<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1998
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number: 1-11956
HEARTLAND TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1487580
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
547 West Jackson Boulevard, Chicago, Illinois 60661
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
312/294-0497
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
As of May 14, 1998, there were 1,671,238 shares of the registrant's common stock
outstanding.
Page 1 of 18
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Heartland Technology, Inc.
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
(Amounts in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31 December 31
1998 1997
-----------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 2,318 $ 3,232
Accounts receivable, net.......................................... 3,601 2,311
Due from affiliate................................................ 531 450
Inventories, net.................................................. 2,052 1,660
Prepaid expenses.................................................. 77 139
------- -------
Total current assets......................................... 8,579 7,792
------- -------
Property and equipment:
Machinery and equipment........................................... 5,278 5,262
Furniture and equipment........................................... 159 29
Leasehold improvements............................................ 326 320
------- -------
5,763 5,611
Less accumulated depreciation..................................... 901 623
------- -------
4,862 4,988
------- -------
Other assets:
Deferred compensation expense..................................... - 2,562
Deferred tax asset, net........................................... 291 262
Goodwill, net..................................................... 8,774 6,058
Debt issuance cost, net........................................... 91 135
Other............................................................. 378 230
Investment in partnerships........................................ 8,124 8,152
------- -------
Total assets................................................. $31,099 $30,179
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade........................................... $ 1,909 $ 1,249
Accrued expenses and other liabilities............................ 1,216 1,189
Line of credit.................................................... 1,023 147
Current portion of long-term debt................................. 1,601 1,591
Allowance for claims and liabilities.............................. 1,279 1,279
------- -------
Total current liabilities.................................... 7,028 5,455
------- -------
Long-term debt, less current portion................................... 1,750 2,165
Notes payable.......................................................... 3,000 3,000
Stockholders' equity:
Common stock $.30 par value per share, authorized 10,000,000 shares, 501 501
1,671,238 shares issued and outstanding
Additional paid-in capital........................................ 10,773 10,773
Retained earnings................................................. 8,047 8,285
------- -------
Total stockholders' equity................................... 19,321 19,559
------- -------
Total liabilities and stockholders' equity................... $31,099 $30,179
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements Page 2 of 18
<PAGE>
Heartland Technology, Inc.
Condensed Consolidated Statements of Operations
For the Quarters Ended March 31, 1998 and March 31,1997
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31 March 31
1998 1997
----------------------
<S> <C> <C>
Net sales................................................... $ 5,242 $ -
Cost of sales............................................... 3,801 -
-------- --------
Gross margin................................................ 1,441 -
Other income (loss):
Interest income........................................ 16 59
Management fee from affiliate.......................... 106 106
Loss from investment in partnerships................... (28) (1,339)
Miscellaneous, net..................................... - 3
-------- --------
Total other income (loss)................................... 94 (1,171)
Other expenses:
Selling, general and administrative.................... 1,633 398
Interest expense....................................... 142 -
Special compensation................................... 188 -
-------- --------
Total other expenses.............................. 1,963 398
-------- --------
Loss before taxes........................................... (428) (1,569)
Income tax benefit.......................................... (190) -
-------- --------
Net loss.................................................. $ (238) $(1,569)
======== ========
Net loss per share - basic and diluted...................... $ (.14) $ (.94)
======== ========
Weighted average number of common shares outstanding........ 1,671 1,671
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements Page 3 of 18
<PAGE>
Heartland Technology, Inc.
Condensed Consolidated Statements of Cash Flows
For the Quarters ended March 31, 1998 and March 31, 1997
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31 March 31
1998 1997
-----------------------
<S> <C> <C>
Operating activities:
Net loss............................................................................. $ (238) $ (1,569)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................... 345
Equity loss in investment in partnerships....................................... 28
Unrealized loss on investments.................................................. 1,467
Deferred income taxes........................................................... (53)
Special compensation............................................................ 188
Accretion amortization of (discount) premium on securities...................... (8)
Changes in operating assets and liabilities:
Decrease in accounts receivable............................................ (1,376)
Decrease in due from affiliate............................................. (185) 319
Increase in inventories, net............................................... (392)
Increase in prepaid expenses and other assets.............................. (120) (374)
Decrease in accounts payable and accrued expenses.......................... 580 375
-------- ----------
Net cash provided by operating activities....................................... (1,223) 210
Investing activities:
Purchases of property and equipment.................................................. (152)
Net purchase/sale of securities...................................................... (1,324)
-------- ----------
Net cash used in investing activities........................................... (152) (1,324)
Financing activities:
Line of credit, net.................................................................. 876
Principal payments on long-term debt................................................. (415)
-------- ----------
Net cash provided by financing activities....................................... 461
-------- ----------
Decrease in cash and cash equivalents................................................ (914) (1,114)
Cash and cash equivalents at December 31, 1997 and 1996.............................. 3,232 1,200
-------- ----------
Cash and cash equivalents at March 31, 1998 and 1997................................. $ 2,318 $ 86
======== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements Page 4 of 18
<PAGE>
HEARTLAND TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. Basis of Presentation
The unaudited consolidated financial statements and related notes have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission (the "Commission") and on substantially the same basis as
the annual consolidated financial statements. The consolidated financial
statements include the accounts of Heartland Technology, Inc. ("HTI" or the
"Company") and its wholly-owned subsidiary, P.G. Design Electronics, Inc. All
significant intercompany transactions and accounts have been eliminated.
After the May 30, 1997, acquisition of an operating business, P.G. Design
Electronics, Inc., HTI (then named Milwaukee Land Company) filed an application
with the Commission to deregister as an investment company registered under the
Investment Company Act of 1940, as amended. On December 31, 1997, the
Commission issued an order acknowledging that the Company had ceased to be an
investment company.
The first quarter 1997 financial statements reflect the accounts of the Company
prior to its acquisition of P.G. Design Electronics, Inc.
In the opinion of management, the consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position, operating results, and cash flows for
the period presented. Operating results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. The interim statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1997 as presented in the Company's Annual Report on Form
10-K.
2. Organization
Heartland Technology, Inc. was a wholly-owned subsidiary of Chicago Milwaukee
Corporation ("CMC") or its affiliates prior to June 30, 1993.
In 1990, the real estate assets and certain other assets and liabilities held by
CMC and HTI were contributed to two newly-organized partnerships - Heartland
Partners, L.P., a publicly-traded limited partnership of which HTI is the
general partner and also holds a limited partner interest ("Heartland") and CMC
Heartland Partners, a general partnership in which HTI and Heartland are the
general partners and HTI is the managing partner ("CMC Heartland"). On June 30,
1993 CMC distributed HTI common stock to CMC's shareholders, spinning off HTI as
a separate publicly-held company.
HTI's investment in Heartland and CMC Heartland (the "Partnerships") is
accounted for using the equity method since the Company has significant
influence over the Partnerships' operations. The difference in the cost of the
Company's investment in the Partnerships and the underlying equity in net assets
of $1,437,161 at March 31, 1998, is being amortized as CMC Heartland's assets
are sold. For the quarter ended March 31, 1998, the equity adjustment was
immaterial.
Since its spin-off from CMC in 1993, HTI had been engaged in a search to acquire
one or more operating businesses. In May 1997, HTI and PG Newco Corp ("PG
Newco"), a wholly-owned subsidiary of HTI, purchased substantially all of the
assets, and assumed certain liabilities of PG Design Electronics, Inc. ("PG").
PG was engaged in the business of contract design and manufacture of electronics
assemblies for computer printer original equipment manufacturers. PG Newco's
name was then changed to P.G. Design Electronics, Inc. ("PG Design").
The purchase price included the issuance of notes totaling $3,000,000 issued to
the seller, PG. The notes are payable $1,500,000 in September 2000 and
$1,500,000 in May 2002 and bear interest at 8% per year; however, no amounts
were due in the event that the person serving as the president of PG at the time
of the purchase voluntarily left the employment of PG Design prior to the
scheduled maturity of the notes. Because of the contingency in the notes linking
the payment of the notes to the continued employment of such person with PG
Design,
Page 5 of 18
<PAGE>
HEARTLAND TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
$3,000,000 was recorded as deferred compensation of which $1,500,000 was being
amortized over 40 months and $1,500,000 was being amortized over 60 months, on a
straight line basis. The amortization of deferred compensation amounted to
$188,000 for the quarter ended March 31, 1998 and is reported as special
compensation in the consolidated statement of operations.
The contingency related to the continued employment of such person was removed
from the notes on March 30, 1998. The $2,375,000 amount of unamortized deferred
compensation was added to goodwill and will be amortized on a straight line
basis over 39 years and 1 month, the remaining period that goodwill resulting
from the purchase of PG's assets is being amortized.
3. Inventories
The components of inventory consist of the following at March 31, 1998:
Raw materials.......................................$3,026,978
Work-in-process..................................... 104,083
Finished goods...................................... 326,803
----------
3,457,864
Less: Reserve for obsolescence...................... 1,406,171
----------
Inventories, net....................................$2,051,693
==========
4. Subsequent Events - Acquisitions
On April 10, 1998 the Company acquired the stock of Solder Station-One, Inc. for
$7,460,000 excluding escrow fees of $5,310 consisting of (a) cash of $5,185,000;
(b) a $1,700,000 8% note payable in semiannual installments beginning 18 months
after the closing date, with the first 3 installments of $400,000 each plus a
final semiannual payment of $500,000; (c) a $400,000 contingent note payable
either one year from the closing date, three years from the closing date, or not
at all depending on Solder Station-One, Inc. meeting certain operating income
goals, and (d) a short term note for $175,000. Solder Station-One, Inc. provides
speciality services to the printed circuit board industry.
On April 29, 1998 Zecal Corp., a newly formed subsidiary of PG Design, acquired
certain assets and liabilities from a company which owns patented technology for
plating copper circuits on a ceramic substrate. The purchase price consists
of $500,000 cash plus assumed liabilities and a $1,100,000 8% 4 year note with a
one year moratorium on interest and principal, with quarterly principal
amortization over the last three years of the note.
5. Net Loss per Share
Net loss per share for the first quarter of 1998 amounted to $.14 per share
based on 1,671,238 shares outstanding.
6. Information on Unconsolidated Investees
The following is summarized income statement information of Heartland Partners
L.P. for the quarter ended March 31, 1998, in which the Company has a general
partnership interest and Class B limited partnership interest:
Sales.................................................$ 1,265
Gross profit.......................................... (168)
Net loss.............................................. (1,851)
Page 6 of 18
<PAGE>
HEARTLAND TECHNOLOGY, INC.
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is engaged in two lines of business: (1) manufacturing and (2) real
estate. The manufacturing segment covers the Company's manufacture of electronic
assemblies on a contract basis primarily for the computer and computer printer
industry. The real estate business covers the Company's investments in real
estate partnerships, which are a .01% general partnership interest in CMC
Heartland Partners, a 1% general partnership interest and a Class B limited
partnership interest, the Class B Interest, in Heartland Partners, L.P.
("Heartland"). The Class B Interest, among other things, entitles the holder
thereof to an allocation of .5% of Heartland's available cash for distribution
and allocation of taxable income and loss.
Loss from investment in partnerships amounted to $28,000 compared to $19,000 for
the first quarter of 1997.
Liquidity and Capital Resources
On March 31, 1998, the Company had available $2,318,000 in cash and cash
equivalents. At March 31, 1998, $1,034,000 was borrowed under the line of credit
with General Electric Capital Corporation. Based on PG Design's eligible
collateral at March 31, 1998, additional borrowings of approximately $2,273,000
were available under the line of credit at March 31, 1998.
Borrowings under the line of credit increased $887,000 during the first quarter
as a result of costs incurred by PG Design in connection with the acquisition of
the assets of Zecal, Inc. which was concluded on April 29, 1998.
During the first quarter of 1998, the Company invested $152,000 in capital
expenditures. Most of the expenditures were for leasehold improvements and
office equipment at PG Design's Chesterfield, Michigan facility.
PG Design made principal payments of $415,000 on its term loans during the first
quarter leaving a March 31, 1998 amount outstanding of $3,351,000. Under the
terms of the line of credit and the term loans, PG Design is required to
maintain a minimum fixed charge ratio and minimum tangible net worth, is limited
in incurring additional indebtedness and making capital expenditures, and is
restricted from making certain payments. Borrowings under the line of credit are
collateralized by accounts receivable and inventory and cross-collateralized
with the term loans. The term loans are secured by machinery and equipment and
cross-collateralized with the line of credit.
Cash flow for the quarter was a decrease of $914,000. Management believes the
Company will have sufficient funds available for operating expenses, debt
amortization and capital expenditures from cash flow expected to be derived from
operations and from financing presently in place. Management expects that the
Company will require additional financing for further acquisitions.
The Company believes that it will not have to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The Company presently
believes that the Year 2000 Issue will not pose significant operational problems
for its computer systems. However, there can be no guarantee that the systems of
other companies on which the Company relies will be converted on a timely basis
and would not have an adverse effect on the Company.
Page 7 of 18
<PAGE>
HEARTLAND TECHNOLOGY, INC.
MARCH 31, 1998
Results of Operations
Net sales of electronic assemblies, and computer and computer printer products
totaled $5,242,000 in the first quarter of 1998. Although these figures are not
comparable to the first quarter of 1997, since the acquisition of PG was
effective on May 30, 1997, sales for the 1997 quarter for the company acquired
totaled $7,916,000. This represents a decrease of approximately 37%. The first
quarter loss resulted from a decrease in sales to PG Design's largest customer.
The customer has told PG Design that sales may improve in the latter part of
1998. The Company is taking steps to reduce its reliance on customer
concentration and is seeking to diversify its products and customers at the
operating company level and also by acquisitions. Among the new products that
the Company is developing is a Kiosk (an electronic information center)
principally for point of purchase applications. The Company anticipates that
shipments of the Kiosks will commence in the latter part of the year.
The decrease in sales volume has negatively affected gross profit margins.
Gross profit margins declined to 28% in the first quarter of 1998 from an
average of 34% for all of 1997 and 34% for the first quarter of 1997, prior to
the Company's acquisition of PG.
Selling, general and administrative expenses consisting of personal costs,
bonuses, employee benefits, facilities and equipment costs, advertising,
marketing, other support costs including utilities, insurance and professional
fees totaled $1,633,000 for the first quarter of 1998, representing an increase
of 12% from the $1,459,000 for the first three months of 1997 prior to the
Company's acquisition of PG. The major portion of this increase was
attributable to strengthening and enhancing PG Design's organization by adding
quality, manufacturing, engineering and finance personnel and directing a
considerable effort towards the development of new products which are currently
underway.
The Company expects that sales to relatively few large customers will continue
to account for a significant percentage of its sales, although there can be no
assurance that any one of these customers will continue to utilize the Company's
products at current levels. The loss of any major customer, or any reduction in
orders by any such customer, will have a material adverse effect on the
Company's business, financial condition and results of operations.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Form 10-Q contain certain statements which
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievement of results to differ
materially from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
important factors include, among others: ability of the Company to manage
successfully its recent acquisitions of businesses; inexperience of the Company
in the computer components and electronics assemblies businesses; dependence on
key employees in the acquired businesses; significant dependence of the Company
on a few customers and the lack of long-term contracts with these customers;
dependence on the computer and electronics industry, which is characterized by
rapidly changing technology, evolving industry standards, and short product life
cycles; competition; access to financing; cyclical nature of the real estate
industry; and other risks, uncertainties and factors discussed in this Form 10-Q
and in the Company's other filings with the Securities and Exchange Commission,
including its Annual Report on Form 10-K for the year ended December 31, 1997.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Promissory Note, dated May 30, 1997, of Milwaukee Land Company (now
Heartland Technology, Inc.), in the principal amount of $1,500,000
due September 30, 2000, and payable to PG Design Electronics, Inc.
(now PG Oldco), amended and restated on March 30, 1998 (filed
herewith).
10.2 Promissory Note, dated May 30, 1997, of Milwaukee Land Company (now
Heartland Technology, Inc.), in the principal amount of $1,500,000
due May 30, 2002, and payable to PG Design Electronics, Inc. (now PG
Oldco), amended and restated on March 30, 1998 (filed herewith).
10.3 First Amendment and Waiver, dated January 26, 1998, between P.G.
Design Electronics, Inc. (formerly known as PG Newco Corp.) and
General Electric Capital Corporation, to the Loan and Security
Agreement, dated May 29, 1997. (filed herewith)
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during the
three months ended March 31, 1998.
Page 8 of 18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEARTLAND TECHNOLOGY, INC.
(Registrant)
Date: May 15, 1998 BY: /s/ Edwin Jacobson
-----------------------------------------
Edwin Jacobson
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 BY: /s/ Leon F. Fiorentino
-----------------------------------------
Leon F. Fiorentino
Vice-President-Finance, Secretary
and Treasurer
(Principal Financial and Accounting Officer)
Page 9 of 18
<PAGE>
HEARTLAND TECHNOLOGY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
10.1 Promissory Note, dated May 30, 1997, of Milwaukee Land Company (now
Heartland Technology, Inc.), in the principal amount of $1,500,000
due September 30, 2000, and payable to PG Design Electronics, Inc.
(now PG Oldco), amended and restated on March 30, 1998 (filed
herewith).
10.2 Promissory Note, dated May 30, 1997, of Milwaukee Land Company (now
Heartland Technology, Inc.), in the principal amount of $1,500,000
due May 30, 2002, and payable to PG Design Electronics, Inc. (now PG
Oldco), amended and restated on March 30, 1998 (filed herewith).
10.3 First Amendment and Waiver, dated January 26, 1998, between P.G.
Design Electronics, Inc. (formerly known as PG Newco Corp.) and
General Electric Capital Corporation, to the Loan and Security
Agreement, dated May 29, 1997 (filed herewith).
27 Financial Data Schedule (filed herewith).
Page 10 of 18
<PAGE>
[As Amended and Restated on March 30, 1998]
EXHIBIT 10.1
NOTE
----
U.S. $1,500,000 Dated: May 30, 1997
FOR VALUE RECEIVED, the undersigned, Milwaukee Land Company, a Delaware
corporation (the "Obligor"), HEREBY PROMISES TO PAY to PG Design Electronics,
Inc. (the "Obligee") the principal sum of One Million Five Hundred Thousand
United States Dollars ($1,500,000), on September 30, 2000, subject to the terms
and conditions set forth below.
The Obligor promises to pay interest quarterly on the unpaid principal
amount owing hereunder at a rate of interest equal to 8% per annum (calculated
on the basis of a 365-day year), payable on the last business day of each
calendar quarter, commencing June 30, 1997.
Both principal and interest are payable in lawful money of the United
States of America to Obligor, at the account designated by Obligor, in
immediately available funds.
This Note is one of the two Notes referred to in, and is entitled to the
benefits of, the Asset Purchase Agreement, dated as of April 4, 1997 (the
"Purchase Agreement"), among the Obligor, PG Newco Corp. ("PG Newco"), a wholly-
owned subsidiary of the Obligor, the Obligee and certain Shareholder Indemnitors
signatory thereto.
Demand, presentment, protest and notice of non-payment and protest are
hereby waived by the Obligor.
For so long as any payments remain due and owing under this Note, the
Obligor shall not use any of its available free cash for any purpose other than
(i) to fund its corporate operations and obligations or (ii) to support the
growth of PG Newco through investment in PG Newco or through acquisitions of
assets or businesses related to or complementary to the business of PG Newco,
unless, and to the extent that, the Obligor's available free cash exceeds the
aggregate principal amount outstanding under this Note, in which case, the
Obligor shall be free to use such excess available free cash for any purpose,
including, but not limited to, the payment of dividends to its shareholders and
acquisitions or investments not related to the business of PG Newco.
[STRUCK-OUT TEXT FOLLOWS]
This Note shall cease to be of any legal force or effect, and any and all
remaining payment obligations of Obligor hereunder, whether for payment of
principal or interest, shall automatically and immediately and forever cease to
exist, if, at any time during the term of this Note, Peter G. VanHeusden
("VanHeusden") shall cease to be employed by PG Newco as a result of his
voluntary action. For purposes of this paragraph, VanHeusden's death,
disability, or discharge by PG Newco shall not constitute "voluntary action."
[STRUCK-OUT TEXT ENDS HERE]
This Note is non-transferable and any attempted assignment or transfer of
this Note shall be null and void, provided that, upon the dissolution of
Obligee, this Note shall be transferable to the stockholders of Obligee as of
the date hereof.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE SECURITIES ACT") OR ANY STATE SECURITIES LAW. THIS SECURITY HAS
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, HYPOTHECATED,
Page 11 of 18
<PAGE>
SOLD OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE THEREOF BE RECOGNIZED
BY THE COMPANY AS HAVING ANY INTEREST IN SUCH SECURITY, IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SECURITY UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of Delaware.
MILWAUKEE LAND COMPANY
By: /s/ Edwin Jacobson
------------------------------------------
Name: Edwin Jacobson
Title: President and Chief Executive Officer
Page 12 of 18
<PAGE>
[As Amended and Restated on March 30, 1998]
EXHIBIT 10.2
NOTE
----
U.S. $1,500,000 Dated: May 30, 1997
FOR VALUE RECEIVED, the undersigned, Milwaukee Land Company, a Delaware
corporation (the "Obligor"), HEREBY PROMISES TO PAY to PG Design Electronics,
Inc. (the "Obligee") the principal sum of One Million Five Hundred Thousand
United States Dollars ($1,500,000), on May 30, 2002, subject to the terms and
conditions set forth below.
The Obligor promises to pay interest quarterly on the unpaid principal
amount owing hereunder at a rate of interest equal to 8% per annum (calculated
on the basis of a 365-day year), payable on the last business day of each
calendar quarter, commencing June 30, 1997.
Both principal and interest are payable in lawful money of the United
States of America to Obligor, at the account designated by Obligor, in
immediately available funds.
This Note is one of the two Notes referred to in, and is entitled to the
benefits of, the Asset Purchase Agreement, dated as of April 4, 1997 (the
"Purchase Agreement"), among the Obligor, PG Newco Corp. ("PG Newco"), a wholly-
owned subsidiary of the Obligor, the Obligee and certain Shareholder Indemnitors
signatory thereto.
Demand, presentment, protest and notice of non-payment and protest are
hereby waived by the Obligor.
For so long as any payments remain due and owing under this Note, the
Obligor shall not use any of its available free cash for any purpose other than
(i) to fund its corporate operations and obligations or (ii) to support the
growth of PG Newco through investment in PG Newco or through acquisitions of
assets or businesses related to or complementary to the business of PG Newco,
unless, and to the extent that, the Obligor's available free cash exceeds the
aggregate principal amount outstanding under this Note, in which case, the
Obligor shall be free to use such excess available free cash for any purpose,
including, but not limited to, the payment of dividends to its shareholders and
acquisitions or investments not related to the business of PG Newco.
[STRUCK-OUT TEXT FOLLOWS]
This Note shall cease to be of any legal force or effect, and any and all
remaining payment obligations of Obligor hereunder, whether for payment of
principal or interest, shall automatically and immediately and forever cease to
exist, if, at any time during the term of this Note, Peter G. VanHeusden
("VanHeusden") shall cease to be employed by PG Newco as a result of his
voluntary action. For purposes of this paragraph, VanHeusden's death,
disability, or discharge by PG Newco shall not constitute "voluntary action."
[STRUCK-OUT TEXT ENDS HERE]
This Note is non-transferable and any attempted assignment or transfer of
this Note shall be null and void, provided that, upon the dissolution of
Obligee, this Note shall be transferable to the stockholders of Obligee as of
the date hereof.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE SECURITIES ACT") OR ANY STATE SECURITIES LAW. THIS SECURITY HAS
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, HYPOTHECATED,
Page 13 of 18
<PAGE>
SOLD OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE THEREOF BE RECOGNIZED
BY THE COMPANY AS HAVING ANY INTEREST IN SUCH SECURITY, IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SECURITY UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of Delaware.
MILWAUKEE LAND COMPANY
By: /s/ Edwin Jacobson
------------------------------------------
Name: Edwin Jacobson
Title: President and Chief Executive Officer
Page 14 of 18
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT AND WAIVER TO THE LOAN AND SECURITY AGREEMENT
THIS AMENDMENT AND WAIVER is made effective as of this 26th day of
January 1998, between PG DESIGN ELECTRONICS, INC. (formerly known as
PG Newco Corp.), a Delaware corporation ("Borrower"), and GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender").
Recitals
--------
Lender and Borrower are parties to that certain Loan and Security
Agreement, dated as of May 29, 1997 (the "Loan Agreement"), pursuant
to which Lender has agreed to make loans from time to time to the
Borrower in accordance with the terms and conditions thereof. Borrower
has requested that Lender waive a certain Event of Default described
below and Borrower and Lender desire to amend the Loan Agreement, in
each case in accordance with the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower and Lender do hereby agree that all capitalized
terms used herein shall have the meanings ascribed thereto in the Loan
Agreement (except as otherwise expressly defined or limited herein)
and do hereby further agree as follows:
Statement of Terms
------------------
1. Waiver. Lender hereby waives the Event of Default existing on the
date hereof arising solely from Borrower's incurrence of Capital
Expenditures for Fiscal Year 1997 in excess of the $500,000 permitted
by the Loan Agreement for such Fiscal Year.
2. Amendments. (a) Section 5(c) of the Loan Agreement is hereby
amended by adding the following new clause (vii) thereto:
"(vii) the capital expenditure loan to be made by the Term Lender to
the Borrower in the principal amount equal to $1,300,000 on terms and
conditions satisfactory to Lender."
(b) Schedule G of the Loan Agreement is hereby amended by deleting
the phrase "in any Fiscal Year in excess of $500,000" appearing at the
end of
Page 15 of 18
<PAGE>
paragraph 3 thereof and replacing it with the following phrase:
"in excess of $1,000,000 for Fiscal Year 1997 and in excess of
$500,000 for any Fiscal Year thereafter."
3. No Other Waivers or Amendments. Except for the amendments and
waivers expressly set forth and referred to in Sections 1 and 2 above,
the Loan Agreement shall remain unchanged and in full force and effect
and this Amendment and Waiver shall be limited precisely as drafted
and shall not be construed as an amendment or a waiver of any other
terms or provisions of the Loan Agreement. Nothing in this Amendment
and Waiver is intended, or shall be construed, to constitute a
novation or an accord and satisfaction of any of the Borrower's
indebtedness under or in connection with the Loan Agreement or any
other indebtedness to the Lender.
4. Representations and Warranties. To induce Lender to enter into
this Amendment and Waiver, Borrower does hereby warrant, represent and
covenant to Lender that: (a) each representation or warranty of
Borrower set forth in the Loan Agreement is hereby restated and
reaffirmed as true and correct on and as of the date hereof as if such
representation or warranty were made on and as of the date hereof
(except to the extent that any such representation or warranty
expressly relates to a prior specific date or period in which case it
is true and correct as of such prior date or period), and no Default
or Event of Default has occurred and is continuing as of this date
under the Loan Agreement after giving effect to this Amendment and
Waiver; and (b) Borrower has the power and authority and is duly
authorized to enter into, deliver and perform this Amendment and
Waiver and this Amendment and Waiver is the legal, valid and binding
obligation of such Borrower enforceable against it in accordance with
its terms.
5. Conditions Precedent to Effectiveness of this Amendment and
Waiver. The effectiveness of this Amendment and Waiver is subject to
the fulfillment of the following conditions precedent:
(a) Lender shall have received one or more counterparts of this
Amendment and Waiver duly executed and delivered by the Borrower;
(b) Any and all guarantors of the Obligations shall have consented to
the execution, delivery and performance of this Amendment and Waiver
and all of the transactions contemplated hereby by signing one or more
counterparts of this Amendment and Waiver in the appropriate space
indicated below and returning same to Lender;
Page 16 of 18
<PAGE>
(c) Borrower shall have delivered to Lender an Officer's Certificate
attaching the resolutions of the Board of Directors of Borrower
authorizing Borrower to execute this Amendment and Waiver and
certifying that no other consents, licenses or approvals are required
in connection with Borrower's execution of this Amendment and Waiver;
(d) Borrower shall have paid to Lender a Documentation Fee of $1,500.
5. Counterparts. This Amendment and Waiver may be executed in
multiple counterparts, each of which shall be deemed to be an original
and all of which when taken together shall constitute one and the same
instrument.
6. GOVERNING LAW. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE
WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to
be duly executed and delivered as of the day and year first set forth above.
PG DESIGN ELECTRONICS, INC.
By:
Name:
Title:
GENERAL ELECTRIC
CAPITAL CORPORATION
By:
Name:
Title:
Page 17 of 18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the financial statements contained in the body of the accompanying Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 2,318 3,232
<SECURITIES> 0 0
<RECEIVABLES> 3,601 2,384
<ALLOWANCES> 0 (73)
<INVENTORY> 2,052 1,660
<CURRENT-ASSETS> 8,579 7,792
<PP&E> 5,763 5,611
<DEPRECIATION> (901) (623)
<TOTAL-ASSETS> 31,099 30,179
<CURRENT-LIABILITIES> 7,028 5,455
<BONDS> 4,750 5,165
0 0
0 0
<COMMON> 501 501
<OTHER-SE> 18,820 19,058
<TOTAL-LIABILITY-AND-EQUITY> 31,099 30,179
<SALES> 5,242 0
<TOTAL-REVENUES> 5,242 0
<CGS> 3,801 0
<TOTAL-COSTS> 3,801 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 142 0
<INCOME-PRETAX> (428) (1,569)
<INCOME-TAX> (190) 0
<INCOME-CONTINUING> (238) (1,569)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (238) (1,569)
<EPS-PRIMARY> (.14) (.94)
<EPS-DILUTED> (.14) (.94)
</TABLE>
