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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 for the
year ended
December 31, 1998.
[ ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for
transition
period to .
Commission File Number 0-22089
BRUNSWICK TECHNOLOGIES, INC.
(Exact Name of Registrant As Specified In Its Charter)
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MAINE 01-0405052
(State of other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
43 BIBBER PARKWAY, BRUNSWICK, MAINE 04011
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number including area code: (207) 729-7792
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.0001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 22, 1998 was approximately $24,060,803 based on the
closing price as reported on such date on the NASDAQ National Market.
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of March 22, 1998: 5,191,687 shares of Common Stock,
$0.0001 par value.
The registrant's definitive proxy statement for its Annual Meeting of
Stockholders, to be held on May 20, 1999, which will be filed with the
Commission on or before April 30, 1999, is incorporated by reference in response
to Part III, Items 10, 11, 12, and 13.
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BRUNSWICK TECHNOLOGIES, INC.
TABLE OF CONTENTS
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Securities and Exchange Commission
Item Numbers and Description
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related 12
Stockholder Matters.........................................
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations...................................
Item 7A. Quantitative and Qualitative Disclosures About Market 21
Risk........................................................
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting 40
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 40
Item 11. Executive Compensation...................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and 40
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 41
8-K.........................................................
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Information contained in this report with respect to expected financial
results and future events and trends is forward-looking based on Management's
estimates and assumptions and is subject to risks and uncertainties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Cautionary Statement Concerning Forward-Looking Statements."
ITEM 1: BUSINESS
GENERAL
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 high
modulus 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, and have undersea oil well head and pipeline protection covers.
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 markets
are 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. 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
addition to its proprietary processes, the Company also utilizes other
commercially available equipment to produce a broadly competitive line of
reinforcement fabrics.
The Company's strategy is to increase revenues and net income by 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. Key elements of this strategy include: (i) increasing
market share for Company's products; (ii) continuing to build the customer and
project base for White Steel(R) (see "Joint Projects"); (iii) aggressively
moving further into the carbon fiber fabric market; and (iv) expanding further
into the European market.
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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. During 1997, ATI was fully integrated into the operations of the
Company, including sales, distribution and manufacturing.
In order to accelerate the Company's penetration of the European market,
the Company acquired the business and assets, including technology, of Tech
Textiles International Ltd. ("TTI"), located in Andover, UK on March 2, 1998,
which it operates as a wholly owned subsidiary, Brunswick Technologies Europe
Ltd. ("BTI-Europe"). The acquisition will serve as a platform for the transfer
of the Company's proprietary process technology and production of White Steel(R)
while providing access to European suppliers and other sales distribution
channels.
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 much of 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
industrial applications, including cars, trucks, ballistic armor applications
and industrial tanks & 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 fibers
performance defines the amount of such fibers needed to achieve specific
performance specifications. In contrast to weaving, weft insertion or
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 weft insertion process, while optimizing the fibers
mechanical properties, is typically a multi-step, relatively slow process used
for select niche markets. In 1990, the Company introduced a revolutionary new
product line, BiTexTM, 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.
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 with high production throughputs, all without crimping
the fiber and thereby avoiding degradation of the fibers strength. While the
Company does offer some weft inserted multi-step products, these are generally
offered in traditional lightweight markets. Certain of the Company's competitors
also can offer weft-inserted or stitchbonded reinforcement fabrics, though 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.
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COMPANY STRATEGY
The Company's strategy to continue its current growth includes the
following elements:
- Continue to build market share in existing markets by: (i)
accelerating the pace of marine conversions through the development of new
fabrics and production techniques; (ii) aligning itself with high volume
end users by expanding the Company's knowledge of their production needs
and end market requirements; and (iii) realigning North American
distribution to optimize market impact;
- Grow White Steel(R) business by: (i) seeking out and developing high
volume applications for White Steel(R) as a replacement for wood, steel and
concrete; (ii) adding additional value for the end user by enhancing the
processability of the delivered product (iii) developing partnerships to
accelerate the conversion of traditional materials to composites; and (iv)
investing in the Company's core manufacturing process technology to drive
the cost competitiveness of White Steel(R);
- Develop European market presence by: (i) using BTI-Europe as a base
to expand the Company's technology in the European marketplace; (ii)
increasing penetration of White Steel(R) into key markets and projects; and
(iii) expanding BTI-Europe's base growth rate by increasing product
offerings;
- Increase market presence in the developing carbon fiber market by:
(i) developing carbon fiber based processing techniques and reinforcement
fabrics to highlight carbon fibers inherent advantages; and (ii) fostering
joint development teams to increase the market for carbon reinforcing
fabrics and throughput capacity;
- Continued expansion of its leadership position in the composite
reinforcement fabrics industry through the 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 of the Company's position as the
only supplier of composite reinforcement fabrics to develop and manufacture
its own production equipment; and
- Pursuit of additional acquisitions to further broaden the Company's
product line as well as manufacturing capacity, product market coverage,
and distribution channels.
ACQUISITION OF ADVANCED TEXTILES, INC. AND TECH TEXTILES INTERNATIONAL LTD.
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 (the "Convertible Note"), 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 is better positioned to be the
principal provider of these fabrics to its expanded customer base. The Company
believes it is capturing additional market share by cross-marketing its existing
products to ATl's customers and vice versa. The Company is applying its
specialized know-how and technical skills to ATI's manufacturing capabilities
and achieving cost savings through economies of scale. Additionally, the
acquisition offers integrated distribution channels and higher manufacturing
efficiencies at ATI's production facility. ATI is now doing business as
Brunswick Technologies, Inc.
On March 2, 1998 the Company acquired the business and assets of TTI based
in Andover, UK from T&N plc for approximately $5.9 million in cash. The
acquisition was made through a wholly owned subsidiary in the UK, Brunswick
Technologies Europe Ltd. ("BTI-Europe"). The acquired business will be the
Company's base of operations for the Company's continued expansion into Europe.
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BTI-Europe is a composite reinforcement materials company which
manufactures glass, carbon and other high modulus reinforcements, many of which
is used in high margin applications in aerospace, automotive and wind
generation. It is based in a 30,600 square foot (previously 25,000 square foot)
manufacturing facility which currently employs 28 people with annual sales
exceeding $6 million.
The Company expects the acquisition will strengthen its leading market
share position in the reinforcement market and help advance its key growth
strategy to serve a worldwide market in the composite industry. Management
believes that the acquisition is a platform for the transfer of the Company's
proprietary process technology and production of White Steel(R) and provides
access to European suppliers and other sales distribution channels. The Company
also anticipates greater opportunities with current industry partnerships, many
of which are European-based and are subject to Common Market product origin
requirements. Other financial and competitive advantages include significant
savings on duty, shipping costs and material delivery time. TTI's management
team has continued to manage the day to day operations.
PRODUCTS
The Company currently manufactures composite reinforcement fabrics, also
referred to as stitchbonded or weft inserted non-crimped fabrics, primarily from
glass, carbon and aramid fibers, and is distributing them under the BiTex(R),
COfil(R), White Steel(R), Black Steel(R), and CoTech(R) 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.
ATI, which the Company purchased in 1996, 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.
The ATI operation, which was integrated into the Company during 1997, offers a
product range that 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 produced are not sold as
commodities. BTI-Europe, located in Andover, UK and acquired in March, 1998,
manufactures products similar to those manufactured by ATI using weft insertion
stitchbonding technology.
The Company's composite reinforcement fabrics permit 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 stitchbonding 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 carbons, 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,
corrosion sensitive vessels, and large undersea oil well protection systems.
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-absorption 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
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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.
- 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,
electric transmission towers, one-piece septic tanks, guardrails, building
columns, bridge columns, and bridges.
- 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 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.
- 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 also diminish the
amount of chemicals released in the environment. For example, marine
pilings 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
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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 per 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(R) and White
Steel(R) product lines, 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 l00 + inch-wide single-step fabrics commercialized in 1993;
- First capability to produce, in a single-step, 150 inch 0-90 degree
binderless mat product, and commercialization of same in 1994; and
- Introduction of a second generation White Steel(R) machine capable
of producing fabrics in excess of 100 oz. per square yard in 1997.
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 $498,038, $677,192, and $611,923 on both Company-sponsored and
customer-sponsored research and development in the fiscal years ended December
31, 1996, 1997 and 1998, respectively. A certain amount of the Company's R&D
activities are dedicated to the building of new production equipment.
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.
The Company sells through distributors and directly to end users. In 1996,
1997 and 1998, Domestic sales (goods produced or sold by the Company's North
American operations) were concentrated in five distributors. The distributors
are either national or represent strong regional presence and are typically
comprised of a subset of multiple local distribution points serving regional
markets. Internationally (goods produced or sold by BTI-Europe), sales are also
made through distributors and directly to end users with only one distributor
making up more than 10% of total sales.
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's competitive position in the European market has been greatly enhanced
through the March, 1998, acquisition of TTI in Andover, UK. TTI's sales managers
had been utilizing a similar team approach to that of the Company's and now have
a broader product line with which to compete in the market. Management believes
that further expansion of the use of heavy and super-heavy weight fabrics
throughout the composite industry will uniquely benefit sales of the Company's
White Steel(R) product line.
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SUPPLY
There are three significant suppliers of E-Glass raw material utilized by
the Company. Vetrotex America Corp. ("Vetrotex"), a shareholder of the Company,
is the primary supplier which supplies approximately 58% of the requirements.
PPG Industries is the second largest supplier accounting for approximately 38%
of the supply. Owens Corning Fibers accounts for about 4% of the requirements.
Additional suppliers include Jushi Fiberglass of China. The Company's ability to
grow is dependent upon its ability to obtain an adequate supply of fiberglass at
a competitive cost. The Company had a supply agreement with Vetrotex to supply
90% of its requirement which expired in August 1996. Since then the Company has
developed stronger relationships with the other suppliers to insure adequate
supply and cost effective pricing to support the anticipated growth in the years
ahead. The acquisition of ATI and TTI increased the demand significantly and
also improved the Company's position to negotiate with the vendors for more
favorable terms.
BACKLOG
The Company's backlog as of December 31, 1998 was approximately $3,619,000,
or approximately 4.5 weeks of sales. Backlog as of December 31, 1997 was
approximately $3,079,000, or approximately 4.9 weeks of sales. The increased
backlog is due to the addition of BTI-Europe's backlog which stood at $696,500
as of December 31, 1998, in part, to the somewhat higher mix of sales directly
to end users who place extended purchase orders with the Company. The Company's
backlog fluctuates by up to one week of sales, or more, depending on the
ordering pattern of individual distributors and end users.
JOINT PROJECTS
In February 1995, the Company entered into a Collaborative Agreement with
E.I. du Pont de Nemours and Company, Inc. ("DuPont"), Hardcore Composites Ltd.
("Hardcore"), The Dow Chemical Company and 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 began in May of
1996 and ran through September of 1998 and was 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 project enabled the Company
to independently develop its newest White Steel(R) machine which had its first
trials in early 1997. This development is considered enabling technology which
has enhanced the speed, quality and cost-effectiveness of composite
reinforcement production.
The entire budget of the program contemplated by the Collaborative
Agreement is approximately $1,547,000, which was to be spent over three years.
The Company expended $1,492,547 over the three years of the program.
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 $143,274 was included as a benefit to the 1997 statement of income.
Cost of goods sold was credited for $24,166 of this amount while $119,108 was
credited to other income. In 1998, the Company incurred eligible costs and
applied for reimbursement for $75,978. Cost of goods sold was credited for
$22,212 of this amount while $53,766 was credited to other income. The Company
is responsible for adherence to applicable federal laws and regulations covering
both 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.
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The Department of Defense has awarded funding through the 1995 Defense
Experimental Program to Stimulate Competitive Research (DEPSCOR) to the
University of Maine (Orono) 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 University of Maine 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.
Additionally, the Company has agreed to partially fund a University of
Maine graduate student through to his doctoral dissertation concerning wood
composite highbred materials for use in civil infrastructure. A significant
by-product of this agreement has been the development of a composite laminate
design program owned by the Company for use in assisting customers in optimizing
their laminates. The cost of this sponsorship is approximately $12,500 per year
through 1999.
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.
Management is not aware of any 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 North American market.
These are Johnston Composite Industries, a subsidiary of Johnston Industries
Inc., and Knytex, a division of Owens Corning. The Company believes that it has
one of the largest shares of the North American market for weft-inserted or
stitchbonded (non-crimped) composite reinforcement fabrics.
The Company also competes in the European market, which is highly
fragmented with up to 17 small competitors addressing many niche markets. The
Company has established itself as a significant competitor in this market with
its 1998 acquisition of Tech Textiles International Ltd. and its growing White
Steel(R) business in northern Europe.
EMPLOYEES
As of December 31, 1998, the Company had 176 full time employees, of whom
143 were employed in engineering and manufacturing, 16 in sales and marketing
and 17 in administrative and management functions. No employees are represented
by unions. The Company believes its relations with employees are good.
INTELLECTUAL PROPERTY
Although the Company has three registered trademarks and owns two patents
relating to its products, 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
9
<PAGE> 11
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 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.
YEAR 2000
The year 2000 ("Y2K") issue is best defined as the ability of systems to
accurately process all date related information before, during and after
midnight on 12/31/99, including other "magic" or "null-set" dates such as
9/9/99, 1/11/11.
The Company has undertaken an initiative (begun in the second quarter of
1998) to assess the readiness of its internal systems in regards to compliance
with the pending millennium change. The company has assigned direct
responsibility for the Y2K project to the corporate controller, in conjunction
with the chief financial officer.
The Company has identified three broad categories of internal Y2K risk:
network hardware and software, manufacturing systems and processes, and
financial, manufacturing and time and attendance software.
- All network hardware has been inventoried, reviewed for compliance
and tested where necessary and appropriate. Upon completion of the testing
it was determined that some hardware was not in compliance, replacement
hardware has been purchased and installation will be complete by April
1999.
- The manufacturing equipment upon which the Company places primary
reliance for production of saleable goods has been inventoried for date
sensitive components. Components identified with the potential for
containing date sensitive processors were researched through the original
manufacturer to determine compliance and upgraded or replaced as necessary.
Appropriate final testing will be completed as necessary.
- The Company has fully implemented the financial modules of a third
party supplied Enterprise Resource Planning ("ERP") system, which is Y2K
compliant, and separately it has successfully upgraded its time and
attendance system with Y2K compliant software. The manufacturing portion of
the ERP is scheduled to be online during the second quarter of 1999,
initially in the Maine facility, followed by the Texas facility. It is not
critical that this module be implemented internationally at the UK
facility.
The impetus for installing the new ERP system was the need for an enhanced,
fully integrated, management information system to support continued growth, not
specifically due to Y2K exposure. The Company continues to capitalize the costs
of the ERP consistent with GAAP under Management Information Systems, which
totaled $394,300 as of December 31,1998. The implementation of this ERP system
substantially addresses Y2K compliance issues related to our financial and
manufacturing data collection and reporting systems.
In addition to assessing our internal systems, the Company is reviewing
suppliers, service providers and customers whose systems failures as a result of
Y2K non-compliance could have a significant impact on our continued business
operations. The Company is principally dependent on a small number of suppliers
for the majority of its raw material. The Company has initiated communications
to directly address these suppliers' Y2K preparedness, however the company has
limited or no control over the actions of these third party suppliers to address
and resolve their Y2K issues. Any failure of these principal third party
suppliers to resolve their Y2K issues could have a materially adverse effect on
continued uninterrupted business operations.
It is the Company's goal to be Y2K system compliant and to have performed a
thorough assessment of critical third parties by the end of the second quarter
of 1999. Based on the results of the internal compliance initiative and the
assessment of third parties preparedness for the millennium change, management
will
10
<PAGE> 12
determine the extent to which contingency planning is necessary. At this time,
based on management's opinion of overall risk, no formal contingency planning
has been completed.
It is management's opinion that the Company's overall internal, as opposed
to supplier, risks associated with the Y2K problem are low. The implementation
costs associated with the ERP project are the only material costs incurred to
date in system software that would be reviewed as part of our Y2K project. The
Company has not incurred any other material costs related to the Y2K project,
and it is anticipated that total future costs associated with ensuring
compliance will not exceed $50,000 and will be funded by cash flows generated
from ongoing business operations. However, these expectations are subject to
uncertainties. Although the Company expects that its internal systems will be
Y2K compliant by the end of 1999, there can be no assurances that system
failures will not occur, or that such failures will not have a materially
adverse effect on continued uninterrupted business operations.
The following table provides a synopsis of the status, timetable, costs and
contingency plans of the categories the Company has identified as sensitive to
Y2K.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ESTIMATED
SYSTEM/ ESTIMATED CONTINGENCY CONTINGENCY
PROCESS PHASE STATUS TIMETABLE COST PLAN/RISKS COST
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial, Implementation $500,000 In the event $0
Manufacturing, and of Integrated that the
Time & Attendance ERP System This cost is manufacturing
Software Financial Complete -- not a direct and customer
Purchasing Complete -- result of the service systems
Manufacturing In process 8/99 Y2K initiative, are not fully
Customer In process 8/99 but was installed,
Service incurred to current
support processes will
Implementation Complete -- continued support
of new time and business growth continued
attendance operations.
system
- ---------------------------------------------------------------------------------------------------------------------------
Network Hardware Inventory Complete -- $15,000 Greatest risk $20,000
and Software System is over WAN,
Equipment disruption
would
Test Complete -- necessitate
Hardware/ local
Software installation of
ERP software
Upgrade/Replace In process -- 4/99
non-complaint
hardware is
being replaced
- ---------------------------------------------------------------------------------------------------------------------------
Manufacturing Inventory Complete -- $0 Manufacturing $0
Equipment and System process does
Systems Equipment not rely on
date sensitive
Test as Complete -- processing
appropriate equipment
Remediate Complete --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 2: PROPERTIES
The Company's executive offices and major manufacturing/warehouse facility
is located in a facility in Brunswick, Maine, of approximately 77,000 square
feet which was substantially completed in March 1996 and expanded in 1998. The
Company leases the property from the Brunswick Development Corporation ("BDC"),
a Maine corporation wholly owned by the town of Brunswick. The Company's lease
was originally for a term of 10 years and commenced on January 1, 1996 with an
option to extend the term for an additional five year period. In June 1998, the
Company and BDC modified the lease when the building was expanded by BDC. The
current lease is for a term of 15 years with a commencement date of January 1,
1996. 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
11
<PAGE> 13
or the residual debt payable to 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 date, which purchase would require the consent
of the bond holders. The rent for the facility is $315,700 annually through the
year 2000; the lease provides for periodic scheduled rent increases, with a
final annual rent of $392,700 for the last year (2010) of the current lease. The
Maine operation currently leases an additional 10,000 square feet at $43,200 per
year for storage of finished goods to maximize the effectiveness of material
movements and traffic operations.
With the acquisition of ATI, the Company acquired approximately 42,000
square feet of manufacturing, office and warehouse space in Seguin, Texas,
including underlying real estate. In 1997, an additional 10,000 square feet was
constructed bringing the total to approximately 52,000 square feet. The Seguin
operation also rents approximately 6,000 square feet at $6,900 per year for
storage of spare machine parts and miscellaneous equipment.
The Company, through its subsidiary Brunswick Technologies Europe, Ltd.,
leases a total of approximately 30,600 square feet of modem manufacturing,
offices and warehouse space in Andover, UK. Annual rent of L109,440 is paid in
quarterly installments. The three triple-net leases run through December, 2001,
with the rental payments subject to adjustment in July, 2000.
ITEM 3: 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.
Owens Corning Fibers, Inc. ("OCF"), in correspondence and other contacts
commencing in December, 1998, has expressed its belief that the Company is
infringing Hutson U.S. Patent Nos. 4,484,459 and 4,550,045 acquired by OCF. It
is the Company's position that no valid claim of any of the mentioned patents is
infringed by the Company, and that they also have other good defenses. The
Company and OCF are continuing to discuss this matter but have yet to resolve
the infringement claim.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
The Company's shares of Common Stock (trading symbol: BTIC) have been
quoted and traded on the NASDAQ National Market tier of the NASDAQ Stock Market
since February 5, 1997. The initial public offering price for the Common Stock
was $9.50 per share. The following table sets forth the high and low sale prices
as reported by NASDAQ for the fiscal period indicated:
<TABLE>
<CAPTION>
1998 1997(1)
------------- -------------
PERIOD HIGH LOW HIGH LOW
- ------ ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter.............................. 17 12 1/4 10 7/8 9 1/2
Second Quarter............................. 15 1/8 10 1/4 9 3/8 8 5/8
Third Quarter.............................. 13 1/6 5 17/32 19 1/2 9 1/8
Fourth Quarter............................. 8 1/2 4 20 3/16 14
</TABLE>
- ---------------
(1) For the year 1997, first quarter is the period from February 5 (initial
public trading day) through March 31, 1997.
The approximate number of stockholders of record of the Company's Common
Stock as of March 22, 1999 is 3,600.
12
<PAGE> 14
To date, the Company has not paid any dividends on its Common Stock. 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.
Item 701 Disclosure:
On February 10, 1997, the Company completed its initial public offering of
common stock. The sale to the public totaled 2,675,000 shares, with 1,700,000
new shares being sold by the Company and 975,000 shares being sold from the
holdings of an existing shareholder. The offering price was $9.50 per share with
proceeds to the Company, after offering expenses, of approximately $13,700,000.
From the proceeds, the Company was obligated to pay $3,648,250 of the
convertible subordinated note held by Burlington Industries, plus accrued
interest thereon of $94,954. From the proceeds, the Company also paid off the
balance of its bank debt, approximately $2,892,960 million. Deferred charges of
$512,679 at December 31, 1996, and other transactional expenses (together
aggregating approximately $1.3 million) were offset against stockholders equity
upon completion of the offering. For the year ended December 31, 1997, the
Company expended $855,900 of the proceeds in purchases of property, plant and
equipment and $4,394,000 of the proceeds for working capital. The balance of the
proceeds of the initial public offering that had not been expended as of
December 31, 1997 was invested in high-grade governmental and corporate
obligations. On March 2, 1998 the Company acquired the business and assets of
TTI based in Andover, UK from T&N plc for approximately $5.9 million in cash.
This substantially completed the re-investment of the remaining proceeds of the
IPO.
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data set forth below for the Company's fiscal year
ended December 31, 1994 and at December 31, 1994 are derived from the financial
statements of the Company audited by KPMG Peat Marwick LLP, independent public
accountants. The selected financial data set forth below for the Company's
fiscal years ended December 31, 1995, 1996, 1997 and 1998 and at December 31,
1995, 1996, 1997 and 1998 are derived from the financial statements of the
Company audited by PricewaterhouseCoopers, LLP, independent public accountants,
which are included elsewhere in this Report. 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 Report.
13
<PAGE> 15
BRUNSWICK TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1998(2) 1997 1996(1) 1995 1994
------- ------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Sales................................. $41,422 $30,510 $19,816 $15,476 $9,596
Cost of goods sold........................ 32,224 22,807 15,318 11,979 7,382
------- ------- ------- ------- ------
Gross profit.............................. 9,198 7,702 4,498 3,497 2,214
Other operating expenses.................. 7,234 5,921 3,521 2,492 1,874
Moving costs.............................. -- -- 248 9 --
Facility repair costs..................... -- -- (148) 150 --
------- ------- ------- ------- ------
Operating income.......................... 1,964 1,781 877 846 340
Other income, net......................... 422 202 51 (61) (26)
------- ------- ------- ------- ------
Income before taxes....................... 2,386 1,983 928 785 314
Income tax (benefit) expense.............. 839 707 335 (122) --
------- ------- ------- ------- ------
Net income................................ 1,548 1,275 593 907 314
======= ======= ======= ======= ======
Preferred stock dividend.................. -- (51) (450) (450) (450)
Accretion of preferred stock Redemption
value................................... -- (5) (82) (76) (71)
------- ------- ------- ------- ------
Net income (loss) attributable to Common
stock................................... $ 1,548 $ 1,219 $ 74 $ 375 $ (212)
======= ======= ======= ======= ======
Basic earnings per share.................. $ 0.30 $ 0.29 $ 0.25 $ 1.33 $ --
Diluted earnings per share(3)............. $ 0.28 $ 0.26 $ 0.17 $ 0.03 $ --
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.......................... $ 8,963 $12,414 $ 1,412 $ 905 $ 631
Total assets............................. 29,639 25,216 18,634 7,867 5,665
Long-term liabilities.................... 1,173 623 8,975 1,069 1,177
Total liabilities........................ 4,701 1,989 14,289 4,168 2,886
Preferred stock.......................... -- -- 6,589 6,070 5,538
Stockholders' equity (deficit)........... $24,938 $23,227 $(2,244) $(2,371) $(2,759)
</TABLE>
- ---------------
(1) Reflects the consolidation of the operations and financial condition of ATI
with those of the Company for the last two months of 1996.
(2) Reflects the consolidation of the operations and financial condition of
BTI-Europe with these of the Company for the ten months from March 2, 1998
to December 31, 1998.
(3) Calculation is shown in Note 1 of Notes to Consolidated Financial Statements
of the Company.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a leading developer and producer of engineered reinforcement
fabrics used in the fabrication of composite materials. 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. The
Company's principal strength lies in its innovative quadraxial single-step
stitchbonding fabrication process.
14
<PAGE> 16
ACQUISITION OF ADVANCED TEXTILES, INC.
On October 30, 1996, the Company acquired Advanced Textiles, Inc. ("ATl"),
a subsidiary of Burlington Industries, Inc. ("Burlington") for a total
acquisition cost of $8,539,000, payable through the issuance of a note
($7,296,500) convertible into the Company's common stock, $0.000l par value (the
"Common Stock") at the initial public offering ("IPO") price of $9.50 per share;
deferred cash payments discounted to $513,000; the issuance of Common Stock
valued at $53,500 to a minority shareholder in ATI; cash payments of $351,000;
and acquisition costs of $325,000. The acquisition was accounted for under the
purchase method of accounting. The fair market value of the assets acquired is
estimated at $3,178,000, resulting in goodwill of $5,361,000 which amount is
being amortized over 20 years.
The operations of ATI for November and December 1996 are included in the
1996 consolidated statements of income and cash flow. All inter-company
transactions have been eliminated in the consolidated financial statements.
Except where noted, the discussion below is directed at 1996 operations so
consolidated. ATI contributed $1,723,573, $380,162, $105,527, and ($9,890) of
net revenue, gross margin, operating income and net (loss) respectively to the
1996 consolidated statement of income. The ATI operations for the two months
(November and December of 1996) resulted in a net loss due to the amortization
of goodwill ($51,137) and the interest expense on the debt to Burlington
($122,582). On February 10, 1997, upon the closing of the Company's IPO, one
half of the convertible subordinated note to Burlington ($3,648,250) was paid,
which reduced interest expense by $28,882 a month.
On November 7,1997 the Company called the remaining $3,648,250 outstanding
under the convertible subordinated note and Burlington chose to convert the note
into Common Stock in a two stage conversion: $1,500,000 was converted on
November 7, 1997 into 157,894 shares of Common Stock at the exercise price of
$9.50 per share. The remaining $2,148,250 was converted on November 17, 1997
into an additional 226,131 Common Shares at the same exercise price of $9.50 per
share. This completed the financing of the ATI acquisition and eliminated the
remaining monthly interest expense of $28,882.
On March 2, 1998 the Company acquired the business and assets of TTI based
in Andover, UK from T&N plc for approximately $5.9 million in cash. The 10 month
operations of Brunswick Technologies Europe, Ltd. ("BTI-Europe", the Company's
wholly owned subsidiary formed to hold the acquired assets of TTI and located in
Andover, UK) are included in the 1998 consolidated statements of income and cash
flow while BTI-Europe's net assets are included in the December 31, 1998
consolidated balance sheet and statement of shareholders' equity. All
inter-company transactions have been eliminated in the consolidated financial
statements. Except where noted, the discussion below is directed at 1998
operations so consolidated.
BTI is organized primarily on the basis of products being marketed,
produced and shipped from either "domestic" plants (those located in the United
States) or the sole "international" plant, BTI-Europe located in Andover, UK.
Domestic operations utilize a unified sales force selling a unified product line
directly to customers as well as through a unified group of distributors.
Products are sold substantially within North America, though products are also
shipped worldwide. International operations sell primarily to a distinct
customer base utilizing a locally based sales force and independently
established distribution channels. Products are shipped throughout Europe and
the world.
15
<PAGE> 17
The following table sets forth certain financial data as a percentage of
net sales:
BRUNSWICK TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net Sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 77.8% 74.8% 77.3%
----- ----- -----
Gross profit................................................ 22.2% 25.2% 22.7%
Selling, general and administrative expenses................ 16.0% 17.2% 15.3%
Research and development expenses........................... 1.5% 2.2% 2.5%
Moving costs................................................ 0.0% 0.0% 1.3%
Facility repair costs....................................... 0.0% 0.0% -0.7%
----- ----- -----
Operating income............................................ 4.7% 5.8% 4.4%
Other income (expense)
Interest expense.......................................... 0.0% -1.1% -1.3%
Miscellaneous, net........................................ 1.0% 1.7% 1.6%
----- ----- -----
Income before taxes......................................... 5.8% 6.5% 4.7%
Income tax expense.......................................... 2.0% 2.3% 1.7%
----- ----- -----
Net income.................................................. 3.7% 4.2% 3.0%
</TABLE>
16
<PAGE> 18
Net sales, cost of goods sold and gross profit
The percentage increases and per pound values in the consolidated net
sales, cost of goods sold and gross profit accounts for the years 1998, 1997 and
1996 are shown below. The percentage increase and per pound values for the
domestic operations of net sales, cost of goods sold and gross profit accounts
are shown below as is the per pound values of net sales, cost of goods sold and
gross profit for the international operations.
<TABLE>
<CAPTION>
% INCREASE
------------------
1998 1997 1996 1997-98 1996-97
----------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
Pounds sold...................... 26,899,116 20,721,483 13,893,086 29.8% 49.1%
Net sales........................ $41,422,131 $30,509,675 $19,815,711 35.8% 54.0%
Average price per pound.......... $ 1.540 $ 1.472 $ 1.426 4.6% 3.2%
Cost of goods sold............... $32,224,028 $22,807,179 $15,317,619 41.3% 48.9%
Average cost per pound........... $ 1.198 $ 1.101 $ 1.103 8.8% -0.2%
</TABLE>
<TABLE>
<CAPTION>
% INCREASE
------------------
1998 1997 1996 1997-98 1996-97
----------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
DOMESTIC
Pounds sold...................... 24,631,140 20,721,483 13,893,086 18.9% 49.1%
Net sales........................ $36,113,189 $30,509,675 $19,815,711 18.4% 54.0%
Average price per pound.......... $ 1.466 $ 1.472 $ 1.426 -0.4% 3.2%
Cost of goods sold............... $28,469,581 $22,807,179 $15,317,619 24.8% 48.9%
Average cost per pound........... $ 1.156 $ 1.101 $ 1.103 5.0% -0.2%
</TABLE>
<TABLE>
<CAPTION>
1998
----------
<S> <C> <C> <C> <C> <C>
INTERNATIONAL
Pounds sold....................... 2,267,976
Net sales......................... $5,308,942
Average price per pound........... $ 2.341
Cost of goods sold................ $3,754,447
Average cost per pound............ $ 1.655
</TABLE>
1998 compared to 1997
NET SALES. Consolidated net sales increased $10.9 million in 1998 or 29.8% to
$41.4 million. Domestic net sales increased $5.6 million, or 18.4%, to $36.1
million and international operations (which represents only 10 months of BTI
Europe's operations) contributed $5.3 million to consolidated net sales.
Domestic gains were due to continued increases in the number of end uses of the
Company's products as well as increases in market share for existing end use
applications. Gains were achieved in all of the major industry sectors using the
Company's products: marine, transportation, corrosion, oil and gas, recreational
and general industrial. One of the stronger gains was experienced in the
industrial market where composites are utilized in large scale blade
applications. The Company's White Steel(R) product line continued to increase
during the year with gross sales reaching $1.9 million for the year, up 90% from
1997's levels. Most of these products are currently being sold into the
transportation and offshore oil and gas markets. This continues the trend of the
Company's success at diversifying the base business to reduce the Company's
historically high dependence on the marine sector through growth and development
of new markets.
GROSS PROFIT MARGIN. Consolidated gross profit margin declined from 25.2% in
1997 to 22.2% in 1998 as the domestic gross margin, which was down to 21.2%, was
negatively impacted by: (1) an increase in raw stock pricing which was unable to
be passed through to the end user; (2) manufacturing inefficiencies caused by
higher frequency of style changes to meet demand for certain product lines which
also generated greater quantities of second quality material ; (3) high regional
unemployment which increased training and other
17
<PAGE> 19
costs associated with high worker turnover; (4) increased overhead associated
with new capacity coming on line and the expansion of physical plant space to
accommodate future additional production machines, and; (5) replacement material
being provided to an export customer in compensation for out of spec material.
The average domestic sell price per pound declined $.006. However, the average
cost per pound increased $.055 to $1.156 resulting in a gross profit per pound
at $0.310, down from $0.371 in 1997. International operations helped to
partially offset the lower domestic gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and
administrative ("SG&A") expenses increased from $5.24 million in 1997 to $6.62
million in 1998 but declined as a percentage of net sales from 17.2% to 16.0%.
Domestic SG&A dropped to 15.4% during the year. Within that category shipping
costs as a percentage of net sales increased from 3.9% to 4.5% as the Company
had a greater number of export shipments. This was more than offset by a
decrease in selling expense as a percentage of sales which dropped from 6.8% to
5.5%. Domestic general and administrative expenses increased by $208,000 to
$1.94 million but also decreased as a percentage of net sales from 5.7% in 1997
to 5.4% in 1998. Internationally, SG&A totaled 12.9% of net sales for the ten
months. It should be noted that the corporate overhead is borne by domestic
operations so a direct comparison of domestic and international expense
structures is not appropriate.
RESEARCH AND DEVELOPMENT EXPENSES. Consolidated research and development
("R&D") expenses declined 9.6% in 1998 to $612,000, or 1.5% of net sales. R&D
expenses are heavily influenced by where the Company is in the development cycle
of a new machine which can run from 6 to 18 months. The Company brought a new
White Steel(R) machine on line in 1997. The development expense associated with
that machine was greater than the new 150" 0 degrees/90 degrees machine brought
on line in 1998.
INTEREST INCOME. Interest income declined in 1998 as the remaining proceeds
from the Company's 1997 initial public offering were substantially reinvested
from short term liquid investments into the acquisition of the business and
assets of TTI on March 2, 1998. This reduced interest income and shifted income
to operating income through the consolidated of BTI-Europe.
INTEREST EXPENSE. Interest expense declined in 1998 due primarily to the
deleveraging of the Company following the Company's initial public offering in
February, 1997. Approximately $44,500 of interest expense was incurred during
1998 due to short term borrowings under the Company's unsecured line of credit
from the Company's bank. This was offset by a like amount of interest which was
capitalized into machines and other construction in progress.
MISCELLANEOUS INCOME. Miscellaneous income includes some of the impact of
reimbursement of expenses related to expenditures on new technologies from a
grant from the NIST in 1998 when the amount of $76,000 was included as a benefit
to the 1998 statement of income. Cost of goods sold was credited for $22,200 of
this amount while $53,800 was credited to other income. Cash discounts, which
are also included in miscellaneous income, earned through the early payment of
trade debt, totaled $197,000 in 1998 and the Company had $12,700 in realized
gains on foreign exchange during the year.
INCOME TAX EXPENSE. Income tax expense of $838,500 reflected a blended tax rate
of 35.1%, down slightly from 1997's 35.7% rate. The domestic tax rate of 37% is
blended with a 31% effective rate on international pre-tax earnings.
1997 compared to 1996
NET SALES. Net sales increases reflect the positive impact of a full 12
months of ATI's activity as well as the successful cross-selling of the
integrated product lines during the year. Revenues have also increased during
the periods presented due to continued increases in the number of end uses of
the Company's products as well as increases in market share for existing end use
applications. Sales increases have been experienced in all of the major industry
sectors using the Company's products: Marine, transportation, infrastructure,
oil and gas, recreational and industrial. Most notably, sales of the Company's
White Steel(R) product line increased over 45% to over $1.0 million in gross
sales. Sales within periods have historically been affected by fluctuations in
the general availability of the raw material of fiberglass strands used by the
Company in its manufacturing process. With an ample supply of fiberglass (which
occurred in 1996), the Company's customers tend to
18
<PAGE> 20
reduce their inventories on the basis that supplies are readily available. This
resulted in Company sales for 1996 being adversely effected as customer
inventories were reduced to two to three weeks of use compared to significantly
higher customer inventory levels in 1995. Supplies within the industry remained
readily available throughout 1997.
GROSS PROFIT MARGIN. Gross profit margin continued to improve in 1997 as
the Company was able to enjoy a $.046 per pound increase in the average selling
price while pushing cost of goods sold down .2% to $1.10l per pound. These
numbers reflect the positive impact of ATI's higher margin business as well as
favorable special pricing on raw stock that the Company was able to achieve in
the first half of the year. Pricing of raw stock returned to more normal levels
in the second half of the year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 were impacted by the inclusion of a full 12
months of ATI's activities plus increased administrative costs associated with
being a publicly traded company. Selling, general and administrative expenses
for 1997 increased 74%, or $2,221,800. Within that category, selling expense
increased by 89.7%, or $977,500 and as a percentage of net sales, selling
expense rose from 5.5% to 6.8%, due primarily to increases in salaries
associated with the acquisition of ATI. General and administrative expenses
("G&A") increased $695,300, or 67.3%. As a percentage of net sales, G&A expenses
increased from 5.2% in 1996 to 5.7% in 1997 with the increase caused by an
increase in salaries and bonuses associated primarily with the acquisitions of
ATI plus the higher legal, accounting and insurance fees associated with the
Company's Common Stock being traded in the public markets. Directors and
Officers insurance ("D&O") increased from $10,000 annually to $75,900 annually
as a result of the Company's IPO in February, 1997, while outside legal and
accounting expenses (net of those directly supporting the IPO) increased by
approximately $58,000 in 1997. Also in G&A, goodwill amortization increased by
$224,400 resulting from a full 12 months amortization associated with the ATI
acquisition in 1997 versus only two months in 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $179,200, or 36% in 1997. Most of the increase is due to costs
associated with the development of the Company's new White Steel(R) production
machine, which was brought on line during the later part of the third quarter.
MOVING COSTS. Moving costs in 1996 reflect the cost of moving to the new,
Brunswick, Maine facility which move was completed in the first half of 1996. In
connection with the move to the new facility, the Company recorded in 1995 an
expense of $150,000 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 $147,500 as recognized as an addition to operating income in June 1996
which offset, to some extent, other increases in operating expenses.
INTEREST INCOME. Interest income of $319,100 was earned in 1997 and
resulted from the investment of some of the net proceeds from the Company's IPO.
INTEREST EXPENSE. Interest expense increased as a result of the debt due
to Burlington, which was incurred in November 1996 and partially retired in
February 1997, in conjunction with the IPO. The remaining balance was converted
into Common Stock in November 1997. Also, the Company had capitalized interest
associated with the construction phase of new machines totaling $72,100 in 1997,
up from only $14,000 in 1996.
MISCELLANEOUS INCOME. Miscellaneous income includes some of the impact of
reimbursement of expenses related to expenditures on new technologies from a
grant from the NIST in 1997 when the amount of $143,300 was included as a
benefit to the 1997 statement of income. Cost of goods sold was credited for
$24,200 of this amount while $119,100 was credited to other income. The
reimbursement of certain expenditures from this grant resulted in a credit of
$93,600 and $34,300 to cost of goods sold and recognition of $332,400 and
$66,700 as other income in the 1996 and 1995 periods, respectively. Cash
discounts, which are also included in miscellaneous income, earned through the
early payment of trade debt, totaled $131,500 in 1997 and was achieved by
utilization of some of the net proceeds of the Company's IPO.
INCOME TAXES. In 1997, the Company recorded income tax expense of $707,400, for
an effective rate of 35.7%. In 1996, the Company recorded income tax expense at
an effective rate of 36.1%.
19
<PAGE> 21
Liquidity And Capital Resources
INITIAL PUBLIC OFFERING. On February 10, 1997, the Company issued and sold
1,700,000 new shares of its Common Stock in its IPO. As part of the IPO, a
stockholder which owned a large percentage of the Company sold 800,000 of its
shares to the public so that the total sale to the public was 2,500,000 shares.
The price to the public was $9.50 per share. After selling commissions of 7%,
the Company realized proceeds of $8.835 per share or $15,019,500. Expenses
associated with the offering were approximately $1 million so that net proceeds
were about $14 million. In accordance with the terms of the note to Burlington,
upon the closing of the IPO, 50% of the note was redeemed in the amount of
$3,648,300 plus accrued interest of $95,000. Bank debt totaling $2,694,000 was
also paid with the IPO proceeds.
In connection with the IPO, the Company was recapitalized as follows: all
shares of Common Stock were split on a 33 for 1 basis; all shares of the
Company's preferred stock, converted into shares of Common Stock on a 33 for 1
basis; the holders of preferred stock were issued in the aggregate an additional
211,088 shares of Common Stock in payment of $2,005,300 in accrued cash
dividends pursuant to the terms of the preferred stock; and the Company's no par
value Common Stock was converted into Common Stock with a par value of $0.0001
per share.
On October 30, 1997, (one year from the date of the acquisition of ATI),
the outstanding balance of the convertible note to Burlington became convertible
into Common Stock at a rate of $9.50 per share. On October 30, the Company
called the remaining $3,648,300 outstanding under the convertible subordinated
note and Burlington chose to convert the note into Common Stock in a two stage
conversion: $1,500,000 was converted on November 7, 1997 into 157,894 shares of
Common Stock at the exercise price of $9.50 per share. The remaining $2,148,300
was converted on November 17, 1997 into an additional 226,131 shares of Common
Stock at the same exercise price of $9.50 per share. This completed the
financing of the ATI acquisition and eliminated the remaining monthly interest
expense of $28,882.
The Company used approximately $2.2 million of the net proceeds from the
IPO to accelerate the payment of trade debt in order to take advantage of early
payment discount incentives being offered by major suppliers.
OTHER CONSIDERATIONS. The TTI acquisition which was made for approximately $5.9
million in cash substantially reduced the liquidity of the Company in 1998. In
addition, the company invested an additional $1.82 million during the year in
new plant and equipment, including a new management information system (see
"Year 2000"). During the year, the Company closed on a new $4.0 million
unsecured line of credit which was increased from $2.5 million by the Company's
bank. The company has utilized the line from time to time and at December 31,
1998 there was $261,000 outstanding under the line. Details of the arrangement
are given in Note 4 of Notes to the Consolidated Financial Statements of the
Company. Management believes cash flow from ongoing operations and funds
available under the Company's credit facility will be adequate to meet the
Company's needs during 1999.
Three of the Company's largest distributors have announced a merger which
is to be consummated on March 31, 1999. The Company estimates that sales to the
combined entity will represent in excess of 45% of the Company's annualized
domestic sales. While this increases the Company's credit risk concentration and
market concentration, management believes that there will be enhanced market
benefits to the consolidation of the three distributors, as well.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information contained in this report with respect to expected financial
results and future events and trends is forward-looking, based on Management's
estimates and assumptions and is subject to risks and uncertainties. For those
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation reform
Act of 1995. The Company cautions investors that there can be no assurance that
actual results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements as a result of various
factors and risks.
20
<PAGE> 22
The Company's future operating results are dependent on its ability to
achieve increased sales and to control expenses. Factors such as lower than
expected inflation, product cost fluctuations, changes in product mix, continued
or increased competitive pressures from existing competitors and new entrants,
including price cutting strategies, and deterioration in general for regional
economic conditions are all factors which could adversely affect sales
projections. Additionally, the Company's operating results may be negatively
affected by (i) difficulties and uncertainties associated with the merger of
three of the Company's large distributors, (ii) fluctuations in valuation of the
pound Sterling versus other European currencies and the US Dollar, (iii) the
failure to obtain necessary capital for the expansion of facilities and
acquisitions, and (iv) unforeseen results of the Y2K problem. Other components
of operating results could be adversely affected by state or federal legislation
or regulation that increases costs, increases in labor rates due to low
unemployment or other factors, or the inability to control various expense
categories.
ITEM 7A: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Management feels that the Market Risk profile of the Company is low. The
Company has a wholly owned subsidiary, BTI-Europe, located in Andover, UK. The
value of the Company's interest in, and inter-company obligations to and from,
BTI-Europe may fluctuate from time to time in response to changes in the
relative exchange rates between the US Dollar ($) and British Pound Sterling
(L). The financial statements of BTI-Europe are consolidated into the financial
statements of the Company for financial reporting purposes in accordance with
Generally Accepted Accounting Principals ("GAAP") and, as such, are translated
into US currency at the exchange rates prescribed by GAAP. The Company also
sells product throughout the world and, from time to time, may agree to sell
based on the local currencies. The Company may, from time to time, enter into
foreign exchange forward contracts in order to hedge against currency
fluctuations associated with these foreign sales or anticipated sales.
Accordingly, the Company's accounts receivable may be subject to realized and
unrealized foreign exchange gains or losses and are reported in accordance with
GAAP. At December 31, 1998, the Company had no outstanding foreign exchange
forward contracts outstanding.
The Company has a $4.0 million dollar unsecured line of credit from the
Company's bank. The details of the line may be found in Note 4 of the Notes to
the Consolidated Financial Statements. The Company has used the line from time
to time and borrowings under the line are subject to interest rates which may
fluctuate with the prevailing interest rate environment.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following described consolidated financial statements of the Company
are included in response to this item:
Report of Independent Public Accountants
Consolidated Statements of Income for the years ended December 31, 1998,
1997, and 1996.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Stockholder's Equity (Deficit) for the years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements
21
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
February 12, 1999
Board of Directors and Shareholders of
Brunswick Technologies, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related statements of income, shareholders' equity (deficit), cash flows and
comprehensive income present fairly, in all material respects, the financial
position of Brunswick Technologies, Inc. and Subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Portland, Maine
22
<PAGE> 24
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $41,422,131 $30,509,675 $19,815,711
Cost of goods sold (raw material purchased from a
stockholder amounted to $10,309,104 in 1998,
$8,933,450 in 1997, and $8,548,754 in 1996)....... 32,224,028 22,807,179 15,317,619
----------- ----------- -----------
Gross Profit.............................. 9,198,103 7,702,496 4,498,092
Selling, general and administrative expenses........ 6,621,756 5,244,016 3,022,240
Research and development expenses................... 611,923 677,192 498,038
Moving costs........................................ -- -- 248,314
Facility repair costs............................... -- -- (147,545)
----------- ----------- -----------
Operating income.......................... 1,964,424 1,781,288 877,045
----------- ----------- -----------
Other income (expense):
Interest income................................... 96,193 319,071 4,102
Interest expense.................................. -- (328,415) (255,931)
Miscellaneous, net................................ 325,731 210,845 303,181
----------- ----------- -----------
421,924 201,501 51,352
----------- ----------- -----------
Income before income tax.................. 2,386,348 1,982,789 928,397
Income tax expense.................................. 838,500 707,400 335,000
----------- ----------- -----------
Net income................................ 1,547,848 1,275,389 593,397
----------- ----------- -----------
Preferred stock dividend............................ -- (50,561) (450,120)
Accretion of preferred stock redemption value....... -- (5,439) (69,559)
----------- ----------- -----------
Net income attributable to common stock............. $ 1,547,848 $ 1,219,389 $ 73,718
=========== =========== ===========
Basic:
Earnings per share................................ $ 0.30 $ 0.29 $ 0.25
Weighted average common shares outstanding........ 5,164,113 4,215,827 297,140
Diluted:
Earnings per share................................ $ 0.28 $ 0.26 $ 0.17
Weighted average common shares outstanding........ 5,438,355 4,936,033 3,498,302
</TABLE>
The accompanying notes are an integral part of the financial statements
23
<PAGE> 25
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 795,764 $ 352,839
Marketable securities available for sale.................. -- 6,607,344
Accounts receivable (net of allowance for doubtful
accounts of $125,000 in 1998 and $46,000 in 1997)...... 6,056,155 2,908,648
Inventories............................................... 4,806,799 3,308,031
Refundable income taxes................................... 27,049 --
Deferred income taxes..................................... 274,500 179,600
Other current assets...................................... 530,588 353,704
----------- -----------
Total current assets................................... 12,490,855 13,710,166
Property, plant and equipment:
Land and building......................................... 973,512 937,317
Furniture and fixtures.................................... 535,220 458,043
Leasehold improvements.................................... 116,446 80,731
Machinery and equipment................................... 10,284,156 6,375,110
Machine under construction................................ 280,227 231,354
Vehicles.................................................. 92,318 92,318
Management information systems............................ 394,267 102,000
----------- -----------
12,676,146 8,276,873
----------- -----------
Less accumulated depreciation and amortization............ (2,876,833) (2,003,050)
----------- -----------
Net property, plant and equipment...................... 9,799,313 6,273,823
----------- -----------
Due from shareholder........................................ 110,877 69,581
Other assets, including investment in Euro-Technology (net
of accumulated amortization of $128,111 in 1998 and $1,185
in 1997).................................................. 2,181,830 123,678
Goodwill (net of accumulated amortization of $581,280 in
1998 and $321,898 in 1997)................................ 5,055,899 5,039,102
----------- -----------
Total assets...................................... $29,638,774 $25,216,350
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft............................................ $ 473,931 $ --
Note payable to bank...................................... 261,000 --
Current installments of long-term debt.................... 110,741 100,000
Accounts payable shareholder.............................. 225,708 83,854
Accounts payable.......................................... 1,876,264 538,601
Accrued expenses.......................................... 579,934 513,744
Income taxes payable...................................... -- 130,000
----------- -----------
Total current liabilities.............................. 3,527,578 1,366,199
Long-term debt, excluding current installments.............. 139,179 253,244
Deferred income taxes....................................... 1,034,200 370,000
Commitments (Note 5)
Shareholders' equity:
Common stock, $0.0001 par value; 20,000,000 shares
authorized, 5,186,889 outstanding in 1998 and 5,146,606
outstanding in 1997.................................... 519 515
Additional paid-in capital................................ 24,837,224 24,714,963
Treasury stock at cost: 3,300 shares in 1998 and 1997..... (5,000) (5,000)
Cumulative translation adjustment......................... 40,797 --
Accumulated earnings (deficit)............................ 64,277 (1,483,571)
----------- -----------
Total shareholders' equity............................. 24,937,817 23,226,907
----------- -----------
Total liabilities and shareholders' equity........ $29,638,774 $25,216,350
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
24
<PAGE> 26
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK CUMULATIVE TOTAL
------------------ PAID-IN ---------------- ACCUMULATED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT ADJUSTMENT EQUITY (DEFICIT)
--------- ------ ----------- ------ ------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1995....................... 289,674 $ 29 $ 410,290 (3,300) $(5,000) $(2,776,678) $ -- $(2,371,359)
Exercise of common stock
options.................... 6,600 -- 200 -- -- -- 200
Issue of stock in acquisition
of Advanced Textiles,
Inc........................ 5,350 1 53,499 -- -- -- 53,500
Accrual of preferred stock
dividend................... -- -- -- -- -- (450,120) (450,120)
Accretion of preferred stock
redemption value........... -- -- -- -- -- (69,559) (69,559)
Net income................... -- -- -- -- -- 593,397 593,397
--------- ---- ----------- ------ ------- ----------- ------- -----------
BALANCE AT DECEMBER 31,
1996....................... 301,624 30 463,989 (3,300) (5,000) (2,702,960) -- (2,243,941)
Accrual of preferred stock
dividend................... -- -- -- -- -- (50,561) (50,561)
Accretion of preferred stock
redemption value........... -- -- -- -- -- (5,439) (5,439)
Conversion of preferred
shares to common stock..... 2,548,280 255 6,644,954 -- -- -- 6,645,209
Issuance of common stock to
public..................... 1,700,000 170 13,741,499 -- -- -- 13,741,669
Exercise of warrants to
purchase common stock...... 178,089 18 (18) -- -- -- --
Issuance of stock upon
conversion of debt......... 384,026 38 3,648,212 -- -- -- 3,648,250
Exercise of common stock
options under employee
compensation plans
including tax benefit of
$215,000................... 34,587 4 216,327 -- -- -- 216,331
Net income................... -- -- -- -- -- 1,275,389 1,275,389
--------- ---- ----------- ------ ------- ----------- ------- -----------
BALANCE AT DECEMBER 31,
1997....................... 5,146,606 515 24,714,963 (3,300) (5,000) (1,483,571) -- 23,226,907
Exercise of common stock
options under employee
compensation plans
including tax benefit of
$67,000.................... 35,040 4 99,262 -- -- -- -- 99,266
Issuance of stock to
directors for
compensation............... 5,243 -- 22,999 -- -- -- -- 22,999
Foreign currency translation
adjustment................. 40,797
Net income................... -- -- -- -- -- 1,547,848 1,588,645
--------- ---- ----------- ------ ------- ----------- ------- -----------
BALANCE AT DECEMBER 31,
1998....................... 5,186,889 $519 $24,837,224 (3,300) $(5,000) $ 64,277 $40,797 $24,937,817
========= ==== =========== ====== ======= =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
25
<PAGE> 27
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,547,848 $ 1,275,389 $ 593,397
Adjustments to reconcile net income to net provided by
(used in) operating activities:
Depreciation and amortization........................... 1,274,098 846,974 479,669
Deferred taxes.......................................... 389,300 235,500 229,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.............. (1,788,774) (358,830) 172,493
Increase in inventories................................. (855,737) (45,181) (725,564)
(Increase) decrease in refundable income taxes.......... (27,049) 21,061 (5,061)
(Increase) decrease in other current assets............. 101,353 (53,514) (176,721)
Increase in due from shareholder........................ (41,296) (69,581) --
Increase (decrease) in accounts payable shareholder..... 141,854 (960,705) (587,619)
Increase (decrease) in accounts payable and accrued
expenses.............................................. 311,006 (1,438,262) 721,129
Increase (decrease) in income taxes payable............. (105,368) 344,942 (32,000)
----------- ------------ -----------
Net cash provided by (used in) operating activities... 947,235 (202,207) 668,723
----------- ------------ -----------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired, including
technology.............................................. (5,993,058) -- (294,512)
Purchases of marketable securities........................ -- (96,947,023) --
Sale of marketable securities............................. 6,607,344 90,339,679 --
Purchases of property, plant and equipment................ (1,820,948) (849,408) (1,132,236)
Decrease in other assets.................................. 49,917 31,300 17,687
----------- ------------ -----------
Net cash used in investing activities................. (1,156,745) (7,425,452) (1,409,061)
----------- ------------ -----------
Cash flows from financing activities:
Increase (decrease) in bank overdraft..................... 473,931 (300,809) 84,187
Net proceeds (repayments) under line of credit............ 261,000 (1,179,968) 1,179,968
Proceeds from long-term debt borrowings................... -- -- 321,375
Repayment of long-term debt............................... (114,065) (5,149,568) (95,566)
Net proceeds received from issuance of common stock to
public.................................................. -- 14,682,689 --
Proceeds from exercise of common stock options warrants
and stock granted as directors compensation............. 32,266 1,389 200
Transactional expenses associated with issuance of
stock................................................... -- (428,341) (512,679)
----------- ------------ -----------
Net cash provided by financing activities............. 653,132 7,625,392 977,485
Net effect of currency exchange rates on cash............. (697) -- --
----------- ------------ -----------
Net increase (decrease) in cash....................... 442,925 (2,267) 237,147
Cash at beginning of period................................. 352,839 355,106 117,959
----------- ------------ -----------
Cash at end of period....................................... $ 795,764 $ 352,839 $ 355,106
=========== ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including interest capitalized of $44,535 in
1998 and $72,064 in 1997)............................. $ 40,939 $ 528,889 $ 141,886
Income taxes............................................ $ 583,550 $ 100,300 $ 168,626
Acquisition of business, net of cash acquired:
Working capital, other than cash.......................... $ 1,096,550 $ 1,259,027
Property, land and equipment.............................. 2,552,372 1,537,675
Goodwill/technology....................................... 2,524,136 5,360,810
Deferred taxes............................................ (180,000) --
Convertible note due to seller............................ -- (7,296,500)
Other amount due to seller................................ -- (513,000)
Issuance of common stock.................................. -- (53,500)
----------- -----------
Net cash used to acquire businesses....................... $ 5,993,058 $ 294,512
=========== ===========
Noncash financing activities:
Conversion of preferred stock into common stock in
February 1997........................................... $ 6,645,209
Conversion of debt into common stock in November 1997..... $ 3,648,250
</TABLE>
The accompanying notes are an integral part of the financial statements
26
<PAGE> 28
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Net income.............................................. $1,547,848 $1,275,389 $593,397
Foreign currency translation adjustments................ 40,797 -- --
---------- ---------- --------
Comprehensive income.................................... $1,588,645 $1,275,389 $593,397
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
27
<PAGE> 29
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 worldwide in a diverse range of
products, including those used in the marine, recreational board, automotive,
oil & gas, construction, and transportation industries.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Brunswick
Technologies, Inc. and its wholly-owned subsidiaries, Advanced Textiles, Inc.
("ATI") and Brunswick Technologies Europe Ltd. ("BTI-Europe"). The accounts of
ATI are included from October 30, 1996, the date of acquisition. The accounts of
BTI-Europe are included from March 2, 1998, the date of acquisition. All
significant inter-company balances and transactions have been eliminated in the
Consolidated Financial Statements.
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
the first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method over estimated useful lives as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings................................................... 20-30
Furniture and fixtures...................................... 2-7
Machinery and equipment..................................... 4-15
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.
28
<PAGE> 30
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capitalized Computer Software Costs
The Company records expenditures for computer software in accordance with
the provision of Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." The Company reports
computer software cost in MIS. The Company had capitalized $317,337 in 1998 and
$85,403 in 1997. Amortization of software cost is provided on a straight-line
basis over 5 years.
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
Revenues from government agencies' research grants are recognized when
reimbursable expenses are incurred.
Revenue Recognition
Revenues are recognized when finished goods are shipped to customers or
services rendered, with appropriate provision for uncollectible accounts.
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 on
February 10, 1997 (see Note 12). 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.
Computation of Earnings per Share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," provides reporting standards for basic and diluted earnings per share
and is effective for financial statement periods ending after December 15, 1997.
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period, which during 1998, 1997 and 1996 were 5,164,113, 4,215,827 and 297,140,
respectively. Diluted earnings per share is computed using income available to
common shareholders and weighted average common shares outstanding during the
period after considering the potential dilutive effect of common stock
equivalents based on the treasury stock method. The diluted weighted average
number of common shares outstanding for 1998, 1997 and 1996 were 5,438,355,
4,936,033 and 3,498,302, respectively. All prior period earnings per share data
has been restated to conform to the provisions of this statement.
29
<PAGE> 31
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marketable Securities
Marketable securities classified as available for sale are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. Marketable securities held to
maturity are stated at cost adjusted for amortization of bond premiums and
accretion of bond discounts. At December 31, 1997 the cost of marketable
securities approximated fair value. At December 31, 1998, there were no
marketable securities held by the Company.
Fair Value of Financial Instruments
At December 31, 1998, the carrying amounts of the Company's financial
instruments included in current assets and current liabilities approximate fair
value because of the short maturity of those instruments. The carrying amounts
of the Company's long-term debt also approximate their fair value as of December
31, 1998, based upon the borrowing rates currently available to the Company for
loans with similar terms and maturities.
Foreign Currency
Foreign subsidiaries' balance sheet and income statement accounts expressed
in local functional currencies are translated into U.S. dollars using ending and
average exchange rates, respectively. The resulting translation adjustments are
reported in a separate component of stockholders' equity.
Forward foreign exchange contracts are used to hedge committed foreign
currency sales. Realized and unrealized gains and losses on these contracts are
recorded in net income in the same period in which the hedged transactions
affect earnings. The Company had no forward foreign currency exchanged contracts
outstanding at December 31, 1998.
Goodwill and Technology
Goodwill represents the excess of the cost of the ATI and BTI-Europe
acquisitions over the fair value of the net assets at the date of the
acquisition and is being amortized over 20 years. Acquired technology is being
amortized over 15 years.
Impairment Accounting
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," in 1996. The
Company reviews the recoverability of its long-lived assets, including goodwill
and other intangible assets, when events or changes in circumstances occur that
indicate that the carrying value of the asset may not be recoverable. The
measurement of possible impairment is based on the Company's ability to recover
the asset from the expected future pre-tax cash flows (undiscounted and without
interest charges) of the related operations. The measurement of impairment
requires management to make estimates of expected future cash flows related to
long-lived assets. It is at least reasonably possible that future events or
circumstances could cause these estimates to change. The Company's policy on
impairment prior to the adoption of SFAS No. 121 was not materially different.
Income Taxes
The provision for income taxes includes amounts currently payable and
deferred income taxes, which result from differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates
and laws. A valuation allowance is established for deferred tax assets when it
is more likely than not that an amount will not be realized.
30
<PAGE> 32
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Standards
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded in
other contracts, and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those financial instruments at fair value. The
accounting for changes in the fair value of a derivative under SFAS 133 depends
on the intended use of the derivative and its hedging destination. SFAS 133 is
required to be adopted for the Company's year ending December 31, 2000 and the
Company has not yet determined the impact SFAS 133 will have on its results of
operations, liquidity or financial position.
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position ("SOP")
98-5, "Reporting on the Costs of Start-Up Activities." It requires costs of
start-up activities and organization costs to be expensed as incurred. SOP 98-5
is required to be adopted for fiscal years beginning after December 15, 1998.
The Company does not believe SOP 98-5 will have a material effect on the
financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
presentation used in the 1998 financial statements.
2. BUSINESS COMBINATIONS
On March 2, 1998 the Company acquired the business and assets of Tech
Textiles International Ltd. ("TTI") based in Andover, UK from T&N plc, for
approximately $5.9 million in cash. The acquisition was made by the Company and
through the Company's recently formed wholly owned subsidiary in the UK,
Brunswick Technologies Europe Ltd. ("BTI-Europe") and is being accounted for
using the purchase method of accounting. A preliminary allocation of the
purchase price has been made to the assets and technology acquired. The
operations of BTI-Europe have been included in financial results of the Company
since March 2, 1998 and have been consolidated for the period ending December
31, 1998.
Proforma unaudited results of operations of the Company, assuming the
acquisition had occurred on January 1, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................ $42,588 $36,824
======= =======
Net income............................................... $ 1,635 $ 1,562
======= =======
Diluted earnings per share............................... $ 0.30 $ 0.32
======= =======
</TABLE>
On October 30, 1996, the Company acquired ATI, a subsidiary of Burlington
Industries, Inc. for a total acquisition cost of $8,359,000, payable through the
issuance of a note for $7,296,500 convertible into the Company's common stock at
$9.50 per share; deferred cash payments discounted to $513,000; the issuance of
common stock valued at $53,500 to a minority shareholder in ATI; cash payments
of $351,000; and acquisition costs of $325,000. The acquisition was accounted
for under the purchase method of accounting. The fair market value of the assets
acquired is estimated at $3,178,000, resulting in goodwill of $5,361,000 which
amount is being amortized over 20 years.
31
<PAGE> 33
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma unaudited results of operations of the Company, assuming the
acquisition had occurred on January 1, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Net sales................................................. $26,444
=======
Net income................................................ $ 2,804
=======
Diluted earnings per share................................ $ 0.81
=======
</TABLE>
3. INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Raw materials............................................. $1,393,964 $ 752,428
Work in progress.......................................... 956,868 706,353
Finished goods............................................ 2,455,967 1,849,250
---------- ----------
$4,806,799 $3,308,031
========== ==========
</TABLE>
4. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Non-interest bearing obligation incurred in the purchase of
ATI, discounted at 8.25%................................. $ 234,703 $ 353,244
Other...................................................... 15,217
--------- ---------
249,920 353,244
Less current installments................................ (110,741) (100,000)
--------- ---------
$ 139,179 $ 253,244
========= =========
</TABLE>
The schedule of maturities of long-term debt at December 31, 1998, is as
follows:
<TABLE>
<S> <C> <C>
1999.................................................. $ 110,741
2000.................................................. 139,179
--------- ---------
$ 249,920
========= =========
</TABLE>
The Company has an existing debt facility with a bank. The agreement allows
unsecured borrowings up to $4.0 million. 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 an unused line fee of 1/8% of 1% of the unused
portion. At December 31, 1998 there was $261,000 borrowings outstanding at a
rate of 7.75% and there were no borrowings outstanding at December 31, 1997. The
line of credit expires on June 1, 1999.
The non-interest bearing obligation is payable in annual installments of
$100,000 on December 15 of each year until the entire obligation is paid. In
addition, the annual payment may be increased by an amount up to $100,000 based
on certain income tax effects experienced by the holder of the note. In 1998, an
increase in the annual payment of $46,801 was required.
32
<PAGE> 34
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
Commencing January 1, 1996, the Company began leasing a newly constructed
manufacturing facility. 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 July 1997 the Company agreed to an increase in the
lease in exchange for the fit-out of additional space. In June 1998, the Company
expanded the leased facility and modified the lease terms, including extending
the term to 15 years. 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 recorded a separate
operating expense for the cost of the move, which included the rental expense
for the old facility for the six months through June 30, 1996. The Company also
has operating leases for a manufacturing facility in the UK, equipment and a
vehicle. Total rental expense under all operating leases was $436,211, $346,400
and $288,454 for the years ended December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998, future minimum lease payments under all
non-cancelable leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 619,107
2000........................................................ 516,151
2001........................................................ 391,835
2002........................................................ 331,596
2003........................................................ 338,800
Thereafter.................................................. 2,587,200
----------
$4,784,689
==========
</TABLE>
6. CONVERTIBLE PREFERRED STOCK
The Company's convertible preferred stock, no par value consists of four
series whose activity is shown in the following table:
<TABLE>
<CAPTION>
SERIES AA SERIES BB SERIES C SERIES D
------------------ --------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER
31, 1995............ 3,657 $ 375,023 33,167 $ 2,295,681 18,000 $ 1,250,152 16,000 $ 2,148,674
Accrual of preferred
stock dividend...... -- 18,285 -- 165,835 -- 90,000 -- 176,000
Accretion of preferred
stock redemption
value............... -- 35,869 -- 15,080 -- 5,715 -- 12,895
------ --------- ------- ----------- ------- ----------- ------- -----------
BALANCE AT DECEMBER
31, 1996............ 3,657 429,177 33,167 2,476,596 18,000 1,345,867 16,000 2,337,569
Accrual of preferred
stock dividend...... -- 2,054 -- 18,628 -- 10,109 -- 19,770
Accretion of preferred
stock redemption
value............... -- 2,805 -- 1,179 -- 447 -- 1,008
Conversion of
preferred stock..... (3,657) (434,036) (33,167) (2,496,403) (18,000) (1,356,423) (16,000) (2,358,347)
------ --------- ------- ----------- ------- ----------- ------- -----------
BALANCE AT DECEMBER
31, 1997............ -- -- -- -- -- -- -- --
BALANCE AT DECEMBER
31, 1998............ -- $ -- -- $ -- -- $ -- -- $ --
====== ========= ======= =========== ======= =========== ======= ===========
<CAPTION>
TOTAL CONVERTIBLE
PREFERRED SHARES
---------------------
SHARES AMOUNT
------- -----------
<S> <C> <C>
BALANCE AT DECEMBER
31, 1995............ 70,824 $ 6,069,530
Accrual of preferred
stock dividend...... -- 450,120
Accretion of preferred
stock redemption
value............... -- 69,559
------- -----------
BALANCE AT DECEMBER
31, 1996............ 70,824 6,589,209
Accrual of preferred
stock dividend...... -- 50,561
Accretion of preferred
stock redemption
value............... -- 5,439
Conversion of
preferred stock..... (70,824) (6,645,209)
------- -----------
BALANCE AT DECEMBER
31, 1997............ -- --
BALANCE AT DECEMBER
31, 1998............ -- $ --
======= ===========
</TABLE>
Shares of all series of preferred stock are entitled to cumulative
dividends at the rate of 10% per annum of the original price. In addition,
shares of preferred stock have a liquidation preference. On February 10, 1997,
33
<PAGE> 35
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the date of the closing of the Company's initial public offering, all of the
Company's four series of outstanding preferred stock were converted to 2,337,192
shares of common stock. In addition, holders of shares of preferred stock
received 211,088 shares of common stock in payment of accrued dividends of
$2,005,342 as of the date of conversion.
7. CAPITAL STOCK
The Company has three employee stock option plans, one each established in
1991, 1994 and 1997. The plans reserve for issuance a total of 990,000 common
shares. Options granted prior to June 29, 1995 vest at a rate of 20% per year
beginning on the date of the grant. Options granted on June 29, 1995 and after
vest at 20% per year beginning one year after the date of grant. All the shares
available in the 1991 and 1994 plans have been granted. The Company's 1997
Equity Incentive Plan was adopted by the Board of Directors on January 22, 1997
and approved by the shareholders at a meeting held on January 23, 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 is
authorized to grant incentive stock options, non-statutory stock options, stock
appreciation rights, restricted stock or similar securities defined thereunder,
all in its discretion, to key individuals, consultants and directors of the
Company or one of its affiliates. At December 31, 1998, 328,770 shares remained
available to be granted.
A summary of changes in common stock options during 1996, 1997, and 1998
is:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding grants at December 31, 1995..................... 517,539 $ 0.74
Granted................................................... 9,900 $ 9.50
Exercised................................................. (6,600) $ 0.03
Canceled.................................................. -- --
------- ------
Outstanding grants at December 31, 1996..................... 520,839 $ 0.91
Granted................................................... 48,000 $ 9.50
Exercised................................................. (34,587) $ 0.15
Canceled.................................................. (1,500) $ 9.50
------- ------
Outstanding grants at December 31, 1997..................... 532,752 $ 1.66
Granted................................................... 60,100 $10.27
Exercised................................................. (35,040) $ 0.92
Canceled.................................................. (17,280) $ 4.12
------- ------
Outstanding grants at December 31, 1998..................... 540,532 $ 2.67
======= ======
Options exercisable at December 31, 1996.................... 408,969 $ 0.47
======= ======
Options exercisable at December 31, 1997.................... 374,217 $ 0.59
======= ======
Options exercisable at December 31, 1998.................... 422,882 $ 1.12
======= ======
</TABLE>
The weighted average grant date fair values of options granted during 1998,
1997 and 1996 were $5.59, $4.85 and $4.84, respectively.
34
<PAGE> 36
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
-----------------------
REMAINING WEIGHTED
NUMBER EXERCISE CONTRACTUAL NUMBER AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING PRICE LIFE EXERCISABLE EXERCISE PRICE
- ----------------------- ----------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.03 - 0.16...................... 216,246 $ 0.04 2.2 years 216,246 $0.04
$1.50 - 1.60...................... 212,036 $ 1.52 5.3 years 187,286 $1.52
$4.00 - 10.00..................... 75,500 $ 8.37 8.4 years 19,350 $9.50
$10.50 - 15.00.................... 36,750 $13.08 9.0 years -- $ --
</TABLE>
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." This statement requires a fair value based method of accounting
for employee stock options and would result in expense recognition for the
Company's employee stock plans. It also permits a company to continue to measure
compensation expense for such plans using the intrinsic value based method as
prescribed by Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." The Company has elected to follow APB 25 in
accounting for its employee stock plans, and accordingly, no compensation cost
has been recognized. Had compensation cost for the Company's stock plans been
determined based on the fair value requirements of SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Net income:
As reported........................................... $1,547,848 $1,275,389 $593,397
========== ========== ========
Pro Forma............................................. $1,417,121 $1,237,985 $585,920
========== ========== ========
Diluted earnings per share:
As reported........................................... $ 0.28 $ 0.26 $ 0.17
========== ========== ========
Pro Forma............................................. $ 0.26 $ 0.25 $ 0.17
========== ========== ========
</TABLE>
The fair value of stock options in the pro forma accounts for fiscal 1998,
1997 and 1996 is not necessarily indicative of the future effects on net income
and earnings per share. The fair value of each stock option grant has been
estimated on the date of grant at its minimum value using the following weighted
average assumptions for 1998, 1997 and 1996: risk-free interest rates of
5.3 -- 6.2%, expected life of five to six years, no dividend yield and 50%
volatility in 1998 and 1997 only.
In conjunction with the issuance of the preferred stock, the Company issued
warrants for the purchase of its common stock. Each warrant was exercisable for
one share of common stock. In 1997, 211,200 warrants were exercised on a
"cashless" basis by non-employee shareholders which resulted in 178,089 shares
of common stock being issued.
Also in conjunction with the IPO, the Company granted the Underwriter
Warrants to purchase 125,000 shares of common stock at a price 20% higher than
the initial offering price of $9.50. The warrants became exercisable 1 year
following the IPO and expire in 2002.
8. CONCENTRATION OF CREDIT RISK
The Company utilizes a national and international distribution system that
sells to approximately 700-1,000 end users. Domestically (defined as goods
produced in plants located in Maine and Texas), four individual distributors
accounted for approximately 76% of the Company's 1996 revenues and in 1997, five
35
<PAGE> 37
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
individual distributors accounted for approximately 68% of the Company's
revenues. The same distributors represented 38% of the Company's accounts
receivable balances at December 31, 1997. In 1998, 5 individual distributors and
customers accounted for approximately 77% of the Company's domestic revenues.
The same distributors represented 66% of the Company's domestic accounts
receivable balances at December 31, 1998. Internationally (defined as goods
produced in BTI-Europe's plant in Andover, UK) one individual distributor
accounted for 6% of international revenues with no other single customer making
up more than 5%. At December 31, 1998, three distributors and two customers
accounted for 52% of the international accounts receivable.
9. INCOME TAXES
Income tax (benefit) expense consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................. $351,100 $441,400 $103,000
State.................................... 61,900 30,500 3,000
Foreign.................................. 36,200
-------- -------- --------
449,200 471,900 106,000
-------- -------- --------
Deferred:
Federal.................................. 186,900 242,500 36,000
State.................................... 36,000 (7,000) 193,000
Foreign.................................. 166,400
-------- -------- --------
389,300 235,500 229,000
-------- -------- --------
Total tax expense................ $838,500 $707,400 $335,000
======== ======== ========
</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
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Computed expected income tax............... $811,400 $674,000 $315,000
State income taxes......................... 104,400 78,500 54,000
Foreign tax rate differential.............. (86,500)
Other...................................... 9,200 (45,100) (34,000)
-------- -------- --------
Total tax (benefit) expense...... $838,500 $707,400 $335,000
======== ======== ========
</TABLE>
36
<PAGE> 38
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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,
------------------------
1998 1997
----------- ---------
<S> <C> <C>
Deferred tax assets (liabilities):
Reserves......................................... $ 220,200 $ 65,800
Net operating loss carryforward.................. 131,900 186,500
Alternative minimum tax credit carryforward...... 170,600 238,000
Compensation..................................... 36,400 39,000
Other............................................ 126,400 78,300
Depreciation and amortization.................... (1,263,900) (798,000)
Goodwill......................................... (181,300)
----------- ---------
Net deferred tax (liabilities)........... $ (759,700) $(190,400)
=========== =========
Current deferred tax assets...................... $ 274,500 $ 179,600
----------- ---------
Non-current deferred tax liabilities............. $(1,034,200) $(370,000)
=========== =========
</TABLE>
As of December 31, 1998, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $347,500, 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 in 1997, and the net operating loss carryforwards are limited for
utilization at approximately $156,700 per year. In addition, the Company has
alternative minimum tax credit carryforwards of approximately $170,600 which
have no expiration date. The company has not established a valuation allowance
against the deferred tax assets at December 31, 1998 and 1997.
10. RELATED PARTY
The Company purchases a significant portion of its raw materials inventory
from a shareholder. For the years ended December 31, 1998, 1997 and 1996,
purchases of raw materials were $10,309,104, $8,933,450 and $8,548,754,
respectively. At December 31, 1998, and 1997, the Company had due this
stockholder, $225,708 and $83,854, respectively, for purchases of raw materials.
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 1996, the Company incurred project
eligible costs of, and applied for reimbursement for, $426,070, for which the
Company has recorded miscellaneous income of $332,432 and reduced cost of goods
sold by $93,638. In 1997, the Company incurred eligible costs and applied for
reimbursement for $143,274, for which the Company has recorded miscellaneous
income of $119,108 and reduced cost of goods sold by $24,166. In 1998, the
Company incurred eligible costs and applied for reimbursement for $75,978, for
which the Company has recorded miscellaneous income of $53,766 and reduced cost
of goods sold by $22,212.
12. INITIAL PUBLIC OFFERING
On February 10, 1997, the Company completed its initial public offering of
common stock. The sale to the public totaled 2,500,000 shares, with 1,700,000
new shares being sold by the Company and 800,000 shares
37
<PAGE> 39
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
being sold from the holdings of an existing shareholder. The offering price was
$9.50 per share with proceeds to the Company, after all offering expenses, of
approximately $13.7 million. From the proceeds, the Company was obligated to pay
$3,648,250 of the convertible subordinated note plus accrued interest thereon
(see Note 4). With the remaining proceeds, the Company also paid off the balance
of its bank debt, approximately $2.6 million. Deferred charges of $512,679 at
December 31, 1996, and other transactional expenses (together aggregating
approximately $1 million) were offset against stockholders' equity upon
completion of the offering.
Pursuant to the terms of the preferred stock agreements, the outstanding
shares of preferred stock were automatically converted to common stock, on the
consummation of the Company's initial public offering. As a result, 70,824
shares of preferred stock were 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
resulted in an additional 211,088 shares of common stock being issued to holders
of preferred stock as of the closing of the offering. In addition, the Board
approved the grant of stock to Directors totaling 1,000 shares (subsequently
increased to 2,000 shares), to be issued at the closing of the offering.
13. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ ------------------------------ ----------------------------
NET PER NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
---------- --------- ----- ---------- --------- ----- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS........................ $1,547,848 5,164,113 $0.30 $1,219,389 4,215,827 $0.29 $ 73,718 297,140 $0.25
Effect of dilutive securities:
Conversion of Preferred.......... 56,000 283,142 519,679 2,548,280
Conversion of Stock Options...... 274,242 437,064 652,882
---------- --------- ----- ---------- --------- ----- -------- --------- -----
Diluted EPS...................... $1,547,848 5,438,355 $0.28 $1,275,389 4,936,033 $.026 $593,397 3,498,302 $0.17
========== ========= ===== ========== ========= ===== ======== ========= =====
</TABLE>
The conversion of the Company's convertible subordinated note was
anti-dilutive and has been excluded from Diluted EPS in 1997 and 1996. The note
was converted in November 1997.
14. UNAUDITED QUARTERLY FINANCIAL INFORMATION
Unaudited financial results by quarter for the fiscal years ended December
31, 1998 and 1997 are summarized below and should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
<TABLE>
<CAPTION>
MARCH JUNE SEPTEMBER DECEMBER
------- -------- ---------- ---------
1998 (IN THOUSANDS EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C>
Net sales........................................... $9,048 $10,968 $10,309 $11,097
Cost of sales....................................... 6,856 8,444 8,158 8,766
Net income.......................................... 418 518 260 352
Income applicable to common shares.................. 418 518 260 352
Diluted EPS......................................... $ 0.08 $ 0.10 $ 0.05 $ 0.07
</TABLE>
38
<PAGE> 40
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH JUNE SEPTEMBER DECEMBER
1997 ------ ------ --------- --------
<S> <C> <C> <C> <C>
Net sales............................................ $7,332 $8,073 $7,603 $7,502
Cost of sales........................................ 5,448 5,872 5,682 5,805
Net income........................................... 287 446 446 97
Income applicable to common shares................... 231 446 446 97
Diluted EPS.......................................... $ 0.07 $ 0.09 $ 0.09 $ 0.02
</TABLE>
15. 401K PLAN
The Company sponsors a 401K retirement savings plan. Under the plan, the
Company will make matching contributions of at least 25% of a participant's
contribution up to 4% of the participant's eligible compensation, subject to
limitations required by governmental laws or regulations. Company contributions
to the plan in 1998 and 1997 were $30,165 and $6,906, respectively. No
contributions were made in 1996.
16. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Financial Reporting for
Segments of a Business Enterprise." The prior years' segment information has
been restated to present the Company's two reportable segments - (1) Domestic
and (2) International. The accounting policies of the segments are the same as
those described in the Summary of Significant Accounting Policies." Performance
of the segments is evaluated on Net Sales, Operating Income, Interest Income,
Interest Expense, Pretax Income, Income Tax and Net Income in addition to
EBITDA. The tables below present information about reported segments for the
years ended December 31, 1998, 1997 and 1996. Revenue and asset information is
based on the country in which the legal entities are located. Segment data
includes intersegment revenues, as well as a royalty charge pursuant to an
intersegment technology licensing agreement.
BTI is organized primarily on the basis of products being marketed,
produced and shipped from either "domestic" plants (those located in the United
States) or the sole "international" plant, BTI-Europe located in Andover, UK.
Domestic operations utilize a unified sales force selling a unified product line
directly to customers as well as through a unified group of distributors. Goods
are sold substantially within North America, though goods are also shipped
worldwide. International operations sell primarily to a distinct customer base
utilizing a locally based sales force and independently established distribution
channels. Goods are shipped throughout Europe and the world. The international
segment was acquired on March 2, 1998.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
DOMESTIC
Net sales........................................... $36,113 $30,510 $19,816
Operating income.................................... 1,104 1,781 877
Intercompany income................................. 267 -- --
Interest income..................................... 76 319 4
Interest expense.................................... -- 328 256
Pretax income....................................... 1,727 1,983 928
Income tax.......................................... 638 707 335
Net income.......................................... 1,089 1,275 593
</TABLE>
39
<PAGE> 41
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INTERNATIONAL
Net sales........................................... 5,309 -- --
Operating income.................................... 860 -- --
Intercompany expense................................ 267 -- --
Interest income..................................... 20 -- --
Interest expense.................................... -- -- --
Pretax income....................................... 659 -- --
Income tax.......................................... 201 -- --
Net income.......................................... 458 --
EBITDA
Domestic............................................ $ 2,792 $ 3,158 $ 1,664
International....................................... 868 -- --
------- ------- -------
Total....................................... $ 3,660 $ 3,158 $ 1,664
======= ======= =======
ASSETS
Domestic............................................ $28,060 $25,216
International....................................... 3,481 --
(Intercompany elimination).......................... (1,902) --
------- -------
Total assets................................ $29,639 $25,216
======= =======
</TABLE>
Total segment sales, profitability and total segment EBITDA are equal to
total consolidated sales and EBITDA, respectively. Accordingly, no
reconciliation is provided.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEMS 10, 11, 12, AND 13
Information required by Part III (Items 10 through 13) is incorporated by
reference to the Company's definitive proxy statement, for its annual meeting of
stockholders to be held on May 20, 1999, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934, on or before April 30, 1999. If for any reason such a statement is
not filed within such a period, this report will be appropriately amended.
40
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) Financial Statements
The following described consolidated financial statements of the Company
are included in this report:
Report of Independent Public Accountants
Consolidated Statements of Income for the years ended December 31, 1998,
1997, and 1996.
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Stockholder's Equity (Deficit) for the years
ended December 31, 1998, 1997, and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996.
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements
Financial Statement Schedules: Schedules are omitted because not
applicable or the information is included elsewhere herein.
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
*2 Agreement by and among the Registrant, Brunswick
Technologies Europe Limited, T&N PLC and Tech Textiles
International Limited, dated as of March 2, 1998.
Incorporated by reference to Exhibit 2 to the Registrant's
Report on Form 8-K dated March 2, 1998.
*3.1 Amended and Restated Articles of Incorporation of the
Registrant
*3.2 Third Restated Bylaws of the Registrant.
*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 from Josephthal Warrant.
*4.5 Specimen Stock certificate for shares of Common Stock.
*4.6 Amendment No. 3 to Registration Rights Agreement dated
February 3, 1997
*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
portion of which have been omitted and filed separately with
the Commission under the 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. du
Pont de Nemours and Company, Inc., et al.
*10.8 Financial Advisory Agreement and Indemnification Agreement
between the Registrant and Josephthal Lyon & Ross
Incorporated.
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
*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 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
*10.26 Form of Common Stock Purchase Warrant.
*10.27 Form of Amendment No. 1 to Common Stock Purchase Warrant.
*10.28 Agreement regarding lending arrangements dated June 6, 1997.
*10.29 Amended and Restated Lease Agreement between Brunswick
development Corporation and Brunswick Technologies Inc.
dated June 5, 1998
+10.30 Demand Note ($4,000,000) in favor of Fleet Bank of Maine
dated May, 1998.
+10.31 Agreement regarding lending arrangements dated May, 1998
+21 Registrant's subsidiaries.
+23 Consent of PricewaterhouseCoopers LLP
+27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed and incorporated by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-10721).
+ Filed with this report.
42
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1999.
BRUNSWICK TECHNOLOGIES, INC.
By: /s/ MARTIN S. GRIMNES
------------------------------------
Martin S. Grimnes
Principal Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARTIN S. GRIMNES Principal Executive Officer and March 30, 1999
- --------------------------------------------------- Director
Martin S. Grimnes
/s/ DAVID COIT Director March 30, 1999
- ---------------------------------------------------
David M. Coit
/s/ WILLIAM M. DUBAY President, Principal Operating March 30, 1999
- --------------------------------------------------- Officer and Director
William M. Dubay
/s/ DONALD R. HUGHES Director March 30, 1999
- ---------------------------------------------------
Donald R. Hughes
/s/ MAX G. PITCHER Director March 30, 1999
- ---------------------------------------------------
Max G. Pitcher
/s/ DAVID E. SHARPE Director March 30, 1999
- ---------------------------------------------------
David E. Sharpe
/s/ PETER N. WALMSLEY Director March 30, 1999
- ---------------------------------------------------
Peter Walmsley
/s/ ALAN CHESNEY Treasurer and Principal Financial March 30, 1999
- --------------------------------------------------- and Accounting Officer
Alan Chesney
</TABLE>
43
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<C> <S> <C>
*2 Agreement by and among the Registrant, Brunswick
Technologies Europe Limited, T&N PLC and Tech Textiles
International Limited, dated as of March 2, 1998.
Incorporated by reference to Exhibit 2 to the Registrant's
Report on Form 8-K dated March 2, 1998.
*3.1 Amended and Restated Articles of Incorporation of the
Registrant
*3.2 Third Restated Bylaws of the Registrant.
*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 from Josephthal Warrant.
*4.5 Specimen Stock certificate for shares of Common Stock.
*4.6 Amendment No. 3 to Registration Rights Agreement dated
February 3, 1997
*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
portion of which have been omitted and filed separately with
the Commission under the 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. du
Pont de Nemours and Company, Inc., et al.
*10.8 Financial Advisory Agreement and Indemnification Agreement
between the Registrant and Josephthal Lyon & Ross
Incorporated.
*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 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.
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<C> <S> <C>
*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
*10.26 Form of Common Stock Purchase Warrant.
*10.27 Form of Amendment No. 1 to Common Stock Purchase Warrant.
*10.28 Agreement regarding lending arrangements dated June 6, 1997.
*10.29 Amended and Restated Lease Agreement between Brunswick
development Corporation and Brunswick Technologies Inc.
dated June 5, 1998
+10.30 Demand Note ($4,000,000) in favor of Fleet Bank of Maine
dated May, 1998.
+10.31 Agreement regarding lending arrangements dated May, 1998
+21 Registrant's subsidiaries.
+23 Consent of PricewaterhouseCoopers LLP
+27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed and incorporated by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-10721).
+ Filed with this report.
45
<PAGE> 1
EXHIBIT 10.30
DEMAND NOTE
$4,000,000 Portland, Maine
May 28, 1998
FOR VALUE RECEIVED, BRUNSWICK TECHNOLOGIES, INC., a Maine corporation (the
"Maker"), promises to pay to the order of FLEET BANK OF MAINE (the "Bank"), its
successors and assigns, ON DEMAND or, if not earlier demanded, on the Maturity
Date, the principal sum of Four Million Dollars ($4,000,000), or so much hereof
as may be outstanding at the time this obligation becomes due and payable
(whether on the Maturity Date or upon demand, or otherwise).
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 or any advance hereunder until paid in full
(whether at maturity, by acceleration after demand, or otherwise) at a rate of
interest per annum equal to the Prime Lending Rate then in effect, floating
daily, or, at the election of Maker, at a rate of interest per annum equal to
the LIBOR Rate (namely, LIBOR plus 1.75% per annum) for any LIBOR Interest
Period selected by Maker in accordance with the terms and provisions of the Loan
Agreement of even date by and between the Maker as borrower and the Bank as
lender (as the same may be amended from time to time, the "Loan Agreement"). In
no event shall any LIBOR Interest Period so selected extend beyond the Maturity
Date. In the event Maker has not selected an alternative interest rate option
upon expiration of any applicable fixed rate interest period, the principal
amount hereof shall bear interest at the Prime Lending Rate until an alternative
interest rate option based on the LIBOR Rate is selected by Maker in accordance
with the terms hereof and the Loan Agreement. Interest is due and payable in
arrears on the first day of each month, commencing on the first of such dates
next succeeding the date hereof and continuing thereafter on the first day of
each month until this obligation becomes due and payable (whether upon demand or
otherwise). In any period during which interest is accruing at the Prime Lending
Rate based index, a change in the rate of interest on this Note shall be
effective on the date of any change in the Prime Lending Rate. Capitalized terms
used herein without definition shall have the meanings ascribed to them in the
Loan Agreement.
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.
<PAGE> 2
The holder of this Note also shall have the right to charge interest on the
unpaid principal balance hereof at an interest rate equal to the sum of four
percent (4%) per annum PLUS the rate of interest otherwise payable as provided
herein upon demand and following, and during the continuance of, a Default or
Event of Default under this Note or any of the Loan Documents, but only
following the expiration of any applicable period of grace without a cure having
been effected. 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.
All payments in respect of this Note shall be payable to the Bank at its
offices at Two Portland Square, Portland, Maine, Attention: Corporate Banking
Department, or such other address as the Bank or other holder hereof shall
notify the Maker in writing, in United States Dollars.
This Note is subject to prepayment in whole or in part, without premium or
penalty, except that the parties acknowledge that the Maker may prepay the
principal of any advance which is subject to a LIBOR Pricing Option prior to the
end of the applicable LIBOR Rate Interest Period, only with the permission of
the Bank and in each such case Maker shall pay to the Bank a Prepayment Fee
calculated in the manner set forth in the Loan Agreement.
This Note evidences the loan or loans under and is issued pursuant to the
Loan Agreement, 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 benefit of the Loan
Agreement and the other Loan Documents, but neither this reference to such Loan
Agreement or any of 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 and interest on this Note when and as the same shall become
due and payable.
Upon the earlier of demand or the Maturity Date, this Note shall become
immediately due and payable without presentment, additional demand, protest or
notice of any kind, all of which are hereby waived, which remedies are in
addition to and not in any respect in limitation of any other rights or remedies
Bank may have under the other Loan Documents or at law or in equity. The Bank
shall not be obligated to make advances under any of the Loan Documents that it
might otherwise be obligated to make thereunder following (a) demand or (b) if,
after giving effect to a Loan hereunder to be made, a Default or Event of
Default (or any event which with notice, the passage of time, or both, would
constitute a Default or Event of Default under the Loan Documents) shall have
occurred and be continuing.
-2-
<PAGE> 3
The Maker and all other parties liable herefor, whether as maker,
principal, guarantor, endorser or otherwise, acknowledge and agree that they are
jointly and severally liable for all amounts due and owing hereunder, 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 any attorneys' or 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, FOREBEAR FROM COLLECTION OF A DEBT OR MAKE ANY OTHER ACCOMMODATION FOR
THE REPAYMENT 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
-3-
<PAGE> 4
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 FURTHER AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE
OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT OR OTHER PROCEEDING
RELATING TO THIS NOTE, THE OTHER LOAN DOCUMENTS OR ANY 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. 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 a sealed instrument and
delivered on the date above written by a duly authorized representative of the
undersigned.
WITNESS: BRUNSWICK TECHNOLOGIES, INC.
By: /s/ Alan Chesney
- ---------------------------------- --------------------------------
Its: Chief Financial Officer
-------------------------------
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LOAN AGREEMENT
THIS LOAN AGREEMENT is dated as of May __, 1998, by and between BRUNSWICK
TECHNOLOGIES, INC., a Maine corporation with a place of business in Brunswick,
Maine (hereinafter referred to as the "Borrower" or the "Debtor" or the
"Company"), and FLEET BANK OF MAINE, a Maine banking corporation with a place of
business in Portland, Maine (hereinafter called "Lender" or the "Bank").
In consideration of the mutual covenants and promises hereinafter set
forth, Borrower and Bank agree as follows:
SECTION 1. DEFINITIONS
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1.1 As used herein, unless otherwise specifically defined, the following
capitalized words and phrases shall have the following meanings:
"BANKING DAY" means any day of the week other than (a) Saturday or
Sunday or (b) any other day on which banks in the City of Portland, Maine are
not required or authorized to conduct the business of banking and, for each such
day, when used in connection with a LIBOR Loan, means a day on which deposits in
Dollars may be dealt with in the London interbank market.
"CAPITAL LEASE" means any lease of property (real, personal or mixed)
which, in accordance with GAAP, should be capitalized on the lessee's balance
sheet or for which the amount of the asset and liability hereunder if so
capitalized should be disclosed in a note to such balance sheet.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSENTS" means, in respect of any person, any permit, license or
exemption from, approval, consent of, registration or filing with any local,
state or federal governmental or regulatory agency or authority, required under
applicable law.
"CONSOLIDATED INTEREST EXPENSE" shall mean, with reference to any
period, the total interest expense (not net of interest income other than
intercompany interest that is netted out in consolidation) of the Borrower and
its Subsidiaries for such period (including, without limitation, interest
expense attributable to Capital Leases), all determined in accordance with GAAP
on a consolidated basis.
<PAGE> 2
"CONSOLIDATED TOTAL LIABILITIES" All liabilities of the Borrower and
its Subsidiaries determined on a consolidated basis in accordance with GAAP and
Indebtedness of the Borrower and its Subsidiaries, whether or not so classified.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EUROCURRENCY RESERVE PERCENTAGE" means, for any LIBOR Interest Period
in respect of any LIBOR Loan, as of any date of determination, the aggregate of
the then stated maximum reserve percentages (including any marginal, special,
emergency or supplemental reserves), expressed as a decimal, applicable to such
LIBOR Interest Period (or if more than one such percentage is applicable, the
daily average of such percentages for those days in such LIBOR Interest Period
during which any such percentage shall be so applicable) by the Board of
Governors of the Federal Reserve System, any successor thereto, or any other
banking authority, domestic or foreign, to which Bank may be subject in respect
of eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Federal Reserve Board) or in respect of any other category
of liabilities including deposits by reference to which the interest rate on a
LIBOR Loan is determined or any category of extension of credit or other assets
that include the LIBOR Loan. For purposes hereof, such reserve requirements
shall include, without limitation, those imposed under Regulation D of the
Federal Reserve Board and the LIBOR Loan shall be deemed to constitute
Eurocurrency Liabilities subject to such reserve requirements without benefit of
credits for proration, exceptions or offsets which may be available from time to
time to any Bank under said Regulation D.
"FIFO" means the lower of standard costs or market which approximates
the first in, first out method of accounting.
"FINANCIALS" means, in respect of any period, the consolidated balance
sheet of the Borrower and Guarantors, on a consolidated basis, as at the end of
such period, and the related consolidated statement of income and consolidated
statement of cash flows for such period, each with consolidating schedules,
setting forth in comparative form the figures for the previous fiscal period,
calculated on a FIFO basis in reasonable detail in accordance with GAAP.
"GAAP" means generally accepted accounting principles consistent with
those adopted by the Financial Accounting Standards Board and its predecessor,
(a) generally, as in effect from time to time, and (b) for purposes of
determining compliance by the Borrower with its financial covenants set forth
herein, as in effect for the fiscal year ended on the Balance Sheet Date.
"GUARANTORS" means Advanced Textiles, Inc. and Brunswick Technologies
Europe Limited.
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"GUARANTY" means the unlimited and unconditional guaranty of the
Obligations executed by the Guarantors.
"INDEBTEDNESS" or "CONSOLIDATED INDEBTEDNESS" means all items (except
items of capital stock or capital paid-in surplus or retained earnings) which in
accordance with generally accepted accounting principles ("GAAP") would be
included in determining total liabilities as shown on the liability side of the
consolidated balance sheet of the Borrower and its Subsidiaries as of the date
on which such indebtedness is to be determined.
"LIBOR" means, for any LIBOR Interest Period with respect to a LIBOR
Rate Loan, the quotient (rounded upwards, if necessary, to the nearest one
sixteenth of one percent (1/16th of 1%)) of: (x) the per annum rate of interest,
determined by Bank in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) as of approximately 11:00 a.m.
(London time) two Banking Days prior to the beginning of such LIBOR Interest
Period pertaining to such LIBOR Rate Loan, appearing on Page 3750 of the
Telerate Service (or any successor or substitute page of such Service, or any
successor to or substitute for such Service providing rate quotations comparable
to those currently provided on such page of such Service, as determined by Bank
from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) as the rate in the
London interbank market for dollar deposits in immediately available funds with
a maturity comparable to such LIBOR Interest Period DIVIDED BY (y) a number
equal to 1.00 MINUS the Eurocurrency Reserve Percentage. In the event that such
rate quotation is not available for any reason, then the rate (for purposes of
clause (x) hereof) shall be the rate, determined by Bank as of approximately
11:00 a.m. (London time) two Banking Days prior to the beginning of such LIBOR
Interest Period pertaining to such LIBOR Rate Loan, to be the average (rounded
upwards, if necessary, to the nearest one sixteenth of one percent (1/16th of
1%)) of the per annum rates at which dollar deposits in immediately available
funds in an amount comparable to such LIBOR Rate Loan and with maturity
comparable to such LIBOR Interest Period are offered to the prime banks by
leading banks in the London interbank market. The LIBOR Rate shall be adjusted
automatically on and as of the effective date of any change in the Eurocurrency
Reserve Percentage.
"LIBOR INTEREST PERIOD" means for any LIBOR Loan the period commencing
on the date such Loan is made and ending on the last day of such period as
selected by the Borrower pursuant to the provisions below and, thereafter, each
subsequent period commencing on the last day of the immediately preceding LIBOR
Interest Period and ending on the last day of such period as selected by the
Borrower pursuant to the provisions below. The duration of each LIBOR Interest
Period for any
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LIBOR Rate Loan shall be thirty (30) days, sixty (60) days, ninety (90) days,
one hundred twenty (120) days, one hundred fifty (150) days, one hundred eighty
(180) days or three hundred sixty (360) days, in each case as the Borrower may
select upon notice, as set forth herein, provided that if any such LIBOR
Interest Period with respect to a LIBOR Rate Loan would otherwise end on a day
that is not a Banking Day, that LIBOR Interest Period shall be extended to the
next succeeding Banking Day. Each determination by the Bank of any LIBOR
Interest Period shall, in the absence of manifest error, be conclusive and, at
the Borrower's request, the Bank shall demonstrate the basis for any such
determination. If the Borrower shall fail to give notice of a new LIBOR Loan in
accordance with the terms hereof following the end of a LIBOR Interest Period,
the Borrower shall be deemed to have requested a conversion of the affected
LIBOR Rate Loan to a Prime Rate Loan on the last day of the then current LIBOR
Interest Period with respect thereto. Any LIBOR Interest Period relating to any
LIBOR Rate Loan that would otherwise extend beyond the Maturity Date shall end
on the Maturity Date.
"LIBOR LOANS" means any Loan made by Bank to Borrower under Section 2
hereof from time to time in an amount not less than $100,000 for which interest
is to be computed on the basis of the LIBOR Rate.
"LIBOR PORTION" means the portion of any Loan specified in a LIBOR
Rate Request which is not less than $100,000 in the aggregate (and thereafter in
increments of $100,000) and which does not exceed the availability under the
revolving credit facility established under Section 2 hereof, and which as of
the date of the request has met all conditions for basing the interest on such
advance on LIBOR.
"LIBOR RATE" means for any LIBOR Loan made by Bank to Borrower
pursuant to Section 2 hereof the per annum rate of interest equal to LIBOR for
the LIBOR Interest Period for which interest is to be determined based on LIBOR
Rate plus 1.75% per annum.
"LIBOR RATE OPTION" The option granted pursuant to Section 2 of this
Loan Agreement to have interest on all or any portion of the principal amount of
a revolving credit loan based on LIBOR.
"LIBOR RATE REQUEST" means the notice in writing (or by telephonic
communication confirmed in writing on the same day as the telephonic request)
from the Borrower to the Bank requesting that interest on all or a qualified
portion of a Loan made pursuant to Section 2 hereof be based on the LIBOR Rate,
which request shall be received by 11:00 a.m. Portland, Maine time at least two
(2) Banking Days prior to the date of any proposed LIBOR Loan, which request
shall specify the first day of the LIBOR Interest Period, the proposed length of
the LIBOR Interest Period and the dollar amount
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of the LIBOR Portion (which shall not be less than $100,000), and such other
information as the Bank may require, subject in all cases to the terms and
provisions hereof.
"LIEN" as applied to the property of any person shall mean any charge,
conditional sale or other title retention agreement, lease constituting a
capital lease, lien, mortgage, pledge or other security interest or encumbrance
of any kind in respect of any property of such person, or upon the income, rents
or profits therefrom; any arrangement, express or implied under which any
property of such a person is transferred, sequestered or otherwise identified
for the purpose of subjecting the same to the payment of Indebtedness or
performance of any other obligation or priority to the payment of the general,
unsecured creditors of such person; any indebtedness for wages or indebtedness
arising for any other reason which if unpaid more than 30 days after the same
shall have become due and payable under Chapter 5 of the United States
Bankruptcy Code or any other law (whether or not the events or conditions (other
than the existence of such indebtedness or the initiation of legal proceedings
available generally to unsecured creditors) set forth in such law have occurred
and been satisfied) would be given any priority whatsoever over general
unsecured creditors of such persons; and the execution and delivery by Borrower
of, or any agreement to give any financing statement under the Uniform
Commercial Code or its equivalent or analog in any jurisdiction.
"LOAN" or "LOANS" means the loans or advances made by the Bank to the
Borrower from time to time pursuant to Section 2 hereof.
"LOAN DOCUMENTS" means this Agreement, the Note issued to evidence the
Loans, the Guaranty, and any and all instruments, documents and agreements
evidencing, governing or otherwise in any way relating to the Obligations,
whether now existing, executed contemporaneously herewith, or executed at any
time in the future, as the same may be amended, extended, renewed, restated or
otherwise modified from time to time.
"MATERIALLY ADVERSE EFFECT" means any materially adverse effect on the
financial condition or business operations of the Borrower or any material
impairment of the ability of the Borrower to perform its Obligations.
"MATURITY DATE" means the earliest of May 31, 1998 (or such other date
occurring after May 31, 1998, as Bank may, in its sole discretion, designate as
the stated Maturity Date in a writing delivered by Bank to Borrower in which
Bank states that it is extending the stated Maturity Date for purposes of this
Agreement, in which case that date shall be the Maturity Date for purposes of
this Agreement), or demand.
"NET INCOME" means the Net Income of the Borrower, calculated on a
FIFO basis in accordance with GAAP, after deduction of all of the Borrower's
expenses, taxes
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and other proper charges (after eliminating therefrom all extraordinary
non-recurring items of income).
"NOTE" or "NOTES" means the promissory note issued by the Borrower to
the Bank pursuant to Section 2, together with any and all amendments and
modifications thereto, substitutions therefor and renewals and extensions and
rearrangements thereof.
"OBLIGATIONS," as used herein, means any and all notes (including,
without limitation, the Note issued by Borrower pursuant to Section 2 hereof,
together with any amendments thereto, extensions or renewals thereof or
substitutions therefor), liabilities, advances, loans, sums due or to become due
under any letters of credit and indebtedness of Borrower to Bank of every kind,
nature and description (whether or not evidenced by any note or other
instrument, and whether or not for the payment of money), direct or indirect,
absolute or contingent, primary or secondary, joint or several, secured or
unsecured, due or to become due, now existing or hereafter arising, regardless
of how they arise or were acquired, also, including, without limitation, those
facilities listed on SCHEDULE 1.1 attached hereto, any liability of Borrower to
Bank as a guarantor or surety of the indebtedness or liabilities of others,
obligations to perform acts and refrain from taking action as well as
obligations to pay money, and all interest, fees, charges and expenses
(including reasonable attorneys' fees) paid or incurred by Bank at any time in
connection with the commitment for, preparation, execution, delivery, amendment,
review, perfection, administration and/or enforcement of this Agreement and any
other of the Loan Documents and any and all obligations of Borrower to Bank
pursuant to the Loan Documents.
"PERMITTED LIENS" are any liens, security interests and other
encumbrances permitted by Section 6.2 hereof.
"PERSON" shall mean any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, and any government
or any governmental agency or political subdivision thereof.
"PREPAYMENT FEE" or "PREPAYMENT PREMIUM" shall mean the payment
required in the event of any prepayment of principal on the Note prior to the
end of an applicable LIBOR Interest Period which amount shall be calculated as
follows: the latest published rate preceding the date of a prepayment for United
States Treasury Notes or Bills (Bills on a discounted basis shall be converted
to a bond equivalent) as published weekly in the Federal Reserve Statistical
Release with a maturity date closest to the expiration date of the LIBOR
Interest Period shall be subtracted from the Matched Rate (the "Matched Rate"
shall mean the rate of interest then payable on the Note for the LIBOR Interest
Period). If the result is zero or a negative number, no prepayment premium shall
be payable. If the result is a positive number, that number shall be
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multiplied by the amount of the principal balance being repaid. The resulting
amount will be divided by 360 and multiplied by the number of days remaining on
the LIBOR Interest Period. Said amount shall be reduced to present value
calculated by using the number of days remaining in the designated term and
using the above-referenced United States Treasury Note or Bill rate and the
number of days remaining in the Term Note as of the date of prepayment. The
resulting amount shall be a Prepayment Premium due to the Bank on any prepayment
of the Note. Appropriate adjustments shall be made for partial prepayments.
"PRIME RATE" or "PRIME LENDING RATE" means the annual rate of interest
designated by the Bank at its main branch in Portland, Maine, from time to time,
for the internal guidance of its lending personnel, as its "Prime Lending Rate",
whether or not such rate is otherwise published. The Prime Lending Rate is
simply an indicator rate for all loans making reference thereto and is not
necessarily the lowest or most favorable rate provided by Bank to any particular
group of borrowers. The Prime Lending Rate floats upward and downward,
automatically, at the time specified in any announcement relating thereto,
without any special notice to Borrower. If the Bank shall cease designating such
a rate, for any reason, then the term "Prime Lending Rate" shall mean the rate
of interest published in the WALL STREET JOURNAL as the Prime Rate or the base
rate on corporate loans for large United States money center banks, as it may
vary from time to time.
"REQUIREMENT OF LAW" means, in respect of any person or entity, any
law, treaty, rule, regulation, the interpretation or application thereof, or
determination of an arbitrator, court, or other governmental authority, in each
case applicable to or binding upon such Person or affecting any of its property.
"SUBSIDIARY" means any corporation, association, trust, or other
business entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock, including without limitation the
Guarantors.
"TANGIBLE NET WORTH of the Borrower means, as of the date of any
determination thereof, the aggregate book value of the assets of the Borrower
and its Subsidiaries on a consolidated basis (after deduction therefrom of all
applicable reserves and allowances) minus any of the following to the extent the
same has been included in the calculation of aggregate book value (without
duplication) (i) total liabilities, (ii) any write-up in the value of assets
occurring after the date hereof, and (iii) all intangibles including, but not
limited to, investments in and loans to Subsidiaries, goodwill, leasehold
improvement, patents, trademarks and the like.
1.2 RULES OF INTERPRETATION. (a) A reference to any document or agreement
shall include such document or agreement as amended, modified or supplemented
and in effect
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from time to time in accordance with its terms and the terms of this Loan
Agreement; (b) the singular includes the plural and the plural includes the
singular; (c) a reference to any law includes any amendment or modification to
such law; (d) a reference to any Person includes its permitted successors and
assigns; (e) accounting terms not otherwise defined herein have the meanings
assigned to them by GAAP applied on a consistent basis by the accounting entity
to which they refer; (f) all calculations for the purposes of Section 7 hereof
shall be made in accordance with GAAP; (g) the words "include", "includes" and
"including" are not limiting; (h) all terms not specifically defined herein or
by GAAP, which terms are defined in the Uniform Commercial Code as in effect in
the State of Maine, have the meanings assigned to them therein; (i) reference to
a particular "Section" refers to that section of this Loan Agreement unless
otherwise indicated; and (j) the words "herein", "hereof", "hereunder" and words
of like import shall refer to this Agreement as a whole and not to any portion,
section or subdivision of this Agreement.
SECTION 2. REVOLVING CREDIT LOANS
----------------------
2.1 ESTABLISHMENT OF REVOLVING CREDIT FACILITY. (a) Subject to the terms
and conditions hereof, and in reliance on the representations and warranties of
the Borrower set forth herein, Bank agrees to advance to Borrower from time to
time, up to $4,000,000 under the revolving credit facility established under
this Section 2. The Borrower may borrow, repay, and prepay amounts advanced
hereunder, subject in all cases to the terms hereof.
(b) Loans (which shall be in minimum amounts of $100,000) shall be
made at such times as Borrower shall request by notice given no later than 2:00
p.m. on the day when the Loan is to be made as to any advance hereunder bearing
interest at the Prime Lending Rate, except for LIBOR Loans, which shall be
subject to all requirements of a LIBOR Rate Request.
(c) The Borrower hereby authorizes its chief financial officer,
treasurer or assistant treasurers to request advances by telephone (a
"Telephonic Advance Request"). All Telephonic Advance Requests shall be followed
by written confirmation transmitted by telecopier. Bank shall have no obligation
to inquire into the circumstances, use, purpose, disposition or application of
funds advanced pursuant to a Telephonic Advance Request and shall have no
liability relating thereto.
(d) This facility shall expire on and all amounts due hereunder shall
become due and payable on the earlier of demand or the Maturity Date.
(e) In the absence of demand by Bank, the Borrower may borrow, repay
and reborrow from time to time amounts under this line of credit through the
Maturity Date, provided that in no event shall the aggregate principal amount
outstanding
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hereunder exceed $4,000,000 (the "Revolving Credit Commitment Amount"). Any
revolving credit advance not previously repaid shall be due and payable on the
earlier of demand or the Maturity Date.
2.2 INTEREST RATE APPLICABLE ON REVOLVING CREDIT ADVANCES. (a) The rate of
interest due and payable on each advance hereunder shall be a per annum rate
equal to the Prime Lending Rate per annum unless Borrower elects a fixed rate
pricing option for such advance based on LIBOR, in which case the advance in
respect of which a fixed rate pricing option has been chosen shall bear interest
at the applicable LIBOR Rate for the LIBOR Interest Period, so selected by the
Borrower in the request for such an advance. If Borrower does not notify Bank of
an alternative interest rate option prior to the end of the applicable fixed
rate interest period, interest on the outstanding principal amount of such
advance shall convert automatically to a Prime Lending based index and accrue at
the Prime Lending Rate until an alternative rate is chosen in accordance with
the terms hereof. Interest shall be adjusted daily and calculated on the basis
of a three hundred sixty (360) day year counting the actual number of days
elapsed. The change in the rate of interest due and payable on a Loan shall be
effective on the date of any change in the Prime Lending Rate as to any advance
bearing interest at the Prime Lending Rate.
(b) Subject to the terms and conditions hereof and so long as there
exists no event of default hereunder or under the Note evidencing Loans under
this Section 2, the Borrower, in its sole discretion upon notice to the Bank in
the form required in any fixed rate request, may elect to have the principal
amount of an advance under this credit facility accrue and bear daily interest
during LIBOR Interest Period so selected in said notice at a LIBOR Rate, as
applicable. Once selected, the applicable fixed rate shall be the rate of
interest per annum paid by Borrower in respect of any such advance so designated
for the interest period so selected. Upon expiration of any such interest
period, the Borrower may select further fixed rate pricing options for the next
succeeding fixed rate interest period in accordance with the terms hereof or, in
the absence of such an election, the advance shall bear interest at the Prime
Lending Rate.
2.3 PAYMENTS OF PRINCIPAL AND INTEREST. Interest payments shall be due and
payable monthly in arrears on the first day of each month commencing on the
first such date next succeeding the date hereof and continuing thereafter on the
first day of each month so long as Loans hereunder remain available or
outstanding. Principal payments shall be repaid on the earlier of demand or on
the Maturity Date.
2.4 REVOLVING CREDIT NOTE. The Loans made by Bank pursuant to this Section
2 shall be evidenced by the execution and delivery of a revolving credit note
substantially in the form attached hereto as EXHIBIT A (the "Revolving Credit
Note"), payable to the order of the Bank, on demand, duly executed on behalf of
the Borrower, dated as of the Closing Date and in the original principal amount
of Four Million Dollars ($4,000,000). The then
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outstanding principal balance of the Revolving Credit Note shall be due and
payable on the earlier of demand or the Maturity Date.
2.5 PAYMENT OF PREPAYMENT FEE. Any loans or advances hereunder bearing
interest at the LIBOR Rate may be prepaid in full prior to the end of the
applicable LIBOR Interest Period only with the consent of the Bank and only upon
payment of the applicable Prepayment Fee, if any. Prime Lending Rate based loans
may be prepaid in part or in full without prepayment penalty.
2.6 OVERDUE PAYMENTS. In the event that the Borrower shall fail to make
any payment of the principal of, or interest on the Revolving Credit Note when
due, whether at a date fixed for the payment of any installment or prepayment
thereof, and such failure continues for more than ten (10) days, Borrower shall
pay to Bank upon demand a late fee of five percent (5%) of the overdue
installment amount. The holder of this Note also shall have the right to charge
interest on the unpaid principal balance hereof at an interest rate equal to the
sum of four percent (4%) per annum PLUS the rate of interest otherwise payable
as provided herein upon demand following, and during the continuance of a
Default or Event of Default under this Agreement or any of the Loan Documents,
but only following the expiration of any applicable period of grace without a
cure having been effected. The failure by the holder of the Revolving Credit
Note to collect any such late charge or to apply a default rate of interest on
one occasion shall not be deemed a waiver by the holder of the Note of its right
to collect late charges in any other instance involving a late payment
hereunder, or to apply a default rate of interest thereafter following any such
failure to pay.
2.7 MONTHLY STATEMENTS. After the end of each month, Bank will render to
Borrower a statement of Borrower's account activity, showing all applicable
credits and debits as of the date specified in said statement. Absent manifest
error, each statement shall be considered correct and to have been accepted by
Borrower and shall be conclusively binding upon Borrower in respect of all
charges, debits and credits of whatever nature contained therein under or
pursuant to this Agreement, and the closing balance shown therein, unless
Borrower notifies Bank in writing of any discrepancy or disagreement within
thirty (30) days from the mailing by Bank to Borrower of any such monthly
statement.
2.8 FORM AND TERMS OF PAYMENT. All payments by the Borrower of the
principal of or interest on the Revolving Credit Note and of any fee due
hereunder shall be made at the address of the Bank set forth in Section 9.1 and
shall be made in United States dollars in immediately available funds. The
Borrower hereby authorizes the Bank to charge the Borrower's deposit accounts
for the purpose of effecting all such payments. If any payment of principal of
or interest on the Revolving Credit Note shall become due on a day which is not
a Banking Day, such payment may be made on the next succeeding
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Banking Day and such extension shall be included in computing interest in
connection with such payment.
2.9 UNUSED COMMITMENT FEE. Borrower shall pay to Bank an unused commitment
fee equal to one-eighth of one percent (.125%) per annum (computed on the basis
of the actual number of days elapsed over a 360 day year) of the daily unused
portion of the Revolving Credit Commitment Amount, which amount shall be payable
quarterly in arrears on the last day of each March, June, September and December
of each year, commencing on the first of such dates next succeeding the date
hereof, and continuing until Maturity Date, whichever is earlier. The unused
commitment fee will be pro-rated for any partial calendar quarter. The unused
commitment fee provided for in this Section is in addition to any fees, balances
or charges which may be applicable to other services now or hereafter provided
to Borrower by the Bank.
2.10 INABILITY TO DETERMINE LIBOR RATE. In the event that prior to the
commencement of any LIBOR Interest Period relating to any LIBOR Rate Loan, Bank
shall determine in the exercise of its reasonable commercial judgment that
adequate and reasonable methods do not exist for ascertaining the LIBOR Rate for
such Interest Period, Bank shall forthwith give notice of such determination
(which shall be conclusive and binding on Borrower) to the Borrower. In such
event (a) any notice from Borrower requesting a LIBOR Rate for a Loan shall be
automatically withdrawn and shall be deemed a request for a Loan bearing
interest at the applicable Prime Lending Rate, and (b) each LIBOR Loan will
automatically, on the last day of the then current LIBOR Rate Interest Period,
convert to an amount accruing interest at the Prime Lending Rate per annum, and
no further LIBOR Loans will be permitted until Bank determines in the exercise
of its reasonable commercial judgment that the circumstances giving rise to such
suspension no longer exist, whereupon Bank shall so notify Borrower.
2.11 USE OF PROCEEDS. Borrower shall use the proceeds of all loans and
advances hereunder derived for working capital, and for any other uses as may be
approved in writing by the Bank from time to time.
2.12 DEMAND OBLIGATIONS. Borrower acknowledges and agrees that the
revolving credit loans are demand obligations, as defined in the Maine Uniform
Commercial Code, Section 3-108, which may be called by Lender for full and
immediate payment at any time, in Lender's sole discretion. Borrower
acknowledges and agrees that the demand nature of such obligations is not waived
by Lender or otherwise negated or affect in any way, notwithstanding any
provisions herein, in the Note evidencing such loans or elsewhere which may
indicate Lender's present willingness to accept various payments over time and
notwithstanding references in this Agreement or in the Note to Defaults or
Events of Default.
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SECTION 3. CONDITIONS OF LENDING
---------------------
3.1 INITIAL LOAN. The obligation of the Bank to make the initial Loan(s)
hereunder is subject to the following conditions:
(a) On or prior to the date of the first advance, the Bank shall have
received the Note, the Guaranty and all other Loan Documents duly completed,
executed and delivered.
(b) The receipt of a favorable opinion of counsel for the Borrower,
dated as of such date and in form and substance satisfactory to the Bank and its
counsel.
(c) A copy of the Borrower's organizational documents.
(d) All other information and documents which the Bank or its counsel
may reasonably have requested in connection with the transactions contemplated
by this Agreement, such information and documents where appropriate to be
certified by the proper officers of Borrower or governmental authorities.
3.2 CONDITIONS PRECEDENT TO ALL LOANS. On the date of each Loan hereunder
and any advance under the revolving credit facility (a) the representations and
warranties of the Borrower contained in Section 4 of this Agreement shall be
true on and as of such dates as if they had been made on such dates (except to
the extent that such representations and warranties expressly relate to an
earlier date or are affected by the consummation of transactions permitted under
this Agreement); (b) the Borrower shall be in compliance with all material terms
and provisions set forth herein on its part to be observed or performed on or
prior to such dates as well as those terms and provisions the non-compliance
with which could have a material adverse effect on the business or operations of
Borrower or the Bank's ability to recover all Obligations; (c) after giving
effect to any Loan hereunder to be made on such dates, no Event of Default, nor
any event which with the giving of notice or expiration of any applicable grace
period or both would constitute such an Event of Default, shall have occurred
and be continuing; (d) since the date of this Agreement, there shall have been
no material adverse change in the assets or liabilities or in the financial or
other condition of the Borrower or any Guarantor; and (e) upon request of the
Bank, the Borrower shall deliver to the Bank an officer's certificate in form
satisfactory to the Bank affirming compliance with the conditions of subsection
3.2 as of such. Each request for a Loan made by the Borrower hereunder shall
constitute a representation and warranty to the Bank that all of the conditions
specified in this subsection 3.2 have been satisfied as of the date of each such
Loan.
SECTION 4. REPRESENTATIONS AND WARRANTIES
------------------------------
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<PAGE> 13
4.1 CORPORATE AUTHORITY. The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maine and
is duly qualified and is in good standing in every other jurisdiction where it
is doing business. The execution, delivery and performance of the Loan Documents
by the Borrower and the transactions contemplated hereby and thereby (a) are
within the corporate authority of the Borrower, (b) have been duly authorized,
(c) do not conflict with or result in any breach or contravention of any laws or
regulations (including without limitation any provision of the Code applicable
to Subchapter S corporations) and (d) do not conflict with any provision of the
corporate charter or bylaws of, or any agreement or other instrument binding
upon, the Borrower. The execution and delivery of the Loan Documents will result
in valid and legally binding obligations of the Borrower enforceable against it
in accordance with the respective terms and provisions hereof and thereof.
4.2 GOVERNMENTAL APPROVALS; COMPLIANCE WITH LAWS. The execution, delivery
and performance of the Borrower's Obligations, and exercise of the Borrower's
rights under the Loan Documents, including the borrowing under this Agreement
(a) do not require any consents from third parties or any person, and (b) are
not and will not be in conflict with or prohibited or prevented by (i) any
Requirement of Law, or (ii) its corporate charter, bylaws, any resolution or any
agreement to which it is a party (including, without limitation, any agreement
evidencing the borrowing of money), in each case binding on it or affecting its
property. The Borrower is not in violation of its corporate charter, bylaws, any
resolution, instrument or agreement to which it is a party or affecting its
property, or any Requirement of Law, in a manner which could have a Materially
Adverse Effect, including, without limitation, all applicable federal and state
tax laws, ERISA and environmental laws.
4.3 TITLE TO PROPERTIES. The Borrower owns all of the assets reflected in
the consolidated balance sheet of the Borrower as of the Balance Sheet Date
(December 31, 1996) or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date),
subject to no rights of others, except Permitted Liens. The Borrower possesses
all franchises, licenses and permits, and rights in respect of the foregoing,
adequate for the conduct of its business substantially as now conducted without
known conflict with any rights of others.
4.4 FINANCIAL STATEMENTS, ETC. There have been furnished to the Bank (a)
Borrower's audited financial statements for the fiscal year ended on December
31, 1996, and (b) its unaudited financial statements as at December 31, 1997,
certified by the treasurer of the Borrower. Such financial statements are
complete and accurate and fairly present the consolidated financial condition of
the Borrower as at the close of business on the respective dates thereof and the
results of operations for the respective periods then ended, except that the
financial statements referred to in clause (b) are subject to year-end
adjustment and are absent of footnotes.
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<PAGE> 14
4.5 NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date, there has
occurred no materially adverse change of any kind which could have a Materially
Adverse Effect.
4.6 NO LITIGATION. There are no legal or other proceedings or
investigations of any kind pending or threatened against the Borrower before any
court, tribunal or administrative agency or board that, if adversely determined,
might, either in any case or in the aggregate, have a Materially Adverse Effect.
4.7 TAX STATUS. The Borrower(s) has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (b) has paid all taxes and other
governmental assessments and charges shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and by appropriate proceedings for which adequate reserves have been
established, and (c) has set aside on its books provisions reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Borrower know of no basis for any claim, except those
being contested in good faith and by appropriate proceedings and for which
adequate reserves have been established.
4.8 NO EVENT OF DEFAULT. No Default or Event of Default has occurred and
is continuing.
4.9 CERTAIN TRANSACTIONS. None of the officers, directors, or employees of
the Borrower is presently a party to any transaction with the Borrower (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Borrower, any corporation, partnership, trust or other entity
in which any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
4.10 SUBSIDIARIES; AFFILIATES. The Borrower does not have any Subsidiaries,
except as disclosed in SCHEDULE 4.10 attached hereto.
SECTION 5. AFFIRMATIVE COVENANTS
---------------------
The Borrower covenants that, until the Loan is fully and indefeasibly paid,
it will:
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<PAGE> 15
5.1 PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or cause
to be paid the principal and interest on the Loans, all in accordance with the
terms thereof.
5.2 RECORDS AND ACCOUNTS. The Borrower will:
(a) keep true and accurate records and books of account in which
full, true and correct entries will be made in accordance with GAAP;
(b) maintain adequate accounts and reserves for all taxes (including
income taxes), depreciation, obsolescence and amortization of its properties,
contingencies, and other reserves; and
(c) permit the Bank to inspect any of the properties of the Borrower,
to examine the books of account of the Borrower (and to make copies thereof and
extracts therefrom), and to discuss the affairs, finances and accounts of the
Borrower with and to be advised as to the same by its officers, all at the
expense of the Borrower and at such reasonable times and intervals as the Bank
may reasonably request.
5.3 FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower will
deliver to the Bank:
(a) as soon as practicable, but in any event not later than one
hundred and twenty (120) days after the end of each fiscal year of the Borrower,
Financials of the Borrower and Guarantors, on a consolidated basis, and Form 10K
Report for such fiscal year, certified (as to such Financials) without
qualification by a firm of certified public accountants chosen by the Borrower
and satisfactory to the Bank, together with a written statement from such
accountants to the effect that they have read a copy of this Loan Agreement, and
that, in making the examination necessary to said certification, they have
obtained no knowledge of any Default or Event of Default, or, if such
accountants shall have obtained knowledge of any then existing Default or Event
of Default they shall disclose in such statement any such Default or Event of
Default, PROVIDED that such accountants shall not be liable to the Banks for
failure to obtain knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each fiscal quarter of the Borrower,
copies of its Form 10Q Report for such quarter and unaudited Financials of the
Borrower and the Guarantors for such quarter and the portion of the fiscal year
then elapsed, together with a certification by the chief financial officer or
treasurer that the information contained in such financial reports fairly
presents the consolidated financial position of the Borrower and all
consolidated entities on the date thereof (subject to year-end adjustments);
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<PAGE> 16
(c) simultaneously with the delivery of the financial statements and
reports referred to in subsections (a) and (b) above, a statement certified by
the chief financial officer or treasurer in substantially the form of EXHIBIT B
hereto and setting forth in reasonable detail computations evidencing compliance
with the covenants contained in Section 7 (if applicable) and reconciliations to
reflect changes in GAAP since the Balance Sheet Date; and
(d) from time to time such other financial data and information as
the Bank may reasonably request.
5.4 NOTICES. The Borrower will promptly notify the Bank in writing of (a)
the occurrence of any Default or Event of Default; (b) (i) any material
violation of any environmental law or of ERISA and (ii) any material inquiry,
proceeding, investigation, or other action in respect thereof which could have a
Materially Adverse Effect; and (c) any material threatened or pending litigation
or similar proceedings affecting the Borrower or any material change in any such
litigation or proceeding previously reported.
5.5 CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will
maintain its chief executive office in the United States and will do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence, rights and franchises. The Borrower will (a) cause all of
its properties to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment, and (b) cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Borrower may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
5.6 TAXES. The Borrower will duly pay and discharge, or cause to be paid
and discharged, before the same shall become overdue, all taxes, assessments and
other governmental charges imposed upon it and its real properties, sale and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property, PROVIDED that any such tax,
assessment or other charge need not be paid if the validity or amount thereof
shall currently be contested in good faith by appropriate proceedings and if the
Borrower shall have set aside on its books adequate reserves with respect
thereto; and PROVIDED FURTHER that the Borrower will pay all such taxes,
assessments or other charges forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor.
5.7 COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS. The Borrower
will comply with (a) the applicable Requirements of Law, including ERISA and all
environmental laws, (b) the provisions of its charter document and bylaws, (c)
all
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<PAGE> 17
agreements and instruments by which it or any of its properties may be bound and
(d) all applicable Consents. If any Consent shall become necessary or required
in order that the Borrower may fulfill any of its Obligations under any of the
Loan Documents, the Borrower will immediately take, or will cause to be taken,
all reasonable steps within the power of the Borrower to obtain such Consent and
furnish the Bank with evidence thereof.
5.8 USE OF PROCEEDS. The Borrower will not use the proceeds of the Loan
for the purpose of carrying "margin security" or "margin stock" within the
meaning of Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Parts 221 and 224.
5.9 FURTHER ASSURANCES. The Borrower will cooperate with the Bank and
execute such further instruments and documents as the Bank shall reasonably
request to carry out to its satisfaction the transactions contemplated by the
Loan Documents.
5.10 INSURANCE. The Borrower will maintain or cause to be maintained with
respect to all insurable properties now or hereafter owned by Borrower insurance
against loss or damage by fire, explosion or other casualty to the extent
customary, and with customary deductibles, with respect to like properties of
companies conducting similar businesses, all in form and substance reasonably
satisfactory to Bank, and will also maintain or cause to be maintained public
liability and workmen's compensation insurance (or through an individual
self-insurance trust established and operated in accordance with Maine laws)
insuring the Borrower upon the foregoing terms with respect to other hazards,
risks and liabilities to persons and property and, upon request, will furnish to
the Bank satisfactory evidence of the same.
5.11 LIABILITY FOR AND REIMBURSEMENT OF COSTS AND EXPENSES. The Borrower
will pay or reimburse the Bank, on demand, for all reasonable expenses
(including, without limitation, counsel fees and expenses) incurred or paid by
the Bank in connection with the preparation, review, interpretation and
amendment or restatement of the Loan Documents and any instrument, agreement or
document executed and delivered pursuant thereto or in connection therewith, or
with the enforcement by the Bank of its rights as against the Borrower or any
other person primarily or secondarily liable to the Bank in respect of any
Obligations of the Borrower to the Bank.
5.12 DEPOSITORY ACCOUNT. The Borrower will maintain its primary deposit
relationship with the Bank, so long as any amount remains outstanding or
available hereunder.
SECTION 6. CERTAIN NEGATIVE COVENANTS OF THE BORROWER
------------------------------------------
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<PAGE> 18
The Borrower covenants and agrees that, so long as any Loan is outstanding
or available hereunder:
6.1 RESTRICTIONS ON INDEBTEDNESS. The Borrower will not create, incur,
assume, guarantee or be or remain liable, contingently or otherwise, with
respect to any Indebtedness other than:
(a) Indebtedness to the Bank;
(b) Current liabilities of the Borrower incurred in the ordinary
course of business not incurred through (i) the borrowing of money, or (ii) the
obtaining of credit except for credit on an open account basis customarily
extended and in fact extended in connection with normal purchases of goods and
services;
(c) Indebtedness in respect of taxes, assessments or other
governmental charges and claims for labor, materials and supplies to the extent
that payment therefor shall not at the time be required to be made in accordance
with the provisions of Section 4.6;
(d) Indebtedness in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which the Borrower shall at
the time in good faith be pre-securing an appeal or proceeding for review and in
respect of which a stay of execution shall have been obtained pending such
appeal or review;
(e) Indebtedness with respect to worker's compensation awards;
(f) Indebtedness consisting of obligations in respect of deferred
compensation agreements, termination benefits and other employee benefit plans,
as each such agreement, benefit and plan is in effect on the date hereof;
(g) Unsecured and secured Indebtedness listed on SCHEDULE 6.1(G)
hereto as in effect on the date hereof and any refinancing thereof in an amount
not in excess of the amount outstanding (as to term loans) or committed (as to
revolving credit facilities) on the date hereof; or
(h) With the prior written consent of Bank, which consent may be
granted or withheld in the sole discretion of the Bank, additional unsecured
Indebtedness.
6.2 RESTRICTIONS ON LIENS. The Borrower will not (a) create or incur or
suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge, charge, restriction or other security interest of any kind upon any of
its property or assets of any character whether now owned or hereafter acquired,
or upon the income or profits
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<PAGE> 19
therefrom; (b) transfer any of its property or assets of any character whether
now owned or hereafter acquired or the income or profits therefrom for the
purpose of subjecting the same to the payment of Indebtedness or performance of
any other obligation in priority to payment of its general creditors; (c)
acquire, or agree or have an option to acquire, any property or assets upon
conditional sale or other title retention or purchase money security agreement,
device or arrangement; (d) suffer to exist for a period of more than thirty (30)
days or until past due after the same shall have been incurred any Indebtedness
or claim or demand against it that if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over its general
creditors; or (e) sell, assign, pledge or otherwise transfer any accounts,
contract rights, general intangibles, chattel paper or instruments, with or
without recourse, except in the ordinary course of business, PROVIDED that the
Borrower may create or incur or suffer to be created or incurred or to exist:
(i) liens to secure taxes, assessments and other government
charges or claims for labor, material or supplies in respect of obligations not
overdue;
(ii) deposits or pledges made in connection with, or to
secure payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iii) liens in respect of judgments or awards, the
Indebtedness with respect to which is permitted by Section 6.1(d);
(iv) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens, in existence less than 120 days from the date
of creation thereof in respect of obligations not overdue;
(v) encumbrances consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property and defects and
irregularities in the title thereof, landlord's or lessor's liens under leases
to which the Borrower is a party, and other minor liens or encumbrances none of
which in the opinion of the Borrower interferes materially with the use of the
property affected in the ordinary conduct of the business of the Borrower, which
defects do not individually or in the aggregate have a Materially Adverse
Effect;
(vi) liens securing the Indebtedness permitted under Section
6.1(g) hereof;
(vii) liens in favor of the Bank securing the Indebtedness
incurred under the Loan Documents.
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<PAGE> 20
6.3 (Intentionally omitted)
6.4 RESTRICTIONS ON INVESTMENTS. The Borrower will not make or permit to
exist or to remain outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United States
of America or municipalities located in the United States of America or any
agencies of either of the foregoing;
(b) certificates of deposit, bankers acceptances and time deposits of
any Bank or any other United States bank having total assets in excess of
$500,000,000;
(c) securities commonly known as "commercial paper" issued by any
corporation which is organized and existing under the laws of the United States
of America or any state thereof, if at the time of purchase, such commercial
paper has been rated and the ratings therefor are not less than "P-2" if rated
by Moody's Investors Service, Inc., and not less than "A-2" if rated by Standard
& Poor's Corporation; and
(d) Investments existing on the date hereof listed on SCHEDULE 6.4
hereto.
6.5 MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
(a) The Borrower will not become party to any merger or consolidation
unless it is the surviving corporation thereof.
(b) The Borrower will not become a party to or agree to or effect any
disposition of all or substantially all of its assets (including without
limitation any sale and leaseback transaction).
6.6 NO CHANGE OF BUSINESS. The Borrower will not engage in any business
except the businesses now conducted by it and businesses reasonably related
thereto.
SECTION 7. FINANCIAL COVENANTS OF THE BORROWER.
-----------------------------------
The Borrower covenants and agrees that, so long as any Loan is outstanding:
7.1 LEVERAGE RATIO. The Borrower will not permit the ratio of Consolidated
Total Liabilities to Tangible Net Worth to exceed 1.0 to 1.0.
7.2 DEBT SERVICE COVERAGE. The Borrower will not permit the ratio of its
Debt Service Coverage Ratio for any period of four (4) consecutive fiscal
quarters (each such period, a "Measurement Period") to be less than 1.2 to 1.0
for each Measurement Period
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<PAGE> 21
ending after the date hereof. For purposes of this calculation, Debt Service
Coverage Ratio shall be determined by dividing Borrower's (a) Net Income PLUS
depreciation, amortization and interest expense for the period in question by
(b) Consolidated Interest Expense PLUS the current maturities of long term debt
for the period in question.
7.3 MEASUREMENT. The leverage ratio under Section 7.1 shall be measured
quarterly based upon management prepared financial statements and annually based
on independent accountant's audited statements, and the debt service coverage
ratio under Section 7.2 shall be measured annually based on independent
accountant's audited statements.
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<PAGE> 22
SECTION 8. DEFAULTS; REMEDIES
------------------
8.1 EVENTS OF DEFAULT; ACCELERATION. If any of the following events (each
an "Event of Default" or a "Default") shall occur:
(a) Demand, in the Bank's sole discretion; or
(b) The Borrower shall default in the payment of the principal of, or
any prepayments or interest on the Note, and such default shall continue for
five (5) days or default is made in respect of the payment of any other fee or
amount due hereunder or thereunder, whether at maturity, by acceleration or at a
date fixed for the payment thereof or otherwise, and such default shall continue
for five (5) days after written notice of default from Bank to Borrower; or
(c) The Borrower shall default in the performance of or compliance
with the terms and provisions of Sections 4, 5 or 6 hereof; or
(d) The Borrower shall fail to perform any other term or covenant
hereof, and such default (other than a monetary default referred to in paragraph
(a) hereof) is not rectified and cured within fifteen (15) days after notice of
default or breach by the Bank to the Borrower; or
(e) Any material representation or warranty made by the Borrower or
any other party in any Loan Document shall prove to have been false or incorrect
in any material respect when made; or
(f) The Borrower or any Guarantor shall default in any payment due on
any Indebtedness to a third party, including the Bank or in the performance or
compliance with any term of any agreement or document relating to such
Indebtedness and such default or breach is not waived by such third party,
including the Bank or cured by Borrower or such Guarantor within any applicable
cure period or otherwise prior to declaration of default hereunder by Bank,
including without limitation failure to pay amounts due under or comply with the
terms of or the occurrences of a default or event of default under any of the
loan documents described in SCHEDULE 1.1 attached hereto; or
(g) The Borrower or any Guarantor shall discontinue its business or
shall make an assignment for the benefit of creditors, or shall fail generally
to pay its debts as such debts become due, or shall apply for or consent to the
appointment of or taking possession by a trustee, receiver or liquidator (or
other similar official) of the Borrower or any Guarantor or any substantial part
of its property, or shall commence a case or have an order for relief entered
against it under the federal bankruptcy laws, as now or hereafter constituted,
or any other applicable federal or state bankruptcy, insolvency or other
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<PAGE> 23
similar law, or if the Borrower or any Guarantor shall take any action looking
to the dissolution or liquidation of the Borrower or any Guarantor;
(h) A decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any Guarantor
bankrupt or insolvent, or approving a petition in any such case or other
proceeding, or a decree or order for relief is entered in respect of the
Borrower or any Guarantor in an involuntary case under federal bankruptcy laws
as now or hereafter constituted;
(i) There shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not consecutive, any final
judgment not covered by insurance against the Borrower or any Guarantor that,
with other outstanding final judgments not covered by insurance, undischarged,
against the Borrower or such Guarantor, exceeds in the aggregate $100,000;
(j) Any of the Loan Documents shall be cancelled, terminated, revoked
or rescinded otherwise than in accordance with the terms thereof or with the
express prior written agreement consent or approval of the Bank, or any action
at law, suit or in equity or other legal proceeding to cancel, revoke or rescind
any of the Loan Documents shall be commenced by or on behalf of the Borrower,
any Guarantor, or any of their respective shareholders, or any court or any
other governmental or regulatory authority or agency of competent jurisdiction
shall make a determination that, or issue a judgment, order, decree or ruling to
the effect that, any one or more of the Loan Documents is illegal, invalid or
unenforceable in accordance with the terms thereof; or
(k) The Borrower or any Guarantor shall be enjoined, restrained or in
any way prevented by the order of any court or any administrative or regulatory
agency from conducting any material part of its business and such order shall
continue in effect for more than thirty (30) days;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, either or both of the following actions may be taken,
in addition to and not in limitation of any additional remedies as may be set
forth herein or in any related Loan Documents or under applicable law: (a) the
Bank may declare the principal of and accrued interest in respect of the Note to
be forthwith due and payable, whereupon the principal, premium, if any, and
accrued interest in respect of the Note shall become forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrower, together with all other amounts due
hereunder or thereunder; (b) the Bank may proceed to protect, enforce and
exercise its rights by an action at law, suit in equity or other appropriate
proceeding, including without limitation a right of set-off against any and all
deposits, accounts, certificate of deposit balances, claims or other sums at any
time credited by or due from
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<PAGE> 24
the Bank to the Borrower. Notwithstanding anything to the contrary herein or in
any Loan Document, the Bank shall not be obligated to make advances to Borrower
under Section 2 hereof following any monetary default or during any cure or
grace period following such a default.
SECTION 9. RIGHTS OF SET-OFF
-----------------
(a) In addition to Bank's Liens, Borrower hereby expressly grants to
Bank the right to set-off against all deposits and other sums at any time held
or credited by or due from Bank to Borrower, in accordance with the provisions
of this Section 9. The rights of Bank under this Section 9 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off under law or equity) which Bank may have under law or by agreement.
(b) Bank is hereby authorized at any time and from time to time,
after the occurrence and during the continuation of an Event of Default, to the
fullest extent permitted by law, at its option, without notice or demand and
without liability, to set off and apply any and all deposits (general or
special, time or demand, provisional or final, excepting, however, any fiduciary
or escrow accounts established by Borrower into which only funds of unrelated
third-parties are deposited, and provided that Borrower has informed Bank of the
nature of such accounts) at any time held, and other indebtedness at any time
owing, by Bank to or for the credit or the account of Borrower against any and
all of the Obligations now or hereafter existing under this Agreement, the Notes
and the other Loan Documents, in such order and manner as Bank may determine in
its sole discretion.
(c) Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that Bank and any holder of a participation in the Note of
which Borrower has been given prior notice may exercise rights of set off or
counterclaim and other rights with respect to such participation as fully as if
such holder of a participation were a direct creditor of Borrower in the amount
of such participation, provided that any such set-off by the holder of a
participation shall be subject to the provisions of Section 9(b).
(d) Borrower hereby grants to Bank a lien, security interest and
right of setoff as security for the Obligations, whether now existing or
hereafter arising, upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Bank or any entity under the control of Fleet Financial Group, Inc., or in
transit to any of them. At any time after the occurrence and during the
continuation of an Event of Default, without demand or notice, Bank may set off
the same or any part thereof and apply the same to any Obligation of Borrower
regardless of the adequacy of any other collateral securing the Loan. ANY AND
ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
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<PAGE> 25
ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER
OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
SECTION 10. MISCELLANEOUS
-------------
10.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be personally delivered or mailed by first class mail, postage
prepaid, as follows:
(a) If to the Bank:
Fleet Bank of Maine
P.O. Box 1280
Portland, ME 04104-5006
Attention: Claude R. Carbonneau, Vice President
FAX: (207) 874-5167
with a copy to:
Michael E. High, Esq.
Drummond Woodsum & MacMahon
245 Commercial Street
P.O. Box 9781
Portland, ME 04104-5081
FAX: (207) 772-3627
(b) If to the Borrower:
Brunswick Technologies, Inc.
43 Bibber Parkway
Brunswick, ME 04011
Attention: Chief Executive Officer
with a copy to:
Daniel G. McKay, Esq.
Eaton, Peabody, Bradford & Veague, PA
Fleet Center, Exchange Street
P.O. Box 1210
Bangor, ME 04402-1210
FAX: (207) 942-3040
-25-
<PAGE> 26
or to such other address or addresses as the party to whom such notice is
directed may have designated in writing to the other party hereto. A notice
shall be deemed to have been given upon the earlier to occur of (i) three (3)
days after the date on which it is deposited in the U.S. mails properly
addressed, first class postage prepaid, by certified or registered mail, return
receipt requested, or (ii) receipt by the party to whom such notice is directed.
10.2 CROSS DEFAULTS, ETC. It is intended, and the Borrower and the Bank
hereby agree that a default under or in respect of any Obligation issued
pursuant hereto or any Loan Documents shall constitute a default in respect of
the other Obligations of Borrower to Bank, whether now existing or hereafter
arising.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in
exercising, on the part of Bank, any right, power or privilege hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
10.4 SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of Borrower, Bank, and their respective successors and assigns.
10.5 GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed and interpreted in
accordance with the laws of the State of Maine.
10.6 WAIVER. Borrower and all other parties liable herefor, whether
principal, guarantor, endorser or otherwise, hereby severally waive demand,
notice and protest, 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 Borrower or to any other liable
party, any modifications or amendments to this Agreement or any documents
securing payment and performance hereof, any act or omission to act by or on
behalf of Bank, any invalidity or unenforceability of security given herefor,
any release, whether intentional, unintentional, or by operation of law, or
security, any release, whether intentional, unintentional or by operation of
law, of a liable party or parties, and all other indulgences of any type which
may be granted by Bank to the Borrower or any party liable herefor, and do also
agree to pay all costs of collection of the indebtedness evidenced hereby,
including reasonable attorneys' fees which may be incurred in connection
therewith.
-26-
<PAGE> 27
10.7 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Borrower and all terms and provisions, covenants and conditions and
agreements to be performed by the Borrower herein and in any of the other Loan
Documents shall be true and satisfied at the time of the delivery of this
Agreement and shall survive the execution and delivery of this Agreement.
10.8 ENTIRE AGREEMENT. This Agreement and the other Loan Documents,
together with the commitment letter attached hereto, contain the entire
agreement of the parties hereto and thereto with respect to the matters
discussed herein and therein. This Agreement may not be altered or amended
except by agreement in writing signed by the parties.
10.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts each of which shall be an original and all of which shall
constitute one agreement.
10.10 REPLACEMENT NOTES. Upon receipt of an affidavit of an officer of Bank
as to the loss, theft, destruction or mutilation of the Note or any other
security document which is not of public record, and, in the case of any such
loss, theft, destruction or mutilation, upon surrender and cancellation of such
Note or other security document. Borrower will issue, in lieu thereof, a
replacement Note or other security document in the same principal amount thereof
and otherwise of like tenor.
10.11 BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS. (a) This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, provided that
Borrower may not assign or transfer any of its interest hereunder without the
prior written consent of the Lender.
(b) Lender may make, carry or transfer loans at, to or for the
account of, any of its branch offices or the office of an affiliate of Lender.
(c) Lender may assign all or a portion of its interests, rights
and obligations under this Agreement (including all or a portion of its
commitments and the Loans at the time owing to it and the Note held by it) to
any financial institution whether as a direct assignment of all or any portion
hereof or the sale of a participation interest or interests herein.
(d) Lender may at any time pledge all or any portion of its
rights under the Loan Documents including any portion of the Note to any of the
twelve (12) Federal Reserve Banks organized under Section 4 of the Federal
Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall
release Lender from its obligations under any of the Loan Documents.
-27-
<PAGE> 28
(e) Lender shall have the unrestricted right at any time or from time
to time, and without Borrower's consent, to assign all or any portion of its
respective rights and obligations hereunder to one or more banks or other
financial institutions (each, an "Assignee"), and Borrower agrees that it shall
execute, or cause to be executed, such documents, including, without limitation,
amendments to this Agreement and to any other documents, instruments and
agreements executed in connection herewith as Lender shall deem necessary to
effect the foregoing. In addition, at the request of Lender and any such
Assignee, Borrower shall issue one or more new promissory notes, as applicable,
to any such Assignee and, if Lender has retained any of its rights and
obligations hereunder following such assignment, to such Lender, which new
promissory notes shall be issued in replacement of, but not in discharge of, the
liability evidenced by the promissory note held by such Lender prior to such
assignment and shall reflect the amount of the respective commitments and loans
held by such Assignee and Lender after giving effect to such assignment. Upon
the execution and delivery of appropriate assignment documentation, amendments
and any other documentation required by Lender in connection with such
assignment, and the payment by Assignee of the purchase price agreed to by such
Lender, such Assignee shall be a party to this Agreement and shall have all of
the rights and obligations of Lender hereunder (and under any and all other
guaranties, documents, instruments and agreements executed in connection
herewith) to the extent that such rights and obligations have been assigned by
Lender pursuant to the assignment documentation between Lender and such
Assignee, and such Lender shall be released from its obligations hereunder and
thereunder to a corresponding extent.
(f) Lender shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to Borrower, to grant to one
or more banks or other financial institutions (each, a "Participant") a
participation interest in Lender's obligation to lend hereunder and/or any or
all of the Loans held by Lender hereunder. In the event of any such grant by
Lender of a participation interest to a Participant, whether or not upon notice
to Borrower, such Lender shall remain responsible for the performance of its
obligations hereunder and Borrower shall continue to deal solely and directly
with Lender in connection with such Lender's rights and obligations hereunder.
(g) The Lender may furnish any information concerning Borrower in its
possession from time to time to prospective Assignees and Participants, provided
that such Lender shall require any such prospective Assignee or Participant to
agree in writing to maintain the confidentiality of such information.
10.12 NO ORAL PROMISES. UNDER MAINE LAW, NO PROMISE, CONTRACT OR AGREEMENT
TO LEND MONEY, EXTEND CREDIT, FOREBEAR FROM COLLECTION OF A DEBT OR MAKE ANY
OTHER ACCOMMODATION FOR THE REPAYMENT OF A DEBT FOR MORE THAN $250,000 MAY BE
ENFORCED
-28-
<PAGE> 29
IN COURT AGAINST A BANK UNLESS THE PROMISE, CONTRACT OR AGREEMENT IS IN WRITING
AND SIGNED BY THE BANK. ACCORDINGLY, BORROWER 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 NOTES OR
ANY OTHER OF THE LOAN DOCUMENTS BE ENFORCED, UNLESS IT IS IN WRITING AND SIGNED
BY THE BANK. BORROWER 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 AGREEMENT AND THE NOTES, BORROWER 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 BORROWER AND THE
BANK (WHETHER NOW EXISTING OR CREATED IN THE FUTURE), WHETHER OR NOT THE AMOUNT
INVOLVED EXCEEDS $250,000.
10.13 JURY WAIVER. BOTH BANK AND BORROWER AND THEIR SUCCESSORS KNOWINGLY,
VOLUNTARILY AND MUTUALLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING RELATING TO THE TRANSACTIONS UNDER THIS AGREEMENT, ANY ALLEGED ORAL
OR WRITTEN COMMITMENT BY THE BANK, OR ANY COLLECTION PROCEEDINGS WITH RESPECT TO
THIS AGREEMENT.
[The remainder of this page has intentionally been
left blank. The next page is the signature page.]
-29-
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
WITNESS:
BRUNSWICK TECHNOLOGIES, INC.
By: /s/ Alan Chesney
- -------------------------------- ------------------------------------
Its: Chief Financial Officer
------------------------------------
FLEET BANK OF MAINE
By: /s/ Claude Carbonneau
- -------------------------------- ------------------------------------
Its: Vice President
------------------------------------
-30-
<PAGE> 31
EXHIBIT/SCHEDULE INDEX
EXHIBIT NO. DESCRIPTION
- ---------- -----------
A $4,000,000 Revolving Loan Note
B Compliance Certificate
SCHEDULE NO. DESCRIPTION
- ----------- -----------
1.1 Obligations
4.10 Subsidiaries; Affiliates
6.1(g) Indebtedness
6.4 Investments
<PAGE> 1
EX-21
SUBSIDIARIES OF BRUNSWICK TECHNOLOGIES, INC.
Advanced Textiles, Inc. ("ATI").
ATI is a wholly-owned subsidiary of the Registrant, and is incorporated in
the State of Texas.
Brunswick Technologies Europe Limited ("BTE")
BTE is a wholly-owned subsidiary of the Registrant and is incorporated
under the laws of the United Kingdom.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Brunswick Technologies, Inc. on Forms S-8 (File Nos. 333-36921 and 333-47915)
of our report dated February 12, 1999, on our audits of the consolidated
financial statements of Brunswick Technologies, Inc. as of December 31, 1998
and 1997, and for the years ended December 31, 1998, 1997, and 1996, which
report is included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Portland, Maine
March 30, 1999
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 796
<SECURITIES> 0
<RECEIVABLES> 6,181
<ALLOWANCES> 125
<INVENTORY> 4,807
<CURRENT-ASSETS> 12,491
<PP&E> 12,676
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0
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<COMMON> 24,837
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<TOTAL-LIABILITY-AND-EQUITY> 29,639
<SALES> 41,422
<TOTAL-REVENUES> 41,844
<CGS> 32,224
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