monthly principal
installments of approximately $16,700 plus interest at the bank's prime
rate (8.5% per annum at June 30, 1997) or LIBOR interest rate option for
periods up to three months. At June 30, 1997, the total outstanding
principal was under the LIBOR option at 8.1875% per annum maturing July
28, 1997. The note is secured by the Company's machinery and equipment
and matures on June 15, 2002.
F-10
<PAGE>
At June 30, 1997, the Company had available a term-loan commitment in the
amount of $1,200,000 for future machinery and equipment purchases.
Advances under the line will be subject to monthly interest only payments
at the bank's prime or LIBOR interest rate options until July 15, 1998,
at which time amounts borrowed will convert to a 60 month fully
amortizable loan.
(F) This note was issued to Wells Fargo Bank on September 15, 1994 in
connection with the purchase of real property in Bensenville, Illinois.
The note is due in monthly principal installments of approximately $5,500
plus interest at the bank's prime rate (8.5% per annum at June 30, 1997)
on a twenty-year amortization with the outstanding principal due in five
years. The note is secured by a first trust deed on the real property
and matures on September 15, 1999.
Aggregate annual maturities of long-term debt are summarized as follows:
Year Ending June 30,
--------------------
1998 $1,281,300
1999 1,273,500
2000 2,155,100
2001 399,400
2002 284,700
----------
$5,394,000
----------
----------
NOTE 9 - RELATED PARTY TRANSACTIONS:
In March 1993 the Board of Directors authorized the holders of preferred
shares the opportunity to convert some of their outstanding Series A
Preferred Stock ($1 per share redemption value) to common shares based on the
fair market value of the Company's common stock at the date of conversion.
Through June 1994 two officers/directors of the Company converted an
aggregate of 1,400,139 shares of their preferred stock for 2,039,564 shares
of the Company's common stock. The conversion factor used a common stock
value of $0.6875 per share (fair market value at the date of conversion). In
June 1994 the Board of Directors approved the additional conversion of
500,000 shares of preferred stock held by an officer/director of the Company.
On August 13, 1994 these shares were converted to 615,384 shares of the
Company's common stock based on the fair market value of the Company's common
stock ($.8125 per share) at the date of conversion.
In September 1995, in accordance with unanimous approval of the Board of
Directors, an officer/director of the Company converted his remaining
2,158,950 outstanding shares of Series A Preferred Stock to 1,079,475 shares
of the Company's common stock. The shares were converted on the basis of one
share of common stock issued for every two shares of preferred outstanding.
The Company sells plastic resin and molded plastic products to a company in
which an officer/director of the Company has a minority interest. Sales
to the Company amounted to $412,300, $319,900 and $152,500 in fiscal years
1997, 1996 and 1995, respectively. Amounts due on sales to this company were
$151,500 and $128,800 at June 30, 1997 and 1996, respectively, and are
included in accounts receivable in the accompanying balance sheet.
In fiscal years 1997, 1996 and 1995, the Company incurred legal fees and
costs amounting to $103,400, $83,000 and $48,500, respectively, for services
by E. Paul Tonkovich Professional Corporation, of which an officer/director
of the Company is an employee.
NOTE 10 - ACCRUED LIABILITIES:
Accrued liabilities consist of: June 30,
---------------------
1997 1996
-------- ----------
Salaries, wages, commissions and related payables $640,500 $ 806,200
Other 224,800 195,500
-------- ----------
$865,300 $1,001,700
-------- ----------
-------- ----------
F-11
<PAGE>
NOTE 11 - STOCK OPTION PLAN:
In September 1985, the Company adopted a stock option plan for the granting
of options to directors and employees to purchase the Company's common stock.
The option price is determined by a committee of the Board of Directors, but
cannot be less than 85% of the fair market value of the Company's common
stock at the date of grant. Pursuant to the approval of the Company's
shareholders at the Company's 1992 Annual Meeting, the Company effected a
one-for-three reverse stock split on December 17, 1992. As such, the
Company's authorized shares of common stock for the stock option plan was
reduced from 2,500,000 shares to 833,300 shares. In March 1993 the Board of
Directors approved a resolution to accelerate the vesting of all outstanding
options under the plan to 100% so that the employees could fully exercise
their respective grants. The following table has been modified to reflect
the reduction in the number of shares issuable upon exercise and the
respective increases to the exercise price per share.
In August 1994, the Company issued to certain key employees options to
purchase 40,000 shares of common stock under the Company's pre-existing stock
option plan. The options are exercisable at $.8125 per share (fair market
value at date of grant) of which 50% are currently exercisable and the
balance exercisable after one year. The options expired August 12, 1996.
The Company's pre-existing stock option plan, and all ungranted options
thereof, expired November 11, 1994.
In December 1994, at the Annual Meeting of Stockholders of the Company, the
stockholders voted by majority decision to ratify and approve a new stock
option plan as adopted by the Board of Directors in June 1994. The plan
allows, at the discretion of the Board of Directors, for the granting of
options to key employees, officers, directors, and consultants of the Company
to purchase 1,000,000 shares of the Company's common stock. Under the terms
and conditions set forth in the plan, the exercise price of the stock options
will be a least 85% of the fair market value of the Company's common stock on
the grant date. The plan expires June 12, 2004.
STOCK OPTION ACTIVITY
Outstanding Exercisable Weighted Average
Shares Shares Price Per Share
----------- ----------- ---------------
Balance outstanding at June 30, 1994 9,300 9,300 $0.7828
-----------
-----------
Granted 40,000 $0.8125
Exercised (19,700) $0.7632
Canceled (11,800) $0.8842
---------
Balance outstanding at June 30, 1995 17,800 17,800 $0.8043
-----------
-----------
Exercised (5,300) $0.7852
---------
Balance outstanding at June 30, 1996 12,500 12,500 $0.8125
-----------
-----------
Exercised (7,500) $0.8125
Canceled (5,000) $0.8125
---------
Balance outstanding at June 30, 1997 - -
------- -----------
------- -----------
In August 1996 options were exercised for the issuance of an additional 7,500
shares of common stock and the remaining outstanding options to purchase
5,000 shares of common stock expired on August 12, 1996.
At June 30, 1997, 1,000,000 shares were available for future grants.
NOTE 12 - PREFERRED STOCK AND COMMON STOCK:
In September 1995, the Company redeemed 250,232 shares of its preferred stock
at the stated redeemed value of one dollar. Subsequent to the redemptions,
in accordance with unanimous approval of the Board of Directors, the Company
converted the remaining 2,749,768 shares of the outstanding Series A
Preferred Stock to 1,374,884 shares of the Company's common stock. The
shares were converted on the basis of one share of common stock for every two
shares of preferred stock outstanding. On February 11, 1997 the Company
amended its Articles of Incorporation to eliminate the authorization of the
Company's Series A Preferred Stock.
F-12
<PAGE>
On December 10, 1996, at the Company's Annual Meeting of Stockholders, the Board
of Directors declared a common stock dividend of $.04 per common share payable
on January 24, 1997 to stockholders of record on January 6, 1997.
In March 1997, the Company retired 100,000 shares of its own common stock
which it had purchased in the open market at a total cost of $161,000.
Treasury stock is recorded at cost. At June 30, 1997 and 1996, the treasury
stock consisted of 1,776 and 1,801 shares of common stock at a cost of
$1,500, respectively.
NOTE 13 - INCOME TAXES:
The components of the income tax (provision)/benefit were:
For the years ended June 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
Current:
Federal $ (63,000) $ (62,000) $ (67,200)
State (93,600) (129,400) (141,200)
---------- ---------- ----------
(156,600) (191,400) (208,400)
---------- ---------- ----------
Deferred:
Federal (744,100) (642,000) 387,800
State (42,100) (101,100) (83,800)
---------- ---------- ----------
(786,200) (743,100) 304,000
---------- ---------- ----------
$ (942,800) $ (934,500) $ 95,600
---------- ---------- ----------
---------- ---------- ----------
At June 30, 1997, the Company has net operating loss (NOL) carryforwards of
approximately $9,300,000 for federal income tax purposes. The NOL
carryforwards, which are available to offset future taxable income of the
Company and are subject to limitations should a "change in ownership" as
defined in the Internal Revenue code occur, will begin to expire in 2003 if
not utilized. The federal NOL carryforwards expire as follows:
Amount of unused operating Expiration during year
loss carryforwards ended june 30,
-------------------------- ----------------------
$4,600,000 2003
3,400,000 2004
600,000 2005
500,000 2006
200,000 2009
----------
$9,300,000
----------
----------
At June 30, 1997, the Company had a federal alternative minimum tax credit of
approximately $190,000 which is available to offset future federal income
taxes once the Company is no longer subject to an alternative minimum tax for
federal income tax purposes.
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes". FAS
109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or
tax returns. Under FAS 109 the Company recognizes to a greater degree the
future tax benefits of expenses which have been recognized in the financial
statements.
F-13
<PAGE>
In conjunction with the adoption of FAS 109 in fiscal 1994, management
determined the future taxable income of the Company will more likely than not
be sufficient to realize the tax benefits of its NOL's. As such, an initial
deferred tax asset of $4,013,000, net of a valuation allowance of $2,662,000
was recorded.
Based on the operating results since the adoption of FAS 109 and management's
continuing assessment, management believes that the Company will continue to
utilize its NOL's in the normal course of business. As of fiscal 1997,
management has reduced the initial $2,662,000 valuation allowance to zero.
As depicted above, the Company's deferred tax provision increased
substantially in unison with the depletion of the federal valuation
allowance in fiscal 1996. As such, the Company's will continue to report a
large deferred tax provision until such time that the Company's NOL's and
corresponding deferred tax assets are fully utilized. Management also noted
that the deferred tax provision does not result in current outlays of cash
flows due to the utilization of its NOL's. These cashflow savings are then
available to supplement funding of the Company's expansion projects, pay
common stock dividends and reduce outstanding debt.
The following reconciles the federal statutory income tax rate to the
effective rate of the provision/(benefit) for income taxes:
<TABLE>
<CAPTION>
For the year ended June 30,
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes (net of federal benefit) 2.6 3.6 2.9
Goodwill amortization 4.3 4.3 3.2
Benefit of current year net operating loss carryforwards - - (36.1)
Effect of decrease in valuation allowance - (7.7) (9.5)
Other items, net (1.4) 4.6 2.5
------- ------- -------
Effective income tax rate 39.5% 38.8% (3.0)%
------- ------- -------
------- ------- -------
</TABLE>
Deferred tax assets and liabilities are summarized as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Federal NOL $3,164,800 $4,262,500
State NOL (net of federal benefit) - 86,600
Tax credit carryforwards 208,100 45,900
Employment-related reserves 116,000 143,900
Allowance for doubtful accounts 35,100 33,200
Accruals not currently deductible 136,500 -
---------- ----------
3,660,500 4,572,100
Deferred tax liabilities:
Depreciation and amortization (644,500) (715,400)
---------- ----------
Net deferred tax assets before valuation allowance 3,016,000 3,856,700
Deferred tax assets valuation allowance - (54,500)
---------- ----------
Net deferred tax assets $3,016,000 $3,802,200
---------- ----------
---------- ----------
</TABLE>
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company leases various office and warehouse facilities, and equipment
under long-term operating leases expiring through October 2001. Certain of
the leases provide for five-year renewal options and rental increases based
on the Consumer Price Index. Operating lease expense for fiscal 1997, 1996,
and 1995 amounted to $830,500, $834,400 and $771,400, respectively.
F-14
<PAGE>
At June 30, 1997, the future minimum lease commitments, excluding insurance
and taxes, are as follows:
Year Ending June 30,
--------------------
1998 $ 632,100
1999 463,000
2000 371,100
2001 278,100
2002 64,800
----------
$1,809,100
----------
----------
CONTINGENCIES
In the normal course of business, the Company encounters certain litigation
matters, which in the opinion of management, will not have a significant
adverse effect on the financial position or the results of operations of the
Company.
On April 16, 1996, the Company was named as a defendant in a compliant filed
by Bonar U.S., Inc. in Delaware Superior Court. The complaint alleged claims
for breach of contract and promissory estoppel relating to an Agreement in
Principle entered into in connection with a proposed acquisition of the
Company by Bonar U.S., Inc. On April 3, 1996, the Company announced that it
had terminated the Agreement of Principle pursuant to its terms. The
complaint requested damages of $7,011,484. On May 17, 1996, the Company
filed a counterclaim against Bonar U.S., Inc. and Bonar Plastic, Inc. seeking
damages totaling $25,237,725 for breach of the Confidentiality Agreement with
the Company, misappropriation of trade secrets, intentional interference with
a prospective economic advantage which the Company obtained as a result of an
indication of interest from a third party and breach of a Royalty Agreement
between Bonar Plastics, Inc. and one of the Company's operating divisions
(formally known as Custom Rotational Molding, Inc.). In March 1997, the
Company reached an amicable out of court settlement with Bonar. The
settlement involved mutual general releases by the parties, dismissals of the
actions brought by the parties and payments to Bonar of $400,000 in March
1997 and $350,000 in September 1997. The $350,000 is included in accounts
payable in the accompanying balance sheet. The total settlement payment of
$750,000 plus additional related legal costs of $260,800 have been classified
as lawsuit settlement in the accompanying statement of income.
NOTE 15 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Supplemental disclosures of cash flows information are as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $555,900 $711,600 $767,500
-------- -------- --------
-------- -------- --------
Income taxes $188,500 $245,900 $241,600
-------- -------- --------
-------- -------- --------
Purchase of Custom Rotational Molding Inc.
by issuance of common stock $ - $ - $306,300
-------- -------- --------
-------- -------- --------
Conversion of customer note and accounts receivable
to new note and other assets $ - $ - $812,300
-------- -------- --------
-------- -------- --------
Non-cash financing activity:
Redemption of preferred stock to common stock $ - $ - $500,000
-------- -------- --------
-------- -------- --------
Preferred dividends declared but not paid $ - $ - $ 23,400
-------- -------- --------
-------- -------- --------
Common dividends declared but not paid $ 11,700 $ 12,200 $ -
-------- -------- --------
-------- -------- --------
</TABLE>
F-15
<PAGE>
NOTE 16 - UNAUDITED QUARTERLY RESULTS:
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
September December March June
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal Year 1997:
Net sales $10,229,900 $9,478,200 $9,560,300 $10,116,700
Gross Profit 2,606,300 2,476,400 2,186,600 2,823,700
Net income/(loss) 517,200 434,400 (14,200) 504,400
Per share:
Net income $ .04 $ .03 $ - $ .03
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Fiscal Year 1996:
Net sales $8,981,900 $8,904,100 $8,178,900 $9,638,700
Gross Profit 2,183,900 2,184,700 2,054,400 2,836,900
Net income 367,400 189,900 129,500 785,900
Per share:
Net income $ .02 $ .01 $ .01 $ .06
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
F-16
<PAGE>
ROTONICS MANUFACTURING INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------ --------- -------------------------- ----------- ---------
Additions
Balance at -------------------------- Balance at
beginning Charged to end of
Description of period Costs & Expenses Other Deductions period
- ------------------ --------- ---------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
June 30, 1997:
Allowance for
doubtful accounts $ 90,000 $ 63,900 $ - $ (63,900)(1) $ 90,000
---------- --------- --------- ----------- ---------
---------- --------- --------- ----------- ---------
Deferred tax asset valuation allowance $ 54,500 $ - $ - $ (54,500)(2) $ -
---------- --------- --------- ----------- ---------
---------- --------- --------- ----------- ---------
June 30, 1996:
Allowance for
doubtful accounts $ 110,300 $ 58,800 $ - $ (79,100)(1) $ 90,000
---------- --------- --------- ----------- ---------
---------- --------- --------- ----------- ---------
Deferred tax asset valuation allowance $ 590,300 $ - $ 54,500(3) $ (590,300)(2) $ 54,500
---------- --------- --------- ----------- ---------
---------- --------- --------- ----------- ---------
June 30, 1995:
Allowance for
doubtful accounts $ 118,100 $ 24,200 $ 5,000 $ (37,000)(1) $ 110,300
---------- --------- --------- ----------- ---------
---------- --------- --------- ----------- ---------
Deferred tax asset valuation allowance $1,984,700 $ - $ - $(1,394,400)(2) $ 590,300
---------- --------- --------- ----------- ---------
---------- --------- --------- ----------- ---------
</TABLE>
(1) Doubtful accounts written off during the year.
(2) Decrease in valuation allowance based on current years' additional
utilization or expiration of net operating loss carryforwards.
(3) Represents valuation allowance for potential state NOL's which
will expire prior to utilization.
F-17
<PAGE>
EXHIBIT 23a
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, dated August 21, 1997 on page F-1 of this Form 10-K which is
incorporated by reference in the Prospectus constituting part of the
Registration Statements on Form S-3 (Nos. 33-62721 and 33-70526) and in the
Registration Statement on Form S-8 (No. 33-88410).
ARTHUR ANDERSEN LLP
Orange County, California
September 15, 1997
<PAGE>
EXHIBIT 23b
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 33-70526
and 33-62721) and in the Registration Statement on Form S-8 (No. 33-88410) of
Rotonics Manufacturing Inc. of our report dated September 11, 1995 appearing
on page F-2 of this Form 10-K.
Price Waterhouse LLP
Los Angeles, California
September 15, 1997
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROTONICS MANUFACTURING INC.
---------------------------
Rotonics Manufacturing Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Rotonics Manufacturing Inc. Rotonics
Manufacturing Inc. was originally incorporated under the name of Pentron
Corporation, and the original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on September 10, 1986.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:
ARTICLE ONE. NAME. The name of the Corporation is "Rotonics Manufacturing
Inc."
ARTICLE TWO. REGISTERED OFFICE. The address of the registered office of
the Corporation in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is United States Corporation Company.
ARTICLE THREE. PURPOSES. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
<PAGE>
ARTICLE FOUR. CAPITAL STOCK.
A. AUTHORIZED CAPITAL. The Corporation is authorized to issue one (1)
class of shares of stock to be designed "Common Stock". The total number of
shares of Common Stock which the Corporation is authorized to issue is Twenty
Million (20,000,000), each share to have a par value of $.01. Each outstanding
share of Common Stock as of this date is to remain as one share of Common Stock.
ARTICLE FIVE. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS.
A. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. Each director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of such director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation of the State of Delaware, or
(iv) for any transaction from which such director derived any improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after filing this Certificate of Incorporation with the Delaware Secretary of
State so as to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of each director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended.
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Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
B. INDEMNIFICATION AND INSURANCE.
(1) RIGHT TO INSURANCE. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and
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such indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of his or
her heirs, executors and administrators; PROVIDED, HOWEVER, that the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Section B shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition;
PROVIDED, HOWEVER, that if the General Corporation Law of the State of Delaware
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation or an undertaking, by or on behalf of such directors or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(2) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final
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disposition conferred in this Section B shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of this Certificate of Incorporation, Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
(3) INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust, or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ARTICLE SIX. MANAGEMENT OF BUSINESS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
and the directors need not be elected by ballot unless required by the Bylaws of
the Corporation.
ARTICLE SEVEN. BYLAWS. In furtherance and not in limitation of the powers
conferred by stature, the Board of Directors and the stockholders of the
Corporation are each expressly authorized to adopt, amend or repeal the Bylaws
of the Corporation.
ARTICLE EIGHT. AMENDMENTS. The Corporation reserves the right to amend
and repeal any provision contained in this Certificate of Incorporation, and to
take other corporate action to the extent and in the manner now or hereafter
permitted or prescribed by the laws of the State of Delaware. All rights herein
conferred are granted subject to this reservation.
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4. This Amended and Restated Certificate of Incorporation was
submitted to the stockholders of the Corporation for their approval at the
annual meeting of Stockholders, and at such meeting the necessary number of
shares as required by statute were voted in favor of the Amended and Restated
Certificate of Incorporation.
5. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Rotonics Manufacturing Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by Sherman McKinniss,
its President, and attested by E. Paul Tonkovich, its Secretary, on
this 11th day of February, 1997.
ATTEST: ROTONICS MANUFACTURING INC.
/s/ E. Paul Tonkovich By: /s/ Sherman McKinniss
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E. Paul Tonkovich Sherman McKinniss
Secretary President
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Exhibit 10.1
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of July 16, 1997, by and between ROTONICS
MANUFACTURING INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described below
(each, a "Credit" and collectively, the "Credits"), and Bank has agreed to
provide the Credits to Borrower on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including July 15, 1999, not to exceed at any time the aggregate
principal amount of Five Million Dollars ($5,000,000.00) ("Line of Credit"), the
proceeds of which shall be used for Borrower s working capital. Borrower's
obligation to repay advances under the Line of Credit shall be evidenced by a
promissory note substantially in the form of Exhibit A attached hereto ("Line of
Credit Note"), all terms of which are incorporated herein by this reference.
(b) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 1.2. TERM COMMITMENT.
(a) TERM COMMITMENT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including July 15, 1998, not to exceed the aggregate principal amount of
One Million Two Hundred Thousand Dollars ($1,200,000.00) ("Term Commitment"),
the proceeds of which shall be used for equipment purchases, and which shall be
converted on July 16, 1998, to a term loan, as described more fully below.
Borrower's obligation to repay advances under the Term Commitment shall be
evidenced by a promissory note substantially in the form of Exhibit B attached
hereto ("Term Commitment Note"), all terms of which are incorporated herein by
this reference.
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(b) LIMITATION ON BORROWINGS. Notwithstanding any other provision of
this Agreement, the aggregate amount of all outstanding borrowings under the
Term Commitment shall not at any time exceed a maximum of eighty percent (80%)
of the cost of each item of new equipment purchased with the proceeds thereof or
seventy-five percent (75%) of the cost of each item of used equipment purchased
with proceeds thereof, as evidenced by the seller s invoice.
(c) BORROWING AND REPAYMENT. Borrower may from time to time during the
period in which Bank will make advances under the Term Commitment borrow and
partially or wholly repay its outstanding borrowings, provided that amounts
repaid may not be reborrowed, subject to all the limitations, terms and
conditions contained herein; provided however, that the total outstanding
borrowings under the Term Commitment shall not exceed the maximum principal
amount available thereunder, as set forth above. The principal amount of the
Term Commitment shall be repaid in accordance with the provisions of the Term
Commitment Note.
(d) PREPAYMENT. Borrower may prepay principal on the Term Commitment
solely in accordance with the provisions of the Term Commitment Note.
SECTION 1.3. TERM LOAN A.
(a) TERM LOAN A. Bank has made a loan to Borrower in the original
principal amount of One Million Dollars ($1,000,000.00) ("Term Loan A"), on
which the outstanding principal balance as of the date hereof is $1,000,000.00.
Borrower's obligation to repay Term Loan A is evidenced by a promissory note in
the form of Exhibit C attached hereto ("Term A Note"), all terms of which are
incorporated herein by this reference. Subject to the terms and conditions of
this Agreement, Bank hereby confirms that Term Loan A remains in full force and
effect. Any reference in the Term A Note to any prior loan agreement between
Bank and Borrower shall be deemed a reference to this Agreement.
(b) REPAYMENT. The principal amount of Term Loan A shall be repaid in
accordance with the provisions of the Term A Note.
(c) PREPAYMENT. Borrower may prepay principal on Term Loan A solely in
accordance with the provisions of the Term A Note.
SECTION 1.4. TERM LOAN B.
(a) TERM LOAN B. Bank has made a loan to Borrower in the original
principal amount of One Million Three Hundred Thirty Thousand Dollars
($1,330,000.00) ("Term Loan B"), on which the outstanding principal balance as
of the date hereof is $1,141,583.22. Borrower's obligation to repay Term Loan B
is evidenced by a promissory note in the form of Exhibit D attached hereto
("Term B Note"), all terms of which are incorporated herein by this reference.
Subject to the terms and conditions of this Agreement, Bank hereby confirms that
Term Loan B remains in full force and effect. Any reference in the Term B Note
to any prior loan agreement between Bank and Borrower shall be deemed a
reference to this Agreement.
(b) REPAYMENT. The principal amount of Term Loan B shall be repaid in
accordance with the provisions of the Term B Note.
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(c) PREPAYMENT. Borrower may prepay principal on Term Loan B at any
time, in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.
SECTION 1.5. TERM LOAN C.
(a) TERM LOAN C. Bank has made a loan to Borrower in the original
principal amount of Four Million Dollars ($4,000,000.00) ("Term Loan C"), on
which the outstanding principal balance as of the date hereof is $2,266,658.00.
Borrower's obligation to repay Term Loan C is evidenced by a promissory note in
the form of Exhibit E attached hereto ("Term C Note"), all terms of which are
incorporated herein by this reference. Subject to the terms and conditions of
this Agreement, Bank hereby confirms that Term Loan C remains in full force and
effect. Any reference in the Term C Note to any prior loan agreement between
Bank and Borrower shall be deemed a reference to this Agreement.
(b) REPAYMENT. The principal amount of Term Loan C shall be repaid in
accordance with the provisions of the Term C Note.
(c) PREPAYMENT. Borrower may prepay principal on Term Loan C solely in
accordance with the provisions of the Term C Note.
SECTION 1.6. TERM LOAN D.
(a) TERM LOAN D. Bank granted a term commitment to Borrower in the
original principal amount of Five Hundred Thousand Dollars ($500,000.00), which
has been fully disbursed ("Term Loan D"), and on which the outstanding principal
balance as of the date hereof is $383,324.00. Borrower's obligation to repay
Term Loan D is evidenced by a promissory note in the form of Exhibit F attached
hereto ("Term D Note"), all terms of which are incorporated herein by this
reference. Subject to the terms and conditions of this Agreement, Bank hereby
confirms that Term Loan D remains in full force and effect. Any reference in
the Term D Note to any prior loan agreement between Bank and Borrower shall be
deemed a reference to this Agreement.
(b) REPAYMENT. The principal amount of Term Loan D shall be repaid in
accordance with the provisions of the Term D Note.
(c) PREPAYMENT. Borrower may prepay principal on Term Loan D solely in
accordance with the provisions of the Term D Note.
SECTION 1.7. TERM LOAN E.
(a) TERM LOAN E. Bank has made a loan to Borrower in the original
principal amount of Five Hundred Thousand Dollars ($500,000.00) ("Term Loan E"),
on which the outstanding principal balance as of the date hereof is $483,050.84.
Borrower's obligation to repay Term Loan E is evidenced by a promissory note in
the form of Exhibit G attached hereto ("Term E Note"), all terms of which are
incorporated herein by this reference. Subject to the terms and conditions of
this Agreement, Bank hereby confirms that Term Loan E remains in full force and
effect. Any reference in the Term Note E to any prior loan agreement between
Bank and Borrower shall be deemed a reference to this Agreement.
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(b) REPAYMENT. The principal amount of Term Loan E shall be repaid in
accordance with the provisions of the Term E Note.
(c) PREPAYMENT. Borrower may prepay principal on Term Loan E at any
time, in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.
SECTION 1.8. INTEREST/FEES.
(a) INTEREST. The outstanding principal balances of the shall bear
interest at the rates of interest set forth in the Line of Credit Note, the Term
Commitment Note, the Term A Note, the Term B Note, the Term C Note, the Term D
Note and the Term E Note (Collectively, the "Notes").
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Notes.
(c) COMMITMENT FEE. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $6,250.00, which fee shall be due
and payable in full upon the execution of this Agreement.
SECTION 1.9. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under each Credit by charging Borrower's
demand deposit account number 4624-074191 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
SECTION 1.10. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's accounts receivable, other rights to payment and general intangibles,
inventory and equipment.
As additional security for Term Loan B, Borrower hereby grants to Bank a
lien of first priority on that certain real property located at 736-738 and
740-746 Birginal Drive, Bensenville, Illinois 60106.
All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and expenses
incurred by Bank in connection with any of the foregoing security, including
without limitation, filing and recording fees and costs of appraisals, audits
and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
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Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Delaware, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated March 31, 1997, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
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SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
SECTION 2.12. REAL PROPERTY COLLATERAL. Except as disclosed by Borrower
to Bank in writing prior to the date hereof, with respect to any real property
collateral required hereby:
(a) All taxes, governmental assessments, insurance premiums, and water,
sewer and municipal charges, and rents (if any) which previously became due and
owing in respect thereof have been paid as of the date hereof.
(b) There are no mechanics' or similar liens or claims which have been
filed for work, labor or material (and no rights are outstanding that under law
could give rise to any such lien) which affect all or any interest in any such
real property and which are or may be prior to or equal to the lien thereon in
favor of Bank.
(c) None of the improvements which were included for purpose of
determining the appraised value of any such real property lies outside of the
boundaries and/or
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building restriction lines thereof, and no improvements on adjoining properties
materially encroach upon any such real property.
(d) There is no pending, or to the best of Borrower's knowledge
threatened, proceeding for the total or partial condemnation of all or any
portion of any such real property, and all such real property is in good repair
and free and clear of any damage that would materially and adversely affect the
value thereof as security and/or the intended use thereof.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Security Agreement: Equipment.
(v) Continuing Security Agreement: Rights to Payment and Inventory.
(vi) UCC-1 Financing Statements.
(vii) Mortgage and Assignment of Rents and Leases.
(viii) Such other documents as Bank may require under any other Section of
this Agreement.
(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
(d) INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank, including without
limitation, policies of fire and extended coverage insurance covering all real
property collateral required hereby, with replacement cost and mortgagee loss
payable endorsements, and such policies of insurance against specific hazards
affecting any such real property as may be required by governmental regulation
or Bank.
(e) APPRAISALS. Bank shall have obtained, at Borrower's cost, an
appraisal of all real property collateral required hereby, and all improvements
thereon, issued by an appraiser acceptable to Bank and in form, substance and
reflecting values satisfactory to Bank, in its discretion.
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(f) TITLE INSURANCE. Bank shall have received an ALTA Policy of Title
Insurance, with such endorsements as Bank may require, issued by a company and
in form and substance satisfactory to Bank, in such amount as Bank shall
require, insuring Bank's lien on the real property collateral required hereby to
be of first priority, subject only to such exceptions as Bank shall approve in
its discretion, with all costs thereof to be paid by Borrower.
(g) TAX SERVICE CONTRACT. Borrower shall have procured and delivered to
Bank, at Borrower's cost, such tax service contract as Bank shall require for
any real property collateral required hereby, to remain in effect as long as
such real property secures any obligations of Borrower to Bank as required
hereby.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of any of the Credits at
any time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
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SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include all schedules, notes and narratives
reasonably included in Borrower s 10K;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include all schedules, notes and narratives
reasonably included in Borrower s 10Q;
(c) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$100,000.00.
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<PAGE>
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):
(a) Current Ratio not at any time less than 1.25 to 1.00, with "Current
Ratio" defined as total current assets divided by total current liabilities.
(b) Tangible Net Worth not at any time less than $12,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.
(c) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.25 to 1.00, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" as defined above.
(d) EBITDA Coverage Ratio not less than 2.0 to 1.0 as of each fiscal
year end and based on a rolling four quarter, with "EBITDA" defined as net
profit before tax plus interest expense (net of capitalized interest expense),
depreciation expense and amortization expense, and with "EBITDA Coverage Ratio"
defined as EBITDA divided by the aggregate of total interest expense plus the
prior period current maturity of long-term debt and the prior period current
maturity of subordinated debt.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property in
excess of an aggregate of $50,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in any fiscal year in excess of an aggregate of $2,000,000.00.
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<PAGE>
SECTION 5.3. LEASE EXPENDITURES. Incur operating lease expense in any
fiscal year in excess of an aggregate of $200,000.00.
SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
and (b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof.
SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except any of the foregoing existing as
of, and disclosed to Bank prior to, the date hereof.
SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.
SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor of
Bank or which is existing as of, and disclosed to Bank in writing prior to, the
date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
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<PAGE>
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower by any court of competent jurisdiction under the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
(i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower.
(j) The sale, transfer, hypothecation, assignment or encumbrance, whether
voluntary, involuntary or by operation of law, without Bank's prior written
consent, of all or any part of or interest in any real property collateral
required hereby.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately
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<PAGE>
due and payable without presentment, demand, protest or notice of dishonor, all
of which are hereby expressly waived by each Borrower; (b) the obligation, if
any, of Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
of the Credits and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies of
Bank may be exercised at any time by Bank and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided by law or
equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: ROTONICS MANUFACTURING INC.
17022 South Figueroa Street
Gardena, CA 90248
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
South Bay RCBO
111 W. Ocean Blvd., Suite 300
Long Beach, CA 90802
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of
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<PAGE>
Bank's rights and/or the collection of any amounts which become due to Bank
under any of the Loan Documents, and (c) the prosecution or defense of any
action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person or
entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits, Borrower or its business, or any
collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only in writing signed by each party
hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
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<PAGE>
SECTION 7.11. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute
shall apply to any arbitration proceeding. All discovery activities shall be
expressly limited to matters directly relevant to the Dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded to
it under 12 U.S.C. Section 91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award
-15-
<PAGE>
recovery of all costs and fees, to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law. Any Dispute in which the amount in controversy is
$5,000,000 or less shall be decided by a single arbitrator who shall not render
an award of greater than $5,000,000 (including damages, costs, fees and
expenses). By submission to a single arbitrator, each party expressly waives
any right or claim to recover more than $5,000,000. Any Dispute in which the
amount in controversy exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one
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<PAGE>
agreement for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly related to the Loan Documents
or the subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan Documents
or any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
ROTONICS MANUFACTURING INC. NATIONAL ASSOCIATION
By: /s/ Sherman McKinnis By: /s/ Arvin Chander
------------------------- -------------------------
Sherman McKinnis Arvin Chander
President/Chief Vice President
Executive Officer
By: /s/ Douglas W. Russell
-------------------------
Douglas W. Russell
Chief Financial Officer/
Assistant Secretary/
Treasurer
-17-
<PAGE>
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<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 12,100
<SECURITIES> 0
<RECEIVABLES> 5,424,400
<ALLOWANCES> 90,000
<INVENTORY> 5,602,700
<CURRENT-ASSETS> 12,814,000
<PP&E> 18,436,600
<DEPRECIATION> 7,637,100
<TOTAL-ASSETS> 30,634,400
<CURRENT-LIABILITIES> 5,099,700
<BONDS> 0
0
0
<COMMON> 24,422,500
<OTHER-SE> (5,377,900)
<TOTAL-LIABILITY-AND-EQUITY> 30,634,400
<SALES> 39,385,100
<TOTAL-REVENUES> 39,385,100
<CGS> 29,292,100
<TOTAL-COSTS> 35,531,700
<OTHER-EXPENSES> 912,300
<LOSS-PROVISION> 61,600
<INTEREST-EXPENSE> 556,500
<INCOME-PRETAX> 2,384,600
<INCOME-TAX> 942,800
<INCOME-CONTINUING> 1,441,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,441,800
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