AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1997
REGISTRATION NO. 333-10721
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
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)
----------
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)
----------
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, MA 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. [ ]
----------
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.
================================================================================
SUBJECT TO COMPLETION, DATED JANUARY 7, 1997
PROSPECTUS
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
BRUNSWICK TECHNOLOGIES, INC.
COMMON STOCK
- --------------------------------------------------------------------------------
Of the 2,000,000 shares of Common Stock, $0.0001 par value (the "Common Stock")
offered hereby, 1,500,000 shares are being sold by Brunswick Technologies, Inc.
(the "Company") and 500,000 shares are being sold by North Atlantic Venture
Fund, L.P. (the "Selling Stockholder"). The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholder. See "PRINCIPAL AND
SELLING STOCKHOLDERS." 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 Common Stock has been approved for
listing 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 $9.00 and $11.00 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>
================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNTS(1) COMPANY(2) STOCKHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------------------------------
Total $ $ $ $
================================================================================
</TABLE>
(1) Does not include additional cash compensation to Josephthal Lyon & Ross
Incorporated ("Josephthal") and Southwest Securities as representatives of
the several Underwriters (together, the "Representatives") 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 Representatives.
(2) Before deducting expenses payable by the Company estimated to be $750,000,
including the non-accountable expense allowance payable to the
Representatives.
(3) The Selling Stockholder has granted the Underwriters an option, exercisable
within 45 days of the consummation of the Offering, to purchase up to
300,000 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, Proceeds to
Company and Proceeds to Selling Stockholder will be $____, $____ , $____ ,
and $____ , respectively. The Company will receive no proceeds from the
exercise of such option. See "PRINCIPAL AND SELLING STOCKHOLDERS" and
"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________ , 1997.
JOSEPHTHAL LYON & ROSS SOUTHWEST SECURITIES
The date of this Prospectus is , 1997.
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 also
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 33:1 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 2,337,192 shares of Common Stock and the issuance to
such holders of Preferred Stock of an estimated additional 199,301 shares of
Common Stock in payment of an estimated $1,993,010 in accrued cash dividends as
of the closing of the Offering (estimated as of January 31, 1997) pursuant to
the terms of such Preferred Stock, (iii) assume no exercise of outstanding
options to purchase an aggregate of 520,839 shares of Common Stock with a
weighted average exercise price of $0.92 per share, (iv) assume no exercise of
outstanding warrants to purchase an aggregate of 336,200 shares of Common Stock
with a weighted average exercise price of $5.41 per share, (v) assume no
conversion of a convertible subordinated promissory note into 364,825 shares of
Common Stock (assuming a $10.00 Offering price) and (vi) 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 complement 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. In
December, 1996 the Company entered into an agreement with Norsk Hydro A.S., one
of the largest North Sea oil operators pursuant to which the parties will
identify opportunities for the application of the Company's technology to new
markets, including the use of composite structures in the off-shore oil
industry, with the aim of developing strategies to address such opportunities.
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............. 1,500,000 shares
Common Stock Offered by
the Selling
Stockholder............. 500,000 shares
Common Stock Outstanding(1):
Before Offering ........ 2,835,817 shares
After Offering ......... 4,335,817 shares
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."
Nasdaq symbol............. "BTIC"
________
(1) Includes an estimated 2,337,192 shares of Common Stock 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, 1,000 shares of Common Stock in
the aggregate to be issued to two directors-elect of the Company, and an
estimated additional 199,301 shares to be issued to the holders of Preferred
Stock in payment of accrued dividends (estimated as of January 31, 1997),
all to occur concurrently with the consummation of the Offering, but does
not include (a) a total of 520,839 shares of Common Stock reserved for
issuance upon the exercise of stock options granted under the Company's 1991
Stock Option Plan, 1994 Stock Option Plan and 1997 Equity Incentive Plan
(collectively, the "Plans"), (b) a total of 336,200 shares of Common Stock
reserved for issuance pursuant to the exercise of warrants to be outstanding
as of the closing of the Offering, (c) 411,840 shares reserved for issuance
upon the exercise of options or other awards available under the Plans but
not yet granted under the Plans and (d) a total of 364,825 shares of Common
Stock issuable to Burlington (assuming an Offering price of $10.00 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 $2.68 per
share. See "DIVIDEND POLICY," "BUSINESS -- Acquisition of Advanced Textiles,
Inc.," "MANAGEMENT -- Stock Incentive Plans," "CERTAIN TRANSACTIONS,"
"PRINCIPAL AND SELLING 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) (332) (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) $ (292) $ (212) $ 375 $ 444 $ (11) $ 2,809 $ 688
===== ===== ===== ===== ====== ===== ====== ===== ======
Pro forma earnings per common
share(2) $ 0.26 $ 0.11 $ 0.81 $ 0.20
========== ======== ======= =======
Pro forma weighted average common
shares outstanding(2) 3,452(2) 3,486(2) 3,457 3,491
===== ===== ===== =====
</TABLE>
ADVANCED TEXTILES, INC.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------------
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)(3)
TECHNOLOGIES, INC. TEXTILES, INC. COMBINED
------------------ -------------- --------
(UNAUDITED)
<S> <C> <C> <C>
Working capital $ 808 $2,235 $ 11,794
Total assets 8,738 3,754 26,931
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 $17,345
======= ====== =======
</TABLE>
(1) 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) Calculation is shown in Note 1 of Notes of Financial Statements of the
Company.
(3) Adjusted to give effect to the sale by the Company of 1,500,000 shares of
Common Stock at an assumed Offering price of $10.00 per share and the
application of the estimated net proceeds therefrom (after deducting
discounts, allowances and Offering expenses). See "USE OF PROCEEDS."
6
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
the 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 $4.25 million occurred for the same reasons in the
third quarter. Management estimates that through the remainder 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 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 effect 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 therefore 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
December 31, 1996 additional capital expenditures of up to approximately $5.8
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 (equal to approximately 27.6% of the estimated net proceeds) of the
outstanding principal amount of such Convertible Note. At December 31, 1996 term
and revolving bank debt aggregated approximately $2.6 million or 20% of the
estimated net proceeds. An additional $3.0 million or 22.7% 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
9
coverage, and distribution channels. The 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 53.9% of
the outstanding shares of Common Stock (assuming no exercise of outstanding
stock options or warrants, no exercise of the Underwriters' over-allotment
option 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 determined that, at the next annual meeting of the Company,
it will recommend to the stockholders a proposal to increase the size of the
Board to allow for between seven to nine directors. 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 AND SELLING 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 $7.18 per share or 72% of an
assumed Offering price of $10.00 per share. See "DILUTION."
ABSENCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE;
POSSIBLE VOLATILITY OF SHARE PRICE. Prior to the Offering, there has been no
public market for the Common Stock. The 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 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 4,335,817 shares of Common Stock outstanding immediately after the
Offering, including the 2,000,000 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
2,335,817 shares of Common Stock that will be owned by the Company's current
stockholders following the Offering (assuming no exercise of the Underwriters'
over-allotment option), including (i) 1,837,192 shares of Common Stock to be
issued to existing holders of Preferred Stock upon conversion of their shares of
Preferred Stock, (ii) 1,000 shares in the aggregate to be issued to two
directors-elect of the Company upon the consummation of the Offering, (iii) an
estimated 199,301 shares of Common Stock to be issued to the holders of
Preferred Stock in payment of accrued dividends (estimated as of January 31,
1997) concurrently with the completion of the Offering (the "Dividend Shares"),
and (iv) 298,324 shares of Common Stock outstanding on the date hereof, 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"
11
agreements 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. As of December 31, 1996, 2,109,178 shares
(assuming no exercise of the Underwriters' over-allotment option) would be
eligible for sale subject to the volume limitations of Rule 144; out of that
2,109,178 shares, 227,568 shares would also be eligible for sale under Rule
144(k) without volume limitations. The Dividend Shares, an aggregate of 336,200
shares issuable under warrants outstanding as of the closing of the Offering,
5,350 shares issued to Peter L. DeWalt in October 1996 and 364,825 shares
issuable upon conversion of the Convertible Note (assuming an Offering price of
$10.00 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 520,839 shares of Common Stock issuable under outstanding
options, if exercised, and 54,021 shares (including 37,686 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 364,825 shares of
Common Stock issuable after October 30, 1997 under the Convertible Note if
converted by Burlington and Josephthal holds similar registration rights with
respect to the shares issuable upon exercise of its warrants. 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 Josephthal. 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 199,301 shares of Common Stock to
the holders of its Preferred Stock in payment of accrued cash dividends which
are expected to aggregate approximately $1,993,010 as of January 31, 1997. 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 1,500,000 shares of
Common Stock offered by it hereunder at an assumed Offering price of $10.00 per
share are estimated to be approximately $13.2 million after deducting
underwriting discounts and estimated additional Offering expenses of
approximately $750,000 payable by the Company, which includes the
Representatives' expense allowance. The Company intends to use approximately
$9.35 million of the net proceeds of the Offering to (i) pay approximately $3.65
million of the outstanding principal amount of the Convertible Note issued to
Burlington in connection with the acquisition of ATI, (ii) expand its
manufacturing capacity through the purchase of additional capital equipment
estimated to aggregate approximately $3.0 million over the next two years, (iii)
repay in full its existing term and revolving bank debt aggregating
approximately $2.6 million at December 31, 1996, and (iv) make approximately
$100,000 of capital improvements to ATI's plant in Texas. The Company expects
that the approximately $3.85 million remaining from the estimated net proceeds,
with respect to which the Company has no specific plans, will be used for
general corporate purposes, including research and development and possible
additional acquisitions of complementary businesses and product lines.
The terms of the Convertible Note issued to Burlington in connection with
the acquisition of ATI require that the Company pay $3,648,250, an amount equal
to half of the outstanding principal amount of the Convertible Note ($7,296,500)
to the holder thereof, no later than seven months following the Offering. On
October 30, 2002, 50% of the then-oustanding principal amount of the Convertible
Note, plus any additional amount permitted by the Company's then-existing
financial covenants with any senior lenders, will be payable. Any remaining
principal amount of the Convertible Note will be payable on October 30, 2003.
The Convertible Note bears interest at the rate of 9.5% per annum.
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 $1,179,967
outstanding as of December 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 2,337,192 shares of
Common Stock and the Company will issue an estimated 199,301 shares of Common
Stock (assuming payment as of January 31, 1997) to the holders of the Preferred
Stock in payment of accrued cash dividends which will equal in the aggregate an
estimated $1,993,010 as of January 31, 1997. 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
33:1 stock split; (ii) the conversion of the Preferred Stock outstanding at
September 30, 1996 into 2,337,192 shares of Common Stock; (iii) 1,000 shares in
the aggregate to be issued to directors-elect upon consummation of the Offering;
and (iv) the issuance of an estimated 199,301 shares of Common Stock in payment
of accrued Preferred Stock dividends of $1,993,010 (estimated as of January 31,
1997); 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 ($0.34) per share of Common Stock. After
giving effect to the sale by the Company of the 1,500,000 shares of Common Stock
offered by it hereunder at an assumed Offering price of $10.00 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 $2.82 per share, representing an immediate increase in net
tangible book value of $3.16 per share to existing stockholders and immediate
dilution of $7.18 per share to investors in the Offering.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share....................... $10.00
Net tangible book value per share at September 30, 1996........... $(0.34)
Increase per share attributable to new investors.................. $ 3.16
Pro forma net tangible book value per share after Offering............ $ 2.82
------
Dilution of pro forma net tangible book value per share to new investors $7.18
======
</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
and the Selling Stockholder, 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 $10.00
per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE
PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing stockholders(1) 2,335,817 53.9% $ 6,294,284 23.9% $ 2.70
New investors(1) 2,000,000 46.1% $20,000,000 76.1% $10.00
--------- ------ ----------- ------
Total 4,335,817 100.0% $26,294,284 100.0%
========= ====== =========== ======
</TABLE>
_________________
(1) The sale of 500,000 shares by the Selling Stockholder in the Offering will
reduce the number of shares of Common Stock held by the existing
stockholders from 2,835,817 to 2,335,817 or 53.9% of the total number of
shares of Common Stock to be outstanding after the Offering (2,035,817
shares and 46.9% if the Underwriters' over-allotment option is exercised in
full), and will increase the number of shares of Common Stock held by new
investors to 2,000,000 or 46.1% of the total number of shares of Common
Stock to be outstanding (2,300,000 shares and 53.1% if the Underwriters'
over-allotment option is exercised in full). See PRINCIPAL AND SELLING
STOCKHOLDERS."
The information set forth in the preceding table assumes (i) no exercise of
options to purchase a total of 520,839 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 336,200 shares of Common
Stock; (iii) no exercise of additional options which may be granted in the
future under the Plans to acquire up to 411,840 shares of Common Stock and (iv)
no conversion of the Convertible Note into 364,825 shares of Common Stock
(assuming an Offering price of $10.00 per share). See "MANAGEMENT -- Stock
Incentive 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
1,500,000 shares of Common Stock offered by the Company hereby at an assumed
initial public Offering price of $10.00 per share; (ii) the conversion of the
outstanding Preferred Stock into 2,337,192 shares of Common Stock concurrently
with the consummation of the Offering; (iii) the issuance of 199,301 shares of
Common Stock in payment of accrued Preferred Stock dividends concurrently with
the consummation of the Offering (estimated as of January 31, 1997); 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 -- 292,974 actual; 298,324
pro forma combined; 4,335,817 as adjusted(2) 406 460 20,133
Accumulated deficit (2,788) (2,788) (2,788)
------ ------ ------
Total stockholders' equity (deficit) (2,382) (2,328) 17,345
------ ------ ------
Total capitalization $ 6,129 $13,992 $ 21,506
======= ======= ========
</TABLE>
_________________
(1) The information set forth in the preceding table assumes (i) no exercise of
options to purchase a total of 520,839 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 336,200 shares
of Common Stock; (iii) no exercise of additional options which may be
granted in the future under the Plans to acquire up to 411,840 shares of
Common Stock and (iv) no conversion of the Convertible Note. See
"MANAGEMENT -- Stock Incentive Plans," "DESCRIPTION OF CAPITAL STOCK AND
CERTAIN INDEBTEDNESS," and "UNDERWRITING."
(2) Does not include 3,300 shares of Common Stock held as treasury shares by
the Company. The 4,335,817 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 2,337,192 shares of Common Stock, the 5,350 shares of Common
Stock issued to Peter L. DeWalt on October 30, 1996, an additional 199,301
shares of Common Stock being issued to holders of Preferred Stock in
payment of an estimated $1,993,010 in accrued cash dividends as of the
closing of the Offering (estimated as of January 31, 1997), and 1,000
shares to be issued in 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 of
ATI 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) $ 9,813 $ 9,752
(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 8,917 15,952
------- ------- ------- -------
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 $ 14,439 $ 26,931
======= ======= ======= =======
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) 13,200
(A) (6,029)
(C) 6,473 20,133
(Accumulated deficit) (2,979) (2,788) (A) 2,979 (2,788)
------- ------- ------- -------
Total stockholders' equity (deficit) 3,050 (2,382) 16,677 17,345
------- ------- ------- -------
Liabilities and stockholders' equity $ 3,754 $ 8,738 $ 14,439 $ 26,931
======= ======= ======= =======
</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 $ 0.81 $ 0.20
======= =======
Pro forma weighted average
common shares outstanding 3,457 3,491
======= =======
</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 was $2,990,000. The following adjustments allocate the
purchase cost of the acquisition:
* Adjust ATI working capital of $2,235,000 to $1,440,000 which
represents the agreed amount to be acquired by the Company and adjust
for $101,000 of liabilities not assumed by the Company. Excess working
capital of $896,000 was paid to Burlington Industries.
* 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 of $1,550,000.
* Eliminate deferred acquisition costs already recorded by the Company
of $75,000, and accrue an additional estimated cost of $175,000, for a
total estimated acquisition cost of $250,000.
* 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.
* Record issuance of stock to a minority shareholder of ATI for $53,500.
* Eliminate the equity accounts of ATI by adjusting Common Stock of
$6,029,000 and accumulated deficit of $2,979,000.
* 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 1,500,000 shares of Common Stock by the
Company at an assumed Offering price of $10.00 per share net of
underwriting discounts and estimated expenses of $750,000. 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 9.5%, 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 ..... (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) (332) (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) $ (292) $ (212) $ 375 $ 444 $ (11) $ 2,809 $ 688
====== ====== ====== ====== ======= ======= ======= ======= =======
Pro forma earnings per common share $ 0.26 $ 0.11 $ 0.81 $ 0.20
======= ======= ======= =======
Pro forma weighted average common
shares outstanding ............ 3,452 (2) 3,486 (2) 3,457 3,491
===== ===== ===== =====
</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)(3)
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 $11,794
Total assets .................... 2,022 2,472 4,338 5,665 7,867 8,738 3,754 26,931
Long-term liabilities ........... 272 460 337 1,177 1,069 1,359 -- 5,428
Total liabilities ............... 1,481 1,810 1,873 2,886 4,168 4,647 704 9,586
Preferred stock ................. 2,460 2,918 5,012 5,538 6,070 6,473 -- --
Stockholders' equity (deficit) .. $(1,919) $(2,256) $(2,547) $(2,759) $(2,371) $(2,382) $3,050 $17,345
======= ======= ======= ======= ======= ======= ======= =======
</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 ............ $1,212 $1,198 $1,232 $1,916 $3,050
====== ====== ====== ====== ======
</TABLE>
__________________
(1) 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) Calculation is shown in Note 1 of Notes to Financial Statements of the
Company.
(3) Adjusted to give effect to the sale by the Company of 1,500,000 shares of
Common Stock at an assumed Offering price of $10.00 and the application of
the estimated net proceeds therefrom (after deducting discounts, allowance
and Offering expenses). See "USE OF PROCEEDS."
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 21.7% 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.
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 5,350 shares of Common
Stock issued to Peter L. DeWalt, who held a minority interest in ATI. The
Company incurred 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
22
estimated 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 $116,234 or 23.36%. Selling expense increased
$159,776 or 34.59%. Salaries and travel accounted for $47,777 and $65,868 of
this increase 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
23
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 $106,755 increase in wage expense,
from $183,597 in 1994 to $290,352 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 ("NOLs") as
compared to 1994 when no income tax expense or benefit was recorded. The
Company's 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
Company's 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 5.3% to $4,246,000 from
$4,031,000 for the same period in 1995. Gross profit decreased by 7.0% to
$865,000 from $930,000 for the same period in 1995. Net income in the third
quarter in 1996 decreased by 79% to $66,000 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 sales $4,724 111% $4,911 110% $5,228 110% $4,665 105% $4,279 106% $4,175 109% $3,373 106%
Allowances 358 8% 373 8% 397 8% 164 4% 184 4% 227 6% 170 5%
Other deductions 120 3% 105 2% 87 2% 60 1% 64 2% 123 3% 24 1%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Net sales 4,246 100% 4,433 100% 4,744 100% 4,441 100% 4,031 100% 3,825 100% 3,179 100%
Cost of goods sold 3,381 80% 3,353 76% 3,631 77% 3,489 79% 3,101 77% 2,909 76% 2,480 78%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Gross profit 865 20% 1,080 24% 1,113 23% 952 21% 930 23% 916 24% 699 22%
Selling general and
administrative
expense 715 17% 689 16% 635 13% 589 13% 535 13% 522 14% 438 14%
Research and development
expenses 102 2% 157 3% 143 3% 116 3% 113 3% 91 2% 88 3%
Moving cost 5 0% 100 2% 143 3% 9 0% -- 0% -- 0% -- 0%
Facility repair cost -- 0% (148) (3)% -- 0% 150 3% -- 0% -- 0% -- 0%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Operating income 43 1% 282 6% 192 4% 88 2% 282 7% 303 8% 173 5%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Other income (expense):
NIST grant 118 3% 53 1% 45 1% 16 1% 5 1% 23 1% 23 1%
Interest expense (45) (1)% (30) (1)% (26) (1)% (31) (1)% (28) (1)% (31) (1)% (34) (1)%
Miscellaneous, net (12) 0% (4) 0% (1) 0% (19) (1)% 13 0% 1 0% 1 0%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
61 1% 19 0% 20 0% (34) (1)% (10) 0% (7) 0% (10) 0%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Income before income
tax 104 2% 301 6% 210 4% 54 1% 272 7% 296 8% 163 5%
Income tax benefit
(expense) (38) 0% (109) (2)% (75) (1)% 9 0% 42 1% 46 1% 25 1%
--- --- --- ---- ---- ---- ---- --- ---- --- ----- --- ----- ---
Net income $ 66 2% $ 192 4% $ 135 3% $ 63 1% $ 314 8% $ 342 9% $ 188 6%
====== === ====== === ====== === ====== == ====== === ====== === ====== =
</TABLE>
In the first quarter of 1996, the Company's net sales 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 $4.7
million in the first quarter of 1996. A decrease in net sales to $4.25 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 remainder of 1996, the Company's distributors
maintained an approximate three-weeks 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. Subsequent to the acquisition of ATI, the
Company reconfirmed its relationship with ATI's major distributors,
notwithstanding the Company's belief 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 ATI's net operating loss
carryforwards ("NOLs") would be utilized. (See Note D of Notes to Financial
Statements of ATI.)
Net Income. Net income for fiscal 1996 was $705,000 or 6.7% of net sales as
compared to $2,177,000 or 19.5% of net sales in fiscal 1995. This was the result
of ATI utilizing an income tax benefit of $1,493,000 in fiscal 1995.
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 its NOLs 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 acquisition of ATI, 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 assets of the Company and ATI. 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 $2.5 million. At December 31, 1996, $1,179,967 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 $2.5
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 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 December
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 for 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). 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. In addition, the Company is obligated to pay Burlington
a contingent amount of at least $100,000 (but no more than $200,000) 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 to the Company are estimated to be $13,200,000, which the Company
anticipates, (when combined with cash generated from operations) will provide
sufficient financial resources into 1999. 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
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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 5,350 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.
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 degree
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, and 77%
during the first nine months of 1996, 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 was party to 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 may improve its ability to negotiate more favorable
terms with its suppliers because it will be purchasing larger gross amounts of
raw materials. 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 $4.7 million in the first quarter of 1996. A
decrease in net sales to $4.25 million occurred for the same reasons in the
third quarter of 1996. Management estimates that during the remainder 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 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 entire budget of the program contemplated by the Collaborative Agreement
is approximately $1,547,000, which is to be spent over three years. The Company
has estimated that the cost to complete this program to be approximately
$772,000, with the Company being responsible for half of that amount. The
remaining $386,000 cost will be supplied by a grant from the National Institute
of Standards and Technology. The Company is responsible for adherence to
applicable federal laws and regulations covering both federal funds and
non-federal funds, including allowability of costs.
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.
In December, 1996 the Company entered into an agreement with Norsk Hydro
A.S., one of the largest North Sea oil operators pursuant to which the parties
will identify opportunities for the application of the Company's technology to
new markets, including the use of composite structures in the off-shore oil
industry, with the aim of developing strategies to address such opportunities.
Funding for each of these projects is part of the Company's regular,
on-going research and development expense. 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 December 31, 1996, the Company had 127 full time employees, of whom
103 were employed in engineering and manufacturing, 10 in sales and marketing
and 14 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) 51 Director 1995
David E. Sharpe(1)(2) 54 Director 1993
William M. Dubay 46 President and Chief Operating Officer; *
Director elect
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.
_________
* 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 the Selling Stockholder. 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. See
"CERTAIN TRANSACTIONS" and "PRINCIPAL AND SELLING STOCKHOLDERS."
(2) Member of the Compensation Committee.
(3)Member of the Audit Committee.
</TABLE>
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 selling
500,000 shares of Common Stock in the Offering. 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 selling 500,000 shares of Common Stock in the Offering. 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 the right to designate one person for
election to the Company's Board of Directors until the third anniversary of the
closing of the Offering. In connection with this right, the Company has agreed
to use its best efforts to cause Josephthal's designee to be elected to the
Company's Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board maintains a Compensation Committee which will consist of Messrs.
Grimnes, Sharpe, and either Mr. Hughes or Mr. 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 Incentive Plans."
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, who also serves as Chief Executive
43
Officer of the Company, did receive compensation for his services as an officer.
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 500 shares of
Common Stock upon each of their elections and will each be granted an option to
purchase 4,500 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 upon their elections 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 Incentive Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for the year ended December 31, 1996 of the Company's Chief
Executive Officer and each executive officer who was compensated in excess of
$100,000 for such year from the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION SALARY($) COMPENSATION($)
------------------ --------- ---------------
<S> <C> <C>
Martin S. Grimnes,
Chairman and Chief Executive Officer 109,994 12,275(1)
William M. Dubay
President and Chief Operating Officer 104,120 27,186(2)
Robert R. Fuller
Vice President, Sales 98,906 13,961(3)
_________
(1) Includes an aggregate of $4,046 for accrued but unpaid bonuses for the the
fiscal year ended December 31, 1995, $3,402 in payments for health
insurance, personal use of a company car valued at $1,107 and $1,796 for
paid sick time.
(2) Includes $1,999 in payments for accrued but unused vacation time, $3,348
for an accrued but unpaid bonus for the fiscal year ended December 31,
1995, $16,650 for accrued but unpaid salary earned in the fiscal year ended
December 31, 1995, $3,405 in payments for health insurance, personal use of
a company car valued at $1,165 and $619 for paid sick time.
(3) Includes $2,790 for an accrued but unpaid bonus for the fiscal year ended
December 31, 1995, $3,158 in payments for health insurance, personal use of
a company car valued at $6,054 and $1,959 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. Each of the executive officers named above may
also receive compensation in 1997 under the formula profit sharing plan for the
fiscal year ended December 31, 1996. Messrs. Grimnes, Dubay and Fuller received
$3,720, $3,348 and $2,790, respectively, in 1996 under the formula profit
sharing plan for the Company's fiscal year ended December 31, 1995. The same
profit sharing plan is in effect for 1997.
44
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.
Upon the successful completion of the Agreement's two-year term, the Company
shall issue to Mr. DeWalt an additional 5,350 shares of Common Stock. The
agreement also provides for the grant of an option to Mr. DeWalt to purchase up
to 9,900 shares of Common Stock at a price per share equal to the Offering price
which option shall vest on October 30, 1998.
STOCK INCENTIVE 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. 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 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. The 1991 Plan was amended by the Board of Directors on December 13,
1996. The Board of Directors has determined to recommend adoption of the
amendment of the 1991 Plan to the Company's shareholders at the next meeting
thereof, to be held in January, 1997. The changes to the 1991 plan include: (i)
allowing grants to be made to consultants to the Company, in addition to
directors and employees, as well as employees, directors or consultants to
affiliates of the Company; (ii) decreasing the maximum aggregate number of
shares which may be issued pursuant to the 1991 Plan to 484,935; and (iii)
allowing recipients to keep vested options in the event his or her employment,
consultant relationship, or directorship is terminated, whether voluntarily or
involuntarily.
1994 Stock Option Plan. The Company's 1994 Stock Option Plan (the "1994
Plan") was adopted by the Board of Directors and stockholders of the Company on
May 25, 1994. 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 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. The 1994 Plan was amended by the Board of Directors on December 13,
1996. The Board of Directors has determined to recommend adoption of the
amendment of the 1994 Plan to the Company's shareholders at the next meeting
thereof, to be held in January, 1997. The changes to the 1994 plan include: (i)
allowing grants to be made to consultants to the Company, in addition to
directors and employees, as well as employees, directors or consultants to
affiliates of the Company; (ii) decreasing the maximum aggregate number of
shares which may be issued pursuant to the 1994 Plan to 83,325; and (iii)
allowing recipients to keep vested options in the event his or her employment,
consultant relationship, or directorship is terminated, whether voluntarily or
involuntarily.
1997 Equity Incentive Plan. The Company's 1997 Equity Incentive Plan (the
"1997 Plan" and with the 1991 Plan and the 1994 Plan, the "Plans") was adopted
by the Board of Directors on December 13, 1996. The Board of Directors has
determined to recommend adoption of the 1997 Plan to the shareholders at the
next annual meeting thereof, to be held in January, 1997. A total of 421,740
shares of Common Stock have been reserved for awards under the 1997 Plan.
Pursuant to the 1997 Plan, a committee of the Board of Directors (the
"Committee") is authorized to grant incentive stock options,
45
non-statutory stock options (together, "Options"), stock appreciation rights
("SARs"), restricted stock or similar securities defined thereunder
(collectively, "Awards"), all in its discretion, to key personnel, consultants
and directors of the Company or one of its affiliates. The number of shares and
vesting schedules for exercise of the Awards will be determined by the
Committee. All incentive stock options are exercisable at the fair market value
of the shares of Common Stock at the time of grant while non-statutory stock
options and SARs may be issued with an exercise price no less than 50% of such
fair market value. The terms and conditions of incentive stock options shall be
subject to, and comply with, Section 422 of the Internal Revenue Code. In the
event of a change in control of the Company, the Committee may: (i) provide for
the acceleration of any time period relating to the exercise or realization of
the Award, (ii) provide for the purchase of the Award upon the recipient's
request, (iii) adjust the terms of the Award to reflect the change in control,
(iv) cause the Award to be assumed, or new rights substituted therefor, by
another entity, or (v) make such other provision as the Committee may consider
equitable and in the best interests of the Company.
At December 31, 1996, 18 employees and two outside consultants held options
to purchase a total of 520,839 shares of Common Stock under the Plans. The
options are exercisable at prices ranging from $0.03 to $10.00, and expire at
dates ranging from September 18, 1999 to September 15, 2010. Messrs. Grimnes,
Dubay and Fuller own options to purchase 135,300, 126,720, and 82,104 shares,
respectively, under the Plans. None of these executive officers received any
grants of options in the fiscal year ended December 31, 1996.
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, 1996 by the Company's chief executive
officer and the other executive officers of the Company whose annual
compensation exceeded $100,000 in 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#)(1) AT FY-END($)
----------------------- ------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin S. Grimnes -- -- 119,460 15,840 $1,148,350 $ 134,400
William M. Dubay -- -- 114,840 11,880 $1,111,110 $ 100,800
Robert R. Fuller -- -- 70,224 11,880 $ 658,952 $ 100,800
__________
(1) The exercise prices of these options range from $0.03 to $1.52, the fair
market values per share of the Common Stock on the respective 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 $10.00 per share, less the exercise price per
share.
</TABLE>
46
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and notes thereto set forth certain information
regarding beneficial ownership of the Common Stock, as of December 31, 1996, and
as adjusted for the sale of the shares of Common Stock hereunder, 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, (iii) those
officers of the Company whose annual cash compensation from the Company exceeded
$100,000 in 1996, and (iv) 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
------------------
SHARES SHARES BENEFICIALLY
NAME AND ADDRESS OF BENEFICIALLY OWNED OWNED AFTER PRIOR TO AFTER
BENEFICIAL OWNER PRIOR TO OFFERING OFFERING OFFERING(1) OFFERING(1)
---------------- ----------------- -------- -------- --------
<S> <C> <C> <C> <C>
David M. Coit*(2)......................... 1,453,221 953,221 42.0% 19.2%
70 Center Street
Portland, ME 04101
Gregory B. Peters*(2)..................... 1,453,221 953,221 42.0% 19.2%
70 Center Street
Portland, ME 04101
North Atlantic Venture Fund, L.P(2)....... 1,453,221 953,221 42.0% 19.2%
70 Center Street
Portland, ME 04101
David E. Sharpe*(3)....................... 710,327 710,327 20.5% 14.3%
750 E. Swedesford Road
Valley Forge, PA 19482
Vetrotex CertainTeed Corp.(3)............. 710,327 710,327 20.5% 14.3%
750 E. Swedesford Road
Valley Forge, PA 19482
Peter N. Walmsley* (4).................... 391,250 391,250 11.3% 7.9%
10929 Wickshire Way
Rockville, MD 20852
AMT Associates, Ltd.(4)................... 391,250 391,250 11.3% 7.9%
10929 Wickshire Way
Rockville, MD 20852
Martin S. Grimnes*(5) .................... 320,760 320,760 9.3% 6.5%
43 Bibber Parkway
Brunswick, ME 04011
William M. Dubay**(6) .................... 114,840 114,840 3.3% 2.3%
Robert Fuller(7) ......................... 70,224 70,224 2.0% 1.4%
Donald R. Hughes** ....................... -- 500 -- +
Max G. Pitcher** ......................... -- 500 -- +
All Directors and Officers as a group
(12 persons)(8) ....................... 3,097,652 2,598,652 89.6% 52.4%
</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
3,458,286 shares of Common Stock deemed outstanding prior to the Offering
include: (i) 298,324 shares of Common Stock, (ii) 2,337,192 shares of
Common Stock issued upon the conversion of Preferred Stock, outstanding as
47
of December 31, 1996, (iii) 623,469 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 December 31, 1996, and (iv) an
estimated 199,301 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 January 31, 1997). The number of
shares of Common Stock deemed outstanding after the Offering, 4,959,286
shares, also (a) includes the 1,500,000 shares of Common Stock being
offered for sale by the Company in the Offering, and (b) 1,000 shares in
the aggregate to be issued to Messrs. Hughes and Pitcher upon their
election to the Board contemporaneous with the consummation of the
Offering.
(2) Shares beneficially owned by North Atlantic Venture Fund, L.P. (the
"Selling Stockholder") prior to the Offering consists of 1,165,824 shares
of Common Stock issued pursuant to the conversion of the outstanding
Preferred Stock, 194,700 shares of Common Stock subject to warrants
currently exercisable and 92,697 shares to be issued in payment of accrued
dividends on its Preferred Stock. The Selling Stockholder is selling
500,000 shares of Common Stock (converted from its holding of Preferred
Stock immediately prior to the closing of the Offering) in the Offering and
has granted the Underwriters a 45-day option to purchase up to 300,000
additional shares to cover over-allotments. See "UNDERWRITING." The Selling
Stockholder will beneficially own 953,221 shares after the Offering. If the
over-allotment is exercised in full, the Selling Stockholder will
beneficially own 653,221 shares (or approximately 13.2%) of the Common
Stock after the Offering. Messrs. Coit and Peters are general partners of
North Atlantic Capital Partners, Limited Partnership, the sole general
partner of NAVF and have voting control of the shares owned by the Selling
Stockholder. Messrs. Coit and Peters disclaim beneficial ownership of
shares held or beneficially owned by the Selling Stockholder except to the
extent of their pecuniary interests therein.
(3) Includes 580,800 shares of Common Stock held by Vetrotex to be issued
pursuant to the conversion of Preferred Stock and 58,841 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 363,000 shares of Common Stock issued pursuant to the
conversion of Preferred Stock held by AMT Venture Partners, Ltd. ("AMT")
and JHAM Limited Partnership ("JHAM") and 28,250 shares to be issued in
payment of accrued dividends. Mr. Walmsley is one of two general partners
of AMT Associates Ltd., which is a general partner of both AMT and 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 119,460 shares of Common Stock subject to options exercisable
within 60 days of December 31, 1996.
(6) Includes 114,840 shares of Common Stock subject to options exercisable
within 60 days of December 31, 1996.
(7) Includes 70,224 shares of Common Stock subject to options exercisable
within 60 days of December 31, 1996.
(8) Includes 336,204 shares of Common Stock subject to options exercisable
within 60 days of December 31, 1996. The Selling Stockholder is selling
500,000 shares of Common Stock in the Offering and has granted the
Underwriters a 45-day option to purchase up to 300,000 additional shares to
cover over-allotments. See "UNDERWRITING." Directors and officers as a
group will beneficially own 2,598,652 shares after the Offering. If the
Underwriters' over-allotment is exercised in full, Directors and officers
as a group will beneficially own 2,298,652 shares (or approximately 46.4%)
of the Common Stock after the Offering.
48
CERTAIN TRANSACTIONS
In August, 1993, the Company and certain stockholders sold an aggregate of
528,000 shares of Series D Convertible Preferred Stock, 46,860 shares of Series
AA Preferred Stock and 5,940 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 70,686 shares of Common Stock for a purchase price equal to $1.52 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 33,000,
15,180 and 6,996 shares, respectively, of Common Stock. The Company also
received an aggregate of $1,760,000 from Vetrotex in the sale of 528,000 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 December 31, 1996, the remaining debt was $32,500.
In October 1996 the Company acquired all of the capital stock of ATI from
Burlington and Peter L. DeWalt. Mr. DeWalt, who was the President of ATI and
held capital stock of ATI equal to less than 1% of the outstanding capital stock
of ATI, received 5,350 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, and 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, 4,335,817 shares of Common Stock will be outstanding and no
shares of New Preferred Stock will be outstanding.
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 December 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 $10.00
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 33 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 199,301 shares of Common Stock in payment of an
estimated $1,993,010 in accrued cash dividends as of the closing of the Offering
(estimated as of January 31, 1997).
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 211,200 shares of Common Stock at an exercise price of $1.52 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 respective expiration dates, the latest of
which is December 31, 1997. The Company has also agreed to grant to Josephthal
five-year warrants to purchase 125,000 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 364,825 shares of Common Stock (assuming an Offering price of
$10.00). 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 4,335,817 shares of Common
Stock outstanding immediately after the Offering, including the 2,000,000 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 2,335,817 shares of Common Stock that will be
owned by the Company's current stockholders following the Offering, including
(i) 1,837,192 shares of Common Stock to be issued to existing holders of
Preferred Stock upon conversion of their shares of Preferred Stock, (ii) 1,000
shares in the aggregate to be issued to two directors-elect of the Company upon
the consummation of the Offering, (iii) an estimated 199,301 shares of Common
Stock to be issued to the holders of Preferred Stock in payment of accrued
dividends (estimated as of January 31, 1997) concurrently with the completion of
the Offering (the "Dividend Shares") and (iv) 298,324 shares of Common Stock
outstanding on the date hereof, 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 623,469 shares of Common Stock (excluding warrants
granted to Josephthal in connection with investment banking services provided to
the Company) 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 364,825 shares
of Common Stock.
Subject to the volume and holding period limitations of Rule 144 and the
"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. 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, 2,109,178 shares of Common Stock (assuming no exercise of the
Underwriters' over-allotment option) 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, 227,568 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 336,200 shares issuable under warrants
outstanding as of the closing of the Offering, 5,350 shares issued to Peter L.
DeWalt in October 1996 and 364,825 shares issuable upon conversion of the
Convertible Note (assuming an Offering price of $10.00 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 520,839 shares of
Common Stock issuable under outstanding options, if exercised, and 54,021 shares
(including 37,686 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 2,846,716 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 Josephthal
will receive similar rights, including one demand right, with respect to the
shares of Common Stock issuable upon the exercise of the warrants issued to
Josephthal upon the closing of the Offering. Mr. DeWalt has also been granted
"piggyback" rights with respect to certain registrations by the Company of its
securities in which Burlington participates. All holders of registration rights,
including Burlington, Mr. DeWalt and the Representatives, 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
Burlington and the holders of all shares of Common Stock and options and
warrants to purchase Common Stock 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 13 months from the commencement of the
Offering without the prior written consent of Josephthal. 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") among the Company, the Selling
Stockholder and Josephthal Lyon & Ross Incorporated ("Josephthal") and Southwest
Securities (together, the "Representatives"), the Company and the Selling
Stockholder have agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to purchase,
on a firm commitment basis, 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
Southwest Securities
---------
TOTAL 2,000,000
=========
</TABLE>
The Underwriters are committed to purchase all shares of Common Stock
offered hereby, if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein. In the event of a default by an
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
such commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Underwriters have advised the Company and the Selling Stockholder 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 and the Selling Stockholder have 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 Underwriters have been granted an option by the Selling Stockholder,
exercisable within 45 days after the date of this Prospectus, to purchase up to
an additional 300,000 shares of Common Stock at the Offering price, less
underwriting discounts. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the sale of the shares offered
hereby. To the extent such option is exercised in whole or in part, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional shares of Common Stock proportionate to
its initial commitment.
The holders of all shares of the Common Stock, and options and warrants to
purchase Common Stock, outstanding prior to the Offering have executed
agreements with Josephthal pursuant to which they 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.
53
The Company has agreed to pay the Representatives a non-accountable expense
allowance of 0.75% of the gross proceeds of the Offering ($112,500 if the
Over-allotment Option is not exercised and $150,000 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).
In addition, the Company has entered into a Financial Advisory Agreement
with Josephthal pursuant to which Josephthal has been engaged, for a twelve
month period ending in June 1997, to provide consulting advice as an investment
banker as shall be agreed to from time to time by the Company and Josephthal. As
compensation for Josephthal's services under the Financial Advisory Agreement,
the Company has paid to Josephthal $30,000, has agreed to pay an additional
$30,000 and has agreed to sell to Josephthal, for nominal consideration,
warrants to purchase from the Company 125,000 shares of Common Stock (the
"Josephthal Warrants"). The Josephthal Warrants will be initially exercisable at
an exercise price equal to 120% of the purchase price for shares of Common Stock
in the Offering for a period of five years commencing one year after the date of
this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the date hereof, except to
officers of Josephthal. The Josephthal Warrants will also provide for adjustment
in the number of shares of Common Stock issuable upon the exercise thereof as a
result of certain subdivisions and combinations of the Common Stock. The
Josephthal Warrants grant to the holders thereof certain rights of registration
for the securities issuable upon exercise of the Josephthal Warrants.
In addition, in the event that Josephthal originates a financing or a
merger, acquisition, joint venture or other transaction to which the Company is
a party, Josephthal will receive a fee of up to 5% of the aggregate
consideration actually received by the Company in connection with the
transaction; provided, however, the fee may be reduced under certain
circumstances. The Company will pay an additional fee of $118,447 to Josephthal
in connection with the acquisition of ATI.
The Company has granted Josephthal the right to designate one person for
election to the Company's Board of Directors until the third anniversary of the
closing of the Offering. In connection with this right, the Company has agreed
to use its best efforts to cause Josephthal's designee to be elected to the
Company's Board of Directors.
The proposed Offering price range was determined through the Company's
negotiations with the Representatives, during which the following factors, among
others, were deemed to be significant by the Company and the Representatives in
valuing the Common Stock: (i) a continuing and sustained period of revenue
increases, including positive operating results, (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, and
(iv) valuations in the public market for similarly capitalized companies.
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 and the nine-month period ended September 30, 1996 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.
LAMINATE:
Composite material consisting of reinforcing fibers and a resin matrix.
QUADRAXIAL:
Composite reinforcing material with fibers aligned along four axes, namely
0 degrees, 90 degrees, +45 degrees, and -45 degrees.
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.
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.
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,
except for Note 1,
as to which the date
is January 6, 1997
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
---- ---- ----
<S> <C> <C> <C>
ASSETS
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, 296,274
outstanding 27 29 29
Additional paid-in-capital 392,617 410,290 410,490
Treasury stock, 3,300 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 (raw material purchased
from a stockholder amounted to
$3,213,169 in 1993, $4,911,399 in
1994, $7,809,567 in 1995, and $6,173,673 and
$6,856,083 for the nine months ended September
30, 1995 and 1996, respectively) 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 $ 0.26 $ 0.11
============ ============
Pro forma weighted average common shares
outstanding 3,452,045 3,486,026
============ =============
</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 247,500 $25 $391,709 -- $(2,647,361) $(2,255,627)
Exercise of common stock options 24,486 2 908 -- -- 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 271,986 27 392,617 -- (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 271,986 27 392,617 -- (3,151,370) (2,758,726)
Exercise of common stock options 13,035 2 3,573 -- -- 3,575
Exercise of warrants to purchase common stock 4,653 -- 14,100 -- -- 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 289,674 29 410,290 (5,000) (2,776,678) (2,371,359)
Exercise of common stock options 6,600 -- 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 296,274 $ 29 $410,490 $(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 -- (4,164) -- --
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
=========== =========== =========== =========== ===========
</TABLE>
During 1995, the Company entered into a capital lease obligation amounting to
$6,288 for telephone equipment.
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:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures 2-15
Machinery and equipment 7-15
Vehicles 5
</TABLE>
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 $ 0.26 $ 0.11
========== ==========
Common shares outstanding:
Weighted average common shares 280,830 292,974
Common share equivalents 633,722 655,559
Conversion of preferred stock 2,337,192 2,337,192
Preferred stock dividend 199,301 199,301
Directors' stock grants 1,000 1,000
--------- ---------
Adjusted shares outstanding 3,452,045 3,486,026
========== =========
</TABLE>
Stock Split and Authorized Shares
On January 6, 1997, the Board of Directors approved a 33 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, on August 14, 1996 the Board and the shareholders
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 and the shareholders 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 0.125% 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 $1.0 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 nine 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 33 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 990,000 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 435,039 $0.03-$1.52
Granted 16,500 $1.52
Exercised --
Canceled --
-------
Outstanding grants at December 31, 1994 451,539 $0.03-$1.52
Granted 83,325 $1.52
Exercised (13,035) $0.03-$1.52
Canceled (4,290) $0.03-$1.52
-------
Outstanding grants at December 31, 1995 517,539 $0.03-$1.52
Granted --
Exercised (6,600) $0.03
Canceled --
-------
Outstanding grants at September 30, 1996 510,939 $0.03-$1.52
=======
Shares exercisable at December 31, 1994 308,319 $0.03-$1.52
=======
Shares exercisable at December 31, 1995 363,429 $0.03-$1.52
=======
Shares exercisable at September 30, 1996 368,859 $0.03-$1.52
=======
</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 3,300 common shares at $1.52 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 4,653 common shares at $3.03 per share. At September 30, 1996, the
Company had 211,200 warrants outstanding at an exercise price of $1.52 per
warrant, which expire on various dates on or before 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-month periods 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
Pursuant to 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 2,337,192 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
199,301 shares of common stock being issued to preferred stockholders as of the
closing of the offering. In addition, the Board approved the grant of stock to
Directors totaling 1,000 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; 296,274 shares outstanding, actual;
2,833,767 shares outstanding pro forma 29 254 283
Additional paid-in-capital 410,490 6,473,117 6,883,607
Treasury stock, 3,300 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 5,350 shares to an employee of ATI who held a minority position
in ATI. Pro forma 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):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 627 $ 419
Stock in process 336 277
Produced goods 303 333
------ ------
$1,266 $1,029
====== ======
</TABLE>
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 - (C0NTINUED)
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:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
===== ====== =====
</TABLE>
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 - (C0NTINUED)
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 UNDERWRITERS. 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 and Selling 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 _____________, 1997, 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.
================================================================================
2,000,000 Shares
[Logo]
BRUNSWICK TECHNOLOGIES, INC.
Common Stock
-------------------
P R O S P E C T U S
-------------------
JOSEPHTHAL LYON & ROSS
SOUTHWEST SECURITIES
, 1997
================================================================================
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.
AMOUNT TO
BE PAID BY
REGISTRANT
----------
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 $ 187,000
Accounting fees and expenses $ 245,000
Blue sky fees and expenses $ 15,000
Transfer agent fees $ 4,500
Expense allowance to Representative $ 150,000
Miscellaneous $ 42,048
---------
Total $ 750,000
=========
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 corporation's 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
528,000 shares of Series D Convertible Preferred Stock, 46,860 shares of Series
AA Preferred Stock and 5,940 shares of Series BB Preferred Stock of the Company
to Vetrotex CertainTeed Corp. ("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 70,686 shares of Common Stock for a purchase price
equal to $1.52 per share. The shares sold by the Company 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
1,650 and 2,475 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 1,650 and 6,600
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 3,960 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
3,300 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 4,653
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 outstanding 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 5,350 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 364,825 shares of Common Stock. In issuing the Convertible Note to
Burlington and the 5,350 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, its 1994
Stock Option Plan, and its 1997 Equity Incentive Plan, a total of 215,325
options to purchase Common Stock to employees of the Company within the last
three years. These grants are deemed to be exempt transactions as sales of an
issuer's securities pursuant to a written contract or plan relating to the
compensation of such employees under Rule 701 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 Josephthal Warrant (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 under the
Securities Act).
*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.
</TABLE>
II-3
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
*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 among the Registrant, Burlington Industries, Inc. and
Peter L. DeWalt dated October 22, 1996 and First Amendment to Stock Purchase Agreement
dated October 29, 1996.
*10.12 -- Registration Rights Agreement among the Registrant, Burlington Industries, Inc.,
and Peter L. DeWalt, dated October 30, 1996.
*10.13 -- Employment Agreement between Advanced Textiles, Inc. 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 among the Registrant and the holders of its common stock.
10.16 -- Term Note in favor of Fleet Bank of Maine dated May 30, 1996.
10.17 -- First Amendment to Term Note dated December, 1996.
10.18 -- First Amendment to Loan Agreement dated December, 1996.
10.19 -- First Amendment to Demand Note dated December, 1996.
10.20 -- First Amendment to Security Agreement dated December, 1996.
10.21 -- 1991 Stock Option Plan.
10.22 -- Amendment No. 1 to 1991 Stock Option Plan.
10.23 -- 1994 Employee Stock Option Plan.
10.24 -- Amendment No. 1 to 1994 Employee Stock Option Plan.
10.25 -- 1997 Equity Incentive Plan.
*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 to 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.
II-4
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.
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 7th DAY OF JANUARY, 1997.
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>
/s/ MARTIN S. GRIMNES Principal Executive Officer January 7, 1997
------------------------- and Director
MARTIN S. GRIMNES
* Director January 7, 1997
-------------------------
DAVID M. COIT
* Director January 7, 1997
-------------------------
GREGORY B. PETERS
* Director January 7, 1997
-------------------------
DAVID E. SHARPE
* Director January 7, 1997
-------------------------
PETER N. WALMSLEY
* Treasurer and Principal January 7, 1997
------------------------- Financial and Accounting Officer
JOHN P. O'SULLIVAN
* President and Principal January 7, 1997
------------------------- Operating Officer
WILLIAM M. DUBAY
BY: /S/ MARTIN S. GRIMNES
------------------------
MARTIN S. GRIMNES,
ATTORNEY-IN-FACT January 7, 1997
</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 Josephthal Warrant (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 under the
Securities Act).
*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 among the Registrant, Burlington Industries, Inc. and
Peter L. DeWalt dated October 22, 1996 and First Amendment to Stock Purchase Agreement
dated October 29, 1996.
*10.12 -- Registration Rights Agreement among 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 among the Registrant and the holders of its common
stock.
10.16 -- Term Note in favor of Fleet Bank of Maine dated May 30, 1996.
10.17 -- First Amendment to Term Note dated December, 1996.
10.18 -- First Amendment to Loan Agreement dated December, 1996.
10.19 -- First Amendment to Demand Note dated December, 1996.
10.20 -- First Amendment to Security Agreement dated December, 1996.
10.21 -- 1991 Stock Option Plan.
10.22 -- Amendment No. 1 to 1991 Stock Option Plan.
10.23 -- 1994 Employee Stock Option Plan.
10.24 -- Amendment No. 1 to 1994 Employee Stock Option Plan.
10.25 -- 1997 Equity Incentive Plan.
*16 -- Letter of KPMG Peat Marwick LLP re change in certifying accountant.
23.1 -- Consent of Coopers & Lybrand L.L.P.
</TABLE>
INDEX TO EXHIBITS -- (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
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 to 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.
Exhibit 10.16
TERM NOTE
$1,800,000 Portland, Maine
May 30, 1996
FOR VALUE RECEIVED, BRUNSWICK TECHNOLOGIES, INC., a Maine corporation
(the "Maker"), promises to pay to FLEET BANK OF MAINE (the "Bank"), its
successors and assigns, the principal sum of One Million Eight Hundred Thousand
Dollars ($1,800,000), or so much hereof as may be outstanding hereunder from
time to time in the manner and on the terms set forth below. The principal
amount hereof shall be paid by Maker to Bank in eighty-three (83) consecutive
equal monthly installments of principal in an amount sufficient to amortize
fully the principal amount outstanding hereunder on such payment date over the
then remaining term hereof, commencing on March 1, 1997 and continuing
thereafter on the first day of each month to and including January 1, 2004, with
one (1) final payment of all remaining principal and other amounts due and owing
hereunder on February 1, 2004. Regularly scheduled payments under this Note
shall be applied first to accrued interest and then to principal.
Maker promises to pay interest (computer on the basis of the actual
number of days elapsed in a 360 day year) on the unpaid principal balance
outstanding from time to time on this Note until paid in full (whether at
maturity, by acceleration or otherwise) at a rate of interest per annum equal to
the Prime Lending Rate plus one-quarter percent (.25%) per annum, unless a Cost
of Funds or LIBOR based fixed interest rate option is selected by Maker for the
Cost of Funds Interest Period or LIBOR Interest Period selected in accordance
with, and subject to the terms of the Loan Agreement of even or near even date
between Maker as borrower and the Bank as Lender (the "Loan Agreement"), in
which case the per annum interest rate shall be the LIBOR Rate or Cost of Funds
Rate, as applicable, for the interest period so selected. Interest on the
outstanding principal balance hereof is due and payable in arrears on the first
day of each month, commencing on June 1, 1996 and continuing thereafter on the
first day of each month until maturity (February 1, 2004 in the absence of a
Default), whether on acceleration following a Default or Event of Default or
otherwise as aforesaid.
If the Maker shall fail to make any regular monthly payment on this
Note, and such failure continues for more than ten (10) days, the Maker shall
pay to the Bank or other holder of this Note, as the case may be, on demand by
such holder, an additional amount as premium in an amount equal to five percent
(5%) of the overdue installment amount. The Bank also shall have the right to
charge interest on the unpaid principal balance hereof at an interest rate equal
to the sum
of three percent(3%) per annum plus the rate of interest otherwise applicable
hereunder for any period during which the undersigned shall be in default
hereunder or under any of the Loan Documents but only following the expiration
of any applicable grace or cure periods relating to such Default or Event of
Default, if any. The failure by the holder of this Note to collect any such late
charge, or to charge a default rate of interest on one occasion shall not be
deemed a waiver by the holder of this Note of its right to collect late charges
or to collect such charges in any other instance involving a late payment
hereunder, or to charge a default rate of interest at a later date or on another
occasion.
The Maker may prepay all or any portion of the principal amount hereof,
provided, however, that Maker shall pay to Bank the applicable Maintenance Fee
calculated in accordance with the terms and provisions of the Loan Agreement.
Capitalized terms used herein without definition shall have the meanings
ascribed to them in the Loan Agreement.
All payments in respect of this Note shall be payable to the Bank at
its offices at Two Portland Square, P.O. Box 1280, Portland, Maine 04104-5006,
Attn.: Claude R. Carbonneau, or such other address as the Bank or other holder
hereof shall notify the Maker in writing in United States Dollars.
This Note evidences a loan or loans under and is issued pursuant to the
Loan Agreement, a Security Agreement of even or near even date between the Maker
as debtor and the Bank as secured party, and the other Loan Documents to which
reference is made for a complete description of the rights, obligations,
limitations and restrictions of the Maker and the holder of this Note. The
holder of this Note is entitled to the benefits of the Loan Agreement and the
other Loan Documents, but neither this reference to such Loan Agreement, the
Security Agreement or the related Loan Documents, nor any provisions thereof,
shall affect or impair the absolute and unconditional obligation of the Maker to
pay the principal of Maintenance Fee, if any, and interest on this Note when and
as the same shall become due and payable in accordance with the terms hereof.
Upon the failure of Maker or any other party liable therefor to pay the
principal of or interest on this Note as and when the same shall be due, or upon
the occurrence of any Default or Event of Default as defined in the Loan
Agreement (or any other Loan Document) that remains uncured following the
expiration of any applicable grace period, if any, then the Bank may declare
this Note to be, whereupon this Note shall become immediately due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby waived, in addition to and not in any respect in limitation of any other
rights or remedies Bank may have under the Loan
Agreement and any other Loan Documents or under applicable laws.
The Maker and all other parties liable herefor, whether as maker,
principal, guarantor, endorser or otherwise, hereby severally waive presentment,
demand, protest, notice of dishonor and all notices and demands of every kind in
connection with the delivery, acceptance, performance and enforcement of this
Note, and waive all recourse to suretyship and guarantorship defenses generally,
including, but not limited to, any extension of time for payment or performance
which may be granted to the Maker or to any other liable party, any impairment
of any collateral for the loans evidenced by this Note, any release of security,
and all other indulgences of any type which may be granted by the holder hereof
to the Maker or any other party liable herefor. Maker shall pay all reasonable
costs and expenses, including without limitation attorneys' and paralegals' fees
and disbursements that may be incurred by the Bank or any subsequent holder of
this Note in connection with the enforcement or collection of this Note or any
security for this Note.
This Note is subject to the condition that at no time shall the Maker
or any other party liable hereon be obligated or required to pay interest at a
rate which could subject the holder hereof to either civil or criminal
liability, forfeiture or loss of principal, interest, or other sums as a result
of being in excess of the maximum interest rate which obligors are permitted by
law to contract or agree to pay or which the holder hereof is permitted to
receive. If by the terms of this Note the Maker or any other party liable hereon
is at any time required or obligated to pay interest at a rate in excess of such
maximum rate, the rate of interest under the Note shall be deemed to be
immediately reduced to such maximum rate for so long as such maximum rate shall
be in effect and shall thereafter be payable at the rate herein provided. If any
obligation or a portion of this Note is determined to be invalid or
unenforceable under applicable law, it shall not affect the validity or
enforcement of the remaining obligations or portions hereof.
UNDER MAINE LAW, NO PROMISE, CONTRACT OR AGREEMENT TO LEND MONEY,
EXTEND CREDIT, FORBEAR FROM COLLECTION OF A DEBT OR MAKE ANY OTHER ACCOMMODATION
FOR THE PAYMENT OF A DEBT FOR MORE THAN $250,000 MAY BE ENFORCED IN COURT
AGAINST A LENDER UNLESS THE PROMISE, CONTRACT OR AGREEMENT IS IN WRITING AND
SIGNED BY THE LENDER. ACCORDINGLY, MAKER CANNOT ENFORCE ANY ORAL PROMISE UNLESS
IT IS CONTAINED IN LOAN DOCUMENTS SIGNED BY THE BANK, NOR CAN ANY CHANGE,
FORBEARANCE, OR OTHER ACCOMMODATION RELATING TO THE OBLIGATIONS, THE NOTE OR ANY
OTHER OF THE LOAN DOCUMENTS BE ENFORCED, UNLESS IT IS IN WRITING AND SIGNED BY
THE BANK. MAKER ALSO UNDERSTANDS AND AGREES THAT ALL FUTURE PROMISES, CONTRACTS
OR AGREEMENTS OF THE BANK RELATING TO ANY OTHER TRANSACTION BETWEEN IT AND THE
BANK CANNOT BE ENFORCED IN COURT UNLESS THEY ARE IN WRITING AND SIGNED BY THE
BANK. BY EXECUTION OF THIS NOTE, MAKER HEREBY ACKNOWLEDGES AND AGREES THAT THE
REQUIREMENT OF A WRITING DESCRIBED IN THIS PARAGRAPH SHALL APPLY TO THIS NOTE,
THE OBLIGATIONS, THE LOAN DOCUMENTS, ANY EXTENSION, MODIFICATION, RENEWAL,
FORBEARANCE OR OTHER ACCOMMODATION RELATING HERETO OR THERETO AND TO ANY OTHER
CREDIT RELATIONSHIP BETWEEN MAKER AND THE BANK (WHETHER NOW EXISTING OR CREATED
IN THE FUTURE), WHETHER OR NOT THE AMOUNT INVOLVED EXCEEDS $250,000.
THE BANK AND THE MAKER AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR
SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY PROCEEDING RELATING TO THIS NOTE OR
THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
DISCUSSED BY THE BANK AND THE MAKER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS. NEITHER THE BANK NOR THE MAKER HAS AGREED WITH OR REPRESENTED TO THE
OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
This Note evidences a loan for business or commercial purposes and not
for personal, family or household uses, and is secured by the Collateral (as
defined in the Security Agreement and the Loan Agreement) and the related Loan
Documents. This Note shall be construed in all respects in accordance with and
governed by the laws of the State of Maine. Maker submits to the jurisdiction of
the courts of the State of Maine and the United States District Court for the
District of Maine, and agrees that at Bank's option all litigation under or
relating to this Note shall be conducted in such courts.
IN WITNESS WHEREOF, this Note has been executed as sealed instrument
and delivered on the date above written by a duly authorized representative of
the undersigned.
WITNESS BRUNSWICK TECHNOLOGIES, INC.
- ----------------------------- By: /s/ William S. Dubay
--------------------------------
Its: President
--------------------------------
Exhibit 10.17
FIRST AMENDMENT TO
TERM NOTE
First Amendment to Term Note made as of the ____ day of December, 1996,
by and between FLEET BANK OF MAINE, a financial institution organized and
existing under the laws of the State of Maine (the "Bank") and BRUNSWICK
TECHNOLOGIES, INC., a Maine corporation with a place of business in Brunswick,
Maine (the "Maker").
W I T N E S S E T H :
WHEREAS, on May 30, 1996, the Bank and the Maker entered into a Loan
Agreement (the "Agreement") between the Bank as lender and the Maker as borrower
pursuant to which the Bank, among other matters, and subject to the terms and
conditions set forth therein, established a $1,800,000 revolving credit facility
in favor of the Maker; and
WHEREAS, also on May 30, 1996, the Maker executed a certain Term Note
(the "Note") in the original principal amount of $1,800,000 to evidence the term
loans made by the Bank to Maker under the Agreement from time to time; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
modify the Note as follows:
1. Effective as of the date hereof, but not retroactively, the Note is
hereby amended by deleting the first two paragraphs of page 1 of the Note in
their entirety and substituting in place thereof the following:
FOR VALUE RECEIVED, BRUNSWICK TECHNOLOGIES, INC., a Maine
corporation (the "Maker"), promises to pay to FLEET BANK OF MAINE (the
"Bank"), its successors and assigns, the principal sum of One Million
Eight Hundred Thousand Dollars ($1,800,000), or so much hereof as may
be outstanding hereunder from time to time in the manner and on the
terms set forth below. The principal amount hereof shall be paid by
Maker to Bank in eighty-three (83) consecutive equal monthly
installments of principal in an amount sufficient to amortize fully the
principal amount outstanding hereunder on such payment date over the
then remaining term hereof, commencing on AprilE1, 1997 and continuing
thereafter on the first day of each month to and including FebruaryE1,
2004, with one (1) final payment of all remaining principal and other
amounts due and owing hereunder on MarchE1, 2004. Regularly scheduled
payments under this Note shall be applied first to accrued interest and
then to principal.
Maker promises to pay interest (computed on the basis of the
actual number of days elapsed in a 360 day year) on the unpaid
principal balance outstanding from time to time on this Note until paid
in full (whether at maturity, by acceleration or otherwise) at a rate
of interest per annum equal to the Prime Lending Rate plus one-quarter
percent (.25%) per annum, unless a Cost of Funds or LIBOR based fixed
interest rate option is selected by Maker for the Cost of Funds
Interest Period or LIBOR Interest Period selected in accordance with,
and subject to the terms of the Loan Agreement of even or near even
date between Maker as borrower and the Bank as Lender (the "Loan
Agreement"), in
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which case the per annum interest rate shall be the LIBOR Rate or Cost
of Funds Rate, as applicable, for the interest period so selected.
Interest on the outstanding principal balance hereof is due and payable
in arrears on the first day of each month, commencing on JulyE1, 1996
and continuing thereafter on the first day of each month until maturity
(MarchE1, 2004 in the absence of a Default), whether on acceleration
following a Default or Event of Default or otherwise as aforesaid.
3. It is the intention of the parties hereto that the only modification
to the Note contemplated hereby shall be the modifications specifically effected
above. Except as so modified, the terms, provisions, covenants and agreements
set forth in the Note are hereby ratified and affirmed in all respects.
4. The Maker and the Bank hereby agree that the indebtedness evidenced
by the Note as amended hereby shall remain the same indebtedness originally
evidenced by said Note and that this Amendment represents a modification of the
original indebtedness evidenced by said Note and not a novation.
5. The Maker hereby agrees that this Note, as amended hereby, is and
shall be one integrated instrument and such instrument constitutes the legal,
valid and binding obligation of the Maker in accordance with its terms.
6. The Bank hereby agrees to affix and attach this Amendment to the
Note.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
WITNESS: FLEET BANK OF MAINE
By:
- ---------------------- -------------------------
Its:
------------------------
BRUNSWICK TECHNOLOGIES, INC.
By:
- ---------------------- -------------------------
Its:
------------------------
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Exhibit 10.18
FIRST AMENDMENT TO
LOAN AGREEMENT
First Amendment to the Loan Agreement originally dated as of May 30,
1996 by and between BRUNSWICK TECHNOLOGIES, INC., a Maine corporation with a
place of business in Brunswick, Maine (the "Borrower" or the "Debtor"), and
FLEET BANK OF MAINE, a Maine banking corporation with a place of business in
Portland, Maine (the "Lender" or the "Bank").
1. Reference to Loan Agreement; Background. Reference is made to the
Loan Agreement originally dated as of May 30, 1996 (the "Loan Agreement").
Capitalized terms used herein without definition shall have the meanings
ascribed to them in the Loan Agreement, except to the extent that such meanings
may be amended hereby.
The Borrower desires to increase its existing working capital line of
credit with Lender from $1,500,000 to $2,500,000 and to provide its wholly-owned
subsidiary, Advanced Textiles, Inc. ("ATI" or "Guarantor"), with access to that
credit line. Fleet desires to accommodate the needs of the Borrower and ATI and
has therefore agreed to increase the credit line upon certain terms and
conditions, including the agreement of ATI to guarantee the obligations of
Borrower under the credit line. The parties
therefore desire to amend the Loan Agreement to (i) increase the working capital
line of credit loan from $1,500,000 to $2,500,000 and (ii) modify certain other
provisions of the Loan Agreement as set forth herein. To effectuate the
foregoing, the parties, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, hereby agree to amend the Loan
Agreement, effective as of the date hereof, in the following respects:
2. Amendments to Loan Agreement.
(a) Section 1 of the Loan Agreement is amended by adding thereto the
following definition: "Guarantor" means Advanced Textiles, Inc.
(b) Section 1 of the Loan Agreement is further amended such that for
each of the definitions identified below all references to "Borrower" or any
variation thereof set forth therein is replaced in each case by the words
"Borrower or Guarantor," and "Borrower and Guarantor" and the like, as
applicable. The definitions so modified are as follows: "Eligible Accounts
Receivable;" "Qualified Accounts;" "Eligible Finished Goods Inventory;"
"Eligible Parts Inventory;" "Eligible Raw Materials Inventory;" "Indebtedness;"
"Tangible Net Worth" or "Net Worth;" "Total Debt;" and "Total Debt Service."
-2-
(c) Section 1 of the Loan Agreement is further amended by deleting the
definition of "Term Loan Period" and substituting therefor the following:
"Term Loan Period" shall mean the period beginning on April 1, 1997
and continuing through November 1, 2004.
(d) All references to the words, numbers and symbols indicating a
dollar amount of "One Million Five Hundred Thousand Dollars ($1,500,000)" in
Section 2 of the Loan Agreement are hereby deleted and the words, numbers and
symbols indicating a dollar amount of "Two Million Five Hundred Thousand Dollars
($2,500,000)" substituted therefor. The foregoing is intended to reflect an
increase of One Million Dollars ($1,000,000) in the amount available to
Borrowers under the Demand Note and other applicable Loan Documents, subject, in
all cases to the terms and conditions thereof.
(e) Section 2.4 of the Loan Agreement is hereby amended by deleting the
same in its entirety and substituting therefor the following:
2.4 Revolving Credit Note. The Loans made by Bank pursuant to
this Section 2 shall be evidenced by a certain $1,500,000 Demand Note
originally dated May 30, 1996 and amended by a First Amendment to
Demand Note of even or near even date pursuant to which the principal
amount described in the Demand Note is increased by an additional
$1,000,000 to a total principal amount of $2,500,000 (the "Revolving
Credit Note"). The Loans shall be repaid in accordance with
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the terms hereof and the terms and provisions of the Revolving Credit
Note, as so amended.
(f) Section 2.5 of the Loan Agreement is hereby amended by deleting the
last sentence of said section as follows: "Appropriate adjustments shall be made
for partial prepayments."
(g) Section 2 of the Loan Agreement is hereby amended by adding the
following as new Section 2.12:
2.12 Prepayment. At any time that (i) the interest rate on the
Loans is a fixed rate and (ii) the Bank in its sole discretion
determines that current market conditions can accommodate a prepayment
request, the Borrower may prepay the Loans in whole (but not in part)
without premium or penalty, except that the parties acknowledge that
the Borrower is obligated to pay the Availability Fee set forth in
Section 2.9 of this Agreement and, for any loan or advance bearing
interest at the LIBOR Rate which shall be prepaid in full prior to the
end of the applicable LIBOR Interest Period, a Maintenance Fee which
shall be calculated in the manner set forth in Section 2.5 of this
Agreement.
(h) Section 3.1(b) of the Loan Agreement is hereby amended by deleting
the same in its entirety and substituting therefor the following:
3.1 (b) The Term Loan shall be payable until paid in
full in eighty-four (84) consecutive monthly installments of principal,
each monthly payment in an amount sufficient to fully amortize the then
outstanding principal balance of the Term Loan over the then remaining
balance of the Term Loan Period. Principal payments shall be payable on
the first day of each month commencing on April 1, 1997 and continuing
thereafter on the first day of each month until February 1, 2004, with
one final payment of all remaining principal on March 1, 2004, unless
earlier paid or
-4-
required to be paid in accordance with the terms of this Agreement.
Interest due in respect of so much of the principal amount of the Term
Note evidencing Term Loans as shall have been advanced to the Borrower
shall be payable monthly in arrears on the first day of each month,
commencing on the first such date after the date hereof and continuing
thereafter on the first day of each month until maturity (whether by
acceleration or otherwise).
(i) Section 4 of the Loan Agreement is hereby amended by adding the
following as new Section 4.3:
4.3 Conditions Precedent to Revolving Credit Loans. The
obligation of the Bank to make the Revolving Credit Loans in the amount
of $2,500,000 is subject to Bank's receipt of a guarantee from ATI of
the obligations of Borrower under the Demand Note, such guarantee to be
in form satisfactory to Bank and its counsel.
(j) Section 5.2 of the Loan Agreement shall be deleted in its entirety.
(k) Section 6.1 (a) through (c) of the Loan Agreement is hereby amended
by deleting the same in its entirety and substituting therefor the following:
6.1 Financial Statements, Collateral Reports, etc. The
Borrower will furnish or cause to be furnished to the Bank:
(a) Within one hundred twenty (120) days after the
end of each fiscal year of the Borrower audited, consolidated balance
sheets of the Borrower and Guarantor as at the end of such year, and
the related statements of income and surplus for such year, setting
forth figures for the previous fiscal year, all in reasonable detail
certified by independent public accountants selected by the Borrower
and satisfactory to the Bank.
-5-
(b) Within forty-five (45) days of the end of each
fiscal year quarter, (i) a covenant compliance certificate from
Borrower's President or Treasurer certifying as to compliance by
Borrower with all covenants of Borrower hereunder, including
demonstration of compliance with all financial covenants in such detail
and form as the Bank may require; and (ii) a certificate by the
Borrower's President or Treasurer to the effect that such balance
sheets and income statements presented in the previous quarter fairly
present the condition of the Borrower at the end of such period and the
results of its operations during such period in accordance with
accounting procedures that have been applied on a consistent basis with
prior interim financial information prepared by the Borrower.
(c) Statements signed and certified by a principal
officer of the Borrower (or an employee of the Borrower acceptable to
Bank) setting forth in reasonable detail, (i) a listing and aging of
accounts receivable and all accounts payable, as soon as reasonably
possible, and in any event within fifteen (15) days after the end of
each month, and (ii) unaudited, consolidated balance sheets, statements
of profit and loss and a statement of cash flows for the year to date
of Borrower and Guarantor, as soon as reasonably possible, and in any
event within thirty (30) days after the end of each month.
(l) Section 7.11 of the Loan Agreement is hereby amended by deleting
the same in its entirety and substituting therefor the following:
7.11 Issuance or Sale of Additional Shares, etc. The Borrower and
the Guarantor will not directly or indirectly:
(a) Sell, assign, pledge or otherwise encumber or
dispose of any shares of capital stock of any Subsidiary (or options to
acquire any such shares).
(b) Redeem, repurchase, retire, convert or otherwise
acquire for value any of its capital stock (or rights or options to
purchase such shares except pursuant to
-6-
employee stock option plans described in Schedule 5.17 attached hereto)
or, whether now or hereafter outstanding, except for conversion of its
outstanding preferred stock to common stock upon the effectiveness of
an initial public offering as provided in the Articles of Incorporation
of the Borrower.
(m) Section 7.16 of the Loan Agreement is hereby amended by deleting
the same in its entirety and substituting therefor the following:
7.16 Limitation on Restricted Payments. Borrower and Guarantor
shall not declare, make or pay, directly or indirectly, any dividends
or other distributions in respect of its corporate stock or security,
whether in cash or in kind, or make any other Restricted Payments,
except for (i) distributions or dividends paid by Guarantor to
Borrower; (ii) payment of accrued distributions and dividends in
respect of the preferred stock of the Borrower in accordance with its
Articles of Incorporation; and (iii) subsequent to an initial public
offering of Borrower's common stock, payment of dividends on or in
respect of its common stock, in each case only if at the time of such
distribution or dividend, and after giving effect thereto, no Event of
Default or Default exists hereunder or under the other Loan Documents,
or any event which with notice, the passage of time, or both, would
constitute an Event of Default or Default hereunder or thereunder.
Borrower and Guarantor shall not pay any salaries, bonuses, or other
compensation, direct or indirect, to any officer or stockholder of
Borrower or Guarantor in excess of existing compensation levels other
than normal and reasonable periodic increases in base compensation and,
so long as no Default or Event of Default exists, or any event which
with notice, the passage of time, or both, would constitute a Default
or Event of Default hereunder, bonuses paid in accordance with
historical practices.
-7-
(n) Section 8 of the Loan Agreement is hereby amended by deleting the
same in its entirety and substituting therefor the following:
SECTION 8.
So long as any of the Loans shall remain available to the
Borrower, and until the principal of and interest on the Notes and all
fees due hereunder shall have been paid in full, the Borrower and
Guarantor agree that:
8.1 Ratio of Senior Debt to Tangible Net Worth. The Borrower
and the Guarantor will not permit their ratio of Senior Debt to
Tangible Net Worth determined on a consolidated basis to exceed 1.0 to
1.0 throughout the term hereof. Compliance with this covenant shall be
measured quarterly beginning with the quarter ending December 31, 1996.
For purposes of determining compliance with this covenant, Borrower's
and Guarantor's Tangible Net Worth shall include all Subordinated Debt.
8.2 Debt Service Coverage. Borrower and Guarantor will not
permit their Debt Service Coverage to be less than 1.2 to 1.0
determined on a consolidated basis. For purposes of this Agreement,
"Debt Service Coverage" shall be determined by dividing (a) Borrower's
and Guarantor's net income on a consolidated basis after current taxes
but before any deferred income tax expense and after restoring thereto
depreciation expense and interest expense, all determined in accordance
with GAAP ("Net Cash Flow") by (b) their Annual Debt Service. For
purposes of determining compliance with this covenant, "Annual Debt
Service" shall mean the current portion of principal and interest paid
or payable by Borrower and Guarantor for the applicable period in
respect of Indebtedness, all determined in accordance with GAAP. For
determining compliance with this covenant, Net Cash Flow shall be
divided by Annual Debt Service. Compliance with this covenant will be
measured annually beginning on December 31, 1996.
8.3 Minimum Net Profits. Borrower and Guarantor shall realize
consolidated minimum after tax profits (determined
-8-
in accordance with GAAP) of at least $75,000 on a consolidated basis
for each quarter. Compliance with this covenant shall be measured
quarterly throughout the term hereof, beginning on the quarter ending
June 30, 1996.
(o) Section 15 of the Loan Agreement is hereby amended by adding the
following as new Section 15.20:
15.20 Execution as Co-Maker. If after the date hereof, the
Bank determines in its sole discretion that it is necessary to have the
Guarantor be a co-borrower in lieu of a guarantor, then Bank shall
promptly, after it's determination of such necessity, give notice to
the Borrower, and the Borrower shall vote (as sole shareholder of
Guarantor) to authorize the Guarantor to be a co-borrower and to
execute and deliver all documents and instruments necessary or
convenient to effectuate the same. Until such time ATI agrees that all
negative covenants set forth in this Agreement shall be applicable to
it as if it were the "Borrower" identified and a breach of any such
covenant shall constitute a default hereunder.
3. No Default. The Borrower hereby represents and warrants to the Bank
that it is in compliance with all of the conditions to lending specified in the
Loan Agreement as of the date hereof. Without limiting the generality of the
foregoing, the Borrower hereby confirms that except as set forth on Schedule 3
attached hereto the representations and warranties contained in the Loan
Agreement (and the information disclosed in the schedules thereto) are true as
of the date hereof as if made on such date; that Borrower is in compliance in
all respects with all of the terms and provisions of the Loan Agreement and the
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other Loan Documents and Security Documents referred to therein; and that after
giving effect to this Amendment, no event of default specified in the Loan
Agreement, or any event which with the giving of notice, the passage of time, or
both, would constitute an Event of Default, shall have occurred.
4. Miscellaneous.
(a) This Agreement may be executed in any number of counterparts, each
of which, when executed and delivered, shall be an original, but all
counterparts shall together constitute one instrument. Except to the extent
specifically amended hereby, the terms and provisions of the Loan Agreement and
all other Loan Documents are hereby ratified and affirmed in all respects and
continue in full force and effect.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Maine and shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
(c) Borrower hereby represents and warrants that this Amendment has
been executed and delivered by duly authorized officers of the Borrower and
acknowledges and agrees that it will execute and deliver such additional
amendments, agreements and
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documents as the Bank may reasonably require to confirm the foregoing.
(d) Reference is made to the Security Agreement dated as of May 30,
1996 (the "Security Agreement") by and between the Bank as secured party and
Borrower as debtor; the Assignment of Lease (Tenant's Interest) dated as of May
30, 1996 by and between Borrower as Assignor and Bank as Assignee (the
"Collateral Assignment"); and the Environmental Compliance and Indemnification
Agreement dated as of May 30, 1996 from the Borrower to the Bank (the "Indemnity
Agreement"). Borrower acknowledges and agrees that the "Loans", the Revolving
Credit Note evidencing the same, as amended, and all other Loan Documents, as
amended, constitute "Secured Obligations" for purposes of such Security
Agreement and are fully secured by the Collateral described therein in
accordance with the terms thereof; and are debts and obligations of Borrower to
Bank for purposes of the Collateral Assignment. The Borrower further agrees that
the terms and conditions of the Loan Agreement, the Revolving Credit Note, the
Security Agreement, the Collateral Assignment and all other Loan Documents and
Security Documents, as the same may be amended, are hereby ratified, affirmed
and reaffirmed in all respects.
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(e) The Borrower agrees to execute and deliver such additional
agreements, documents and other instruments as the Bank may reasonably request
in order to effectuate this Agreement and to confirm the Bank's standing thereof
and rights thereunder.
(f) The Borrower hereby ratifies, affirms, reaffirms and restates as of
the date hereof all of the warranties and covenants of the Borrower set forth in
the Security Agreement.
(g) The Guarantor executes this Agreement to evidence its intent to be
bound by and comply with all applicable provisions hereof.
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IN WITNESS WHEREOF, the undersigned have caused this First Amendment to
Loan Agreement to be executed as of the ____ day of December, 1996 by duly
authorized officers intending the same to take effect as a sealed instrument.
WITNESS FLEET BANK OF MAINE
______________________________ By:___________________________
Its:__________________________
BRUNSWICK TECHNOLOGIES, INC.
______________________________ By:___________________________
Its:__________________________
ADVANCED TEXTILES, INC.
______________________________ By:___________________________
Its:__________________________
-13-
Exhibit 10.19
FIRST AMENDMENT TO
DEMAND NOTE
First Amendment to Demand Note made as of the ____ day of December,
1996, by and between FLEET BANK OF MAINE, a financial institution organized and
existing under the laws of the State of Maine (the "Bank") and BRUNSWICK
TECHNOLOGIES, INC., a Maine corporation with a place of business in Brunswick,
Maine (the "Maker").
W I T N E S S E T H :
WHEREAS, on May 30, 1996, the Bank and the Maker entered into a Loan
Agreement (the "Agreement") between the Bank as lender and the Maker as borrower
pursuant to which the Bank, among other matters, and subject to the terms and
conditions set forth therein, established a $1,500,000 revolving credit facility
in favor of the Maker; and
WHEREAS, also on May 30, 1996, the Maker executed a certain Demand Note
(also referred to in the Agreement as a Revolving Credit Note) (the "Note") in
the original principal amount of $1,500,000 to evidence the revolving credit
loans made by the Bank to Maker under the Agreement from time to time; and
WHEREAS, on or about the date hereof, the undersigned entered into a
First Amendment to Loan Agreement pursuant to which the parties agreed to amend
the Agreement to increase the revolving credit facility from $1,500,000 to
$2,500,000; and
WHEREAS, the parties desire to further amend the Note to confirm such
increase in the revolving credit facility;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
modify the Note as follows:
1. Effective as of the date hereof, but not retroactively, the Note is
hereby amended by deleting the numbers "$1,500,000" from the second line of page
1 of the Note and substituting therefor "$2,500,000", such that the face amount
of the Note shall be $2,500,000.
2. Effective as of the date hereof, but not retroactively, the Note is
hereby amended by deleting the first paragraph of page 1 of the Note in its
entirety and substituting in place thereof the following:
FOR VALUE RECEIVED, BRUNSWICK TECHNOLOGIES, INC., a Maine
corporation (the "Maker"), promises to pay to Fleet Bank of Maine (the
"Bank"), or order, ON DEMAND, the principal sum of Two Million Five
Hundred Thousand Dollars ($2,500,000), or so much hereof as may be
outstanding at the time this obligation becomes due and payable
(whether upon demand or otherwise).
-2-
3. Effective as of the date hereof, but not retroactively, the Note is
hereby amended by deleting the last paragraph of page 2 of the Note in its
entirety and substituting in place thereof the following:
At any time that (i) the interest rate on this Note is a fixed
rate and (ii) the Bank in its sole discretion determines that current
market conditions can accommodate a prepayment request, the Maker may
prepay this Note in whole (but not in part) without premium or penalty,
except that the Maker shall be obligated to pay the Availability Fee
referenced in Section 2.9 of the Loan Agreement and, for any loan or
advance bearing interest at the LIBOR Rate which shall be prepaid in
full prior to the end of the applicable LIBOR Interest Period, a
Maintenance Fee calculated in the manner set forth in Section 2.5 of
the Loan Agreement.
4. It is the intention of the parties hereto that the only modification
to the Note contemplated hereby shall be the modifications specifically effected
above. Except as so modified, the terms, provisions, covenants and agreements
set forth in the Note are hereby ratified and affirmed in all respects.
5. The Maker and the Bank hereby agree that the indebtedness evidenced
by the Note as amended hereby shall remain the same indebtedness originally
evidenced by said Note and that this Amendment represents a modification of the
original indebtedness evidenced by said Note and not a novation.
-3-
6. The Maker hereby agrees that this Note, as amended hereby, is and
shall be one integrated instrument and such instrument constitutes the legal,
valid and binding obligation of the Maker in accordance with its terms.
7. The Bank hereby agrees to affix and attach this Amendment to the
Note.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
WITNESS: FLEET BANK OF MAINE
By:
- ---------------------------- ------------------------------
Its:
------------------------------
BRUNSWICK TECHNOLOGIES, INC.
By:
- ---------------------------- ------------------------------
Its:
------------------------------
-5-
Exhibit 10.20
FIRST AMENDMENT TO
SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT, dated as of the ____ day of
December, 1996, by and between BRUNSWICK TECHNOLOGIES, INC. (the "Company") and
FLEET BANK OF MAINE (the "Secured Party"):
W I T N E S S E T H :
WHEREAS, the Company and the Secured Party entered into a Security
Agreement dated as of May 30, 1996 (the "Security Agreement") to secure, among
other obligations, those obligations set forth in (i) Section 2 of a certain
Loan Agreement (the "Agreement") and (ii) a certain Demand Note in the original
principal amount of $1,500,000 (the "Note"), each dated as of May 30, 1996 ; and
WHEREAS, the Company and the Secured Party have amended the terms of
the Agreement and the Note by virtue of amendments thereto dated as of even or
recent date pursuant to which the Secured Party has increased the amount of an
existing revolving credit facility from $1,500,000 to $2,500,000; and
WHEREAS, the Company and the Secured Party wish to amend the Security
Agreement in accordance with the amendments to the Agreement and Note;
NOW, THEREFORE, in consideration of the foregoing, the parties agree
that the Security Agreement shall be amended as follows:
1. The term "Secured Obligations" includes the following: (a) the Loan
Agreement, as it has been amended to date; (b) the Note, as it has been amended
and increased to date; and (c) all other obligations of the Company to the
Secured Party, whether presently existing or hereafter arising.
2. The first recital is deleted in its entirety and the following
substituted therefor:
WHEREAS, the Secured Party and the Debtor have entered into
certain loan transactions pursuant to a Loan Agreement of even or near
even date, as amended (as so amended, the "Loan Agreement") between
Secured Party as lender and the Debtor as borrower pursuant to which
the Debtor has agreed to borrow from the Bank and, subject to the terms
and conditions of the Loan Agreement, the Bank agreed to lend to Debtor
a total of up to $4,300,000 (the "Loan" or the "Loans"), which Loans
will be evidenced by a Term Note or Notes in the aggregate original
principal amount of up to $1,800,000 and a Demand Note in the original
principal amount of $1,500,000 but modified to reflect an increase in
the principal amount thereof to $2,500,000 (referred to collectively,
and each individually, together with any and all amendments or
modifications thereto, substitutions therefor, and renewals, extensions
and rearrangements thereof, the "Note"); and
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2. As amended hereby, the terms of the Security Agreement
are hereby ratified and reaffirmed.
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-3-
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
to Security Agreement as of the date first written above.
WITNESS: BRUNSWICK TECHNOLOGIES, INC.
By:
- ----------------------------- ------------------------------
Its:
------------------------------
FLEET BANK OF MAINE
By:
- ----------------------------- ------------------------------
Its:
------------------------------
-4-
Exhibit 10.21
BRUNSWICK TECHNOLOGIES, INC.
1991 STOCK OPTION PLAN
1. Purpose and Scope. The purpose of this 1991 Stock Option Plan (the
"Plan") is to provide for stock ownership by key employees and Directors of
Brunswick Technologies, Inc. (the "Company"), to provide an incentive for such
employees to expand and improve the profits and prosperity of the Company, and
to assist the Company in attracting and retaining key personnel through the
grant of options to purchase shares of the Company's common stock.
2. Nonqualified Status of Plan. The options granted pursuant to the
Plan shall be "nonqualified" and shall not meet the requirements of Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code").
3. Administration of the Plan. The Plan shall be administered by the
Board of Directors of the Company (the "Board"). The Board may appoint a stock
option plan committee (the "Committee") to administer the Plan. The board or the
Committee (if so appointed) shall have the authority to (1) determine the
employees and Directors of the Company to whom stock options may be granted; (2)
determine the time or times at which options may be granted; (3) determine the
option price of shares subject to each option, which price shall not be less
than the minimum price specified in paragraph 7; (4) determine (subject to
paragraphs 6 and 8) the time or times when each option shall become exercisable
and
the duration of the exercise period; and (5) interpret the plan and prescribe
rules and regulations relating to it. The Board or the Committee (if so
appointed) shall take whatever actions it deems necessary, under Section 422A of
the Code and the regulations promulgated thereunder, to ensure that such option
is not treated as a statutory incentive stock option. The Board's interpretation
and construction of the Plan shall be final. The Board (or the Committee
appointed by the Board) may from time to time adopt such rules and regulations
for carrying out the Plan as it may deem advisable. No member of the Board (or
Committee) shall be liable for any action or determination made in good faith
with respect to the Plan.
4. Eligible Employees and Directors. The Board, upon the recommendation
of the Committee (if such a committee is appointed), may grant stock options
pursuant to the Plan to key personnel and/or Directors of the Company (the
"Participants").
5. Stock. The stock subject to the options granted pursuant to this
Plan shall be authorized but unissued shares of common stock of the Company, no
par value, or shares of common stock reacquired by the Company in any manner
(the "Common Stock"). The maximum aggregate number of shares which may be issued
pursuant to the Plan is 8,000, subject to adjustments as provided in paragraph
12. If any option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason; to
be exercisable in whole or in part, the
-2-
unpurchased shares subject to such options shall again be available for grants
of options under the Plan.
6. Option Agreements. Options granted pursuant to the Plan shall be
evidenced by agreements in such form as the Board, upon recommendation of the
Committee (if any), shall from time to time approve. Such agreements shall
comply with and be subject to the following terms and conditions:
A. Time and Method of Payment. The option price shall be paid in
full in cash at the time the option is exercised under the Plan. Otherwise, an
exercise of any option granted under the Plan shall be invalid and of no effect.
Promptly after exercise of an option and payment of the full option price, the
participant shall be entitled to the issuance of a stock certificate evidencing
his ownership of such stock. A participant shall have none of the rights of a
shareholder until shares are issued to him, and no adjustment will be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
B. Number of Shares. Each option agreement shall state the total
number of shares of stock to which it pertains.
C. Option Period and Limitations on Exercise. The Board may, in
its discretion, provide that an option may not be exercised in whole or in part
for any period or periods of time specified in the option agreement. Except as
provided in the option agreement, an option may be exercised in whole or
-3-
in part at any time during its term. No option may be exercised for a fractional
share of stock.
7. Option Price. The price per share specified in the option agreement
relating to each option granted under the Plan shall be the fair market value
per share of Common Stock on the date of such grant. If, at the time an option
is granted under the Plan, the Company's common stock is not publicly traded,
"fair market value" shall be deemed to be fair value of the common stock as
determined by the Board of Directors. If, however, the common stock is publicly
traded at the time an option is granted under the Plan, "fair market value"
shall be determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such option is
granted and shall mean (1) the average (on that date) of the high and low prices
of the Common Stock on the principal national securities exchange on which the
common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (2) the last reported sale price (on that date) of the
Common Stock on the NASDQ National Market List; or (3) the closing price (or
average of bid prices) last quoted (on that date) on an established quotation
service for over-the counter securities, if the Common Stock is not recorded on
the NASDQ National Market list.
8. Exercise of Options. Subject to the provisions of paragraph 6(C),
each option granted under the Plan shall be exercisable as follows:
-4-
A. The option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the Board
may specify.
B. Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the option, unless otherwise
specified by the Board.
C. Each option or installment may be exercised at any time or
from time to time, in whole or in part, as the Board may designate for up to the
total number of shares with respect to which it is then exercisable.
D. The Board shall have the right to accelerate the date of
exercise of any installment of an option.
9. Termination of Employment, Retirement, Disability and Death. In the
event a Participant's employment or Directorship with the Company is terminated,
whether voluntarily or involuntarily, his stock options shall terminate
immediately; provided, however, that if the Participant's cessation of
employment with the Company is due to his voluntary retirement (with the consent
of the Company), disability or death, the Participant (in the case of retirement
and disability) and the personal representatives of the estate of the
Participant (in the case of death) may, at any time within one (1) month after
such event, exercise the Participant's options to the extent he was entitled to
exercise them on the date of the triggering event.
10. Repurchase Rights. In the event the Participant ceases to be
employed by the Company or ceases to be a
-5-
Director of the Company due to voluntary or involuntary termination, retirement,
disability or death, the Company may, in its discretion, repurchase from the
participant stock acquired pursuant to any option granted under the Plan. In the
event the Company exercises its repurchase rights under this paragraph, the
Participant shall receive fair market value for all such shares. Fair market
value shall be determined in accordance with paragraph 7 above.
11. Assignability. Options granted under the Plan shall not be
transferable or assignable and during a Participant's lifetime shall be
exercisable only by such Participant.
12. Adjustments. The aggregate number of shares of Common Stock
available for options under the Plan, the shares subject to such options, and
the price per share shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of the Company's Common Stock subsequent
to the effective date of the Plan resulting from (1) a subdivision or
consolidation of shares or any other capital adjustment; (2) payment of a stock
dividend; or (3) other increase or decrease in such shares effected without
receipt of consideration by the Company. In the event the Company is the
surviving corporation in any merger or consolidation, any option shall pertain,
apply and relate to the securities to which a holder of the number of shares of
stock subject to the option would have been entitled after the merger or
consolidation. Upon dissolution or liquidation of the Company, or upon a merger
or consolidation in which the
-6-
Company is not the surviving corporation, all options outstanding under the Plan
shall terminate; provided, however, that each Participant (and each other person
entitled under paragraph 9 to exercise an option) shall have the right,
immediately prior to such dissolution or liquidation, or such merger or
consolidation, to exercise such Participant's options in whole or in part, but
only to the extent that such options are otherwise exercisable under the terms
of the Plan.
13. Term and Amendment of Plan. This Plan was adopted by the Board of
Directors of the Company on January 24, 1991. The Plan shall expire ten years
from the approved date. The Board, by resolution, may terminate, amend or revise
the Plan with respect to any shares as to which options have not been granted.
Neither the Board nor any committee appointed by the Board may, without the
consent of a Participant, alter or impair any option previously granted under
the Plan, except as authorized herein.
14. Stock Option Agreement. Employees and/or Directors to whom options
are granted under the terms of this 1991 Stock Option Plan will be required to
sign a Stock Option Agreement, a copy of which is attached hereto as Exhibit A.
The Board shall have the right to amend the Stock Option Agreement from time to
time consistent with the provisions of this Plan. The Stock Option Agreement
documents, among other things, the number of shares optioned, the exercise price
for the optioned shares, the vesting schedule for the options, the term of the
Stock Option Agreement, restriction on the sale of the
-7-
optioned shares and the Company's rights to repurchase the optioned shares under
certain conditions.
15. Agreement and Representation of Participant. As a condition to the
exercise of any option granted hereunder, the Company may require the
Participant exercising such option to represent and warrant at the time of such
exercise that any shares of Common Stock acquired at exercise are being acquired
only for investment and without any present intention to sell or distribute such
shares, if, in the opinion of counsel for the Company, such representation is
required under the Securities Act of 1933 or any other applicable law,
regulation or rule of any governmental agency.
16. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to options granted under the Plan shall be used for
general corporate purposes.
17. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
18. Withholding of Additional Income Taxes. Upon the exercise of any
option granted pursuant to the Plan, the Company, in accordance with Section
3402(a) of the Code, may require the Participant to pay additional withholding
taxes in respect to the amount that is considered compensation includable in
such Participant's gross income.
-8-
19. Effective Date of Plan. The Plan shall be effective from the date
that the Plan is approved by the Board of Directors of the Company.
-9-
EXHIBIT A
- ---------
to 1991 Stock Option Plan
BRUNSWICK TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
- --------------------------- ---------------------
No. of Shares Date
Pursuant to its 1991 Stock Option Plan (the "Plan"), Brunswick
Technologies, Inc. (the "Company", which term shall include its successors as
provided in the Plan), hereby grants to ___________ (the "Optionee") an Option
to purchase prior to _________ (the "Expiration Date") all or any part of
____________ shares of Common Stock of the Company (the "Option Shares") at a
price of $ ________ per share in accordance with the schedule set forth in
Section 1 and subject to the terms and conditions set forth hereinafter and in
the Plan.
1. Vesting Schedule. Subject to the provisions of Section 4 or the
determination of the Company to accelerate the vesting schedule hereunder due to
other circumstances, this Option shall become vested and exercisable with
respect to the following number of Option Shares at the expiration of the
following periods from the date of this Option:
Number of At the expiration of
Option Shares the period from the
becoming exercisable date of this Option
-------------------- -------------------
Once vested, options shall continue to be exercisable at any time or times prior
to the Expiration Date or any earlier termination date of this Option pursuant
to Section 4.
2. Manner of Exercise. The Optionee may exercise this Option only in
the following manner: From time to time prior to the Expiration Date of this
Option, the Optionee may give written notice to the Company of his election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. Said notice shall specify the number of shares to be purchased and shall
be accompanied by payment therefore in cash, and shall contain the agreement of
the Optionee to give the Company the option to repurchase the shares provided
for in Section 8. No certificates for the shares so purchased will be issued to
the Optionee until the Company has completed all steps required by law to be
taken in connection with the issue and sale of the shares, including without
limitation receipt of a representation from the Optionee upon each exercise of
this Option that he is purchasing the shares for his own account and not with a
view to any resale or distribution thereof (a copy of which is attached hereto
as Attachment A), the legending of any certificate representing said shares, and
the imposition of a stop transfer order with respect thereto, to prevent a
resale or distribution in violation of Federal or state securities laws and to
provide notice of the repurchase option of the Company pursuant to Section 8.
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3. Transferability. Except as provided in Section 4, this Option is
personal to Optionee, is not transferable by the Optionee in any manner by
operation of law or otherwise, and is exercisable, during Optionee's lifetime,
only by him.
4. Termination of Employment. This Option, as to any shares not
theretofore purchased, shall terminate whenever Optionee is no longer employed
by the Company or a subsidiary or a Director of the Company or Subsidiary (as
defined in the Plan); provided, however, that if such termination of employment
or Directorship results from Optionee's death or disability as defined in
Section 105 of the Internal Revenue Code of 1954 as amended (the "Code"), this
Option may be exercised by the Optionee or his personal representatives within
one month after his death or disability, or until the Expiration Date, whichever
first occurs, but only to the extent that this Option was exercisable by the
Optionee on the date of his death or disability. No Option will confer upon any
Optionee any right with respect to continuance of employment by the Company or a
Subsidiary, nor will it interfere in any way with any right of his employer to
terminate his employment at any time.
5. Option Shares. The shares of stock which are the subject of this
Option are shares of the Common Stock of the Company as constituted on the date
of this Option, subject to adjustment as provided in Section 6 of the Plan.
6. Effect of Certain Transactions. In the case of (a) the dissolution
or liquidation of the Company, (b) the
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sale or exchange of all or substantially all of the assets of the Company, or
(c) a merger or consolidation of the Company into another corporation in which
the Company is not the surviving corporation, the Company shall give written
notice thereof to Optionee at least twenty days prior to the effective date of
any such transaction or the record date on which shareholders of the Company
entitled to participate in such transaction shall be determined, whichever shall
first occur, and Optionee shall be entitled to purchase, subject to the
consummation of such transaction, all or any part of the Option Shares which
have vested as provided in Section 1, during the period in which any such
transaction may become effective, and this Option shall expire as to any Option
Shares not purchased prior to the effective date of such transaction, unless the
Board of Directors otherwise determines.
7. Repurchase Option of the Company.
(a) It shall be a condition of any exercise of this option
that the Optionee agree (and a notice of any such exercise of this Option shall
constitute such agreement by the Optionee) that if the Optionee ceases to be
employed by the Company or a Subsidiary of the Company or be a Director of the
Company or a Subsidiary of the Company for any reason whatsoever (including
either his voluntary or involuntary resignation or termination by the Company
whether or not for cause), the Company shall have the right and option to
repurchase all shares purchased pursuant to the exercise of
-4-
this Option at a repurchase price per share equal to the then fair market value
thereof as determined in good faith by the Board of Directors of the Company;
provided, however, that such repurchase option shall cease and terminate and be
of no effect if at the time the Optionee's employment ceases the Common Stock of
the Company is then registered under Section 12 of the Securities Act of 1934,
as amended. The Optionee acknowledges that the Common Stock of the Company is
not now so registered and that the Company has no present plans to effect such
registration.
(b) The Company may exercise said repurchase option by delivering
or mailing to the Optionee its written notice of exercise within 60 days after
such termination of the Optionee's employment with the Company. Such notice
shall specify the number of shares to be purchased and the Company's
determination of the then fair market value thereof. If and to the extent the
repurchase option is not exercised within such 60-day period, the repurchase
option shall automatically expire and terminate effective upon the expiration of
such 60-day period.
(c) The Optionee shall not sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively "transfer"), any of the shares purchased pursuant to the exercise
of this Option unless and until such shares are no longer subject to the
repurchase option; provided, however, that the Optionee may transfer such shares
to or for the benefit of any spouse, child or
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grandchild, or to a trust for their benefit, if such shares specifically remain
subject to the repurchase option and if such permitted transferee as a condition
to such transfer delivers to the Company a written instrument confirming that
such transferee shall be bound by all of the terms and conditions of the
repurchase option.
8. Miscellaneous. Notices hereunder shall be mailed or delivered to the
Company at its principal place of business, and shall be mailed or delivered to
Optionee at this address set forth below, or in either case at such other
address as one party may subsequently furnish to the other party in writing.
This Option shall be construed in a manner to qualify it as an incentive stock
option under Section 422A of the Code and shall be governed by the laws of
Delaware.
BRUNSWICK TECHNOLOGIES, INC.
By
----------------------------------
Martin S. Grimnes, Chairman
Receipt is acknowledged of the foregoing Option and its terms and
conditions are hereby agreed to.
----------------------------------
Optionee
----------------------------------
Address
Exhibit 10.22
AMENDMENT NO. 1
TO
BRUNSWICK TECHNOLOGIES, INC.
1991 STOCK OPTION PLAN
A. AMENDMENTS. The Brunswick Technologies, Inc. 1991 Stock Option Plan (the
"Original Plan") is hereby modified by amending and restating the following
sections of the Original Plan in their entirety as follows:
1. Purpose and Scope. The purpose of this 1991 Employee Stock Option
Plan (the "Plan") is to provide for stock ownership by key employees, directors
and other consultants of the Brunswick Technologies, Inc. (the "Company") and
their "Affiliates" (as that term hereinafter is defined), to provide an
incentive for such personnel to expand and improve the profits and prosperity of
the Company in attracting and retaining such personnel through the grant of
options to purchase shares of the Company's "Common Stock" (as that term
hereinafter is defined).
4. Eligible Employees and Directors. The Board, with recommendation of
the Committee, if any, may grant stock options pursuant to the Plan to
employees, consultants and/or directors of the Company or any Affiliate of the
Company (collectively, the "Participants"). As used herein, the term "Affiliate"
shall mean any business entity in which the Company owns directly or indirectly
50% or more of the total combined voting power or has a significant financial
interest as determined by the Committee.
5. Stock. The stock subject to the options granted pursuant to this
Plan shall be authorized but unissued shares of common stock of the Company, no
par value (or such common stock of the Company, with or without par value, to
which such stock may be converted pursuant to any recapitalization of the
Company), or shares of such common stock reacquired by the Company in any manner
(the "Common Stock"). The maximum aggregate number of shares which may be issued
pursuant to the Plan is 14,695
-2-
subject to adjustments as provided in paragraph 12. If any option granted under
the Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject to such options shall again be available for grants
of options under this Plan.
8. Exercise of Options. Subject to the provisions of paragraph 6(C),
each option granted under the Plan shall be exercisable as follows:
A. The option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the Board
may specify. The Committee may impose such conditions with respect to the
exercise of the option, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
B. Once an installment becomes exercisable, it shall remain
exercisable for ten (10) years or until the earlier expiration or termination of
the option, unless otherwise specified by the Board.
C. Each option or installment may be exercised at any time or
from time to time, in whole or in part, as the Board may designate for up to the
total number of shares with respect to which it is then exercisable.
D. The Board shall have the right to accelerate the date of
exercise of any installment of an option.
E. No shares shall be delivered pursuant to any exercise of an
option until payment in full of the option price therefor is received by the
Company. Such payment may be made in whole or in part in cash or, to the extent
permitted by the Committee at or after the award of the option, by delivery of a
note or shares of Common Stock owned by the Participant, valued at its fair
market value on the date of delivery, or such other lawful consideration as the
Committee may determine.
-3-
F. Upon exercise of an option, a Participant may elect to
convert the options so exercised, without payment by the Participant of any
Exercise Price or of any other cash or other consideration, into that number of
fully paid and nonassessable shares of Common Stock represented by the options,
reduced by a number of shares of Common Stock having the aggregate Fair Market
Value equal to the aggregate Option Price for the such number of shares. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be
determined in the manner described in Section 7 of this Plan.
9. Termination of Employment, Disability and Death. In the event a
Participant's employment, consultant relationship, or membership on the Board of
Advisors or directorship with the Company is terminated, whether voluntarily or
involuntarily, those number of such Participant's options as have not become
vested as of the date of termination shall terminate effective upon the date of
termination without any further action or notice by the Company to the
Participant. If the Participant becomes disabled or dies, the personal
representative of the Participant may exercise the Participant's options to the
extent that such options were vested as of the date of termination.
10. Repurchase Rights. In the event that a Participant ceases to be
employed by the Company or an Affiliate, ceases to be a consultant of the
Company or an Affiliate, ceases to be a member of the Board of Advisors or
ceases to be a director of the Company or an Affiliate, due in any such case to
voluntary or involuntary termination, retirement, disability or death, the
Company, at its option, may repurchase from the Participant stock acquired
pursuant to any option granted under this Plan; provided, however, that this
repurchase option shall terminate effective upon, and be of no force or effect
at any time after, an initial public offering of the Common Stock of the
Company. In the event
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the Company exercises such repurchase rights under this paragraph, the
Participant shall receive fair market value for all such shares as determined by
the Board of Directors.
B. GENERAL. The forgoing amendments shall inure to the benefit of all
Participants, including those who have been granted options under the Original
Plan.
Exhibit 10.23
BRUNSWICK TECHNOLOGIES, INC.
1994 EMPLOYEE STOCK OPTION PLAN
1. Purpose and Scope. The purpose of this 1994 Employee Stock Option
Plan (the "Plan") is to provide for stock ownership by key employees, directors
and other consultants of Brunswick Technologies, Inc. (the "Company"), to
provide an incentive for such employees, consultants and directors to expand and
improve the profits and prosperity of the Company, and to assist the Company in
attracting and retaining key personnel through the grant of options to purchase
shares of the Company's common stock.
2. Nonqualified Status of Plan. The options granted pursuant to the
Plan shall be "nonqualified" and shall not meet the requirements of Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code").
3. Administration of the Plan. The Plan shall be administered by the
Board of Directors of the Company (the "Board"). The Board may appoint an
employee stock option plan committee (the "Committee") to administer the Plan.
The Board or the Committee, if any, shall have authority to (1) determine the
employees, consultants and directors of the Company to whom stock options shall
be granted; (2) determine the time or times at which options shall be granted;
(3) determine the option price of shares subject to each option; (4) subject to
paragraphs 6 and 8 determine the time or times when each option shall become
exercisable and the duration of the exercise period; and (5) interpret the Plan
and prescribe rules and regulations relating to it. The Board or the Committee,
if any, shall take whatever actions it deems necessary, under Section 422 of the
Code and the regulations promulgated thereunder, to ensure that such options are
not treated as statutory incentive stock options. The Board's interpretation and
construction of the Plan shall be final. The Board or the Committee, if any, may
from time to time adopt such rules and regulations for carrying out the Plan as
it may deem advisable. No member of the Board or Committee shall be liable for
any action or determination made in good faith with respect to the Plan.
4. Eligible Employees and Directors. The Board, with the recommendation
of the Committee, if any, may grant stock options pursuant to the Plan to key
personnel including consultants and/or directors of the Company (the
"Participants").
5. Stock. The stock subject to the options granted pursuant to this
Plan shall be authorized but unissued shares of common stock of the Company, no
par value, or shares of common stock reacquired by the Company in any manner
(the
"Common Stock"). The maximum aggregate number of shares which may be issued
pursuant to the Plan is 16,317, subject to adjustments as provided in paragraph
12. If any option granted under the Plan shall expire or terminate for any
reason without having been exercise in full or shall cease for any reason; to be
exercisable in whole or in part, the unpurchased shares subject to such options
shall again be available for grants of options under the Plan.
6. Option Agreements. Options granted pursuant to the Plan shall be
evidenced by agreements in such form as the Board, upon recommendation of the
Committee, if any, shall from time to time approve. Such agreements shall comply
with and be subject to the following terms and conditions:
A. Time and Method of Payment. The option price shall be paid
in full in cash at the time the option is exercised under the Plan. Otherwise,
an exercise of any option granted under the Plan shall be invalid and of no
effect. Promptly after exercise of an option and payment of the full option
price, the Participant shall be entitled to the issuance of a stock certificate
evidencing his or her ownership of such stock. A Participant shall have none of
the rights of a shareholder until shares are issued to him or her, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
B. Number of Shares and Exercise Price. Each option agreement
shall state the total number of shares of stock to which it pertains and the
exercise price for said shares of stock.
C. Option Period and Limitations on Exercise. The Board may,
in its discretion, provide that an option may not be exercised in whole or in
part for any period or periods of time specified in the option agreement. Except
as provided in the option agreement, an option may be exercised in whole or in
part at any time during its term. No option may be exercised for a fractional
share of stock.
7. Option Price. The price per share specified in the option agreement
relating to each option granted under the Plan shall be fair market value as
determined by the Board if the Common Stock of the Company is not publicly
traded. If the Common Stock is publicly traded at the time an option is granted
under the Plan, the price per share specified in the Option Agreement relating
to each option granted under the plan shall be determined as of the last
business day for which the prices or quotes discussed in this section are
available prior to the date such option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal National Securities Exchange on which the Common Stock is traded, if
the Common Stock is then
traded on a National Securities Exchange; or (ii) the last reported sale price
(on that date) of the Common Stock on the NASDAQ National Market List; or (iii)
the closing price or average of bid prices last quoted on that date on an
established quotation service for over-the-counter securities, if the Common
Stock is not recorded on the NASDAQ National Market List.
8. Exercise of Options. Subject to the provisions of paragraph 6(C),
each option granted under the Plan shall be exercisable as follows:
A. The option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the Board
may specify.
B. Once an installment becomes exercisable it shall remain
exercisable for ten (10) years or until the earlier expiration or termination of
the option, unless otherwise specified by the Board.
C. Each option or installment may be exercised at any time or
from time to time, in whole or in part, as the Board may designate for up to the
total number of shares with respect to which it is then exercisable.
D. The Board shall have the right to accelerate the date of
exercise of any installment of an option.
9. Termination of Employment, Retirement, Disability and Death. In the
event a Participant's employment, membership on the Board of Advisors or
directorship with the Company is terminated, whether voluntarily or
involuntarily, his stock options shall terminate immediately; provided, however
if the Participant's cessation of employment with the Company is due to his
voluntary retirement with the consent of the Company, disability or death, the
Participant (in the case of retirement and disability) and the personal
representatives of the estate of the Participant (in the case of death) may, at
any time within one (1) month after such event, exercise the Participant's
options to the extent he or she was entitled to exercise them on the date of the
triggering event.
10. Repurchase Rights. In the event the Participant ceases to be
employed by the Company, ceases to be a member of the Board of Advisors or
ceases to be a director of the Company due to voluntary or involuntary
termination, retirement, disability or death, the Company may, in its
discretion, repurchase from the participant stock acquired pursuant to any
option granted under the Plan. In the event the Company exercises its repurchase
rights under this paragraph, the Participant shall receive fair market value for
all such shares. If, at the time an employee's shares are repurchased, the
Company's Common Stock is not publicly
traded, "fair market value" shall be deemed to be fair value of the common stock
as determined by the Board of Directors. If, however, the Common Stock is
publicly traded the Company's repurchase option shall cease and terminate and be
of no effect.
11. Assignability. Options granted under the Plan shall not be
transferable or assignable and during a Participant's lifetime shall be
exercisable only by such Participant except as otherwise provided herein.
12. Adjustments. The aggregate number of shares of Common Stock
available for options under the Plan, the shares subject to such options, and
the price per share shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of the Company's Common Stock subsequent
to the effective date of the Plan resulting from (1) a subdivision or
consolidation of shares or any other capital adjustment; (2) payment of a stock
dividend; or (3) other increase or decrease in such shares effected without
receipt of consideration by the Company. In the event the Company is the
surviving corporation in any merger or consolidation, any option shall pertain,
apply and relate to the securities to which a holder of the number of shares of
stock subject to the option would have been entitled after the merger or
consolidation. Upon dissolution or liquidation of the Company, or upon a merger
or consolidation in which the Company is not the surviving corporation, all
options outstanding under the Plan shall terminate; provided, however, that each
Participant (and each other person entitled under paragraph 9 to exercise an
option) shall have the right, immediately prior to such dissolution or
liquidation, or such merger or consolidation, to exercise such Participant's
options in whole or in part, but only to the extent that such options are
otherwise exercisable under the terms of the Plan.
13. Amendment of Plan. This Plan was adopted by the Board of Directors
of the Company on May 25, 1994. The Board, by resolution, may terminate, amend
or revise the Plan with respect to any shares as to which options have not been
granted. Neither the Board nor any committee appointed by the Board may, without
the consent of a Participant, alter or impair any option previously granted
under the Plan, except as authorized herein.
14. Stock Option Agreement. Employees and/or directors to whom options
are granted under the terms of this 1994 Employee Stock Option Plan will be
required to sign a Stock Option Agreement, a copy of which is attached hereto as
Exhibit A.
15. Agreement and Representation of Participant. As a condition to the
exercise of any option granted hereunder, the Company may require the
Participant exercising such option to
represent and warrant at the time of such exercise that any shares of Common
Stock acquired at exercise are being acquired only for investment and without
any present intention to sell or distribute such shares, if, in the opinion of
counsel for the Company, such representation is required under the Securities
Act of 1933 or any other applicable law, regulation or rule of any governmental
agency.
16. Allocation of Funds. The proceeds received by the Company from the
sale of shares pursuant to options granted under the Plan shall be used for
general corporate purposes.
17. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
18. Withholding of Additional Income Taxes. Upon the exercise of any
option granted pursuant to the Plan, the Company, in accordance with 3402(a) of
the Code, may require the Participant to pay additional withholding taxes in
respect to the amount that is considered compensation includable in such
Participant's gross income.
19. Effective Date of Plan. The Plan shall be effective from the date
that the Plan is approved by the Board of Directors of the Company.
Exhibit A to Brunswick Technologies, Inc.
-----------------------------------------
1994 Employee Stock Option Plan
-------------------------------
BRUNSWICK TECHNOLOGIES, INC.
1994 STOCK OPTION AGREEMENT
- -------------------- -----------------
No. of Shares Date
Pursuant to its 1994 Employee Stock Option Plan (the "Plan"), Brunswick
Technologies, Inc. (the "Company", which term shall include its successors as
provided in the Plan), hereby grants to _______________________ the ("Optionee")
and Option to purchase all or any part of _____ shares of common stock of the
Company (the "Option Shares") at a price of $__________ per share in accordance
with the schedule set forth in Section 1 and subject to the terms and conditions
set forth hereinafter and in the Plan.
1. Vesting Schedule. Subject to the provisions of Section 4 or the
determination of the Company to accelerate the vesting schedule hereunder due to
other circumstances, this Option shall become vested and exercisable with
respect to the following number of Option Shares on the dates specified below:
Number of Option
Shares Exercisable Vesting Dates
------------------ -------------
Once vested, options shall continue to be exercisable at any time or times prior
to the Expiration Date or any earlier termination date of this Option pursuant
to Section 4 below.
2. Manner of Exercise. The Optionee may exercise this Option only in
the following manner: From time to time prior to the Expiration Date of this
Option, the Optionee may give written notice to the Company of his or her
election to purchase some or all of the vested option shares purchasable at the
time of such notice. Said notice shall specify the number of shares to be
purchased and shall be accompanied by payment therefore in cash, and shall
contain the agreement of the Optionee to give the Company the option to
repurchase the shares provided for in Section 7. No certificates for the shares
so purchased will be issued to the Optionee until the Company has completed all
steps required by law to be taken in connection with the issue and sale of the
shares, including without limitation receipt of a representation from the
Optionee upon each exercise of this Option that he or she is purchasing the
shares for his or her own account and not with a view to any resale or
distribution thereof (a copy of which is attached hereto as Attachment A), the
legending of any certificate representing said shares, and the imposition of a
stop transfer order with respect thereto, to prevent a resale or distribution in
violation of federal or state securities laws and to provide notice of the
repurchase option of the Company pursuant to Section 8.
3. Transferability. Except as provided in Section 4, this Option is
personal to Optionee, is not transferable by the Optionee in any manner by
operation of law or otherwise, and is exercisable, during Optionee's lifetime,
only by him or her.
4. Termination of Employment. This Option, as to any shares not
theretofore purchased, shall terminate whenever Optionee is no longer employed
by the Company or a Subsidiary, a member of the Board of Advisors or a Director
of the Company or Subsidiary (as defined in the Plan); provided, however, that
if such termination of employment or Directorship results from Optionee's death
or disability as defined in Section 105 of the Internal Revenue Code of 1986 as
amended (the "Code"), this Option may be exercised by the Optionee or his
personal representatives within one (1) month after his or her death or
disability, or until the expiration or termination date of the Option Shares,
whichever first occurs, but only to the extent that this Option was exercisable
by the Optionee on the date of his or her death or disability. No Option will
confer upon any Optionee any right with respect to continuance of employment by
the Company or a Subsidiary, nor will it interfere in any way with any right of
his or her employer to terminate his or her employment at any time.
5. Option Shares. The shares of stock which are the subject of this
Option are shares of the Common Stock of the Company as constituted on the date
of this Option, subject to adjustment as provided in Section 12 of the Plan.
6. Effect of Certain Transactions. In the case of (a) the dissolution
or liquidation of the Company, (b) sale or exchange of all or substantially all
of the assets of the Company, or (c) a merger or consolidation of the Company
into another corporation in which the Company is not the surviving corporation,
the Company shall give written notice thereof to Optionee at least twenty (20)
days prior to the effective date of any such transaction or the record date on
which shareholders of the Company entitled to participate in such transaction
shall be determined, whichever shall first occur, and Optionee shall be entitled
to purchase, subject to the consummation of such transaction, all or any part of
the Option Shares which have vested as provided in Section 1, during the period
in which any such transaction may become
effective, and this Option shall expire as to any Option Shares not purchased
prior to the effective date of such transaction, unless the Board of Directors
otherwise determines.
7. Repurchase Option of the Company.
(a) It shall be a condition of any exercise of this Option that the
Optionee agree (and a notice of an such exercise of this Option shall constitute
such agreement by the Optionee) that if the Optionee ceases to be employed by
the Company or a Subsidiary of the Company, a member of the Board of Advisors or
to be a director of the Company or a Subsidiary of the Company for any reason
whatsoever (including either his or her voluntary or involuntary resignation or
termination by the Company whether or not for cause), the Company shall have the
right and option to repurchase all shares purchased pursuant to the exercise of
this Option at a repurchase price per share equal to the then fair market value
thereof as determined in good faith by the Board of Directors of the Company;
provided, however, that such repurchase option shall cease and terminate and be
of no effect if at the time the Optionee's employment ceases the Common Stock of
the Company is then registered under the Securities Act of 1934, as amended. The
Optionee acknowledges that the Common Stock of the Company is not now so
registered and that the Company has no present plans to effect such
registration.
(b) The Company may exercise said repurchase option by delivering or
mailing to the Optionee its written notice of exercise within sixty (60) days
after such termination of the Optionee's employment with the Company. Such
notice shall specify the number of shares to be purchased and the Company's
determination of the then fair market value thereof. If and to the extent the
repurchase option is not exercised within such sixty (60) day period, the
repurchase options shall automatically expire and terminate effective upon the
expiration of such sixty (60) day period.
(c) The Optionee shall not sell, assign, transfer, pledge, hypothecate
or otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the shares purchased pursuant to the exercise of the Option
unless and until such shares are no longer subject to the repurchase option;
provided, however, that the Optionee may transfer such shares to or for the
benefit of any spouse, child or grandchild, or to a trust for their benefit, if
such shares specifically remain subject to the repurchase option and if such
permitted transferee as a condition to such transfer delivers to the Company a
written instrument confirming that such transferee shall be bound by all of the
terms and conditions of the repurchase option.
8. Miscellaneous. Notices hereunder shall be mailed to be delivered to
the Company at its principal place of business, and shall be mailed or delivered
to Optionee at his address as set forth below, or in either case at such other
address as one party may subsequently furnish to the other party in writing.
This Agreement shall be governed by the laws of the State of Maine.
WITNESS: BRUNSWICK TECHNOLOGIES, INC.
______________________ By __________________________
_________________ Its _______
Receipt is acknowledged of the foregoing Option and its terms and conditions are
hereby agreed to:
WITNESS:
- ---------------------- -----------------------------
Optionee
-----------------------------
-----------------------------
Address
Attachment A to Stock Option Agreement
--------------------------------------
TO: BRUNSWICK TECHNOLOGIES, INC.
FROM: _____________________________
SUBJECT: STOCK OPTIONS ISSUES ON ___________, 199__
DATE: ____________________, 199__
As a condition to my exercise of the foregoing Option(s) under the
Brunswick Technologies, Inc. 1994 Employee Stock Option Plan (the "Plan"), I
hereby represent to the Company that the shares of Common Stock of the Company
acquired by me pursuant to this Option will be acquired for investment only and
not with a present view to distribution or resale thereof. I further acknowledge
receipt of a copy of the Plan, and I represent that I am familiar with the terms
and provisions thereof. I accept this Option subject to all the terms and
provisions of the Plan, and I hereby agree to accept as binding, conclusive and
final all decisions and interpretations of the Board of Directors and, where
applicable, the Stock Option Plan Committee, with respect to any questions
arising under the Plan.
As a condition to the issuance of shares of Common Stock of the Company
under this Option, I hereby authorize the Company to withhold in accordance with
applicable law from any regular cash compensation payable to me, any taxes to be
withheld by the Company under federal, state or local tax as a result of my
exercise of this Option.
WITNESS:
- ---------------------- -----------------------------
-----------------------------
(Print Name)
Exhibit 10.24
AMENDMENT NO. 1
TO
BRUNSWICK TECHNOLOGIES, INC.
1994 EMPLOYEE STOCK OPTION PLAN
A. AMENDMENTS. The Brunswick Technologies, Inc. 1994 Employee Stock Option Plan
(the "Original Plan") is hereby modified by amending and restating the following
sections of the Original Plan in their entirety as follows:
1. Purpose and Scope. The purpose of this 1994 Employee Stock Option
Plan (the "Plan") is to provide for stock ownership by key employees, directors
and other consultants of the Brunswick Technologies, Inc. (the "Company") and
their "Affiliates" (as that term hereinafter is defined), to provide an
incentive for such personnel to expand and improve the profits and prosperity of
the Company in attracting and retaining such personnel through the grant of
options to purchase shares of the Company's "Common Stock" (as that term
hereinafter is defined).
4. Eligible Employees and Directors. The Board, with recommendation of
the Committee, if any, may grant stock options pursuant to the Plan to
employees, consultants and/or directors of the Company or any Affiliate of the
Company (the "Participants"). As used herein, the term "Affiliate" shall mean
any business entity in which the Company owns directly or indirectly 50% or more
of the total combined voting power or has a significant financial interest as
determined by the Committee.
5. Stock. The stock subject to the options granted pursuant to this
Plan shall be authorized but unissued shares of common stock of the Company, no
par value (or such common stock of the Company, with or without par value, to
which such stock may be converted pursuant to any recapitalization of the
Company), or shares of such common stock reacquired by the Company in any manner
(the "Common Stock"). The maximum aggregate number of shares which may be issued
pursuant to the Plan is 2,525, subject to adjustments as provided in paragraph
12. If any option granted under the Plan shall expire
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or terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject to such options shall again be available for grants of options under
this Plan.
8. Exercise of Options. Subject to the provisions of paragraph 6(C),
each option granted under the Plan shall be exercisable as follows:
A. The option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the Board
may specify. The Committee may impose such conditions with respect to the
exercise of the option, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
B. Once an installment becomes exercisable, it shall remain
exercisable for ten (10) years or until the earlier expiration or termination of
the option, unless otherwise specified by the Board.
C. Each option or installment may be exercised at any time or
from time to time, in whole or in part, as the Board may designate for up to the
total number of shares with respect to which it is then exercisable.
D. The Board shall have the right to accelerate the date of
exercise of any installment of an option.
E. No shares shall be delivered pursuant to any exercise of an
option until payment in full of the option price therefor is received by the
Company. Such payment may be made in whole or in part in cash or, to the extent
permitted by the Committee at or after the award of the option, by delivery of a
note or shares of Common Stock owned by the Participant, valued at its fair
market value on the date of delivery, or such other lawful consideration as the
Committee may determine.
F. Upon exercise of an option, a Participant may elect to
convert the options so exercised, without payment by the Participant of any
Exercise Price or of any other cash
-3-
or other consideration, into that number of fully paid and nonassessable shares
of Common Stock represented by the options, reduced by a number of shares of
Common Stock having the aggregate Fair Market Value equal to the aggregate
Option Price for the such number of shares. For purposes hereof, the Fair Market
Value of a share of Common Stock shall be determined in the manner described in
Section 7 of this Plan.
9. Termination of Employment, Disability and Death. In the event a
Participant's employment, consultant relationship, or membership on the Board of
Advisors or directorship with the Company is terminated, whether voluntarily or
involuntarily, those number of such Participant's options as have not become
vested as of the date of termination shall terminate effective upon the date of
termination without any further action or notice by the Company to the
Participant. If the Participant becomes disabled or dies, the personal
representative of the Participant may exercise the Participant's options to the
extent that such options were vested as of the date of termination.
10. Repurchase Rights. In the event that a Participant ceases to be
employed by the Company or an Affiliate, ceases to be a consultant of the
Company or an Affiliate, ceases to be a member of the Board of Advisors or
ceases to be a director of the Company or an Affiliate, due in any such case to
voluntary or involuntary termination, retirement, disability or death, the
Company, at its option, may repurchase from the Participant stock acquired
pursuant to any option granted under this Plan; provided, however, that this
repurchase option shall terminate effective upon, and be of no force or effect
at any time after, an initial public offering of the Common Stock of the
Company. In the event the Company exercises such repurchase rights under this
paragraph, the Participant shall receive fair market value for all such shares
as determined by the Board of Directors.
B. GENERAL. The forgoing amendments shall inure to the benefit of all
Participants, including those who have been granted options under the Original
Plan.
Exhibit 10.25
BRUNSWICK TECHNOLOGIES, INC.
1997 EQUITY INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of the BRUNSWICK TECHNOLOGIES, INC. 1997 Equity Incentive
Plan (the "Plan") is to attract and retain key employees, directors and
consultants, to provide an incentive for them and other persons having a
business relationship with the Company to assist the Company achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company.
SECTION 2. DEFINITIONS.
"AFFILIATE" means any business entity in which the Company owns
directly or indirectly 50% or more of the total combined voting power or has a
significant financial interest as determined by the Committee.
"AWARD" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock or Stock Unit awarded under the Plan.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means a committee of not less than three members of the
Board appointed by the Board to administer the Plan.
"COMMON STOCK" or "STOCK" means the Common Stock, without par value of
the Company (or such common stock of the Company, with or without par value, to
which such stock may be converted pursuant to any recapitalization of the
Company).
"COMPANY" means Brunswick Technologies, Inc.
-2-
"DESIGNATED BENEFICIARY" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise the rights of the Participant in the event of the Participant's death.
In the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
"FAIR MARKET VALUE" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"INCENTIVE STOCK OPTION" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"NONSTATUTORY STOCK OPTION" means an option to purchase shares of
Common Stock awarded to a Participant under Section 6 which is not intended to
be an Incentive Stock Option.
"OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option.
"PARTICIPANT" means a person selected by the Committee to receive an
Award under the Plan.
"PERFORMANCE CYCLE" or "CYCLE" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"PERFORMANCE SHARES" means shares of Common Stock which may be earned
by the achievement of performance goals awarded to a Participant under Section
8.
"REPORTING PERSON" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
"RESTRICTED PERIOD" means the period of time selected by the Committee
during which an award of Restricted Stock may be forfeited to the Company.
"RESTRICTED STOCK" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
-3-
"STOCK APPRECIATION RIGHT" or "SAR" means a right to receive any excess
in value of shares of Common Stock over the exercise price awarded to a
Participant under Section 7.
"STOCK UNIT" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee, or if such Committee
has not been appointed, by the Board of Directors (each reference to the
Committee hereafter shall be deemed to read "Board of Directors" unless such
Committee has been appointed). In all events, any Award to be granted to a
Reporting Person shall be approved by a committee of the Board of Directors
composed soley of two or more non-employee Directors (within the meaning of Rule
16b-3 of the Securities Exchange Act of 1934, as amended) or by the Board of
Directors. The Committee shall have authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation of the
Plan as it shall from time to time consider advisable, and to interpret the
provisions of the Plan. The Committee's decisions shall be final and binding. To
the extent permitted by applicable law, the Committee may delegate to one or
more executive officers of the Company the power to make Awards to Participants
who are not Reporting Persons and all determinations under the Plan with respect
thereto, provided that the Committee shall fix the maximum amount of such Awards
for the Participants who are not Reporting Persons and a maximum for any one
Participant.
SECTION 4. ELIGIBILITY.
All employees, directors and consultants of, and other persons having a
business relationship with, the Company or any Affiliate capable of contributing
significantly to the successful performance of the Company, other than a person
who has irrevocably elected not to be eligible, are eligible to be Participants
in the Plan. Incentive Stock Options may be awarded only to persons eligible to
receive such Options under the Code.
SECTION 5. STOCK AVAILABLE FOR AWARDS.
(a) Subject to adjustment under subsection (b), Awards may be made
under the Plan for up to 12,780 shares of Common Stock. If any Award in respect
of shares of
-4-
Common Stock expires or is terminated unexercised or is forfeited for any reason
or settled in a manner that results in fewer shares outstanding than were
initially awarded, including without limitation the surrender of shares in
payment for the Award or any tax obligation thereon, the shares subject to such
Award or so surrendered, as the case may be, to the extent of such expiration,
termination, forfeiture or decrease, shall again be available for award under
the Plan. Common Stock issued from an acquired company shall not reduce the
shares available for Awards under the Plan. Shares issued under the Plan may
consist in whole or in part of authorized but unissued shares or treasury
shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee, subject, in the case of Incentive
Stock Options, to any limitation required under the Code, shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be under the Plan, (ii) the number and kind of shares subject to outstanding
Awards, and (iii) the award, exercise or conversion price with respect to any of
the foregoing, and if considered appropriate, the Committee may make provision
for a cash payment with respect to an outstanding Award, provided that the
number of shares subject to any Award shall always be a whole number.
(c) Notwithstanding any other provision of the Plan, no more than
12,780 shares of Common Stock shall be cumulatively available for the award of
Incentive Stock Options; provided that to the extent an Incentive Stock Option
expires or is terminated unexercised or is forfeited for any reason the shares
which were subject to such Option may again be awarded as Incentive Stock
Options.
-5-
SECTION 6. STOCK OPTIONS.
(a) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to, and comply with,
Section 422 of the Code or any successor provision, and any regulations
thereunder.
(b) The Committee shall establish the option price at the time each
Option is awarded, which price shall not be less than 100% of the Fair Market
Value of the Common Stock on the date of award with respect to Incentive Stock
Options and not less than 50% of the Fair Market Value of the Common Stock on
the date of award with respect to Nonstatutory Stock Options.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, valued
at their Fair Market Value on the date of delivery, or such other lawful
consideration as the Committee may determine.
(e) The Committee may provide for the automatic award of an Option upon
the delivery of shares to the Company in payment of an Option for up to the
number of shares so delivered.
-6-
(f) Upon exercise of an option, a Participant may elect to convert the
options so exercised, without payment by the Participant of any option price or
of any other cash or other consideration, into that number of fully paid and
nonassessable shares of Common Stock represented by the options, reduced by a
number of shares of Common Stock having the aggregate Fair Market Value equal to
the aggregate option price for the such number of shares.
(g) In the event that a Participant ceases to be employed by the
Company or an Affiliate, ceases to be a consultant of the Company or an
Affiliate, ceases to be a member of the Board of Advisors or ceases to be a
director of the Company or an Affiliate, due in any such case to voluntary or
involuntary termination, retirement, disability or death, the Company, at its
option, may repurchase from the Participant stock acquired pursuant to any
option granted under this Plan; provided, however, that this repurchase option
shall terminate effective upon, and be of no force or effect at any time after,
an initial public offering of the Common Stock of the Company. In the event the
Company exercises such repurchase rights under this paragraph, the Participant
shall receive Fair Market Value for all such shares.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) Subject to the provisions of the Plan, the Committee may award SARs
in tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. SARs shall have an
exercise price of not less than 50% of the Fair Market Value of the Common Stock
on the date of award, or in the case of SARs in tandem with Options, the
exercise price of the related Option.
(b) An SAR related to an Option which can only be exercised during
limited periods following a change in control of the Company, may entitle the
Participant to receive
-7-
an amount based upon the highest price paid or offered for Common Stock in any
transaction relating to the change in control or paid during the thirty-day
period immediately preceding the occurrence of the change in control in any
transaction reported in the stock market in which the Common Stock is normally
traded.
SECTION 8. PERFORMANCE SHARES.
(a) Subject to the provisions of the Plan, the Committee may award
Performance Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of Performance Shares shall
be equal to the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the Committee, on the
date the Committee determines that the Performance Shares have been earned.
(b) The Committee shall establish performance goals for each Cycle, for
the purpose of determining the extent to which Performance Shares awarded for
such Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares which have been
earned on the basis of performance in relation to the established performance
goals. The payment values of earned Performance Shares shall be distributed to
the Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee
-8-
shall determine, at or after the time of award, whether payment values will be
settled in whole or in part in cash or other property, including Common Stock or
Awards.
SECTION 9. RESTRICTED STOCK.
(a) Subject to the provisions of the Plan, the Committee may award
shares of Restricted Stock and determine the duration of the Restricted Period
during which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock shall be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the committee may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Committee, deposited by the Participant,
together with a stock power endorsed in blank, with the Company. At the
expiration of the Restricted Period, the Company shall deliver such certificates
to the Participant or if the Participant has died, to the Participant's
Designated Beneficiary.
SECTION 10. STOCK UNITS.
(a) Subject to the provisions of the Plan, the Committee may award
Stock Units subject to such terms, restrictions, conditions, performance
criteria, vesting requirements and payment rules as the Committee shall
determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit
Award shall be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
SECTION 11. GENERAL PROVISIONS APPLICABLE TO AWARDS.
-9-
(a) Reporting Person Limitations. Notwithstanding any other provision
of the Plan, to the extent required to qualify for the exemption provided by
Rule 16b-3 under the Securities Exchange Act of 1934 and any successor
provision, (i) any Common Stock or other equity security offered under the Plan
to a Reporting Person may not be sold for at least six months after acquisition,
except in case of death or disability and (ii) any Option, SAR or other similar
right related to an equity security, issued under the Plan to a Reporting Person
shall not be transferable other than by will or the laws of descent and
distribution, shall not be exercisable for at least six months except in the
case of death or disability, and shall be exercisable during the Participant's
lifetime only by the Participant or the Participant's guardian or legal
representative.
(b) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or comply with applicable tax and regulatory
laws and accounting principles.
(c) Committee Discretion. Each type of Award may be made alone, in
addition to, or in relation to any other type of Award. The terms of each type
of Award need not be identical, and the committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(d) Settlement. The Committee shall determine whether Awards are
settled in whole or in part in cash, Common Stock, other securities of the
Company, Awards or other property. The Committee may permit a Participant to
defer all or any portion of a payment under the Plan, including the crediting of
interest on deferred amounts denominated in cash and dividend equivalents on
amounts denominated in Common Stock.
(e) Dividends and Cash Awards. In the discretion of the Committee, any
Awards under the Plan may provide the Participant with (i) dividends or dividend
equivalents
-10-
payable currently or deferred with or without interest, and (ii) cash payments
in lieu of or in addition to an Award.
(f) Termination of Employment. The Committee shall determine the effect
on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(g) Change in Control. In order to preserve a Participant's rights
under an Award in the event of a change in control of the Company, the Committee
in its discretion may, at the time an Award is made or at any time thereafter,
take one or more of the following actions: (i) provide for the acceleration of
any time period relating to the exercise or realization of the Award, (ii)
provide for the purchase of the Award upon the Participant's request for an
amount of cash or other property that could have been received upon the exercise
or realization of the Award had the Award been currently exercisable or payable,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the change in control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such other provision as the
Committee may consider equitable and in the best interests of the Company.
(h) Withholding. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
-11-
(i) Foreign Nationals. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
(j) Amendment of Award. The Committee may amend, modify or terminate
any outstanding Award, including substituting therefor another Award of the same
or a different type, changing the date of exercise or realization, or converting
an Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
SECTION 12. MISCELLANEOUS
(a) No Right To Employment. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to employment or continued employment. The Company
expressly reserves the right at any time to dismiss a Participant free from any
liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a shareholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the shareholders of the
Company, the Plan shall be effective on the effective date of the Company's
initial public offering. Prior to such approval, Awards may be made under the
Plan expressly subject to such approval.
-12-
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no amendment shall be
made without shareholder approval if such approval is necessary to comply with
any applicable tax or regulatory requirement, including any requirement for
exemptive relief under Section 16(b) of the Securities Exchange Act of 1934 or
any successor provision.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of Maine.
Coopers
& Lybrand
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (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 to the reference of our firm under the
caption "Experts".
/s/ Coopers & Lybrand L.L.P.
-----------------------------
Coopers & Lybrand L.L.P.
Portland, Maine
January 6, 1997
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 references
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
January 6, 1997
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 Pre-effective Amendment No.2
to the Registration Statement (Form S-1 No.333-10721) and related prospectus of
Brunswick Technologies, Inc. for the registration of 2,000,000 shares of its
common stock.
/s/ Ernst & Young LLP
------------------
Ernst & Young LLP
Greensboro, North Carolina
January 3, 1997
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