AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996
REGISTRATION NO. 333-10721
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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BRUNSWICK TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MAINE 2221 01-0402052
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION
OR ORGANIZATION)
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MARTIN S. GRIMNES
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
43 BIBBER PARKWAY
BRUNSWICK, MAINE 04011
(207) 729-7792
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
MARIANNE GILLERAN, ESQ. VICTOR J. PACI, ESQ.
GADSBY & HANNAH LLP BINGHAM, DANA & GOULD LLP
125 SUMMER STREET 150 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MA 02110
(617) 345-7000 (617) 951-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1996
PROSPECTUS
- ----------
2,250,000 SHARES
[LOGO]
BRUNSWICK TECHNOLOGIES, INC.
Common Stock
Brunswick Technologies, Inc. (the "Company") hereby offers 2,250,000 shares
of Common Stock, $0.0001 par value (the "Common Stock"). Prior to the offering
described herein (the "Offering"), there has been no public market for the
Common Stock and there can be no assurance that a market will develop after
completion of the Offering, or that if developed, it will be sustained. The
Company has applied to list the Common Stock on the Nasdaq National Market
("Nasdaq") under the symbol "BTIC." It is currently estimated that the initial
public offering price of the Common Stock will be between $6.00 and $8.00 per
share. See "UNDERWRITING" for a discussion of the factors that will be
considered in determining the initial public offering price.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION WHICH SHOULD
BE CAREFULLY CONSIDERED BY INVESTORS BEFORE PURCHASING SHARES OF THE COMMON
STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $
================================================================================
</TABLE>
(1) Does not include additional cash compensation to Josephthal Lyon & Ross
Incorporated (the "Representative") in the form of a non-accountable
expense allowance. In addition, see "UNDERWRITING" for information
concerning indemnification and contribution arrangements with the
Underwriters and other compensation payable to the Representative.
(2) Before deducting expenses payable by the Company estimated to be $500,000,
including the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted the Underwriters an option, exercisable within 45
days of the consummation of the Offering, to purchase up to 337,500
additional shares of Common Stock, on the terms set forth above, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts, and Proceeds to Company will
be $____, $____, and $____, respectively. See "UNDERWRITING."
The Common Stock is being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering and to reject any order in whole or in part. It is expected that
delivery of the Common Stock offered hereby will be made against payment at the
offices of Josephthal Lyon & Ross Incorporated, New York, New York on or about ,
1996.
JOSEPHTHAL LYON & ROSS INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996.
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PHOTOS AND GRAPHICS
Inside front cover fold-out page adjacent to cover page of Prospectus. The
center of the page has a large color photograph of one of the Company's
production machines with the Company logo and the slogan "REINFORCED THROUGH
INNOVATION" in the lower left hand corner of the photograph. "BRUNSWICK
TECHNOLOGIES, INC." is printed across the top of the page. The caption along the
bottom of the photograph reads, "Designed by BTI, this machine is unique in the
industry. It can produce 100+ ounces per square yard and 100+ inch-wide
quadraxial engineered reinforcement fabric in a single step."
The following legends appear centered on the bottom of the page.
BiTex(R) and Cofil(R) are registered trademarks of the Company. All other
trademarks and trade names referred to in this Prospectus are the property of
their respective owners.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET AND
OTHER MARKETS. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Two adjacent interior fold-out pages opposite to the Prospectus Summary:
text in the upper left-hand corner of the left-side page reads, "BTI's
manufacturing processes make these innovative product applications possible."
There are six color photographs which are captioned (counter-clockwise from
top): (1) "Burlington Northern Railroad/Trinity Industries Inc./Hardcore DuPont
Composites LLC boxcar ready for endurance testing"; (2) "Assembly by Hardcore
DuPont Composites LLC of the first 68 foot two-piece insulated boxcar using the
SCRIMP manufacturing process"; (3) "50 foot round-the-world BOC racing sloop
testing BTI materials"; (4) "New hollow Hardshaft composite marine pilings"; (5)
and (6) "Underground petroleum storage tanks". On the top of the right-side
page, there is a photograph captioned "Norwegian-made subsea well protection
cover for North Sea oil production". Beneath that photograph is a three-step
illustration with the title, "The Advantages of BTI's processes are:". Above the
first illustration is the caption, "Efficient, uniform distribution of chopped
fibers without binder"; above the second illustration is the caption, "Straight
fiber orientation"; and above the third illustration is the caption, "Adding
value by combining materials in one step to produce unique engineered
reinforcements". On the bottom half of the right-side page is a larger, more
detailed version of the Company's logo, with the slogan "REINFORCED THROUGH
INNOVATION" running along the bottom of the page.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "RISK FACTORS." Investors should refer
to a Glossary of Technical Terms on page 56 for a description of certain
technical terms used in this Prospectus. Unless otherwise indicated, all Common
Stock share and per share data and information in this Prospectus (i) have been
adjusted to give effect to a 65:1 stock split to be effected immediately prior
to the effectiveness of the registration statement of which this Prospectus is a
part, (ii) assume the conversion, upon the closing of the Offering, of all
outstanding shares of the Company's preferred stock, no par value (the
"Preferred Stock") into 4,603,560 shares of Common Stock and the issuance to
such holders of Preferred Stock of an estimated additional 273,148 shares of
Common Stock in payment of an estimated $1,912,038 in accrued cash dividends as
of the closing of the Offering (estimated as of November 26, 1996) pursuant to
the terms of such Preferred Stock, (iii) assume no exercise of outstanding
options to purchase an aggregate of 1,006,395 shares of Common Stock with a
weighted average exercise price of $0.38 per share, (iv) assume no exercise of
outstanding warrants to purchase an aggregate of 527,786 shares of Common Stock
with a weighted average exercise price of $2.51 per share, (v) assume no
exercise of the Underwriters' over-allotment option, (vi) assume no conversion
of a convertible subordinated promissory note into 521,179 shares of Common
Stock (assuming a $7.00 Offering price) and (vii) assume the consummation of a
recapitalization whereby the Company's no par value common stock is converted
into Common Stock, which recapitalization is to be effected immediately prior to
the effectiveness of the registration statement of which this Prospectus is a
part.
THE COMPANY
Brunswick Technologies, Inc. (the "Company") is a leading developer and
producer of engineered reinforcement fabrics used in the fabrication of
composite materials. The Company's technologically advanced stitchbonding
equipment and processes prepare glass, carbon and other fibers for combination
with resin to produce laminates used in the construction of such diverse items
as boats, skis, diving boards, protective helmets and ballistic armor
applications, car and truck parts, and industrial tanks and pipes. Since the
invention of composite reinforcement fabrics in the early 1940's, these
materials have developed broad applicability as substitutes for wood, steel, and
concrete. Composite products offer substantial benefits over conventional
materials, including: a higher strength-to-weight ratio, greater design
flexibility while maintaining structural integrity, chemically inert properties
and lower maintenance requirements. As a result of their superior features,
composite reinforcement fabrics are increasingly demanded by a growing number of
industries and applications, including transportation, infrastructure,
recreation, petro-chemical and construction. Management believes the use of
engineered composite reinforcement fabrics will continue to grow as the market
is made more aware of the positive features of such materials and as the cost of
more advanced composite fibers such as carbon continues to decline.
The Company's principal strength lies in its innovative quadraxial
single-step stitchbonding process. Through use of its proprietary production
equipment, the Company can quickly and cost effectively produce engineered
composite reinforcement fabrics in sizes and shapes not otherwise generally
available. Fabrics created from the Company's proprietary manufacturing process
offer characteristics integral to the use of composite materials in
infrastructure, industrial and large scale commercial applications.
The Company has introduced a number of manufacturing processes that not only
more efficiently create composite reinforcement fabrics, but also optimize the
performance characteristics of such fabrics. In a proprietary single-step
production process, the Company is able to stitchbond fibers in different
directions without diminishing the composite fibers' inherent properties, thus
dramatically improving the structural strength of the reinforcement fabric. This
compares favorably, firstly, with traditional composite fabrics which are woven,
and therefore require the use of more resin to achieve the same degree of
structural integrity, and secondly, with the more costly multi-step processes of
other weft-insertion or stitchbonding manufacturing technologies used by
competitors. In addition, the Company's proprietary, high through-put
manufacturing processes have the ability to produce heavyweight quadraxial
fabrics over 100
3
inches wide in a single-step, which allows for cost-effective fabrication of
composite parts of up to 10 inches thick. The combination of these features
produces fabrics which enable composite fabricators to manufacture end-products
at competitive costs while maintaining the required structural integrity of
these products.
In a move to accelerate the implementation of its strategic business plan
and expand its product line, the Company acquired Advanced Textiles, Inc.
("ATI"), a subsidiary of Burlington Industries, Inc. ("Burlington") on October
30, 1996. ATI, which now operates as a wholly owned subsidiary of the Company,
produces first generation light-weight composite reinforcement fabrics targeted
towards specialized niche markets. These light-weight fabrics typically sell for
a higher margin than other types of composite reinforcement fabrics. ATI
manufactures these fabrics from fiberglass and other higher modulus fibers such
as carbon and aramid; therefore, ATI's product line complements that of the
Company and provides it with an enhanced ability to offer a broader spectrum of
product types. The Company believes that by offering a product line which
satisfies a broader range of composite reinforcement fabric requirements, it
will be better positioned to be the principal provider of these fabrics to its
expanded customer base. The Company believes it will capture additional market
share by cross-marketing its existing products to ATI's customers and vice
versa.
The Company's strategy is to increase revenues and net income through
expansion of its domestic and international market share in the composite
reinforcement fabric industry making additional strategic acquisitions for
product and market presence, and engaging in joint projects which compliment the
Company's strategy The key elements of this strategy include: (i) targeting
additional applications for composite reinforcement fabrics in the
transportation, offshore petro-chemical and infrastructure sectors; (ii)
increasing its international presence; (iii) continuously innovating its
state-of-the-art manufacturing processes; (iv) extending its product offerings
further along the value-added chain towards net shape products and (v) expanding
its manufacturing capacity and broadening its geographic market presence.
The Company is currently participating in several significant joint ventures
and research and development projects. The Company is working with E.I. DuPont
de Nemours and Company, Inc., Hardcore Composites Ltd., The Dow Chemical Company
and Johns Hopkins University in an effort to create heavyweight composites for
industrial applications such as marine pilings, bridges, rail cars and shipping
containers. The Company has also entered into two research agreements with the
University of Maine, the first of which is to develop a composite alternative to
plywood, and the second of which is to develop composites for very thick
applications adaptable to large sub-marine structures. Additionally, the Company
is working with ABB Offshore Technology, a division of ASEA Brown Boveri S.A.,
to develop offshore well-head covers and pipeline protection structures. The
Company is also in negotiations with Norsk Hydro A.S., one of the largest North
Sea oil operators, concerning jointly enhancing the use of composite structures
in the off-shore oil industry.
The Company also has a corporate collaboration with Vetrotex CertainTeed
Corp. ("Vetrotex"), the U.S. fiberglass manufacturing arm of Saint Gobain S.A.,
the largest materials and construction company in Europe. This collaboration
includes a significant equity ownership by Vetrotex in the Company, a supply
relationship whereby the Company purchases a majority of its fiberglass needs
from Vetrotex and an understanding allowing the Company to have access to
certain new products from Vetrotex which the Company believes to be of
significant importance for its own new product development.
The Company maintains two manufacturing facilities, one in Maine and the
other (its recently acquired ATI facility) in Texas. During 1996, the Company
moved its Maine operations into a new, state-of-the-art, 50,000 square foot
manufacturing facility. The Company was organized as a Maine corporation in 1984
and began operations in 1985. The Company's executive offices are located at 43
Bibber Parkway, Brunswick, Maine 04011 and its telephone number is (207)
729-7792.
4
THE OFFERING
Common Stock Offered by
the Company ............ 2,250,000 shares
Shares of Common Stock
Outstanding (1)
Before Offering ........ 5,463,448
After Offering ......... 7,713,448
Use of Proceeds .......... Purchase of capital equipment, repayment of bank
debt, research and development expenditures, payment
of $3.6 million of the principal amount of the
convertible note issued in connection with the
acquisition of Advanced Textiles, Inc., potential
additional acquisitions, potential purchase of the
Company's current manufacturing facilities and
general working capital purposes. See "USE OF
PROCEEDS."
Risk Factors ............. The securities offered hereby involve a high degree
of risk and immediate and substantial dilution. See
"RISK FACTORS" and "DILUTION."
Proposed Nasdaq symbol ... "BTIC"
- ----------
(1) Includes an estimated 4,603,560 shares to be issued to holders of
outstanding shares of the Company's preferred stock, no par value (the
"Preferred Stock") upon the conversion of all of the outstanding shares of
the Preferred Stock into Common Stock, 2,000 shares to be issued to two
directors-elect of the Company, and an estimated additional 273,148 shares
to be issued to the holders of Preferred Stock in payment of accrued
dividends (estimated as of November 26, 1996), all to occur concurrently
with the consummation of the Offering, but does not include (a) a total of
1,006,395 shares of Common Stock reserved for issuance upon the exercise of
stock options granted under the Company's 1991 Stock Option Plan and 1994
Stock Option Plan (the "Plans"), (b) a total of 527,786 shares of Common
Stock reserved for issuance pursuant to the exercise of warrants outstanding
as of October 31, 1996 (consisting of 157,500 shares of Common Stock
issuable pursuant to warrants to be issued to the Representative in
connection with a Financial Advisory Agreement discussed herein below, and
370,286 shares of Common Stock to be issued pursuant to warrants held by
certain stockholders and assuming a cashless exercise of such warrants by
such stockholders), (c) 856,700 shares reserved for issuance upon the
exercise of options available under the Plans but not yet granted under the
Plans and (d) a total of 521,179 shares of Common Stock issuable to
Burlington (assuming an Offering price of $7.00 per share) upon conversion
(after October 30, 1997) of an outstanding interest-bearing convertible
subordinated promissory note (the "Convertible Note") in the principal
amount of $3,648,250 (after payment in cash of 50% of the outstanding
principal amount of the Convertible Note following the completion of the
Offering). The weighted average exercise price of the options and warrants
to purchase Common Stock described above is $1.28 per share. See "DIVIDEND
POLICY," "BUSINESS -- Acquisition of Advanced Textiles, Inc.," "MANAGEMENT
-- Stock Option Plans," "CERTAIN TRANSACTIONS," "PRINCIPAL STOCKHOLDERS,"
"DESCRIPTION OF CAPITAL STOCK AND CERTAIN INDEBTEDNESS," and "UNDERWRITING."
5
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
BRUNSWICK TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, COMPANY PRO FORMA(1)
------------ ------------- --------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1995 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $2,625 $4,701 $6,376 $9,596 $15,476 $11,033 $13,423 $26,444 $21,381
Cost of goods sold 2,215 3,700 4,996 7,382 11,979 8,489 10,365 21,218 16,930
Gross profit 410 1,001 1,380 2,214 3,497 2,544 3,058 5,226 4,451
Other operating expenses 736 971 1,258 1,874 2,492 1,787 2,441 3,441 3,069
Moving costs -- -- -- -- 9 -- 248 9 248
Facility repair costs -- -- -- -- 150 -- (148) 150 (148)
Operating income (loss) (326) 30 122 340 846 757 517 1,626 1,282
Other income (expense), net (95) (27) (11) (26) (61) (27) 98 (455) (179)
Income (loss) before income taxes (421) 3 111 314 785 730 615 1,171 1,103
Income tax benefit (expense) -- -- -- -- 122 113 (222) 1,638 (415)
Net income (loss) (421) 3 111 314 907 843 393 2,809 688
Preferred stock dividend -- (269) (450) (450) (450) (338) (338) -- --
Accretion of preferred stock
redemption value -- (51) (71) (76) (82) (61) (66) -- --
Net income (loss) attributable to
common stock $ (421) $ (317) $ (410) $ (212) $ 375 $ 444 $ (11) $ 2,809 $ 688
====== ====== ====== ====== ======= ======= ======= ======= ========
Pro forma earnings per common share $ 0.14 $ 0.06 $ 0.31 $ 0.08
======= ======= ======= ========
Pro forma weighted average common
shares outstanding 6,715 (2) 6,785 (2) 8,973 9,043
===== ===== ===== =====
</TABLE>
ADVANCED TEXTILES, INC. FISCAL YEAR ENDED
-----------------------------------------
<TABLE>
<CAPTION>
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales $ 7,959 $8,415 $10,043 $11,169 $10,570
Cost of goods sold 7,324 7,540 9,040 9,574 8,504
----- ----- ----- ----- -----
Gross profit 635 875 1,003 1,595 2,066
Other operating expenses 747 741 938 890 939
--- --- --- --- ---
Operating income (loss) (112) 134 65 705 1,127
Other income (expense), net (161) (38) (31) (21) 7
---- ----- ----- ----- ------
Litigation settlement (3,400) -- -- -- --
Income (loss) before income taxes (3,673) 96 34 684 1,134
Income tax benefit (expense) -- -- -- 1,493 (429)
------ ------ ------- ------- -------
Net income (loss) $(3,673) $ 96 $ 34 $ 2,177 $ 705
------- ------ ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED BALANCE SHEETS: SEPTEMBER 30, 1996
------------------
BRUNSWICK ADVANCED PRO FORMA(1)
TECHNOLOGIES, INC. TEXTILES, INC. COMBINED
------------------ -------------- --------
(UNAUDITED)
<S> <C> <C> <C>
Working capital $ 808 $2,235 $ 12,741
Total assets 8,738 3,754 27,878
Long-term liabilities 1,359 -- 5,428
Total liabilities 4,647 704 9,586
Preferred stock 6,473 -- --
Stockholders' equity (deficit) $(2,382) $3,050 $18,292
- ----------
(1) Adjusted to give effect to the sale by the Company of 2,250,000 shares of
Common Stock at an assumed Offering price of $7.00 per share and the
application of the estimated net proceeds therefrom (after deducting
discounts, allowance and offering expenses). See "USE OF PROCEEDS." Also
adjusted to reflect the acquisition of Advanced Textiles, Inc. on October
30, 1996 and the pro forma combination of the results of operations and
financial condition of the Company and ATI. See "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS."
(2) Calaculation is shown in Note 1 to Notes to Financial Statements of the
Company.
6
</TABLE>
RISK FACTORS
The purchase of shares of Common Stock offered hereby involves a high degree
of risk. Prospective investors should carefully consider the following factors,
in addition to the other information set forth herein, in evaluating the Company
and its business before purchasing shares of the Common Stock offered hereby.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS, CYCLICAL NATURE OF END-PRODUCT
MANUFACTURER INDUSTRIES, SEASONALITY AND SUPPLY FACTORS. Many of the purchasers
of end-products produced with the Company's composite reinforcement fabrics are
engaged in cyclical industries, including the marine industry which has
accounted for approximately 80% of the Company's net sales, due to the effects
of general economic conditions or other factors. The Company has also
experienced a seasonal effect on its sales to a certain extent with respect to
marine industry and winter sports products. In addition, the Company's sales
have varied from period to period as a result of fluctuations in the general
availability of fiberglass used by the Company in its manufacturing process.
When supplies of fiberglass are short, the Company's distributors and
end-product manufacturers order additional inventory of composite reinforcement
fabrics to ensure availability of product. When the supply of fiberglass later
improves, the Company's sales may decline due to decreasing demand by its
distributors and end-product manufacturers as a result of their build-up of
excess inventory during the period when fabric availability was tight. In the
first quarter of 1996, the Company's net sales were increased by its
distributors building their inventory levels to cushion against the supply
shortage that was industry wide throughout 1995. In the second quarter of 1996,
the Company's distributors reduced their inventory in response to the general
availability of fiberglass, thereby contributing to a reduction in the Company's
net sales to $4.4 million from $4.7 million in the first quarter of 1996. A
decrease in net sales to $4.24 million occurred for the same reasons in the
third quarter. Management estimates that during the second and third quarters of
1996 its distributors maintained an approximate three-week supply of composite
reinforcement fabrics as opposed to an approximate twelve-week supply in the
first quarter of 1996. Management expects this trend towards returning to more
typical inventory levels to continue through the fourth quarter of 1996 and
thereafter as long as the supply of fiberglass remains plentiful. The impact of
the cyclicality and/or seasonality of the end-product manufacturing industries
using the Company's products, fiberglass supply and related inventory factors or
other factors affecting the purchasing decisions of end-product manufacturers,
could adversely affect the Company's net sales. This may result in fluctuations
in the Company's results of operations, may make it more difficult for the
Company to accurately forecast its financial requirements and may result in
fluctuations in the market price of the Common Stock. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
DEPENDENCE ON FEW FIBERGLASS SUPPLIERS. There are only three significant
suppliers from which the Company may purchase its fiberglass requirements.
Vetrotex, a stockholder of the Company, currently supplies more than half of the
Company's fiberglass requirements, with the remainder being supplied primarily
by a single other vendor. A supply agreement which the Company had entered into
with Vetrotex expired on August 25, 1996, but the Company is continuing to
purchase more than 50% of its supply from Vetrotex upon substantially the same
terms as set forth in the former agreement. Although the Company is not under
supply pressures to enter into a new supply agreement due to the current general
availability of fiberglass in the marketplace, the Company and Vetrotex have
each expressed an interest in negotiating an extension of their agreement. The
Company intends to enter into contracts with one or two other suppliers to
ensure a continuing supply of fiberglass, but there can be no assurance that the
Company will be successful in its efforts to secure such agreements. One of the
two other significant fiberglass suppliers holds a 50% equity interest in one of
the Company's primary competitors. The Company's ability to operate and to
increase its revenues is dependent upon its ability to obtain an adequate supply
of fiberglass and may be limited by competition for the same source of supply.
Suppliers of fiberglass may not be able to supply the quantity, quality or
variety of inventory that the Company requires in a timely manner or on price
terms favorable to the Company. The failure or inability of any of the major
suppliers to produce for any significant period due to labor problems, furnace
meltdown or other equipment problems, or any other reason, could also have a
materially adverse effect on the available supply of fiberglass required by the
Company. The failure to obtain an adequate supply or a substantial increase in
the cost of fiberglass would have a material adverse effect on the Company. See
"BUSINESS -- Supply" and "-- Backlog."
7
DEPENDENCE ON FOUR PRINCIPAL DISTRIBUTORS. Although the Company primarily
markets its products directly to end-product manufacturers which sell to
consumers, approximately 90% of the Company's sales are made through
distributors. Four distributors accounted in the aggregate for 85%, 89% and 78%
of the net sales of the Company (not including ATI) for the fiscal years ended
December 31, 1993, 1994 and 1995, respectively. Each of the four distributors
accounted for more than 10% of the net sales of the Company (not including ATI)
during such period. Four of ATI's distributors accounted in the aggregate for
76%, 75% and 80% of ATI's net sales for the fiscal years ended October 1, 1994,
September 30, 1995 and September 28, 1996, respectively. One of ATI's
distributors accounted for approximately 53% of ATI's net sales for its fiscal
year ended September 28, 1996. Management believes that one or more of the
Company's competitors may, due to the Company's acquisition of ATI, seek to
engage in distribution arrangements with one or more of ATI's distributors
which, if successful, could have a material adverse effect upon the Company. The
Company does not have written contracts with any of its distributors, which the
Company believes is consistent with industry practice. The Company's
distributors also sell products that are competitive with the products supplied
by the Company. The loss of any of its major distributors would have a material
adverse effect on the Company. See "BUSINESS -- Marketing and Sales."
INTEGRATION OF OPERATIONS AS THE RESULT OF ACQUISITION OF ATI. If the
Company is to realize the anticipated benefits of its recent acquisition of ATI,
ATI's operations must be integrated and combined efficiently and effectively
with those of the Company. The process of rationalizing manufacturing, supply
and distribution channels, computer and accounting systems and other aspects of
operations, while managing a larger and geographically expanded entity with
additional fabric products, will present a significant challenge to the
Company's management. There can be no assurance that the integration process
will be successful or that the anticipated benefits of this acquisition will be
fully realized. The dedication of management resources to such integration may
detract attention from the day-to-day business of the Company. The difficulties
of integration may be increased by the necessity of coordinating geographically
separated manufacturing operations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. There can be no
assurance that the Company will be able to achieve any expense reductions
through the removal of duplicative expenses or through economies of scale, that
there will not be substantial costs associated with any such reductions or that
such reductions will not result in a decrease in revenues or that there will not
be other material adverse effects on the Company of these integration efforts.
Such effects could also materially reduce the short-term earnings of the
Company. See "BUSINESS -- Acquisition of Advanced Textiles, Inc."
DEPENDENCE ON PRODUCT AND PROCESS INNOVATION; MARKET ACCEPTANCE. The
Company's ability to continue its revenue growth will be dependent upon its
ability to continue both product and process innovation through research and
development and other means. In order to remain competitive, the Company must
maintain the engineering and technical capability to respond to customer demands
for new and improved versions of its current products at competitive prices. The
Company has invested, and intends to continue to invest, in the development and
refinement of its production processes in order to reduce costs and expand its
capability to produce a broader range of products. Wood, concrete and steel
products may cost less than products using the Company's reinforcement fabrics.
No assurance can be given that the Company will achieve further market
acceptance of its products, that it will be successful in developing new
products or that such products will be accepted by end-product manufacturers due
to quality or cost considerations. See "BUSINESS -- Product Engineering,
Manufacturing and Development."
COMPETITION. There is no single competitor that produces materials with the
same characteristics as all of the Company's products. However, there are other
products in the marketplace which compete with each of the Company's products.
Wood, concrete and steel products may cost less than products using the
Company's reinforcement fabrics. The Company believes that there are only two
other companies, Johnston Composite Industries, a subsidiary of Johnston
Industries Inc., and Knytex, Inc., a joint venture between Owens-Corning
Fiberglass and Hexcel Corporation, using a weft-insertion or stitchbonding
process that have significant shares of the weft-inserted and stitchbonded
composite reinforcement fabrics market. Although the Company believes that it is
one of the largest suppliers in the United States market for composite
reinforcement fabrics, it believes that each of its significant competitors has
greater financial, marketing and operating resources than the Company. Although
the Company relies on certain proprietary information and believes that there is
no equipment currently
8
commercially available that is able to duplicate, through the same one-step
production process, the fabrics produced by the Company, there is equipment
available to produce fabrics possessing certain of the characteristics of
products required by composite manufacturers. As existing barriers to the market
are not prohibitive, others may enter the marketplace to compete with the
Company and these additional competitors may have resources greater than those
of the Company. Management also believes that one or more of the Company's
competitors may, due to the Company's acquisition of ATI, seek to engage in
distribution arrangements with one or more of ATI's distributors which, if
successful, could have a material adverse impact upon the Company. Competition
in the fiberglass industry is based upon price, quality and design innovation as
well as marketing and distribution strategies. There can be no assurance that
the Company's products will be able to compete successfully with other products
available for the same applications. See "BUSINESS -- Competition."
RISKS RELATING TO GROWTH AND EXPANSION; LIMITS ON CAPITAL EXPENSES. If the
Company's revenues and earnings grow rapidly, such growth may significantly
strain the Company's management and its operational and technical resources. If
the Company is successful in rapidly obtaining greater market penetration with
its products, the Company will be required to deliver increasing volumes of
highly complex products to its customers on a timely basis at a reasonable cost
to the Company. No assurance can be given that the Company's efforts to expand
its manufacturing activities will be successful or that the Company will be able
to satisfy increased production demands on a timely and cost-effective basis.
The Company's success will also depend, in part, upon its ability to provide its
customers with engineering, manufacturing, marketing and other support. Efforts
to expand the Company's manufacturing capacity and support therefor could
require significant additional personnel; no assurance can be given that the
Company will be able to attract and retain such personnel. In addition to the
levels of support currently provided, including the ability to modify its
technology and products to meet end-product manufacturer requirements, the
Company will also be required to continue to improve its operational, management
and financial systems and controls. Failure to manage possible growth could have
a material adverse effect on the Company. In connection with the industrial
development financing underlying the construction of the facility leased by the
Company in Brunswick, Maine, the Company was required, pursuant to Internal
Revenue Code requirements, to agree to limit certain capital expenditures
through the period ending December 12, 1998. The restrictions are applicable to
capital expenditures (whether incurred by the Company, its affiliates or
unaffiliated parties) with respect to the Company's (or the Company's
affiliates') facilities or property located in the Town of Brunswick. As of
September 30, 1996 additional capital expenditures of up to approximately $6.0
million may be incurred in Brunswick through December 12, 1998. Management
believes that the anticipated capital expenditures through the relevant period
will not exceed that amount, although if the Company's plans change, the limit
could restrict desired activities. The Company also has the option to lease
equipment, in lieu of purchasing such equipment, as equipment leases are
generally not restricted by the limitations. Further, if the Company were to
purchase the Brunswick facility and the bonds used to finance it were repaid
(which repayment would require the consent of the holders of such bonds), the
capital expenditures restriction would be terminated. In addition, in connection
with the acquisition of ATI and the issuance to Burlington of the Convertible
Note, Burlington agreed to subordinate its debt to the Company's senior lenders
in an amount not to exceed $7,500,000 plus the amount of any principal payments
made to Burlington. Therefore, if the Company should desire to obtain financing
arrangements which would require a senior position for more than such amount,
the Company would be required to obtain Burlington's consent or pay Burlington
to the extent necessary. See "USE OF PROCEEDS," "BUSINESS -- Products" and
"PRODUCT ENGINEERING, MANUFACTURING AND DEVELOPMENT."
BROAD DISCRETION OVER USE OF PROCEEDS; POSSIBLE ACQUISITIONS. The Company
plans to repay its bank debt with a portion of the net proceeds of the Offering
and, as required by the terms of the Convertible Note, to pay to Burlington
$3,648,250, or 25.8% of the estimated net proceeds, in outstanding principal
under such Convertible Note. At September 30, 1996 term and revolving bank debt
aggregated approximately $2.0 million or 14% of the estimated net proceeds. An
additional $3.0 million or 21.2% of the estimated net proceeds has been
allocated to the purchase of capital equipment through December 31, 1998.
However, the Company may also use a portion of the net proceeds for additional
acquisitions to broaden its product line as well as manufacturing capacity,
product market coverage, and distribution channels. The
9
Company may make other acquisitions in the future. Acquisitions require
significant financial and management resources both at the time of the
transaction and during the process of integrating the newly acquired business
into the Company's operations. The Company's operating results could be
adversely affected if it is unable to successfully integrate such new companies
into its operations. Future acquisitions by the Company could also result in
potentially dilutive issuances of securities, the incurrence of additional debt
and contingent liabilities, and amortization expenses related to goodwill and
other intangible assets, which could materially adversely affect the Company's
profitability. Certain of the net proceeds will also be used to fund working
capital, as well as the Company's research and development efforts. The Company
may also consider purchasing its manufacturing facility in Brunswick, Maine.
Management will have broad discretion in allocating and applying such proceeds
and the Company's stockholders may not have an opportunity to review or vote
upon the terms of these unspecified expenditures or review the financial
statements of any businesses which may be acquired. The Company has no
commitments or agreements with respect to any additional acquisition, joint
venture or licensing of any technology other than those specifically identified
in this Prospectus. No assurance can be given that the Company can successfully
complete any additional acquisitions or that any such acquisitions would not
have a material adverse effect on the Company. See "USE OF PROCEEDS."
RISK OF POTENTIAL PRODUCT LIABILITY CLAIMS. As a manufacturer of components
used in products which include boats, skis and diving boards, the Company is
subject to the potential risks of product liability claims. Although the Company
maintains insurance coverage against such liabilities, any such claim against
the Company might exceed the amount of such insurance coverage or fall outside
the scope of such coverage. A successful product liability claim or series of
claims could have a material adverse effect on the Company.
CONCENTRATION OF MANUFACTURING FACILITIES. The Company's manufacturing
operations are conducted at, and substantially all of the Company's inventory is
maintained in, two facilities, one in Brunswick, Maine and the other in Seguin,
Texas. Any significant casualty loss to, or extended interruption of operations
at, either facility would have a material adverse effect on the Company.
Replacement of the Company's customized manufacturing equipment could take
several months and would have a material adverse effect on the Company. See
"BUSINESS -- Property."
INTELLECTUAL PROPERTY. Although the Company has three registered trademarks
and owns two patents, it relies almost entirely upon unpatented technology in
its production processes. The Company relies in part upon state and federal
trade secrets and unfair competition laws to protect its intellectual property.
There can be no assurances that the Company can adequately protect its rights in
such unpatented proprietary technology or that others will not independently
develop substantially equivalent or better proprietary information or
techniques, or otherwise gain access to the Company's proprietary technology or
that others will disclose such technology. The Company will continue to seek
additional protection for newly developed intellectual property as deemed
appropriate. There can be no assurance as to the breadth or degree of protection
which existing or future trademarks, patents and copyrights may afford the
Company, that any trademark or patent application will result in issued
trademarks or patents, or that the Company's intellectual property will not be
circumvented or invalidated. Foreign intellectual property laws may not
adequately protect the Company's intellectual property. There can be no
assurance that the Company's products do not or will not violate the proprietary
rights of others, that the Company's intellectual property would be upheld if
challenged, or that the Company would not be prevented from using its
intellectual property, any of which occurrences could have an adverse effect on
the Company. The Company received a notice from a competitor in 1987 with
respect to an alleged infringement of certain of the competitor's patents. The
Company denied the allegations and has received no further communications from
the competitor since a meeting was held with representatives of the alleging
party in 1992. In addition, the Company may not have the financial resources
necessary to enforce or defend its trademarks, patents and copyrights at the
time of any apparent infringement or of any challenge. See "BUSINESS --
Intellectual Property."
DEPENDENCE UPON KEY PERSONNEL. The success of the Company will be largely
dependent on the personal efforts of Martin S. Grimnes, William M. Dubay, Robert
R. Fuller and Thomas L. Wallace. The Company does not have any employment
agreements with any of these employees. The loss of the
10
services of any of these individuals would have a material adverse effect on the
Company. The Company is the owner and beneficiary of a "key man" life insurance
policy on each of Messrs. Grimnes and Dubay in the amount of $1 million each.
See "MANAGEMENT."
CONTROL BY EXISTING STOCKHOLDERS. Upon the consummation of the Offering, the
current stockholders of the Company will beneficially own approximately 71% of
the outstanding shares of Common Stock (assuming no exercise of outstanding
stock options or warrants or conversion of the Convertible Note). Accordingly,
these stockholders, acting together, will be able to elect all of the Company's
directors and, generally, to direct the affairs of the Company. Mr. Grimnes and
four representatives of major stockholders are currently Directors of the
Company. The Board of Directors has elected Mr. Dubay to replace one of the
representatives of a major stockholder who will be resigning, and the Board has
also elected two additional directors (both of whom will be independent), with
both actions effective as of the consummation of the Offering. The Board of
Directors has also agreed that, at the next annual meeting of the Company, (i)
it will recommend to the stockholders to increase the size of the Board to nine
directors, and (ii) nominate for election two other persons to the Board. The
four remaining incumbent directors and Mr. Dubay will constitute a majority of
the Board of Directors following the Offering. Voting together, these directors
could effectively block any major corporate transactions, such as a merger or
sale of substantially all of the Company's assets, that under Maine law requires
the affirmative vote of holders of a majority of the outstanding Common Stock of
the Company. See "MANAGEMENT," "PRINCIPAL STOCKHOLDERS" and "DESCRIPTION OF
CAPITAL STOCK AND CERTAIN INDEBTEDNESS."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock in
the Offering will experience immediate and substantial dilution in net tangible
book value per share from the initial public offering price. Such dilution at
September 30, 1996, would have been equal to $5.29 per share or 76% of an
assumed Offering price of $7.00 per share. See "DILUTION."
ABSENCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF PUBLIC OFFERING PRICE;
POSSIBLE VOLATILITY OF SHARE PRICE. Prior to the Offering, there has been no
public market for the Common Stock. The initial public offering price has been
arbitrarily determined by negotiations between the Company and the Underwriters
and represents a substantial increase in value over the exercise price of
certain outstanding options and warrants to purchase Common Stock issued as
recently as September, 1995. The Offering price does not necessarily bear any
relationship to the Company's assets, book value, total revenue or other
established criteria of value and should not be considered indicative of the
actual value of the Common Stock. There can be no assurance that an active
trading market will develop and continue after completion of the Offering or
that the market price of the Common Stock will not decline below the public
offering price. Stock prices for many companies fluctuate widely for reasons
which can be unrelated to operating results. These fluctuations, as well as
general economic, political and market conditions, such as a recession or
military conflict, may also have a material adverse effect on the market price
for the Common Stock. See "UNDERWRITING."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market following the completion of the Offering could have
an adverse effect on the market price of the Common Stock. There will be
approximately 7,713,448 shares of Common Stock outstanding immediately after the
Offering, including the 2,250,000 shares offered hereby. Upon completion of the
Offering, all of the shares of Common Stock offered hereby will be eligible for
public sale without restriction, except for shares purchased by affiliates
(those controlling or controlled by or under common control with the issuer and
generally deemed to include officers and directors) of the Company. The
5,463,448 shares of Common Stock that will be owned by the Company's current
stockholders following the Offering, including (I) 4,603,560 shares of Common
Stock to be issued to existing holders of Preferred Stock upon conversion of
their shares of Preferred Stock,(II) 2,000 shares to be issued to the two
directors-elect of the Company upon the consumation of the Offering, and (III)
an estimated 273,148 shares of Common Stock to be issued to the holders of
Preferred Stock in payment of accrued dividends (estimated as of November 26,
1996) concurrently with the completion of the Offering (the "Dividend Shares"),
are "restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act of 1933, as amended, (the "Securities Act"). Subject to
the volume and holding period limitations of Rule 144, and the "lock-up"
agreements described below all currently outstanding shares of Common Stock
11
will be eligible for sale under Rule 144 beginning 90 days after the
commencement of the Offering. As of October 31, 1996, 5,139,290 shares would be
eligible for sale subject to the volume limitations of Rule 144; of that
5,139,290 shares, 448,240 shares would be eligible for sale under Rule 144(k)
without volume limitations. The Dividend Shares, an aggregate of 527,786 shares
issuable under warrants outstanding as of the closing of the Offering, 7,670
shares issued to Peter L. DeWalt in October 1996 and 521,179 shares issuable
upon conversion of the Convertible Note (assuming an Offering price of $7.00 per
share) after the offering will be eligible to trade under Rule 144 on the second
anniversary of their issuance subject to volume and other limitations. The
1,006,395 shares of common stock issuable under outstanding options, if
exercised, and 112,905 shares (including 80,730 shares eligible for sale under
Rule 144) issued upon the exercise of previously granted stock options would be
tradable 90 days after the commencement of the Offering under Rule 701 of the
Securities Act. All existing holders of the Company's capital stock have been
granted registration rights by the Company pursuant to which they may as a group
on two occasions demand that the Company register the resale of all or a portion
of their Common Stock and may otherwise "piggyback" upon certain registrations
by the Company of its securities. Burlington has been granted equivalent
registration rights with respect to the 521,179 shares of Common Stock issuable
after October 30, 1997 under the Convertible Note if converted by Burlington.
The holders of all shares of Common Stock outstanding immediately prior to the
closing of the Offering, the holders of all options and warrants to purchase
Common Stock and Burlington have agreed not to sell or otherwise dispose of any
of their shares of Common Stock, or exercise registration rights with respect to
such stock, for a period of 13 months after the closing of the Offering without
the prior written consent of the Representative. The possibility that
substantial amounts of Common Stock may be sold in the public market after the
expiration of the thirteen month "lock-up" period may adversely affect the
prevailing market price for the Common Stock and could impair the Company's
ability to raise additional capital through the sale of its equity securities.
See "SHARES ELIGIBLE FOR FUTURE SALE."
LACK OF DIVIDENDS. To date, the Company has not paid any dividends on either
the Common Stock or Preferred Stock. Concurrently with the closing of the
Offering, the Company will issue approximately 273,148 shares of Common Stock to
the holders of its Preferred Stock in payment of accrued cash dividends which
are expected to aggregate approximately $1,912,038 as of November 26, 1996.
Under the terms of its existing bank loan agreements, the Company may not pay
dividends without the consent of the lender. The Company currently intends to
retain future earnings to finance the growth and development of the Company's
business and does not anticipate paying any dividends in the foreseeable future.
See "DIVIDEND POLICY."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK. The
Company's Restated Articles of Incorporation permit it to issue undesignated
"blank-check" preferred stock ("New Preferred Stock"). Accordingly, shares of
the Company's New Preferred Stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. Such
rights, privileges and preferences could include preferential voting rights,
dividend rights in excess of those provided to holders of Common Stock, and
conversion rights, redemption privileges or liquidation preferences not
available to holders of Common Stock. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of holders of
any New Preferred Stock that may be issued in the future. The issuance of New
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of the Company.
The provision also may limit the price that certain investors may be willing to
pay in the future for shares of the Common Stock. The Board's ability to issue
New Preferred Stock may have a depressive effect on the market price of the
Common Stock, may deter or prevent a change of control of the Company, and may
reduce the premium to shareholders in a change of control transaction. The
Company has no present plans to issue any shares of its New Preferred Stock. See
DESCRIPTION OF CAPITAL STOCK AND CERTAIN INDEBTEDNESS."
12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered hereby at an assumed Offering price of $7.00 per share are
estimated to be approximately $14.1 million (approximately $16.3 million if the
Representative's over-allotment option is exercised in full), after deducting
underwriting discounts and estimated additional Offering expenses of
approximately $500,000 payable by the Company, which includes the
Representative's expense allowance. The Company intends to use the net proceeds
of the Offering to expand its manufacturing capacity through the purchase of
additional capital equipment estimated to aggregate approximately $3.0 million
over the next two years, repay in full its existing term and revolving bank debt
aggregating approximately $2.25 million at October 31, 1996, and otherwise for
general corporate purposes, including research and development and possible
additional acquisitions of complementary businesses and product lines. In
addition, the terms of the Convertible Note require that the Company pay
approximately $3.65 million, an amount equal to half of the outstanding
principal amount of the Convertible Note to the holder thereof, no later than
May 30, 1997. The Company is also obligated to pay Burlington an additional
$100,000 on December 15, 1996 in connection with the acquisition of ATI. The
Company also expects to invest over $100,000 in capital machine improvements at
ATI's plant in Texas.
The Company's $1.425 million term equipment loan bears interest, at the
Company's option, at the prime rate or the London Interbank Offered Rate
("LIBOR") plus 2.25%. The Company's revolving line of credit, with approximately
$831,000 outstanding as of October 31, 1996, bears interest, at the Company's
option, at the prime rate or LIBOR plus 1.75%. As of September 30, 1996 the
Company had elected (i) a nine month LIBOR rate on the equipment loan which will
be effective through March 1, 1997 and which equals an "all-in" rate of 8%, and
(ii) to pay interest at the prime rate (8 1/4 %) on borrowings under the line of
credit. The Company borrowed amounts under the line of credit for working
capital purposes, primarily to finance increases in inventory balances in 1996.
The Company may consider purchasing its manufacturing facility in Brunswick,
Maine. The Company has had discussions with several parties regarding additional
acquisitions, but has no agreements or commitments with respect to any such
additional acquisitions. Pending the uses described above, the proceeds of the
Offering will be invested in short-and medium-term investment-grade,
interest-bearing securities.
In addition to its desire to make the expenditures described above, the
Company chose to proceed with the Offering at this time because it believes
current market conditions are favorable for equity offerings of issuers similar
to the Company, because it would like to create liquidity for its current
stockholders and employees, many of whom have owned Common Stock, or options to
purchase Common Stock, for a number of years, and because it believes a public
market for the Common Stock will enable it to better take advantage of
acquisition and other opportunities (such as the acquisition of ATI) where it
can use shares of Common Stock as consideration. Management also believes that
the net proceeds from the Offering will enable the Company to increase its
domestic market share and fuel expansion in foreign markets.
DIVIDEND POLICY
To date, the Company has not paid any dividends on either the Common Stock
or the Preferred Stock. Concurrently with the closing of the Offering, all of
the outstanding shares of Preferred Stock will convert to 4,603,560 shares of
Common Stock and the Company will issue an estimated 273,148 shares of Common
Stock (assuming payment as of November 26, 1996) to the holders of the Preferred
Stock in payment of accrued cash dividends which will equal in the aggregate an
estimated $1,912,038 as of November 26, 1996. The Company currently intends to
retain future earnings to finance the growth and development of the Company's
business and does not anticipate paying any dividends in the foreseeable future.
The payment of dividends is within the discretion of the Board of Directors and
will depend upon the Company's earnings, its capital requirements, financial
condition and other relevant factors. Under the terms of its existing bank loan
agreements, the Company may not pay dividends without the consent of the lender.
13
DILUTION
The difference between the public offering price per share of Common Stock
and the pro forma net tangible book value per share of the Company after the
Offering constitutes the dilution per share to investors in the Offering. Net
tangible book value per share is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock (adjusted to give effect to (i) a
65:1 stock split; (ii) the conversion of the Preferred Stock outstanding at
September 30, 1996 into 4,603,560 shares of Common Stock; (iii) 2,000 shares to
be issued to directors-elect upon consumation of the offering; and (iii) the
issuance of an estimated 273,148 shares of Common Stock in payment of accrued
Preferred Stock dividends of $1,912,038 (estimated as of November 26, 1996); all
to be effected prior to the closing of the Offering).
At September 30, 1996, the net tangible book value of the Company, after
combining on a pro forma basis the accounts of Advanced Textiles, Inc. with
those of the Company, was ($978,000) or ($0.18) per share of Common Stock. After
giving effect to the sale by the Company of the 2,250,000 shares of Common Stock
offered hereby at an assumed Offering price of $7.00 per share (less
underwriting discounts and estimated expenses of the Offering), the pro forma
net tangible book value of the Company at September 30, 1996, would have been
approximately $1.71 per share, representing an immediate increase in net
tangible book value of $1.89 per share to existing stockholders and immediate
dilution of $5.29 per share to investors in the Offering.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share ........................ $ 7.00
Net tangible book value per share at September 30, 1996 ............... $(0.18)
Increase per share attributable to new investors ...................... $ 1.89
Pro forma net tangible book value per share after Offering .............. $1.71
-----
Dilution of pro forma net tangible book value per share to new investors $5.29
=====
</TABLE>
The following table sets forth, on a pro forma basis at September 30, 1996,
a comparison of the number of shares of Common Stock purchased from the Company,
the total consideration paid, and the average price per share paid by existing
stockholders and to be paid by new investors purchasing Common Stock in the
Offering at an assumed Offering price of $7.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
AVERAGE
PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing stockholders ............. 5,463,448 70.8% $ 6,874,284 30.4% $1.26
New investors ..................... 2,250,000 29.2% $15,750,000 69.6% $7.00
--------- ---- ----------- ----
Total ........................... 7,713,448 100.0% $22,624,284 100.0%
========= ===== =========== =====
</TABLE>
The information set forth in the preceding table assumes (i) no exercise of
options to purchase a total of 1,006,395 shares of Common Stock that have been
granted under the Plans; (ii) no exercise of warrants outstanding as of the
closing of the Offering to purchase an aggregate of 527,786 shares of Common
Stock; (iii) no exercise of additional options which may be granted in the
future under the Plans to acquire up to 856,700 shares of Common Stock and (iv)
no conversion of the Convertible Note into 521,179 shares of Common Stock
(assuming an Offering price of $7.00 per share). See "MANAGEMENT -- Stock Option
Plans," "DESCRIPTION OF CAPITAL STOCK AND CERTAIN INDEBTEDNESS," and
"UNDERWRITING."
14
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 on an actual basis, on a pro forma basis reflecting the
acquisition of ATI, and as adjusted to give effect to (i) the sale of the
2,250,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $7.00 per share; (ii) the conversion of the
outstanding Preferred Stock into 4,603,560 shares of Common Stock concurrently
with the consummation of the Offering; (iii) the issuance of 273,148 shares of
Common Stock in payment of accrued Preferred Stock dividends concurrently with
the consummation of the Offering (estimated as of November 26, 1996); and (iv)
liquidation of all bank debt, payment of $3,648,250 (50% of the outstanding
principal amount of the Convertible Note) and the increase of the Company's
working capital with the remainder of the estimated net proceeds of the
Offering. The information set forth below should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30,1996
-----------------
PRO FORMA
ACTUAL COMBINED AS ADJUSTED
------ -------- -----------
(UNAUDITED)
-----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Note payable to a bank .................................. $ 602 $ 602 $ --
Current installments of long term debt .................. 140 232 92
Convertible note ........................................ -- 7,296 3,648
Long-term debt .......................................... 1,296 1,717 421
Convertible preferred stock ............................. 6,473 6,473 --
Stockholders' equity (deficit)(1):
Preferred stock, $10.00 par value; 1,000,000 shares
authorized; no shares outstanding .................... -- --
Common Stock; $0.0001 par value; 20,000,000 shares
authorized; shares outstanding -- 583,520 actual;
591,240 pro forma; 7,719,948 as adjusted(2) .......... 406 460 21,080
Accumulated deficit ................................... (2,788) (2,788) (2,788)
------ ------ ------
Total stockholders' equity (deficit) .................. (2,382) (2,328) 18,292
------ ------ ------
Total capitalization ................................ $ 6,129 $13,992 $22,453
======= ======= =======
</TABLE>
- -----------
(1) The information set forth in the preceding table assumes (i) no exercise of
options to purchase a total of 1,006,395 shares of Common Stock that have
been granted under the Company's 1991 Stock Option Plan and 1994 Stock
Option Plan; (ii) no exercise of warrants outstanding as of the closing of
the Offering to purchase an aggregate of 527,786 shares of Common Stock;
(iii) no exercise of additional options which may be granted in the future
under the Company's 1991 Stock Option Plan and 1994 Stock Option Plan to
acquire up to 856,700 shares of Common Stock and (iv) no conversion of the
Convertible Note. See "MANAGEMENT -- Stock Option Plans," "DESCRIPTION OF
CAPITAL STOCK AND CERTAIN INDEBTEDNESS," and "UNDERWRITING."
(2) The 7,719,948 shares of Common Stock outstanding as of September 30, 1996
as adjusted include all of the shares of Preferred Stock then outstanding
which will convert automatically, upon the closing of the Offering, to
4,603,560 shares of Common Stock, the 7,670 shares of Common Stock issued
to Peter L. DeWalt on October 30, 1996, an additional 273,148 shares of
Common Stock being issued to holders of Preferred Stock in payment of an
estimated $1,912,038 in accrued cash dividends as of the closing of the
Offering (estimated as of November 26, 1996); and 2,000 shares to be
issued, the aggregate to two directors-elect.
15
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 30, 1996, the Company acquired ATI for a total acquisition cost
of $8,113,000 which included aggregate consideration of $7,863,000, payable
through (I) the issuance of the Convertible Note, (II) the incurrence of a
non-interest bearing obligation and (III) the issuance of shares of Common
Stock, and estimated transaction costs of approximately $250,000. The Company
intends to operate ATI as a subsidiary.
The Unaudited Pro Forma Combined Financial Information gives effect to the
acquisition of ATI under the purchase method of accounting using the assumptions
and adjustments described in the accompanying Notes to Pro Forma Combined
Financial Information and should be read in conjunction with the historical
financial statements of the Company and ATI included elsewhere herein. The pro
forma information does not purport to be indicative of the results which would
have been reported if the above transaction had been in effect for the periods
presented or which may result in the future.
The Unaudited Pro Forma Condensed Combined Balance Sheet is presented to
give effect to the acquisition of ATI as if it had occurred on September 30,
1996 and combines the balance sheet of the Company as of September 30, 1996 with
that of ATI as of September 28, 1996. The Unaudited Pro Forma Condensed Combined
Statements of Income assume the transaction occurred at the beginning of the
fiscal year ended December 31, 1995 and combines the statements of income of the
Company for the year ended December 31, 1995 and the nine months ended September
30, 1996 with the statements of income of ATI for the twelve months ended
December 31, 1995 and the nine months ended September 28, 1996. See the
accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
The Unaudited Pro Forma Condensed Balance Sheet also assumes the closing of the
Company's initial public offering as if it had occurred on September 30, 1996.
See the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
The presentation of the Pro Forma Financial Information for ATI for the year
ended December 31, 1995 combines the results of operations for ATI for the year
ended September 30, 1995, adjusted by adding the results of operations of ATI
for the quarter ended December 31, 1995 and omitting the results for the
comparative quarter ended December 31, 1994. The revenues and net earnings
omitted for the quarter ended December 31, 1994 were $2,411,000 and $99,000,
respectively.
16
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
ADVANCED BRUNSWICK
TEXTILES, INC. TECHNOLOGIES, INC.
-------------- ------------------
SEPTEMBER 28, SEPTEMBER 30, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
---- ---- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 632 $ 203 (B) $ 10,760 $ 10,699
(A) (896)
Accounts receivable, net .................................. 1,040 962 2,002
Inventories ............................................... 1,266 2,549 3,815
Deferred income taxes and other current assets ............ 1 382 -- 383
----- --- ---- --
Total current assets .................................... 2,939 4,096 9,864 16,899
Property, plant and equipment ................................ 2,458 5,568 (A) (908) 7,118
Less accumulated depreciation ................................ 1,643 1,350 (1,643) 1,350
Net property, plant and equipment ............................ 815 4,218 735 5,768
Goodwill ..................................................... (A) 5,123 5,123
(A) (75)
Deferred charges and other assets ............................ -- 424 (B) (261) 88
----- --- ---- --
Total assets ................................................. $ 3,754 $ 8,738 $ 15,386 $ 27,878
======= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to a bank .................................... $ -- $ 602 $ -- $ 602
Current portion of long-term debt ......................... -- 140 140
Amount due Burlington -- current .......................... (A) 92 92
Due to stockholder ........................................ 1,154 1,154
Accounts payable .......................................... 524 959 (A) 175 1,658
Accrued liabilities ....................................... 180 433 (A) (101) 512
Total current liabilities ............................... 704 3,288 166 4,158
Amount due Burlington ........................................ (A) 421 421
Convertible subordinated note ................................ (A) 7,296 3,648
(B) (3,648)
Long term debt ............................................... 1,296 1,296
Deferred income taxes ........................................ 63 63
Convertible preferred stock .................................. -- 6,473 (C) (6,473) --
Stockholders' equity:
Common stock ............................................... 6,029 406 (A) 54
(B) 14,147
(A) (6,029)
(C) 6,473 21,080
(Accumulated deficit) ...................................... (2,979) (2,788) (A) 2,979 (2,788)
------ ------ ----- ------
Total stockholders' equity (deficit) .................. 3,050 (2,382) 17,624 18,292
----- ------ ------ ------
Liabilities and stockholders' equity ......................... $ 3,754 $ 8,738 $ 15,386 $ 27,878
======== ======== ======== ========
</TABLE>
17
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
ADVANCED BRUNSWICK ADVANCED BRUNSWICK
TEXTILES, TECHNOLOGIES, PRO FORMA PRO FORMA TEXTILES, TECHNOLOGIES, PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED INC. INC. ADJUSTMENTS COMBINED
---- ---- ----------- -------- ---- ---- ----------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA) (IN THOUSANDS EXCEPT PER SHARE DATA)
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .................. $10,968 $15,476 $26,444 $7,958 $13,423 $21,381
Cost of goods sold ......... 9,239 11,979 21,218 6,565 10,365 16,930
----- ------ ------ ----- ------ ------
Gross profit ............. 1,729 3,497 5,226 1,393 3,058 4,451
Operating expenses ......... 807 2,492 (D) 142 3,441 522 2,441 (D) 106 3,069
Moving costs ............... -- 9 9 -- 248 248
Facility repair costs ...... -- 150 -- 150 -- (148) -- (148)
----- ------ ----- ------ ----- ------ ------
Operating income ......... 922 846 (142) 1,626 871 517 (106) 1,282
Other income (expense), net (14) (61) (E) (380) (455) 8 98 (E) (285) (179)
--- --- ---- ---- ---- ---- ---- ----
Income before income tax
benefit (expense) ........ 908 785 (522) 1,171 879 615 (391) 1,103
(D) 51 (D) 38
Income tax benefit (expense) 1,329 122 (e) 136 1,638 (333) (222) (E) 102 (415)
--- --- ---- ---- ---- ---- ---- ----
Net income ............... $ 2,237 $ 907 $(335) $ 2,809 $ 546 $ 393 $(251) $ 688
======= ======= ===== ======= ====== ======= ===== =======
Pro forma earnings per
share $ 0.31 $ .08
======= =======
Pro forma weighted average
common shares outstanding 8,973 9,043
===== =====
</TABLE>
18
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
---------------------------------------------------------------------
(A) The $8.1 million acquisition cost recorded for the acquisition of ATI
includes $250,000 in estimated transaction costs. Consideration
aggregating $7,863,000 was paid in the form of a $7,296,500 convertible
subordinated note, a non-interest bearing obligation of $600,000
(discounted to $513,000 using an interest rate of 8.25%), and shares of
Common Stock valued at $53,500. The estimated fair market value of net
assets acquired and liabilities assumed was $2,990,000. The following
adjustments allocate the purchase cost of the Acquisition:
o Adjust ATI working capital of 2,235,000 to 1,440,000 which
repressents the agreed amount to be aqcuired by the Company and
just for $101,000 of liabilities not assumed by the company.
Excess working capital of $869,000 was paid to Burlington
Industries.
o Adjust ATI Property, Plant and Equipment for the estimated fair
market value of fixed assets acquired. The adjustment eliminated
ATI's accumulated depreciation of $1,643,000 and reduces the cost
of ATI's fixed assets by $908,000, to the estimated fair market
value of the fixed assets acquired to $1,550,000 .
o Eliminate deferred acquistion costs already recorded by the
Company of $75,000, and accrue an additional estimated cost of
$175,000, for a total estimated aquisition cost of $250,000.
o Record the convertible Note due Burlington Industries of
$7,296,500 and the non-interest bearing note discounted to
$513,000, of which $92,000 is currently payable
o Record issuance of stock to a minority shareholder of ATI for
$53,500.
o Eliminate the equity accounts of ATI by adjusting Common Stock of
$ 6,029,000 and accumulated Deficit of $2,979,000.
o Record goodwill of $5,123,000, which represents the excess of the
purchase price of $8,113,000 over the fair market value of assets
acquired and liabilities assumed of $2,990,000.
(B) To record the offering of 2,250,000 shares of Common Stock at an assumed
Offering price of $7.00 per share net of underwriting discounts and
estimated expenses of $500,000. In accordance with the terms of the
acquisition of ATI, a portion of the net proceeds of the Offering is
assumed to be used to pay 50% of the principal amount of the Convertible
Note ($3,648,250) as required by the terms thereof.
(C) To record the conversion of the outstanding shares of Preferred Stock
into shares of Common Stock upon the closing of the Offering.
(D) To record the incremental depreciation and amortization and the related
income tax benefit resulting from the stepped up basis in the ATI assets
resulting from the acquisition by the Company. The real property,
machinery and equipment, and goodwill of ATI are being depreciated and
amortized at the respective lives of 20, 15, and 20 years.
(E) To record interest on the Convertible Note which carries a stated rate
of 9.25%, to record imputed interest on the $600,000 obligation to
Burlington at an interest rate of 8.25% and to record the related tax
benefit.
19
SELECTED FINANCIAL INFORMATION
The selected financial data set forth below for each of the Company's fiscal
years ended December 31, 1993 and 1994 and at December 31, 1994 are derived from
the financial statements of the Company audited by KPMG Peat Marwick LLP,
independent public accountants, which are included elsewhere in this Prospectus.
The selected financial data set forth below for the Company's nine months ended
September 30, 1996 and the fiscal year ended December 31, 1995 and at September
30, 1996 and December 31, 1995 are derived from the financial statements of the
Company audited by Coopers & Lybrand L.L.P., independent accountants, which are
included elsewhere in this Prospectus. The selected financial data set forth
below for the nine months ended September 30, 1995 are derived from the
unaudited financial statements of the Company, which appear elsewhere in this
Prospectus, and in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations. The operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the operating results for the entire year. The selected financial
data set forth below for ATI's fiscal years ended September 30, 1994, 1995 and
1996 are derived from the financial statements of ATI audited by Ernst & Young
LLP, independent accountants, which appear elsewhere in this Prospectus. The
selected financial data set forth below for ATI for the fiscal years ended 1992
and 1993 are derived from the unaudited financial statements of ATI, and in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations. The selected financial data set forth below
should be read in conjunction with the Financial Statements and Notes thereto
and with MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, COMPANY PRO FORMA(1)
------------ ------------- --------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1995 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ....................... $2,625 $4,701 $6,376 $9,596 $15,476 $11,033 $13,423 $26,444 $21,381
Cost of goods sold .............. 2,215 3,700 4,996 7,382 11,979 8,489 10,365 21,218 16,930
Gross profit .................... 410 1,001 1,380 2,214 3,497 2,544 3,058 5,226 4,451
Other operating expenses ........ 736 971 1,258 1,874 2,492 1,787 2,441 3,441 3,069
Moving costs .................... -- -- -- -- 9 -- 248 9 248
Facility repair costs ........... -- -- -- -- 150 -- (148) 150 (148)
---- -- --- --- --- --- --- ----- -----
Operating income (loss) ......... (326) 30 122 340 846 757 517 1,626 1,282
Other income (expense), net ..... (96) (27) (11) (26) (61) (27) 98 (455) (179)
--- --- --- --- --- --- -- ---- ----
Income (loss) before income taxes (421) 3 111 314 785 730 615 1,171 1,103
====== ====== ====== ====== ======= ======= ======= ======= =======
Income tax benefit (expense) .... -- -- -- -- 122 113 (222) 1,638 (415)
====== ====== ====== ====== ======= ======= ======= ======= =======
Net income (loss) ............... (421) 3 111 314 907 843 393 2,809 688
====== ====== ====== ====== ======= ======= ======= ======= =======
Preferred stock dividend ........ -- (269) (450) (450) (450) (338) (338) -- --
Accretion of preferred stock
redemption value .............. -- (51) (71) (76) (82) (61) (66) -- --
Net income (loss) attributable to
common stock .................. $ (421) $ (317) $ (410) $ (212) $ 375 $ 444 $ (11) $ 2,809 $ 688
====== ====== ====== ====== ======= ======= ======= ======= =======
Pro forma earnings per common share $ 0.14 $ 0.06 $ 0.31 $ 0.08
======= ======= ======= =======
Pro forma weighted average common
shares outstanding ............ 6,715 (2) 6,785 (2) 8,973 9,043
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
ADVANCED TEXTILES, INC. FISCAL YEAR ENDED
-------------------------------------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
-------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales ........................................... $ 7,959 $8,415 $10,043 $11,169 $10,570
Cost of goods sold .................................. 7,324 7,540 9,040 9,574 8,504
----- ----- ----- ----- -----
Gross profit ........................................ 635 875 1,003 1,595 2,066
Other operating expenses ............................ 747 741 938 890 939
----- ----- ----- ----- -----
Operating income (loss) ............................. (112) 134 65 705 1,127
Other income (expense), net ......................... (161) (38) (31) (21) 7
----- ----- ----- ----- -----
Litigation settlement ............................... (3,400) -- -- -- --
Income (loss) before income taxes ................... (3,673) 96 34 684 1,134
Income tax benefit (expense) ........................ -- -- -- 1,493 (429)
----- ----- ----- ----- -----
Net income (loss) ................................... $(3,673) $ 96 $ 34 $ 2,177 $ 705
</TABLE>
20
BRUNSWICK TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
------------ ------------------
BRUNSWICK ADVANCED
TECHNOLOGIES, TEXTILES, PRO FORMA(1)
1991 1992 1993 1994 1995 INC. INC. COMBINED
---- ---- ---- ---- ---- ---- ---- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ................. $ 236 $ (252) $ 548 $ 631 $ 905 $ 808 $2,235 $12,741
Total assets .................... 2,022 2,472 4,338 5,665 7,867 8,738 3,754 27,878
Long-term liabilities ........... 272 460 337 1,177 1,069 1,359 -- 5,428
Total liabilities ............... 1,481 1,807 1,870 2,886 4,168 4,647 704 9,586
Preferred stock ................. 2,460 2,918 5,011 5,538 6,070 6,473 -- --
Stockholders' equity (deficit) .. $(1,919) $(2,253) $(2,543) $(2,759) $(2,371) $(2,382) $3,050 $18,292
</TABLE>
ADVANCED TEXTILES, INC.
-------------------------
<TABLE>
<CAPTION>
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
-----------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 768 $ 609 $ 279 $1,021 $2,235
Total assets 2,967 2,826 2,658 3,040 3,754
Long-term liabilities 700 500 -- -- --
Total liabilities 1,755 1,628 1,426 1,124 704
Stockholders' equity (deficit) $1,212 $1,198 $1,232 $1,916 $3,050
</TABLE>
- -------------
(1) Adjusted to give effect to the sale by the Company of 2,250,000 shares of
Common Stock at an assumed Offering price of $7.00 and the application of
the estimated net proceeds therefrom (after deducting discounts, allowance
and Offering expenses). See "USE OF PROCEEDS." Also adjusted to reflect the
acquisition of ATI on October 30, 1996 and the pro forma combination of
results of operations and financial condition of ATI and the Company.
(2) Calaculation is shown in Note 1 to Notes to Financial Statements of the
Company.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BRUNSWICK TECHNOLOGIES, INC.
Except with respect to the matters discussed under the heading "Liquidity
and Capital Resources" below, the financial condition and results of operations
described below do not include discussion of the financial condition of the
Company, or its results of operations, on a combined basis with those of ATI.
Reference is made to the Unaudited Pro Forma Condensed Combined Financial
Information, the Selected Financial Information of ATI and to the separate
discussion on ATI's financial condition and results of operations presented
below.
INTRODUCTION
Brunswick Technologies, Inc. is a leading developer and manufacturer of
engineered composite reinforcement fabrics produced from glass and other fibers.
The Company has experienced net revenue growth of 50.5% and 61.3% for 1994 and
1995, respectively, and 21.6% for the first nine months of 1996, as compared to
the same period for 1995. Net Income for 1995 increased by $592,309, or 188%,
from $314,196 in 1994, to $906,505. For the nine months ended September 30,
1996, net income decreased by $449,821, or 53.4%, to $393,273 from $843,094 for
the same period in 1995. The comparison of net income between the 1996 and 1995
nine month periods is affected by two unusual transactions, moving expenses and
facility repair costs, as well as income taxes which reflected a $113,000
benefit in 1995 and a $222,000 expense in 1996. During the nine months ended
September 30, 1996 the Company incurred moving expenses of $248,314 offset in
part by a $147,545 income item related to facility repair costs. The Company's
primary strategic objective is to continue the growth experienced prior to 1996
by building upon its expanded customer and product base resulting from its
acquisition of ATI and by targeting new market and product applications for
engineered composite reinforcement fabrics manufactured using the Company's
proprietary processes. These include the transportation, offshore petrochemical,
and infrastructure markets. The Company intends to pursue joint projects with
leaders in different industrial sectors to accelerate the substitution of the
Company's composite reinforcement fabrics for conventional materials. The
Company is also considering using its fabrics to produce certain end-user
products itself, in addition to supplying its fabrics to other manufacturers.
Although the Company utilizes independent distributors for approximately 90%
of its sales, it markets its products primarily to the ultimate end-product
manufacturer. In 1996, the Company moved its Maine operations into a new,
state-of-the-art, 50,000 square foot manufacturing facility which is leased from
a corporation affiliated with the Town of Brunswick, Maine. The Company
currently operates six production machines and expects to put a seventh into
operation by the end of 1996.
ACQUISITION OF ADVANCED TEXTILES, INC.
On October 30, 1996, the Company acquired all of the capital stock of ATI
for a purchase price of $7,863,000, payable through a convertible subordinated
promissory note of $7,296,500 (the "Convertible Note") in favor of Burlington
Industries, Inc. ("Burlington'), a non-interest bearing obligation (the
"Obligation") to Burlington discounted to $513,000 and 7,670 shares of Common
Stock issued to Peter L. DeWalt, who held a minority interest in ATI. The
Company estimates that it will incur transactional costs of approximately
$250,000 associated with this purchase. The terms of the Convertible Note
require that 50% of the principal amount of the Convertible Note ($3,648,250)
will be paid within seven months after the completion of the Offering. The
remaining principal amount of the Convertible Note will be payable on October
30, 2002 and October 30, 2003. On the earlier date, the Company is required to
pay 50% of the then outstanding principal plus any additional amount permitted
by the Company's then existing financial covenants with its senior lenders. The
Obligation will be payable as follows: $100,000 on December 15, 1996, and then
on each succeeding December 15 until the entire Obligation is paid, an amount
equal to at least $100,000 based on certain income tax effects experienced by
the Company.
The Company will operate ATI as a wholly-owned subsidiary of the Company.
This acquisition will be recorded on the books of the Company under the purchase
method of accounting and financial statements will be reported on a consolidated
basis. The acquisition cost of $8,113,000, (including the estimated
22
transactional costs of the acquisition) on the books of the Company, is being
allocated among the purchased assets and assumed liabilities according to their
estimated fair market value. It is currently estimated as of September 28, 1996
(the end of ATI's fiscal year prior to the acquisition) that the real property
and the machinery and equipment purchased had fair market values of $800,000 and
$750,000, respectively, and that the working capital equalled $1,440,000. At
September 28, 1996, ATI's property, plant and equipment had a book value of
$815,000. The purchase price in excess of such fair market value will be
allocated to goodwill and amortized over a 20 year period. The real property and
the machinery and equipment purchased will be depreciated over 20 and 15 years,
respectively.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 78.4 76.9 77.4 76.9 77.2
---- ---- ---- ---- ----
Gross profit 21.6 23.1 22.6 23.1 22.8
Selling, general and administrative expenses 17.7 15.6 13.5 13.6 15.2
Research and development expenses 2.0 3.9 2.6 2.6 3.0
Moving costs 0.0 0.0 0.0 0.0 1.8
Facility repair cost 0.0 0.0 1.0 0.0 (1.1)
--- --- --- --- ----
Operating income 1.9 3.6 5.5 6.9 3.9
Other income (expense):
Interest expense 0.0 (0.2) (0.8) (0.9) (0.8)
Miscellaneous, net (0.2) (0.1) 0.4 0.6 1.5
---- ---- --- --- ---
(0.2) (0.3) (0.4) (0.3) 0.7
Income before income tax 1.7 3.3 5.1 6.6 4.6
Income tax benefit (expense) 0.0 0.0 0.8 1.0 (1.7)
--- --- --- --- ----
Net income 1.7% 3.3% 5.9% 7.6% 2.9%
=== === === === ===
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net Sales. Net Sales for the nine month period ended September 30, 1996
increased by $2.4 million or 21.7% to $13.4 million from $11.0 million for the
same period in 1995. This increase was attributable to a 13.7% increase in
pounds of product sold and a 6.9% increase in the average price per pound. For
the period in 1996, 9,613,160 pounds of product were sold at an average sales
price of $1.40 per pound versus 8,453,600 pounds at an average sales price of
$1.31 per pound during the same period in 1995. In spite of continuing declines
in distributor inventories, revenues grew due to increased numbers of customers,
applications and markets for the Company's products.
Gross Profit. Gross profit increased to $3.0 million for the nine month
period ended September 30, 1996 from $2.5 million for the same period in 1995.
Gross profit margin remained relatively flat at 22.8% of net sales for the nine
month period in 1996 compared to 23.1% for the same period in 1995.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percentage of net sales increased to 15.2% for the
nine month period ended September 30, 1996 from 13.6% for the same period in
1995. Shipping expenses increased $112,745 or 22.49%. Selling expense increased
$163,882 or 35.28%. Salaries and travel accounted for $47,777 and $71,290 of
this increase
23
respectively. Marketing expense increased $27,474 or 51.79% primarily due to
increases in consulting fees. General and administrative costs increased
$191,973 or 39.79%. The increase in this expense category was due in part to
$47,647 of profit sharing plan expense being accrued in 1996 as opposed to none
being accrued in the 1995 period, as the plan was adopted in December 1995. Also
in general and administrative expense, salaries increased $69,840.
Research and Development Expenses. Research and development expenses as a
percentage of net sales increased to 3.0% for the nine month period ended
September 30, 1996 from 2.6% for the same period in 1995, primarily due to
adding a Director of Research and a design technician and their commensurate
expenses totaling $66,845.
Operating Income. Operating income decreased to $516,521 for the nine month
period ended September 30, 1996 from $757,370 for the same period in 1995.
Operating income as a percentage of net sales decreased to 3.9% for the period
ended September 30, 1996 from 6.9% for the same period in 1995 due in part to
unusual costs related to moving to the new facility of $248,314 representing
1.8% of net sales. In connection with the move to the new facility, the Company
recorded in 1995 an expense of $150,000 in 1995 to cover the expenses estimated
to be incurred for the restoration of the facilities being vacated. The repairs
thought to be required when the expense was recorded did not materialize and
therefore the unexpended amount of $147,545 was recognized as an addition to
operating income in June 1996 which offset, to some extent, the other increases
in operating expenses. Excluding these two unusual transactions, operating
income for the period in 1996 would have been $617,290 or 4.6% of net sales, a
19% decrease from the prior period.
Other Income. The period ended September 30, 1996 was favorably affected by
reimbursement of expenses related to expenditures on new technologies from a
grant from the National Institute of Standards and Technology ("NIST") in the
amount of $287,137. Costs of goods sold was credited for $71,307 of this amount
while $215,830 was credited to other income. The reimbursement of certain
expenditures from this grant resulted in a credit of $26,453 to cost of goods
sold and recognition of $51,349 as other income in the 1995 period.
Income Taxes. The period ended September 30, 1995 reflects its share of the
income tax benefit recorded in 1995 in recognition of the fact that the
Company's accumulated net operating losses would be utilized. Since all the
benefit from net operating loss carryforwards was recognized in 1995, an income
tax expense was recorded in the 1996 period, at an effective rate of 36%.
Net Income. Net income for the nine month period ended September 30, 1996
was $393,273 or 2.9% of net sales as compared to $843,094 or 7.6% of net sales
for the same period in 1995. The decrease was due to the unusual moving costs of
$100,769 (net of the credit of $147,545 related to facility repair costs) and an
increase in income taxes of $335,000 during the 1996 period. During the same
period in 1995, the Company had an income tax benefit of $113,000. Income before
taxes for the period in 1996 was 4.6% of net sales or 5.3% of net sales when
adjusted for the unusual moving and facility repair expenses, compared to 6.6%
of net sales for the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net Sales for 1995 increased by $5.9 million or 61% to $15.5
million from $9.6 million for 1994. The increase in net sales is attributable
primarily to volume increases and favorable product mix gains. The Company
experienced sales increases in all of its major industry sectors: marine,
transportation, infrastructure, recreational and industrial. Furthermore, the
Company's aggressive sales and marketing efforts have continued to yield new
customers in existing markets and new applications in both existing and new
markets.
Gross Profit. Gross profit increased to $3.5 million for 1995 from $2.2
million for 1994. Gross profit margin decreased to 22.6% of net sales for 1995
from 23.1% for 1994. The decrease in gross profit margin is attributable
primarily to higher costs paid per pound for raw materials. Cost of goods sold
in 1995 increased primarily due to the increase in pounds sold and an increase
in the cost of materials. The
24
labor component of cost of goods sold per pound decreased by 11.0% in 1995 to
$0.085 from $0.0955 in 1994. The average raw material cost of goods sold per
pound increased by 10.7% in 1995 to $0.83 from $0.75 in 1994. The increase in
the cost of raw material was due in part to an industry wide shortage in the
supply of fiberglass materials. Also influencing the 1995 increase in cost of
goods sold were indirect cost increases in depreciation ($70,435), amortization
of leasehold improvements ($29,562), building rent expense ($20,769), utilities
($13,224), and operating supplies ($13,974). See "RISK FACTORS -- Possible
Fluctuations in Operating Results, Cyclical Nature of End-Product Manufacturer
Industries, Seasonality and Supply Factors."
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expenses as a percentage of net sales decreased to 13.5%
for 1995 from 15.6% for 1994. Operating expenses as a percentage of net sales
were all lower in 1995 than 1994 due to economies of scale. Wage expense
increased in all expense classifications due, to a large degree, to the increase
in total employees from 49 at year end of 1994 to 65 at year end in 1995. Also,
1995 contains a full year of salary expense for two employees added to the
management group in the last quarter of 1994, one classified in sales expense
and the other in general and administrative expense. Shipping expenses are
classified within the SG&A caption throughout the financial statements and were
favorably impacted by an increase in the capacity of trucks used per shipment as
well as results from improved rates from the carrier. Also within the SG&A
category, selling and marketing expense increased by $168,155, from $525,883 in
1994 to $694,038 in 1995. This was primarily due to an increase in wage expense
of $70,534 from $190,548 to $261,082. In addition, there was an increase of
$35,835, from $8,623 in 1994 to $44,458 in 1995, in outside consulting fees for
marketing services. General and Administrative expense increased by $204,751,
from $484,991 in 1994 to $689,742 in 1995. This was primarily due to an increase
in wage expense of $98,068 from $191,543 in 1994 to $289,611 in 1995. Also,
depreciation of office equipment, furniture and fixtures increased by $11,944,
the amortization of leasehold improvements increased by $23,139, and municipal
property taxes increased by $14,263.
Research and Development Expense. The Company continued to favor research
and development expenditure which increased year to year by 9.2% while
decreasing as a percentage of net sales from 3.9% for 1994 to 2.6% for 1995.
Research and development expense increased by $34,292 from $373,955 in 1994 to
$408,247 in 1995. This growth resulted from a $49,877 increase in wage expense,
from $184,109 in 1994 to $233,986 in 1995.
Operating Income. Operating income increased by 149% to $845,927 for
1995 from $340,219 in 1994. Operating income as a percentage of net sales
increased to 5.5% for 1995 from 3.6% for 1994.
Other Income. The Company is a participant in a consortium to develop a
manufacturing competency to replace wood, steel, and concrete with high
performance composite reinforcement fabrics. The project has been awarded a
grant by NIST whereby 50% of the project's costs will be reimbursed. In 1995,
the Company incurred project eligible costs of $201,936 and applied for
reimbursement of $100,968, for which the Company has recorded miscellaneous
income of $66,742 and reduced cost of goods sold by $34,226.
Income Taxes. The Company received an income tax benefit of $121,900 in 1995
due to the recognition of its net operating loss carryforwards ("NOL") as
compared to 1994 when no income tax expense or benefit was recorded. The NOLs
were not recognized prior to 1995 due to uncertainty as to whether the Company
would have earnings to which the NOLs could be applied. During 1995, the
uncertainty was significantly reduced as the Company reported substantially
higher taxable income suggesting that more likely than not, the NOLs would be
fully realized.
Net Income. Net income for 1995 was $906,505 or 5.9% of net sales as
compared to $314,196 or 3.3% of net sales for 1994. Income before taxes for the
year ended 1995 was 5.1% of net sales, compared to 3.3% of net sales in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Sales. Net Sales for 1994 increased by $3.2 million or 50% to $9.6
million from $6.4 million for 1993. This represented a 48% increase in pounds of
product sold from 5.2 million in 1993 to 7.7 million in 1994. Sales of BiTex,
the Company's high-speed production, heavyweight product line,
25
increased from 38.7% of total pounds shipped in 1993 to 48.4% in 1994.
Traditional products (other than BiTex) decreased from 60.1% of total pounds
shipped in 1993 to 50.4% in 1994. This represented a continued expansion in the
market for cost efficient, multi-axial heavyweight composite reinforcement
materials for the marine, industrial and other markets. The average price per
pound for all products remained at $1.30 due to the increase in the average
price per pound for BiTex products.
Gross Profit. Gross profit increased to $2.2 million for 1994 from $1.4
million in 1993. Gross profit margin increased to 23.1% of net sales for 1994
from 21.6% in 1993. The increase in gross profit margin was attributable to
sales volume increases. Cost of goods sold as a percentage of net sales declined
from 78.4% in 1993 to 76.9% in 1994, primarily due to a change in the
methodology of accounting for Research and Development ("R&D") costs. In 1994,
the Company began to classify indirect manufacturing costs incurred in the
process of producing samples of an R&D nature as R&D costs rather than cost of
goods sold. Such costs amounted to $133,440 in 1994. This methodology more
accurately reflects the research and development nature of these expenses. If
this methodology had not been changed in 1994, the relationship of cost of goods
sold and gross profit to net sales would have been virtually the same as in
1993. The overall cost per pound sold declined slightly to $0.956 in 1994 from
$0.965 in 1993. The average material cost per pound sold increased by 3% from
$0.726 to $0.748 in 1994.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percentage of net sales decreased to 15.6% for 1994
from 17.7% for 1993.
Research and Development Expense. Research and development expenses as a
percentage of net sales increased to 3.9% for 1994 from 2.0% for 1993, in part
reflecting a reclassification of certain R&D expenses (see Gross Profit).
Operating Income. Operating income increased to $340,219 for the year ended
1994 from $122,292 in 1993. Operating income as a percentage of net sales
increased to 3.6% for 1994 from 1.9% for 1993.
Income Taxes. The Company neither incurred an income tax expense nor
received income tax benefits for either of the years 1994 or 1993.
Net Income. Net income for the year ended 1994 was $314,196 or 3.3% of net
sales as compared to $111,476 or 1.7% of net sales for 1993.
26
QUARTERLY RESULTS
The following table presents financial information derived from the
Company's unaudited financial statements for each quarter included in the year
ended December 31, 1995 and for the quarters ended March 31, 1996, June 30, 1996
and September 30, 1996. Such information has been prepared on the same basis as
the audited Financial Statements appearing elsewhere in this Prospectus. Based
on unaudited financial statements for the quarter ended September 30, 1996, net
revenues for such quarter of 1996 increased by 5.2% to $4,242,000 from
$4,031,000 for the same period in 1995. Gross profit decreased by 5.9% to
$878,000 from $930,000 for the same period in 1995. Net income in the third
quarter in 1996 decreased by 81% to $59,000 from $314,000 for the same period in
1995.
BRUNSWICK TECHNOLOGIES, INC.
Comparative Quarterly Earnings
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 QUARTERS ENDED 1995 QUARTERS ENDED
------------------- -------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH31
------------ ------- -------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Revenue ........ $4,757 112% $4,876 110% $5,192 109% $4,665 105% $4,279 106% $4,175 109% $3,373 106%
Allowances ........... 362 9% 371 8% 395 8% 164 4% 184 5% 227 6% 170 5%
Other Deductions ..... 153 3% 70 2% 51 1% 60 1% 64 2% 123 3% 24 1%
----- --- ----- --- ----- --- ----- --- ----- --- ----- --- ----- ---
Net Revenue .......... 4,242 100% 4,435 100% 4,746 100% 4,441 100% 4,031 100% 3,825 100% 3,179 100%
Cost of Goods Sold ... 3,364 79% 3,371 76% 3,630 77% 3,489 79% 3,101 77% 2,909 76% 2,480 78%
Gross Profit ......... 878 21% 1,064 24% 1,116 23% 952 21% 930 23% 916 24% 699 22%
Selling General and
Administrative
Expense ............ 717 17% 687 15% 635 13% 589 13% 535 13% 522 14% 438 14%
Research/development
Expense ............ 102 2% 157 4% 143 3% 116 3% 113 3% 91 2% 88 3%
Moving Expense ....... 5 0% 99 2% 144 3% 9 0% -- 0% -- 0% -- 0%
----- --- ----- --- ----- --- ----- --- ----- --- ----- --- ----- ---
Facility Repair Cost . -- 0% (148) (3)% -- 0% 150 3% -- 0% -- 0% -- 0%
Operating Income ..... 54 2% 269 6% 194 4% 88 2% 282 7% 303 8% 173 5%
----- --- ----- --- ----- --- ----- --- ----- --- ----- --- ----- ---
Other Income (Expense):
Nist Grant ......... 139 2% 71 2% 45 1% 16 1% 5 1% 23 1% 23 1%
Interest Expense ... (46) (1)% (30) (1)% (26) (1)% (31) (1)% (28) (1)% (31) (1)% (34)(1)%
Miscellaneous, Net (51) (1)% (4) 0% -- 0% (19) 0% 13 0% 1 0% 1 0%
----- --- ----- --- ----- --- ----- --- ----- --- ----- --- ----- ---
42 0% 37 1% 19 0% (34) (1)% (10) 0% (7) 0% (10) 0%
----- --- ----- --- ----- --- ----- --- ----- --- ----- --- ----- ---
Income Before Income
Tax ................ 96 2% 306 7% 213 4% 54 1% 272 7% 296 8% 163 5%
Income Tax Benefit
(Expense) .......... (37) (1)% (109) (2)% (76) (2)% 9 0% 42 1% 46 1% 25 1%
----- --- ----- --- ----- --- ----- --- ----- --- ----- --- ----- ---
Net Income ........... $ 59 1% $ 197 5% $ 137 3% $ 63 1% $ 314 8% $ 342 9% $ 188 6%
====== ====== ====== ====== ====== ===== ======= ===== ====== ===== ====== ===== ===== ===
</TABLE>
In the first quarter of 1996, the Company's net sales were increased as its
distributors built their inventory levels to cushion against the continuation of
a fiberglass supply shortage that was industry wide throughout 1995. In the
second quarter of 1996, the Company's distributors reduced their inventory
levels in response to the general availability of fiberglass, thereby
contributing to a reduction in the Company's net sales to $4.4 million from $4.8
million in the first quarter of 1996. A decrease in net sales to $4.24 million
occurred for the same reasons in the third quarter. Management estimates that
during the second quarter of 1996 its distributors maintained an approximate
three-week inventory of composite reinforcement fabrics as opposed to an
approximate twelve-week supply in the first quarter of 1996. Management also
estimates that during the second and third quarters of 1996, the Company's
distributors maintained an approximate three-weeks of inventory.
The Company's quarterly results of operations may be subject to fluctuations
due to factors including changes in distribution channels' and end-users'
inventories, and general economic conditions. The Company has traditionally
operated with relatively little backlog and generally arranges delivery promptly
upon receipt of orders. Therefore, a majority of the Company's sales in each
quarter have resulted from orders placed in that quarter.
27
ADVANCED TEXTILES, INC.
INTRODUCTION
Advanced Textiles, Inc., prior to its acquisition by the Company, was a
substantially wholly-owned subsidiary of Burlington Industries, Inc. ATI
produces specialty weft-inserted and woven fabrics for the reinforced
plastics/composites industry. Markets for ATI's weft-inserted and woven fabrics
include the marine, pultrusion, aerospace, transportation, military, armor,
electronics, corrosion-resistance and sports/consumer industries using raw
materials of fiberglass, aramid, carbon/graphite, S-2 glass, hybrids, blends and
co-mingled fibers. Fiber orientations include unidirectional biaxial, biased
biaxial, triaxial and quadraxial patterns. ATI's strategic objective is to
provide high quality, value-added specialty fabrics to existing markets and to
target new markets and product applications for composite reinforced fabrics.
ATI utilizes independent distributors for approximately 64% of its sales
with approximately 53% of sales made to one distributor, FRP Supply, Inc. One
other customer to whom sales are made on a direct basis accounts for
approximately 10% of its sales. The Company believes that the majority of ATI's
sales volume could be sustained on a direct sales basis.
ATI was founded in 1985, and employs 63 people, most of whom are employed at
its Seguin, Texas manufacturing facility. ATI currently operates 16 production
weft-insertion machines and eight production looms.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 28, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Net Sales. Net sales for fiscal year 1996 were $10,570,000 as compared to
$11,169,000 in 1995, a decrease of 5.4%. This decrease is primarily attributable
to a unit volume decrease of 9.8% or $1.1 million due to a fiberglass supply
shortage that was industry wide from mid-fiscal year 1995 through mid-fiscal
year 1996. In late 1996, ATI's distributors reduced their inventory levels in
response to the general availability of fiberglass, thus causing sales to be
depressed for the remainder of fiscal year 1996. This volume decrease was
somewhat offset by $0.5 million of selling price increases and an improved mix
of products with higher unit selling prices.
Gross Profit. Gross profit margins increased to $2,066,000 in fiscal year
1996 from $1,595,000 in the prior year period, an increase of 29.5%. Gross
profit margins as a percent of sales increased from 14.3% in fiscal year 1995 to
19.5% in fiscal year 1996. Lower unit volume adversely affected gross profit
margins $0.2 million or 9.8%, but were more than offset by higher selling prices
and the improved mix in sales of $0.5 million noted above as well as
productivity and efficiencies gains in manufacturing. Raw material price
increases were more than offset by waste, construction and mix of material
gains. These manufacturing improvements contributed approximately $0.1 million
to the gross profit margin improvement.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percent of net sales increased from 8.0% in fiscal
1995 to 8.9% in fiscal year 1996. Selling, general and administrative dollar
expenses rose $49,000 in fiscal 1996 as compared to 1995 primarily due to higher
travel and entertainment expenses, as well as increased leased office space
expense. The remainder of the increase as a percent of net sales is a function
of the lower sales volume.
Interest Income. Interest income increased $6,000 and interest expense
declined $22,000 in fiscal 1996 as compared to fiscal 1995 due to the retirement
of ATI's long-term debt in fiscal year 1995.
Income Taxes. The income tax provision for the 1996 fiscal year was $429,000
which represents an effective tax rate of 37.8% as a percentage of income before
income taxes. The income tax benefit of $1,493,000 for the 1995 fiscal year
reflects the benefit resulting from the removal of a valuation allowance since
ATI evaluated that it was more likely than not that the Net Operating Loss
("NOL") carryforwards would be utilized. (See Note D of Notes to Financial
Statements of ATI.)
28
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED OCTOBER 1, 1994
Net Sales. Net sales for fiscal year 1995 were $11,169,000 as compared to
$10,043,000 in fiscal year 1994, an increase of 11.2%. This $1.1 million
increase was primarily due to selling price increases and improved mix of
products in fiscal year 1995 as compared to fiscal year 1994.
Gross Profit. Gross profit margins increased from $1,003,000 in fiscal year
1994 to $1,595,000 in fiscal year 1995, an increase of 59%. Gross profit margins
as a percent of net sales increased from 10.0% in the fiscal year ended
September 1994 to 14.3% in the fiscal year ended September 1995. This increase
in gross profit margins is primarily due to selling price increases and the
product mix improvement discussed above, somewhat offset by higher raw material
prices and the increased overhead expenses in fiscal year 1995, versus fiscal
year 1994.
Selling, General and Administrative Expense. Selling, general and
administrative expenses as a percentage of net sales decreased from 9.3% in
fiscal year 1994 to 8.0% in fiscal year 1995. This improvement in selling,
general and administrative as a percent of sales is primarily a function of
increased sales dollars in fiscal year 1995 as compared to fiscal year 1994.
Interest Expense. Interest expense declined $9,000 in fiscal year 1995 as
compared to fiscal year 1994 due to a reduction in long-term debt in fiscal year
1995.
Income Taxes. The income tax benefit of $1,493,000 for fiscal year 1995
reflects the benefit resulting from the removal of a valuation allowance
established in previous years since ATI evaluated that it was now more likely
than not that the NOL carryforwards would be utilized. No income tax provision
was recorded in fiscal year 1994. (See Note D of Notes to Financial Statements
of ATI.)
Net Income. Net income for fiscal year 1995 was $2,177,000 or 19.5% of net
sales as compared to $34,000 or 0.3% of net sales in fiscal year 1994. ATI
utilized an income tax benefit of $1,493,000 in fiscal year 1995. Income before
taxes for fiscal year 1995 was 6.1% of net sales as compared to 0.3% in fiscal
year 1994.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its acquistion, the Company's principal sources of funds have
historically been cash flow generated from operations and advances under its
bank line of credit and equipment term loan facilities. ATI's principal source
of funds has historically been cash flow generated from operations. The Company
and ATI have recently experienced similar trends in decreasing cash flow
generated from operations, due primarily in each case to increases in finished
goods and work in process inventories. The Company's cash flow decreased from
$898,275 for the nine months ended September 30, 1995 to $527,470 in the
comparable period in 1996. ATI's cash flow decreased from $857,000 for its
fiscal year ended September 30, 1995 to $535,000 for its fiscal year ended
September 28, 1996.
The Company currently is party to loan arrangements with a bank providing a
line of credit and a term equipment loan. Both loans are secured by
substantially all of the Company's assets. The amount of credit available under
the line of credit, which is a demand facility, is equal to the sum of 75% of
eligible accounts receivable plus 50% of eligible inventories up to a total of
$1.5 million. At October 31, 1996, $831,000 was outstanding, the interest rate
was 8 1/4 %, and the balances of eligible accounts receivable and inventories
did not restrict the available credit so that the full $1.5 million was
available to borrow. Line of credit borrowings bear interest, at the Company's
option, at the prime rate or the LIBOR rate plus 1.75%. There is a commitment
fee of 1/8 of 1% on the unused balance. The Company is presently in discussions
with its bank to increase its line of credit by $1 million, which increase would
be secured by ATI's inventories and accounts receivable.
The equipment loan is in an amount of $1.1 million plus 75% of incremental
machine expenditures prior to February 28, 1997 up to a total loan of $1.8
million. Borrowings under the equipment loan bear interest, at the Company's
option, at the prime rate or the LIBOR rate plus 2.25%. For purpose of the
equipment loan, the Company is obligated to make interest only payments through
January 31, 1997, at which time the principal begins amortization over an 84
month period. At the date of the loan closing, the Company certified $433,000 of
incremental machine expenditures and, as a result, was advanced
29
$325,414 under this loan to make the outstanding balance $1,425,414 at October
31, 1996 and the interest rate as of such date was 8%. All amounts owed under
the bank loans will be repaid from the proceeds of the Offering.
The statements of cash flows are both the Company and ATI included in the
Financial Statements reflect each entity's liquidity and capital resource
requirements for the periods presented.
The Company's obligations to its preferred stockholders are outlined in Note
6 of Notes to Financial Statements of the Company. Shares of all series of
Preferred Stock will convert into shares of Common Stock upon the closing of the
Offering and the dividend obligations relative thereto will be satisfied by the
issuance of additional shares of Common Stock.
The Company anticipates expending approximately $375,000, $1,325,000 and
$1,300,000 in capital expenditures in the fourth quarter of 1996, the 1997
fiscal year and the 1998 fiscal year, respectively, but had no material
commitments relative to capital expenditures as of September 30, 1996 other than
its obligations to repay the equipment loan to its bank as described above.
Future cash requirements will also include payment of $3,648,250 to
Burlington within seven months after the closing of the Offering under the terms
of the Convertible Note (with the remaining $3,648,250 becoming due in 2002 and
2003), unless the Convertible Note is converted to Common Stock before such
time. The Company is also obligated to pay $600,000 to Burlington as follows:
$100,000 on December 15, 1996 and then on each succeeding December 15 until the
entire $600,000 is paid, an amount equal to at least $100,000 based on certain
income tax effects experienced by the Company. As described above, cash will
also be required for machinery and equipment and other production facilities to
accommodate the Company's planned growth as well as working capital needs
related to the anticipated expansion of operations. Cash will also be needed for
expenditures on research, development and marketing activities for new products.
Expenditures may also be required relative to other acquisitions of entities in
related or complementary activities. The net proceeds of the Offering are
estimated to be $14,147,500, which the Company anticipates, when combined with
cash generated from operations will provide sufficient financial resources for
an estimated 3 years. The Company also anticipates that any additional cash
needs will be met through the use of bank debt facilities and the sale of long
term indebtedness and equity.
30
BUSINESS
INTRODUCTION
Brunswick Technologies, Inc. (the "Company") is a technologically advanced,
leading developer and producer of engineered reinforcement fabrics used in the
fabrication of composite materials. The Company's technologically advanced
stitchbonding equipment and processes prepare glass, carbon and other fibers for
combination with resin to produce laminates used in the construction of such
diverse items as boats, skis, diving boards, protective helmets and ballistic
armor applications, car and truck parts, and industrial tanks and pipes. Since
the invention of composite reinforcement fabrics in the early 1940's, these
materials have developed broad applicability as substitutes for wood, steel, and
concrete.
Composite products offer substantial benefits over conventional materials,
including: a higher strength-to-weight ratio, greater design flexibility while
maintaining structural integrity, chemically inert properties and lower
maintenance requirements. As a result of their superior features, composite
reinforcement fabrics are increasingly demanded by a growing number of
industries and applications, including transportation, infrastructure,
recreation, petro-chemical and construction. Management believes the use of
engineered composite reinforcement fabrics will continue to grow as the market
is made more aware of the positive features of such materials and as the cost of
more advanced composite fibers such as carbon continues to decline.
The Company's principal strength lies in its innovative quadraxial
single-step stitchbonding fabrication process. Through use of its proprietary
production equipment, the Company can quickly and cost effectively produce
engineered composite reinforcement fabrics in sizes and shapes not otherwise
generally available. Fabrics created from the Company's proprietary
manufacturing process offer characteristics integral to the production of
composite materials in infrastructure, industrial and large scale commercial
applications.
The Company has introduced a number of manufacturing processes that not only
more efficiently create composite reinforcement fabrics, but also optimize the
performance characteristics of such fabrics. In a proprietary single-step
production process, the Company is able to stitchbond fibers in different
directions without diminishing the composite fibers' inherent properties, thus
dramatically improving the structural strength of the reinforcement fabric. This
compares favorably, firstly, with traditional composite fabrics which are woven,
and therefore require the use of more resin to achieve the same degree of
structural integrity, and secondly, with the more costly multi-step processes of
other weft-insertion or stitchbonding manufacturing technologies used by
competitors. In addition, the Company's proprietary, high through-put
manufacturing processes have the ability to produce heavyweight quadraxial
fabrics over 100 inches wide in a single-step, which allows for cost-effective
fabrication of composite parts of up to 10 inches thick. The combination of
these features produces fabrics which enable composite fabricators to
manufacture end-products at competitive costs while maintaining the maximum
structural integrity of these products.
In a move to accelerate the implementation of its strategic business plan
and expand its product line, the Company acquired Advanced Textiles, Inc.
("ATI"), a subsidiary of Burlington Industries, Inc. ("Burlington") on October
30, 1996. ATI, which now operates as a wholly owned subsidiary of the Company,
produces first generation light-weight composite reinforcement fabrics targeted
towards specialized niche markets. These light-weight fabrics typically sell for
a higher margin than other types of composite reinforcement fabrics. ATI
manufactures these fabrics from fiberglass and other higher modulus fibers such
as carbon and aramid; therefore, ATI's product line complements that of the
Company and, therefore, provides it with an enhanced ability to offer a broader
spectrum of product types. The Company believes that by offering a product line
which satisfies a broader range of composite reinforcement fabric requirements,
it will be better positioned to be the principal provider of these fabrics to
its expanded customer base. The Company believes it will capture additional
market share by cross-marketing its existing products to ATI's customers and
vice versa.
The Company's strategy is to increase revenues and net income through
increasing its domestic and international market share in the composite
reinforcement fabric industry as well as making additional strategic
acquisitions for product and market presence, and engaging in joint projects.
The key elements of
31
this strategy include: (i) targeting additional applications for composite
reinforcement fabrics in the transportation, offshore petro-chemical and
infrastructure sectors; (ii) increasing its international presence; (iii)
continuous innovation of its state-of-the-art manufacturing processes; (iv)
extension of its product offerings further along the value-added chain towards
net shape products and (v) acquiring additional businesses or engaging in joint
projects with companies which complement the Company's strategy, including the
expansion of its manufacturing capacity and the broadening of its geographic
market presence.
INDUSTRY BACKGROUND
Since the invention of composite reinforcement fabrics made from fiberglass
in the early 1940's, various attempts have been made to commercialize the
potential of these fabrics as replacements for wood, steel and concrete. These
diverse pioneering projects include the 1953 Corvette and Wonder Bread delivery
trays from the early 1950's. While these efforts were remarkable for their day,
the potential of these materials did not start to be realized until the mid
1960's when the recreational boat industry converted from wood to composite
reinforcement fabrics. This development spurred the expansion of the composite
fiber industry from occasional to broad usage in a wide variety of consumer
products such as skis, diving boards and protective helmets, and in industrial
applications, including cars, trucks, ballistic armor applications and
industrial tanks and pipes. Over this period the processes used to create
fabrics composed of composite fibers have dramatically evolved.
Traditionally, reinforcement fibers were woven together to create a
composite reinforcement fabric. The weaving process aligns these fibers along
the zero-to-ninety degree axis, inserting them over and under each other to
create the weave, resulting in the bending of such fibers, or crimping. While
woven fabrics are highly suitable for certain applications such as ballistic
protection, the crimping which occurs in the weaving process reduces each
individual fiber's strength and reinforcement properties. As the mechanical
properties of the composite reinforcement fabric is the key parameter for the
design of the underlying product or application, the integrity of the fiber's
performance defines the amount of such fibers needed to achieve specific
performance specifications. In contrast to weaving, stitchbonding a composite
fabric allows the manufacturer to optimize the fibers' mechanical properties,
thus reducing the volume of fibers required as compared to the weaving process.
The Company's innovative stitchbonding production processes align the composite
reinforcement fibers in a variety of axes. All of this takes place in a single
production step and at high production throughputs, all without crimping the
fiber and thereby avoiding diminishing the fiber's strength. While certain of
the Company's competitors also can offer weft-inserted or stitchbonded
reinforcement fabrics, they generally manufacture their products in multi-step
processes. The competitors' manufacturing processes are more costly due to the
greater number of steps in the process and the lower throughput rate as compared
to the Company's proprietary, high throughput, one-step process.
The first generation of knitted fabrics offered significant strength
advantages compared to woven reinforcements, and thus were able to produce
savings in material usage and weight. These fabrics, however, were priced at a
substantial premium over traditional woven fabrics. Today, lighter-weight
knitted specialty fabrics, such as those manufactured by ATI, have become a
higher-margin, niche product in the composite reinforcement market.
In 1990, the Company introduced a revolutionary new product line, BiTex, the
first generation of price-competitive, heavy-weight stitchbonded reinforcement
fabrics. For the first time, weft-inserted or stitchbonded composite
reinforcement fabrics, whose market potential was previously limited by their
high cost, became competitive in numerous composite applications, from
automobile bumpers and one-piece molded commercial aircraft structures to
high-strength consumer products such as boat hulls and skis.
COMPANY STRATEGY
The Company's strategy to continue its current growth includes the following
elements:
* Successful integration of ATI's operations, products, customer base and
capacity with the Company's existing operations, including the application
of the Company's specialized know-how and technical skills to ATI's
manufacturing capabilities, from which the Company expects to achieve; (i)
cost-savings through economies of scale; (ii) the opportunity for
32
cross-marketing to both ATI's and the Company's existing customers with a
more complete product line; (iii) rationalization of distribution
channels; (iv) higher manufacturing efficiencies at ATI's production
facility; and (v) overall greater horizontal prevalence in the composite
reinforcement fabrics market;
* Continued expansion of its leadership position in the composite
reinforcement fabrics industry, development of new products and processes
to answer the needs of a wide range of industries including the continuing
integration of fabric design elements with the specific needs of composite
fabricators and capitalization upon the Company's position as the only
supplier of composite reinforcement fabrics to develop and manufacture its
own production equipment;
* Pursuit of additional acquisitions to broaden further the Company's
product line as well as manufacturing capacity, product market coverage,
and distribution channels;
* Extension of activities into international markets, in particular Europe
and Latin America, and further expansion into specific product niche
markets with ATI's specialty products;
* Fostering of more joint projects with a wide range of manufacturers as
well as universities and state and federal governments to develop new
composite products incorporating composite reinforcement fabrics; and
* Development of component products which will reduce the steps between
fabric formation and end-user products, and the manufacture of completed
components for certain end-user products. See "-- Product Engineering,
Manufacturing and Development."
ACQUISITION OF ADVANCED TEXTILES, INC.
On October 30, 1996, the Company acquired all of the outstanding capital
stock of ATI pursuant to a Stock Purchase Agreement dated as of October 22, 1996
among the Company, Burlington and Peter L. DeWalt, the President (and partial
owner) of ATI. In consideration for the capital stock of ATI, the Company (i)
agreed to pay to Burlington the sum of $600,000 in cash (discounted to $513,000
using an interest rate of 8.25%) over a two to six year period and issued to
Burlington a convertible subordinated promissory note in the aggregate principal
amount of $7,296,500, and (ii) issued to Mr. DeWalt 7,670 shares of Common
Stock.
The acquisition was the result of extensive negotiations between the Company
and Burlington. The Company elected to pursue this acquisition because it
believes that by offering a product line which satisfies a broader range of
composite reinforcement fabric requirements, it will be better positioned to be
the principal provider of these fabrics to its expanded customer base. The
Company believes it will capture additional market share by cross-marketing its
existing products to ATI's customers and vice versa. The Company also believes
that it can apply its specialized know-how and technical skills to ATI's
manufacturing capabilities and achieve cost-savings through economies of scale.
Additionally, the acquisition offers integrated distribution channels and higher
manufacturing efficiencies at ATI's production facility.
Following the acquisition, the Company intends to integrate certain of the
operations of ATI into its existing operations gradually, and has caused ATI to
enter into an Employment Agreement with Mr. DeWalt to oversee the integration of
ATI and the Company. The Company also expects to upgrade certain of the capital
equipment of ATI located in its Seguin, Texas manufacturing facility and
consolidate certain duplicative functions. See "USE OF PROCEEDS" and
"MANAGEMENT."
PRODUCTS
The Company currently manufactures composite reinforcement fabrics, also
referred to as stitchbonded or non-crimped fabrics, primarily from glass fibers,
and is distributing them under the BiTex and Cofil trade names. The Company is
continuously researching new methods of producing other types of composite
fabrics and the use of new fibers to create them. The Company's introduction of
its proprietary stitchbonding production processes in 1990 enabled composite
reinforcement fabrics to compete more successfully with conventional materials
by reducing such fabric's manufacturing costs, which previously had been
prohibitively high.
33
ATI was a pioneer in the industry's transition to non-crimped reinforcement
fabrics, although it still produces some woven fabrics for specific
applications, such as ballistic armor applications. ATI's present product range
focuses on high-margin, high-quality, specialty products required by a wide
range of end users. In general, the weft-inserted light-weight and
super-light-weight fabrics that ATI produces are not sold as commodities;
rather, composite manufacturers seek out ATI's products for very specific
applications.
The Company's composite reinforcement fabrics permitted a reduction in the
quantity of fibers used and the consequential reduction in the quantity of resin
required, leading to significant reductions in cost for equivalent mechanical
performance. The Company believes that it is currently the only supplier of
composite reinforcement fabrics which develops and manufactures its own
production equipment. The Company's proprietary production processes allow it to
offer composite reinforcement fabrics of varying weights, widths and fiber
orientations, and to produce fabric at unrivaled efficiencies. Furthermore,
these fabrics can be engineered to respond to a customer's specific
requirements. The Company's experience indicates that these proprietary
processes can be successfully applied to other base materials, allowing for
production of reinforcement fabrics from various carbon, aramid and other
fibers. The Company's current output is presently used by end-product
manufacturers to build a wide range of products, including boats, diving boards,
snowboards, swimming pools, truck bodies, ballistic protection products and
corrosion sensitive vessels.
Engineered composite reinforcement fabrics offer significant advantages over
other currently used materials:
* STRENGTH-TO-WEIGHT RATIO. Composite products possess a strength-to-weight
ratio much higher than that of steel, wood or concrete. Composite
reinforcement fabrics are uncommonly strong for their weight and density.
Use of these materials in transportation industries provides for
substantial fuel savings and greater payload capacity. The marine market
is the most mature of the industries currently using composite
reinforcement fabrics. Truck and railcar manufacturers are developing
bodies made out of these materials. Certain light-weight woven fabrics
offer high energy-absorbtion characteristics and, therefore, are ideal for
ballistic shielding applications. Furthermore, due to their inherent
strength-to-weight ratio, construction materials can be built from
reinforcement fabrics in both load and no-load designs and in shapes too
complex to be built from much heavier metals. The Company is working in a
joint development project to develop products for infrastructure
applications such as bridges and reinforced column wrapping for earthquake
protection. See "-- Joint Projects."
* LONGER LIFE-CYCLE. Products produced from composite reinforcement fabrics
do not rust or rot, are chemically inert, non-conductive and generally
maintenance free, making their life-cycles significantly longer than those
of steel, concrete or wood. These features allow use of composite
reinforcement fabrics in environmentally corrosive situations, such as
salt water immersion or highway construction. Accordingly, these products
are increasingly used in finished products such as marine pilings,
telephone poles, one-piece septic tanks, guardrails, building columns,
bridge columns, and bridges. The housing industry is using these materials
in construction, both residential and commercial.
* GREATER SAFETY. Products produced with composite reinforcement fabrics do
not suffer from the disintegration failures suffered by steel and
concrete. Moreover, composite materials offer significantly greater
high-energy impact absorption, and their one-piece fabrication means that
no weak seams need to be introduced into the part. The Company is working
with its customers to develop products made from composite reinforcement
fabrics which will offer non-varying mechanical strength and stiffness
through the entire life-cycle of the product, and to lower the risk of
continuous deterioration and degradation of strength, which can be caused
by metal fatigue in steel or environmental erosion in concrete. These
tougher products are being developed for use in automotive and highway
safety applications, bullet-resistant applications, structural support,
and as components of deep-sea oil drilling platforms.
* DESIGN AND PROCESS FREEDOM AND EFFICIENCY. Composite reinforcement fabrics
can be molded in tremendously flexible ways, allowing the creation of
complex parts. Manufacturers assembling final products using these
materials are able to use one part, formed in a complex shape, instead
34
of having to use two or more simpler parts formed from metals. This
obviously results in significant cost savings, in both material and labor
costs. Architecturally, designers can create shapes that would not
otherwise be buildable from conventional construction materials.
Furthermore, many final products, through weight savings, can be installed
in one piece, such as septic tanks. Other ongoing projects include the
development of on-site fabrication of parts using new injection molding
and bonding techniques.
* ENVIRONMENTAL BENEFITS. Use of the Company's stitchbonded products reduces
the amount of resin required to manufacture the end-product, resulting in
the decreased release of volatile organic compounds by end-product
fabricators. The use of composite reinforcement fabrics in products which
substitute for wood, steel or concrete can diminish the amount of
chemicals released in the environment. For example, marine pilings and
telephone poles constructed of composite materials would not be treated
with arsenic or other toxic substances presently required to provide
adequate product cycle life to wood products. Due to their high
strength-to-weight ratios, composite reinforcement fabrics offer the
transportation industry substantial fuel savings and permit the transport
of greater payloads due to increased truck capacity. The construction
industry is starting to use these fabrics as a shield from noise, heat,
weather, and electro-magnetic interference. These products can be highly
insulating, in addition to their chemically non-reactive nature, making
them ideal for use as pipes, tanks and ducting, especially in corrosive
situations. The paper and petrochemical industries are starting to use
these types of products in hostile environments.
PRODUCT ENGINEERING, MANUFACTURING AND DEVELOPMENT
The Company believes that its strongest competitive advantage is its
technical and developmental know-how. The principal reasons for its progress in
technical development thus far are the quality of its product design and its
engineering and manufacturing capabilities. These capabilities enable the
Company to design and engineer products that meet or exceed end-product
manufacturers' performance and reliability specifications. The Company believes
that it has created and will continue to create know-how and technology to
manufacture products at lower costs than its competitors by pursuing its
engineering and manufacturing development in-house. The quality of the
technology and know-how of a business or product line is an important factor in
the Company's evaluation of potential acquisition candidates.
The Company's operations utilize current-generation computer systems for
product design and documentation as well as for performance testing. A key to
the Company's ability to reduce manufacturing cost has been the reduction of
direct labor through the introduction of its proprietary single-step, automated
or semi-automated manufacturing processes.
The Company believes that its ability to produce fabric in a single step at
20 feet/minute is the fastest in the composite reinforcement fabrics industry.
It also believes that it has the unique capacity to produce quadraxial
reinforcements over 100 inches wide in a single step. The Company's proprietary
capabilities allow composite reinforcement fabrics to be produced by
continuously placing reinforcement fibers in layers at different angular
orientations and concurrently stitching them together to achieve certain desired
properties, depending upon the application, such as greater carrying capability
and corresponding strength. The Company's machines are capable of producing
reinforcements in five different directions/orientations and planes or any
combination thereof.
The Company has continued to build on the success of its BiTex product line,
and has introduced the following product and process innovations:
* First commercial binderless mat production process introduced in 1990;
* First single-step quadraxial products introduced in 1992;
* First 100+ inch-wide single-step quadraxial fabrics commercialized
in 1993; and
* First capability to produce, in a single-step, 150 inch 0-90|SD binderless
mat product, and commercialization of same in 1994.
The Company believes that it can apply its technical and developmental
expertise to ATI's operations. Management expects that the application of the
Company's engineering and design ability to ATI's current weft-insertion
equipment and manufacturing process should result in a greater range of
35
light-weight and super-light-weight specialty products, which would be
manufactured with greater efficiencies. The Company intends to upgrade certain
of ATI's machinery at the earliest appropriate time and to increase the
throughput of ATI's manufacturing facility.
With the acquisition of ATI, the Company expects that its manufacturing
operations, which include 22 production machines and facilities aggregating
approximately 90,000 square feet will be sufficient for approximately the next
30 months, supplemented by a certain amount of capital expenditures to update
certain of ATI's equipment and to purchase additional equipment. The Company has
not experienced any material shutdowns in its history.
The Company invests in product development to meet and anticipate customer
requirements. The Company also undertakes end-product manufacturer-sponsored or
joint sponsored product development contracts. Accordingly, the Company's
development activities are generally product or program specific. The Company
spent $124,685, $373,955 and $408,247 on both Company-sponsored and
customer-sponsored research and development in the fiscal years ended December
31, 1994, 1995 and 1996, respectively.
Certain of the Company's current research and development activities are
directed toward producing new processing equipment which can manufacture in a
single step composite reinforcement fabrics double the weight of those currently
produced by the Company.
Certain other of the Company's research and development activities are
focused upon manufacturing processes and equipment so that the Company might
produce certain end-user products. Such equipment may mold or "net-shape"
composite fabrics into specific shapes or continuous forms such as piping or
tubular structures on-site.
MARKETING AND SALES
The Company's competitive position in the marketplace is dependent upon its
continuing ability to design innovative processes to generate products for
specific composite fabricator applications. The Company's marketing philosophy
is to have a team of employees work directly with prospective and active
composite fabricators. The Company markets its products primarily through its
own marketing and sales force directly to composite fabricators either
individually or at trade shows.
Although 85%, 89% and 78% of the Company's gross sales were made through
four distributors (GLS Corporation, M.A. Hanna Resin Distribution, Plastic
Sales, Inc. and RP Associates) in 1993, 1994 and 1995, respectively, each
distributor is comprised of a subset of multiple regional distributors. As to
GLS Corporation, the Company made sales of $3,093,993, $4,934,489, and
$7,357,071 in 1993, 1994 and 1995, respectively, and $7,225,995 for the first
nine months of 1996. As to M.A. Hanna Resin Distribution, the Company made sales
of $1,092,994, $1,738,229, and $2,499,410 in 1993, 1994 and 1995, respectively,
and $1,551,585 for the first nine months of 1996. As to Plastic Sales, Inc., the
Company made sales of $557,680, $850,598, and $914,399 in 1993, 1994 and 1995,
respectively, and $784,401 for the first nine months of 1996. As to RP
Associates, the Company made sales of $979,263, $1,422,262, and $1,985,714 in
1993, 1994 and 1995, respectively, and $1,750,614 for the first nine months of
1996. In 1993, 1994 and 1995 the Company made 2.0%, 4.3% and 9.8%, respectively
of its sales directly to composite fabricators.
The four largest purchasers of ATI's products accounted in the aggregate for
76%, 75% and 80% of ATI's net sales for the fiscal years ended October 1, 1994,
September 30, 1995 and September 28, 1996, respectively. FRP Supply, Inc., ATI's
largest customer, accounted for approximately 53% of ATI's net sales, or
$5,559,289, $5,876,330, $5,286,161, respectively, for each of the last three
fiscal years. S-2 Yachts accounted for net sales of $1,215,889, $961,000, and
$905,071 for each of ATI's last three fiscal years. General Fiberglass accounted
for net sales of $891,249, $731,982, and $651,087 for each of ATI's last three
fiscal years. Fibercast accounted for net sales of $694,903, $668,207, and
$698,222 for each of ATI's last three fiscal years. In ATI's 1994, 1995 and 1996
fiscal years, it made 34%, 37% and 36%, respectively of its sales directly to
composite fabricators.
Management believes that the key to the Company's sales and marketing
strategy is the development of long-term relationships with end-product
manufacturers through its team approach of combining product development and
sales. The Company's production and sales managers work with sales staff in all
markets to develop products for particular end-product manufacturers. The
Company believes that its recent
36
acquisition of ATI will enable it to market a greater spectrum of products to a
wider group of distributors and end-product manufacturers, including ATI's
distributors and customers. In addition, certain of the products currently being
sold by the Company will be available for sale to the former customers of ATI.
SUPPLY
There are only three significant suppliers from which the Company may
purchase its fiberglass requirements: PPG Industries, Inc., Owens-Corning
Fiberglass, Inc. and Vetrotex. The Company had a contract with Vetrotex which
expired in August 1996 pursuant to which Vetrotex was required to supply, and
the Company was required to purchase, 90% of its fiberglass requirements. Even
though the supply contract has expired, the Company currently purchases over
half of its fiberglass requirements from Vetrotex under terms substantially the
same as those of the expired supply contract. The Company believes that it is a
significant purchaser of fiberglass strands from Vetrotex and the Company and
Vetrotex have mutually expressed an interest in negotiating a new supply
contract. The Company is also negotiating with additional vendors to ensure a
continued supply of fiberglass for its production needs. The Company believes
that the acquisition of ATI will improve its ability to negotiate more favorable
terms with its suppliers because it will be purchasing larger gross amounts of
raw materials but there can be no assurance that the Company will be able to
obtain more favorable terms. The Company's ability to operate and to grow is
dependent upon its ability to obtain an adequate supply of fiberglass.
BACKLOG
The Company's backlog as of September 30, 1996, was $570,200, or
approximately 1.5 weeks of sales. Backlog as of September 30, 1995, was
approximately $2,979,600, or approximately 10.5 weeks of sales. In September
1995, over $1,710,300 of the backlog consisted of orders that were past their
shipping date as a result of capacity and raw material constraints present in
the market at the time. This caused distributors and customers to hedge against
future shortages and place additional orders, which drove the backlog to very
high levels. In the second quarter of 1996, backlog returned to more historic
levels as fiberglass supplies became more plentiful.
ATI's backlog as of September 28, 1996 was $886,383.
Due to the capacity and raw material constraints present in the market in
the first quarter of 1996, the Company's net sales were increased as its
distributors built their inventory levels to cushion against the industry-wide
supply shortage that existed throughout 1995. In the second quarter of 1996, the
Company's distributors reduced their inventory in response to the general
availability of fiberglass, thereby contributing to a reduction in the Company's
net sales to $4.4 million from $4.8 million in the first quarter of 1995. A
decrease in net sales to $4.24 million occurred for the same reasons in the
third quarter of 1996. Management estimates that during the third quarter of
1996 its distributors maintained an approximate three-week supply of composite
reinforcement fabrics as opposed to an approximate twelve-week supply in the
second quarter of 1996. Management expects this trend of returning to historic
distribution supply levels to continue through the fourth quarter of 1996 and as
long as fiberglass supplies remain plentiful.
The industry-wide shortage of fiberglass was caused by increasing demand and
insufficient capacity to meet the demand. The demand increase caused fiberglass
suppliers to take action to increase their production capabilities. To increase
such capabilities, however, fiberglass suppliers needed to reduce or stop their
output temporarily, in order to modify their production equipment and furnaces.
Such shut-downs or slow-downs exacerbated the supply shortage.
JOINT PROJECTS
In February 1995, the Company entered into a Collaborative Agreement with
E.I. DuPont de Nemours and Company, Inc. ("DuPont"), Hardcore Composites Ltd.
("Hardcore"), The Dow Chemical Company and Johns Hopkins University under the
Federal Advanced Technology Program to develop agile heavyweight composites for
large civil bridge infrastructure applications. For its part in the cooperative
project, the Company was awarded up to $750,000 in matching funds over three
years as part of a $13.5 million grant from the U.S. Department of Commerce and
the National Institute of Standards and Technology. The project is
37
directed toward the study of the manufacturing competency of composites produced
with Seeman Composite Resin Infusion Molding Process (SCRIMP) technology (a
process of layering dry fabric and drawing resin through the layered fabric with
the use of vacuum pressure) and their ability to increase the life of large
structures such as bridges, while reducing such structures' cost and weight. The
Company believes that the project will also assist in the development of
cost-effective design and manufacturing technologies for composite materials
that can be used to build other large structures which are strong, lightweight,
and resistant to corrosion and seismic shock. In addition to being the sole
supplier of composite fabrics for the project, the Company has undertaken to try
to develop enabling technology which would enhance the speed, quality and
cost-effectiveness of composite reinforcement fabric production. To accomplish
this goal, the Company is working towards developing machinery, procedures and
alternative methods of bonding together reinforcement fabrics. The project
participants are also working towards the development of a prototype system
which would allow rapid style changes and the production of fabrics with
variable widths.
The Company, and each of the other parties thereto, has estimated its costs
to complete the program under the Collaborative Agreement. The Company's costs
include both federal funds payable to NIST and non-federal funds contributed by
each of the parties, including the Company. The Company is reponsible for
adherence to applicable federal laws and regulations covering both federal funds
and non-federal funds, including allowability of costs. The Company is required
to make available for work under the Collaborative Agreement the non-federal
funds in the amount of $750,000 in each of the three years of the program in
accordance with the program budget.
The parties to the Collaborative Agreement have mutually agreed to protect
each other's proprietary information for a period of five years. Any technology
jointly developed in the performance of the Collaborative Agreement ("Program
Technology") is to be owned jointly by the project participants, with the right
to use the same on an unrestricted basis. The Program Technology may also be
subject to a non-exclusive, non-transferable paid-up license to the United
States government which may not publicly disclose any proprietary information
relative to the Program Technology.
The Company is also involved in a collaboration with Hardcore DuPont
Composites LLC ("Hardcore DuPont"), a joint venture between Hardcore and DuPont,
wherein the Company provided the engineered composite fabric for the manufacture
of two railroad cars using the SCRIMP process. These successful prototypes have
permitted the consortium comprised of Hardcore DuPont, Burlington Northern and
Trinity Industries to propose a project for the industrial manufacture of
railroad cars using the Company's composite fabric.
In October 1995, the Company began a joint venture project with the
University of Maine ("UM") to develop a composite plywood alternative utilizing
waste wood fibers from the paper industry (the "Composite Panel Project"). The
project is funded in part by the Center for Technology Transfer ("CTT"), a
non-profit partnership among the Maine Science and Technology Foundation, UM,
the University of Southern Maine, the Maine Technical College System, and
certain companies in Maine operating in the metals and electronics industries.
Funding for CTT is provided by a grant from the U.S. Department of Energy under
its Experimental Program to Stimulate Competitive Research (EPSCoR). The project
was undertaken as part of a proposal to develop hybrid (wood and fiberglass)
composite structural panels which have commercial application for the
construction industry. The goal is to develop products that will be cost
competitive with traditional wood products. The Company and UM will individually
own the intellectual property rights to any technology developed separately, and
will own jointly any intellectual property rights arising from technology
developed together. Furthermore, UM agreed to license to the Company any and all
of its intellectual property rights arising from the project, on an exclusive,
world-wide, and reasonable basis.
Together with UM, the Company is required to furnish all personnel,
facilities, materials and services to complete the Composite Panel Project. The
cost sharing obligation of the Company for the project is $29,376 cash match and
$14,663 in-kind match. UM and the Company are required to pay back $113,587 as a
contribution to CTT out of profits generated from the activities of the project,
payable from revenues to the Company from net sales of new products developed
under the project or revenues UM or the Company derive from license fees or
royalties on the use of intellectual property developed thereunder.
38
The Department of Defense has awarded funding through the 1995 Defense
Experimental Program to Stimulate Competitive Research (DEPSCoR) to UM relative
to a study of the dynamics of thick composite structures. The Company has agreed
to provide the project with industrial composite expertise, laminate
engineering, reinforcement materials, composite fabrication through
subcontracts, and participation through analytical reviews and program
management reviews. The Company will also provide up to $45,000 of in-kind
support to UM for this project. While the Company does not expect to generate
material profits from this project, it will provide the Company with valuable
experience and modeling techniques for the use of the Company's heavyweight
fabrics in the Naval, off-shore oil, sub-marine and waterfront infrastructure
materials markets.
The Company is currently working with ABB Offshore Technology ("AOT"), a
division of ASEA Brown Boveri S.A. in AOT's development of a full range of
composite well head covers and pipe protection structures for the offshore oil
and gas industry constructed from advanced engineered composite reinforcement
fabrics. These lightweight structures range in size up to 90' by 90' by 90' and
would replace corrosion-prone heavy steel structures.
The Company is also in negotiations with Norsk Hydro A.S., one of the
largest North Sea oil operators, concerning jointly enhancing the use of
composite structures in the off-shore oil industry.
Funding for each of these projects is part of the Company's regular,
on-going research and development expenses. Except for Hardcore DuPont, a
participant in the NIST project, and North End Composites, a subcontractor in
the DEPSCoR project, the Company does not have any supply arrangements with the
entities involved in these projects.
COMPETITION
The Company's principal competitors are producers of woven reinforcement
fabrics and other producers of stitched or weft-inserted reinforcement products.
Competition is based on price, product performance and customer support. The
Company's continued success will depend in part on its ability to continue to
develop and introduce cost competitive quality products that meet or exceed
end-product manufacturer requirements.
There is no competitor that manufactures products that are substantially
similar to or competitive with all of the Company's products. However, there are
competitors for each of the Company's products and the Company believes that
there are only two companies remaining after its acquisition of ATI that have
significant shares of the stitched or weft-inserted reinforcement markets. These
are Johnston Composite Industries, a subsidiary of Johnston Industries Inc., and
Knytex, a joint venture between Owens-Corning Fiberglass and Hexcel Corporation.
The Company believes that it has one of the largest shares of the United States
market for weft-inserted or stitchbonded (non-crimped) composite reinforcement
fabrics.
EMPLOYEES
As of October 31, 1996, the Company had 128 full time employees, of whom 103
were employed in engineering and manufacturing, 10 in sales and marketing and 15
in administrative and management functions. No employees are represented by
unions.
PROPERTIES
The Company's executive offices and major manufacturing/warehouse facility
is located in a facility in Brunswick, Maine, of approximately 50,000 square
feet which was completed in March 1996. The Company leases the property from
Brunswick Development Corporation ("BDC"), a Maine corporation wholly owned by
the town of Brunswick. The Company's lease is for a term of 10 years and
commenced on January 1, 1996, with an option to extend the term for one
additional five-year period. The Company also has an option to purchase the
facility at any time between the conclusion of the fifth year of the current
lease and the end of the lease, at an option price equal to the greater of fair
market value of the facility or the residual debt payable by BDC on the bonds
issued to finance the construction of the facility. The Company may, however,
consider the purchase of the property prior to the option
39
date, which purchase would require the consent of the bond holders. The rent for
the facility is $181,500 annually for the first five years of the lease; the
lease provides for periodic scheduled rent increases, with a final annual rent
of $206,000 for the last year of the current lease.
With the acquisition of ATI, the Company acquired approximately 40,000
square feet of manufacturing, office and warehouse space in Seguin, Texas,
including the underlying real estate. ATI is currently using this space, for its
operations.
The Company also maintains 10,400 square feet of warehouse space at another
location in Brunswick, Maine, for which it pays rent of $44,495 per year and
6,000 square feet of warehouse space in Seguin, Texas, for which it pays rent of
$6,900 per year.
INTELLECTUAL PROPERTY
Although the Company has three registered trademarks and owns two patents
relating to its product, the Company relies almost entirely upon unpatented
technology in its production processes. The Company relies in part upon state
and federal trade secrets and unfair competition laws to protect its
intellectual property. Management's philosophy is to patent only those processes
as to which the process may be determined when analyzing the product produced.
There can be no assurances that the Company can adequately protect its rights in
such unpatented proprietary technology or that others will not independently
develop substantially equivalent or better proprietary information or
techniques, or otherwise gain access to the Company's proprietary technology or
disclose such technology. The Company will seek additional protection for newly
developed intellectual property as deemed appropriate. One patent, which expires
in September 2011, relates to a bound and structurally reinforced thermoplastic
multi-layer composite fabric which is moldable. No product relating to this
patent has yet been commercialized. Although the other patent, which expires in
December 2009, relates to a manufacturing process commercialized by the Company,
management believes that it would be very difficult to assess whether a
competitive product was produced by a process which infringes the process
covered by such patent.
Hexcel Corporation, formerly named Knytex, Inc. ("Hexcel") sued ATI in 1988
in the United States District Court for the Western District of Texas ("the
Court"). The suit concerned certain obligations of ATI's then president (the
"Employee"), who had been previously employed by the parent of Hexcel (the
"Employer"). The Employee, while working for the Employer, had co-invented a
structural reinforcement fabric in the form of a double-bias fabric and a
continuous double-bias process for making such double-bias fabric. The
co-inventors filed a patent with respect to the bias process invention (the
"Patent"). The co-inventors assigned the Patent application to Hexcel. The
Employee also signed agreements with the Employer relative to the nondisclosure
of inventions made by him while in the employ of Employer to others outside the
Company. Following Employee's separation from Employer in 1983, the Employee,
Peter L. DeWalt and Burlington formed ATI, and the lawsuit concerned certain of
ATI's production processes.
The judgment and order resulting from the lawsuit concluded that a
manufacturing process used by ATI infringed the Patent and that ATI and the
Employee were liable for misappropriation of trade secrets due to ATI's use of
double- and triple-bias fabric processes. The court awarded Hexcel lost profits
adjudged to be approximately $2.24 million plus interest and attorneys' fees.
ATI ultimately paid Hexcel approximately $3.1 million in May, 1992, upon losing
its appeal of the judgment. The Court also found that when ATI changed its
process in 1988, it discontinued the use of the processes at issue, and
therefore, the Court issued no injunction.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to its
business. The Company is not party to any material pending legal proceedings.
40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows*:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Martin S. Grimnes(1)(2) ................... 49 Chairman, Chief Executive Officer 1984
and Director
David M. Coit(1)(3) ....................... 49 Director 1987
Peter N. Walmsley(1)(3) ................... 60 Director 1991
Donald R. Hughes .......................... 67 Director elect **
Max G. Pitcher ............................ 61 Director elect **
Gregory Peters(1)(2) ...................... 50 Director 1995
David E. Sharpe(1)(2) ..................... 54 Director 1993
William M. Dubay .......................... 46 President and Chief Operating Officer **
Robert R. Fuller .......................... 40 Vice President, Sales
John P. O'Sullivan ........................ 54 Chief Financial Officer and Treasurer
Thomas L. Wallace ......................... 44 Vice President, Manufacturing
Peter L. DeWalt ........................... 60 President, Advanced Textiles, Inc.
</TABLE>
- ----------------
* The Board of Directors has also agreed that, at the next annual meeting of
the Company, (i) it will recommend to the stockholders to increase the size
of the Board to nine directors, and (ii) nominate for election two other
persons to the Board as will be mutually agreed upon.
** Messrs. Dubay, Hughes and Pitcher have each agreed to serve on the Board of
Directors, and the Board intends to elect each of them to the Board to fill
vacancies, effective with the closing of the Offering.
(1) Messrs. Coit, Walmsley, Peters and Sharpe were elected to the Board of
Directors as the designees of the holders of the outstanding Preferred
Stock and Mr. Grimnes was elected as the designee of the holders of Common
Stock pursuant to the terms of the Restated Articles of Incorporation of
the Company, as in effect prior to the Offering. Messrs. Coit and Peters
were elected by the holders of Series AA and BB Preferred Stock, the
majority owner of both series being North Atlantic Venture Fund, L.P. Mr.
Walmsley was elected by the holders of Series C Preferred Stock, the
majority owner of which is AMT Venture Partners Ltd. Mr. Sharpe was elected
by the holders of Series D Preferred Stock, the sole holder of which is
Vetrotex. Upon the closing of the Offering, all of the Preferred Stock will
convert into Common Stock, thereby terminating the ability of the holders
of Preferred Stock to elect directors as individual classes, but each of
the aforesaid individuals other than Mr. Peters will continue to serve as
directors. Mr. Peters has agreed to resign effective with the closing of
the Offering and the Board has elected Mr. Dubay to the Board of Directors
effective with the closing of the Offering. See "CERTAIN TRANSACTIONS" and
"PRINCIPAL STOCKHOLDERS."
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
MARTIN S. GRIMNES is the founder of the Company and since the Company's
inception in 1984, has served as a director and between 1984 and 1987 as
president and treasurer. Mr. Grimnes has been Chief Executive Officer since the
Company's inception and Chairman of the Board since 1987. Mr. Grimnes has a
textile engineering degree from the Technische Akademie e. V. in Hohenstein,
Germany and a B.S. in Industrial Management from the University of Vermont.
Prior to founding the Company, he was export manager for W. S. Libbey Co. of
Lewiston, Maine, an industrial and decorative textile manufacturer (1980 - 1984)
and General Manager of Sandvika Veveri A/S of Oslo, Norway, a decorative textile
manufacturer (1974 - 1980).
41
DAVID M. COIT has been, since 1986, President of North Atlantic Capital
Corporation, a venture capital management company which manages three venture
capital funds, including the North Atlantic Venture Fund, L.P., which is a
stockholder of the Company. Mr. Coit is also a General Partner with Mr. Peters
of North Atlantic Capital Partners, Limited Partnership, which is the General
Partner of the venture fund. Previously, Mr. Coit was President of Maine Capital
Corporation and an Assistant Vice President for commercial lending of First
National Bank of Boston. Mr. Coit attended Yale University and received his
M.B.A. from the Harvard Graduate School of Business Administration.
PETER N. WALMSLEY has been for more than the past five years, one of two
general partners of AMT Associates Ltd., which is the sole general partner of
both AMT Venture Partners, Ltd. and JHAM Limited Partnership, which are venture
capital funds and stockholders of the Company. During the past five years he has
been President and 50% owner of AMT Management, Inc., and also for the last
three years, President and sole owner of Newton Delaware, Inc., corporations
which manage the two funds. Mr. Walmsley was previously Manager, Acquisitions &
Divestitures in the Corporate Plans Department at E.I. DuPont de Nemours & Co.,
Inc., where he was also responsible for the corporate venture capital
activities. Mr. Walmsley received his Ph.D. in chemical engineering at
Manchester University in England.
DONALD R. HUGHES has agreed to become a Director of the Company effective
upon the closing of the Offering. Mr. Hughes retired from his previous positions
as Vice Chairman, Chief Financial Officer, and director of Burlington
Industries, Inc., where he had been employed for over 35 years, at the end of
1994. Mr. Hughes is currently a consultant to Burlington. Mr. Hughes is former
Chairman of the Fiber, Fabric and Apparel Coalition for Trade, the former
President of the American Textile Manufacturers Institute, and former Chairman
of the North Carolina Citizens for Business and Industry. He is a director of
the Wachovia Corporation, and a member of the Board of Visitors of the
University of North Carolina at Chapel Hill's Graduate School of Business
Administration. He is also on the Board of Trustees of the Moses H. Cone
Memorial Hospital in Greensboro, North Carolina. Mr. Hughes received his
bachelor's and master's degrees from Harvard University.
MAX G. PITCHER has agreed to become a Director of the Company effective upon
the closing of the Offering. Mr. Pitcher is President of NEFT Inc., which
manufactures oil equipment in Russia. Mr. Pitcher retired from Conoco Inc. on
January 1, 1993, where he was executive vice president, exploration production,
with oversight responsibility for Europe, Africa, and the former U.S.S.R. Mr.
Pitcher had been with Conoco for 30 years. He was also a senior vice president
of E.I. Du Pont de Nemours and Company, Inc., the parent company of Conoco. Mr.
Pitcher received his bachelor's and master's degrees in petroleum geology from
Brigham Young University and his Ph.D. in geology from Columbia University. He
is a member of the American Association of Petroleum Geologists (AAPG) and
currently serves on AAPG's industry liaison committee.
GREGORY PETERS has been, since 1986, Vice President and Treasurer of North
Atlantic Capital Corporation, a venture capital management company, which
manages three venture capital funds, including the North Atlantic Venture Fund
L.P., which is a stockholder of the Company. Mr. Peters is also a General
Partner with Mr. Coit of North Atlantic Capital Partners, Limited Partnership,
which is the General Partner of the venture fund. Mr. Peters has agreed to
resign from the Board of Directors of the Company upon the closing of the
Offering.
DAVID E. SHARPE has been employed in management or executive positions for
Vetrotex and its affiliates for more than 22 years, most recently serving since
1989 as vice president of sales and marketing of Vetrotex. Vetrotex is a
stockholder of the Company and a major supplier of raw materials thereto. Mr.
Sharpe is a member of the Board of the Composites Institute of the Society of
the Plastics Industry, Inc. He holds a B.S. in biology and chemistry from
Otterbein College in Westerville, Ohio and an M.B.A. in finance and economics
from New York University.
WILLIAM M. DUBAY has been employed by the Company since May 1989 and has
served as President and Chief Operating Officer since November 1991. Mr. Dubay
received a B.A. in Business Education from Thomas College in Waterville, Maine,
and prior to his employment by the Company was Manager of Provider Services for
Blue Cross/Blue Shield of Maine (November 1987 through April 1989) and from
42
June 1981 through August 1987 was employed by Sabre Yachts in South Casco,
Maine, a nationally known manufacturer of premium quality sailing yachts, where
he earned successive promotions to Senior Manager, Manufacturing. Mr. Dubay has
agreed to become a director of the Company upon the closing of the offering.
ROBERT R. FULLER has served as Vice President, Sales, since 1993 and has
been with the Company since 1990. Mr. Fuller received his B.S. in
engineering-naval architecture from the University of Michigan in Ann Arbor.
Prior to his employment with the Company, Mr. Fuller founded and was Chief
Executive officer of Advanced Sail Concepts, a ship design firm located in
Massachusetts and North Carolina. He has also served as a naval architect and
project manager with General Dynamics in Quincy, Massachusetts.
JOHN P. O'SULLIVAN has served as Chief Financial Officer of the Company
since October 1994 and as Treasurer since March 1995. From January 1979 to April
1994, Mr. O'Sullivan was Vice President, Finance and Administration for Bangor
Hydro Electric Co. in Bangor, Maine. Between 1975 to 1978, he served as
Commissioner of Finance and Administration (the Chief Financial Officer) for the
State of Maine. Mr. O'Sullivan is both a Certified Management Accountant and a
Certified Public Accountant, and received his B.A. in economics from the College
of the Holy Cross and his M.B.A. from the Amos Tuck School of Business
Administration at Dartmouth College.
THOMAS L. WALLACE has served as Vice President, Manufacturing since January
1994. Prior thereto he was Manufacturing Manager for Personal Electronics in
Manchester, N.H. from March 1992 through December 1993, Director of Quality
Assurance for AM Technologies in Manchester, N.H. from August 1991 until March
1992 and Director of Operations for Summa Four, also in Manchester, N.H. from
May 1983 until August 1991. Mr. Wallace received his B.S. in business management
from Franklin Pierce College and has completed various M.B.A. courses at the
University of New Hampshire.
PETER L. DEWALT has been President of Advanced Textiles, Inc., since 1985.
Mr. DeWalt was a co-founder of ATI, and was previously employed for over two
decades by PPG Industries, Inc., in various executive positions in
manufacturing, technical service, product development, sales and marketing. Mr.
DeWalt is a graduate of Waynesburg College. Mr. DeWalt has been retained by the
Company to oversee the operations of ATI in Seguin, Texas and assist in the
integration of the operations of ATI with those of the Company.
The Company has granted Josephthal Lyon & Ross Incorporated (the
"Representative") the right to designate for election one person to the
Company's Board of Directors until such time as AMT Venture Partners Ltd. and
North Atlantic Venture Fund, L.P. no longer hold in excess of 80% of their
current shareholdings in the Company. The Company has agreed to use its best
efforts to cause any such person so designated to be elected as a director of
the Company. After the Offering, AMT Venture Partners Ltd. and North Atlantic
Venture Fund, L.P. will in the aggregate hold 4,120,624 shares. The
Representative would lose its right to designate one person for election should
the aggregate number of shares held by AMT Venture Partners Ltd. and North
Atlantic Venture Fund, L.P. drop by more than 20%, to less than 3,296,4992
shares in the aggregate. In the event the Representative elects not to exercise
this right, then it may designate one person to attend Board of Directors'
meetings as an observer.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board maintains a Compensation Committee which will consist of Messrs.
Grimnes, Sharpe, and either Hughes or Pitcher after the closing of the Offering.
The Board also maintains an Audit Committee which will consist of Messrs. Coit
and Walmsley after the closing of the Offering. The Board has no nominating
committee. The Audit Committee reviews the results of operations of the Company
with the officers of the Company who are responsible for accounting matters and,
from time to time, with the Company's independent public accountants. The
Compensation Committee reviews and evaluates the compensation and benefits of
all officers of the Company, reviews general policy matters relating to
compensation and benefits of employees of the Company, and makes recommendations
concerning these matters to the Board of Directors. The Compensation Committee
also administers the Company's stock option plans. See "-- Stock Option Plans."
43
COMPENSATION OF DIRECTORS
For fiscal 1995, all Directors were reimbursed by the Company for their
out-of-pocket expenses incurred in connection with attendance at Board and
committee meetings or otherwise in the performance of their services as a
Director. No Directors received any other compensation for performance of their
services as Directors. Martin S. Grimnes, Chief Executive Officer of the
Company, did receive other compensation from the Company, for his services as an
employee. Following the closing of the Offering, Directors who are not employees
of the Company or affiliated with or related to a principal stockholder of the
Company will be paid an annual retainer of $6,000, payable quarterly, a fee of
$1,000 for each Board or committee meeting attended, will be issued 1,000 shares
of Common Stock upon each of their elections and will be granted an option to
purchase 9,000 shares of Common Stock exercisable at the fair market value at
time of grant, which option will vest in three equal tranches over a three year
period so long as the individual remains a director. Messrs. Pitcher and Hughes
will receive such compensation following the Offering. The exercise price of the
options that will be granted to them will be equal to the Offering price. All
Directors are reimbursed by the Company for their out-of-pocket expenses
incurred in connection with attendance at Board and committee meetings or
otherwise in the performance of their services as a Director. See "-- Stock
Option Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for the year ended December 31, 1995 of the Company's Chief
Executive Officer who was the only executive officer who earned in excess of
$100,000 for such year from the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS
------------------ --------- -------- --------------- -------
<S> <C> <C> <C> <C>
Martin S. Grimnes,
Chairman and Chief Executive Officer 90,000 6,140 26,229(1) 22,750
- ----------
(1) Includes $20,770 in payments for accrued but unused vacation time, $3,279
in payments for health insurance, personal use of a company car valued at
$1,375 and $865 for paid sick time.
</TABLE>
The Board of Directors of the Company adopted a formula profit sharing plan
in September of 1995. A bonus pool was calculated as a percentage of annual net
revenue, adjusted by the rate of revenue growth. One-half of this bonus pool was
disbursed to management according to the approved plan, while the other one-half
of the bonus pool was disbursed to all other employees in an amount directly
proportional to their wage level. Mr. Grimnes received $3,720 from the 1995
bonus pool. The same profit sharing plan is in effect for 1996.
ATI and Peter L. DeWalt have entered into a two-year employment agreement
pursuant to which Mr. DeWalt shall continue to serve as President of ATI and
shall receive a base salary of $125,000. In the event that the Compensation
Committee determines, in the exercise of its sole discretion, that Mr. DeWalt
has performed satisfactorily in connection with the integration of the
operations of ATI with those of the Company, on October 30, 1997, ATI shall pay
Mr. DeWalt a performance bonus of up to $40,000. Mr. DeWalt will also be
eligible for a bonus of up to $40,000 on October 30, 1998, on the same terms. In
the event that the agreement is not terminated within the two-year term, the
Company shall issue to Mr. DeWalt an additional 7,670 shares of Common Stock.
The agreement also provides for the grant of an option to Mr. DeWalt to purchase
up to 19,500 shares of Common Stock at a price per share equal to the price of
shares sold in the Offering which option shall vest on October 30, 1998.
44
STOCK OPTION PLANS
1991 Stock Option Plan. The Company's 1991 Stock Option Plan (the "1991
Plan") was adopted by the Board of Directors and approved by the stockholders of
the Company on January 24, 1991. A total of 889,395 shares of Common Stock have
been reserved for awards under the 1991 Plan. Pursuant to the 1991 Plan, the
Board of Directors is authorized to grant options, in its discretion, to key
personnel and directors of the Company. The number of shares, term and vesting
schedule for exercise of the options were also determined by the Board of
Directors. All options are exercisable at the fair market value of the shares of
Common Stock at the time of grant. In the event an optionee's employment or
directorship with the Company is terminated, whether voluntarily or
involuntarily, his stock option is terminated immediately, except in the event
of a voluntary retirement, death or disability, in which event the option is
exercisable to the extent vested for a one month period following such
termination. In the event of a merger (where the Company is not the surviving
entity), dissolution or liquidation of the Company or the sale or exchange of
all or substantially all of the Company's assets, each optionee shall be given
twenty days prior notice and may exercise their options to the extent vested,
but the options will otherwise expire upon the occurence of such an event.
1994 Stock Option Plan. The Company's 1994 Stock Option Plan (the "1994
Plan" and with the 1991 Plan, the "Plans") was adopted by the Board of Directors
and stockholders of the Company on May 25, 1994. A total of 1,060,605 shares of
Common Stock have been reserved for awards under the 1994 Plan. Pursuant to the
1994 Plan, the Board of Directors was authorized to grant options, in its
discretion, to key personnel, consultants and directors of the Company with all
options to be granted for a term of up to ten years from when the options become
exercisable. The number of shares and vesting schedule for exercise of the
options are also determined by the Board of Directors. All options are
exercisable at the fair market value of the shares of Common Stock at the time
of grant. In the event an optionee's employment or directorship with the Company
is terminated or he or she ceases to be a member of the Board of Directors of
the Company, whether voluntarily or involuntarily, his or her stock option is
terminated immediately, except in the event of a voluntary retirement, death or
disability, in which event the option is exercisable for a one month period to
the extent vested. In the event of a merger (where the Company is not the
surviving entity), dissolution or liquidation of the Company or the sale or
exchange of all or substantially all of the Company's assets, each optionee
shall be given twenty days prior notice and may exercise their options to the
extent vested, but the options will otherwise expire upon the occurence of such
an event.
At September 30, 1996, 18 employees and two outside consultants held options
to purchase a total of 1,006,395 shares of Common Stock under the Plans. The
options are exercisable at prices ranging from $0.0154 to $0.769, and expire at
dates ranging from September 18, 1999 to September 15, 2010. The only Executive
officer of the Company named in the table above, Mr. Grimnes, owns options to
purchase 266,500 shares under the Plans.
The following table sets forth grants of stock options to the Company's
chief executive officer during the year ended December 31, 1995.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM
UNDERLYING EMPLOYEES EXERCISE --------------------
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#) YEAR ($/SH.) DATE 5%($) 10%($)
---- ---------- ---- ------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Martin S. Grimnes(1) 22,750 14.58% $0.77 September 2010(2) $167,291 $196,392
- -------------
(1) Mr. Grimnes' options were granted by the Board on September 15, 1995
pursuant to the 1994 Plan. The exercise price of these options is $0.77,
the fair market value per share of the Common Stock on the date of grant,
as determined by the Company's Board of Directors. In order to present
meaningful information, these values have been calculated based on the
assumed Offering price of $7.00 per share,
45
less the exercise price per share. These options vest in five installments
of 4,550 shares each over five years, commencing on September 14, 1996 and
ending on September 14, 2000. Unexercised options expire ten years after
the date of vesting of each installment.
(2) The latest expiration date of options covered by this grant. These options
each expire ten years after the date on which they vest.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on the number and value of
unexercised options held at December 31, 1995 by the Company's chief executive
officer.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(1)
-------------------- ---------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin S. Grimnes -- -- 217,750 48,750 $1,492,432 $303,713
- --------
(1) The exercise prices of these options range from $0.15 to $0.77, the fair
market values per share of the Common Stock on the dates of grant, as
determined by the Company's Board of Directors. In order to present
meaningful information, these values have been calculated based on the
assumed Offering price of $7.00 per share, less the exercise price per
share.
</TABLE>
46
PRINCIPAL STOCKHOLDERS
The following table and notes thereto set forth certain information
regarding beneficial ownership of the Common Stock, as of October 31, 1996, by
(i) each person known to the Company to beneficially own more than 5% of the
outstanding shares of the Common Stock, (ii) each of the Company's directors and
officers, and (iii) all directors and officers of the Company as a group. The
information as to each person has been furnished by such person, and, except as
noted, each person named in the table has sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
------------------
NAME AND ADDRESS OF SHARES PRIOR TO AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING(1) OFFERING(1)
---------------- ------------------ ----------- -----------
<S> <C> <C> <C>
David M. Coit*(2) 2,804,067 40.1% 30.3%
70 Center Street
Portland, ME 04101
Gregory B. Peters*(2) 2,804,067 40.1% 30.3%
70 Center Street
Portland, ME 04101
North Atlantic Venture Fund, L.P.(2) 2,804,067 40.1% 30.3%
70 Center Street
Portland, ME 04101
David E. Sharpe*(3) 1,363,620 19.5% 14.7%
750 E. Swedesford Road
Valley Forge, PA 19482
Vetrotex CertainTeed Corp.(3) 1,363,620 19.5% 14.7%
750 E. Swedesford Road
Valley Forge, PA 19482
Peter N. Walmsley*(4) 746,583 10.7% 8.1%
10929 Wickshire Way
Rockville, MD 20852
AMT Associates Ltd.(4) 746,583 10.7% 8.1%
10929 Wickshire Way
Rockville, MD 20852
Martin S. Grimnes*(5) 631,800 9.0% 6.8%
43 Bibber Parkway
Brunswick, ME 04011
William M. Dubay**(6) 226,200 3.2% 2.4%
Donald R. Hughes** -- -- --
Max G. Pitcher** -- -- --
All Directors and Officers as a group
(12 persons)(7) 5,974,160 85.4% 64.6%
</TABLE>
- --------
* Member of Board of Directors of the Company.
** Director-elect.
+ Less than 1%.
(1) For the purpose of calculating this table of beneficial ownership, the
number of shares of Common Stock deemed outstanding prior to the Offering,
6,997,629 shares, includes: (i) 584,740 shares of Common Stock, (ii)
4,603,560 shares of Common Stock issued upon the conversion of Preferred
Stock, outstanding as of October 31, 1996, (iii) 1,534,181 shares of Common
Stock issuable upon exercise of the common stock purchase warrants and
employee stock options which will be exercisable within 60 days of October
31, 1996, (iv) 2,000 shares in the aggregate to be issued to Messrs. Hughes
and Pitcher upon their election to the Board contemporaneous with the
consum-
47
mation of the Offering and (v) an estimated 273,148 shares of Common
Stock to be issued to holders of Preferred Stock in payment of accrued
dividends upon conversion of the Preferred Stock to Common Stock effective
with the consummation of the Offering (assuming the closing as of November
26, 1996). The number of shares of Common Stock deemed outstanding after
the Offering, 9,247,629 shares, includes the 2,250,000 shares of Common
Stock being offered for sale by the Company in the Offering.
(2) Consists of 2,296,320 shares of Common Stock issued pursuant to the
conversion of the outstanding Preferred Stock, 383,500 shares of Common
Stock subject to warrants currently exercisable and 124,247 shares in
payment of accrued dividends. Messrs. Coit and Peters are general partners
of North Atlantic Capital Partners, Limited Partnership, the sole general
partner of North Atlantic Venture Fund, L.P. ("NAVF") and have voting
control of the shares owned by NAVF. Messrs. Coit and Peters disclaim
beneficial ownership of shares held or beneficially owned by NAVF except to
the extent of their pecuniary interests therein.
(3) Includes 1,144,000 shares of Common Stock issued pursuant to the conversion
of Preferred Stock and 80,390 shares in payment of accrued dividends. Mr.
Sharpe, a director of the Company, is the Vice President, Sales and
Marketing, of Vetrotex. Mr. Sharpe disclaims beneficial ownership of shares
held or beneficially owned by Vetrotex.
(4) Consists of 715,000 shares of Common Stock issued pursuant to the
conversion of Preferred Stock and 31,583 shares in payment of accrued
dividends. Mr. Walmsley has been for more than the past five years, one of
two general partners of AMT Associates Ltd., which is a general partner of
both AMT Venture Partners, Ltd. ("AMT") and JHAM Limited Partnership
("JHAM"), which are venture capital funds and stockholders of the Company.
AMT Associates Ltd. has 100% of the voting powers of the shares owned by
AMT and JHAM. Mr. Walmsley disclaims beneficial ownership of shares held or
beneficially owned by AMT and JHAM except to the extent of his pecuniary
interest therein.
(5) Includes 235,300 shares of Common Stock subject to options exercisable
within 60 days of October 31, 1996.
(6) Includes 226,200 shares of Common Stock subject to options exercisable
within 60 days of October 31, 1996.
(7) Includes 663,390 shares of Common Stock subject to options exercisable
within 60 days of October 31, 1996.
48
CERTAIN TRANSACTIONS
In August, 1993, the Company and certain stockholders sold an aggregate of
1,040,000 shares of Series D Convertible Preferred Stock, 92,300 shares of
Series AA Preferred Stock and 11,700 shares of Series BB Preferred Stock of the
Company to Vetrotex for an aggregate cash purchase price of $1,936,000. The
purchase price was determined by negotiation between the Company, the selling
stockholders, and Vetrotex. Concurrently with such sale, certain stockholders
sold 139,230 shares of Common Stock for a purchase price equal to $0.77 per
share. The selling stockholders included Martin Grimnes, a director and officer
of the Company, William M. Dubay, an officer of the Company who has been elected
to the Board of Directors effective upon the closing of the Offering, and Robert
R. Fuller, an officer of the Company. Messrs. Grimnes, Dubay and Fuller received
$50,000, $23,000 and $10,600, respectively, from the sale to Vetrotex of 65,000,
29,900 and 13,780 shares, respectively, of Common Stock. The Company also
received an aggregate of $1,760,000 from Vetrotex in the sale of 1,040,000
shares of Series D Preferred Stock. Concurrently with the sales transaction, the
Company and Vetrotex entered into a three year Supply Agreement which expired
August 25, 1996, pursuant to which Vetrotex agreed to sell to the Company and
the Company agreed to purchase from Vetrotex not less than 90% of the Company's
requirements of fiberglass products. For calendar years 1993, 1994 and 1995, and
for the nine month period ending September 30, 1996, the Company paid Vetrotex
$3,213,169, $4,911,399, $7,809,567, and $6,856,083 respectively for fiberglass
products purchased pursuant to the Supply Agreement. See "BUSINESS -- Supply."
In March 1992 Vetrotex loaned the Company $300,000, on an interest-free
basis, to finance the purchase and modification of one stitchbonding machine.
Vetrotex obtained a purchase money security interest in the machine. The Company
is currently making quarterly payments of $17,500 to Vetrotex to reduce this
debt. As of October 31, 1996, the remaining debt was $50,000.
In October 1996 the Company acquired all of the capital stock of ATI from
Burlington and Peter L. DeWalt. Mr. DeWalt received 7,670 shares of Common Stock
in connection with the sale of his interest in ATI to the Company. Mr. DeWalt
and ATI have entered into an employment agreement with a two-year term. See
"MANAGEMENT -- Executive Compensation."
The Restated Articles of Incorporation of the Company provide in the
designations of rights and preferences of the Series AA Convertible Preferred
Stock, Series BB Convertible Preferred Stock, Series C Convertible Preferred
Stock and Series D Convertible Preferred Stock that the holders of the Series AA
and BB stock shall have the right, voting as a single class, to elect one
director of the Company, the holders of the BB, C and D stock, each voting as a
separate series, are entitled to elect one director each, and the holders of
Common Stock shall have the right to elect one director. Pursuant to these
rights, Messrs. Coit, Peters, Sharpe and Walmsley have been elected to the Board
of Directors by the holders of Preferred Stock. All series of Preferred Stock
will automatically convert to Common Stock upon the consummation of the Offering
and the rights of the holders of the Preferred Stock to elect directors
described above shall terminate. See "MANAGEMENT."
49
DESCRIPTION OF CAPITAL STOCK AND CERTAIN INDEBTEDNESS
Upon the closing of the Offering, the Company will be authorized to issue
20,000,000 shares of Common Stock, $0.0001 par value, 1,000,000 shares of
preferred stock, $10.00 par value ("New Preferred Stock"). The Company's
outstanding shares of Series AA, Series BB, Series C and Series D Preferred
Stock will automatically convert to Common Stock upon closing of the Offering.
Upon such closing, 7,713,448 shares of Common Stock will be outstanding and no
shares of New Preferred Stock.
COMMON STOCK
The following summary description of the Common Stock is qualified in its
entirety by reference to the Company's Amended and Restated Articles of
Incorporation.
As of October 31, 1996, there were 8 holders of Common Stock and 23 persons
held presently exercisable options or warrants to purchase shares of Common
Stock at exercise prices per share below the assumed Offering price of $7.00 per
share. The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining available for distribution to them after payment of all
liabilities. Holders of shares of Common Stock, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby, when issued against the
consideration set forth in this Prospectus, will be, fully paid and
nonassessable.
RECAPITALIZATION
Immediately prior to the commencement of the Offering, all outstanding no
par value common stock will be converted into $0.0001 par Common Stock. As of
the closing of the Offering, each share of the Company's four series of
outstanding Preferred Stock will convert to 65 shares of Common Stock $0.0001
par value. Furthermore, each holder of such Preferred Stock is entitled to
receive cumulative dividends upon conversion. Such holders of Preferred Stock
will receive an aggregate of 273,148 shares of Common Stock in payment of an
estimated $1,912,038 in accrued cash dividends as of the closing of the Offering
(estimated as of November 26, 1996).
PREFERRED STOCK
The Board of Directors has the authority to issue the New Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action of the stockholders. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of holders of any New Preferred Stock that may be issued in the
future. The Board's ability to issue New Preferred Stock may have a depressive
effect on the market price of the Common Stock, may deter or prevent a change of
control of the Company, and may reduce the premium to shareholders in a change
of control transaction. The Company has no present plans to issue any shares of
its New Preferred Stock.
WARRANTS
Certain of the Company's stockholders hold warrants to purchase an aggregate
of 416,000 shares of Common Stock at an exercise price of $0.77 per share. Such
warrants were issued by the Company in 1991 and can be exercised, in whole or in
part, at any time prior to their expiration through December 31, 1997. The
Company has also agreed to grant the Representative five-year warrants to
purchase 157,500 shares of Common Stock at an exercise price equal to 120% of
the purchase price for shares of Common Stock in the Offering.
50
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
On October 30, 1996, the Company acquired all of the capital stock of ATI, a
subsidiary of Burlington, the consideration for which included in part the
delivery to Burlington of an unsecured convertible subordinated promissory note
in the principal amount of $7,296,500 (the "Convertible Note"). The Convertible
Note bears interest at a rate of 9.5% per annum, payable semi-annually. Within
seven months after the completion of the Offering, 50% of the principal amount
of the Convertible Note ($3,648,250) will become due and payable. The remaining
50% of the principal amount of the Convertible Note will be payable in equal
installments on October 30, 2002 and October 30, 2003 respectively, provided
that an additional payment of principal shall be made on October 30, 2002 to the
extent it would not cause the Company to violate the terms of its financial
covenants with its senior lenders as of such time. Alternatively, Burlington has
the right, after October 30, 1997 in lieu of cash payment, to convert the
remaining 50% of the principal amount of the Convertible Note (excluding accrued
interest) into 521,179 shares of Common Stock. The Company may prepay the
Convertible Note at any time after October 30, 1997, provided that Burlington
may convert upon notice of prepayment.
The Company's obligations to Burlington are subordinated to its existing
bank indebtedness and Burlington has agreed that it will subordinate its debt to
$7.5 million (increased by the amount of any principal repayments made to it) in
senior financing arrangements.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe,
L.P.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the completion of the Offering could have an adverse effect on the market price
of the Common Stock. There will be approximately 7,713,448 shares of Common
Stock outstanding immediately after the Offering, including the 2,250,000 shares
offered hereby. Upon completion of the Offering, all of the shares of Common
Stock offered hereby will be eligible for public sale without restriction,
except for shares purchased by affiliates (those controlling or controlled by or
under common control with the issuer and generally deemed to include officers
and directors) of the Company. The 5,463,448 shares of Common Stock that will be
owned by the Company's current stockholders following the Offering, including
(i) 4,603,560 shares of Common Stock to be issued to existing holders of
Preferred Stock upon conversion of their shares of Preferred Stock, (ii) 2,000
shares to be issued to two directors-elect of the Company upon the consummation
of the Offering, and (iii) an estimated 273,148 shares of Common Stock to be
issued to the holders of Preferred Stock in payment of accrued dividends
(estimated as of November 26, 1996 concurrently with the completion of the
Offering (the "Dividend Shares"), are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act. Additionally, there
will be outstanding as of the closing of the Offering, options and warrants to
purchase an aggregate of 1,534,181 shares of Common Stock which, when issued in
accordance with the terms of such options and warrants, will be restricted
shares under the Securities Act.
As consideration in part for the acquisition of ATI, Burlington holds the
Convertible Note which is convertible after October 30, 1997 into 521,179 shares
of Common Stock.
Subject to the volume and holding period limitations of Rule 144 and a
"lock-up" agreement described below, all currently outstanding shares of Common
Stock will be eligible for sale under Rule 144 beginning 90 days after the
commencement of the Offering, the . In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company (or persons whose shares are aggregated
with such affiliate), who has owned restricted shares of Common Stock
beneficially for at least two years is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of one percent (1%)
of the total number of outstanding shares of the same class or, if the Common
Stock is quoted on Nasdaq, the average weekly trading volume during the four
calendar weeks preceding the sale. Beginning on the commencement of
51
the Offering, 5,139,290 shares of Common Stock would be eligible for sale under
Rule 144. A person who has not been an affiliate of the Company for at least the
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least three years is entitled to sell such shares
under Rule 144(k) without regard to any of the limitations described above.
Beginning on the commencement of the Offering, 448,240 shares of Common Stock
would be eligible for sale without volume limitations under Rule 144(k), in
addition to being eligible for sale under Rule 144
The Dividend Shares, an aggregate of 527,786 shares issuable under warrants
outstanding as of the closing of the Offering, 7,670 shares issued to Peter L.
DeWalt in October 1996 and 521,179 shares issuable upon conversion of the
Convertible Note (assuming an Offering price of $7.00 per share) after the
offering will be eligible to trade under Rule 144 on the second anniversary of
their issuance subject to volume and other limitations. The 1,006,395 shares of
common stock issuable under outstanding options, if exercised, and 112,905
shares (including 80,730 shares eligible for sale under Rule 144) issued upon
the exercise of previously granted stock options would be tradable 90 days after
the commencement of the Offering under Rule 701 of the Securities Act.
REGISTRATION RIGHTS
The holders of all outstanding shares of Common Stock prior to the Offering
(including shares of Common Stock issuable upon the conversion of shares of the
Company's Series AA, Series BB, Series C and Series D Preferred Stock, and the
exercise of certain outstanding warrants but excluding shares held by Peter L.
DeWalt) equal in the aggregate to 5,453,778 shares of Common Stock, have been
granted registration rights by the Company pursuant to which they may as a group
on two occasions demand that the Company register the resale of all or a portion
of their Common Stock and may otherwise "piggyback" upon certain registrations
by the Company of its securities. Burlington has been granted equivalent
registration rights, including two demand rights, with respect to the shares of
Common Stock issuable upon the exercise of the Convertible Note, and the
Representative will receive similar rights, including one demand right, with
respect to the shares of Common Stock issuable upon the exercise of the
Representative's Warrants. Mr. DeWalt has also been granted "piggyback" rights
with respect to certain registrations by the Company of its securities. All
holders of registration rights, including Burlington, Mr. DeWalt and the
Representative, have agreed not to exercise their registration rights with
respect to the Offering and for an additional period of 13 months following the
closing date of the Offering.
LOCK-UP AGREEMENTS
The holders of all shares of Common Stock, Options and Warrants and the
Convertible Note outstanding immediately prior to the consummation of the
Offering have agreed not to sell or otherwise dispose of any shares of Common
Stock for a period of thirteen months from the commencement of the Offering
without the prior written consent of the Representative. The possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise capital through the sale of its equity
securities.
52
UNDERWRITING
Under the terms and subject to the conditions set forth in an underwriting
agreement (the "Underwriting Agreement") between the Company and Josephthal Lyon
& Ross Incorporated (the "Representative"), the Company has agreed to sell to
each of the Underwriters named below (the "Underwriters"), and each of the
Underwriters has severally agreed to purchase the respective number of shares of
Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ------
<S> <C>
Josephthal Lyon & Ross Incorporated
---------
TOTAL 2,250,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the shares of Common
Stock offered hereby if any such shares are purchased. In the event of a default
by an Underwriter, the Underwriting Agreement provides that, in certain
circumstances, such commitments of the non-defaulting Underwriter may be
increased or the Underwriting Agreement may be terminated.
The Underwriters, for whom Josephthal Lyon & Ross Incorporated is acting as
the representative (the "Representative"), have advised the Company that they
propose initially to offer the shares of Common Stock offered hereby to the
public at the public offering price per share set forth on the cover page of
this Prospectus. The Underwriters may allow a concession of not more than $ per
share to selected dealers; and the Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share on sales to certain other
dealers. After the initial public offering, the concession to selected dealers
and the reallowance to other dealers may be changed by the Underwriters. The
shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act and the Securities
Exchange Act of 1934, as amended, or to contribute to payments the Underwriters
may be required to make in respect thereof.
The Company has granted to the Underwriters an option (the "Over-allotment
Option") to purchase up to 337,500 additional shares of Common Stock, solely to
cover over-allotments, if any, exercisable within 45 days after the commencement
of the Offering, at the initial public offering price per share of Common Stock
offered hereby, less underwriting discounts.
The existing holders of all of the shares of the Common Stock have agreed
not to sell or otherwise dispose of their shares of Common Stock during the
thirteen month period following the commencement of the Offering.
The Company has granted the Representative the right to designate for
election one person to the Company's Board of Directors until such time as AMT
Venture Partners Ltd. and North Atlantic Venture Fund, L.P. no longer hold in
excess of 80% of their current shareholdings in the Company. The Company has
agreed to use its best efforts to cause any such person so designated to be
elected as a director of the Company. After the Offering, AMT Venture Partners
Ltd. and North Atlantic Venture Fund, L.P. will in the aggregate hold 4,120,624
shares. The Representative would lose its right to designate one person for
election should the aggregate number of shares held by AMT Venture Partners Ltd.
and North Atlantic Venture Fund, L.P. drop by more than 20%, to less than
3,296,4992 shares. In the event the Representative elects not to exercise this
right, then it may designate one person to attend Board of Directors' meetings
as an observer.
53
The Company has agreed to pay the Representative a non-accountable expense
allowance of 0.75% of the gross proceeds of the Offering ($118,250 if the
Over-allotment Option is not exercised and $135,844 if the Over-allotment Option
is exercised in full), none of which has been paid to date. The Company also has
agreed to pay all expenses in connection with registering or qualifying the
shares offered hereby for sale under the laws of the states in which shares are
sold by the Underwriters (including expenses of counsel retained for such
purposes by the Underwriters, not to exceed $15,000). Further, the Company has
agreed to reimburse the Underwriters for certain accountable expenses relating
to the Offering, none of which has been paid to date.
In addition, the Company has entered into a Financial Advisory Agreement
with the Representative pursuant to which the Representative has been engaged,
for a twelve month period ending in June 1997, to render a valuation of the
Company and/or certain of its components and to provide consulting advice as an
investment banker as shall be agreed to from time to time by the Company and the
Representative. The Agreement does not require that the Representative devote a
specific amount of time to the performance of its duties thereunder. As
compensation for the Representative's services under the Financial Advisory
Agreement, the Company has agreed to pay $60,000 for the six month period
commencing as of June 1, 1996, payable in monthly installments of $10,000. To
date the Company has paid the Representative $30,000. Under the Agreement the
Company has also agreed to grant the Representative five-year warrants to
purchase 157,500 shares of Common Stock at an exercise price equal to 120% of
the purchase price for shares of Common Stock in the Offering. In the event that
the Representative originates a financing or a merger, acquisition, joint
venture or other transaction to which the Company is a party, in consideration
for origination of such transaction, the Representative will be entitled to
receive a finder's fee of 5% of the aggregate consideration actually received by
the Company in connection with the transaction; provided, however, if such
transaction is with Burlington, Vetrotex, Flemings Laces, Ltd., Hardcore
Composites Ltd., Norsk, Hydro A.S., or Montani, A.S., then compensation to the
Representative shall be mutually agreed upon but shall not exceed 1.5%.
The proposed offering price range was determined through the Company's
negotiations with the Representative, during which the following factors were
deemed to be significant by the Company and the Representative in valuing the
Common Stock above what it had been valued at by the Company in granting options
to purchase Common Stock exercisable for $0.77 in September 1995: (i) a
continuing and sustained period of revenue increases including positive
operating results for the fiscal year ended December 31, 1995, (ii) enhanced
prospects for the Company following its combination with ATI, (iii) the increase
in applications and resultant broadening of the market for composite
reinforcement fabrics, (iv) valuations in the public market for similarly
capitalized companies, and (v) the liquidity offered the holders of the Common
Stock as a result of the proposed public offering.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. See "ADDITIONAL INFORMATION."
CHANGES IN ACCOUNTANTS
In July 1995, the Company advised KPMG Peat Marwick LLP ("Peat Marwick")
that it would no longer retain the firm as independent accountants due to the
closing of Peat Marwick's office in Portland, Maine. The reports of Peat Marwick
for the previous years (1994 and 1993) did not contain an adverse opinions or a
disclaimer of opinions, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. The decision to change accountants was
recommended by the Company's Audit Committee and approved by the full Board of
Directors. During the periods reviewed by Peat Marwick there were no
disagreements with Peat Marwick on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreement(s) if not resolved to the satisfaction of Peat Marwick, would have
caused it to make reference to the subject matter of the disagreements in
connection with its report. Coopers and Lybrand L.L.P. was engaged by the
Company as its independent accountants in July 1995.
54
LEGAL MATTERS
The validity of the Common Stock offered by the Company will be passed upon
for the Company by Eaton, Peabody, Bradford & Veague, P.A., Bangor, Maine.
Daniel G. McKay, a member of that firm, is Clerk of the Company. While Mr. McKay
has served as corporate counsel to the Company, he performs only ministerial
functions in his role as Clerk of the Company and has no direct or indirect
interest in the Company. Certain other legal matters with respect to the Company
will be passed upon for the Underwriters by Gadsby & Hannah LLP, Boston,
Massachusetts, counsel for the Company. Certain legal matters will be passed
upon for the Underwriters by Bingham, Dana & Gould LLP, Boston, Massachusetts.
EXPERTS
The financial statements for the fiscal year ended December 31, 1995 of the
Company included or incorporated by reference in this Prospectus and elsewhere
in the Registration Statement have been audited by Coopers & Lybrand L.L.P.,
independent public accountants, as indicated in its report with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing. The financial statements for the fiscal years ended
December 31, 1994 and December 31, 1993 of the Company included or incorporated
by reference in this Prospectus and elsewhere in the Registration Statement have
been audited by KPMG Peat Marwick LLP, independent public accountants, as
indicated in its report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The financial statements of Advanced Textiles, Inc. at September 28, 1996 and
September 30, 1995, and for each of the three years in the period ended
September 28, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young, LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included herein in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement, including the
exhibits and schedules filed therewith, which may be inspected without charge at
the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Northwestern Atrium Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661-2511, and Northeast Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of the Registration Statement may be obtained from the Commission from its
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549 upon
payment of prescribed fees. The Commission also maintains a Web site at
http://www.sec.gov, containing reports, proxy and information statements, and
other information regarding registrants, including the Company, that file
electronically with the Commission. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete
and, where the contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to the exhibit filed with the Commission.
The Company will furnish to its stockholders annual reports containing
audited financial statements accompanied by an opinion thereon of an independent
public accountant, and such other periodic reports as the Company may determine
to be appropriate or as may be required by law.
55
GLOSSARY OF TECHNICAL TERMS
BINDERLESS MAT:
A mat composed of short reinforcing fibers stitchbonded together in random
orientations, instead of glued together in the traditional fashion.
COMPOSITE FIBERS:
Fibers used to reinforce the resin matrix in composite construction.
WEFT-INSERTION:
A bonding technique for fibers in which the fibers are held together by a
series of interlocking stitches that do not pass through the fibers.
LAMINATE:
Composite material consisting of reinforcing fibers and a resin matrix.
QUADRAXIAL:
Composite reinforcing material with fibers aligned along four axes, namely
0, 90, +45, and -45.
RESIN:
Liquid substance that solidifies due to either a temperature or chemical
change, and which binds reinforcing fibers together to form a laminate.
STITCHBONDING:
A bonding technique for fibers in which fibers are connected by stitches
that are sewn through the fibers.
WEAVING:
A traditional method of producing composite fabrics in which fibers pass
over and under adjacent fibers as a method of interlocking the fibers.
56
BRUNSWICK TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BRUNSWICK TECHNOLOGIES, INC.:
- -----------------------------
Report of Coopers & Lybrand L.L.P. ................................................. F-2
Report of KPMG Peat Marwick LLP .................................................... F-3
Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 ......... F-4
Statements of Income for the Years Ended December 31, 1993, 1994 and 1995 and
for the Nine Months Ended September 30, 1995 and 1996 .............................. F-5
Statements of Stockholders' Deficit for the Years Ended December 31, 1993,
1994 and 1995 and for the Nine Months Ended September 30, 1996 .................... F-6
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995
and for the Nine Months Ended September 30, 1995 and 1996 .......................... F-7
Notes to Financial Statements ........................................................ F-8
ADVANCED TEXTILES, INC.:
- ------------------------
Report of Ernst & Young LLP .......................................................... F-17
Balance Sheets as of September 30, 1995 and September 28, 1996 .................... F-18
Statements of Operations for the Years Ended October 1, 1994, September 30, 1995
and September 28, 1996 .............................................................. F-19
Statements of Cash Flows for the Years Ended October 1, 1994, September 30,
1995 and September 28, 1996 ........................................................ F-20
Notes to Financial Statements ........................................................ F-21
</TABLE>
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Brunswick Technologies, Inc.:
We have audited the accompanying balance sheets of Brunswick Technologies,
Inc., as of September 30, 1996 and December 31, 1995, and the related statements
of income, stockholders' deficit, and cash flows for the nine months ended
September 30, 1996 and the year ended December 31, 1995. 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. The financial statements of Brunswick Technologies, Inc. as of
December 31, 1994, and for the years ended December 31, 1994 and 1993, were
audited by other auditors, whose report dated January 20, 1995, expressed an
unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 and 1995 financial statements referred to above
present fairly, in all material respects, the financial position of Brunswick
Technologies, Inc., as of September 30, 1996 and December 31, 1995, and the
results of its operations and its cash flows for the nine months ended September
30, 1996 and the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Portland, Maine
October 30, 1996
F-2
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
BRUNSWICK TECHNOLOGIES, INC.:
We have audited the accompanying balance sheet of Brunswick Technologies,
Inc., as of December 31, 1994, and the related statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1994 and
1993. 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 Brunswick Technologies, Inc.
as of December 31, 1994 and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1993 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
January 20, 1995
Boston, Massachusetts
F-3
BRUNSWICK TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SEPTEMBER 30,
1994 1995 1996
---- ---- ----
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash ................................................................ $ 2,806 $ 117,959 $ 202,593
Accounts Receivable, Net Of Allowance For Doubtful Accounts Of
$12,365 In 1994, $7,287 In 1995, And $35,774 In 1996 .............. 942,446 2,013,699 961,918
Inventories ......................................................... 1,325,804 1,429,864 2,549,455
Refundable Income Taxes ............................................. -- 16,000 --
Deferred Income Taxes ............................................... -- 306,700 224,100
Other Current Assets ................................................ 68,117 119,801 157,825
--------- --------- ---------
Total Current Assets .............................................. 2,339,173 4,004,023 4,095,891
--------- --------- ---------
Property, Plant And Equipment:
Furniture And Fixtures .............................................. 125,051 212,861 310,375
Leasehold Improvements .............................................. 255,256 271,595 58,839
Machinery And Equipment ............................................. 3,709,607 4,475,800 5,136,532
Vehicles ............................................................ 52,004 60,678 62,678
--------- --------- ---------
4,141,918 5,020,934 5,568,424
Less Accumulated Depreciation And Amortization ......................... (885,463) (1,261,881) (1,349,860)
--------- --------- ---------
Net Property, Plant And Equipment .................................... 3,256,455 3,759,053 4,218,564
--------- --------- ---------
Deferred Charges ....................................................... -- -- 336,857
Other Assets, Net ...................................................... 68,926 103,470 86,603
--------- --------- ---------
$ 5,664,554 $ 7,866,546 $ 8,737,915
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank Overdraft ...................................................... $ 119,216 $ 216,622 $ --
Note Payable To Bank ................................................ 80,000 -- 602,000
Current Installments Of Long-term Debt .............................. 59,251 109,162 139,842
Current Obligations Under Capital Leases ............................ 1,625 2,620 --
Due To Stockholder .................................................. 906,790 1,599,678 1,153,560
Accounts Payable-trade .............................................. 372,694 795,192 959,182
Accrued Expenses .................................................... 168,943 344,030 417,996
Income Taxes Payable ................................................ -- 32,000 14,924
--------- --------- ---------
Total Current Liabilities ......................................... 1,708,519 3,099,304 3,287,504
--------- --------- ---------
Due To Stockholder ..................................................... 102,500 32,500
Long-term Debt, Excluding Current Installments ......................... 1,074,544 1,003,971 1,295,767
Deferred Income Taxes .................................................. -- 32,600 63,000
Commitments
Convertible Preferred Stock (Liquidation Preference Of $6,528,787) ..... 5,537,717 6,069,530 6,473,371
Stockholders' Deficit:
Preferred Stock, $10 Par Value; 1,000,000 Shares Authorized, None
Outstanding ....................................................... -- -- --
Common Stock, $0.0001 Par Value; 20,000,000 Shares Authorized,
583,570 Outstanding ............................................... 54 58 58
Additional Paid-in-capital .......................................... 392,590 410,261 410,461
Treasury Stock, 6,500 Shares At Cost ................................ -- (5,000) (5,000)
Accumulated Deficit ................................................. (3,151,370) (2,776,678) (2,787,246)
--------- --------- ---------
Total Stockholders' Deficit ....................................... (2,758,726) (2,371,359) (2,381,727)
--------- --------- ---------
$ 5,664,554 $ 7,866,546 $ 8,737,915
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
BRUNSWICK TECHNOLOGIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales ............................................. $6,376,385 $9,596,578 $15,476,424 $11,033,626 $13,423,512
Cost of goods sold .................................... 4,996,633 7,382,285 11,978,978 8,489,131 10,365,153
--------- --------- ---------- --------- ----------
Gross profit ...................................... 1,379,752 2,214,293 3,497,446 2,544,495 3,058,359
Selling, general and administrative expenses .......... 1,132,775 1,500,119 2,084,712 1,495,624 2,038,985
Research and development expenses ..................... 124,685 373,955 408,247 291,501 402,084
Moving costs .......................................... -- -- 8,560 -- 248,314
Facility repair costs ................................. -- -- 150,000 -- (147,545)
--------- --------- ---------- --------- ----------
Operating income .................................. 122,292 340,219 845,927 757,370 516,521
--------- --------- ---------- --------- ----------
Other income (expense):
Interest expense .................................... -- (19,595) (124,122) (93,616) (101,841)
--------- --------- ---------- --------- ----------
Miscellaneous, net .................................. (10,816) (6,428) 62,800 66,340 200,593
--------- --------- ---------- --------- ----------
(10,816) (26,023) (61,322) (27,276) 98,752
--------- --------- ---------- --------- ----------
Income before income tax ........................... 111,476 314,196 784,605 730,094 615,273
Income tax benefit (expense) .......................... -- -- 121,900 113,000 (222,000)
--------- --------- ---------- --------- ----------
Net income ........................................ 111,476 314,196 906,505 843,094 393,273
--------- --------- ---------- --------- ----------
Preferred stock dividend .............................. (332,787) (450,120) (450,120) (337,590) (337,590)
Accretion of preferred stock redemption value ......... (70,864) (75,910) (81,693) (61,269) (66,251)
--------- --------- ---------- --------- ----------
Net income (loss) attributable to common stock .... $ (292,175) $ (211,834) $ 374,692 $ 444,235 $ (10,568)
========== ========== =========== =========== ===========
Pro forma earnings per common share ............ $ 0.14 $ 0.06
=========== ===========
Pro forma weighted average common shares
outstanding ................................... 6,714,917 6,784,847
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
BRUNSWICK TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------
ADDITIONAL TOTAL
PAID-IN TREASURY ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK DEFICIT DEFICIT
------ ------ ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 .................. 487,500 $49 $391,685 -- $(2,647,361) $(2,255,627)
Exercise of common stock options .............. 48,230 5 905 910
Accrual of preferred stock dividend ........... (332,787) (332,787)
Accretion of preferred stock redemption value . (70,864) (70,864)
Net income .................................... 111,476 111,476
------- -- ------- ------ ---------- ----------
Balance at December 31, 1993 .................. 535,730 54 392,590 -- (2,939,536) (2,546,892)
Accrual of preferred stock dividend ........... (450,120) (450,120)
Accretion of preferred stock redemption value . (75,910) (75,910)
Net income .................................... 314,196 314,196
------- -- ------- ------ ---------- ----------
Balance at December 31, 1994 .................. 535,730 54 392,590 -- (3,151,370) (2,758,726)
Exercise of common stock options .............. 25,675 3 3,572 3,575
Exercise of warrants to purchase common stock . 9,165 1 14,099 14,100
Repurchases of common stock ................... $(5,000) (5,000)
Accrual of preferred stock dividend ........... (450,120) (450,120)
Accretion of preferred stock redemption value . (81,693) (81,693)
Net income .................................... 906,505 906,505
------- -- ------- ------ ---------- ----------
Balance at December 31, 1995 .................. 570,570 58 410,261 (5,000) (2,776,678) (2,371,359)
Exercise of common stock options .............. 13,000 200 200
Accrual of preferred stock dividend ........... (337,590) (337,590)
Accretion of preferred stock redemption value . (66,251) (66,251)
Net income .................................... 393,273 393,273
------- -- ------- ------ ---------- ----------
Balance at September 30, 1996 ................. 583,570 $ 58 $410,461 $(5,000) $(2,787,246) $(2,381,727)
======= ==== ======== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
BRUNSWICK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 111,476 $ 314,196 $ 906,505 $ 843,094 $ 393,273
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................. 141,606 266,574 396,595 297,612 368,769
Deferred taxes ................................. -- -- (274,100) (254,000) 113,000
(Gain) loss on sale of property, plant and
equipment ..................................... 1,803 -- ,164) -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable .. (264,360) (156,751) (1,071,253) (288,346) 1,051,781
(Increase) in inventories ................... (180,481) (617,119) (104,060) (253,195) (1,119,591)
(Increase) decrease in refundable income
taxes ...................................... -- -- (16,000) (15,000) 16,000
(Increase) decrease in other current assets . (44,242) 12,883 (51,684) (32,476) (38,024)
Increase (decrease) in due to stockholder ... 603,913 161,277 622,888 579,647 (478,618)
Increase (decrease) in other accounts
payable and accrued expenses ............... (245,911) (252,773) 597,585 (9,061) 237,956
Increase (decrease) in income taxes payable . -- -- 32,000 30,000 (17,076)
-------- -------- -------- -------- ----------
Net cash provided by (used in) operating
activities ............................. 123,804 (271,713) 1,034,312 898,275 527,470
-------- -------- -------- -------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment ......... (993,969) (1,286,797) (899,271) (331,480) (801,460)
Proceeds from sale of property, plant and equipment -- -- 12,126 -- --
Increase in other assets ........................... (1,959) (48,914) (36,140) (64,990) (9,953)
-------- -------- -------- -------- ----------
Net cash used in investing activities .... (995,928) (1,335,711) (923,285) (396,470) (811,413)
-------- -------- -------- -------- ----------
Cash flows from financing activities:
Bank overdraft ..................................... -- 119,216 97,406 40,960 (216,622)
Net proceeds (repayments) under line of credit ..... (107,246) 80,000 (80,000) (80,000) 602,000
Proceeds from long-term debt borrowings ............ -- 1,100,000 -- -- 325,414
Repayment of long-term debt ........................ (219,787) (198,953) (20,662) -- (2,938)
Net principal repayments under capital lease
obligations ...................................... (12,753) (3,250) (5,293) (4,139) (2,620)
Proceeds from exercise of common stock options and
warrants ......................................... 1,310 -- 17,675 3,575 200
Issuance of convertible preferred stock ............ 1,760,000 -- -- -- --
Costs related to issuance of convertible preferred
stock ............................................ (69,938) (2,724) -- -- --
Deferred charges ................................... -- -- -- -- (336,857)
Repurchase of common stock ......................... -- -- (5,000) (5,000) --
-------- -------- -------- -------- ----------
Net cash provided by (used in) financing
activities ............................. 1,351,586 1,094,289 4,126 (44,604) 368,577
-------- -------- -------- -------- ----------
Net increase (decrease) in cash .......... 479,462 (513,135) 115,153 457,201 84,634
Cash at beginning of period ........................... 36,479 515,941 2,806 2,806 117,959
-------- -------- -------- -------- ----------
Cash at end of period ................................. $ 515,941 $ 2,806 $ 117,959 $ 460,007 $ 202,593
========== ============ ============ ========== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including interest capitalized of
$53,523 in 1993 and $36,945 in 1994) .......... $ 67,091 $ 52,552 $ 128,276 $ 59,455 $ 67,191
========== ============ ============ ========== ============
Income taxes ................................... $ -- $ -- $ 136,200 $ 5,200 $ 110,476
========== ============ ============ ========== ============
During 1995, the Company entered into a capital lease obligation amounting to $6,288 for telephone equipment.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Brunswick Technologies, Inc. is a developer and manufacturer of stitchbonded
engineered composite reinforcement fabrics made from glass, carbon and other
fibers. Its products are used in a diverse range of products, including those
used in the marine, automotive, construction, and transportation industries.
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 the
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.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out cost method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives as follows:
YEARS
-----
Furniture and fixtures ...................... 2-15
Machinery and equipment ..................... 7-15
Vehicles .................................... 5
Amortization of capitalized leased assets and leasehold improvements is
provided on the straight-line method over the shorter of the lease term or the
useful life. Interest expense incurred on borrowings used to finance the
construction of production machinery is capitalized and included in the cost
basis of the asset.
Expenditures for maintenance, repairs, and minor replacements are charged to
operations while expenditures for major replacements and betterments are added
to the property, plant and equipment accounts. When fixed assets are retired or
otherwise disposed of, the asset cost and accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is
reflected in income.
ACCOUNTING FOR STOCK OPTIONS AND STOCK WARRANTS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 -- Accounting for Stock Based Compensation
(SFAS No. 123). This statement requires a fair value based method of accounting
for employee stock options and similar equity instruments. It also permits a
company to continue to measure compensation expense for such plans as prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25). The Company has elected to continue to measure its cost
using APB No. 25 and as required, will disclose the impact of SFAS No. 123 in
the notes to the December 1996 financial statements.
F-8
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to operations as
incurred.
PATENTS
Costs associated with securing patents for the Company's products are
capitalized and amortized over the shorter period of 17 years, or the estimated
useful life.
GRANTS
The Company recognizes revenues from cost reimbursement grants from
government agencies as reimbursable expenses are incurred.
PRO FORMA EARNINGS PER COMMON SHARE
Earnings per share has been presented on a pro forma basis after giving
effect to the conversion of the outstanding convertible preferred stock, plus
when their effect is dilutive, common stock equivalents consisting of shares
subject to stock options and warrants.
The following table presents information necessary to calculate pro forma
earnings per share:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Net income ....................................... $ 906,505 $ 393,273
=========== ============
Pro forma earnings per common shares ............. $ 0.14 $ 0.06
=========== ============
Common shares outstanding:
Weighted average common shares ................ 553,150 577,070
Common share equivalents ...................... 1,283,059 1,329,069
Conversion of preferred stock ................. 4,603,560 4,603,560
Preferred stock dividend ...................... 273,148 273,148
Directors' stock grants ....................... 2,000 2,000
------- -------
Adjusted shares outstanding ................... 6,714,917 6,784,847
========= =========
</TABLE>
STOCK SPLIT AND AUTHORIZED SHARES
On August 14, 1996, the Board of Directors approved a 65 to 1 stock split of
the Company's common stock to be effective immediately prior to the effective
date of the registration statement for the Company's initial public offering.
All share and per share amounts have been retroactively restated to reflect this
stock split. In addition, the Board approved an increase in the authorized
shares of common stock to 20,000,000 shares, to be effective immediately prior
to the effective date of the Registration Statement. The Board also authorized
the creation of a new undesignated class of preferred stock consisting of
1,000,000 shares, $10 par value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
F-9
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RECLASSIFICATIONS
Certain prior year amounts primarily relating to preferred stock have been
reclassified to conform with the presentation used in the 1996 financial
statements. Pursuant to Securities and Exchange Commission regulations,
convertible preferred stock has been reclassified outside of stockholders'
equity and accrued dividends and an increase in the preferred stock carrying
value based on anticipated redemption value have been recorded. As a result, the
accumulated deficit has increased by $526,030 and $531,813 at December 31, 1994
and 1995, respectively, and $403,841 at September 30, 1996.
UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements for the nine months ended September 30,
1995 have been prepared on the same basis as the audited financial statements
and in the opinion of the Company, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
statements and the results of operations for this period.
2. INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Raw materials $ 515,060 $ 450,447 $ 228,198
Work in process 219,066 324,772 416,976
Finished goods 591,678 654,645 1,904,281
------- ------- ---------
$ 1,325,804 $ 1,429,864 $ 2,549,455
=========== =========== ============
</TABLE>
3. DEFERRED CHARGES
Deferred charges consist of costs incurred in connection with the
acquisition of Advanced Textiles, Inc. (see Note 13) and the Company's initial
public offering. The balance at September 30, 1996 includes acquisition costs
approximating $75,000 which will be allocated as part of the purchase of
Advanced Textiles, Inc. and initial public offering costs of approximately
$261,000 will be offset in the stockholders' equity accounts against the
proceeds received upon closing of the public offering. In the event the offering
is not successful, these initial public offering costs approximating $261,000
will be expensed.
4. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
5.75% note payable to a financial institution, payable in monthly
installments of principal and interest of $384, through January
1999; collateralized by a motor vehicle ............................... $ 16,824 $ 13,133 $ 10,195
Equipment loan payable to a bank with interest payable monthly and
principal amortized over 84 months beginning on March 1, 1997;
collateralized by all corporate assets ................................ 1,100,000 1,100,000 1,425,414
8.75% note payable with monthly principal and interest installments
of $548. The note was collateralized by a vehicle and was paid in
full in December 1995, when the vehicle was sold ...................... 16,971 -- --
1,133,795 1,113,133 1,435,609
--------- --------- ---------
Less current installments ............................................... (59,251) (109,162) (139,842)
--------- --------- ---------
Long-term debt, excluding current installments .......................... $1,074,544 $1,003,971 $1,295,767
========== ========== ==========
</TABLE>
F-10
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
4. DEBT -- (CONTINUED)
The schedule of maturities of long-term debt on a calendar year basis at
September 30, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 ........................................ $ 1,152
1997 ........................................ 173,832
1998 ........................................ 208,008
1999 ........................................ 204,336
2000 ........................................ 203,571
2001 ........................................ 203,571
Thereafter .................................. 441,139
-------
$ 1,435,609
===========
</TABLE>
On May 30, 1996, the Company renegotiated its existing debt facility with a
bank. The new agreement increases the Company's line of credit from $1 million
to $1.5 million and increases an equipment line of credit from $1.1 million to
$1.8 million.
Borrowings under the line of credit are based on 75% of eligible accounts
receivable and 50% of eligible inventory. At the Company's option, interest is
charged at either the Bank's prime rate or the London Interbank Borrowing Rate
(LIBOR), plus 1.75%. There is a commitment fee of .125% on any unused balance.
At September 30, 1996, borrowings under the line of credit amounted to $602,000.
The weighted average interest rate of borrowings outstanding at September 30,
1996, was 8.25%. The line of credit expires on June 1, 1997. At October 26,
1996, the Company was in discussions with its Bank to increase the line of
credit by $1 million and to pledge the accounts receivable and inventory of
Advanced Textiles, Inc.
(see Note 13) as collateral.
Under the equipment term line of credit loan, the Bank will advance 75% of
the equipment cost to be acquired up to a total loan of $1.8 million. At the
Company's option, interest is charged at either the Bank's prime rate or LIBOR,
plus 2.25%. At September 30, 1996, the Company had elected a 9 month LIBOR rate
which will be effective through March 1, 1997 and which equals 8% including the
2.25% mark up. Principal on outstanding balances will be repaid in 84 equal
installments commencing March 1, 1997. At September 30, 1996, $1,425,414 was
outstanding under the equipment line of credit loan and the ability to receive
further advances will expire on January 31, 1997.
The loan agreement contains certain restrictive covenants, including
limitations on capital expenditures, debt to equity ratio, debt service coverage
and minimum net income. The borrowings under this agreement are collateralized
by all corporate assets.
5. LEASES
Commencing January 1, 1996, the Company began leasing a newly constructed
manufacturing facility. The lease term is for ten years with an option to renew
for an additional five years. The Company has the option to purchase the
facility at fair market value at any time between the end of the fifth year of
the lease and the end of the lease. In connection with the vacating of its
former facility in December 1995, the Company recorded $150,000 as its estimated
cost to make repairs to the premises as specified in its lease agreement.
However, this estimate was not realized and $147,545 was reversed in June 1996.
In connection with the relocation to its new facility, the Company has recorded
a separate operating expense for the cost of the move, which includes the rental
expense for the old facility for the six months through June 30, 1996. The
Company also has operating leases for equipment and a vehicle. Total rental
expense under all operating leases was $147,114, $164,293, and $176,558 for the
years ended December 31, 1993, 1994, and 1995, respectively, and $131,611 and
$233,554 for the nine months ended September 30, 1995 and 1996, respectively.
F-11
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
5. LEASES -- (CONTINUED)
At September 30, 1996, future minimum lease payments on a calendar year
basis under all non-cancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
------
<S> <C>
1996 ............................................ $ 46,475
1997 ............................................ 184,065
1998 ............................................ 181,500
1999 ............................................ 181,500
2000 ............................................ 181,500
2001 ............................................ 181,500
Thereafter ...................................... 1,778,500
---------
Minimum future lease payments ................... $ 2,735,040
===========
</TABLE>
6. CONVERTIBLE PREFERRED STOCK (SEE ALSO NOTE 12)
The Company's convertible preferred stock, no par value consists of four
series whose activity is shown in the following table:
<TABLE>
<CAPTION>
TOTAL CONVERTIBLE
SERIES AA SERIES BB SERIES C SERIES D PREFERRED SHARES
--------- --------- -------- -------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 3,657 $216,040 33,167 $1,742,877 18,000 $ 959,057 -- -- 54,824 $2,917,974
Issuance of preferred
stock, net of costs 16,000 $1,690,062 16,000 1,690,062
Accrual of preferred stock
dividend 18,285 165,835 90,000 58,667 332,787
Accretion of preferred
stock
redemption value 29,845 18,217 6,975 15,827 70,864
----- ------- ------ --------- ------ --------- ------ --------- ------ ---------
Balance at December 31,
1993 3,657 264,170 33,167 1,926,929 18,000 1,056,032 16,000 1,764,556 70,824 5,011,687
Accrual of preferred stock
dividend 18,285 165,835 90,000 176,000 450,120
Accretion of preferred
stock
redemption value 34,465 18,432 7,031 15,982 75,910
----- ------- ------ --------- ------ --------- ------ --------- ------ ---------
Balance at December 31,
1994 3,657 316,920 33,167 2,111,196 18,000 1,153,063 16,000 1,956,538 70,824 5,537,717
Accrual of preferred stock
dividend 18,285 165,835 90,000 176,000 450,120
Accretion of preferred
stock
redemption value 39,818 18,650 7,089 16,136 81,693
----- ------- ------ --------- ------ --------- ------ --------- ------ ---------
Balance at December 31,
1995 3,657 375,023 33,167 2,295,681 18,000 1,250,152 16,000 2,148,674 70,824 6,069,530
Accrual of preferred stock
dividend 13,673 124,401 67,518 131,998 337,590
Accretion of preferred
stock
redemption value 34,504 14,158 5,366 12,223 66,251
----- ------- ------ --------- ------ --------- ------ --------- ------ ---------
Balance at September 30,
1996 3,657 $423,200 33,167 $2,434,420 18,000 $1,323,036 16,000 $2,292,895 70,824 $6,473,371
===== ======== ====== ========== ====== ========== ====== ========== ====== ==========
Liquidation preference at
September 30, 1996 $452,555 $2,446,067 $1,327,500 $2,302,665 $6,528,787
======== ========== ========== ========== ==========
</TABLE>
F-12
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
6. CONVERTIBLE PREFERRED STOCK (SEE ALSO NOTE 12) -- (CONTINUED)
All of the preferred stock series are entitled to cumulative dividends at
the rate of 10% per annum of the original issue price. This entitlement began on
January 1, 1992, for the Series AA, BB, and C and on September 1, 1993, for the
Series D preferred stock. The dividends are to be paid out of any funds legally
available; to date the Company has not paid any such amounts. Upon redemption or
conversion of the preferred stock, or upon liquidation of the Company, all such
dividends shall become immediately due and payable. Such unpaid dividends
amounted to $1,844,737 at September 30, 1996. In addition, the preferred shares
have a liquidation preference of $100, $50, $50, and $110 per share for the
series AA, BB, C, and D preferred shares, respectively, plus unpaid cumulative
dividends. The shares are convertible into common stock based on a conversion
price on the date that the shares are surrendered for conversion. At the
effective date of the registration statement for the Company's initial public
offering, each share of all series of the preferred stock will be convertible
into 65 shares of common stock.
The holders of not less than two-thirds of the total number of shares of
preferred stock outstanding (of all series, collectively) may elect to require
the Company to redeem, such number of shares of each series of convertible
preferred stock outstanding on January 1, 1996, as may be tendered from time to
time on the following dates: 33% on June 1, 1996; 67% on June 1, 1997; and 100%
on June 1, 1998. Each redemption will be allocated pro rata among the holders of
all series of the convertible preferred stock electing to participate in such
redemption. The redemption price is the greater of: a) fair market value of the
shares to be redeemed, or b) $100, $50, $50, and $110 per share for the Series
AA, BB, C and D, respectively, plus unpaid cumulative dividends.
7. CAPITAL STOCK
The Company has two employee stock option plans, one established in 1991 and
the other in 1994. The plans reserve for issuance of 1,950,000 shares of common
stock. Options granted vest at a rate of 20% per year beginning one year after
the date of grant.
A summary of changes in common stock options during 1994, 1995, and 1996 is:
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE
------ ---------
<S> <C> <C>
Outstanding grants at December 31, 1993 .............. 856,895 $0.02-$0.77
Granted .............................................. 32,500 $0.77
Exercised ............................................ --
Canceled ............................................. --
---------
Outstanding grants at December 31, 1994 .............. 889,395 $0.02-$0.77
Granted .............................................. 164,125 $0.77
Exercised ............................................ (25,675) $0.02-$0.77
Canceled ............................................. (8,450) $0.02-$0.77
---------
Outstanding grants at December 31, 1995 .............. 1,019,395 $0.02-$0.77
Granted .............................................. --
Exercised ............................................ (13,000) $0.02
Canceled ............................................. --
---------
Outstanding grants at September 30, 1996 ............. 1,006,395 $0.02-$0.77
=========
Shares exercisable at December 31, 1994 .............. 607,295 $0.02-$0.77
=========
Shares exercisable at December 31, 1995 .............. 715,845 $0.02-$0.77
=========
Shares exercisable at September 30,1996 .............. 761,995 $0.02-$0.77
=========
</TABLE>
F-13
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
7. CAPITAL STOCK -- (CONTINUED)
Through the date of the Company's initial public offering, the plans have
provided for, at the option of the Company, the repurchase of stock held by
employees when they terminate service with the Company. In 1995, the Company
repurchased 6,500 common shares at $0.77 per share from a former employee. These
shares are held by the Company and recorded as Treasury Stock at their cost of
$5,000.
In conjunction with the issuance of convertible preferred stock, the Company
has issued warrants for the purchase of its common stock. Each warrant is
exercisable for one share of common stock. In 1995, warrants were exercised to
purchase 9,165 common shares at $1.54 per share. At September 30, 1996, the
Company had 416,000 warrants outstanding at an exercise price of $0.77 per
warrant, which expire through December 31, 1997.
8. CONCENTRATION OF CREDIT RISK
The Company utilizes a national distribution system that sells to
approximately 600-700 end users. Four individual distributors accounted for
approximately 85%, 89% and 78% of the Company's 1993, 1994 and 1995 revenues,
respectively, and 80% and 77% for each of the nine months ended September 30,
1995 and 1996, respectively. The same distributors also represent the
aforementioned percentages of the Company's respective account receivable
balances at December 31, 1994 and 1995 and 47% at September 30, 1996.
9. INCOME TAXES
Income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal ................................... $ -- $ -- $(120,200) $(111,000) $(102,000)
State ..................................... -- -- (32,000) (30,000) (7,000)
----- ------ --------- --------- ---------
-- -- (152,200) (141,000) (109,000)
----- ------ --------- --------- ---------
Deferred:
Federal ................................... -- -- 214,600 199,000 (83,000)
State ..................................... -- -- 59,500 55,000 (30,000)
----- ------ --------- --------- ---------
-- -- 274,100 254,000 (113,000)
----- ------ --------- --------- ---------
Total tax benefit (expense) ............. $ -- $ -- $ 121,900 $ 113,000 $(222,000)
===== ====== ========= ========= =========
</TABLE>
The actual income tax benefit (expense) differs from the expected tax
computed by applying the U.S. federal corporate tax rate of 34% to income before
income tax as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed expected income tax ...................... $(38,000) $(107,000) $(267,000) $(248,000) $(209,000)
State income taxes ................................ (6,000) (18,000) (47,000) (44,000) (7,000)
Change in valuation allowance ..................... 12,000 138,000 439,100 408,000 --
Benefit of net operating loss carryforwards ....... 42,000 -- -- -- --
Other ............................................. (10,000) (13,000) (3,200) (3,000) (6,000)
------- ------- ------ ------ ------
Total income tax benefit (expense) .............. $ -- $ -- $ 121,900 $ 113,000 $(222,000)
======== ========= ========= ========= =========
</TABLE>
F-14
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
9. INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities consist of the
following at:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Reserves $ 22,027 $ 92,900 56,000
Net operating loss carryforward 665,498 303,000 200,000
Alternative minimum tax credit carryforward -- 152,200 188,000
Compensation 49,587 26,000 26,000
Other 29,103 56,000 94,100
Depreciation and amortization (327,115) (356,000) (403,000)
-------- -------- --------
Total deferred taxes 439,100 274,100 161,100
Less valuation allowance (439,100) -- --
-------- -------- --------
Net deferred taxes $ -- $ 274,100 $ 161,100
======== ======== ========
Current deferred tax assets $ -- $ 306,700 $ 224,100
======== ======== ========
Non-current deferred tax liabilities $ -- $ (32,600) $ (63,000)
======== ======== ========
</TABLE>
As of December 31, 1995, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $760,000, which
expire at various dates through 2006. Under Internal Revenue Code Section 382,
utilization of net operating loss carryforwards may be limited in the event of
changes in the ownership structure of the Company. Such a change occurred in
1990, and approximately $522,000 of the net operating loss carryforwards are
limited for utilization at approximately $95,000 per year. In addition, the
Company has alternative minimum tax credit carryforwards of approximately
$152,200 which have no expiration date. At December 31, 1994, the Company had a
net deferred tax position which was offset by a valuation allowance of $439,100
due to uncertainties about the ultimate realization of net operating loss
carryforwards. At December 31, 1995, the Company was still in a deferred tax
asset position and no valuation allowance was recorded as current year
utilization of net operating loss carryforwards and projected utilization in the
future of such carryforwards removed material uncertainties about the ultimate
realization of the deferred tax assets.
10. RELATED PARTIES
The Company purchases over half of its raw materials inventory from a
stockholder. For the years ended December 31, 1993, 1994, and 1995, purchases of
raw materials were $3,213,169, $4,911,399, and $7,809,567 respectively. For the
nine months ended September 30, 1995 and 1996, purchases were $6,173,673 and
$6,856,083, respectively. At December 31, 1994 and 1995, and September 30, 1996,
the Company had due this stockholder, $836,790, $1,529,678, and $1,103,560,
respectively, for purchases of raw materials. In addition, the Company was
obligated under a non-interest bearing note payable to the stockholder, payable
in quarterly installments of $17,500 through April 1997. Amounts due under this
note at December 31, 1994 and 1995 and September 30, 1996 were $172,500,
$102,500 and $50,000, respectively. The note is collateralized by certain
equipment.
11. NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST) GRANT
The Company is a participant in a consortium to develop a manufacturing
competency to replace wood, steel, and concrete with high performance
composites. The project has been awarded a grant by NIST whereby 50% of the
project's costs will be reimbursed. In 1995, the Company incurred project
eligible costs of $201,936 and applied
F-15
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
December 31, 1993, 1994 and 1995 and September 30, 1995 and 1996
(Information with Respect to September 30, 1995 is Unaudited)
11. NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST) GRANT --
(CONTINUED)
for reimbursement of $100,968, for which the Company has recorded miscellaneous
income of $66,742 and reduced cost of goods sold by $34,226. For the nine months
ended September 30, 1995, the Company has applied $51,349 of this to other
income and $26,453 as a credit to cost of goods sold. For the nine months ended
September 30, 1996, the Company incurred project eligible costs of $574,274 and
applied for reimbursement of $287,137, for which the Company has recorded
miscellaneous income of $215,830, and reduced cost of goods sold by $71,307.
12. PRO FORMA INFORMATION
Per the terms of the convertible preferred stock agreements, the outstanding
shares of preferred stock will automatically convert to common stock, to be
effective immediately prior to the commencement of the Company's initial public
offering. As a result, 70,824 shares of preferred stock will be converted to
4,603,560 shares of common stock. In addition, on August 14, 1996, the Board of
Directors approved the issuance of common stock in lieu of cash payment of the
cumulative preferred dividend. This will result in an additional 273,148 shares
of common stock being issued to preferred stockholders as of the closing of the
offering. In addition, the Bond approved the grant of stock to directors
totalling 2,000 Shares, to be issued at the closing of the offering. The
following pro forma information has been included to reflect the conversion of
the outstanding preferred stock to common stock, the issuance of additional
shares of common stock in lieu of payment of a cumulative cash dividend, and
directors' stock grants.
<TABLE>
<CAPTION>
ACTUAL AT PRO FORMA
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1996 ADJUSTMENTS 1996
---- ----------- ----
<S> <C> <C> <C>
Convertible preferred stock ........................................ $ 6,473,371 $(6,473,371) $ --
============ =========== ==========
Stockholders' (deficit) equity:
Preferred stock, $10 par value actual and pro forma; 1,000,000
shares authorized and none outstanding actual and pro forma ... -- -- --
Common stock, par value $0.0001 actual and pro forma;
20,000,000 shares authorized actual and pro forma; 583,570
shares outstanding, actual; 5,462,278 shares outstanding pro
forma ......................................................... 58 488 546
Additional paid-in-capital ......................................... 410,461 6,472,883 6,883,344
Treasury stock, 6,500 shares at cost ............................... (5,000) -- (5,000)
Accumulated deficit ................................................ (2,787,246) -- (2,787,246)
---------- ----------- ----------
$(2,381,727) $ 6,473,371 $4,091,644
=========== =========== ==========
</TABLE>
13. SUBSEQUENT EVENT
On October 30, 1996, the Company acquired the outstanding common stock of
Advanced Textiles, Inc. (ATI). The acquisition will be accounted for under the
purchase method, and accordingly the assets acquired and liabilities assumed
will be recorded at their estimated fair values. The total cost of the
acquisition is approximately $8,113,000, including amounts payable to the seller
in the form of a subordinated promissory note in the principal amount of
$7,296,500 and deferred cash payments discounted to $513,000. In addition, the
Company issued 7,670 shares to an employee of ATI who held a minority position
in ATI. Proforma financial information is presented in this registration
statement beginning on page 16.
F-16
REPORT OF INDEPENDENT AUDITORS
------------------------------
Shareholders and Board of Directors
ADVANCED TEXTILES, INC.
We have audited the accompanying balance sheets of Advanced Textiles, Inc.,
as of September 28, 1996 and September 30, 1995 and the related statements of
operations and cash flows for each of the three years in the period ended
September 28, 1996. 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 Advanced Textiles, Inc., at
September 28, 1996 and September 30, 1995, and the results of its operations and
its cash flows for each of the three years in the period ended September 28,
1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Greensboro, North Carolina
October 18, 1996
F-17
ADVANCED TEXTILES, INC.
-----------------------
BALANCE SHEETS
--------------
(Dollar amounts in thousands)
-----------------------------
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
---- ----
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 632 $ 227
Customer accounts receivable after deductions of $19 and $17 for the respective
dates for doubtful accounts 1,036 883
Sundry receivables 4 0
Inventories 1,266 1,029
Prepaid expenses 1 6
----- -----
Total current assets 2,939 2,145
Fixed assets, at cost:
Land and land improvements 72 72
Buildings 625 625
Machinery, fixtures and equipment 1,761 1,686
----- -----
2,458 2,383
Less accumulated depreciation 1,643 1,488
----- -----
Fixed assets -- net 815 895
----- -----
$ 3,754 $ 3,040
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable -- trade $ 524 $ 860
Sundry payables and accrued expenses 134 74
Advance from parent company 46 190
----- -----
Total current liabilities 704 1,124
Shareholders' equity:
Common stock, par value $100 per share -- authorized and issued, 36,500 shares;
outstanding 36,250 shares 3,650 3,650
Capital in excess of par value 2,465 2,036
Accumulated deficit (2,979) (3,684)
----- -----
3,136 2,002
Less cost of common stock held in treasury (86) (86)
----- -----
Total shareholders' equity 3,050 1,916
----- -----
$ 3,754 $ 3,040
======= =======
</TABLE>
See notes to financial statements.
F-18
ADVANCED TEXTILES, INC.
STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------
SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales .......................................................... $10,570 $11,169 $10,043
Cost of sales ...................................................... 8,504 9,574 9,040
----- ----- -----
Gross profit ....................................................... 2,066 1,595 1,003
Selling, administrative and general expenses ....................... 939 890 938
Operating income before interest and taxes ......................... 1,127 705 65
Interest expense ................................................... 3 25 34
Interest income .................................................... (10) (4) (3)
---- ----- -----
Income before income taxes ......................................... 1,134 684 34
Income tax (expense) benefit ................................ (429) 1,493 0
---- ----- ------
Net income ......................................................... $ 705 $ 2,177 $ 34
======= ======= =======
</TABLE>
See notes to financial statements.
F-19
ADVANCED TEXTILES, INC.
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------
SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 705 $ 2,177 $ 34
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of fixed assets ......................................... 210 204 201
Non-cash income tax expense (benefit) ................................ 429 (1,494) 0
Changes in assets and liabilities:
Customer accounts receivable -- net .............................. (153) (357) 175
Sundry notes and accounts receivable ............................. (4) 1 (1)
Inventories ...................................................... (237) 123 (158)
Prepaid expenses ................................................. 5 (1) (2)
Accounts payable and accrued expenses ............................ (276) 8 (1)
Advance from parent company ...................................... (144) 190 0
Other ................................................................ 0 6 0
---- ---- ----
Total adjustments ............................................. (170) (1,320) 214
---- ---- ----
Net cash provided by operating activities ............................... 535 857 248
---- ---- ----
Cash flows from investing activities:
Capital expenditures ................................................. (133) (173) (65)
Proceeds from asset sales ............................................ 3 21 0
---- ---- ----
Net cash used by investing activities ................................... (130) (152) (65)
---- ---- ----
Cash flows from financing activities:
Repayment of long term debt .......................................... 0 (500) (200)
---- ---- ----
Net cash used by financing activities ................................... 0 (500) (200)
---- ---- ----
Net change in cash and cash equivalents ................................. 405 205 (17)
Cash and cash equivalents at beginning of period ........................ 227 22 39
---- ---- ----
Cash and cash equivalents at end of period .............................. $ 632 $ 227 $ 22
===== ======= ======
Supplemental disclosures of cash flow information:
Interest received (paid) -- net ...................................... $ 7 $ (29) $ (32)
===== ======= ======
Income taxes paid .................................................... $ 0 $ (1) $ 0
===== ++===== ======
</TABLE>
See notes to financial statements.
F-20
ADVANCED TEXTILES, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 1, 1994, SEPTEMBER 30, 1995, AND SEPTEMBER 28, 1996
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents: Cash equivalents consist of all temporary, highly liquid
investments with original maturities of three months or less.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out, FIFO method) or market.
Fixed Assets: Fixed assets are stated on the basis of cost. Depreciation of
fixed assets is calculated over the estimated useful lives of the related assets
principally using the straight-line method.
Revenue Recognition: In general, the Company recognizes revenues from
product sales when units are shipped.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fiscal Year: The Company uses a 52-53 week fiscal year.
NOTE B -- NATURE OF BUSINESS
The Company produces specialty knitted and woven fabrics for the reinforced
plastics/composites industry. Markets include marine, pultrusion, aerospace,
transportation, military, armor, electronics, corrosion-resistance, and
sports/consumer industries. Such markets are predominately located equally in
the southeast and midwest portions of the United States.
The Company sells approximately 60% of its volume through distributors with
approximately 53% of sales made to one distributor. The Company believes that
the majority of its sales volume could be sustained on a direct sales basis.
NOTE C -- INVENTORIES
Inventories at September 28, 1996 and September 30, 1995 consisted of the
following (in thousands):
1996 1995
---- ----
Raw materials ....................................... $ 627 $ 419
Stock in process .................................... 336 277
Produced goods ...................................... 303 333
--- ---
$1,266 $1,029
====== ======
NOTE D -- INCOME TAXES
The Company's taxable income (loss) is included in the consolidated federal
income tax return of its parent company, Burlington Industries, Inc. (Parent)
which owns 99.31% of the common stock of the Company. The Company recognizes
federal income tax provisions that would have resulted had the Company filed a
separate federal tax return. The provisions for state income taxes is computed
on a separate return basis. Since the Parent is not charging or paying the
Company for its tax liability or benefit, the resulting annual tax expense is
reflected as a capital contribution by the Parent and any benefit is reflected
as a deemed dividend from the Company to the Parent.
F-21
ADVANCED TEXTILES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
OCTOBER 1, 1994, SEPTEMBER 30, 1995, AND SEPTEMBER 28, 1996
NOTE D -- INCOME TAXES -- (CONTINUED)
At October 3, 1993, on a stand alone basis, the Company had net operating
loss carryforwards that had been utilized in the consolidated federal tax return
of the Parent. In addition, the Company had state net operating loss
carryforwards. At that date, the Company had recorded a valuation allowance for
the full benefit of these net operating loss carryforwards (NOLs) as management
did not believe it was more likely than not these NOLs would be utilized on a
stand alone basis. In 1994, the utilization of NOLs was offset by a reduction of
the valuation allowance, resulting in no income tax expense for the year. In
1995, the Company had pre-tax income of $684,000 and projected income for future
periods, therefore at September 30, 1995, the Company removed the valuation
allowance as it was now more likely than not that the Company would utilize the
NOLs on a stand alone basis. The Company recognized the 1995 benefit of
$1,494,000 as a deemed dividend to the Parent. In 1996, the Company had tax
expense of $429,000. This amount has been reflected as a contribution from the
Parent since the Parent did not charge the Company for this expense.
Income tax (expense) benefit is different from the amount computed by
applying the U.S. federal corporate tax rate of 34% to income before income
taxes. The principal reasons for the difference are as follows:
1996 1995 1994
---- ---- ----
Tax at federal corporate rate .................... $(386) $ (233) $(12)
State income taxes, net of federal benefit ....... (34) (24) 0
Change in valuation allowance .................... 0 1,755 16
Expenses with no tax benefits .................... (9) (5) (4)
----- ------ ----
Income tax (expense) benefit .................. $(429) $1,493 $ 0
===== ====== ====
NOTE E -- SHAREHOLDERS' EQUITY
For each of the 1996, 1995 and 1994 fiscal years, the only changes to
shareholders' equity was net income and non cash income taxes as described in
Note D during the respective fiscal year.
NOTE F -- DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan available to substantially all
employees. The Company may, at its discretion, make contributions matching all
or some portion of employees' elective contributions to the plan, or may also
make other discretionary contributions to the plan. Such contributions are based
primarily on the performance of the Company. Total expense amounted to $16,335,
$11,810 and $2,130 in the 1996, 1995 and 1994 fiscal years, respectively.
NOTE G -- CONTINGENCIES
The Company has sundry claims and other lawsuits pending against it. It is
not possible to determine with certainty the ultimate liability, if any, of the
Company in any of these matters, but in the opinion of management, their outcome
should have no material adverse effect upon the financial condition or results
of operations of the Company.
F-22
ADVANCED TEXTILES, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
OCTOBER 1, 1994, SEPTEMBER 30, 1995, AND SEPTEMBER 28, 1996
NOTE H -- LETTER OF INTENT
On September 25, 1996, Burlington signed a letter of intent to sell all the
capital stock of the Company to Brunswick Technologies Inc. ("BTI") for a
purchase price of $7.95 million ($600,000 payable in various annual cash
installments during a period up to six years and a convertible subordinated
promissory note bearing interest at an annual rate of 9.5%, payable in various
installments through 2003). The specific repayment terms of the promissory note
are determinable based upon the successful consummation of an initial public
offering of BTI's common stock or securities convertible into common stock.
Under the terms of the agreement, closing of the sale must occur prior to
November 1, 1996 and the net working capital of the Company shall aggregate at
least $1.45 million. Burlington will provide such cash as may be necessary to
avoid any shortfall of working capital and BTI will pay to Burlington any such
excess in cash.
F-23
Inside back cover of the Prospectus. There is a large centered
photograph of a person snowboarding down a mountain. The caption beneath it
reads, "BTI engineered fabrics enhance the performance of snowboards and other
sporting equipment." The Company logo and the slogan "REINFORCED THROUGH
INNOVATION" is in the lower left-hand corner of the page.
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary 3
Risk Factors 7
Use of Proceeds 13
Dividend Policy 13
Dilution 14
Capitalization 15
Unaudited Pro Forma Condensed Combined Financial
Information 16
Selected Financial Information 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 22
Business 31
Management 41
Principal Stockholders 47
Certain Transactions 49
Description of Capital Stock and Certain
Indebtedness 50
Shares Eligible for Future Sale 51
Underwriting 53
Change in Accountants 54
Legal Matters 55
Experts 55
Additional Information 55
Glossary of Technical Terms 56
Index to Financial Statements F-1
</TABLE>
UNTIL ___________ , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
2,250,000 SHARES
[LOGO]
BRUNSWICK TECHNOLOGIES, INC.
COMMON STOCK
----------
PROSPECTUS
----------
JOSEPHTHAL LYON & ROSS INCORPORATED
, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various costs and expenses payable in
connection with the sale and distribution of the securities being registered,
other than underwriting discounts. All of the amounts shown are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID BY
REGISTRANT
----------
<S> <C>
SEC registration fee $ 7,138
Nasdaq National Market listing fee $ 36,744
NASD fee $ 2,570
Printing and engraving $ 60,000
Legal fees and expenses of the Registrant $ 110,000
Accounting fees and expenses $ 85,000
Blue sky fees and expenses $ 15,000
Transfer agent fees $ 4,500
Expense allowance to Representative $ 118,250
Miscellaneous $ 60,798
---------
Total $ 500,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (1) of Section 719 of the Maine Business Corporation Act empowers
a corporation to indemnify, or if so provided in the bylaws, shall in all cases
indemnify, any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
that person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
trustee, partner, fiduciary, employee or agent of another corporation,
partnership, joint venture, trust, pension or other employee benefit plan or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by that person
in connection with such action, suit or proceeding; provided that no
indemnification may be provided for any person with respect to any matter as to
which that person shall have been finally adjudicated: (a) not to have acted
honestly or in the reasonable belief that that person's action was in or not
opposed to the best interest of the corporation or its shareholders or, in the
case of a person serving as a fiduciary of an employee benefit plan or trust, in
or not opposed to the best interest of the plan or trust, or its participants or
beneficiaries; or (b) with respect to any criminal action or proceeding, to have
had reasonable cause to believe that that person's conduct was unlawful.
Furthermore, subsection (1) of Section 719 provides that the termination of
any action, suit or proceeding by judgment, order or conviction adverse to that
person, or by settlement or plea of nolo contendere or its equivalent, shall not
of itself create a presumption that that person did not act honestly or in the
reasonable belief that that person's action was in or not opposed to the best
interests of the corporation or its shareholders or, in the case of a person
serving as a fiduciary of an employee benefit plan or trust, in or not opposed
to the best interests of that plan or trust or its participants or beneficiaries
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that that person's conduct was unlawful.
II-1
Subsection (1-A) of Section 719 provides that notwithstanding any provision
of subsection (1), a corporation shall not have the power to indemnify any
person with respect to any claim, issue or matter asserted by or in the right of
the corporation as to which that person is finally adjudicated to be liable to
the corporation unless the court in which the action, suit or proceeding was
brought shall determine that, in view of all the circumstances of the case, that
person is fairly and reasonably entitled to indemnity for such amounts as the
court shall deem reasonable.
Subsection (3) of Section 719 provides that any indemnification under
subsection (1), unless ordered by a court or required by the bylaws, shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances and in the best interests of the corporation.
That determination shall be made by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to that action, suit or
proceeding, or if such a quorum is not obtainable, or even if obtainable, if a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the shareholders. Such a determination once made may not
be revoked and, upon the making of that determination, the director, officer,
employee or agent may enforce the indemnification against the corporation by a
separate action notwithstanding any attempted or actual subsequent action by the
board of directors.
Finally, subsection (6) of Section 719 provides that a corporation shall
have power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, trustee,
partner, fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or other enterprise
against any liability asserted against that person and incurred by that person
in any such capacity, or arising out of that person's status as such, whether or
not the corporation would have the power to indemnify that person against such
liability under this section.
Section 14 of Article Third of the Second Restated Bylaws of the Company
provides for such indemnification to the fullest extent that the Maine Business
Corporation Act permits, as more fully described in the five paragraphs
immediately preceding above.
The Company has purchased directors and officers liability insurance
covering liabilities incurred by its officers and directors in connection with
the performance of their duties from National Union Fire Insurance Company of
Pittsburgh, PA., in the amount of $3,000,000.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since August 1993, the Registrant has sold and issued the following
securities:
In August, 1993, the Company and certain stockholders sold an aggregate of
1,040,000 shares of Series D Convertible Preferred Stock, 92,300 shares of
Series AA Preferred Stock and 11,700 shares of Series BB Preferred Stock of the
Company to Vetrotex for an aggregate cash purchase price of $1,936,000. The
purchase price was determined by negotiation between the Company, the selling
stockholders, and Vetrotex. Concurrently with such sale, certain stockholders
sold 139,230 shares of Common Stock for a purchase price equal to $0.77 per
share. These shares were sold pursuant to Section 4(2) of the Securities Act, as
no public offering of securities was made. This exemption was available as the
only offeree of securities in the transaction was Vetrotex, the supplier of 80%
of the Company's raw material needs at the time.
On March 15, 1995 John Busch and Jurgen Kok exercised options to acquire
3,250 and 4,875 shares of the Company's Common Stock, respectively, at an
aggregate exercise price of $50 and $75, respectively. On March 15, 1995 and
April 23, 1996, Herschel Sternlieb exercised options to acquire 3,250 and 13,000
shares of the Company's Common Stock, respectively, at an aggregate exercise
price of $250. On March 30, 1995, Lisa Anderson-Bisson exercised options to
acquire 7,800 shares of the Company's Common Stock at an aggregate exercise
price of $3,300. On August 11, 1995, Peter Rand exercised options to acquire
6,500 shares of the Company's Common Stock at an aggregate exercise price of
$100. The Company purchased said shares from Mr. Rand within 60 days of the
exercise of his options. On December 31, 1995, Dudley Follansbee acquired 9,165
shares of the Company's Common
II-2
Stock pursuant to warrants at an aggregate price of $14,100. In issuing these
shares to its employees, the Company relied upon the exemption from the
registration provisions of the Securities Act provided by Rule 701 promulgated
under such Act.
On October 30, 1996, the Company acquired all of the capital stock of ATI
from Burlington for a purchase price of $7,863,000, payable in part by the
issuance of a convertible subordinated promissory note of $7,296,500 in favor of
Burlington (the "Convertible Note") and the issuance to Peter L. DeWalt of 7,670
shares of Common Stock. The Convertible Note bears interest at a rate of 9.5%
per annum, payable semi-annually. Within seven months after the completion of
the Offering, 50% of the principal amount of the Convertible Note ($3,648,250)
will become due and payable. The remaining 50% of the principal amount of the
Convertible Note will be payable in equal installments on October 30, 2002 and
October 30, 2003 respectively, provided that additional payments of principal
shall be made on October 30, 2002 to the extent it would not cause the Company
to violate the terms of its financial covenants with its senior lenders as of
such time. Alternatively, Burlington has the right, in lieu of cash payment, to
convert the remaining 50% of the principal amount of the Convertible Note into
521,179 shares of Common Stock. In issuing the Convertible Note to Burlington,
and the 7,670 shares of Common Stock to Mr. DeWalt, the Company relied upon the
exemption from the registration provisions of the Securities Act provided by
Regulation D promulgated under such Act.
The Company has granted, pursuant to its 1991 Stock Option Plan and its 1994
Stock Option Plan, a total of 424,125 options to employees of the Company within
the last three years. In granting these options to its employees, the Company
relied upon the fact that such grants did not constitute sales under the
Securities Act.
ITEM 16. EXHIBITS
(a) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
1.1 -- Form of Underwriting Agreement (to be filed by amendment).
3.1 -- Amended and Restated Articles of Incorporation of the Registrant (to be filed by amendment).
3.2 -- Third Restated Bylaws of the Registrant (to be filed by amendment).
*4.1 -- Amended and Restated Registration Rights Agreement dated August 25, 1993.
4.2 -- Amendment No. 1 to the Registration Rights Agreement dated October 30, 1996.
4.3 -- Amendment No. 2 to the Registration Rights Agreement dated October 30, 1996.
4.4 -- Form of Warrants (to be filed by amendment).
4.5 -- Specimen stock certificate for shares of Common Stock.
5.1 -- Opinion of Eaton, Peabody, Bradford & Veague, P.A. as to legality of shares (to
be filed by amendment).
*10.1 -- Loan Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
*10.2 -- Security Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
*10.3 -- Demand Note in favor of Fleet Bank of Maine dated May 30, 1996.
10.4 -- Supply Agreement between the Registrant and Vetrotex CertainTeed Corp. dated August
25, 1993 (confidential portions of which have been omitted
and filed separately with the Commission under a request for
confidential treatment pursuant to Rule 406).
*10.5 -- Private Activity Bond Requirements Certificate of Brunswick Technologies, Inc.
dated December 1, 1995.
*10.6 -- Lease Agreement between the Registrant and Brunswick Development Corporation dated August 1, 1995.
*10.7 -- Collaborative Agreement between the Registrant and E.I. DuPont de Nemours and
Company, Inc., et al.
II-3
EXHIBIT
NO. DESCRIPTION
--- -----------
*10.8 -- Financial Advisory Agreement and Indemnification Agreement between the Registrant
and the Representative.
*10.9 -- Installment Promissory Note between the Registrant and Vetrotex CertainTeed Corp.
dated March 31, 1992.
*10.10 -- Security Agreement between the Registrant and Vetrotex CertainTeed Corp. dated
March 31, 1992.
10.11 -- Stock Purchase Agreement between the Registrant and Peter
L. DeWalt dated October 22, 1996 and First Amendment to
Stock Purchase Agreement dated October 29, 1996.
10.12 -- Registration Rights Agreement between the Registrant, Burlington Industries, Inc.,
and Peter L. DeWalt, dated October 30, 1996.
10.13 -- Employment Agreement between Advanced Textiles, Inc., a subsidiary of the Registrant,
and Peter L. DeWalt, dated October 30, 1996.
10.14 -- Convertible Subordinated Promissory Note made by the Registrant in favor of Burlington
Industries, Inc. dated October 30, 1996.
10.15 -- Recapitalization Agreement.
*16 -- Letter of KPMG Peat Marwick LLP re change in certifying accountant.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Eaton, Peabody, Bradford & Veague, P.A. (to be included in Exhibit 5.1.)
23.4 -- Consent of Ernst & Young LLP.
*24.1 -- Power of Attorney (included in signature page in Registration Statement).
27 -- Financial Data Schedule.
99.1 -- Consent of Donald R. Hughes to be named herein as Director-elect.
99.2 -- Consent of Max G. Pitcher to be named herein as Director-elect.
99.3 -- Consent of William M. Dubay to be named herein as Director-elect.
</TABLE>
- -----------
* Previously filed.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable, not required
under the instructions, or all the information required is set forth in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered herein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF BRUNSWICK, STATE OF
MAINE, ON THE 6TH DAY OF NOVEMBER, 1996.
BRUNSWICK TECHNOLOGIES, INC.
By: /s/ MARTIN S. GRIMNES
--------------------------------
MARTIN S. GRIMNES,
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARTIN S. GRIMNES Principal Executive Officer November 6, 1996
- ------------------------------- And Director
MARTIN S. GRIMNES
* Director November 6, 1996
- -------------------------------
DAVID M. COIT
* Director November 6, 1996
- -------------------------------
GREGORY B. PETERS
* Director November 6, 1996
- -------------------------------
DAVID E. SHARPE
* Director November 6, 1996
- -------------------------------
PETER N. WALMSLEY
* Treasurer And Principal November 6, 1996
- ------------------------------- Financial And Accounting Officer
JOHN P. O'SULLIVAN
* PresidentAAnd Principal November 6, 1996
- ------------------------------- Operating Officer
WILLIAM M. DUBAY
By: /S/ MARTIN S. GRIMNES November 6, 1996
----------------------------
MARTIN S. GRIMNES,
ATTORNEY-IN-FACT
</TABLE>
II-6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1 -- Form of Underwriting Agreement (to be filed by amendment).
3.1 -- Amended and Restated Articles of Incorporation of the Registrant (to be filed by amendment).
3.2 -- Third Restated Bylaws of the Registrant (to be filed by amendment).
*4.1 -- Amended and Restated Registration Rights Agreement dated August 25, 1993.
4.2 -- Amendment No. 1 to the Registration Rights Agreement dated October 30, 1996.
4.3 -- Amendment No. 2 to the Registration Rights Agreement dated October 30, 1996.
4.4 -- Form of Warrants (to be filed by amendment).
4.5 -- Specimen stock certificate for shares of Common Stock.
5.1 -- Opinion of Eaton, Peabody, Bradford & Veague, P.A. as to legality of shares (to be filed by amendment).
*10.1 -- Loan Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
*10.2 -- Security Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
*10.3 -- Demand Note in favor of Fleet Bank of Maine dated May 30, 1996.
10.4 -- Supply Agreement between the Registrant and Vetrotex CertainTeed Corp. dated August 25, 1993 (confidential portions of
which have been omitted and filed separately with the Commission under a request for confidential treatment pursuant
to Rule 406).
*10.5 -- Private Activity Bond Requirements Certificate of Brunswick Technologies, Inc. dated December 1, 1995.
*10.6 -- Lease Agreement between the Registrant and Brunswick Development Corporation dated August 1, 1995.
*10.7 -- Collaborative Agreement between the Registrant and E.I. DuPont de Nemours and Company, Inc., et al.
*10.8 -- Financial Advisory Agreement and Indemnification Agreement between the Registrant and the Representative.
*10.9 -- Installment Promissory Note between the Registrant and Vetrotex CertainTeed Corp. dated March 31, 1992.
*10.10 -- Security Agreement between the Registrant and Vetrotex CertainTeed Corp. dated March 31, 1992.
10.11 -- Stock Purchase Agreement between the Registrant and Peter L. DeWalt dated October 22, 1996 and First Amendment to
Stock Purchase Agreement dated October 29, 1996.
10.12 -- Registration Rights Agreement between the Registrant, Burlington Industries, Inc., and Peter L. DeWalt, dated October
30, 1996.
10.13 -- Employment Agreement between Advanced Textiles, Inc., a subsidiary of the Registrant, and Peter L. DeWalt, dated
October 30, 1996.
10.14 -- Convertible Subordinated Promissory Note made by the Registrant in favor of Burlington Industries, Inc. dated October
30, 1996.
10.15 -- Recapitalization Agreement.
*16 -- Letter of KPMG Peat Marwick LLP re change in certifying accountant.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Eaton, Peabody, Bradford & Veague, P.A. (to be included in Exhibit 5.1.)
23.4 -- Consent of Ernst & Young LLP.
*24.1 -- Power of Attorney (included in signature page in Registration Statement).
27 -- Financial Data Schedule.
99.1 -- Consent of Donald R. Hughes to be named herein as Director-elect.
99.2 -- Consent of Max G. Pitcher to be named herein as Director-elect.
99.3 -- Consent of William M. Dubay to be named herein as Director-elect.
- ----------
* Previously filed.
</TABLE>
EXHIBIT 4.2
AMENDMENT NO. 1 TO THE REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO the Amended and Restated Registration Rights
Agreement (dated August 25, 1993) is entered into as of the 30th day of October,
1996 between Brunswick Technologies, Inc. (the "Company") and each of the
stockholders of the Company, as listed herein below (the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders and the Company entered into the Amended and
Restated Registration Rights Agreement as of August 25, 1993 (the "Agreement");
and
WHEREAS, the Company intends to acquire substantially all of the stock
of Advanced Textiles, Inc. ("ATI") from Burlington Industries, Inc. ("BI") and
Peter L. DeWalt (collectively, the "Sellers"); and
WHEREAS, the Company has agreed to provide certain registration rights
to the Sellers, with such registration rights to be substantially the same as
the registration rights of the Stockholders; and
WHEREAS, the Stockholders and the Company desire to amend the Agreement
to allow the Company to provide substantially the same registration rights to
the Sellers;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration expressed, the Company and each
of the Stockholders agree as follows:
A. The Agreement is hereby amended effective as of the date
hereof by striking out Section 5 thereof and by substituting in lieu of
said Section 5 the following new Section 5:
5. Incidental Registration. If the Company at any time (other than
pursuant to Section 4) proposes to register any of its securities under
the Securities Act for sale to the public, whether for its own account
or for the account of other security holders or both (except with
respect to registration statements on Forms S-4, S-8 or another form
not available for registering the Restricted Stock for sale to the
public), each such time it will give written notice to all holders of
outstanding Restricted Stock of its intention so to do. Upon the
written request of any such holder, received by the Company within
thirty (30) days after the giving of any such notice by the Company, to
register any of its Restricted Stock (which request shall state the
intended method of disposition thereof), the Company will use its best
efforts to cause the Restricted Stock as to which registration shall
have been so requested to be included in the securities to be covered
by the registration statement proposed to be filed by the Company, all
to
the extent requisite to permit the sale or other disposition by the
holder (in accordance with its written request) of such Restricted
Stock so registered. In the event that any registration pursuant to
this Section 5 shall be, in whole or in part, an underwritten public
offering of Common Stock, (i) as a condition to the exercise of its
rights under this Section 5, each holder of Restricted Stock must agree
to participate in the underwriting arrangements described in the
notice, and (ii) the number of shares of Restricted Stock to be
included in such an underwriting may be reduced (pro rata among all
requesting holders pursuant hereto and other holders of rights similar
to those described in this Section 5, based upon (a) as to the holders
requesting hereunder, the number of shares of Restricted Stock owned by
such holders, and (b) as to any other holders of similar rights, shares
of Common Stock owned by, or issuable to, such holders, as to which
such rights are applicable) if and to the extent that the managing
underwriter shall be of the opinion that such inclusion would adversely
affect the marketing of the securities to be sold by the Company
therein. In order to facilitate the allocation of shares as provided
herein, the Company or the underwriter may round the number of shares
allocated to any holder to the nearest 100 shares. Notwithstanding the
foregoing provisions, the Company may withdraw any registration
statement referred to in this Section 5 without thereby incurring any
liability to the holders of Restricted Stock.
B. As hereby amended, the Agreement is ratified and confirmed
in all respects.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the day and year first written.
Brunswick Technologies, Inc. Advanced Material Technologies Venture
Partners, Ltd.
By: ______________________________ By: ______________________________
__________________________________ __________________________________
its _________________, its _________________,
thereunto duly authorized thereunto duly authorized
STOCKHOLDERS: Vetrotex CertainTeed Corporation
North Atlantic Venture Fund, Limited By: ______________________________
Partnership
By: North Atlantic Capital Partners,
Limited Partnership, General Partner __________________________________
By: ____________________________ its _________________,
thereunto duly authorized
________________________________,
General Partner
JHAM Limited Partnership
By: ___________________________ -------------------------------
Martin S. Grimnes
_______________________________,
General Partner -------------------------------
Donald W. Perkins
- -------------------------------
Donald D. Notman, Sr. -------------------------------
Dudley B. Follansbee
- -------------------------------
Daniel A. Zilkha -------------------------------
Lisa Anderson-Bisson
- -------------------------------
Thomas N. Tureen -------------------------------
John V. Busch
- -------------------------------
Marilyn Kanefield -------------------------------
Jurgen Kok
- -------------------------------
Dodge D. Morgan -------------------------------
Herschel Sternlieb
EXHIBIT 4.3
AMENDMENT NO. 2 TO THE REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 2 to the Amended and Restated Registration Rights
Agreement (dated August 25, 1993), as amended to date, is entered into as of the
30th day of October, 1996 between Brunswick Technologies, Inc. (the "Company")
and each of the stockholders of the Company, as listed herein below (the
"Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders and the Company entered into the Amended and
Restated Registration Rights Agreement as of August 25, 1993 (the "Agreement");
and
WHEREAS, the Company intends to acquire substantially all of the stock
of Advanced Textiles, Inc. ("ATI") from Burlington Industries, Inc. ("BI") and
Peter L. DeWalt (collectively, the "Sellers"); and
WHEREAS, the Company has agreed to provide certain registration rights
to the Sellers, with such registration rights to be substantially the same as
the registration rights of the Stockholders; and
WHEREAS, the Stockholders and the Company desire to amend the Agreement
to allow the Company to provide substantially the same registration rights to
the Sellers;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration expressed, the Company and each
of the Stockholders agree as follows:
A. The Agreement is hereby amended effective as of the date
hereof by (i) deleting the last sentence of Section 4(a) thereof and by
substituting in lieu of said sentence the following:
"Notwithstanding anything to the contrary contained herein,
(i) no request may be made under this Section 4(a) within the
Restricted Period (as defined below), and (ii) the Company will not be
obligated to effect more than two (2) registrations under this Section
4(a).
For purposes of this Agreement, "Restricted Period" shall mean
the period beginning on the effective date of a registration statement
filed by the Company either: (x) for its own account pursuant to a firm
commitment underwritten public offering, or (y) pursuant to a demand
under Section 4(a) of the Registration Rights Agreement dated as of the
date hereof among the Company, Burlington Industries, Inc. and Peter L.
DeWalt, and ending on the earlier of the completion of the distribution
pursuant to such registration statement or 120 days after such
effective date."
and (ii) deleting the last sentence of Section 4(c) and substituting in
lieu thereof the following:
"Except for registration statements on Form S-4, S-8 or any
successor thereto, the Company will not file with the Commission any
other registration statement with respect to its Common Stock, whether
for its own account or that of other stockholders during the Restricted
Period."
B. As hereby amended, the Agreement is ratified and confirmed
in all respects.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the day and year first written.
Brunswick Technologies, Inc.
By: ______________________________
__________________________________
its _________________,
thereunto duly authorized
STOCKHOLDERS:
North Atlantic Venture Fund, Limited
Partnership
By: North Atlantic Capital Partners,
Limited Partnership, General Partner
By:
____________________________
____________________________,
General Partner
Advanced Material Technologies Venture
Partners, Ltd.
By: ______________________________
__________________________________
its _________________,
thereunto duly authorized
Vetrotex CertainTeed Corporation
By: ______________________________
__________________________________
its _________________,
thereunto duly authorized
JHAM Limited Partnership
By:____________________________ -------------------------------
Martin S. Grimnes
- -------------------------------,
General Partner -------------------------------
Donald W. Perkins
- -------------------------------
Donald D. Notman, Sr. -------------------------------
Dudley B. Follansbee
- -------------------------------
Daniel A. Zilkha -------------------------------
Lisa Anderson-Bisson
- -------------------------------
Thomas N. Tureen -------------------------------
John V. Busch
- -------------------------------
Marilyn Kanefield -------------------------------
Jurgen Kok
- -------------------------------
Dodge D. Morgan -------------------------------
Herschel Sternlieb
EXHIBIT 4.5
SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
Brunswick Technologies, Inc.
NUMBER
INCORPORATED UNDER THE LAWS OF THE STATE OF MAINE
BT
THIS IS TO CERTIFY THAT CUSIP 114580 10 3
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR VALUE OF
ONE CENT ($.01) EACH OF
BRUNSWICK TECHNOLOGIES, INC.
transferable upon the books of the Company in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate
and the shares represented hereby are subject to the laws of The State of
Maine and to the Articles of Organization and By-laws of the Company as
from time to time amended.
This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, Brunswick Technologies, Inc. has caused its
facsimile corporate seal and facsimile signatures of its duly authorized
officers to be hereunto affixed.
COUNTERSIGNED AND
REGISTERED
BY
FLEET
NATIONAL
BANK
Dated: (Providence, Rhode
Island)
TRANSFER
Corporate Seal AGENT AND
REGISTRAR
TREASURER PRESIDENT
AUTHORIZED
SIGNATURE
THE CORPORATION WILL FURNISH UPON REQUEST WITHOUT CHARGE THE DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS
OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OR SUCH PREFERENCES AND/OR RIGHTS
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT -.....Custodian......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..................
in common (State)
Additional abbreviations may also be used though not in the
above list.
For value received ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
________________________________________________________________shares of the
capital stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint _______________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________
-------------------------------------------------------
NOTICE THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER
EXHIBIT 10.4
CERTAIN CONFIDENTIAL INFORMATION OTHERWISE HEREIN HAS BEEN OMITTED; SUCH
(REDACTED) INFORMATION IS CONFIDENTIAL AND HAS BEEN FILED SEPERATELY WITH THE
U.S. SECURITIES AND EXCHANGE COMMISSION.
SUPPLY AGREEMENT
THIS AGREEMENT made and entered into this 25th day of August, 1993, by
and between Brunswick Technologies, Inc., a Maine corporation (the "Buyer") and
Vetrotex CertainTeed Corporation, a Delaware corporation (the "Seller").
BACKGROUND
Seller currently sells certain fiberglass reinforcing products to
Buyer. Buyer and Seller are this date entering into an agreement (the "Stock
Purchase Agreement") pursuant to which Seller will purchase certain equity
securities of Buyer. The Stock Purchase Agreement provides that Seller and Buyer
will enter into an agreement pursuant to which Buyer will purchase from Seller
and Seller will supply to Buyer not less than 90% of Buyer's requirements of
fiberglass raw material at the prices and upon the other terms and conditions
hereinafter provided.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Sale and Purchase of the Products. Seller shall sell and deliver to
Buyer, and Buyer agrees to purchase from Seller, the fiberglass products
identified in 'section 2(a) hereafter (the "Products") on the terms set forth
herein. Further, Seller shall make available and supply, on a timely basis,
Products that meet
the "Specifications", as defined in Section 4 hereafter, in such quantities as
Buyer may require, and Buyer shall purchase from Seller not less than 90% of
Buyer's requirements for the Products during the Term (as hereinafter defined)
of this Agreement.
2. Prices for the Products. The price for each of the Products during
the term hereof shall be as follows:
(a) For the period commencing with the date hereof and until
December 31, 1993, the price by Product shall be as follows:
Product Price per Pound
------- ---------------
***
(b) For calendar year 1994, the price for each of the
Products shall be adjusted for price changes which have been realized by the
industry for each such Product between September 30, 1992 and November 15, 1993.
(c) For calendar year 1995 and for that part of calendar year
1996 during which this Agreement is in effect, the price for each of the
Products shall be adjusted for price
*** CERTAIN CONFIDENTIAL INFORMATION OTHERWISE HEREIN HAS BEEN OMITTED; SUCH
(REDACTED) INFORMATION IS CONFIDENTIAL AND HAS BEEN FILED SEPERATELY WITH THE
U.S. SECURITIES AND EXCHANGE COMMISSION.
2
changes which have been realized by the industry for each such product between
November 15, 1993 and November 14, 1994 for 1995, and between November 15, 1994
and November 14, 1995 for 1996.
(d) Written notice of any price adjustments provided for in
subsections (b) and (c) above shall be provided to Buyer on or before November
30 of the year prior to the calendar year for which such adjustments are to
become effective.
3. Delivery and Payment Terms. ***
4. Specifications. Each of the Products sold to Buyer hereunder shall
be manufactured in accordance with Seller's published specifications for such
Products as the same may be in effect from time to time and such other
specifications as may be agreed upon in writing by the parties hereto (together,
the "Specifications").
*** CERTAIN CONFIDENTIAL INFORMATION OTHERWISE HEREIN HAS BEEN OMITTED; SUCH
(REDACTED) INFORMATION IS CONFIDENTIAL AND HAS BEEN FILED SEPERATELY WITH THE
U.S. SECURITIES AND EXCHANGE COMMISSION.
3
5. Warranties.
Seller warrants that the Products sold under this Agreement shall
conform to the Specifications, and be free from manufacturing defects. BUYER'S
EXCLUSIVE REMEDY FOR NON-CONFORMING OR DEFECTIVE PRODUCTS SHALL BE REPLACEMENT
OF SUCH NON-CONFORMING OR DEFECTIVE PRODUCTS AT SELLER'S EXPENSE AT THE PLANT
FROM WHICH SUCH PRODUCTS WERE INITIALLY SHIPPED AND, PENDING SUCH REPLACEMENT,
ISSUANCE OF APPROPRIATE CREDIT INVOICES AS PROVIDED IN PARAGRAPH 8 HEREOF. IF
BUYER HAS TIMELY REJECTED OR REVOKED ACCEPTANCE OF NON-CONFORMING OR DEFECTIVE
PRODUCTS IN ACCORDANCE WITH PARAGRAPH 8 HEREOF AND SELLER IS UNABLE TO REPLACE
SUCH NON-CONFORMING OR DEFECTIVE PRODUCTS AND IS UNABLE TO FURNISH OTHER
PRODUCTS THAT MEET SELLER'S WARRANTY WITHIN 60 DAYS OF SUCH REJECTION OR
REVOCATION OF ACCEPTANCE, BUYER SHALL BE ENTITLED TO A REFUND OF ITS PURCHASE
PRICE FOR SUCH NON-CONFORMING OR DEFECTIVE PRODUCTS IF PREVIOUSLY PAID. SELLER'S
LIABILITY FOR ANY LOSS OR DAMAGE ARISING OUT OF OR RESULTING FROM DELIVERY OF
NON-CONFORMING OR DEFECTIVE PRODUCTS OR NON-DELIVERY OR LATE DELIVERY OF
PRODUCTS SHALL NOT EXCEED THE PURCHASE PRICE THEREOF, REGARDLESS OF WHETHER SUCH
LIABILITY ARISES IN CONTRACT, TORT (INCLUDING, BUT NOT LIMITED TO NEGLIGENCE OR
STRICT LIABILITY OR OTHERWISE). TO THE FULL EXTENT PERMITTED BY LAW, NEITHER
SELLER NOR BUYER SHALL BE LIABLE TO THE OTHER OR TO ANY THIRD PARTY FOR ANY
CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT. SELLER MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR
4
PURPOSE, NOR IS THERE ANY OTHER WARRANTY, EXPRESS OR IMPLIED, ON THE PART OF
SELLER EXCEPT AS EXPRESSLY PROVIDED ABOVE. In no event shall any of the
warranties given by Seller hereunder be assignable by buyer.
6. Confidentiality.
a) Buyer agrees that all technical information relating to the
Products, and all know-how relating to the manufacture and/or processing of the
Products, whether already developed or developed during the Term hereof, are
owned by Seller. Seller agrees that all information developed by Buyer relating
to the application of the Products to Buyer's products, and all information
relating to Buyer's business in general, whether such information has been
developed or is developed during the Term hereof, is owned by Buyer. The
information owned by Seller and the information owned by Buyer is collectively
referred to herein as "Confidential Information". The following types of
information are excluded from the definition of Confidential Information as used
herein:
(i) information which is or hereafter becomes generally known
to the public through no fault or act of the receiving party;
(ii) information which is in the lawful possession of
receiving party at the time of disclosure thereof by disclosing party to
receiving party as shown by receiving party's records
5
and with respect to which there was no obligation of confidentiality at the time
of receipt;
(iii) information which is received by receiving party from a
third party which receiving party believes has the right to disclose such
information; or
(iv) information which is hereafter independently developed
by employees or agents of receiving party who have not had access to the
Confidential Information of disclosing party, as evidenced by written
documentation; or
(v) information which is authorized for release by disclosing
party.
b) Buyer and Seller further agree that, with respect to
Confidential Information:
(i) The receiving party will retain all Confidential
Information in confidence for a period of 10 years from the date of receipt.
(ii) The receiving party agrees not to use the Confidential
Information to compete with the disclosing party or for any other improper
purpose and not to disclose or to permit the disclosure of Confidential
Information to any person or entity without the prior written consent of the
disclosing party, other than to those of the receiving party's employees,
attorneys, principals or agents who are required to have access to such
Confidential Information. The names of all such persons shall be furnished to
the disclosing party upon its request.
6
(iii) all materials, including, without limitation,
documents, drawings, apparatus, designs and lists furnished to the receiving
party and containing Confidential Information shall remain the property of the
disclosing party, and nothing contained herein shall be construed as giving the
receiving party any license or rights with respect to any such information or
materials other than as expressly provided herein. Upon termination of this
Agreement, the receiving party shall return to the disclosing party promptly at
its request all Confidential Information, along with all copies made thereof,
and all documents or items containing any Confidential Information. Both parties
acknowledge that, in the event of a breach of this Section 6, money damages may
be difficult to ascertain and may be inadequate. Accordingly, in the event
action is brought to enforce the provisions of this Section 6, the party seeking
such relief shall, in addition to all other remedies at law, be entitled to seek
injunctive or other equitable relief.
7. Term. Subject to earlier termination pursuant to Section 11 hereof,
the term of this agreement (the "Term") shall commence on the Closing, as
defined in the Stock Purchase Agreement, and shall remain in effect for the
three year period ending on the third anniversary date of the Closing.
8. Inspection: Credits.
(a) Buyer shall employ inspection procedures to inspect shipments of
the Products within 60 days of delivery, and
7
inform Seller in writing of any defects in the Products. In the event that Buyer
encounters Products that Buyer believes do not meet the Specifications or are
defective, and Buyer proves the same to Seller's satisfaction, which shall not
be unreasonably withheld or delayed, Buyer may reject such non-conforming or
defective products. Delivered Products that are not rejected within 60 days of
delivery may not subsequently be rejected, nor may acceptance of such Products
be revoked, whether or not such Products were inspected by Buyer.
(b) Seller shall issue appropriate credit invoices to Buyer
for rejected Products which Buyer and Seller agree do not meet the
Specifications or are otherwise defective.
9. Force Majeure.
(a) Either party shall be relieved from liability herein
imposed, except for the obligation to pay for Products already delivered, for
the time and to the extent of such failure to perform if Buyer's failure to
take, use or consume, or Seller's failure to make delivery is due to or
occasioned by war or acts of the public enemy, insurrection, riot, action of any
governmental authority, embargo, strike, lockout, flood, explosion, fire or
other casualty, accident, act of God, shortage of labor, materials, or fuel,
delay or interruptions in transportation, epidemic, or quarantine, compliance
with any governmental law or regulation, or any other cause or causes of any
kind or character reasonably beyond the control of the party
8
failing to perform, whether similar to or dissimilar from the enumerated causes
(any such cause herein called "Force Majeure").
(b) in the event of either party being rendered unable by the
foregoing Force Majeure situations to carry out its obligations under this
Agreement, other than to make payments due hereunder, such party shall give
notice and full particulars, including the expected duration of such Force
Majeure, to the other party not later than ten (10) days after the occurrence of
the cause relied on, and upon the giving of such notice the obligations of the
party giving such notice, so far as they are affected by such Force Majeure,
shall be suspended during continuance of any inability so caused, but for no
longer period, and such cause shall be so far as possible remedied with all
reasonable dispatch. However, neither party shall be required to resolve a
strike, lockout or other labor problem in a manner which it alone does not deem
proper and advisable.
(c) Upon the cessation of the cause or causes for any such
failure or delay, performance hereof shall be resumed, but such delay shall not,
except by mutual agreement, operate to extend the term of this Agreement.
(d) During any period in which Seller is relieved of its
obligations to perform hereunder as a result of a Force Majeure, Buyer may, for
the period such Force Majeure continues, but no longer, purchase its
requirements of products similar to the Products from other suppliers without
being in breach of its obligations hereunder.
9
10. Default. Any of the following events or circumstances shall
constitute an event of default under this Agreement:
(a) If either party fails to observe or perform any term or
provision of this Agreement in any material respect and such failure is not
remedied within fifteen (15) days after notice of such failure is given to the
party responsible for such failure by the other party; or
(b) If either party becomes insolvent or bankrupt, or admits
its inability to pay its debts generally as they become due or if a liquidator,
trustee in bankruptcy or any other officer with similar powers shall be
appointed with respect to said party or any of its assets; or if proceedings for
the winding-up, liquidation or dissolution of any of said parties are commenced
or if either of said parties is wound-up, liquidated or dissolved.
11. Remedies. Upon the occurrence of an event of default under Section
10, the party not in default may, at its option, in addition to its other
remedies at law or in equity, give notice to the defaulting party that this
Agreement is terminated effective the date of such notice.
12. Independent Contractor. This Agreement is not intended to create a
partnership or joint venture and neither party shall be authorized to create any
obligations or make any representations or warranties on behalf of the other
party. Any representations or warranties made or obligations created are at the
peril of the creating party. Each party shall indemnify the
10
other for any and all damages sustained by such party as a result of the
creating party's making representations or warranties or creating obligations on
behalf of the other.
13. Indemnification Against Patent Infringement. Seller represents and
warrants to Buyer that it has the right to sell the products to buyer in
accordance with this Agreement and agrees that, if any claim or suit of patent
infringement is made or filed by a third party against Buyer with respect to the
Products sold to Buyer by Seller pursuant to this Agreement, Seller will, at its
own expense, assume Buyer's defense with respect to such claims or suits and
indemnify Buyer against any losses it may incur as a result of such third
party's claim. Seller shall have the sole control of the defense of any suit
with respect to which if has agreed to provide indemnification hereunder,
including any settlement thereof. Buyer shall notify Seller in writing of any
claim or suit for which it seeks to be indemnified by Seller promptly after it
becomes aware of such claim or suit. Seller agrees to keep Buyer informed of
significant developments that transpire with respect to any such claim or suit,
and Buyer may, at its own expense, participate in the defense of such claim or
suit through attorneys of its own choosing. It is hereby expressly agreed that,
in the event that any such infringement is alleged, then Seller may at its sole
option decline to make further deliveries of Products to Buyer and this
Agreement shall terminate.
11
l4. Miscellaneous.
(a) This Agreement constitutes the entire agreement and
understanding between the parties pertaining to the matters referred to herein,
and supersedes all prior negotiations, commitments, representations, and
warranties, whether oral or written. The terms of this Agreement shall supersede
the terms of any purchase order, acknowledgement, invoice or other document used
by the Buyer or Seller in the purchase or sale of the Products hereunder. The
provisions of Sections 6 and 13 hereof shall survive any termination of this
Agreement.
(b) No amendment or other modification to this Agreement
shall be valid or binding upon the parties unless such amendment or modification
is in writing and signed by both parties.
(c) No waiver by a party of any breach, failure or default in
performance by the other party and no failure, refusal or neglect by a party to
exercise any right hereunder or to insist upon strict compliance with or
performance of the other party's obligations hereunder, shall constitute a
waiver by such party of the provisions of this Agreement with respect to any
subsequent breach, failure or default and shall not constitute a waiver by such
party of its right, at any time or thereafter, to require strict compliance with
the provisions hereof.
(d) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
12
(e) All notices permitted or required to be given by either
party in accordance with the provisions of this Agreement shall be in writing
and shall be deemed given if (i) delivered by hand; (ii) sent in a prepaid
registered letter deposited in a post office, return receipt requested; (iii)
sent via overnight mail; or (iv) transmitted by telex, fax or other wire service
and confirmed by prepaid registered or certified letter, properly addressed to
the party to whom notice is to be given, at its address as listed below:
If to Buyer:
VETROTEX CERTAINTEED CORPORATION
Attention: David Sharpe
750 East Swedesford Road
P.O. Box 860
Valley Forge, PA 19482
Telecopier: 215-293-1765
With a copy to:
CERTAINTEED CORPORATION
General Counsel
750 E. Swedesford Road
P.O. Box 860
Valley Forge, PA 19482
Telecopier: 215-341-7087
If to Seller:
BRUNSWICK TECHNOLOGIES, INC.
P.O Box 516
One Maine Street
Brunswick, Maine 04011
Attention: President
Telecopier: 207-729-7877
With a copy to:
Daniel G. McKay, Esq.
Eaton, Peabody, Bradford & Veague, P.A.
Fleet Center
144 Exchange Street
Bangor, Maine 04401
Telecopier: 207-942-3040
13
Any notice so given or made shall be deemed to have been given or made and
received, as applicable, on the date of hand delivery, on the third business day
following the date of mailing of the same, on the date of transmission by telex,
fax or other wire service of the same, or on the first business day after
mailing if sent via overnight mail. Either party may, from time to time by
notice in writing given pursuant to the terms hereof, change its address for the
purpose of this Agreement.
(f) All section and paragraph titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the
context of this Agreement.
(g) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns.
(h) This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(i) This Agreement shall not be assignable by either party
without the prior written consent of the other party, except that Seller shall
have the right to assign this Agreement and its rights and duties hereunder to
any of its wholly owned subsidiaries or affiliates.
(j) In the event a dispute arises between Seller and Buyer
with respect to this Agreement and cannot be resolved by negotiations within 90
days, Seller and Buyer shall resolve such dispute through arbitration conducted
in accordance with the
14
rules and procedures of the American Arbitration Association. Arbitration shall
be conducted by a panel of three arbitrators, one of which shall be selected by
Seller and one of which shall be selected by Buyer, the third to be selected by
mutual agreement of the first two arbitrators. The cost of such arbitration and
the respective parties' expenses (including reasonable attorneys' fees) shall be
apportioned to each of the parties hereto by the arbitration panel. All
arbitration proceedings shall be conducted in either Maine or Pennsylvania as
may be selected by the party other than the party first submitting a claim for
arbitration.
(k) All taxes (other than income taxes and other taxes levied
solely on a supplier), imposed or levied upon the Products supplied hereunder by
or payable to any U.S. federal, state, municipal or other governmental authority
in connection with the sales thereof to Buyer shall be chargeable to and paid by
Buyer, whether such taxes, shall be paid or be payable to Seller or otherwise.
The purchase prices described herein are exclusive of any such taxes.
15
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
BRUNSWICK TECHNOLOGIES, INC. VETROTEX CERTAINTEED
CORPORATION
By: Illegible By: Illegible
-------------------------- --------------------------
Title: President Title: Vice President
---------------------- ---------------------
16
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated October 22, 1996 (the
"Agreement"), by and among Brunswick Technologies, Inc., a Maine corporation
("Buyer"), Burlington Industries, Inc., a Delaware corporation ("BI"), and Peter
L. DeWalt, a resident of Pittsburgh, Pennsylvania ("DeWalt", and together with
BI hereinafter referred to as the "Sellers") evidences that, for and in
consideration of the mutual covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 SALE AND DELIVERY. The Sellers agree to sell and deliver to Buyer,
and Buyer agrees to purchase and accept from Sellers, free and clear of all
liens, trusts (constructive and other), options, stock purchase rights or
agreements and other encumbrances, on the terms and subject to the conditions
set forth in this Agreement, and for the purchase price described in Section 1.2
hereof, the issued and outstanding shares of the capital stock, $100 par value
(the "Capital Stock"), of Advanced Textiles, Inc., a Texas corporation ("ATI")
listed on Schedule 1.1 hereto, which shares constitute all of the issued and
outstanding capital stock of ATI. The shares of Common Stock to be sold and
purchased pursuant to this Agreement are sometimes collectively referred to
herein as the "Shares", the Shares owned by BI are sometimes referred to herein
as the "BI Shares" and the Shares owned by DeWalt are sometimes herein referred
to as the "DeWalt Shares."
1.2 PURCHASE PRICE AND PAYMENT.
(a) The purchase price for the BI Shares is $7,896,500 subject
to adjustment as provided in 1.3(b) below. At Closing Buyer shall deliver to BI
Buyer's promissory note in the form of Annex A hereto in the principal amount of
$7,296,500 (the "Note").
(b) On each of December 16th, 1996, December 15, 1997 and on
each December 15 thereafter, ending in 2001 (each hereinafter referred to as a
"Payment Date"), Buyer shall pay to BI that amount of incremental aggregate
federal, state and local income tax savings available which have been or may
have been realized by Buyer, in accordance with the Internal Revenue Code of
1986, as amended (the "Code"), whether or not Buyer has elected to utilize such
realization in any given year, as a result of the parties' election under
Section 338(h)10 of the Code, provided that Buyer shall pay BI a minimum amount
of $100,000 per year. The determination of the savings realizable shall be made
notwithstanding Buyer's actual realization of tax savings on account of such
election. For purposes of this Section 1.2(b), the savings realizable will be
the lower of (i) the amount determined by applying the weighted averaged
effective federal and state income tax rate of the Buyer to the amount of
Section 338 deductions available to the
Buyer for the fiscal year of Buyer last ending prior to a Payment Date or (ii)
the amount determined by applying the weighted average effective federal and
state income tax rate of the Buyer to the Buyer's taxable income for such year
for Federal income tax purposes computed prior to taking (A) Section 338
deductions or (B) deductions or credits for any transaction of a character which
has not heretofore been claimed by the Buyer. The foregoing provisions of this
Section 1.2(b) notwithstanding, in no event shall Buyer be required to pay BI
under the provisions of this Section 1.2(b): (i) more than $200,000 in any year,
increased by the amount obtained by (A) aggregating the savings realizable by
Buyer (as described above) to such date of payment, and (B) subtracting
therefrom (1) all payments theretofore made by Buyer under this Section 1.2 (b),
plus (2) $200,000 or (ii) more than $600,000 in aggregate payments for all
years.
(c) The purchase price for the DeWalt Shares is $53,500. In payment of
such purchase price, Buyer shall deliver to DeWalt, on the Closing Date 118
shares of Buyer's common stock. DeWalt acknowledges that such shares are
"restricted" as defined in the Securities Act of 1933, as amended and the
regulations promulgated thereunder (the "Act") and therefore will not be
resalable unless such resale is subsequently registered under the Act. All
certificates evidencing such shares will be legended to evidence such
restriction.
1.3 DELIVERIES AT THE CLOSING.
(a) On the "Closing Date" (as that term is defined in Section
1.4 hereof), Sellers shall deliver to Buyer certificates representing all of the
Shares being sold to Buyer by Sellers hereunder, duly endorsed for transfer to
Buyer or accompanied by an instrument to effect such transfer duly executed by
the appropriate Seller (together with all required transfer stamps, if any,
attached thereto and evidence of the payment on all taxes (other than any tax
based on income or capital gain) due on such transfer).
(b) On the Closing Date, Buyer shall deliver to BI by wire
transfer of immediately available funds to the bank account identified and
according to the wire transfer instructions set forth in a notice of BI to Buyer
given no later than the business day immediately preceding the Closing Date, or
by a certified or bank cashier's check for immediately available funds payable
to or upon the order of BI, the amount of any net working capital in excess of
$1,450,000 as of September 28, 1996, if any, as reflected on the ATI Audited
Financial Statements (as defined in Section 5.1 (g) below). For this purpose,
net working capital shall be computed by: (i) subtracting from the current
assets, including cash, reflected on the balance sheet included in the ATI
Audited Financial Statements as of the fiscal year ended September 28, 1996 ,
(ii) current liabilities reflected on such balance sheet, less $101,000
(representing accrued cash bonuses to be paid by BI pursuant to Section 5.2(h)
below and certain intercompany advances for bonuses previously paid by BI and
insurance coverage of ATI by BI which are hereinafter referred to as "BI Assumed
Liabilities"). Such amount is referred to as "Net Working Capital". ATI shall
not pay and shall not be required to pay any BI Assumed Liabilities. BI shall
deliver to the Buyer by wire transfer of immediately available funds to the bank
account
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identified and according to the wire instructions set forth on Schedule 1.3(b),
or by a certified or bank cashier's check for immediately available funds
payable to or upon the order of Buyer, in the amount of the deficiency in Net
Working Capital below $1,450,000 as of September 28, 1996, if any.
1.4 CLOSING. The purchase and sale of the Shares and the consummation
of the other transactions contemplated by this Agreement (the "Closing") shall
occur at 10:00 a.m., on October 30, 1996, at the offices of Gadsby & Hannah LLP,
125 Summer Street, Boston, MA 02110, or at such other hour or place or on such
other date as shall be agreed upon by the Sellers and Buyer upon fulfillment or
waiver as herein provided of all conditions precedent to the Closing. The
Closing shall automatically be postponed in the event that the Audited Financial
Statements are not delivered to Buyer on or before October 23, 1996 to that date
which is the fourth business day following the actual delivery date of the
Audited Financial Statements (subject to the provisions of Article IX hereof).
The date of Closing is herein generally referred to as the "Closing Date."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
CONCERNING THE SELLERS
2.1 BI hereby represents and warrants to Buyer that:
(a) OWNERSHIP OF SHARES. BI owns the BI Shares beneficially
and of record, and has, and immediately prior to the Closing will have, good,
valid and marketable title to the BI Shares free and clear of all liens, trusts
(constructive and other), options and other encumbrances other than the
agreements and commitments contained herein.
(b) DELIVERY OF VALID TITLE. All consents, approvals,
authorizations and orders necessary for the sale and delivery of the BI Shares
to be sold by BI hereunder have been obtained, and BI has, and immediately prior
to the Closing will have, full right, power, authority and capacity to sell,
assign, transfer and deliver the BI Shares pursuant to this Agreement. Upon
delivery of the BI Shares by BI to Buyer, good, valid and marketable title to
the BI Shares, free and clear of all liens, trusts (constructive and other),
options and other encumbrances, (including, without limitation, all liens,
liabilities and encumbrances on account of any transfer taxes or transfer
stamps, if any, that may be required in connection with the sale of the Shares)
will pass to Buyer. BI hereby consents to the sale of the DeWalt Shares as
contemplated by the terms of this Agreement and agrees that the Amended and
Restated Stockholders Agreement dated January 18, 1991 between it and DeWalt
(the "Shareholders Agreement") is terminated effective with the Closing.
(c) EXECUTION AND DELIVERY. All consents, approvals,
authorizations and orders necessary for the execution, delivery and performance
by BI of this Agreement will be obtained by Closing, and BI will have, as of the
Closing, full right, power, authority
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and capacity to enter into and perform fully under this Agreement. This
Agreement has been duly executed and delivered by BI and constitutes a legal,
valid and binding obligation of BI, enforceable against it in accordance with
its terms, except that enforceability hereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally and by principles of equity regarding the availability of remedies.
(d) CORPORATE AUTHORITY. BI has corporate power under its
Certificate of Incorporation and By-laws, as amended to date, and under the laws
of the State of Delaware and other applicable laws to execute, deliver and
perform this Agreement. No stockholder approval or other approval of the board
of directors of BI is necessary for the consummation of the transactions
contemplated hereby, which approval has not already been obtained or will not be
obtained by Closing.
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby are
not prohibited by and will not violate any provision of the Certificate of
Incorporation or By-laws, as amended to date, of BI, and will not conflict with
or result in a breach or violation of any term or provision of, or (with or
without notice or passage of time, or both) constitute a default under, or
otherwise give any person a basis for nonperformance under, any agreement,
indenture, mortgage, deed of trust, trust (constructive and other), loan or
credit agreement, lease, license, option or other agreement or instrument to
which BI is a party or by which it or the BI Shares are bound, or violate the
provisions of any statute, or any order, rule or regulation of any governmental
body or agency or instrumentality thereof, or any arbitrator having jurisdiction
over BI or its property, nor will such action result in the creation or
imposition of any "Lien" (as defined in Section 3.6 hereof) upon the BI Shares.
(f) INVESTMENT INTENT. BI is acquiring the Note, and if and
when BI converts any portion of the Note into shares of common stock of Buyer
pursuant to the terms of the Note, BI will acquire such shares for investment
purposes only, for its own account and not as a nominee or agent for any other
person, and not with a view to or for resale in connection with any distribution
thereof.
(g) NO ACTION. BI has not filed, or had filed against it, a
petition in bankruptcy or a petition to take advantage of any other insolvency
act; admitted in writing its inability to pay its debts as they become due
generally; made an assignment for the benefit of creditors; consented to the
appointment of a receiver for itself or any substantial part of its property; or
generally committed any act of insolvency (including the failure to pay
obligations as they become due) or bankruptcy.
2.2 DeWalt hereby represents and warrants to Buyer that:
(a) OWNERSHIP OF DEWALT SHARES. DeWalt owns the DeWalt Shares
beneficially and of record, and has, and immediately prior to the Closing will
have, good,
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valid and marketable title to the DeWalt Shares free and clear of all liens,
trusts (constructive and other), options and other encumbrances other than the
agreements and commitments contained herein.
(b) DELIVERY OF VALID TITLE. All consents, approvals,
authorizations and orders necessary for the sale and delivery of the DeWalt
Shares to be sold by DeWalt hereunder have been obtained, and DeWalt has, and
immediately prior to the Closing will have, full right, power, authority and
capacity to sell, assign, transfer and deliver the DeWalt Shares pursuant to
this Agreement. Upon delivery of the DeWalt Shares by DeWalt to Buyer, good,
valid and marketable title to the DeWalt Shares, free and clear of all liens,
trusts (constructive and other), options and other encumbrances, (including,
without limitation, all liens, liabilities and encumbrances on account of any
transfer taxes or transfer stamps, if any, that may be required in connection
with the sale of the DeWalt Shares) will pass to Buyer. DeWalt hereby consents
to the sale of the BI Shares to Buyer as contemplated by this Agreement and
agrees that the Shareholders Agreement is terminated effective with the Closing.
(c) EXECUTION AND DELIVERY. All consents, approvals,
authorizations and orders necessary for the execution and delivery by DeWalt of
this Agreement have been obtained, and DeWalt has full right, power, authority
and capacity to enter into and perform fully under this Agreement. This
Agreement has been duly executed and delivered by DeWalt and constitutes a
legal, valid and binding obligation of DeWalt, enforceable against him in
accordance with its terms, except that enforceability hereof may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by principles of equity regarding the
availability of remedies.
(d) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach or violation of any term or provision
of, or (with or without notice or passage of time, or both) constitute a default
under, or otherwise give any person a basis for nonperformance under, any
agreement, indenture, mortgage, deed of trust, trust (constructive and other),
loan or credit agreement, lease, license, option or other agreement or
instrument to which DeWalt is a party or by which he or the DeWalt Shares are
bound, or violate the provisions of any statute, or any order, rule or
regulation of any governmental body or agency or instrumentality thereof, or any
arbitrator having jurisdiction over DeWalt or his property, nor will such action
result in the creation or imposition of any "Lien" (as defined in Section 3.6
hereof) upon the DeWalt Shares.
(e) INVESTMENT INTENT. DeWalt is acquiring shares of Buyer's
common stock for investment purposes only, for his own account and not as a
nominee or agent for any other person, and not with a view to or for resale in
connection with any distribution thereof.
(f) NO ACTION. DeWalt has not filed, or had filed against him,
a petition in bankruptcy or a petition to take advantage of any other insolvency
act; admitted
-5-
in writing his inability to pay his debts as they become due generally; made an
assignment for the benefit of creditors; consented to the appointment of a
receiver for himself or any substantial part of his property; or generally
committed any act of insolvency (including the failure to pay obligations as
they become due) or bankruptcy.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING ATI
BI represents and warrants to Buyer that:
3.1 ORGANIZATION AND GOOD STANDING; OFFICERS AND DIRECTORS. ATI has
been duly organized and is existing as a corporation in good standing under the
laws of the State of Texas with full power and authority (corporate and other)
to own or lease its properties and to conduct its business as currently
conducted. Schedule 3.1(b) sets forth the names and titles of all of the
officers and directors of ATI.
3.2 SUBSIDIARIES, ETC. ATI does not own or control, or have any other
equity investment in, directly or indirectly, any corporation, joint venture,
partnership, association or other entity.
3.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any term or provision of, or
(with or without notice or passage of time, or both) constitute a default under,
or otherwise give any person a basis for nonperformance under, any agreement,
indenture, mortgage, deed of trust, trust (constructive and other), loan or
credit agreement, lease, license, option or other agreement or instrument to
which ATI is a party or by which ATI is bound or to which any of its property or
assets is subject. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not conflict with
or result in a breach or violation of any term or provision of the Articles of
Incorporation or Bylaws of ATI or any statute, or any order, rule or regulation
of any governmental body or agency or instrumentality thereof, or any arbitrator
having jurisdiction over ATI or any of its property or assets, nor will such
action result in the creation or imposition of any "Lien" (as defined in Section
3.6 hereof) upon any property or asset of ATI or otherwise adversely affect the
contractual or other legal rights or privileges of ATI.
3.4 CAPITALIZATION. The authorized capital stock of ATI consists solely
of 50,000 shares of stock (the "ATI Capital Stock"). No shares of ATI Capital
Stock other than the Shares are currently issued, and the Shares have been duly
authorized and validly issued and are outstanding, fully paid and nonassessable.
There are no existing subscriptions, options, warrants, rights (contingent or
otherwise), calls or commitments of
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any character relating to the shares of ATI Capital Stock other than as set
forth on Schedule 3.4 hereto, and, other than as set forth on Schedule 3.4
hereto, there are no outstanding securities or other instruments convertible
into or exchangeable for shares of ATI Capital Stock and no commitments to issue
such securities or instruments. All Shares have been offered, issued and sold in
material compliance with applicable law.
3.5 FINANCIAL STATEMENTS, BOOKS AND RECORDS.
(a) Schedule 3.5(a) hereto contains true and complete copies
of (i) the unaudited balance sheet of ATI as of September 28, 1996, statements
of earnings and retained earnings for the fiscal years ended October 1, 1994,
September 30,1995 and September 28, 1996 and a statement of cash flows for the
fiscal year ended September 28, 1996 (the "Unaudited Financial Statements"). The
unaudited balance sheet of ATI as of September 28, 1996 is hereinafter referred
to as the "9/28/96 Balance Sheet".
(b) The Unaudited Financial Statements present fairly, in each
case, the financial condition of ATI as of the dates indicated therein and the
results of operations and changes in financial position of ATI for the periods
specified therein (subject to year-end audit adjustments that will consist only
of normal recurring adjustments) and were prepared on a consistent basis during
the periods covered thereby. The Unaudited Financial Statements reflect only
actual, bona fide transactions consistent with the accounting records of ATI.
The Unaudited Financial Statements are true and correct in all material
respects.
(c) The ATI Audited Financial Statements (as defined in
Section 5.1 (g) hereto), when delivered pursuant to Section 5.1 (g), will
present fairly the financial condition of ATI as of the dates indicated therein
and the results of operations and changes in financial position of ATI for the
periods specified therein, and the ATI Audited Financial Statements will have
been prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods covered thereby. The
ATI Audited Financial Statements will be true and correct in all material
respects.
(d) The minute books of ATI, all of which have been previously
made available to Buyer and its representatives, contain materially accurate
records of all meetings of or written consents by the shareholders and Board of
Directors (and all committees thereof) of ATI. Except as set forth in Schedule
3.5(b), ATI does not have any of its records, systems, controls, data or
information recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon or held by any means (including any electronic, mechanical or
photographic process, whether computerized or not) which (including all means of
access thereto and therefrom) are not under the exclusive ownership and direct
control of ATI.
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3.6 TITLE TO PROPERTY; ENCUMBRANCES.
(a) ATI has, and immediately prior to the Closing ATI will
have, good and marketable title, subject to "Permitted Liens" (as hereinafter
defined) in fee simple to all real property and good and marketable title to all
personal property reflected on the 9/28/96 Balance Sheet as owned by ATI, and to
all fully depreciated and amortized property owned by ATI, and all real property
and personal property acquired by ATI since September 28, 1996, in each case
free and clear of all "Liens" (as hereinafter defined) except (i) as set forth
on Schedule 3.6(a) hereto , (ii) all covenants, restrictions and easements set
forth in Buyer's title insurance commitment, (iii) for sales and other
dispositions in the usual and ordinary course of business since September 28,
1996 and (iv) "Permitted Liens" (as hereinafter defined). The term "Liens," as
used in this Agreement, shall mean all liens, mortgages, security interests,
pledges, charges, hypothecations, deeds of trust, statutory liens for unpaid
rentals, options or other charges or other encumbrances, including without
limitation, any environmental liens referenced in Section 3.18 (e) hereof. The
term "Permitted Liens," as used in this Agreement, shall mean liens for ad
valorem real or personal property taxes or assessments not yet due and payable;
easements, restrictions and covenants of record; as to real property, easements,
restrictions and covenants revealed by the survey to be obtained by Buyer and as
to personal property, liens for carriers, warehousemen, materialmen, landlords
and the like..
(b) Schedule 3.6(b) (i) hereto is a true copy of the deed to
ATI with respect to ATI's real property in Seguin, Texas. ATI owns no other
interest in real property. Schedule 3.6(b) (ii) contains a list of all tangible
personal property having an original purchase price in excess of $2,500 owned by
ATI (and not including personal property owned by ATI subject to a finance lease
or held by ATI as lessee under a personal property lease).
(c) All real property leases and licenses, personal property
leases and finance leases and licenses pursuant to which ATI leases or licenses
from others real or personal property are, to BI's knowledge, valid, subsisting
and effective in accordance with their respective terms, and there is not, under
any real property lease, license or personal property lease, any existing
default or event of default (or event that, with notice or passage of time, or
both, would constitute a default, or would constitute a basis of force majeure
or other claim of excusable delay or nonperformance). Schedule 3.6(c) hereto
contains a list of all real property leases, licenses, personal property leases
and finance leases, under which ATI is the lessee or licensee . True and
complete copies of all real property leases, licenses, personal property leases
and finance leases, listed on Schedule 3.6(c) have been delivered to Buyer
heretofore.
(d) ATI is not in violation of, or default under, any law,
statute, ordinance, an undismissed order, regulation, authorization, permit or
certificate pertaining to its owned or leased properties (or their
marketability), or the use thereof, that remains uncured. All personal property
owned by ATI and all personal property held by ATI pursuant to personal property
leases is, in the judgment of BI, in good operating condition
-8-
and repair, subject only to ordinary wear and tear, or may be in need of routine
maintenance, and is, in the judgment of BI, suitable and appropriate for the use
thereof made and proposed to be made by ATI in its business and operations. All
real property owned by ATI has been well maintained and is in good condition and
all systems in the building(s) including, but not limited to, heating, air
conditioning, electrical and plumbing, are in good working order, ordinary wear
and tear and the need of routine maintenance excepted. All such real property
conforms to all building, health and zoning regulations without encroachment
onto the property of others or upon the property of others. Except as otherwise
disclosed herein, he real property and personal property described in Sections
3.6(a) and 3.6(b) hereto, the real property and personal property held by ATI
pursuant to the leases and licenses described in Schedule 3.6(c) hereto and the
non-operating property provided by BI comprise all of the real property and
personal property (other than personal property owned by ATI having an original
purchase price of $2,500 or less) used in the conduct of ATI's business.
(e) There are no agreements or contracts affecting any of the
real property or any use of the real property owned by ATI that would not be
terminable at will by Buyer without penalty from and after the Closing Date,
except as otherwise disclosed herein.
(f) There is no condemnation proceeding pending or, to BI's
knowledge, threatened against any portion of the real property owned by ATI. ATI
has not commenced nor has ATI received notice of the commencement of any
proceeding which would affect the present zoning classification of the real
property owned by ATI.
3.7 ACCOUNTS RECEIVABLE. All accounts receivable of ATI reflected in
the 9/28/96 Balance Sheet and all accounts receivable of ATI that have arisen
since September 28, 1996 (except such accounts receivable as thereafter have
been collected) have or will have arisen from bona fide transactions in the
ordinary course of business, and the goods and services sold and delivered which
gave or will give rise to such accounts receivable were or will be sold and
delivered in conformity in all material respects with the applicable purchase
orders, agreements and specifications, and are or will be as of the Closing Date
good and valid, subject to the reserve for bad debts stated in the ATI Audited
Balance Sheet, in the aggregate recorded amounts thereof, and further subject to
allowances, credits and discounts customarily extended by ATI in accordance with
its past practices in the ordinary course of its business . Schedule 3.7 hereto
contains a true and complete aging of ATI's accounts receivable as of the end of
each quarter in the fiscal year ended September 28, 1996. Schedule 3.7 contains
a description of ATI's practices currently in effect as to price support and
"anticipating" by ATI's customers.
3.8 INVENTORIES. The value at which inventories are carried on the
9/28/96 Balance Sheet reflects (i) the normal inventory valuation policy of ATI,
in accordance with its historical accounting policies and on a basis consistent
with that of preceding periods.
-9-
3.9 TRADEMARKS, PATENTS AND INTELLECTUAL PROPERTY.
(a) Schedule 3.9(a) hereto contains a true and complete list
of all material Registered Rights (as defined below) claimed by ATI or used or
proposed to be used by ATI in the conduct of its business. For purposes of this
Section 3.9, "Registration Rights" means all letters patent, patent
applications, trade names, trademarks, service marks, trademark and service mark
registrations and applications, copyrights, copyright registrations and
applications, grants of licenses and rights to ATI with respect to the
foregoing, both domestic and foreign. Except as described in Schedule 3.9(a)
hereto, ATI is not obligated or under any liability whatever to make any
payments by way of royalties, fees or otherwise to any owner or licensor of, or
other claimant to, any Registered Rights with respect to the use thereof in the
conduct of its business or otherwise.
(b) Except as described in Schedule 3.9(b) hereto, ATI owns
and has the exclusive, unrestricted right to use material Registered Rights and
every material trade secret, know-how, process, formula, discovery, development,
design, technique, customer and supplier list, blueprint, specification,
promotional idea, marketing and purchasing strategy, invention, computer
program, confidential data and public and nonpublic information (collectively
herein, "Proprietary Information") required for or incident to the design,
development, manufacture, operation, sale and use of all products and services
sold or rendered or proposed to be sold or rendered by ATI, free and clear of
any right, equity or claim of others and a valid right or license to use the
Proprietary Information of others as presently used by ATI, all of which
material Proprietary Information of others is disclosed on Schedule 3.9 (b)
hereto (other than those rights or licenses relative to non-operational
Proprietary Information provided by BI).
(c) Except as described in Schedule 3.9(c) hereto, ATI has not
sold, transferred, assigned, licensed or subjected to any right, lien,
encumbrance or claim of others, any Registered Rights or Proprietary Information
or any interest therein, required for the design, development, manufacture,
operation, sale or use of any product or service currently under development or
manufactured, and currently or proposed to be sold or rendered, by ATI. Schedule
3.9(c) contains a true and complete list and description of all licenses of
Proprietary Information of ATI granted to others by ATI. There are no
proceedings pending or, to the best of BI's knowledge, threatened, nor, to the
best knowledge of BI, are there any claims or demands of any person pertaining
to or does any basis therefor exist, which challenge the rights of ATI in
respect of any Proprietary Information used in the conduct of the business of
ATI.
3.10 BANKING AND INSURANCE. Schedule 3.10(a) hereto contains a true and
complete list of the names and locations of all financial institutions at which
ATI maintains a checking account, deposit account, securities account, safety
deposit box or other deposit or safekeeping arrangements, the numbers or other
identification of all such accounts and arrangements and the names of all
persons authorized to have access thereto or to draw against any funds therein.
Schedule 3.10(b) hereto contains a true and complete: (i) list of all insurance
policies and bonds and self insurance arrangements
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currently in force that cover or purport to cover risks or losses to or
associated with ATI's business, operations, premises, properties, assets,
employees, agents and directors and true and correct copies of all policies
maintained by ATI have been delivered to Buyer; (ii) a description, with respect
to each such policy, bond and self insurance arrangement maintained through BI,
of the insured loss coverage, the expiration date and time of coverage, the
dollar limitations of coverage, a general description of each deductible feature
and the premiums paid and to be paid prior to expiration. The insurance
policies, bonds and arrangements described on Schedule 3.10(b) provide such
coverage against such risk of loss and in such amounts as in the reasonable
estimation of BI are customary for corporations of established reputation
engaged in the same or similar business and similarly situated. Except as set
forth on Schedule 3.10(b), ATI has no obligation, liability or other commitment
relating to any contract of insurance containing a provision for retrospective
rating or adjustment of ATI's premium obligation.
3.11 INDEBTEDNESS.
(a) ATI has no liability or obligation for "Indebtedness" (as
defined in Section 3.11(b)) other than as set forth on Schedule 3.11 hereto and
true and complete copies of all instruments and documents evidencing, creating,
securing or otherwise relating to such Indebtedness have been delivered to Buyer
heretofore. Except as described in Schedule 3.11, no event has occurred and no
condition has become known to ATI or BI that constitutes or, with notice or
passage of time, or both, would constitute a default or a basis of force majeure
or other claim of excusable delay or nonperformance by ATI or any other person
under any instrument or document relating to or evidencing Indebtedness that
would entitle any person to require ATI to pay any portion of the principal
amount of such Indebtedness prior to the scheduled maturity thereof. Except as
set forth in Schedule 3.11, no instrument or document evidencing, creating,
securing or otherwise relating to Indebtedness will require the consent of any
person to, or as a result of the consummation of, the transactions contemplated
by this Agreement.
(b) The term "Indebtedness", as used in this Agreement, shall
mean (i) any liability of ATI created or assumed by ATI (A) for borrowed money,
(B) evidenced by a bond, note, debenture or similar instrument (including a
purchase money obligation, deed of trust or mortgage) given in connection with
the acquisition of, or exchange for, any property or assets (other than accounts
payable relative to inventory or similar property acquired and consumed in the
ordinary course of ATI's business), including securities, (C) in respect of
letters of credit issued for ATI's account and "swaps" of interest and currency
exchange rates (and other interest and currency exchange rate hedging
agreements) to which ATI is a party or (D) for the payment of money as lessee
under leases that should be, in accordance with generally accepted accounting
principles, recorded as capital leases for financial reporting purposes; (ii)
any liability of others described in the preceding clause (i) guaranteed as to
payment of principal, interest or costs by ATI or in effect guaranteed by ATI
through an agreement, contingent or otherwise, to purchase, repurchase or pay
the related Indebtedness or to provide the security therefor; (iii) all
liabilities or obligations secured by a Lien upon property owned
-11-
by ATI and upon which liabilities or obligations ATI customarily pays interest
or principal, although ATI has not assumed or become liable for the payment of
such liabilities or obligations; and (iv) any amendment, renewal, extension,
revision or refunding of any such liability or obligation.
3.12 LITIGATION. Except as set forth on Schedule 3.12 hereto, there is
no legal action, suit, arbitration or other legal, administrative or
governmental investigation, inquiry or proceeding (whether domestic or foreign)
pending or, to BI's knowledge, threatened against or affecting ATI or its
properties, assets or business, nor, to the best knowledge of BI, does any basis
therefor exist. Except as set forth on Schedule 3.12, ATI is not in default with
respect to any order, writ, judgment, injunction, decree, determination or award
of any court or of any governmental agency or instrumentality (whether domestic
or foreign).
3.13 TAXES AND TAX MATTERS.
For purposes of this Section 3.13, the following definitions
shall be applicable:
"Affiliated Group" means BI and all subsidiary corporations of
BI that are an affiliated group within the meaning of Code ss.1504(a) or that
are defined as such under a similar provision of state, local or foreign law.
"Income Tax" means any income tax as well as any tax nominally
described as other than an income tax but which is nevertheless determined by
income, including without limitation certain state franchise taxes.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss.59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
(a) ATI has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All Taxes
owed by ATI (whether or not shown on any Tax Return) have been paid. ATI is not
currently the beneficiary of any extension of time within which to file any Tax
Return. ATI has not received any written notice within the last five years from
any taxing authority in any jurisdiction in which ATI does not file Tax Returns
that it is or may be subject to Tax in such
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jurisdiction. There are no security interests or liens (inchoate or otherwise)
on any of the assets of ATI that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) ATI has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) No director or officer (or employee responsible for Tax
matters) of ATI or BI expects any authority to assess any additional Taxes for
any period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax liability of ATI either (A) claimed or raised by any
authority in writing or (B) as to which BI or the directors and officers (and
employees responsible for Tax matters) of ATI has knowledge based upon personal
contact with any agent of such authority.
(d) ATI has not waived any statute of limitations in respect
of any separate company Taxes or agreed to any extension of time with respect to
a separate company Tax assessment or deficiency.
(e) ATI has not filed a consent under Code ss.341(f)
concerning collapsible corporations. ATI has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code ss.280G. ATI has not been a United States real property
holding corporation within the meaning of Code ss.897(c)(2) during the
applicable period specified in Code ss.897(c)(1)(A)(ii). ATI is not a party to
any Tax allocation or sharing agreement. ATI has not been a member of an
affiliated group filing a consolidated federal Income Tax Return other than the
Affiliated Group.
(f) The Affiliated Group has filed all Income Tax Returns that
it was required to file for each taxable period during which ATI was a member of
the Affiliated Group. All such Tax Returns were correct and complete in all
respects. All Income Taxes owed by the Affiliated Group (whether or not shown on
any Tax Return) have been paid for each taxable period during which ATI was a
member of the Affiliated Group. Throughout the period during which ATI has been
a member of the Affiliated Group, the Affiliated Group has not taken any
position on its consolidated federal Income Tax Returns which, if not adequately
disclosed, would give rise to a substantial understatement of federal Income Tax
within the meaning of Code ss.6662. Schedule 3.13(f) lists all federal, state,
local, and foreign Income Tax Returns of ATI or the Affiliated Group that
currently are the subject of audit, and the extent to which Tax issues that
pertain to ATI have been raised in any such audit.
(g) Except as disclosed on Schedule 3.13(g), the Affiliated
Group has not waived any statute of limitations in respect of any Income Taxes
or agreed to any
-13-
extension of time with respect to an Income Tax assessment or deficiency for any
taxable period during which ATI was a member of the Affiliated Group.
(h) ATI has no liability for the Taxes of any Person other
than ATI under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), for any taxable period during which ATI was a member of
the Affiliated Group.
(i) BI will include the income of ATI (including any deferred
income triggered into income by Reg. ss.1.1502-13 and Reg. ss.1.1502-14 and any
excess loss accounts taken into income under Reg. ss.1.1502-19) on BI's
consolidated Income Tax Returns for all periods through the Closing Date and pay
any Income Taxes attributable to such income. ATI will furnish Tax information
to BI for inclusion in BI's consolidated Income Tax Returns for the taxable
period immediately preceding and including the Closing Date (the "Pre-Closing
Tax Period") in accordance with ATI's past custom and practice. BI will allow
Buyer an opportunity to review and comment upon such Tax Returns (including any
amended returns) to the extent that they relate to ATI. The income of ATI will
be apportioned between the Pre-Closing Tax Period and the period after the
Closing Date by closing the books of ATI as of the end of the Closing Date. With
respect to any Income Tax of ATI, that is attributable to any taxable period
that includes (but does not end on) the Closing Date (a "Straddle Period"), BI
shall prepare a pro forma Tax Return for ATI for the Pre Closing Tax Period
portion of the Straddle Period, and furnish such pro forma Tax Return to Buyer
within ninety (90) days after the Closing Date. BI shall pay to Buyer an amount
equal to the Income Tax liability as reflected on such pro forma Tax Return
within five (5) business days after review by Buyer and agreement to such amount
by BI and Buyer.
(j) BI shall be responsible for all other Taxes of ATI (other
than Property Taxes, as defined below, or franchise Taxes that are not Income
Taxes) attributable to the Pre-Closing Tax Period portion of the Straddle
Period, which Taxes shall be computed as if the Straddle Period e ended at the
end of the day on the Closing Date, and the amount of such Straddle Period Taxes
attributable to the Pre-Closing Tax Period shall be based upon a closing of the
books of ATI at the end of the day on the Closing Date.
(k) BI shall be responsible for all real and personal tangible
and intangible property taxes ("Property Taxes") of ATI attributable to the
Pre-Closing Tax Period. In accordance therewith, BI's share of Property Taxes
for the Straddle Period shall be an amount equal to the amount of such Property
Taxes for the entire Straddle Period multiplied by a fraction, the numerator of
which is the number of days during the Straddle Period that are in the
Pre-Closing Tax Period and the denominator of which is the number of days in the
Straddle Period.
(l) BI shall be responsible for franchise Taxes (based on net
worth or capital) attributable to the Pre-Closing Tax Period, computed on the
basis of the net worth or capital of ATI at the end of the day on the Closing
Date. Such amount shall be
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determined pursuant to a pro rata allocation based on the number of days during
the Straddle Period that are in the Pre Closing Tax Period.
(m) BI will join with Buyer in making an election under
Section 338(h)(10) of the Code (and any corresponding elections under state,
local, or foreign tax law) (collectively a "Section 338(h)(10) Election") with
respect to the purchase and sale of the stock of ATI hereunder. BI will pay any
Income Tax resulting from the deemed sale of assets attributable to the making
of the Section 338(h)(10) Election, and will indemnify Buyer and ATI against any
liabilities of any sort whatsoever arising out of any failure to pay such Income
Tax.
(n) The parties agree that the purchase price and the
liabilities of ATI (plus other relevant items) will be allocated to the assets
of ATI for all purposes (including Tax and financial accounting purposes) in
accordance with the provisions of Section 1060 of the Code and comparable
provisions of state and local law. .Pursuant thereto, Buyer shall prepare an
Allocation Schedule with respect to such assets, which Allocation Schedule shall
be subject to BI's review and shall be agreed upon by BI and Buyer prior to the
Closing. Buyer, ATI and BI will file all Tax Returns (including amended returns
and claims for refunds) and information reports in a manner consistent with such
Allocation Schedule.
3.14 QUESTIONABLE PAYMENTS. Neither ATI, nor its directors, officers,
agents, employees or other persons associated with or acting on either of their
behalf has used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, made
any direct or indirect unlawful payments to government officials or employees
from corporate funds, established or maintained any unlawful or unrecorded fund
of corporate monies or other assets, made any false or fictitious entries on its
books of account or tax returns, or made or received any bribe, rebate, payoff,
influence payment, kickback or other unlawful or improper payment.
3.15 EMPLOYEE BENEFIT MATTERS. (a) For purposes of this Section 3.15,
the term "Benefit Plans" means all employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
that are sponsored or maintained by ATI or under which ATI is obligated, and any
related or separate contracts, plans, trusts, programs, policies, arrangements,
practices, customs and understandings, in each case whether formal or informal
that provide benefits of economic value to any present or former employee of ATI
or present or former beneficiary, dependent or assignee of any such employee or
former employee.
(b) For purposes of this Section 3.15, the term "BI Group"
shall include any corporation that is a member of any controlled group of
corporations (as defined in Section 414(b) of the Code) that incudes ATI, any
trade or business (whether or not incorporated) that is under common control (as
defined in Section 414(c) of the Code) with ATI, any organization (whether or
not incorporated) that is a member of an affiliated service group (as defined in
Section 414(m) of the Code) that includes ATI and any other entity
-15-
required to be aggregated with ATI pursuant to the regulations issued under
Section 414(o) of the Code.
(c) Schedule 3.15(c) contains a complete list of all Benefit
Plans. ATI has delivered to Buyer (i) accurate and complete copies of all
Benefit Plan documents and all other material documents relating thereto,
including (if applicable) all summary plan descriptions, summary annual reports
and insurance contracts, (ii) accurate and complete detailed summaries of all
unwritten Benefit Plans, (iii) accurate and complete copies of the most recent
financial statements and actuarial reports with respect to all Benefit Plans for
which financial statements or actuarial reports are required or have been
prepared, (iv) accurate and complete copies of all annual reports that have been
prepared for all Benefit Plans for which annual reports are required, and (v)
the latest Internal Revenue Service determination letter obtained, if any, with
respect to any such Benefit Plan.
(d) Except as specified on Schedule 3.15(d), all Benefit Plans
conform (and at all times have conformed) in all material respects to, and are
being administered and operated (and have at all times been administered and
operated) in material compliance with the requirements of ERISA, the Code, and
all other applicable laws or governmental regulations. All returns, reports and
disclosure statements required to be made under ERISA and the Code with respect
to all Benefit Plans have been timely filed or delivered.
(e) Except as is set forth in Schedule 3.15(e), any Benefit
Plan that is intended to be qualified under Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code has been determined by the
Internal Revenue Service to be so qualified or an application for such
determination is pending. Any such determination that has been obtained remains
in effect and has not been revoked, and no application for such determination is
pending as of the date hereof. Except as is set forth on Schedule 3.15(e),
nothing has occurred since the date of any such determination that is reasonably
likely to affect adversely such qualification or exemption, or result in the
imposition of excise taxes or income taxes on unrelated business income under
the Code or ERISA with respect to any Benefit Plan.
(f) ATI does not a defined benefit plan subject to Title IV of
ERISA. No member of the BI Group has a current or contingent obligation to
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA).
(g) There are no pending or, to the knowledge of BI,
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of the BI Group any of its officers,
directors, or employees under ERISA or any other applicable regulations, or
claiming benefit payments (other than those made in the ordinary operation of
such plans) in either case with respect to any such Benefit Plans, nor is there,
to the knowledge of BI, any basis for such claim. The Benefit Plans are not the
subject of any pending (or to the knowledge of BI, any threatened) investigation
or audit by the Internal
-16-
Revenue Service, the Department of Labor or the Pension Benefit Guaranty
Corporation (the "PBGC").
(h) Full payment has been made of all amounts which ATI is
required, under applicable law or under any Benefit Plan or any agreement to
which ATI is a party relating to any Benefit Plan, to have paid as contributions
thereto as of the last day of the most recent fiscal year of such Benefit Plan
ended prior to the date hereof, or within the period following such fiscal year
during which contributions with respect to such fiscal year are permitted under
ERISA and the Code. ATI has made adequate provision for reserves to meet
contributions that have not been made because they are not yet due under the
terms of any Benefit Plan. Benefits under all Benefit Plans are as represented
and have not been increased subsequent to the date as of which documents have
been provided.
(i) No Benefit Plan is subject to regulation by the PBGC. To
the best of BI's knowledge, no member of the BI Group has engaged in any
transaction with respect to any Benefit Plans which would subject ATI to a tax,
penalty or liability for prohibited transactions under ERISA or the Code. To the
best of BI's knowledge, no director, officer or employee of any member of the BI
Group, to the extent he or she is a fiduciary with respect to any Benefit Plan,
has breached any of his or her responsibilities or obligations imposed upon
fiduciaries under Title I of ERISA which would result in any claim being made
under or by or on behalf of any Benefit Plans by any party with standing to make
such claim.
(j) With respect to any Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare
Plan") and except as specified on Schedule 3.15(j), (i) each Welfare Plan for
which contributions are claimed by ATI as deductions under any provision of the
Code is in material compliance with all applicable requirements pertaining to
such deduction, (ii) with respect to any welfare benefit fund (within the
meaning of Section 419 of the Code) related to a Welfare Plan, there is no
disqualified benefit (within the meaning of Section 4976(b) of the Code) that
would result in the imposition of a tax under Section 4976(a) of the Code, (iii)
any Benefit Plan that is a group health plan (within the meaning of Section
4980B(g)(2) of the Code) complies, and in each and every case has complied, to
the best of BI's knowledge, with all of the applicable material requirements of
Section 4980B of the Code, ERISA, Title XXII of the Public Health Service Act
and the Social Security Act, and (iv) all Welfare Plans may be amended or
terminated at any time on or after the Closing Date in accordance with the terms
thereof. Except as specified on Schedule 3.15(j), no Benefit Plan provides any
health, life or other welfare coverage to employees of ATI beyond termination of
their employment with ATI by reason of retirement or otherwise, other than
coverage as may be required under Section 4980B of the Code or Part 6 of ERISA,
or under the continuation of coverage provisions of the applicable laws of any
state of locality.
(k) ATI does not have any liability with respect to
any employee benefit plan (as defined in Section 3(3) of ERISA) other than with
respect to the Benefit Plans.
-17-
3.16 NO UNDISCLOSED LIABILITIES. Except (i) to the extent set forth or
provided for in the 9/28/96 Balance Sheet, as the same may be adjusted in
accordance with GAAP in connection with the preparation of the ATI Audited
Financial Statements, (ii) as set forth on Schedule 3.16 hereto or (iii) for
current liabilities incurred since September 28, 1996 in the usual and ordinary
course of business, as of the date hereof, ATI has no liabilities, whether
accrued, absolute, contingent or otherwise, whether due or to become due and
whether the amounts thereof are readily ascertainable or not, or any anticipated
losses from any commitments of a contractual nature, including taxes with
respect to or based upon the transactions or events occurring at or prior to the
Closing.
3.17 PERMITS, LICENSES AND OTHER AUTHORIZATIONS. ATI possesses, and is
operating in compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of governmental bodies, agencies and
instrumentalities thereof necessary to conduct its business as currently
conducted and as proposed to be conducted (the "Permits"). Schedule 3.17
contains a true and complete list of all Permits. To the best of BI's knowledge,
(a) each Permit has been lawfully and validly issued, and (b) no proceeding is
pending or threatened, nor, does any basis therefor exist, looking toward the
revocation, suspension or limitation of any Permit. The consummation of the
transactions contemplated by this Agreement will not result in the revocation,
suspension or limitation of any Permit and, except as set forth in Schedule
3.17, no Permit will require the consent of its issuing authority to or as a
result of the consummation of the transactions contemplated hereby.
3.18 REGULATORY FILINGS AND ENVIRONMENTAL MATTERS.
(a) Except as otherwise disclosed herein, ATI has made all
required registrations and filings with and submissions to all governmental
bodies, agencies or instrumentalities thereof and regulatory authorities
relating to the operations of ATI as currently conducted and as proposed to be
conducted, including, without limitation, all such regulatory authorities having
jurisdiction over any matters pertaining to conservation or protection of the
environment, the treatment and discharge of gaseous, particulate or effluent
pollutants, or the use, handling or disposal of toxic or hazardous substances.
All such registrations, filings and submissions were in compliance with
applicable law when filed, no deficiencies have been asserted by any such
authority with respect to such registrations, filings or submissions and no
facts or circumstances are known to BI to exist which would indicate that a
deficiency may be asserted by any such authority with respect to any such
registration, filing or submission.
(b) ATI, and any other person or entity for whose conduct ATI
is or may be held responsible, and to BI's best knowledge, any other third party
have not generated, produced, processed, treated, stored, used, transported,
released, disposed of or deposited of any Hazardous Materials (as that term is
defined below) at, in, on or under real estate or related improvements upon
which ATI's business has been operated (all such
-18-
real estate and improvements are hereinafter referred to as "Real Property"),
except in compliance with all applicable Governmental Requirements.
(c) To the best of BI's knowledge, all activities and
operations of the business conducted on the Real Property by ATI have at all
times complied with all applicable Governmental Requirements. To the best of
BI's knowledge, no equipment or machinery used or operated in connection with
the business has ever been used or operated as an instrumentality in violation
of any Governmental Requirement. To the best of BI's knowledge, all Hazardous
Materials used relative to ATI's business have been stored, manufactured,
handled, transported, disposed of, and otherwise used in accordance with all
applicable Governmental Requirements, except as specifically indicated in
Schedule 3.18 hereto.
(d) Except as indicated in Schedule 3.18 hereto, neither ATI
nor, to BI's best knowledge, any predecessor in interest in respect of the Real
Property has received or been subject to a summons, consent decree,
administrative order, citation, directive, notice, complaint, letter or other
communication, written or oral, concerning (1) any alleged or suspected
violations of any Governmental Requirement relating to or concerning the
business (as operated at the Real Property or at any other facility where ATI's
business is or has been conducted); or (2) any proposed or continuing
investigation or request for information (including claims, suits or
investigations by any person or entity, whether Governmental or not) relating to
the handling, packaging, transportation, treatment, storage or disposal of
Hazardous Material whether or not relating to or concerning the business (as
operated at the Real Property or at any other facility where the business is or
has been conducted) or when transported off-site from the Real Property or at
any other facility where the business is or has been conducted.
(e) No liens have been imposed on the Real Property by any
governmental agency at the federal, state or local level in connection with the
presence on or off the Real Property of any Hazardous Material.
(f) All oil burners, incinerators and other fuel burning
devices utilized in ATI's business comply with all applicable federal, state and
local air pollution control laws, rules and regulations, if any.
(g) Except as otherwise disclosed herein, ATI has and has had
all permits, licenses, registrations and authorizations relating to or required
by all applicable Governmental Requirements in connection with any activities or
operations in connection with its business and the Real Property and for any
past or ongoing alterations or improvements at the Real Property, and all of the
terms and conditions thereof are being complied with in all respects.
(h) For the purposes of this Agreement, including this Section
3.18, the following words and phrases shall have the following meanings:
-19-
"Hazardous Material" shall mean and include any and all
materials or substances defined or described in any federal, state, or local
law, statute, regulation, ordinance, order, by-law, code, requirement, or
directive, including without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601, et seq., as
amended ("CERCLA")(and its implementing regulations), the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., as amended
("RCRA")(and its implementing regulations), as posing potential risk to persons,
property, public health, safety, or welfare or the environment or as toxic or
hazardous, including without limitation, any and all pollutants, contaminants,
chemicals, toxics, wastes, lead paint, urea formaldehyde, polychlorinated
biphenyls, asbestos, radioactive materials, explosives, carcinogens, oil,
petroleum, petroleum products and any and all other wastes, materials, and
substances which could lead to any liability, costs, damages, and or penalties
under any Governmental Requirement (as that term is defined below).
"Governmental Requirement" shall mean any environmental,
health and safety-related law, statute, regulation, rule, ordinance, by-law,
license or permit, at the federal, state, or local level, and any judicial or
administrative or regulatory decree, judgment or order, existing as of the date
hereof or previously enforced.
3.19 GOVERNMENTAL AND REGULATORY CONSENTS. All consents, authorizations
and approvals of any court, governmental bodies, agencies or instrumentalities
thereof and regulatory authorities, and any arbitrator or any other person that
are necessary in connection with the consummation of the transactions
contemplated by this Agreement have been obtained by ATI and BI.
3.20 MATERIAL CONTRACTS; NO DEFAULTS.
(a) Schedule 3.20(a) hereto contains a true and complete list
and description of each individual outstanding sales order and sales contract of
ATI having an indicated gross value in excess of $50,000. ATI has no
"requirements" contracts with any customer. All outstanding sales orders and
sales contracts of ATI have been entered into in the usual and ordinary course
of business of ATI. Except as described in Schedule 3.20(a), ATI has received no
advance, progress payment or deposit in respect of any sales order or sales
contract.
(b) Schedule 3.20(b) hereto contains a true and complete list
and description of all outstanding purchase orders and purchase commitments of
ATI having a gross indicated value in excess of $50,000 in the aggregate from
any single supplier or other vendor. ATI has no "requirements" contracts with
any supplier. All outstanding purchase orders and purchase commitments of ATI
have been incurred in the usual and ordinary course of business of ATI, and no
purchase order or purchase commitment of ATI is in excess of the normal,
ordinary and usual requirements of the business of ATI or at an excessive
price..
-20-
(c) Schedule 3.20(c) hereto contains a true and complete list
of all sales agency, sales representative, distributor, wholesaler, dealer and
similar contracts or agreements of ATI, and true and complete copies of the same
have been delivered to Buyer heretofore. Except as described in Schedule
3.20(c), all of such contracts and agreements are terminable at any time by ATI
without penalty (including, without limitation, any obligation to repurchase
inventories on hand) upon not more than 30 days' notice.
(d) Schedule 3.20(d) hereto contains a true and complete list
and description of all non-competition agreements and covenants under which any
of ATI or its present or former officers, directors or key employees, is
obligated, and true and complete copies of the same have been delivered to Buyer
heretofore. Except as described in Schedule 3.20(d), ATI is not restricted by
any agreement from carrying on its business or engaging in any other activity
anywhere in the world, and to the best knowledge of BI, no officer, director or
key employee of ATI is a party to or otherwise bound or affected by any
agreement, covenant or other arrangement or understanding that would restrict or
impair his ability to perform diligently his or her duties to ATI. Schedule
3.20(d) also contains a true and complete list and description of all
non-competition agreements or covenants in favor of ATI which are known to BI,
and true and complete copies of the same have been delivered to or made
available to Buyer heretofore.
(e) Schedule 3.20(e) hereto contains a true and complete list
and description of all contracts, agreements, understandings, arrangements and
commitments, written or oral, of ATI with any officer, director, consultant, key
employee or "Affiliate" (as that term hereinafter is defined) of ATI or with any
affiliate, or key employee of any affiliate of ATI. A true and complete copy of
each such written contract, agreement, understanding, arrangement or commitment
or a true and complete summary of such oral contract, agreement, understanding,
arrangement or commitment has been delivered to Buyer heretofore. As used in
this Agreement, the term "Affiliate" or "affiliate" (i) when applied to an
entity, shall include any person or entity which owns at least 50% of, either
directly or indirectly, or is 50% or more owned by, either directly or
indirectly, such entity and (ii) when applied to a person shall include members
of such person's immediate family and entities at least 10% owned , either
directly or indirectly by such person or a member of his immediate family.
(f) Schedule 3.20(f) hereto contains a true and complete list
and description of all other material contracts, agreements, understandings,
arrangements and commitments, written or oral, of ATI by which it or its
properties, rights or assets are bound that are not otherwise disclosed in this
Agreement or the Schedules hereto. True and complete copies of such written
contracts, agreements, understandings, arrangements and commitments and true and
complete summaries of such oral contracts, agreements, understandings,
arrangements and commitments have been delivered to Buyer heretofore. For the
purposes of this Section 3.20(f), "material" means any contract, agreement,
understanding, arrangement or commitment that (i) involves performance by any
party for in excess of ninety (90) days from the Closing Date (ii) involves
payments or receipts by
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ATI as to one party in excess of $5,000 or (iii) otherwise materially affects
the condition (financial or other), properties, business prospects or operations
of ATI.
(g) Except as described in Schedule 3.20(g) hereto, no event
or condition has become known to ATI or BI or is alleged to have occurred that
constitutes or, with notice or the passage of time, or both, would constitute a
default or a basis of force majeure or other claim of excusable delay or
nonperformance by ATI or any other person under any contract, agreement,
arrangement, commitment or other understanding, written or oral, described above
in this Section 3.20, or described or otherwise disclosed pursuant to this
Agreement, the delay or nonperformance of which may have a material adverse
effect on the business or financial condition, properties, business prospects or
operations of ATI. Except as set forth on Schedule 3.20(g), no person with whom
ATI has such a contract, agreement, arrangement, commitment or other
understanding is in default thereunder or has failed to perform fully thereunder
by reason of force majeure or other claim of excusable delay or nonperformance
thereunder, the delay or nonperformance of which, or a default under which, has
had or may have a material adverse effect on the business or financial
condition, properties, profitability, business prospects or operations of ATI.
3.21 ABSENCE OF CERTAIN CHANGES.
(a) Since September 28, 1996, except as disclosed in Schedule
3.21(a) hereto, ATI has not: (1) incurred any debts, obligations or liabilities
(absolute, accrued, contingent or otherwise), other than current liabilities
incurred in the usual and ordinary course of business; (2) subjected to or
permitted a Lien (other than a Permitted Lien) upon or otherwise encumbered any
of its assets, tangible or intangible; (3) sold, transferred, licensed or leased
any of its assets or properties except in the usual and ordinary course of
business or made any distribution of any kind (and whether in cash or in kind)
to BI or DeWalt; (4) paid any obligation or liability other than, current
liabilities shown on the 9/28/96 Balance Sheet and current liabilities incurred
since September 28, 1996, in each case in the usual and ordinary course of
business, (5) made any cash or non-cash distribution in respect of its capital
stock or in payment of any intercorporate advance or other amount included in
the BI Assumed Liabilities, or made any other cash payment except in the
ordinary course of business.
(b) Since September 28, 1996, except as disclosed in Schedule
3.21(b), ATI has not (1) canceled or compromised any debt owed to or by or claim
of or against it, or waived or released, in each case, any right other than in
the usual and ordinary course of business; (2) suffered any physical damage,
destruction or loss (whether or not covered by insurance) adversely affecting
its business or financial condition, profitability, properties, business
prospects or operations; (3) entered into any transaction or otherwise committed
or obligated itself to any capital expenditure for an amount in excess of $5,000
other than in the usual and ordinary course of business; (4) suffered or
experienced any adverse change in, or event or condition adversely affecting,
its condition (financial or other), properties, assets, liabilities, business,
operations, results of operations or business
-22-
prospects other than changes, events or conditions in the usual and ordinary
course of business that are not, individually or in the aggregate, materially
adverse to it; (5) made any change in the accounting principles, methods,
records or practices followed by it or depreciation or amortization policies or
rates theretofore adopted; except to the extent necessary to fulfill the
requirements of Section 5.1(g) hereto, (6) other than in the usual and ordinary
course of business made or suffered any amendment or termination of any material
contract, agreement, lease or license to which it is a party; (7) paid, or made
any accrual or arrangement for payment of, any severance or termination pay to,
or entered into any employment or loan or loan guarantee agreement with, any
current or former officer, director or employee or consultant; (8) paid, or made
any accrual or arrangement for payment of, any increase in compensation, bonuses
or special compensation of any kind to any employee other than pursuant to an
agreement disclosed herein or other than in the usual and ordinary course of
business (which do not include any new commission arrangements for sales
employees), or paid, or made any accrual or arrangement for payment of, any
increase in compensation, bonuses or special compensation of any kind to any
officer or director of ATI or any consultant to ATI; (9) made or agreed to make
any charitable contributions or incurred any non-business expenses; (10) changed
or suffered change in any benefit plan or labor agreement affecting any employee
otherwise than to conform to legal requirements; or (11) entered into any
agreement or otherwise obligated itself to do any of the foregoing.
3.22 AFFILIATIONS.
(a) Except as otherwise disclosed in this Agreement or the
Schedules hereto, one of BI, or any officer, director or key employee of ATI or
any Affiliate of ATI or any of such persons has, directly or indirectly, (i) an
interest in any corporation, partnership or other entity or person that (A)
furnishes or sells, or proposes to furnish or sell, services or products that
are furnished or sold by ATI or (B) purchases from or sells or furnishes, or
proposes to purchase from or sell or furnish, to ATI any goods or services or
(ii) a beneficial interest in any contract or agreement to which ATI is a party
or by which ATI or any assets of ATI are bound.
(b) Except as otherwise disclosed in this Agreement or the
Schedules hereto, no business was transacted between ATI and its Affiliates,
during any of the three (3) fiscal years of ATI immediately preceding October 1,
1996.
3.23 PRINCIPAL CUSTOMERS AND SUPPLIERS.
(a) Except as disclosed on Schedule 3.23(a) hereto, no
customer who has purchased in excess of $50,000 of ATI's sales of goods or
services during the fiscal year ended September 28, 1996 has terminated its
relationship with or adversely curtailed its purchases from ATI or, to BI's
knowledge, indicated (for any reason) its intention so to terminate its
relationship or curtail its purchases.
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(b) Since September 28, 1995, no supplier from whom ATI has
purchased in excess of $50,000 of goods or services during the fiscal year ended
September 28, 1996 has terminated its relationship with or adversely curtailed
its sales or services to ATI or, to BI's knowledge, indicated (for any reason)
its intention to terminate such relationship or curtail its sales or services.
3.24 PRODUCT WARRANTIES AND WARRANTY RIGHTS. (a) Set forth in Schedule
3.24 (a) is the text of ATI's standard product certification relating to
products sold by ATI. With the exception of such certificates, ATI has not made
any express, or to BI's knowledge, oral product warranties.
(b) Except as set forth on Schedule 3.24(a), BI has no
knowledge of any unresolved warranty claims against any vendor relating to ATI's
assets.
3.25 PRODUCT LIABILITY. There have been no claims made or, to the best
of BI's knowledge, threatened with respect to any product liability (other than
to the extent covered by the product warranties described in Section 3.24
hereof) of ATI relating to its products. Neither ATI nor its suppliers has made
or been required to make any recall of any product or component thereof sold by
ATI nor has any such recall been considered by ATI, or to BI's knowledge by
ATI's suppliers, but rejected, nor is any such recall now being contemplated by
ATI
3.26 NO ACTION. ATI has not filed, or had filed against it, a petition
in bankruptcy or a petition to take advantage of any other insolvency act;
admitted in writing its inability to pay its debts generally; made an assignment
for the benefit of creditors; consented to the appointment of a receiver for
itself or any substantial part of its property; or generally committed any act
of insolvency (including the failure to pay obligations as they become due) or
bankruptcy.
3.27 DISCLOSURE. No representation or warranty of BI in this Agreement
and no information contained in any Schedule or other writing delivered pursuant
to this Agreement or at the Closing contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to make the statements herein or therein not misleading. To the best
knowledge of BI, there is no material fact that BI has not disclosed to Buyer in
writing that adversely affects, nor insofar as BI can now foresee, will
adversely affect, the financial condition or results of operations of ATI as
such will exist on the Closing Date or the ability of BI to perform fully this
Agreement.
For purposes of this Article III, BI's knowledge shall mean the actual
knowledge of (a) the executive officers of BI and Melvin Hutstedler and (b) the
actual knowledge of the executive officers and directors of ATI and Joseph
Sabatini.
For purposes of this Article III and Article IV below, a disclosure
made for any purpose in this Agreement shall be deemed made for all purposes to
the extent such disclosure references with particularity the fact or exception
applicable.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to BI that:
4.1 ORGANIZATION AND GOOD STANDING. Buyer has been duly organized and
is existing as a corporation in good standing under the laws of the State of
Maine with full power and authority (corporate and other) to own or lease its
properties and to conduct its business as currently conducted.
4.2 SUBSIDIARIES, ETC. Except as disclosed on Schedule 4.2(a) hereto,
Buyer does not own or control, or have any other equity investment in, directly
or indirectly, any corporation, joint venture, partnership, association or other
entity.
4.3 EXECUTION AND DELIVERY. All consents, approvals, authorizations and
orders necessary for the execution, delivery and performance by Buyer of this
Agreement will be obtained by Closing and Buyer will have, as of the Closing,
full right, power, authority and capacity to enter into and perform fully under
this Agreement. This Agreement has been duly executed and delivered by Buyer and
constitutes a legal, valid and binding obligation of Buyer, enforceable against
it in accordance with its terms, except that enforceability hereof may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by principles of equity regarding the
availability of remedies.. Buyer has corporate power under its Restated
Certificate of Incorporation and By-laws, as amended to date, and under the laws
of the State of Maine and other applicable laws to execute, deliver and perform
this Agreement. No stockholder approval is necessary for the consummation of the
transactions contemplated hereby by Buyer.
4.4 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby are not
prohibited by and will not violate any provision of the Restated Certificate of
Incorporation or By-laws, as amended to date, of Buyer, and will not conflict
with or result in a breach or violation of any term or provision of, or (with or
without notice or passage of time, or both) constitute a default under, or
otherwise give any person a basis for nonperformance under, any agreement,
indenture, mortgage, deed of trust, trust (constructive and other), loan or
credit agreement, lease, license, option or other agreement or instrument to
which Buyer is a party or by which it is bound, or violate the provisions of any
statute, or any order, rule or regulation of any governmental body or agency or
instrumentality thereof, or any order, writ, injunction or decree of any court,
governmental body or agency or instrumentality thereof, or any order, writ,
injunction or decree of any court, governmental body or agency or
instrumentality thereof, or any arbitrator having jurisdiction over Buyer or its
property.
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4.5 CAPITALIZATION. The authorized capital stock of Buyer consists
solely of 100,000 shares of common stock without par value which will be changed
to 15,000,000 shares with $.0001 par value in connection with the initial public
offering of Buyer's common stock (the "IPO"), 3,657 shares of Series AA
Preferred Stock, 33,167 shares of Series BB Preferred Stock, 18,000 shares of
Series C Preferred Stock and 16,000 shares of Series D Preferred Stock and
1,000,000 shares of "blank check" preferred stock to be authorized in connection
with the IPO (the "Buyer Capital Stock"). All outstanding shares and holders of
shares of Buyer Capital Stock are listed on Schedule 4.5(a) hereto and have been
duly authorized and validly issued and are outstanding, fully paid and
nonassessable. All existing subscriptions, options, warrants, rights (contingent
or otherwise), call or commitments of any character relating to Buyer Capital
Stock are described on Schedule 4.5(b) hereto, and other than as set forth on
Schedule 4.5(b), there are no outstanding securities or other instruments
convertible into or exchangeable for shares of Buyer Capital Stock and no
commitments to issue such securities or instruments. All outstanding Buyer
Capital Stock has been offered, issued and sold in material compliance with all
applicable law.
4.6 FINANCIAL STATEMENTS, BOOKS AND RECORDS.
(a) Schedule 4.6 hereto contains true and complete copies of
(i) the unaudited balance sheet of Buyer as of September 30, 1996 and statements
of income, stockholders' deficit and cash flow for the nine month period then
ended (the "Buyer Unaudited Financial Statements"), and (ii) the audited balance
sheets of Buyer as of December 31, 1993, 1994 and 1995 and the related
statements of income, stockholders' deficit and cash flow for the fiscal years
then ended, together with the report thereon of Coopers & Lybrand LLP and KPMG
Peat Marwick LLP, as applicable, independent certified public accountants (the
"Buyer Audited Financial Statements").
(b) The Buyer Unaudited Financial Statements and Buyer Audited
Financial Statements present fairly, in each case, the financial condition of
Buyer as of the dates indicated therein and the results of operations and
changes in financial position of Buyer for the periods specified therein
(subject to year-end audit adjustments in the case of the Buyer Unaudited
Financial Statements, that will consist only of normal recurring adjustments),
and the Buyer Unaudited Financial Statements and Buyer Audited Financial
Statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods covered thereby. The
Buyer Unaudited Financial Statements and Buyer Audited Financial Statements
reflect only actual, bona fide transactions consistent with the accounting
records of Buyer. The Buyer Audited Financial Statements and Buyer Unaudited
Financial Statements are true and correct in all material respects.
(c) The minute books of Buyer, all of which have been
previously made available to BI and its representatives, contain materially
accurate records of all meetings of and corporate actions or written consents by
the shareholders and Board of Directors (and any committee thereof, to the
extent written minutes are maintained) of Buyer.
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4.7 INVESTMENT INTENT. Buyer is acquiring the Shares for investment
purposes only, for its own account and not as a nominee or agent for any other
person, and not with a view to or for resale in connection with any distribution
thereof.
4.8 GOVERNMENTAL AND REGULATORY CONSENTS. All consents, authorizations
and approvals of any court, governmental bodies, agencies or instrumentalities
thereof and regulatory authorities, and any arbitrator or any other person that
are necessary in connection with the consummation of the transactions
contemplated by this Agreement have been obtained by Buyer.
4.9 ABSENCE OF CERTAIN CHANGES.
(a) Since September 30, 1996, except as disclosed in Schedule
4.9(a) hereto, Buyer has not: (1) incurred any debts, obligations or liabilities
(absolute, accrued, contingent or otherwise), other than current liabilities
incurred in the usual and ordinary course of business; or (2) sold, transferred,
licensed or leased any of its assets or properties except in the usual and
ordinary course of business or made any distribution of any kind (and whether in
cash or in kind) to its stockholders.
(b) Since September 30, 1996, except as disclosed in Schedule
4.9(b) or the Buyer Unaudited Financial Statements, Buyer has not (1) canceled
or compromised any debt owed to or by or claim of or against it, or waived or
released, in each case, any right other than in the usual and ordinary course of
business; (2) suffered any physical damage, destruction or loss (whether or not
covered by insurance) adversely affecting its business or financial condition,
properties, business prospects or operations; (3) entered into any material
transaction or otherwise committed or obligated itself to any capital
expenditure for an amount in excess of $5,000 other than in the usual and
ordinary course of business; (4) suffered or experienced any adverse change in,
or event or condition adversely affecting, its condition (financial or other),
properties, assets, liabilities, business, operations, results of operations or
business prospects other than changes, events or conditions in the usual and
ordinary course of business that are not, individually or in the aggregate,
materially adverse to it; (5) made any change in the accounting principles,
methods, records or practices followed by it or depreciation or amortization
policies or rates theretofore adopted ; or (6) entered into any agreement or
otherwise obligated itself to do any of the foregoing.
4.10 NO ACTION. Buyer has not filed, or had filed against it, a
petition in bankruptcy or a petition to take advantage of any other insolvency
act; admitted in writing its inability to pay its debts generally; made an
assignment for the benefit of creditors; consented to the appointment of a
receiver for itself or any substantial part of its property; or generally
committed any act of insolvency (including the failure to pay obligations as
they become due) or bankruptcy.
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4.11 DISCLOSURE. No representation or warranty of Buyer in this
Agreement and no information contained in any Schedule or other writing
delivered pursuant to this Agreement or at the Closing contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein not misleading.
To the best knowledge of Buyer there is no fact that Buyer has not disclosed to
Sellers in writing that adversely affects, nor insofar as Buyer can now foresee,
will adversely affect, the financial condition or results of operations of Buyer
as such will exist on the Closing Date or the ability of Buyer to perform fully
this Agreement.
For purposes of this Article IV, Buyer's knowledge shall mean the
actual knowledge of the executive officers and directors of Buyer.
ARTICLE V
COVENANTS OF SELLERS
5.1 PRE-CLOSING MATTERS. During the period commencing on the date
hereof and continuing through the Closing Date, BI agrees (except as expressly
contemplated by this Agreement or to the extent that Buyer shall otherwise
consent in writing) that:
(a) ACCESS. BI shall, and shall cause ATI to, afford Buyer and
its accountants, counsel, underwriters, lenders and Buyer's other
representatives reasonable access during normal business hours during the period
prior to and on the Closing Date to the properties, books, records, officers,
directors and employees of ATI and, during such period, shall furnish promptly
to Buyer, without request, a copy of each report, notice and other document
filed or received by, relative to, or on behalf of, ATI from any governmental
bodies, agencies or instrumentalities thereof and regulatory authorities during
such period and, upon request, all other information pertaining to the business,
properties, operations and personnel of ATI.
(b) PERMITS. BI shall cause ATI to maintain in good standing
and to continue to comply with all Permits.
(c) INSURANCE. BI shall cause ATI to maintain in force each
insurance policy or bond and self insurance arrangement described in Schedule
3.10(b) hereto or to obtain and maintain insurance having the same risk of loss
and coverage, dollar limitations of coverage, deductible features and principal
exclusions contained in those policies, bonds or arrangements that, through no
action by ATI or by BI, are canceled or otherwise become unrenewable prior to
the Closing.
(d) TAX ASSESSMENTS AND AUDITS. BI shall cause ATI to furnish
promptly to Buyer a copy of all notices of proposed assessment or similar
notices or reports that are received from any taxing authority and which relate
to the operations of ATI for periods ending on or prior to the Closing Date. BI
shall cause ATI to inform
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Buyer promptly, and permit the participation in and control by Buyer, of any
investigation, audit or other proceeding by or with any applicable taxing
authority in connection with any tax and shall cause ATI not to consent to any
settlement or final determination in any proceeding without the prior written
consent of Buyer.
(e) SUPPLEMENTS TO SCHEDULES. BI shall deliver to Buyer prior
to the Closing a written statement disclosing any untrue statement of a material
fact in this Agreement or any Schedule hereto (or supplement thereto) or any
omission to state any material fact required to make the statements herein or
therein contained complete and not misleading, promptly upon the discovery of
such untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however, that
the disclosure of such untrue statement or omission shall not prevent Buyer from
terminating this Agreement pursuant to Section 9.1(c) hereof at any time at or
prior to the Closing in respect of any original untrue or misleading statement.
(f) BEST EFFORTS. Sellers will not take any action or suffer
to take any action that would cause any of the representations and warranties of
Sellers in this Agreement to be untrue, incorrect, incomplete or misleading. BI
and DeWalt shall, and BI shall cause ATI to, use its best efforts to bring about
the satisfaction of the conditions precedent to Closing set forth in Article
VIII of this Agreement and the consummation of the transactions contemplated
hereby (to the extent such matters are reasonably within their control).
(g) AUDIT OF FINANCIAL STATEMENTS. BI shall retain Ernst &
Young LLP to audit ATI's financial statements (the "ATI Audited Financial
Statements") with respect to its fiscal years ended October 1, 1994, September
30, 1995 and September 28, 1996, such audit to satisfy the requirements of a
Registration Statement on Form S-1 pursuant to the regulations promulgated under
the Securities Act of 1933 as amended (the "Act") and to provide the
Underwriter(s) of the Buyer's initial public offering with a customary "comfort
letter", (BI shall use its reasonable commercial efforts to obtain same at a
cost not to exceed $60,000), such audit to be completed as soon as reasonably
practicable(the "comfort letter" may be required after the Closing Date). The
Audited Financial Statements shall be delivered to Buyer promptly following BI's
receipt of Ernst & Young LLP's audit report in respect of same. Ernst & Young's
fees in respect of the foregoing shall be split equally between BI and Buyer.
(h) EXCLUSIVE DEALING. During the period from the date of this
Agreement to the Closing Date, BI shall not take, and shall cause ATI to refrain
from taking, any action, directly or indirectly, to encourage, initiate or
engage in discussions or negotiations with, or provide any information to, any
corporation, partnership, person, or other entity or group, other than Buyer,
concerning any purchase of the shares or any merger, sale of assets or similar
transaction involving ATI.
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(i) RESIGNATIONS. BI shall obtain the resignations of all
officers and directors of Buyer, except that DeWalt shall only resign as Chief
Executive Officer and not as President or as a director, such resignations to be
delivered to Buyer at and effective as of the Closing.
(j) CONFIDENTIALITY. BI and Buyer acknowledge that the terms
of the mutual confidentiality letter agreement entered into on May 11, 1992 (the
"Confidentiality Letter") will remain in effect and that information obtained by
either party pursuant to this Agreement will be subject to the Confidentiality
Letter, and we further expressly agree that the existence of this agreement and
any of the substantive terms hereof shall be deemed for purposes of the
Confidentiality Letter to be "Material" of the other party hereto.
DeWalt hereby agrees that the Material (as defined below)
will be used solely for the purpose of evaluating the transaction among BI,
DeWalt and Buyer and that such Material will be kept confidential by him and his
representatives; provided, however, that (1) any of the Material may be
disclosed to DeWalt's representatives who need to know the information contained
therein for the purpose described above (it being understood that (a) such
representatives shall be informed by DeWalt of the confidential nature of such
information and DeWalt shall cause such representatives to treat such
information confidentially; (b) DeWalt shall maintain a list of those to whom
such information has been disclosed, which list shall be presented to the Buyer
upon request; and (c) in any event DeWalt shall be responsible for any breach of
this Agreement by any of his representatives), and (2) any disclosure or other
use of the Material may be made to which Buyer consents in advance in writing or
which is permitted by this Agreement.
Without the prior written consent of Buyer, DeWalt will
not, and will direct his representatives not to, disclose to any person the fact
that the Material has been made available to DeWalt or that DeWalt has inspected
any portion of the Material, the fact that discussions or negotiations are
taking place concerning a possible transaction as described above or any fact
with respect to these discussions, including the status thereof, except that
DeWalt may make such disclosure (after making reasonable efforts to both avoid
such disclosure and advise the Buyer of the DeWalt's intentions to do so) which
DeWalt's counsel advises must be made under the securities laws.
In the event that DeWalt or any of his representatives is
requested or required (by oral question or interrogatories, subpoena, civil
investigative demand or similar process) to disclose any Material, it is agreed
that DeWalt will provide Buyer with prompt notice of any request or requirement
so that the Buyer may seek an appropriate protective order, and/or waive
DeWalt's compliance with the provisions of this Agreement. It is further agreed
that, if in the absence of a protective order or the receipt of a waiver
hereunder, DeWalt will provide Buyer with prompt notice of any request or
requirement so that the Buyer may seek an appropriate protective order, and/or
waive DeWalt's compliance with the provisions of this Agreement. It is further
agreed that, if in the absence of a protective order or the receipt of a waiver
hereunder, DeWalt's or any of
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his representatives is nonetheless, in the reasonable written opinion of
DeWalt's counsel, compelled to disclose information concerning Buyer to any
tribunal or else stand liable for contempt, DeWalt or such representative may
disclose such information to the tribunal; provided that DeWalt shall use his
best efforts to obtain, at the request of Buyer, an order or other reasonable
assurance that confidential treatment will be accorded to such portion of the
information required to be disclosed as the Buyer designates. DeWalt or such
representative shall not be liable for the disclosure to such tribunal unless
such disclosure was caused or resulted from a previous disclosure by DeWalt or
any of his representatives not permitted hereunder.
DeWalt agrees that he will have no discussion,
correspondence or other contact with the Buyer concerning Buyer or any
transaction with or concerning Buyer except with the management of Buyer and its
designated representatives or as otherwise contemplated by this Agreement.
DeWalt further acknowledges and agrees that Buyer reserves the right, in its
sole an absolute discretion, to reject any or all proposals and to terminate
discussions and negotiations with, or directly or indirectly involving, DeWalt
at any time.
DeWalt will promptly upon the request of the Buyer
deliver to the Buyer all documents furnished by the Buyer all documents
furnished by the Buyer or its agents to DeWalt or his representatives
constituting Material, without retaining any copy thereof. In the event of such
request, all other documents constituting Material will be destroyed or, if not
possible, held by DeWalt subject to this Agreement. Notwithstanding the return
or destruction of any material, DeWalt will continue to be bound by his
obligations of confidentiality and other obligations hereunder.
It is understood and agreed that any money damages would
not be a sufficient remedy for any breach of this Section 5(j) and that Buyer
shall be entitled to specific performance and injunctive or other equitable
relief as a remedy for any such breach, and DeWalt further agrees to waive any
requirement for the security or posting of any bond in connection with such
remedy. Such remedy shall not be deemed to be the exclusive remedy for breach of
this Agreement but shall be in addition to all other remedies available at law
or equity to Buyer.
For purposes of this Section 5(j), "Material" shall mean
any such information concerning Buyer which is furnished to the representatives
of DeWalt by or on behalf of Buyer, whether furnished before or after the date
of this Agreement, together with analyses, compilations, studies or other
documents or records prepared by DeWalt or directors, officers, employees,
advisers or representatives (collectively, "representatives") of DeWalt, which
documents or records contain or otherwise reflect or are generated from such
information.
The term "Material" does not include information which
(i) was or becomes generally available to the public other than as a result of a
disclosure by the DeWalt or its representatives, (ii) was or becomes available
to DeWalt on a
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nonconfidential basis from a source other than the Buyer or its representatives,
provided that such source is not bound by a confidentiality agreement with Buyer
or otherwise prohibited from transmitting the information to DeWalt by a
contractual, legal or fiduciary obligation, or (iii) was within DeWalt's
possession prior to its being furnished to DeWalt by or on behalf of Buyer,
provided that the source of such information was not bound by a confidentiality
agreement with the Buyer or otherwise prohibited from transmitting the
information to DeWalt by a contractual, legal or fiduciary obligation. The term
"person" as used in this Agreement shall be broadly interpreted to include
without limitation any corporation, company, partnership or individual.
5.2 POST CLOSING MATTERS. In consideration of the payment of the
purchase price and other consideration received by BI and DeWalt hereunder, BI
and DeWalt, as specified below agree as follows:
(a) For a period of five years following the Closing Date BI
agrees it will not directly or indirectly (including through existing or future
affiliates) compete with Buyer in the business conducted by ATI as of the date
hereof or within the two years prior to the Closing Date including, but not
limited to, by way of ownership, management, operation or control of any
competitor; provided, however, that this covenant does not apply to the
ownership by BI or any of its affiliates of equity in any company, which
ownership of equity is an equity investment in a public company not to exceed
five percent of the total equity investment in such company.
(b) BI agrees that at no time after the date hereof will BI or
any of its Affiliates disclose or communicate to any person or entity, in any
form or manner, directly or indirectly, any Confidential Information.
"Confidential Information" shall mean information, including, but not limited to
sales, customers, suppliers, distributors, advertisers, pricing or financial
information with respect to ATI's business as of the date hereof or as conducted
by it within two years prior to the Closing Date. BI hereby stipulates that
Confidential Information is important and material, represents trade secrets and
substantially affects the conduct of ATI's business and its goodwill and that
any breach of this Section shall constitute a material breach of this Agreement.
(c) Should any portion of the covenants set forth in this
Section 5.2 be unenforceable because of the scope thereof or the period covered
thereby, or otherwise, such covenants shall be deemed to be reduced and limited
to enable them to be enforced to the extent permissible under the laws and
public policies applied in the jurisdiction in which enforcement is sought.
(d) BI and Buyer further acknowledge and agree that it will be
difficult to compute the amount of damage or loss to Buyer if BI violates its
agreements under this Section 5.2, that Buyer will be without an adequate legal
remedy if BI violates the provisions of this Section 5.2 and that any such
violation will cause substantial irreparable injury and damage to Buyer.
Therefore, BI and Buyer agree that in the event of any violation by BI of this
Section 5.2, Buyer shall be entitled to specific performance,
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injunctive, or other equitable relief, of either a preliminary or permanent
type-, and Buyer shall be entitled to any other available rights or remedies at
law or in equity which may be exercised concurrently with the rights granted
hereunder.
(e) In the event that ATI does not collect an amount relative
to accounts receivable (or any portion thereof) included in the 9/28/96 Balance
Sheet which exceeds the amount of reserve for bad debts stated on the 9/28/96
Balance Sheet, together with any discounts, returns or allowances granted by ATI
to account debtors subsequent to the Closing Date, on or before that date which
is six months after the Closing Date ("Delinquent Receivables"), BI hereby
agrees that it shall, within 3 business days following notice thereof by Buyer
to BI, remit to Buyer in cash the full amount (net of the reserve and discounts,
returns or allowances as aforesaid) of the uncollected portion of such
Delinquent Receivables as are described in the notice. Concurrently with such
payment, Buyer shall transfer title to such Delinquent Receivables to BI. Buyer
may only submit a notice regarding Delinquent Receivables on one occasion and
prior to sending the notice referred to above, ATI shall use reasonable
commercial efforts consistent with its past practice to collect such accounts
receivable.
(f) BI agrees that it shall, from time to time, including at
the Closing, execute and deliver a subordination agreement in favor of Buyer's
senior lenders (the "Senior Lenders"), subject to the agreements of Buyer set
forth in Section 6.4 below, and provided however, that in no event shall BI be
required to subordinate to debt aggregating more than $7,500,000 plus the amount
of any principal repayments made on the Note. All such financing to which BI
shall subordinate is hereinafter referred to as the "Senior Financing".
(g) BI will agree to and execute and deliver to the Buyer's
underwriters a "lock-up" with respect to any shares of Buyer Common Stock issued
to it pursuant to the terms of the Note, and DeWalt will agree to and execute
and deliver to the Buyer's underwriters a "lock-up" with respect to shares of
Buyer Common Stock issued to it, both upon terms consistent with the holders of
Buyer's currently outstanding preferred stock in connection with an IPO.
(h) BI will pay the BI Assumed Liabilities.
ARTICLE VI
COVENANTS OF BUYER
During the period commencing on the date hereof and continuing through
the Closing Date, (except as to 6.4 below, which agreement extends after the
Closing Date) Buyer agrees (except as expressly contemplated by this Agreement
or to the extent that BI shall otherwise consent in writing) that:
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6.1 BEST EFFORTS. Buyer shall use its best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Section 8.1 of
this Agreement and the consummation of the transactions contemplated hereby.
6.2 ACCESS. Buyer shall afford BI and DeWalt and their respective
accountants, counsel, lenders (and their counsel) and other representatives
reasonable access during normal business hours during the period prior to and on
the Closing Date to the properties, books, records, officers, directors and
employees of Buyer and, during such period, shall furnish promptly to BI and
DeWalt, without request, a copy of each report, notice and other document filed
or received by, or on behalf of, Buyer from any governmental bodies, agencies or
instrumentalities thereof and regulatory authorities during such period and,
upon request, all other information pertaining to the business, properties,
operations and personnel of Buyer.
After the Closing Date, Buyer shall provide BI and its representatives
and agents (including counsel and accountants) with full access upon reasonable
notice during normal business hours to all of the books and records and other
documents and data of ATI relating to the business, operations, personnel and
financial condition of ATI prior to Closing by BI (the "Buyer Records"). Buyer
shall retain such books and records for the later of the end of the normal
document retention period of Buyer or the fifth anniversary of the Closing Date
(the "Records Retention Period"). After the end of the Records Retention Period,
Buyer may after 60 days prior notice to BI destroy any of the Buyer Records
which BI does not request during such 60-day period that Buyer return to BI. BI
shall bear the reasonable expense for the production and delivery of copies of
any of the Buyer Records. Buyer shall use reasonable efforts to cause any of the
employees of Buyer or ATI who were previously employed by ATI to meet with BI
and its representatives and agents (including counsel and accountants) at such
times and places (at the expense of BI) as BI may reasonably request in order to
provide BI with information concerning the business, operations, personnel and
financial condition of ATI prior to Closing.
6.3 NON-SOLICITATION. Buyer will not either directly or indirectly, for
a two-year period, for itself or for any other party, without the prior written
consent of BI, induce or attempt to persuade any employee of BI or any of its
subsidiaries, including ATI, with whom Buyer may come into contact with or
become aware of (whether through its discussions regarding a transaction, its
due diligence reviews or its negotiation, execution or delivery of a definitive
agreement or otherwise) to terminate his or her employment or relationship with
BI or any of its subsidiaries, including ATI. The foregoing provisions of this
Section 6.3 notwithstanding, such provisions shall not apply to employees of ATI
in the event the transaction contemplated by this Agreement is consummated.
6.4 SENIOR FINANCING. Buyer shall use its best efforts to secure Senior
Financing on a commercially reasonable basis which contains financial covenants
that contemplate the payments to BI described in this Agreement. Buyer shall not
enter into a Senior Financing arrangement which either specifically restricts or
prohibits the repayment of the Note or
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generally restricts the repayment of any class of debt which includes the debt
evidenced by the Note (except in the event of a default under such Senior
Financing arrangements, whether or not such default has ripened into an "event
of default"). The foregoing notwithstanding, it is understood that any payment
due under the Note may be prohibited by requirements that Buyer comply with
financial tests determined by such Senior Financing arrangements. Buyer shall
not permit its assets to be encumbered, other than by the Senior Debt (other
than liens relative to capitalized leases existing as of September 30, 1996 or
relative to assets acquired after September 30, 1996 or purchase money liens on
assets acquired after September 30, 1996).
6.5 INCONSISTENT ACTION; CAUSE CONDITIONS TO BE SATISFIED. Buyer will
not take any action or suffer to take any action that would cause any of the
representations and warranties of Buyer in this Agreement to be untrue,
incorrect, incomplete or misleading. Buyer will use its best efforts to bring
about the satisfaction of the conditions precedent to the Closing set forth in
Article VIII of this Agreement and the consummation of the transactions
contemplated hereby (to the extent such matters are reasonably within its
control).
6.6 ADJUSTMENT FOR TAXES PAID ON OCTOBER 1996 INCOME. Buyer will
reimburse BI for income taxes incurred by BI with respect to the operating
income of ATI for the period beginning September 29, 1996, and ending on the
date immediately preceding the Closing Date (the "Stub Period"), such
reimbursement to be made in the following manner: BI shall submit to Buyer an
accounting of the cumulative difference between tax and book income for the 1996
fiscal year (the "Adjustment"). Within thirty (30) days of its receipt and
approval of a statement of the Adjustment from BI, Buyer shall prepare an
operating income/loss statement setting forth the net operating income (or loss)
of ATI for the Stub Period, reduced by one-twelfth (1/12) of the Adjustment (the
"Adjusted Stub Period Income"). There shall be applied against the Adjusted Stub
Period Income an effective tax rate of thirty-five percent (35%), and the
parties agree that the product thereof (the "Stub Period Tax Liability") shall
be deemed to cover BI's federal, state and local income tax liability for ATI's
operating income in the Stub Period. Buyer shall pay to BI an amount equal to
the Stub Period Tax Liability no later than five days prior to the due date of
BI's first required tax payment for its 1997 fiscal year.
ARTICLE VII
CONDUCT OF ATI'S
BUSINESS PENDING CLOSING AND ADDITIONAL AGREEMENTS
During the period commencing on the date hereof and continuing through
the Closing Date, Sellers agree (except as expressly contemplated by this
Agreement or to the extent that Buyer shall otherwise consent in writing) that
they shall cause ATI to comply with the following:
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7.1 ORGANIZATION; QUALIFICATION. ATI shall not amend, restate or
otherwise modify its organization and corporate governance documents, or charter
or bylaws, and shall maintain in force and effect all qualifications to transact
business and remain in good standing in its jurisdiction of incorporation and
each of the jurisdictions set forth on Schedule 3.1 hereto.
7.2 ORDINARY COURSE. ATI shall conduct its business in, and only in,
the usual, regular and ordinary course in substantially the same manner as
theretofore conducted and, to the extent consistent with such business, use all
best efforts to preserve intact its current business organization, to keep
available the services of its current officers and key employees and to preserve
its relationships with customers, suppliers and others having business dealings
with it to the end that its goodwill and going business shall be unimpaired at
the Closing Date. ATI shall maintain its assets and properties in good condition
and repair. ATI shall refrain from acquiring the stock or assets, or assuming
the obligations of, any corporation or business entity or any proprietary
interest in or obligations of any business enterprise. ATI shall not, without
prior consultation with Buyer, make any capital expenditures, other than those
that it is obligated to make under an agreement disclosed pursuant to Section
3.20 hereto, except for ordinary repairs and replacements.
7.3 DIVIDENDS; CAPITAL STOCK. ATI shall not (i) make cash or non-cash
distributions in respect of any shares of ATI Capital Stock; (ii) issue,
authorize or propose the issuance of, or purchase or propose the purchase of,
any shares of ATI Capital Stock or securities convertible into or exchangeable
for, or rights, warrants or options to acquire, any such shares or other
convertible or exchangeable securities; (iii) change the outstanding shares of
ATI Capital Stock into a different number of shares of the same or different
class by reason of any reclassification, recapitalization, forward stock split,
reverse stock split, combination, exchange of shares or readjustment, or declare
a stock dividend thereon; or (iv) obligate itself to do any of the foregoing.
7.4 ACCOUNTING. ATI shall not make any change in the accounting
principles, methods, records or practices followed by it or depreciation or
amortization policies or rates theretofore adopted by it, except to the extent
necessary to fulfill the requirements of Section 5.1(g) hereof. ATI shall
maintain its books, records and accounts in accordance with its historical
accounting principles applied on a basis consistent with that of prior periods.
7.5 INDEBTEDNESS. ATI shall not incur any Indebtedness other than
current liabilities incurred in the usual and ordinary course of business. ATI
shall refrain from paying any obligation or liability, absolute or contingent,
except current liabilities shown on the 9/28/96 Balance Sheet or current
liabilities incurred since September 28, 1996 in the usual and ordinary course
of business.
7.6 COMPLIANCE WITH LEGAL REQUIREMENTS. ATI shall comply promptly with
all requirements that applicable law may impose upon it with respect to the
conduct of its
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business and operations and with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information to,
Buyer in connection with any such requirements imposed upon Buyer, or upon any
of its affiliates, in connection therewith or herewith.
7.7 COMPETING OFFERS; MERGER OR LIQUIDATION. Neither the Sellers nor
ATI shall, nor shall they authorize or permit any officer, director or employee
of, or any investment banker, broker, attorney, accountant or other agent or
representative retained by ATI or the Sellers or any Affiliate of any of them
to, solicit or encourage (including by way of furnishing nonpublic information)
any inquiries or the making of any proposal that may reasonably be expected to
lead to any proposal of partial or total acquisition of ATI. ATI shall not
commence any proceeding to merge, consolidate or liquidate or dissolve or
obligate itself to do so.
7.8 DISPOSITION OF ASSETS. ATI shall not sell, transfer, license, lease
or otherwise dispose of, or suffer or cause the encumbrance by any Lien (other
than a Permitted Lien) upon, any of its properties or assets, tangible or
intangible, or any interest therein, except in the usual and ordinary course of
business.
7.9 COMPENSATION. ATI shall not pay, or make any accrual or arrangement
for payment of, any increase in compensation, bonuses or special compensation of
any kind, or any severance or termination pay to, or enter into any employment
or loan or loan guarantee agreement with, any current or former officer,
director, employee, stockholder or consultant of ATI.
7.10 EMPLOYEE BENEFIT ARRANGEMENTS. ATI shall not adopt or amend in any
respect any employee pension, profit-sharing, retirement, bonus, deferred
compensation, insurance, incentive compensation, severance, thrift, vacation or
other plan, agreement, trust fund or arrangement for the benefit of its
employees (whether or not legally binding) other than amendments of existing
benefit plans necessary to conform to legal requirements or to consummate the
transactions contemplated by this Agreement.
7.11 CLAIMS; DISCHARGE; LITIGATION. ATI shall not cancel, compromise,
release or discharge any claim of ATI upon or against any person or waive any
right of ATI, except for allowances and discounts granted to customers in the
ordinary course of business consistent with past practice as described herein,
and shall not compromise any debt or other obligation of ATI to any person
except in the ordinary course of business consistent with past practice. ATI
shall not institute, settle or agree to settle any action or proceeding before
any court or governmental body without the prior written consent of Buyer.
7.12 MODIFICATION OR BREACH OF AGREEMENTS; NEW AGREEMENTS. ATI shall
not terminate or modify, or commit or cause or suffer to be committed any act
that will result in breach or violation of any term of or (with or without
notice or passage of time, or both) constitute a default under or otherwise give
any person a basis for
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nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement, instrument, arrangement or
understanding, written or oral, disclosed in this Agreement or the Schedules
hereto. ATI shall refrain from making or becoming a party to any contract or
commitment other than in the usual and ordinary course of business. ATI shall
use its best efforts to meet all of its contractual obligations in accordance
with their respective terms.
7.13 INCONSISTENT ACTION. The Sellers shall not take, and shall not
permit ATI to take or cause or suffer to be taken, any action that would cause
any of the representations or warranties of BI relative to ATI in this Agreement
to be untrue, incorrect, incomplete or misleading, and they shall not take any
action that would cause any of their respective representations and warranties
in Sections 2.1 and 2.2 hereof to be untrue, incorrect, incomplete or
misleading.
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING
8.1 CONDITIONS OF BUYER. Any other provision of this Agreement to the
contrary notwithstanding, the obligations of Buyer to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction, at or prior to the Closing, of the following conditions listed in
this Section 8.1, any of which may be waived in whole or in part by Buyer:
(a) BI and DeWalt shall have delivered to the Buyer their
respective certificates representing all of the Shares, duly endorsed in blank
or accompanied by signed stock powers and an executed registration rights
agreement as described in Buyer and BI's letter dated September 25, 1996.
(b) BI shall have furnished the Buyer with an opinion of BI's
General Counsel, dated the Closing Date, in form and substance reasonably
satisfactory to the Buyer.
(c) BI shall have delivered to the Buyer:
(i) copies of ATI's charter, including all amendments
thereto, certified by the Secretary of State or other appropriate official of
its jurisdiction of incorporation,
(ii) certificates from the Secretary of State or other
appropriate official of its jurisdiction of incorporation to the effect that ATI
is in good standing or subsisting in such jurisdiction and listing all charter
documents of ATI on file,
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(iii) a certificate from the Secretary of State or other
appropriate official in each state in which ATI is qualified to do business to
the effect that ATI is in good standing in such state,
(iv) certificates as to the tax status of ATI in its
jurisdiction of incorporation and each state in which ATI is qualified to do
business,
(v) an opinion letter of McDermott, Will & Emery in a form
reasonably acceptable to Buyer setting forth such counsel's determination that
the Advanced Textiles, Inc. 401(k) Savings Plan complies in all material
respects with the provisions of the Code and ERISA applicable thereto, after
taking into account all relevant provisions of Section 414 of the Code, and
(vi) affidavits customarily given by owners of real
property in Texas relative to the nonexistence of certain Liens and/or tenants
or occupants in possession (other than ATI) in connection with a conveyance of
such real property.
(c) The results of Buyer's due diligence review of ATI's
businesses and operations shall be satisfactory to Buyer in its sole discretion,
provided, however, that the right of Buyer to terminate its obligations
hereunder on account of the results of such due diligence shall terminate upon a
public announcement by or with the written consent of the management of Buyer,
whether by press release, by the filing of an amendment to Buyer's Registration
Statement on Form S-1 which discloses the transaction, or by any other means.
(d) Prior to the Closing Date, there shall be no material
adverse change in the financial condition or the results of operations of ATI
(including but not limited to as a result of a loss of the use of the operating
facility or other material assets due to accident, earthquake, fire or other
catastrophic event) after September 28, 1996, and BI shall have delivered to the
Buyer a certificate, dated the Closing Date, that there has been no such
material adverse change.
(e) The representations and warranties of BI contained in this
Agreement or in any Schedule delivered pursuant hereto shall be true and correct
in all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date
(with the exception of such changes as are specifically contemplated by this
Agreement), and BI shall have delivered to the Buyer on the Closing Date a
certificate, dated the Closing Date, to such effect.
(f) The representations and warranties of DeWalt contained in
this Agreement or in any Schedule delivered pursuant hereto shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date (with the exception of such changes as are specifically contemplated
by this Agreement), and DeWalt shall
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have delivered to the Buyer on the Closing Date a certificate, dated the Closing
Date, to such effect.
(g) The ATI Audited Financial Statements shall have been
delivered to Buyer at least three business days prior to the Closing Date and
such statements shall not materially and adversely differ from the Unaudited
Financial Statements.
(h) Each and all of the covenants and agreements of Sellers to
be performed on or before the Closing Date pursuant to the terms hereof shall
have been duly performed, and each Seller shall have delivered to the Buyer a
certificate, dated the Closing Date, to such effect.
(i) No action or proceedings shall have been instituted by any
party other than Buyer or at Buyer's direction, and neither BI nor DeWalt shall
know of any threat that shall have been made to institute any such action or
proceeding, before a court or other government body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and each
Seller shall have delivered to the Buyer a certificate, dated the Closing Date,
to such effect.
(j) BI shall have delivered to the Buyer the resignations of
all of the officers and directors of ATI other than as described in Section 5.1
(i) hereto.
(k) BI shall have executed and delivered to the Buyer all
forms and documents necessary to effect an election under ss.338(h)(10) of the
Code, including without limitation IRS Forms 8023 and 8023-A.
(l) Buyer shall have received a certificate of the Secretary
of BI with respect to the incumbency of officers executing the Agreement and
closing documents and the resolutions of the Board of Directors approving the
terms of this Agreement and the execution and performance hereof.
(m) BI shall have entered into a subordination agreement as
described in Section 5.2 hereof.
(n) The Board of Directors of Buyer shall have approved this
Agreement and the consummation of the transactions contemplated hereby;.
(o) All proceedings taken by BI and ATI and all instruments
executed and delivered by them on or prior to the Closing Date in connection
with the transactions herein contemplated shall be reasonably satisfactory to
counsel for Buyer.
(p) BI shall have approved the Allocation Schedule described
in Section 3.13(m) hereof.
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(q) BI shall have delivered to Buyer the written agreement of
Joseph Sabatini clarifying and amending his employment arrangements with ATI in
form and substance acceptable to Buyer.
(r) DeWalt's Employment Agreement dated as of May 1, 1996
shall have been terminated and replaced with an Employment Agreement
substantially in the form of Schedule 8.1 (r)
8.2 CONDITIONS OF SELLERS. Any other provision of this Agreement to the
contrary notwithstanding, the obligations of Sellers to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
listed in this Section 8.2 and the following conditions, may be waived in whole
or in part by BI (as to BI) or by DeWalt (as to DeWalt):
(a) The Buyer shall have tendered the purchase price to
Sellers (in the form, manner and amount as in this Agreement provided).
(b) The Buyer shall have furnished BI with an opinion, dated
the Closing Date, of Gadsby & Hannah LLP in form and substance reasonably
satisfactory to BI and to DeWalt.
(c) The results of Sellers' due diligence review of Buyer's
businesses and operations shall be satisfactory to Sellers in their sole
discretion.
(d) The representations and warranties of the Buyer contained
in this Agreement shall be true and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date (with the exception of such changes as are specifically
contemplated by this Agreement); and the Buyer shall have delivered to the Buyer
on the Closing Date a certificate, dated the Closing Date, to such effect.
(e) Prior to the Closing Date, there shall be no material
adverse change in the financial condition or the results of operations of Buyer
(including but not limited to as a result of a loss of the use of the operating
facility or other material assets due to accident, earthquake, fire or other
catastrophic event) after September 30, 1996, and Buyer shall have delivered to
the Sellers a certificate dated the Closing Date, that there has been no such
material adverse change.
(f) Each and all of the covenants and agreements of Buyer to
be performed on or before the Closing Date pursuant to the terms hereof shall
have been duly performed, and Buyer shall have delivered to the Buyer a
certificate, dated the Closing Date, to such effect.
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(g) No action or proceedings shall have been instituted by any
party other than a Seller or at either of their direction, and Buyer shall know
of no threat that shall have been made to institute any such action or
proceeding, before a court or other government body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Buyer
shall have delivered to the Sellers a certificate, dated the Closing Date, to
such effect.
(h) The Board of Directors of BI shall have approved this
Agreement and the consummation of the transactions contemplated hereby.
(i) Buyer shall have tendered to DeWalt an executed Employment
Agreement with DeWalt on substantially the terms and conditions set forth in
Schedule 8.1(r) hereto.
(j) BI shall have approved the allocation schedule described
in Section 3.13(l) hereto.
(k) All proceedings taken by Buyer and all instruments
executed and delivered by it on or prior to the Closing Date in connection with
the transactions herein contemplated shall be reasonably satisfactory to counsel
for BI.
(l) Buyer shall have executed and delivered to Sellers a
registration rights agreement in form and substance consistent with the terms of
the registration rights agreement between Buyer and the holders of the currently
outstanding shares of preferred stock of the Buyer.
(m) Buyer shall have received a certificate of the Clerk or
Assistant Clerk of Buyer with respect to the incumbency of officers executing
the Agreement and closing documents and the resolutions of the Board of
Directors approving the terms of this Agreement and the execution and
performance hereof.
ARTICLE IX
TERMINATION. AMENDMENT AND WAIVER
9.1 TERMINATION.This Agreement may be terminated at any time prior
to the Closing Date:
(a) by mutual agreement of the parties hereto;
(b) by Buyer if the ATI Audited Financial Statements are not
delivered to Buyer on or before November 30, 1996;
(c) by any party hereto if the Closing has not occurred on or
before December 31, 1996;
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(d) by Buyer if there has been a material misrepresentation,
material breach of warranty or material breach of covenant by Sellers under this
Agreement, and
(e) by BI or by DeWalt if there has been a material
misrepresentation, material breach of warranty or material breach of covenant by
Buyer under this Agreement.
9.2 EFFECT. In the event of termination of this Agreement as
provided in Section 9.1(a), 9.1(b) or 9.1(c) hereof, this Agreement shall
forthwith become void and there shall be no liability hereunder on the part of
any party hereto, or any officer, director, employee, agent or representative of
any party hereto, except for willful breach, and except that the agreements with
respect to confidentiality contained in Section 5.1 hereof and the agreements
with respect to expenses contained in Section 10.7 hereof shall survive the
termination of this Agreement. In the event of termination of this Agreement as
provided in Section 9.1(d) or 9.1(e) hereof, such termination shall be without
prejudice to any rights that the terminating party or parties may have against
the breaching party or parties or any other person under the terms of this
Agreement or otherwise.
9.3 AMENDMENT. This Agreement may be amended at any time only by a
written instrument executed by Buyer and the Sellers.
ARTICLE X
GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties hereto contained in this
Agreement or in any writing delivered pursuant to the provisions of Section 8.1
or Section 8.2 of this Agreement at the Closing shall survive any examination by
or on behalf of any party hereto and the consummation of the transactions
contemplated hereby for the respective periods applicable thereto as stated in
Section 10.2 (j) hereof, but claims with respect thereto are limited as set
forth in Section 10.2 below.
10.2 INDEMNIFICATION.
(a) BI covenants and agrees to indemnify, defend and save and
hold Buyer and each of its employees, officers, directors, stockholders,
consultants, attorneys and agents (collectively, the "Buyer Parties") harmless
from and against any claims, demands, actions, causes of action, suits,
judgments, debts, liabilities, loss, cost, expense, liability, or damages
(including, without limitation, reasonable fees and disbursements of counsel and
accountants and other costs and expenses incident thereto) (collectively, the
"Damages") arising out of or resulting from: (1) any inaccuracy in or breach of
any representation, warranty, covenant or agreement made by BI in this
Agreement, including
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the Schedules hereto, or in any writing delivered by BI pursuant to the
provisions of Section 8.1 of this Agreement at the Closing; (2) the failure of
BI to perform or observe fully any covenant, agreement or provision to be
performed or observed by it pursuant to this Agreement; or (3) any claim, suit,
action or proceeding arising out of or resulting from the conduct by ATI of its
business or operations on or prior to the Closing Date.
(b) DeWalt covenants and agrees to indemnify, defend and save
and hold the Buyer Parties harmless from and against any Damages arising out of
or resulting from: (1) any inaccuracy in or breach of any representation,
warranty, covenant or agreement made by DeWalt in this Agreement, including the
Schedules hereto, or in any writing delivered by DeWalt pursuant to the
provisions of Section 8.1 of this Agreement or at the Closing; or (2) the
failure of DeWalt to perform or observe fully any covenant, agreement or
provision to be performed or observed by him pursuant to this Agreement.
(c) Buyer covenants and agrees to indemnify, defend and save
and hold Sellers harmless from and against any Damages arising out of or
resulting from: (1) any inaccuracy in or breach of any representation, warranty,
covenant or agreement made by Buyer in this Agreement, including the Schedules
hereto or in any writing delivered pursuant to the provisions of Section 8.2 of
this Agreement at the Closing; (2) the failure by Buyer to perform or observe
any covenant, agreement or condition to be performed or observed by it pursuant
to this Agreement; or (3) any claim, suit, action or proceeding arising out of
or resulting from the conduct by ATI of its business or operations after the
Closing Date.
(d) Any claim for indemnity under this Section 10.2 shall be
delivered in writing in accordance with Section 10.9 hereof promptly following a
discovery by the indemnified party of such claim to the indemnifying party and
such claim shall set forth with reasonable specificity as to the amount claimed
and the underlying facts supporting such claim; provided however, that during
the interim the indemnified party shall use its best efforts (not requiring any
material expenditure) to take all action (not including settlement) reasonably
necessary to protect against further damage or loss with respect to the claim,
and provided further that the failure of an indemnified party to so notify an
indemnifying party or to use its best efforts to protect against further damage
or loss shall not relieve the indemnifying party of its obligation to indemnify
under this Agreement unless and only to the extent the rights of the
indemnifying party are thereby prejudiced.
(e) Any indemnifying party receiving such notice shall, within
thirty days of receipt of such notice, (a) deny in writing the claim, (b) pay
the amount of the claim if a monetary amount is involved, or (c) if a claim of a
third party is involved, have the right to assume the defense of such claim. The
indemnifying party shall have the exclusive right to conduct and control,
through counsel of its own choosing, the defense of any such claim or any action
arising therefrom, provided, that in conducting the defense of any such claim or
action, the indemnifying party shall, and shall cause its counsel to, consult
with the indemnified party and counsel, if any, selected by it or him and
compensated by it or him without reimbursement hereunder (unless the
indemnifying party does not defend the claim),
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and shall keep such counsel, if any, and the indemnified party fully advised of
the progress thereof. If the indemnifying party fails or refuses to assume the
conduct and control of the defense of any such claim or action, then the
indemnified party may conduct and control such defense, and the cost thereof
shall be reimbursable Damages hereunder. No settlement of any claim for which
indemnification is sought hereunder shall be made without either (x) the prior
written consent of both the indemnifying party and the indemnified party, which
consent shall not be unreasonably withheld or delayed, or (y) the release of the
indemnified party from all liability relating to such claim, in form and
substance reasonable satisfactory to the indemnified party and its counsel.
Whether or not the indemnifying party chooses so to defend or prosecute such
claim, all the parties hereto shall cooperate in the defense or prosecution
thereof and shall furnish such records, information and testimony and shall
attend such conferences, discovery proceedings and trials at the expense of the
indemnifying party as may be reasonably requested in connection therewith.
(f) Notwithstanding the provisions of Section 10.2(a), BI
shall have no obligation to provide indemnification unless and until the
aggregate amount of indemnification as to which it is obligated shall exceed
$175,000, whereupon BI shall be liable only to the extent that the aggregate
amount of indemnification as to which it is obligated hereunder exceeds
$100,000; provided, however, that this limitation shall not apply to BI's
obligations regarding the BI Assumed Liabilities, Delinquent Accounts Receivable
or fees owed to any broker or finder or claims relative to the representations,
warranties and covenants set forth in Section 3.13. In no event will the
indemnification as to which BI shall be liable as an indemnifying party
hereunder, except as to BI and Non-ATI Affiliates Tax Liability (as defined
below) exceed $7,896,500.
For purposes hereof, "BI and Non-ATI Affiliates Tax
Liability shall mean any liability that ATI incurs for the Taxes of any Person
other than ATI under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), for any taxable period during which ATI was a member of
the Affiliated Group.
(g) Notwithstanding the provisions of Section 10.2(b), DeWalt
shall have no obligation to provide indemnification unless the aggregate amount
of indemnification as to which he is obligated shall exceed $10,000, whereupon
DeWalt shall be liable only to the extent that the aggregate amount of
indemnification as to which it is obligated hereunder exceeds $10,000 In no
event will the amount for which DeWalt shall be liable as an indemnifying party
hereunder exceed $53,500.
(h) Notwithstanding the provisions of Section 10.2(c), Buyer
shall have no obligation to provide indemnification unless the aggregate amount
of indemnification as to which it is obligated shall exceed $175,000, whereupon
Buyer shall be liable only to the extent that the aggregate amount of
indemnification exceeds $100,000; provided, however that this limitation shall
not apply to fees owed to any broker or finder. In no event will the amount for
which Buyer shall be liable as an indemnifying party hereunder exceed
$7,896,500.
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(i) Notwithstanding the other provisions of this Section 10.2,
no party shall be entitled to indemnification for any claim relative to any
matter as to which indemnification would be required pursuant to Section 10.2
(a), (b) or (c) as applicable, (excluding, however, only (i) BI's obligations
with respect to Delinquent Accounts Receivables and (ii) any claims in respect
of brokers of finders fees) unless the amount of the claim equals at least
$10,000, and any claims less than $10,000 shall not be counted toward the
thresholds set forth in the preceding subsections.
(j) Any claim asserted with respect to the items enumerated in
Sections 10.2(a), (b) or (c), except for claims relative to the representations
contained in Sections 3.13, 3.15 and 3.18 (the "Governmental Representations")
and except for claims relative to the non-performance of covenants which are
required by their terms to be performed after the Closing, must be submitted to
the indemnifying party in writing, or invoked in official proceedings, on or
before March 31, 1998. Any claim with respect to the Governmental
Representations must be submitted to BI prior to that date which is the earlier
of the statute of limitations in respect of such matter, if any, or eight years
from the Closing Date.
(k) The amount payable by an indemnifying party to an
indemnified party with respect to a claim shall be reduced by the amount of any
insurance proceeds received by the indemnified party with respect to the claim,
and each of the parties hereby agrees to use its or his best efforts to collect
any and all insurance proceeds to which it or he may be entitled in respect of
any claim.
(l) The amount payable by an indemnifying party with respect
to a claim shall be net of any federal, state or local tax benefit derived by
the indemnified party by reason of the claim.
10.3 SETOFF. Buyer shall have the right to setoff at any time: (a) any
amount owed to BI or any of its Affiliates by Buyer or any of its affiliates
against (b) any amount claimed by Buyer or any of its affiliates against BI or
any of its Affiliates. Buyer shall have the right to setoff at any time: (a) any
amount owed to DeWalt or any of his Affiliates by Buyer or any of its affiliates
against (b) any amount claimed by Buyer or any of its affiliates against DeWalt
or any of his affiliates. BI shall have the right to setoff at any time: (a) any
amount owed to Buyer or any of its Affiliates by BI or any of its affiliates
against (b) any amount claimed by BI or any of its affiliates against Buyer or
any of its affiliates. Any party claiming a right of setoff hereunder, shall
give notice of same to the party against whom it is claiming such right, prior
to or concurrently with the exercise of such right.
10.4 COMPLETE AGREEMENT. This Agreement (a) constitutes the entire
agreement and supersedes all other prior and contemporaneous agreements and
undertakings, both written and oral, among the parties hereto with respect to
the subject matter hereof; (b) is not intended to confer upon any person any
rights or remedies hereunder or with respect to the subject matter hereof except
as specifically provided in
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this Agreement; (c) shall not be assigned by operation of law or otherwise; (d)
shall be governed by, and construed in accordance with, the laws of the State of
Maine, without regard to principles of conflict of laws; and (e) may be executed
in two or more counterparts, each of which shall be deemed to be an original,
but all such counterparts together shall constitute a single agreement.
10.5 JURISDICTION;
(a) Any judicial proceeding brought against any of the parties
to this Agreement on any dispute arising out of this Agreement or any matter
related hereto may be brought in the courts of the State of Maine or the State
of North Carolina, or in the United States District Court for the District of
Maine or the District of North Carolina, and, by execution and delivery of this
Agreement, each of the parties to this Agreement:
(i) accepts for himself or itself the exclusive
jurisdiction of the aforesaid courts, as well as the jurisdiction of all courts
from which an appeal may be taken from such courts, for the purpose of any suit,
action or other proceeding arising out of any of their obligations hereunder or
with respect to the transactions contemplated hereby,
(ii) expressly waives any and all objections he or it
may have as to venue in any such courts,
(iii) consents to service of process, and to be sued,
in the State of Maine or North Carolina and consents to the jurisdiction of the
courts of the State of Maine and the State of North Carolina and the United
States District Court for the District of Maine and the District of North
Carolina, and
(b) Each party agrees that a summons and complaint commencing
an action or proceeding in any of such courts shall be properly served and shall
confer personal jurisdiction on each of them if served as provided under the
laws of the relevant state or federal law as applicable.
(c) The foregoing consents to jurisdiction shall not
constitute general consents to service of process in a state for any purpose
except as provided above and shall not be deemed to confer rights on any person
other than the respective parties to this Agreement.
10.6 THIRD PARTIES. No provision of this Agreement is intended, nor
shall it be construed, to create third party beneficiary rights for or on behalf
of any persons.
10.7 EXPENSES. All costs and expenses, other than those described in
Section 1.3(b) and 10.2 hereof, incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party or parties
incurring the same, it being
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expressly understood by the parties hereto that BI, and not ATI, shall be liable
for BI's and DeWalt's costs and expenses.
10.8 FEES. Each of Buyer (except as described on Schedule 10.8 hereto),
BI (on its own behalf and on behalf of ATI) and DeWalt represents and warrants
to the other that it or he has taken no action and has entered into no
agreement, understanding or other arrangement that would obligate Buyer or any
Seller to pay any broker's or finder's fee or any other commission or similar
fee to any agent, broker, investment banker or other firm or person in
connection with any of the transactions contemplated by this Agreement.
10.9 FURTHER ACTION. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Closing Date any further action is necessary to carry
out the purposes of this Agreement, the Sellers or Buyer, as the case may be,
shall take, or cause to be taken, all such necessary action.
10.10 NOTICES. Except as may otherwise expressly by provided herein,
any notice required or desired to be served, given or delivered hereunder shall
be in writing, and shall be deemed to have been validly served, given or
delivered upon the earlier of (a) personal delivery to the addresses set forth
below, (b) in the case of facsimile transmission, immediately upon confirmation
of completion of transmission, (c) in the case of mailed notice, seven (7) days
after deposit in the mail, with proper postage for registered or certified mail,
return receipt requested, prepaid, or (d) in the case of notice by Federal
Express or other reputable overnight courier service, two (2) business day after
delivery to such courier service, addressed to the party to be notified as
follows:
If to Buyer:
Mr. Martin S. Grimnes
Chief Executive Office
Brunswick Technologies, Inc.
43 Bibber Parkway
Brunswick, Maine 04011
207-729-7877 [fax]
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With a copy to each of:
Walter D. Wekstein, Esq.
Marianne Gilleran, Esq.
Gadsby & Hannah LLP
125 Summer Street
Boston, Massachusetts USA 02110
1-617-345-7050 [fax]
If to BI:
Mr. John D. Englar
Senior Vice President
Burlington Industries, Inc.
3330 West Friendly Avenue
Greensboro, NC 27410
910-379-4504 [fax]
With a copy to:
Legal Department
Attention: General Counsel
Burlington Industries, Inc.
3330 West Friendly Avenue
Greensboro, NC 27410
910-379-4504 [fax]
If to DeWalt:
Mr. Peter L. DeWalt
1866 Tragona Drive
Pittsburgh, PA 15241
412-221-6779 [fax]
10.11 SEVERABILITY. If any one or more of the provisions contained in
this Agreement is held for any reason to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision hereof and this Agreement shall be construed as if
such invalid, illegal, or unenforceable provision had never been contained
herein.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the date first above set forth as an
instrument under seal.
SELLERS:
BURLINGTON INDUSTRIES, INC.
By:
--------------------------------------
John D. Englar, Senior Vice President
--------------------------------------
Peter L. DeWalt
BUYER:
BRUNSWICK TECHNOLOGIES, INC.
By:
--------------------------------------
Martin S. Grimnes, Chief Executive Officer
-50-
-51-
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
This AMENDMENT, dated as of October 29, 1996 ("Amendment"), to Stock
Purchase Agreement dated as of October 22, 1996 among Brunswick Technologies,
]nc., BurlingtL,Il Illdustries, Inc. and Peter L. DeWalt (the "Stock Purchase
Agreement").
WITNESSETH:
WHEREAS, the parties hereto previously entered into the Stock Purchase
Agreement; and
WHEREAS, the parties hereto desire to (i) amend the Stock Purchase
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
SECTION 1. AMENDMENTS.
(a) Section 1.3(b) is hereby amended by changing all reference s
to "$1,450,000" therein to "$1,440,000 and by inserting the following at the end
of the first sentence thereof: ", less the aggregate amount of any dividends
made by ATI to BI and/or DeWalt after September 28, 1996. Any such dividends
have been or will be made in conformity with the relevant provisions of the
Texas Business Corporation Act."
(b) Section 3.21(a) is hereby amended by inserting the following
at the end thereof: "other than dividends aggregating $550,000".
(c) Section 7.3 is hereby amended by inserting the following at
the end of subsection (i) thereof: "other than the dividends referenced in
Section 3.21(a) hereof".
(d) Parragraph (k) of Section 8.1 of the Agreement is hereby
amended by adding the following sentence to the end thereof:
"The parties agree that Form 8023-A, Corporate Qualified Stock
Purchases, shall be executed prior to the Closing, but shall not be
filed until the parties have agreed upon any schedules or attachments
required by the instructions to such Form. Buyer shall prepare such
schedules or attachments for review by BI, and if the parties cannot
agree upon the information to be submitted on such schedules or
attachments within thirty (30) days following Buyer's delivery thereof
to BI, the
parties agree that a member of the American Arbitration Association
shall be retained to settle any dispute relating to such information,
with costs therefor to be borne equally by the parties, and that the
Form 8023-A shall thereupon be filed by the date required therefor in
accordance with the decision of such arbitrator with respect to the
information in dispute."
SECTION 2. COUNTERPARTS.
This Amendment may be executed in several counterparts, each of which
shall be an original and all of which shall constitute one and the same
instrument.
SECTION 3. GOVERNING LAW.
This Amendment shall be governed by the laws of the State of Maine.
SECTION 4. RATIFICATION. Except as specifically modified hereby, the
Stock Purchase Agreement is ratified and confirmed in all respects.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
2
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the date first above set forth as an
instrument under seal.
SELLERS:
BURLINGTON INDUSTRIES, INC.
By:
--------------------------------------
John D. Englar, Senior Vice President
--------------------------------------
Peter L. DeWalt
BUYER:
BRUNSWICK TECHNOLOGIES, INC.
By:
------------------------------------------
Martin S. Grimnes, Chief Executive Officer
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
October 30, 1996
To: Burlington Industries, Inc.
3330 West Friendly Avenue
Greensboro, NC 27410
Peter L. DeWalt
Advanced Textiles, Inc.
2460 North Crossroads Boulevard
Pittsburgh, PA 78155
Ladies and Gentlemen:
This will confirm that in consideration of your agreement to consummate
the sale and purchase of all of the capital stock of Advanced Textiles, Inc.
("ATI") to Brunswick Technologies, Inc., a Maine corporation (the "Company"),
for consideration in the form of, (a) to Burlington Industries, Inc. ("BI"), a
convertible subordinated promissory note in the principal amount of $7,296,500
(the "Note"), and cash in the amount of $600,000 as more fully described in the
Stock Purchase Agreement dated October 22, 1996 as amended to date (the "Stock
Purchase Agreement"), and, (b) to Peter L. DeWalt ("DeWalt"), 118 shares of the
Company. The Note is convertible into shares of common stock of the Company upon
the terms set forth in the Note (the "Conversion Shares"), and the Company and
DeWalt have entered into an Employment Agreement (the "Employment Agreement"),
dated as of even date herewith, pursuant to which, subject to the approval by
the stockholders of the Company, DeWalt shall be eligible to receive additional
shares of the common stock of the Company in the future pursuant to its terms
and an option to be granted to him by the Company (the "Option"). Pursuant to
the Stock Purchase Agreement between the Company and you and (as to DeWalt) the
Employment Agreement between the Company and you and as an inducement to you to
consummate the transactions contemplated thereby, the Company covenants and
agrees with you as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company .
"Conversion Shares" shall mean the shares of Common Stock issued upon
conversion of the Note or any part thereof.
"DeWalt Shares" shall mean the shares of Common Stock issued to DeWalt
as consideration for the sale and purchase of his shares of capital stock of ATI
and also the shares, if any, that DeWalt may receive in the future pursuant to
the Employment Agreement or Option.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Qualified Public Offering" shall mean any firm underwritten public
offering of shares of Common Stock of the Company at a price greater than or
equal to Two Hundred Fifty Dollars ($250) per share (as adjusted) and in which
the aggregate net proceeds of the Company are not less than Five Million Dollars
($5,000,000).
"Registration Expenses" shall mean the expenses so described in Section
7.
"Restricted Stock" shall mean (i) the Conversion Shares, and (ii) the
DeWalt Shares, but excluding those shares which have been (a) registered under
the Securities Act pursuant to an effective registration statement filed
thereunder and disposed of in accordance with the registration statement
covering them or (b) may be publicly sold pursuant to Rule 144 under the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 8.
2. Restrictive Legend. Each certificate representing Conversion Shares
or DeWalt Shares shall, except as otherwise provided in this Section 2 or in
Section 3, be stamped or otherwise imprinted with a legend substantially in the
following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE "RESTRICTED
SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 OF THE ACT. THESE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED
UNLESS (i) THE TRANSACTION IS REGISTERED UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE AND THE ISSUER AS RECEIVED AN OPINION REASONABLY SATISFACTORY
TO CORPORATE COUNSEL TO THAT EFFECT."
2
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company the securities being sold thereby may be publicly
sold without registration under the Securities Act.
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
Conversion Shares or DeWalt Shares (other than under the circumstances described
in Sections 4 or 5), the holder thereof shall give written notice to the Company
of its intention to effect such transfer. Each such notice shall describe the
manner of the proposed transfer and, if requested by the Company, shall be
accompanied by an opinion of counsel satisfactory to the Company to the effect
that the proposed transfer may be effected without registration under the
Securities Act, whereupon the holder of such stock shall be entitled to transfer
such stock in accordance with the terms of its notice; provided, however, that
no such opinion of counsel shall be required for a transfer to one or more
partners of the transferor (in the case of a transferor that is a partnership)
or to an affiliated corporation (in the case of a transferor that is a
corporation). Each certificate for Conversion Shares or DeWalt Shares
transferred as above provided shall bear the legend set forth in Section 2,
except that such certificate shall not bear such legend if (i) such transfer is
in accordance with the provisions of Rule 144 (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the further effect that the transferee and
any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration under
the Securities Act. The restrictions provided for in this Section 3 shall not
apply to securities which are not required to bear the legend prescribed by
Section 2 in accordance with the provisions of that Section.
4. Required Registration.
(a) At any time commencing ninety (90) days after any registration
statement covering a Qualified Public Offering shall have become effective and
ending ten (10) years after the date of said Qualified Public Offering, the
holder of the Note may request the Company to register under the Securities Act
all or any portion of the shares of Restricted Stock held by such requesting
holder for sale in the manner specified in such notice and the Company will use
its best efforts to cause such stock to be registered, provided, that the shares
of Restricted Stock for which registration has been requested shall constitute
at least 20% of the total shares of the Company's Common Stock issued or
issuable upon the conversion of the Note if such holder or holders shall request
the registration of less than all shares of Restricted Stock then held by such
holder. For Purposes of this Section 4 and Sections 5, 12(a) and 12(d), the term
"Restricted Stock" shall be deemed to include the number of shares of Restricted
Stock which would be issuable to a holder of the Note upon conversion of the
entire outstanding principal of the Note, provided, however, that the only
securities which the Company shall be required to register pursuant hereto shall
be shares of Common Stock, and provided, further, however, that, in any
underwritten public offering contemplated by this Section 4 or Sections 5 and 6,
the holders of Conversion Shares or DeWalt Shares shall be entitled to sell such
Conversion Shares or DeWalt Shares to the underwriters for conversion and sale
of the shares of Common Stock issued upon conversion thereof. Notwithstanding
anything to the contrary contained herein, (i) no request may be
3
made under this Section 4 (a) within the Restricted Period (as defined below),
and (ii) the Company will not be obligated to effect more than two (2)
registrations under this Section 4 (a).
For purposes of this Agreement, "Restricted Period" shall mean the
period beginning on the effective date of a registration statement filed by the
Company either (x) for its own account pursuant to a firm commitment
underwritten public offering, or (y) pursuant to a demand under Section 4(a) of
the Amended and Restated Registration Rights Agreement dated as of August 25,
1993, as amended to date (the "1993 Agreement"), and ending on the earlier of
the completion of the distribution pursuant to such registration statement or
120 days after such effective date.
(b) Following receipt of any notice under this Section 4, the Company
shall immediately notify all holders of Restricted Stock from whom notice has
not been received and shall use its best efforts to register under the
Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within thirty (30) days after the giving of such
notice by the Company). If such method of disposition shall be an underwritten
public offering, the holders of a majority of the shares of Restricted Stock to
be sold in such offering may designate the managing underwriter of such
offering, subject to the approval of the Company, which approval shall not be
unreasonably withheld or delayed. The Company shall be obligated to register
Restricted Stock pursuant to this Section 4 on two occasions only, provided,
however, that such obligation shall be deemed satisfied only when a registration
statement covering all shares of Restricted Stock specified in notices received
as aforesaid, for sale in accordance with the method of disposition specified by
the requesting holders, shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold. Except for registration statements
on Form S-4, S-8 or any successor thereto, the Company will not file with the
Commission any other registration statement with respect to its Common Stock,
whether for its own account or that of other stockholders during the Restricted
Period.
5. Incidental Registration.
If the Company at any time (other than pursuant to Section 4) proposes
to register any of its securities under the Securities Act for sale to the
public, whether for its own account or for the account of other security holders
or both (except with respect to registration statements on Forms S-4, S-8 or
another form not available for registering the
4
Restricted Stock for sale to the public), each such time it will give written
notice to all holders of outstanding Restricted Stock of its intention so to do.
Upon the written request of any such holder, received by the Company within
thirty (30) days after the giving of any such notice by the Company, to register
any of its Restricted Stock (which request shall state the intended method of
disposition thereof), the Company will use its best efforts to cause the
Restricted Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent requisite to permit the sale or
other disposition by the holder (in accordance with its written request) of such
Restricted Stock so registered. In the event that any registration pursuant to
this Section 5 shall be, in whole or in part, an underwritten public offering of
Common Stock, (i) as a condition to the exercise of its rights under this
Section 5, each holder of Restricted Stock must agree to participate in the
underwriting arrangements described in the notice, and (ii) the number of shares
of Restricted Stock to be included in such an underwriting may be reduced (pro
rata among all requesting holders pursuant hereto and other holders of rights
similar to those described in this Section 5, based upon (i) as to the holders
requesting hereunder, the number of shares of Restricted Stock owned by such
holders, and (ii) as to any other holders of similar rights, shares of Common
Stock owned by or issuable to such holders as to which such rights are
applicable, if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein. In order to facilitate the
allocation of shares as provided herein, the Company or the underwriter may
round the number of shares allocated to any holder to the nearest 100 shares.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 5 without thereby incurring
any liability to the holders of Restricted Stock.
The Company, as an inducement to BI and DeWalt to enter into this
Agreement, hereby: (i) represents that the 1993 Agreement contains the same
restrictions on the rights of the parties thereto (other than the Company) to
effect an incidental registration of shares of capital stock of the Company
owned by them or issuable to them (the"Existing Holders' Restrictions") as are
set forth in this Section 5 relative to the incidental registration rights of BI
and DeWalt, and (ii) covenants and agrees to effect no amendment to the Existing
Holders' Restrictions without the prior written consent of BI and DeWalt during
the effectiveness of this Agreement.
6. Registration Procedure. If and whenever the Company is required by
the provisions of Sections 4 or 5 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
5
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each underwriter
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions within the United States as the sellers of Restricted
Stock or, in the case of an underwritten public offering, the managing
underwriter reasonably shall request, provided, however, that the Company shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller of
Restricted Stock, the Company shall use its best efforts to furnish on the date
that Restricted Stock is delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and to such
seller, stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (C) to such other
effects as reasonably may be requested by counsel for the underwriters
6
or by such seller or its counsel and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Sections 6(a) and 6(b) and of Section 4(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby or one hundred
(120) days after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to Sections 4 or
5 covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
7. Expenses. All expenses incurred by the Company in complying with
Sections 4 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of its counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of insurance, and fees and
disbursements of one counsel for the sellers of Restricted Stock, but excluding
any Selling Expenses, are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Restricted Stock are
called "Selling Expenses".
7
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4 or 5. All Selling Expenses in connection
with each registration statement under Sections 4 or 5 shall be borne by the
participating sellers in proportion to the number of shares sold by each, or by
such participating sellers other than the Company (except to the extent the
Company shall be a seller) as they may agree.
8. Indemnification and Contribution.
(a) In the event of a registration of any of the Restricted Stock under
the Securities Act pursuant to Sections 4 or 5, the Company will indemnify and
hold harmless each seller of such Restricted Stock thereunder, each underwriter
of such Restricted Stock thereunder and each other person, if any, who controls
such seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4 or 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such seller, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Restricted Stock under
the Securities Act pursuant to Sections 4 or 5, each seller of such Restricted
Stock thereunder, severally and not jointly, will indemnify and hold harmless
the Company, each person, if any, who controls the Company within the meaning of
the Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4 or 5, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material
8
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that such seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of each seller hereunder shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to the proportion
that the public offering price of the shares sold by such seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds received
by such seller from the sale of Restricted Stock covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 8 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 8 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 8 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assert such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 8 but it is judicially determined (by the entry of a
9
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 8 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 8; then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such holder is responsible for the portion represented by the percentage
that the public offering price of its Restricted Stock offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
will be required to contribute any amount in excess of the public offering price
of all such Restricted Stock offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
9. Changes in Common Stock or Conversion Shares or DeWalt Shares. If,
and as often as, there is any change in the Common Stock or the Conversion
Shares or DeWalt Shares by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock or the Conversion Shares or DeWalt
Shares as so changed.
10. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after ninety (90) days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
10
11. Representations and Warranties of the Company. The Company
represents and warrants as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
12. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including without
limitation transferees of any Conversion Shares or DeWalt Shares or Restricted
Stock), whether so expressed or not, provided, however that registration rights
contained herein for the holders of Conversion Shares or DeWalt Shares shall
only inure to the benefit of a transferee of Conversion Shares or DeWalt Shares
if (i) there is transferred to such transferee at least 20% of the aggregate
total of Conversion Shares and DeWalt Shares issued or issuable to the direct or
indirect transferor of such transferee or (ii) such transferee is a partner,
shareholder or affiliate of a party hereto, which transferee (and such shares)
shall continue to be subject to the aggregate threshold for demand rights
hereunder and all other provisions hereof and such transferee shall execute and
deliver to the Company an agreement to such effect.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by certified or registered mail, return
receipt requested, postage prepaid, or telecopied, addressed as follows:
if to the Company or any other party hereto, at the address of
such party set forth in the Stock Purchase Agreement;
if to any subsequent holder of Conversion Shares or DeWalt
Shares, to it at such address as may have been furnished to the Company
in writing by such holder; or
in any case, at such other address or addresses as shall have
been furnished in writing to the Company (in the case of a holder of
Conversion Shares or DeWalt
11
Shares) or to the holders of Conversion Shares or DeWalt Shares (in the
case of the Company) in accordance with the provisions of this
paragraph.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Maine.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least two-thirds of the outstanding shares of Restricted Stock.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) If requested in writing by the underwriters for the initial
underwritten public offering of securities of the Company, each holder of
Restricted Stock who is a party to this Agreement shall agree not to sell
publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period of not more than ninety (90) days following the effective date of the
registration statement relating to such offering; provided, however, that all
persons entitled to registration rights with respect to shares of Common Stock
who are not parties to this Agreement, all other persons selling shares of
Common Stock in such offering and all executive officers and directors of the
Company shall also have agreed not to sell publicly their Common Stock under the
circumstances and pursuant to the terms set forth in this Section 12(f).
(g) Notwithstanding the provisions of Section 6(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed ninety (90) days in any twenty-four (24) month period if there exists at
the time material non-public information relating to the Company which, in the
reasonable opinion of the Company, should not be disclosed.
(h) The Company shall not grant to any third party any registration
rights more favorable than any of those contained herein, so long as any of the
registration rights under this Agreement remains in effect.
(i) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
(j) This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the parties in connection
therewith.
12
13
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
BRUNSWICK TECHNOLOGIES, INC.
By: ------------------------------------
William M. Dubay, President
thereunto duly authorized
BURLINGTON INDUSTRIES, INC.
By: -------------------------------------
John D. Englar, Senior Vice President
thereunto duly authorized
- -----------------------------------------
Peter L. DeWalt
-14-
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
AGREEMENT made and effective the 30th day of October, 1996 ("Effective
Date"), by and between ADVANCED TEXTILES, INC., a Texas corporation
("Employer"), and PETER L. DEWALT ("Employee").
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts the employment upon the terms and conditions hereinafter
set forth.
2. Term. The term of employment shall be for a period of two (2) years
commencing with the Effective Date, subject to earlier termination as
hereinafter provided. The word "Term" shall refer to the entire period of
employment whether for the entire period provided above or whether terminated
earlier.
3. Duties. The Employee shall, subject to the terms hereof, serve as
and shall perform the duties of president of the Employer as described by the
Board of Directors faithfully and to the best of his ability under the direction
of the President of Brunswick Technologies, Inc. ("BTI"), devoting his entire
time, energy and skill during regular business hours to such employment. In the
event that the Employer is merged into BTI, Employee will perform the duties of
the president of the Advanced Fibers Division of BTI.
4. Compensation. For Employee's services rendered hereunder, Employer
shall pay Employee as follows:
(a) Base Salary. The base salary of Employee shall be at the
rate of One Hundred Twenty-Five Thousand Dollars ($125,000.00) per
annum payable in equal monthly or other installments in accordance with
the general practice of the Employer.
(b) First Year Bonus. As compensation in addition to the base
salary, Employer will pay Employee on the first anniversary of the
Effective Date, up to a maximum of $40,000 as a performance bonus in
consideration of his performance in the successful integration of
Employer and BTI, such determination of Employee's performance and the
successful integration to be in the sole judgment of the Compensation
Committee of the Board of Directors of BTI.
(c) Second Year Bonus Plan. As compensation in addition to
the base salary, Employer will pay Employee on the second anniversary
of the Effective Date, up to a maximum of $40,000 as a performance
bonus in consideration of
(i)Employee's submission to the senior management of BTI of a business
plan for the Advanced Fibers Division of BTI for the second year of the
Term on or before October 31, 1997 (or if Employer and BTI have merged,
the Advanced Fibers Division of BTI), which plan is then approved by
the Board of Directors of BTI, (ii)
-2-
Employee's continued contribution to the successful integration of BTI
and Employer, and (iii) Employee's performance in the successful
execution of such plan, such determination of Employee's performance
and the successful execution of the plan to be in the sole judgment of
the Compensation Committee of the Board of Directors of BTI.
(d) BTI Stock. The Board of Directors of BTI has approved,
subject to the approval by the stockholders of BTI, the following
described bonus. In the event that this Agreement has not been
terminated prior to the second anniversary of the Effective Date, other
than due to a termination as described in Section 7(e) below, BTI shall
issue to Employee 118 shares of BTI's common stock (the "Additional
Shares;" such number to be adjusted in the event of a stock split or
reverse stock split). The Board of Directors has approved the calling
of a stockholders' meeting relative to the Additional Shares, and BTI
agrees that such meeting will be called and held no later than November
30, 1996. In the event that the stockholders of BTI do not approve the
issuance of the Additional Shares, BTI and Employee agree to work in
good faith to provide Employee with a benefit reasonably equivalent to
the Additional Shares.
(e) BTI Stock Options. The Board of Directors of BTI has
approved, subject to approval by the stockholders of BTI the grant of
an option to Employee to purchase 300 shares of BTI common stock (the
"1996 Option") under the terms of its 1994 Stock Option Plan or any new
stock option plan (such number to be adjusted in the event of a stock
split or reverse stock split), such shares to be purchasable at an
exercise price per share equal to the price at which common stock of
BTI is offered to the public in BTI's initial public offering, or in
the event that such offering does not occur on or before December 31,
1996, $455.00 per share (such price to be adjusted in the event of a
stock split or reverse stock split). The 1996 Option will vest on the
second anniversary of the Effective Date and will be exercisable prior
to the tenth anniversary of the vesting date. The Board of Directors
has approved the calling of a stockholders' meeting relative to the
1996 Option, and BTI agrees that such meeting will be called and held
no later than November 30, 1996. In the event that the stockholders of
BTI do not approve the 1996 Option, BTI and Employee agree to work in
good faith to provide Employee with a benefit reasonably equivalent to
the 1996 Option. During the year beginning with the second anniversary
of the Effective Date, Employee shall be eligible for a further grant
under the 1994 Stock Option Plan or any new stock option plan, such
grant, if any, to be determined by the Compensation Committee of the
Board of Directors of Employer.
5. Benefits.
(a) Vacation. Employee shall be entitled to a vacation each
year during the Term. The length and the time of taking such a vacation
shall be as set forth in the BTI personnel handbook with the Employee's
seniority with Employer before
-3-
and after the Effective Date being recognized for purposes of
determining the amount of vacation earned.
(b) Insurance. Employer shall continue to provide for
Employee, at Employer's expense, participation in medical, accident and
health, disability, income continuation and life insurance benefits
equivalent to the benefits provided at the Effective Date. Such
coverage shall take effect as of the Effective Date and shall continue
throughout the Term.
(c) Automobile. During the Term, Employer shall provide
Employee an automobile at Employer's expense and for Employee's sole
use. Employer shall pay all operating expenses relating to the business
of ATI but Employee shall be responsible for any operating expenses
relating to personal use of the automobile.
(d) Business Expenses. Employee shall be entitled to
reimbursement by Employer for any and all ordinary and necessary
business expenses incurred by Employee in the performance of Employee's
duties and in acting for Employer during the Term, provide an adequate
accounting is made therefor.
(e) Board of Directors. During the Term, and unless and until
Employer merges with BTI, Employee shall serve on the Board of
Directors of ATI, and BTI agrees to vote its shares of ATI capital
stock in favor of such election.
(f) Other. Employee shall be entitled to such other benefits
as may from time to time be extended to Employee in the sole discretion
of the Board of Directors of Employer.
6. Disability. If Employee becomes mentally or physically ill or
incapacitated during his employment, whether due to illness, accident or other
disability, he shall receive full compensation during any such period. However,
should it appear that such illness or incapacity would prevent Employee from
rendering services, as required hereunder, to Employer for a period of six (6)
consecutive months, Employee shall be considered disabled, and in such event,
Employer shall have the right to terminate Employee if after giving thirty (30)
days' notice of its intention to terminate, Employee does not return to his
duties and satisfactorily perform such duties on a full-time basis for at least
two (2) consecutive months. No bonus payment as provided for in paragraph 4(b)
hereof shall be payable with respect to any period in which Employee is mentally
or physically ill or incapacitated for other than a temporary period of time.
7. Termination. Employee's employment under this Agreement shall
terminate immediately upon the occurrence of any one of the following events:
(a) Death. The death of Employee.
-4-
(b) Termination for Cause. The Board of Directors, acting
without Employee as a member for this purpose, shall determine that one
of the following events shall have occurred, and shall terminate
Employee's employment as a consequence thereof (a "Termination for
Cause"):
(i) Employee fails or refused to faithfully or
diligently perform the provisions of this Agreement or
neglects his duties or devotes time or attention to other
interests.
(ii) Employee's employment is terminated in
accordance with Paragraph 6 herein.
(iii) Employee commits an act of fraud,
misappropriation, embezzlement or similar action.
(iv) Employee is adjudicated a bankrupt or is
convicted of a crime punishable by imprisonment.
(v) Employee engages in any activity that would in
the opinion of the Board of Directors constitute a conflict of
interest with the Employer.
(vi) Employee engages in any activity which
materially adversely affects Employer's reputation in the
community or market place or which evidences the lack of
Employee's fitness or ability to perform Employee's duties.
(c) Sale of Business. The business of Employer is sold to a
third party, and Employee is offered a management position with the
successor company at substantially the same compensation for a period
corresponding to the remaining term of the Agreement, and refuses to
continue in his employment.
(d) Voluntary Quit. Employee voluntarily terminates his
employment hereunder other than in the circumstances set forth in
subparagraph 7(c) above.
(e) Termination at Will. Employer terminates this Agreement
for any reason other than a Termination for Cause.
8. Consequences of Termination of Employment.
(a) In the event employment of Employee is terminated
hereunder under the circumstances described in subparagraphs 7(a),
7(b), 7(c) or 7(d) above, all obligations of the Employer hereunder
shall cease, and Employee shall continue to be bound by his obligations
under paragraphs 9 and 10 herein.
-5-
(b) In the event that employment by Employee is terminated by
Employer under subparagraph 7(e), or if, in the event of a sale of
Employer in which Employee is not offered a management position with
the successor company at substantially the same compensation for a
period corresponding to the remaining term hereunder, Employer shall
continue to pay the Base Salary for the remaining term of this
Agreement, and Employee shall be bound by his obligations under
subparagraphs 9 and 10 herein.
9. Non-Competition Agreement. Employee expressly agrees, as further
consideration hereof and in consideration of the purchase by BTI of his shares
of capital stock in Employer, and as a condition to the performance by Employer
of its obligations hereunder, that, while employed by Employer, and for the
periods hereinafter described, he will not directly or indirectly render
advisory services to, or become employed by, or participate or engage in, any
business materially competitive with any of the businesses of Employer or BTI
(Employee hereby acknowledging that he has had access in his executive capacity
to material information about Employer's and BTI's businesses) without the
written consent of Employer first had and obtained. Prior to the first
anniversary of the date hereof, if Employee is terminated for any reason
described in Section 8 (a) or 8 (b) hereof, the foregoing agreement of Employee
in this Section 9 shall terminate on the second anniversary of the date hereof,
provided in the event of a termination as described in Section 8 (b) hereof,
Employer continues to pay Employee the Base Salary as described therein. In the
event that Employee is terminated after the first anniversary hereof for any
reason described in Section 8(a) hereof, the foregoing agreement of Employee in
this Section 9 shall terminate twelve months from the effective date of
termination. In the event of a termination as described in Section 8 (b) hereof,
the foregoing agreement of Employee shall continue until the second anniversary
hereof, provided that Employer continues to pay Employee the Base Salary as
described therein.
10. Confidentiality. Employee agrees that, both during and after his
employment hereunder, he will not disclose to any person unless authorized to do
so by Employer or BTI, any of the Employer's or BTI's trade secrets or other
information which is confidential or secret. Trade secrets or confidential
information shall mean information which has not been made available by Employer
or BTI to the public, including, but not limited to, business plans, product or
market development studies, plans or surveys; designs and patterns; inventions,
secret processes and developments; any cost data, including labor costs,
material costs, and any data on raw material, fibers, machinery, equipment and
other manufacturing supplies; technical improvements, designs, procedures and
methods developed by Employer or BTI; any data pertaining to sales volume by
location or by product category; customer lists; production methods other than
those licensed by outside companies; compensation practices; and profitability,
margins, asset values, or other information relating to financial statements.
Employee acknowledges that the disclosure of Employer's or BTI's trade
secrets or confidential information to unauthorized persons would constitute a
clear threat to the business of Employer or BTI, and that the failure of
Employee to abide by the terms of
-6-
paragraphs 9 and 10 will entitle Employee to exercise any and all remedies
available to it in law or equity, including, without limitation, an injunction
prohibiting a breach of these provisions.
12. General Provisions.
(a) Applicable Law. This Agreement shall be construed and
regulated under and by the laws of the State of Maine.
(b) Invalid Provisions. The invalidity or unenforceability of
a particular provision of this Agreement shall not affect the other
provisions hereof and the Agreement shall be construed in all respects
as if all invalid or unenforceable provisions were omitted.
(c) Entire Agreement. This instrument contains the entire
agreement of the parties. It supersedes all prior understandings and
agreements, written or oral, and can be modified only in writing signed
by both Employer and Employee, and supersedes all prior agreements,
representations, warranties and understanding, written or oral with
respect thereto, including without limitation that certain Employment
Agreement between Employer and Employee dated as of May 1, 1996, which
the parties agree is terminated effective with their execution hereof.
(d) Benefit of Agreement. This Agreement and the rights and
obligations hereunder shall be binding upon and inure to the benefit of
the parties hereto and
-7-
their respective legal representatives, successors and assigns,
including Employer's successors in interest by merger, consolidation,
or sale.
(e) Assignment. Except to any successor in interest or
assignee of the Employer, neither this Agreement nor any rights,
benefits or obligations hereunder may be assigned by either party
hereto. If the Employer does assign this Agreement to a successor in
interest, prior to such assignment the Employer shall obtain from its
successor the assumption in writing of Employer's obligations
hereunder. Employee shall have the right to terminate this Agreement in
the event of any such assignment by Employer to its successor in
interest.
(f) Notices. Any notice, request, demand or other
communication required or permitted hereunder shall be deemed to be
properly given when personally served in writing, when sent by United
States Mail, postage prepaid, or when sent by overnight courier, with
receipt obtained, in each case addressed to the party at the address
shown at the end of this Agreement. A copy of any such notice shall be
sent to Walter D. Wekstein, Gadsby & Hannah, 125 Summer Street, Boston,
MA 02110.
EXECUTED the day and year first above written.
EMPLOYER:
--------------------------------------
Advanced Textiles, Inc.
2460 North Crossroads Boulevard
Seguin, Texas 78155
By: __________________________________
William M. Dubay
Title:
--------------------------------------
EMPLOYEE:
--------------------------------------
Peter L. DeWalt
1826 Tragone Drive
Pittsburgh, Pennsylvania 15241
Brunswick Technologies, Inc. joins in this Agreement for purposes of its
agreements set forth in Sections 4 and 5 hereof.
By:
-------------------------------
William M. Dubay,
President
43 Bibber Parkway
Brunswick, ME 04011
EXHIBIT 10.14
ANNEX A
CONVERTIBLE PROMISSORY NOTE
$7,296,500 Boston, Massachusetts
October 30, 1996
FOR VALUE RECEIVED, the undersigned, Brunswick Technologies, Inc., a
Maine corporation (the "Maker"), whose principal place of business is 43 Bibber
Parkway, Brunswick, Maine 04011, promises to pay to the order Burlington
Industries, Inc. or its successors and assigns ("Holder"), whose address is 3330
West Friendly Avenue, Greensboro, North Carolina 27410, the principal sum of
Seven Million Two Hundred Ninety-Six Thousand Five Hundred and No/100 DOLLARS
($7,296,500.00), together with interest on the outstanding principal balance at
nine and one-half percent (9.5%) per annum until paid in full as herein
provided.
Accrued interest on the outstanding principal hereunder shall be paid
beginning on the date which is six months after the date of this Note (the
"Closing Date") and continuing on each six calendar month anniversary thereof
until the entire principal balance hereof has been paid in full.
Until such time as the Maker completes an "Initial Public Offering" (as
hereinafter defined), the outstanding principal balance due hereunder shall be
paid in two equal installments of 50% of the original principal amount of this
Note (or in the case of the last such payment, the principal still then
outstanding) on the anniversaries of the Closing Date in the years 2002 and
2003; provided, however, that a mandatory prepayment on the anniversary of the
Closing Date in the year 2001 shall be made in such amount as shall not cause
the Maker to be in violation of the "Financial Covenants" (as hereinafter
defined) and the remaining principal balance not so repaid shall be paid in two
equal installments of 50% thereof on the anniversaries of the Closing Date in
the years 2002 and 2003.
Notwithstanding the foregoing paragraph, at such time as the Maker
completes an Initial Public Offering, an amount equal to 50% of the original
principal amount of this Note shall be paid on a date no later than the date
which is seven months after the closing of the Initial Public Offering (Maker
may make such payment at any time within such seven month period); provided,
however, if such Initial Public Offering results in gross proceeds to the Maker
of less than $15,000,000, the payment then due hereunder shall be reduced on a
pro rata basis by the amount by which such proceeds are less than $15,000,000.
Thereafter, the remaining outstanding principal balance due hereunder shall be
paid in two equal installments of 50% thereof on the anniversaries of the
Closing Date in the years 2002 and 2003.
As used herein, the term "Initial Public Offering" means any firm
underwritten public offering of shares of common stock of the Maker consummated
after the date hereof, and the "Financial Covenants" shall mean the covenants of
the Maker contained in the documents evidencing the senior secured financing to
which this Note is subordinate as hereinafter provided which set forth tests
relative to the financial condition of the Maker and the results of the Maker's
operations from time to time as a basis for determining the existence of a
default or an event of default under such documents.
For purposes of this Note, should any payment date hereunder fall on a
Saturday, Sunday or any other day which is a legal holiday under the laws of the
State of Maine or is a day on which banking institutions located in such state
are authorized or required by law or other governmental action to close, the
Maker shall make the payment on the next succeeding banking day.
All payments of principal and interest shall be made to the Holder, at
its address set forth above or at such other address as the Holder shall
hereafter designate in writing to the Maker.
All payments called for in this Note shall be made in lawful money of
the United States of America and may be made by wire transfer, check, draft, or
other payment instrument. If made by check, draft, or other payment instrument,
such check, draft, or other payment instrument shall represent immediately
available funds.
The Maker hereby agrees, and the Holder by its acceptance hereof
agrees, that the payment of the principal and interest on this Note is expressly
subordinate and junior to in right of payment to an amount of senior secured
debt not to exceed $7,500,000 (as such number may be increased from time to time
hereafter only by the amount of any payments of principal hereunder, the "Senior
Debt"), as provided in that certain subordination agreement between the Maker,
the Holder and Fleet Bank of Maine ("Fleet") of even date herewith (the
"Subordination Agreement") and as further provided in Sections 5.2(f) and 6.4 of
that certain Stock Purchase Agreement between the Maker, the Holder and Peter
DeWalt dated October 22, 1996, as amended October 29, 1996 (the "Stock Purchase
Agreement").
The principal amount due hereunder shall be convertible, at the option
of the Holder, into shares of common stock of the Maker on the terms hereinafter
provided at any time following the occurrence of an "Offering Event" (as
hereinafter defined), but in no event prior to the first anniversary of the date
hereof. The price at which the conversion shall be effected shall be the gross
price per share obtained by the Maker in the Initial Public Offering, without
deduction for the payment of expenses, brokers' fees, commissions, dealer
discounts or underwriters' compensation incurred in connection with such
offering or other deductions, provided such Initial Public Offering shall have
been consummated within six months of the date hereof. If an Initial Public
Offering is not consummated within six months of the date hereof, the conversion
shall be effected at the weighted average sales price per share obtained by the
Maker in the Offering Event, without deduction for the payment of expenses
incurred with such offering or other deductions (or the conversion price of
securities of the Maker other than common stock which are convertible into
common stock, if any portion of the Offering Event relates to securities of the
Maker other than common stock which are convertible into common stock), which
price shall be discounted 5% for each year (pro-rated for any portion of a year)
between the date hereof and the date of the Offering Event. In no event,
however, will the conversion price applicable to this Note be less than $350.00
per share, except as may be adjusted upon the occurrence of an "Adjustment
Event" (as hereinafter defined). All conversions hereunder must be made in
increments of $500,000 (or the remaining unpaid balance of principal due
hereunder, if less than $500,000). The conversion price applicable to this Note,
once established, shall be adjusted only upon an Adjustment Event. Nothing
herein shall preclude the Maker from the payment of any dividends (whether
accrued prior to the date hereof or accrued or payable thereafter) or
redemptions pursuant to the terms in existence on September 25, 1996 of any of
the Maker's shares of preferred stock then outstanding. Upon any conversion,
cash will be paid in lieu of the issuance of fractional shares and will be paid
to satisfy the Maker's obligations for the payment of all interest accrued but
-2-
then unpaid (whether or not the same shall otherwise be due and owing as of such
time) on the converted amount through the date of the conversion and for all
other unpaid charges which are then due and payable hereunder.
As used herein, the term "Offering Event" means any public or private
offering of shares of common stock of the Maker or other securities of the Maker
convertible into shares of common stock of the Maker, with gross proceeds to the
Maker aggregating no less than $5,000,000 (exclusive of conversions of shares of
preferred stock of the Maker outstanding on September 25, 1996 and grants of or
exercises of options under stock incentive or stock compensation plans of the
Maker or warrants in existence on September 25, 1996). As used herein, the term
"Adjustment Event" means any of: (i) the payment of a dividend or a distribution
by the Maker in shares of Maker's capital stock (or rights to receive or
purchase the same) on any shares of its capital stock (exclusive of
distributions of its capital stock to holders of preferred stock of the Maker
issued and outstanding as of September 25, 1996 in payment of accrued dividends
under the existing terms of the respective series of such preferred stock); (ii)
any stock split and any other subdivision of the outstanding capital stock of
the Maker into a greater number of shares; and (iii) any reverse stock split and
any other combination of the outstanding capital stock of the Maker into a
smaller number of shares. Upon the occurrence of an Adjustment Event, the
conversion price in effect immediately prior thereto shall be adjusted so that
the Holder will be entitled to receive the number of shares of common stock it
would have been entitled to receive after the happening of the events described
in the immediately preceding sentence had such conversion occurred immediately
prior to the happening of such event.
As used herein, the term "Reorganization Event" means any of: (i) any
reclassification of outstanding shares of capital stock of the Maker; (ii) any
dividend or distribution by the Maker of shares of capital stock of any
subsidiary (direct or indirect), in respect of the shares of Maker's capital
stock, in the nature of a split-up of the Maker or any of its subsidiaries, or a
spin-off of any of Maker's subsidiaries; (iii) any consolidation, merger or
combination of the Maker with another corporation or entity as a result of which
holders of capital stock of the Maker shall be entitled to receive stock,
securities, or other property or assets with respect to or in exchange for
shares of capital stock of the Maker; or (iv) any sale or conveyance of the
properties or assets of the Maker as, or substantially as, an entirety to any
other corporation or entity as a result of which holders of capital stock of the
Maker shall be entitled to receive stock, securities, or other property or
assets with respect to or in exchange for shares of capital stock of the Maker.
Upon the occurrence of a Reorganization Event, the principal of this Note shall
become convertible into the kind and amount of shares of stock and other
securities or property or assets receivable upon such Reorganization Event by a
holder of a number of shares of common stock which would have been issuable upon
a conversion of the Note immediately prior to the Reorganization Event.
In the event that, prior to the Holder's conversion hereof, there has
not been an underwritten public offering of the Maker's common stock such that
the preferred stock of the Maker outstanding as of September 25, 1996 has
automatically converted into common stock of the Maker, any conversion of this
Note is subject to the Holder's executing and delivering to the Maker a joinder
agreement in the form appended hereto in respect of the Amended and Restated
Stockholders' Agreement dated August 25, 1993 among the Maker and certain of its
stockholders (the "Stockholders' Agreement"), if the same shall then be in
existence at the time of such conversion. Any certificates in respect of common
stock issued upon conversion of this Note will be legended as restricted under
the Securities Act of
-3-
1933, as amended, and, if subject to the Stockholders' Agreement as aforesaid,
will also be legended as set forth in the Stockholders' Agreement.
At any time after the first anniversary of the date of this Note, the
Maker may prepay all of the outstanding principal and accrued interest due under
this Note at any time, without penalty, in increments of no less than $500,000
(or the remaining unpaid balance of principal, interest and other charges due
hereunder, if less than $500,000), upon 10 days prior notice to the Holder.
During such 10 day period, the Holder may elect to convert such principal amount
to be prepaid into common stock of the Maker, provided an Offering Event shall
have already occurred. In the event the Holder gives notice to the Maker of its
intention to convert, the Maker shall be precluded from exercising the foregoing
right to prepay as to such amount. For the purpose of determining the proper
application of any amounts actually prepaid in accordance with the terms of this
paragraph, such payments will be applied hereunder as follows: first, toward
interest accrued to the date of such payment; and, second, to the principal
balance due on the maturity of this Note.
The occurrence of any one or more of the following events will
constitute an event of default by the Maker under this Note (an "Event of
Default"), whereupon the entire outstanding principal balance hereof, together
with all accrued but unpaid interest and charges arising hereunder (with
interest on all such unpaid amounts at the rate of ten percent (10%) per annum,
until paid in full) will, at the option of the Holder, immediately become due
and payable without presentation, demand, protest, or notice of any kind, all of
which are hereby expressly waived, and the Holder shall then have all rights and
remedies provided hereunder:
(a) The failure to pay as and when due the principal and any
accrued interest thereon which arise hereunder;
(b) The failure by the Maker to pay when and as the same shall
become due any charges due to the Holder under this Note and any and
all other amounts owing to the Holder from time to time arising under
the Stock Purchase Agreement (taken together with this Note, the "Maker
Documents"), which failure is not due to the valid exercise of the
Maker's setoff rights as set forth in the Stock Purchase Agreement or
which has not been waived in writing or fully remedied within 20 days
notice from the Holder of such failure (or such longer cure period, if
any, applicable thereto set forth in the instruments evidencing such
obligation); the failure by the Maker to observe or perform any other
material covenant or agreement with the Holder under the Maker
Documents when and as the same is required to be observed or performed,
which failure has not been waived in writing or fully remedied within
20 days notice from the Holder of such failure (or such longer cure
period, if any, applicable thereto set forth in the instruments
evidencing such obligation); or the breach by the Maker of any material
provision of any other agreement or undertaking with the Holder under
the Maker Documents, which failure or breach has not been fully
remedied within the cure period (if any) applicable thereto;
(c) The failure by the Maker to pay when and as the same shall
become due any and all other amounts owing to any other party which has
extended or may hereafter extend credit to the Maker (each, a "Lender")
in respect of indebtedness for borrowed money (excluding trade
indebtedness incurred in the ordinary course of the Maker's
-4-
business) with an aggregate principal amount then outstanding
(including the principal amounts owed by the Maker under all other such
indebtedness to such Lender as of the time of such failure) of at least
$175,000, or the failure by the Maker to observe or perform any other
material covenant or agreement with any such Lender when and as the
same is required to be observed or performed, or the breach by the
Maker of any material provision of any other agreement or undertaking
with any such Lender, provided in each such case that the failure or
breach has not been fully remedied within the cure period (if any)
applicable thereto and as a result of such default the Lender requires
the payment of any amounts due to the Lender in advance of the time
stated therefor in any instrument evidencing any such indebtedness to
the Lender, including, by way of illustration and not limitation, the
payments and other amounts due under and the Maker's covenants,
agreements and undertakings with Fleet or its successors or assigns as
the senior secured lender to the Maker (the "Principal Financing
Documents") in effect as of the date hereof;
(d) The amendment, renewal or extension of or other
modification to any of the Principal Financing Documents not in
accordance with the terms of this Note or the Stock Purchase Agreement;
or
(e) If the Maker shall (i) file a petition under the Federal
Bankruptcy Code or initiate any other proceeding for the release of
insolvent debtors; (ii) generally fail to pay its debts as such debts
become due; (iii) seek or consent to the appointment of a custodian for
all or a substantial portion of its assets; (iv) benefit from or be
subject to the entry of an order for relief in respect of the Maker by
any court of insolvency; (v) make an admission of insolvency seeking
the relief provided in the Federal Bankruptcy Code or any other
insolvency law; (vi) make an assignment for the benefit of creditors;
(vii) have a receiver appointed voluntarily for its property, or have a
receiver appointed involuntarily for its property and such appointment
has not been removed or rescinded within 60 days of the date thereof;
(viii) permit a judgment in excess of $175,000 to be obtained against
it which is not promptly paid or promptly appealed and secured pending
appeal; or (ix) become insolvent, however otherwise evidenced.
Any reasonable attorneys' fees (which may be based on a percentage of
outstanding indebtedness) incurred by the Holder after an Event of Default in
order to collect the principal, interest and other charges due under this Note
shall be paid by the Maker.
The Holder shall not, by any act, delay, omission or otherwise, be
deemed to have waived any of its rights and remedies hereunder, and no waiver
whatsoever shall be valid unless in writing, signed by the Holder, and then only
to the extent therein set forth. A waiver by the Holder of any right or remedy
hereunder on any one occasion shall not be construed as a bar to or waiver of
any right or remedy which the Holder would otherwise have on any future
occasion. The Holder is not required to rely on any collateral for the payment
of the Note in the event of default by the Maker. All rights and remedies of the
Holder shall be cumulative and may be exercised singly or concurrently.
The Maker hereby waives presentment, demand, notice of dishonor,
protest and all other demands and notices to which it may at any time be
entitled in connection with the delivery,
-5-
acceptance, performance, default or enforcement of this Note, and assents to any
extension or postponement of time of payment or any other indulgence, and to any
substitution, exchange or release of any collateral as security hereto. Payments
to be made in respect of this Note are subject to certain off-set rights as more
particularly set forth in Section 10.3 of the Stock Purchase Agreement.
In the event the interest provisions hereof or any other instruments
securing this Note shall result in an effective rate of interest which, for any
period of time, transcends the limit of the usury or any other law applicable
hereto, all sums in excess of those lawfully collectible as interest for the
period in question shall, without further agreement or notice between or by any
party hereto, be applied to principal immediately upon receipt of such monies by
the Holder.
The Maker, by making this Note, and the Holder, by accepting this Note,
each hereby consent to the provisions in Section 10.5 of the Stock Purchase
Agreement regarding jurisdiction for purposes of any action or proceeding
concerning this Note or any instrument securing this Note, whether initiated by
the Holder, the Maker or any other party. NOTWITHSTANDING THE PROVISIONS OF SUCH
SECTION 10.5 TO THE CONTRARY, THE MAKER AND THE HOLDER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING COMMENCED IN THE ENFORCEMENT OR INTERPRETATION
HEREOF.
This Note shall be governed as to validity, interpretation,
construction, effect, and in all other respects by the laws and decisions of the
State of North Carolina. Wherever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note or portion thereof shall be prohibited by or
be invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note.
-6-
IN WITNESS WHEREOF, the Maker has caused this Note to be exercised as
an instrument under seal and delivered by its duly authorized officers as of the
date first set forth above.
BRUNSWICK TECHNOLOGIES, INC.
By:
-----------------------------(seal)
[Corporate Seal] Martin S. Grimnes,
Chief Executive Officer
Attest:
By:
-------------------------------
Margaret F. Leeman,
Assistant Clerk
-7-
EXHIBIT 10.15
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT is made this day of October __, 1996,
by and among BRUNSWICK TECHNOLOGIES, INC., a Maine corporation having a
principal place of business at Brunswick, Maine, and the parties identified on
Schedule A annexed hereto, being all of the owners of shares of Common stock
without par value ("No Par Common Stock") in said Brunswick Technologies, Inc.,
after having been adopted by a vote of such stockholders at a special meeting of
stockholders on August 26, 1996.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending legally to be
bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. When used herein, the following terms shall have the
meanings set forth as follows:
a. Company. The "Company" shall mean Brunswick Technologies,
Inc., a Maine corporation having a principal place of business at
Brunswick, Maine.
b. Shareholders. The "Shareholders" shall mean the parties
identified on Schedule A annexed hereto, being all of the owners of
shares of Common Stock without par value in the Company, and each of
which may be sometimes referred to herein as a "Shareholder."
c. No Par Common Stock. "No Par Common Stock" shall mean
shares of common stock in the Company, no par value per share.
d. Par Common Stock. "Par Common Stock" shall mean shares of
common stock in the Company, $.0001 par value per share:
e. Effective Date. "Effective Date" shall mean the date that
the Company files its Restated Articles of Incorporation immediately
prior to the effectiveness of the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission with respect
to the initial public offering of the Par Common Stock, except to the
extent such Effective Date must be deemed to be on or after the date of
filing of the Plan of Recapitalization, in which case it shall be
deemed to be the date of such filing.
f. Plan of Recapitalization. "Plan of Recapitalization" shall
mean the plan of recapitalization to be adopted by the Company and
filed with the Secretary of State of Maine on or before the Effective
Date.
1.2 Number; Gender. Unless the context otherwise requires, all words
importing the singular shall include the plural and vice versa, and the use of
words in the masculine, feminine or neuter genders shall be deemed to mean and
include all such other genders.
ARTICLE II
CONVERSION OF NO PAR COMMON STOCK
2.1 On the Effective Date each Share of No Par Common Stock shall be
converted into a share of Par Common Stock.
ARTICLE III
ADOPTION OF PLAN; DELIVERY OF INSTRUMENTS
3.1 Adoption of Plan. As soon as practicable after execution of this
Agreement, the Company shall cause the adoption by its Board of Directors and
shareholders, as appropriate, of a Plan of Recapitalization in substantially the
form annexed hereto as Schedule B, and shall execute and file with the Secretary
of State of Maine any and all Articles of Amendment to its Articles of
Incorporation or other documents or instruments necessary and appropriate to
effectuate the recapitalization described in this Agreement, effective as of the
Effective Date.
3.2 Delivery of Instruments. On or before the Effective Date each
Shareholder shall deliver to the Company all of such Shareholder's share
certificates, and other instruments evidencing such Shareholder's ownership of
No Par Common Stock being converted pursuant to this Agreement.
3.3 Issuance of New Instruments. As of the Effective Date, the Company
will cause the issuance to each Shareholder of certificates representing shares
of Par Common Stock in accordance with the terms of this Agreement and the Plan
of Recapitalization.
3.4 Further Instruments. The parties hereto agree to execute and
deliver all such additional agreements, instruments and undertakings as may be
reasonably necessary or desirable and requested by any party, in order to more
fully effectuate the purpose of this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Entire Agreement. This Agreement, including any Exhibits and
Schedules annexed hereto, constitutes the entire Agreement of the parties with
respect to the subject matter hereof, superseding all prior agreements, written
or verbal, relating to such subject matter.
4.2 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, and their respective heirs,
successors, legal representatives and assigns.
4.3 Modification; Waiver. No modification, amendment, waiver or
termination of this Agreement may be made except in writing executed by the
party against whom enforcement of such modification, amendment, waiver or
termination is sought.
4.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws in effect in the State of Maine.
4.5 Captions. all captions and headings herein are for the convenience
of the parties only, and shall not be deemed to be a part of or an aid in the
interpretation of this Agreement.
4.6 Severability. Whenever feasible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision hereof shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
4.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute one and the same instrument.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
Brunswick Technologies, Inc. -------------------------------
Dudley B. Follansbee
By: ____________________________
________________________________
-------------------------------
its _________________, Lisa Anderson-Bisson
thereunto duly authorized
STOCKHOLDERS: -------------------------------
John V. Busch
Vetrotex CertainTeed Corporation
By: ____________________________ -------------------------------
Jurgen Kok
________________________________
its _________________, -------------------------------
thereunto duly authorized Herschel Sternlieb
- -------------------------------
Martin S. Grimnes
SCHEDULE A
Holders of Common Stock of Brunswick Technologies, Inc.
Vetrotex CertainTeed Corporation
Martin S. Grimnes
Dudley B. Follansbee
Lisa Anderson-Bisson
John V. Busch
Jurgen Kok
Herschel Sternlieb
SCHEDULE B
Brunswick Technologies, Inc.
Plan of Recapitalization
1. Present Common Stock. The present authorized capital of the
Corporation consists of (i) 100,000 shares of Common Stock ("Old Common Stock");
(ii) 3,657 shares of Series AA Convertible Preferred Stock; (iii) 33,167 shares
of Series BB Convertible Preferred Stock; (iv) 18,000 shares of Series C
Convertible Preferred Stock; and (v) 16,000 shares of Series D Convertible
Preferred Stock, all of which stocks have no par value.
2. Proposed Restatement of Articles of Incorporation. It is proposed to
restate the Articles of Incorporation of the Corporation to (i) authorize
20,000,000 shares of common stock with a par value of $0.0001 ("New Common
Stock"); and (2) authorize a new series of preferred stock with a par value of
$10.00.
3. Conversion of Old Common Stock. Each issued and outstanding share of
Old Common Stock shall be automatically converted into one share of New Common
Stock.
4. Effectiveness of Plan. This Plan of Recapitalization shall become
effective immediately prior to the declaration by the Securities and Exchange
Commission of the effectiveness of the Company's Registration Statement on Form
S-1 with respect to the initial public offering of the New Common Stock.
5. Abandonment or Modification of Plan. The Board of Directors may, in
its discretion, amend or modify this Plan of Recapitalization; provided,
however, that any such amendment requiring an amendment to the Articles of
Incorporation of the Corporation shall be approved by the shareholders of the
Corporation in accordance with its Articles of Incorporation and By-Laws.
COOPERS Coopers & Lybrand L.L.P.
&LYBRAND a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(Registration No. 333-10721 of our report dated October 30, 1996 on our audit of
the financial statements of Brunswick Technologies, Inc. as of September 30,
1996 and December 31, 1995 and the nine months ended September 30, 1996 and the
year ended December 31, 1995. We also consent the reference of our firm under
the caption "Experts."
/s/ Coopers & Lybrand
---------------------
Coopers & Lybrand
Portland, Maine
November 1, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Brunswick Technologies, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
November 5, 1996
EXHIBIT 23.4
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 18, 1996, with respect to the financial
statements of Advanced Textiles, Inc. included in the Registration Statement
(Form S-1 No. 333-10721) and related Prospectus of Brunswick Technologies, Inc.
for the registration of 2,250,000 shares of its common stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Greensboro, North Carolina
November 4, 1996
EXHIBIT 99.1
CONSENT OF PROSPECTIVE DIRECTOR
I hereby consent to be named in the Prospectus of Brunswick Technologies,
Inc. ("BTI") as a prospective director of BTI and to all references to me
included in BTI's Registration Statement on Form S-1 and all amendments thereto.
Dated: October 30, 1996
----------------
/s/ Donald R. Hughes
--------------------
Donald R. Hughes
EXHIBIT 99.2
CONSENT OF PROSPECTIVE DIRECTOR
I hereby consent to be named in the Prospectus of Brunswick Technologies,
Inc. ("BTI") as a prospective director of BTI and to all references to me
included in BTI's Registration Statement on Form S-1 and all amendments thereto.
Dated: October 29, 1996
----------------
/s/ Max G. Pitcher
------------------
Max G. Pitcher
EXHIBIT 99.3
CONSENT OF PROSPECTIVE DIRECTOR
I hereby consent to be named in the Prospectus of Brunswick Technologies,
Inc. ("BTI") as a prospective director of BTI and to all references to me
included in BTI's Registration Statement on Form S-1 and all amendments thereto.
Dated: November 4, 1996
----------------
/s/ William M. Dubay
--------------------
William M. Dubay
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-END> DEC-31-1995 JUN-30-1996 SEP-30-1996
<CASH> 118 1 203
<SECURITIES> 0 0 0
<RECEIVABLES> 2,021 1,436 998
<ALLOWANCES> 7 13 36
<INVENTORY> 1,430 2,630 2,549
<CURRENT-ASSETS> 4,004 4,403 4,096
<PP&E> 5,021 5,349 5,568
<DEPRECIATION> 1,262 1,464 1,350
<TOTAL-ASSETS> 7,867 8,387 8,738
<CURRENT-LIABILITIES> 3,099 2,911 3,288
<BONDS> 0 0 0
6,070 6,339 6,473
0 0 0
<COMMON> (2,371) (2,277) (2,382)
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 7,867 8,387 8,738
<SALES> 15,476 9,297 13,424
<TOTAL-REVENUES> 15,476 9,297 13,424
<CGS> 11,979 7,010 10,365
<TOTAL-COSTS> 2,652 1,712 2,542
<OTHER-EXPENSES> (63) (39) (201)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 124 54 102
<INCOME-PRETAX> 785 560 615
<INCOME-TAX> (122) 197 222
<INCOME-CONTINUING> 907 363 393
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
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