<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
1999 FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
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 No.: 0-18018
AEROVOX INCORPORATED
--------------------
(Exact name of Registrant as specified in its charter)
Delaware 76-0254329
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 Belleville Avenue, New Bedford, MA 02745
--------------------------------------------
(Address of principal executive offices) (Zip Code)
(508) 994-9661
--------------
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1.00 Per Share Traded on the NASDAQ National
Preferred Share Purchase Rights Market System
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 twelve months, and (2) has been subject to such filing
requirements for the past ninety 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. [ ]
Shares Outstanding of the Registrant's Common Stock at March 20, 2000: 6,110,380
Aggregate market value of voting stock held by non-affiliates of the registrant
at March 20, 2000: $16,359,590
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended January 1, 2000 are incorporated by reference into Parts I, II and IV
hereof. Portions of the Registrant's definitive Proxy Statement for use at the
2000 Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
An index to exhibits filed with this Report on Form 10-K appears at pages 21
through 25 hereof.
<PAGE>
PART I
ITEM 1. Business
Aerovox's predecessor, Aerovox Corporation, began in 1922 producing crystal
wireless radios. In 1973 the Aerovox AC capacitor operations, including a plant
in New Bedford, Massachusetts, together with the Aerovox name, were purchased
from Aerovox Corporation by a newly created corporation, Aerovox Industries. In
1978, RTE Corporation ("RTE"), a manufacturer of distribution transformers and
other utility electrical products, purchased all of the assets of Aerovox
Industries through its newly organized subsidiary, Aerovox Incorporated, a
Massachusetts corporation ("Aerovox Massachusetts"). In 1988 RTE was acquired by
Cooper Industries ("Cooper"), and Aerovox Massachusetts became an indirect
wholly owned subsidiary of Cooper, through Aerovox Holding Company ("AHC"); a
Delaware corporation incorporated on May 3, 1988. On May 26, 1989 Aerovox
Massachusetts was merged into AHC and AHC's name was changed to Aerovox
Incorporated. The sole purpose of this merger was to eliminate the passive
holding company structure. On February 26, 1990, 5,095,086 shares of Aerovox
Common Stock were distributed to Cooper shareholders of record on May 5, 1989.
On March 5, 1993 Aerovox purchased all the stock of Aero M, Inc., an aluminum
electrolytic capacitor manufacturer, from Cooper Industries and subsequently
merged that company into Aerovox Incorporated. On March 11, 1993 Aerovox
purchased certain assets of British aluminum electrolytic capacitor
manufacturer, BH Components Ltd., and formed a new company, BHC Aerovox Ltd.
which is located in Weymouth, England.
In August 1998 the Company sold its Power Factor Correction business unit to a
division of General Electric.
On April 5, 1999 the Company purchased all of the outstanding capital stock of
Capacitores Unidos, S.A. de C.V. ("CUSA"), a corporation organized under the
laws of Mexico for the purpose of acquiring certain assets of Compania General
de Electronica, S.A. de C.V. and merged CUSA into Aerovox de Mexico, S.A. de
C.V.
The Company's product lines are manufactured in its four North American
capacitor plants - one in New Bedford, Massachusetts, two in Juarez, Mexico and
one in Mexico City, Mexico, and at its subsidiary, BHC Aerovox Ltd., in
Weymouth, England. A principal component, aluminum foil for electrolytic
capacitors, is produced in the Aerovox plant in Huntsville, Alabama.
In August 1999 the Company disclosed its ongoing efforts to merge its three
Mexican operations into two by transferring the production of AC motor start
capacitors and certain AC film capacitors for lighting applications from Juarez
to Mexico City and to consolidate its Juarez operations into the larger of its
two existing plants there.
Also in August 1999 the Company broke ground on its new corporate headquarters
and manufacturing facility in New Bedford, MA. A phased transition to the new
facility is expected to be complete by the end of 2000.
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Product Description
Aerovox is a leading manufacturer of electrostatic (film and paper) and aluminum
electrolytic capacitors, sold worldwide, principally to original equipment
manufacturers (OEMs) for use as components in electrical and electronic
products.
Capacitors are basic electrical components that store electrical energy and
regulate the frequency, timing and condition of electrical signals. They are
used to release predetermined amounts of energy and assist in running an
electrical device, to send predetermined amounts of energy to start an
electrical device or to store energy for releases at unscheduled future times. A
principal functional element of every capacitor is its dielectric
(nonconductive) material, which functions as an insulator separating two
electrically charged plates (electrodes). Dielectric systems can be made using a
variety of materials, such as air, ceramic, tantalum oxide, aluminum oxide,
polypropylene film and paper. The capacitors manufactured by the Company
generally use film, paper and aluminum oxide as the dielectric material.
Markets and Applications
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Markets Applications Aerovox Products
==============================================================================================================
<S> <C> <C>
Motors Compressors, air conditioners, pumps, AC Oil Capacitors
refrigeration, laundry equipment, garage AC Dry Capacitors
door openers, hospital beds Aluminum Electrolytic Capacitors
- --------------------------------------------------------------------------------------------------------------
Lighting Electromagnetic and electronic ballasts for AC Oil Capacitors
fluorescent and high intensity AC Dry Capacitors
discharge (HID) fixtures and strobe lights DC Film Capacitors
Aluminum Electrolytic Capacitors
- --------------------------------------------------------------------------------------------------------------
Power Electronics Variable speed drives, uninterruptible power DC Film Capacitors
supplies (UPS), power supplies, AC Oil Capacitors
transportation, welders, motor speed AC Dry Capacitors
controllers, telecommunications equipment, Aluminum Electrolytic Capacitors
audio/visual equipment, battery chargers
- --------------------------------------------------------------------------------------------------------------
Specialty Medical equipment (defibrillator, X-ray Custom and Pulse Power Capacitors
equipment), industrial equipment, High Voltage Capacitors
government and university research, power Power Factor Correction Capacitors
factor control systems
- --------------------------------------------------------------------------------------------------------------
EMI/RFI Filters Power supplies, industrial equipment, Custom and General Purposes
computer and telecommunications equipment EMI/RFI Filters
and appliances
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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NORTH AMERICAN CAPACITOR OPERATIONS
Electrostatic Capacitors
Aerovox has manufactured electrostatic capacitors in New Bedford, Massachusetts
since 1938 and in Juarez, Mexico where the Company began manufacturing its most
labor intensive film capacitors in 1992.
All Aerovox alternating current ("AC") film capacitors are manufactured with
polypropylene film and/or kraft paper or polyester film (used in small units) as
the dielectric system. Aerovox's AC capacitors are utilized for continuous duty
in starting permanent split-phase motors and then provide power factor
correction during the running phase of the motor circuit. Applications include
air conditioners, pumps, refrigerators and other types of equipment. Aerovox AC
film capacitors are also utilized in ballasts for high intensity discharge
("HID") and fluorescent magnetic lighting fixtures, uninterruptible power
supplies ("UPS"), power supplies and in welding equipment.
Direct current ("DC") film capacitors utilize polyester films and polypropylene
(for high frequency applications) as the dielectric system. Applications for
Aerovox DC film capacitors include lighting (for electronic ballasts in
fluorescent fixtures), UPS and power supplies, variable speed drives and
equipment for audio, communications and welding applications.
The Company offers a complete line of high-voltage, multi-purpose custom and
pulse power capacitors for medical, industrial and government applications. The
smaller models in this product line are used as components in photocopiers,
laser equipment, defibrillators and other medical equipment, power supply
systems and welding equipment. Aerovox's larger DC capacitors are used in
government and university fusion power and particle acceleration research
products, government weaponry systems, in equipment for high-energy x-rays and
in high-speed trains.
Aluminum Electrolytic Capacitors
Aerovox has manufactured AC and DC aluminum electrolytic capacitors for North
and South America and Far East markets in Juarez, Mexico since 1993. Aerovox's
AC motor start capacitors are utilized for intermittent duty in the starting of
electric motors and in limited gear motor applications. Start capacitors of this
type are used in compressor motors, pump motors, dental chairs, garage door
openers and other similar applications.
The Company's DC aluminum electrolytic capacitors are used in the electrical
equipment and electronic industry primarily for applications such as power
supplies, UPS, motor drives and energy discharge applications such as welding,
strobes and photo flash.
EMI /RFI Filters
Also organized as an integrated business within the Company is the EMI Filters
Business Unit. EMI filters protect electronic equipment from electrical
interference ("noise") coming from the power source and suppress high-frequency
interference that would otherwise be transmitted out of the equipment along the
power cord. They can also be used to suppress high-frequency and
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unintentional noise generated in electronic and electromechanical equipment.
Applications for EMI filters include computer and computer peripheral equipment,
telecommunications and variable speed drives. They are also used in sensitive
electronic tests and medical equipment. The Company's EMI filter product lines
are assembled in Juarez, Mexico.
Competition
Electrostatic Capacitors
AC capacitors are made by several domestic and foreign manufacturers and
competition is intense. In the North American AC capacitor market, Aerovox
competes primarily with domestic manufacturers. Aerovox and the General Electric
Company are the primary producers, each offering a full line of AC products.
Four other suppliers - York, Commonwealth Sprague, American Radionics and
Magnetek - though smaller, all manufacture quality products and contribute to
price competition.
Far East manufacturers are beginning to make inroads into the U.S. markets and
passage in Congress in early 1997 of the Information Technology Agreement (ITA)
is expected to increase Far East competition, in particular. (The ITA eliminates
tariffs on capacitors coming into the United States in four equal steps;
beginning in July 1997. The staged elimination will be completed by July 2000.)
The principal competitive factors in the industry include product quality and
reliability, competitive prices, on-time delivery, customer service, the ability
to meet rigid customer specifications, currency fluctuations and the ability to
add value to the customer's product.
The North American business of Aerovox is not a major supplier of general
purpose AC capacitors in either Europe or Asia and faces strong competition from
locally based manufacturers in those markets. However, Aerovox has successfully
marketed energy discharge capacitors for specialized applications in Europe and
in the Korean market.
A significant number of DC film capacitor manufacturers, both domestic and
international, serve the North American market, including Vishay and Matsushita,
both of which are larger and have more resources than Aerovox. Accordingly,
Aerovox faces stiff competition and enjoys only a minor share of this market.
The competitive factors are primarily quality, delivery and pricing.
Aluminum Electrolytic Capacitors
In the North American AC motor-start capacitor market, Aerovox has two major
competitors - BC Components and North American Capacitor Company (NACC).
Offshore competition has not been a factor in this market, but this situation
may change with the tariff elimination resulting from passage of the ITA. The
principal competitive factors in the industry are pricing, delivery, quality and
customer service.
The large can computer grade DC electrolytic capacitor market is dominated by
Cornell Dubilier Electronics, BC Components and United Chemi-Con. This
marketplace has minimal standardization and is considered application specific,
normally requiring design-in and qualification testing by its customers.
5
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EMI/RFI Filters
A significant number of EMI custom filter manufacturers serve the North American
marketplace providing strong competition. The principal competitive factors are
technical support, quality, delivery and price.
Manufacturing
Many of Aerovox's manufacturing processes are automated; mechanization is
essential to its ability to control costs in order to meet competitive prices
and still maintain acceptable profit margins. The control of quality levels is
an equally important function throughout all operations and various tests are
conducted to assure continuity of high standards.
In 1997 the Company initiated an on-going program to significantly improve
operating efficiency. In all its plants, goals to improve on-time delivery
performance, to reduce cycle times, and to reduce inventory investment have been
established and information systems, materials acquisition and flows and
production have been re-designed to meet these goals. Continuous flow
pull-through techniques, with emphasis on speed and waste elimination, are
replacing inflexible large-quantity batch production on the factory floor. As a
result of these efforts, income from operations, gross profits, lead times and
on-time deliveries saw significant improvements in 1999.
In December 1992 the Company formed a maquiladora in Juarez, Mexico for the
assembly of high labor content AC capacitor products and EMI filters. Both
oil-filled and dry AC and DC film capacitors, in addition to EMI filters, are
now assembled in this plant (referred to as Plant II by the Company). As part of
the Company's restructuring plan, the manufacture of the above-mentioned
products will be shifted during 2000 to Plant I in Juarez and Plant II will
subsequently be closed. The production of AC motor start capacitors and certain
AC film capacitors for lighting applications will be transferred from Plant I to
Mexico City.
A special products department in New Bedford assembles the custom and pulse
power product lines.
The key material element of an aluminum electrolytic capacitor is an essentially
pure aluminum foil that has been processed, chemically and electrically, to meet
the capacitance and voltage specifications of the finished capacitor. This
processing, known as etching and forming of the aluminum foil, is done at the
Aerovox plant in Huntsville, Alabama. Slitting of the processed foil to required
widths is also completed at this plant. The foil is then forwarded to Plant I in
Juarez, Aerovox de Mexico in Mexico City and to BHC Aerovox in England for
assembly into a finished aluminum electrolytic capacitor.
BHC AEROVOX LTD.
BHC Aerovox Ltd., located in Weymouth, England, is one of Europe's leading
manufacturers of aluminum electrolytic capacitors with sales throughout Europe.
6
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Products and Markets
BHC Aerovox is a major supplier of AC motor-start capacitors to the European
market, serving the fractional horsepower motor and the compressor markets.
Additionally, BHC Aerovox supplies high-voltage DC capacitors to all the major
European motor drives manufacturers. Other applications for their products
include uninterruptible power supplies, telecommunication power supplies,
traction units for trains, audio/visual equipment, welding equipment and other
general industrial electronics applications. A third product line, begun in
1996, is electrostatic paper/foil capacitors for microwave ovens.
Competition
There is keen competition from a number of European and Far Eastern suppliers
for all of the aluminum electrolytic products made by BHC Aerovox. Among the
more significant competitors are Siemens and Evox-Rifa. In each of the main
countries, there is at least one local supplier. BHC Aerovox has increased its
market share by offering technical backup to support a range of high-quality,
technically advanced products at value prices.
The main competitors for microwave oven capacitors are in Korea. Competitive
factors are mainly due to pricing.
BHC's margins are subject to influence by foreign currency exchange rates. In
order to protect itself from adverse currency fluctuations, BHC now purchases
many of its raw materials in European currency units ("euros"). Approximately
70% of all sales are outside the United Kingdom, primarily into Europe and are
typically priced in the local currency.
Manufacturing
BHC Aerovox purchases etched aluminum foil from three sources, including the
Aerovox foil operation in Huntsville. The etched foil is processed to form a
dielectric (aluminum oxide) layer according to the voltage requirements. This
processed foil is slit to the required width, wound with specially selected
tissue, impregnated with an electrolyte fluid and then assembled into
containers. A large part of the production is for non-standard parts, custom
designed to meet the specific customer applications. In 1999 BHC Aerovox
completed a program of significant investment to upgrade and automate its
capacitor assembly operations.
BHC's microwave production is based on the proven technology from Aerovox USA
and incorporates relatively new product lines.
AEROVOX DE MEXICO
Acquired in April 1999, Aerovox de Mexico S.A. de C.V., located in Mexico City,
Mexico is a leading manufacturer of motor start, motor run and film capacitors
in Latin America.
7
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Products and Markets
Aerovox de Mexico is a major supplier of AC motor start and run capacitors to
the Latin American market, serving such applications as motors, lighting
equipment and electronics. Additionally, Aerovox de Mexico supplies capacitors
to all the major European ballast and lighting manufacturers. Other applications
for their products include telecommunication equipment, home appliances and HVAC
equipment.
Competition
Brazilian and Far Eastern suppliers present competitive factors for all products
made by Aerovox de Mexico with Siemens and Lorenzetti representing the most
noteworthy competitors. In addition, there is at least one local supplier of
capacitors within each country in Latin America. In order to combat competitive
pressures, Aerovox de Mexico sells its products through a readily available,
wide network of independent distributors throughout Latin America.
Foreign currency exchange rates influence the business of Aerovox de Mexico. Raw
material is purchased in U.S. dollars from the parent company and more than half
of all sales are outside Mexico, primarily to Europe and Latin America.
Manufacturing
Aerovox de Mexico uses three sources for etched aluminum foil, including the
Aerovox foil operation in Huntsville. The subsidiary purchases polymer film and
aluminum foil and winds the material to customer-specified voltages and ratings.
Since 1995, significant investments have been made to improve operating
efficiencies and throughputs.
GENERAL
Sales and Distribution
Aerovox sells its products worldwide to over 1,000 customers, primarily original
equipment manufacturers ("OEMs"), who purchase capacitors and other products
manufactured by the Company for use as components in the products they
manufacture. No one customer in 1999 accounted for 10% or more of the net sales
of the Company. In 1999 approximately 42% of the Company's net sales were to its
ten largest customers and 88% were made to its 100 largest customers. The
Company expects that sales to these customers will continue to represent a
significant portion of its total sales.
Sales to customers outside the U.S., primarily from BHC Aerovox Ltd., the
Company's United Kingdom subsidiary and Aerovox de Mexico in Mexico City,
represented approximately 33% of total sales in 1999.
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The Company markets its products directly to domestic OEMs and through a network
of independent manufacturers' sales representative organizations which
collectively employ over 180 sales people, and in the case of certain large
customers, directly through its own sales force. In England, Europe and Latin
America, the Company also sells directly to OEMs and through independent
manufacturers' representatives. In addition, independent sales organizations
represent the Company in the Far East, Japan, Australia, Mexico, the Middle East
and South America. A smaller portion of the Company's sales are through
distributors. The Company continually reviews the performance of its independent
representatives, and from time to time, makes changes in its relationships with
them.
The Company's sales are slightly seasonal and are affected by the buying cycles
of the various industries it serves. Approximately 75% of the net sales are
produced under agreements negotiated on an annual basis, usually during the
latter part of the year. The Company sells approximately 95% of its products on
a manufactured-to-order basis. If an order is canceled, the Company bills the
customer for materials and labor expended on the order prior to cancellation.
Increasingly, customers require that the Company maintain stock of finished
capacitors for them, either at Aerovox plants or at the customer's designated
location. This trend has resulted in an increase in the Company's investment in
finished goods inventory.
A critical element to the Company's strategy is its emphasis on customer
service. The Company maintains continual, multi-level contacts with many
customers and places a high priority on meeting each customer's requirements in
a timely manner.
Backlog
Aerovox's total backlog represents approximately four weeks of production. The
Company's manufacturing lead times vary from one to six weeks depending on the
product type, although some filter products and special larger pulse power
products that must be built specifically to order may require longer lead times.
The Company books orders, for purposes of calculating backlog, when a firm
delivery date that is no more than twelve months out is scheduled. The trend of
major OEM customers to demand shipments from stock, as noted above, reduces the
order backlog and short-term visibility of demand. The total active backlog was
$20.4 million at February 26, 2000 and $13.9 million at February 27, 1999. The
Company expects to fill all backlog orders scheduled for 2000 delivery.
Product Development and Quality Control
Product development and improvement are important elements of Aerovox's
strategy. The Company's efforts to develop new products and to improve existing
products are continuous and benefit from long-term technical relationships with
a number of key suppliers and customers. Formal and informal consultation and
discussion on technical matters of common interest with key suppliers have
resulted in a number of significant product improvements, including the
development of thinner dielectric materials resulting in a more cost efficient
capacitor and development of improved capacitor fluid impregnants that reduce
capacitance loss.
Technical exchanges between the Company's operations have resulted in the
development of additional new products and processes, a trend the Company is
fostering.
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The Company places a high degree of emphasis on quality control both in product
design (through improved design specifications) and in the production process by
means of continuous process monitoring and control throughout the manufacturing
cycle. Statistical Process Control (SPC), a program aimed at encouraging
employee involvement and participation through fact-based decision making, is
typical of the programs that have helped Aerovox achieve significant quality
improvements.
The Company adheres to worldwide quality standards in all its operations. Its
North American manufacturing facilities in New Bedford, Massachusetts and
Juarez, Mexico have achieved International Standards Organization (ISO) 9002
certification. BHC Aerovox Ltd. has been ISO 9001 certified for several years
and Aerovox de Mexico in Mexico City achieved ISO 9001 status in March 2000.
Management Information and Control Systems
In 1999 the Company completed a company-wide project to convert all management
information and control systems to an integrated and uniform system that is
compliant with year 2000 computing requirements. In addition to meeting
compliance requirements, the Company expects to gain the benefit of better, more
consistent and more timely information.
Raw Materials
The Company purchases raw materials from a number of regional, national and
international suppliers. All of these raw materials are available from a variety
of suppliers with whom the Company has had long-term relationships. The Company
purchases its plain and metallized polypropylene from several sources in Europe
and Asia and three sources in the United States. There are several
Company-approved suppliers for metallized polyester, two in the United States
and two in Europe. A number of sources are approved to provide aluminum foil for
the Company's electrolytic products - three in the United States, two in Europe,
and two in Asia.
Patents, Licenses and Trademarks
The Company's most important intellectual property is its capacitor
manufacturing processes which have been developed over a period of many years.
Aerovox has approximately eleven active patents and four pending patents.
Aerovox licenses some of its product technology and process know-how to
Lumisistemas in Mexico. An agreement renewing the license was signed by both
companies in September 1996. The Company has also granted a license to American
Radionic to make, use, import, sell and/or offer for sale a certain capacitor
patented by Aerovox
The Aerovox trademark is registered or registration is pending in 22 countries
in Europe, North and South America, the Far East, the Middle East and Australia.
This trademark has been in force since 1976. In addition, the Company holds or
has pending, fifteen other United States registered trademarks, some of which
are registered in other countries. The duration of Aerovox's product
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trademark registrations range from one year to fifty-nine years. The Company
believes that its trademark status helps to maintain the proprietary nature of
its products.
Employees
As of February 26, 2000 Aerovox had 1,496 employees worldwide. An aggregate of
227 employees hold salaried management, supervisory, sales and clerical
positions and 1,269 hourly employees are engaged in production and related
activities. Unions represent 2.6% of the employees. None of the Company's
production departments are unionized. Approximately 438 employees have been with
their respective Aerovox company for ten years or more.
Aerovox considers its employee relations to be good. There have been no labor
stoppages in recent years and union contracts have been renegotiated without
difficulty. In New Bedford, a three-year agreement with the International Union
of Operating Engineers is set to expire in April 2001, and a three-year contract
with the International Brotherhood of Electrical Workers will also expire in
April 2001.
Environmental Compliance
The Company has made substantial capital expenditures on environmental controls
and compliance at its facilities. See "Environmental Matters" below.
ITEM 2. Properties
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Lease
Property Sq. Feet Owned/Leased Expires
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
New Bedford, MA 435,000 Owned --
- --------------------------------------------------------------------------------
Huntsville, AL 85,000 Owned --
- --------------------------------------------------------------------------------
Juarez, Mexico 45,000 Leased 2000
- --------------------------------------------------------------------------------
Juarez, Mexico 100,000 Leased 2003
- --------------------------------------------------------------------------------
Mexico City, Mexico 110,000 Leased 2004
- --------------------------------------------------------------------------------
Weymouth, England 35,000 Leased 2008
- --------------------------------------------------------------------------------
Weymouth, England 37,000 Owned --
- --------------------------------------------------------------------------------
</TABLE>
Prior to 1997 the Company invested in automation and equipment necessary to
increase production capability (primarily for the metallized polypropylene
product line) in New Bedford. In Weymouth, England, a 27,000 square foot
building to facilitate expanded aluminum electrolytic capacitor and microwave
oven capacitor production was completed in 1995 and $1.4 million was spent on
new production equipment at that plant in 1998. During 1998 and 1999, capital
spending at the Company's North American plants has been limited to maintenance,
environmental and cost reduction projects. Quality control and research and
development labs were installed at the plant in
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Huntsville, Alabama during 1995. The Company believes that its facilities are
adequate for its foreseeable needs.
As a result of the environmental matter related to the Company's New Bedford
plant, as described in Item 3 below, the Company is constructing a new 136,000
square foot manufacturing plant and corporate offices in New Bedford, MA. The
building is scheduled to be ready for occupancy in summer 2000 and the Company
expects to complete the relocation of manufacturing and office functions by the
end of 2000.
Construction costs for the building are expected to total approximately $6.3
million. In addition, the Company will acquire new equipment with an expected
cost of $4.6 million. To finance this project, on March 22, 2000, the Company
closed on a $10.2 million private placement of fifteen-year taxable notes.
ITEM 3. Environmental Matters
The Company manufactures film capacitors and maintains its corporate offices in
a building located in New Bedford, Massachusetts, which has been occupied by the
Company and predecessor organizations also engaged in the manufacture of
capacitors since 1938. In June 1997 the United States Environmental Protection
Agency ("EPA") conducted tests that revealed the presence of polychlorinated
biphenyls ("PCBs") on surfaces within the Company's New Bedford plant. While the
Company and its expert advisors consider the PCBs to represent no threat to the
health of the employees of the Company or the surrounding community, subsequent
engineering studies indicated that the cost to remove PCBs within the building
to the levels proscribed by the EPA and the Toxic Substances Control Act would
be prohibitive. Therefore, the Company decided, and informed the EPA, that it
intends to vacate the building, to demolish it, and to dispose of all
contaminated building materials in a legally compliant manner. Accordingly, the
Company wrote-off, as of December 27, 1997, the undepreciated value of that
building, all improvements thereto, and certain machinery and equipment, and a
reserve was established and charged to income as of December 27, 1997, in the
amount of $7.2 million, which the Company believes is adequate to dismantle and
dispose of the building, clean equipment located within it, and to pay for
related engineering, legal and professional services. Additionally, the Company
wrote-off, as of December 27, 1997 the depreciated value of that building, all
improvements thereto and certain machinery and equipment which the Company
believes will become surplus, abandoned or otherwise unusable upon disposal of
the building. The amount of this write-off was $5.8 million. Of this amount,
$0.1 million and $0.4 million were expended during 1999 and 1998, respectively
for such legal and professional services. During 1998 the EPA approved the
Company's plan to dismantle and dispose of the building. In December 1999 the
Company reached a final agreement with the EPA regarding the timing of the
planned dismantling and disposal activity. Under the settlement, the Company has
agreed to relocate its New Bedford operations within 16 months of the agreement
and to demolish the existing building and cap the site no later than November
2011.
On February 9, 1990 the Company entered into a settlement agreement (the
"Settlement Agreement") with the United States and The Commonwealth of
Massachusetts (the "governments") resolving litigation commenced by the
governments in the U.S. District Court for the District of Massachusetts, on
December 10, 1983 under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, commonly known as the "Superfund" legislation. The
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litigation concerned the alleged disposal by various defendants of PCBs in the
Acushnet River and New Bedford Harbor. The Settlement Agreement resolved all of
the governments' claims against the Company and Aerovox Industries, Inc. (the
Company's predecessor, now known as Belleville Industries, Inc.) arising out of
the contamination of the Acushnet River and New Bedford Harbor with PCBs,
including cleanup costs, study costs and damages to natural resources, now or
hereafter incurred, except that the Settlement Agreement provides that the
governments may seek damages from the Company and Aerovox Industries, Inc. for
future liability in the event that such future liability arises out of unknown
conditions at the site. The Company, based on information presently available,
does not believe that this matter will have any further material adverse effect
on the Company's financial condition.
The Company is currently subject to a National Pollutant Discharge Elimination
System ("NPDES") permit to discharge water from the New Bedford, Massachusetts
facility into the Acushnet River / New Bedford Harbor. The NPDES permit has a
limitation of up to ten parts per billion (ppb) of PCBs in its storm water and
other discharges. For several years, the Company and the EPA have been
discussing possible changes to this permit. In June of 1994, the Company
submitted the following plans to the EPA and the Department of Environmental
Protection ("DEP"): Stormwater Study Plan, Quality Assurance Project Plan and
Stormwater Best Management Practices Plan. Aerovox will proceed with
implementation of the plans upon receipt of EPA and DEP approvals. The Company
can not predict what further actions the EPA or DEP may take with regard to the
permit or what impact any such actions may have on the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable. No matter was submitted to stockholders of the Company during
the fourth quarter of fiscal 1999.
ITEM 4A. Executive Officers
Set forth below are the names, ages and positions of the executive officers of
Aerovox in 1999 and currently:
<TABLE>
<CAPTION>
Name Age Office(s)
- ---- --- ---------
<S> <C> <C>
Robert D. Elliott...............48 President and Chief Executive Officer and Treasurer
Timothy J. Brown................50 Senior Vice President, Marketing and Sales
Martin Hudis....................57 Senior Vice President, Technology Development
F. Randal Hunt .................42 Vice President, Finance, Corporate Controller and Secretary
Ted M. Miller...................57 Senior Vice President, Engineering and Operations
Enrique Sanchez Aldunate........55 Senior Vice President, Aerovox Inc. and President, Aerovox de Mexico
Graham Yates....................53 Senior Vice President, Aerovox Inc. and Managing Director, BHC
Aerovox Ltd.
</TABLE>
13
<PAGE>
Mr. Elliott graduated in 1973 from Clarkson University with a Bachelor of
Science Degree in Industrial Distribution and received a Master of Business
Administration from the University of Wisconsin in 1981. From 1991 to 1993, Mr.
Elliott served as President of Hendrix Wire & Cable, a manufacturer of cable and
accessories for the electric utility market, and a business unit of the
Electrical Products Division of Eagle Industries, a diversified manufacturing
company. From 1993 to 1996 he was Group Executive of Eagle's Electrical Products
Division. Mr. Elliott joined Aerovox as President in March 1996 and was named
Chief Executive Officer of the Company in September 1996.
Mr. Brown graduated with a Bachelor of Arts degree in Physics from Hamilton
College in 1971 and received a Master of Arts from the University of
Massachusetts in 1973. From 1987 to 1998, Mr. Brown was Vice President of
Marketing and Sales at Alberox Corporation, a manufacturer of technical
ceramics. He joined Aerovox in April 1998 as Senior Vice President, Marketing
and Sales.
Dr. Hudis graduated with a Bachelor of Science degree from the University of
California in Los Angeles in 1965, a Ph.D. in Nuclear Engineering from the
Massachusetts Institute of Technology in 1970 and a Master of Business
Administration from the University of Chicago in 1981. He was Vice President for
Engineering and Marketing of LH Research, a manufacturer of power supplies, from
1989 to 1991. Dr. Hudis joined Aerovox as Vice President, Technology in January
1992 and became a Senior Vice President in 1995. He is a senior member of The
Institute of Electrical and Electronics Engineers, an international organization
of electrical and electronic engineers.
Mr. Hunt graduated in 1981 with a Bachelor of Arts degree in Accounting from the
University of Texas at El Paso and is also a certified public accountant. From
1993 to 1994 he was Plant Controller at Hamilton Beach-Proctor Silex in Juarez,
Mexico. Mr. Hunt joined Aerovox in March 1994 as General Manager of the
Company's Juarez operations. In 1996 he was appointed General Manager of the
Company's EMI Filters business. In September 1998 Mr. Hunt assumed the duties of
Corporate Controller, and in September 1999 he was elected Corporate Secretary
by the Board of Directors. He became Vice President, Finance in February 2000.
Mr. Miller graduated from Syracuse University with a Bachelor of Science in
Electrical Engineering in 1964, earned a Master of Business Administration
degree from the Rochester Institute of Technology in 1982 and an Executive
Master of Business Administration degree from Stanford University in 1989. Mr.
Miller was Vice President of Operations and Engineering for Microtouch Systems
Inc., a manufacturer of computer touch screens, from 1991 to 1996. He joined
Aerovox as Senior Vice President, Operations in 1997. He became Senior Vice
President, Engineering and Operations in September 1998.
Mr. Sanchez graduated from Universidad Nacional Atonoma de Mexico ("UNAM") in
1965 with a Bachelor's degree in Mechanical Electrical Engineering. He earned a
Master of Business Administration degree from Universite Sorbonne in Paris,
France in 1967. From 1972 to 1999, he held the position of General Manager of
Compania General de Electronica S.A. de C.V. ("CGE") in Mexico City. As part of
the Company's acquisition of the capacitor business of CGE in April 1999, Mr.
Sanchez was elected to the Board of Directors and named Senior Vice President,
Aerovox Inc. and General Manager, Aerovox de Mexico in May 1999.
14
<PAGE>
Mr. Yates received a Masters degree in Business Science from Salford University
in 1984. From 1985 through 1996 he held the position of Managing Director of
Hawke Cable Glands Ltd., a manufacturer of specialized electrical equipment for
the petrochemical industry located in northern England. Mr. Yates joined Aerovox
in 1996 and has since led the Company's British subsidiary, BHC Aerovox Ltd., as
Managing Director. He became Senior Vice President, Aerovox Inc. in May 1999.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock trades on NASDAQ National Market System under the
symbol ARVX. The Company's Common Stock was distributed to the beneficiaries of
the Aerovox Liquidating Trust on February 26, 1990. See "Shareholder
Information" in the Annual Report to stockholders for the year ended January 1,
2000, incorporated herein by reference, for the quarterly market price range of
the Company's Common Stock. The number of shareholders of the Company's Common
Stock on March 20, 2000 was 8,744. Of that total, 5,865 were stockholders of
record. The Company has not declared dividends previously and currently intends
to continue to retain earnings for use in its business and does not expect to
pay dividends for the foreseeable future. The Company's common stock dividend
policy will be reviewed periodically by the Board of Directors.
ITEM 6. Selected Consolidated Financial Data
The information required by this item appears in the Company's 1999 Annual
Report to Stockholders on page 27 and is incorporated herein by reference. Such
information should be read in conjunction with the Company's consolidated
financial statements and the notes thereto which are included in such Annual
Report and are incorporated by reference in Item 8 hereof.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item appears in the Company's 1999 Annual
Report to Stockholders on pages 7 through 11 and is incorporated herein by
reference.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item appears in the Company's 1999 Annual
Report to Stockholders on page 15 (Note 1 - "Summary of Significant Accounting
Policies - Financial Instruments") and page 19 (Note 8 - "Financial
Instruments") and is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The following financial statements of Aerovox Incorporated appear in the
Company's 1999 Annual Report to Stockholders on the pages indicated below and
are incorporated herein by reference:
15
<PAGE>
<TABLE>
<S> <C>
Consolidated Statements of Operations for the years ended January 1, 12
2000, January 2, 1999 and December 27, 1997.
Consolidated Statements of Stockholders' Equity for the years ended 12
January 1, 2000, January 2, 1999 and December 27, 1997.
Consolidated Balance Sheets at January 1, 2000 and January 2, 1999. 13
Consolidated Statements of Cash Flows for the years ended January 1, 2000, 14
January 2, 1999 and December 27, 1997.
Notes to Consolidated Financial Statements 15
Report of Independent Accountants 26
</TABLE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
(a) Directors - Information with respect to all directors may be found
in the Company's definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders on pages 1 through 4 under the caption "Election of Directors,"
which Statement is to be filed with the Securities and Exchange Commission. Such
information is incorporated herein by reference.
(b) Executive Officers - Information with respect to executive
officers appears in Item 4A. of Part I.
(c) Information relating to a delinquent filing of a Form 3 or 4 by
Executive Officer or Director of the Company is contained in the Company's 2000
definitive Proxy Statement under the caption "Beneficial Ownership Reporting
Compliance."
ITEM 11. Executive Compensation
This information is contained in the Company's definitive Proxy Statement for
the 2000 Annual Meeting of Stockholders on pages 5 and 8 under the caption
"Executive Compensation" and "Compensation Committee Report," which Statement is
to be filed with the Securities and Exchange Commission. Such information is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
This information is contained in the Company's definitive Proxy Statement for
the 2000 Annual Meeting of Stockholders on pages 10 through 12 under the caption
"Security Ownership of Certain
16
<PAGE>
Beneficial Owners and Management," which Statement is to be filed with the
Securities and Exchange Commission. Such information is incorporated herein by
reference.
ITEM 13. Certain Relationships and Related Transactions
Not applicable.
PART IV
ITEM 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K.
(a) Exhibits - A list of Exhibits filed with or incorporated by
reference in this Report on Form 10-K appears at pages 21 through 25 hereof,
which list is incorporated herein by reference.
(b) Financial Statements - A list of consolidated financial statements
is contained in Item 8 and is incorporated here by reference.
Financial Statement Schedules
<TABLE>
<S> <C>
Schedule II - Valuation and Qualifying Accounts for the years ended January 18
1, 2000, January 2, 1999 and December 27, 1997.
Report of Independent Accountants on Financial Statement Schedules. 19
</TABLE>
All other financial statement schedules are inapplicable or the required
information is contained in the Company's consolidated financial statements or
notes thereto, which have been incorporated by reference herein.
(c) Reports on Form 8-K - On March 8, 1999, the Company filed Form 8-K relating
to the agreement in principle to acquire the capacitor business of Compania
General de Electronica of Mexico City. On April 14, 1999, the Company filed Form
8-K with exhibits relating to the successful purchase of the capacitor business
of Compania General de Electronica. On August 30, 1999, the Company filed Form
8-K relating to the resignation of Chief Financial Officer, Jeffrey A. Templer.
On September 17, 1999, the Company filed Form 8-K relating to the appointment of
Martin A. Zelbow as Interim Chief Financial Officer. On October 4, 1999, the
Company filed Form 8-K relating to its patent infringement lawsuit against
several Korean manufacturers and their U.S. associates. On October 21, 1999, the
Company filed Form 8-K relating to the extension of its Shareholder Rights Plan
and appointment of a new Rights Agent.
17
<PAGE>
AEROVOX INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(Amounts In Thousands)
Schedule II
<TABLE>
<CAPTION>
Additions
---------------------------------------------
Balance at Balance
Description Beginning Charged to Charged to Deductions End of
of Period Expense Other Accounts Describe(1) Period
<S> <C> <C> <C> <C> <C>
Year ended January 1, 2000:
Allowance for doubtful $606 - - $95 $511
accounts receivable
Year ended January 2, 1999:
Allowance for doubtful $617 $115 - $126 $606
accounts receivable
Year ended December 27, 1997:
Allowance for doubtful $685 $4 - $72 $617
accounts receivable
(1) Write-off of accounts receivable.
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Aerovox Incorporated
Our report on the consolidated financial statements of Aerovox Incorporated has
been incorporated by reference in this Form 10-K from page 28 of the 1999 Annual
Report to Stockholders of Aerovox Incorporated. In connection with our audit of
such financial statements, we have also audited the related financial statement
schedule listed in Item 14(b) of this Form 10-K. In addition, in our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements as a whole, presents fairly, in all material
respects, the information required to be included therein.
BY /S/ PricewaterhouseCoopers LLP
- ----------------------------------
Boston, Massachusetts
February 14, 2000
19
<PAGE>
Signatures
Pursuant to the requirements of Section 13 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.
Aerovox Incorporated
(Registrant)
BY /S/ ROBERT D. ELLIOTT BY /S/ F. RANDAL HUNT
- ------------------------ ---------------------
President and Chief Executive Officer Vice President, Finance, Corporate
March 31, 2000 Controller and Secretary
March 31, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures
/S/ SHEREL D. HORSLEY Chairman of the Board March 27, 2000
-----------------------
Sherel D. Horsley of Directors
/S/ JOHN F. BRENNAN Director March 27, 2000
---------------------
John F. Brennan
/S/ DENNIS HOROWITZ Director March 27, 2000
-------------------
Dennis Horowitz
/S/ WILLIAM G. LITTLE Director March 27, 2000
---------------------
William G. Little
/S/BENEDICT P. ROSEN Director March 29, 2000
---------------------
Benedict P. Rosen
/S/ ENRIQUE SANCHEZ ALDUNATE Director March 28, 2000
-----------------------------
Enrique Sanchez Aldunate
/S/ JOHN L. SPRAGUE Director March 27, 2000
--------------------
John L. Sprague
20
<PAGE>
EXHIBIT INDEX
Aerovox Incorporated Form 10-K
(for fiscal year ended January 1, 2000)
<TABLE>
<CAPTION>
Exhibit Page/SEC
Item Exhibit Document
- ------------ ---------- ---------------------
(3) Articles of Incorporation and By-Laws.
--------------------------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation. 3.1 *
3.1.1 Certificate of Designations, Preferences 3.1.1 Form 10-K for
and Rights of Series A Junior Participating year ended
Preferred Stock. Dec. 30, 1989
3.2 Certificate of Ownership and Merger of Aerovox 3.2 *
Incorporated (a Massachusetts corporation) into
Aerovox Holding Company (a Delaware corporation).
3.3 By-Laws. 3.3 *
(4) Instruments Defining the Rights of Security Holders,
----------------------------------------------------
Including Indentures.
--------------------
4.1 Instruments Defining Rights of Security holders (See 4.1 *
Exhibits 3.1, 3.1.1, 3.2, 3.3, 4.2 and 4.3).
4.2 Form of Stock Certificate. 4.2 Form 10-K for
year ended
Dec. 30, 1989
4.3 Form of Aerovox Incorporated Rights Agreement. 4.3 ***
Filed Herewith:
4.3.1 Amendment No. 1 to Aerovox ---- ----
Incorporated Rights Agreement.
4.3.2 Amendment No. 2 to Aerovox ---- ----
Incorporated Rights Agreement.
4.4 Amended and Restated Revolving Credit Agreement, dated 4.4 Form 10-K for year
July 8, 1993, between the Company and the First ended Jan. 1, 1994
National Bank of Boston.
4.4.1 First Amendment to Amended and 4.3 Form 10-Q for
Restated Revolving Credit Agreement, quarter ended Oct.
dated August 30, 1994, between the 1, 1994
Company, BHC Aerovox Ltd. and the First
National Bank of Boston.
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C>
4.4.2 Revolving Credit Facility, dated September 7, 4.4.2 Form 10-K for
1994, between BHC Aerovox Ltd. and the First year ended
National Bank of Boston. Dec. 31, 1994
4.4.3 Second Amendment to Amended and 4.4.3 Form 10-K for
Restated Revolving Credit Agreement, dated December 29, year ended
1995. Dec. 30, 1995
4.4.4 Third Amendment to Amended and Restated 4.4.4 Form 10-Q for
Revolving Credit Agreement, dated May 15, 1996. quarter ended
June 29, 1996
4.4.5 Fourth Amendment to Amended and Restated 4.4.5 Form 10-Q for
Revolving Credit Agreement, dated November 1, quarter ended
1996. September 28, 1996
4.4.6 Fifth Amendment to Amended and 4.4.6 Form 10-K for
Restated Revolving Credit Agreement, dated year ended
February 14, 1997. December 28, 1996
4.4.7 Sixth Amendment to Amended and 4.4.7 Form 10-K for
Restated Revolving Credit Agreement, dated year ended
February 27, 1998. December 27, 1997
4.4.8 Seventh Amendment to Amended and 4.4.8
Restated Revolving Credit Agreement, dated
September 28, 1998. Form 10-K for year
ended January 2,
4.4.9 Eighth Amendment to Amended and 4.4.9 1999
Restated Revolving Credit Agreement, dated
February 18, 1999.
4.5 Loan and Security Agreement, dated March 30, 1992, 4.5 Form 10-K for
between the Company and The CIT Group/Equipment year ended
Financing, Inc., as amended by Amendment No. 1 dated Jan. 2, 1993
March 1, 1993.
4.5.1 Amendment No. 2 dated May 30, 1995. 4.5.1 Form 10-K for year
ended Dec. 30, 1995
Filed Herewith:
4.6 Second Amended and Restated Revolving Credit Agreement,
dated June 30, 1999, between the Company and --- ---
BankBoston, N.A.
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C>
Filed Herewith:
4.6.1 Amendment No. 1 To Second Amended And Restated
Revolving Credit Agreement. --- ---
Filed Herewith:
4.7 Loan Agreement dated April 14, 1999, between BHC
Aerovox Ltd. Lloyd's Bowmaker Ltd. --- ---
Filed Herewith:
4.8 Sale Agreement dated February 15, 1999, between BHC
Aerovox Ltd. and Barclay's Mercantile Business Finance --- ---
Ltd.
</TABLE>
NOTE: The Company agrees to furnish to the Securities and Exchange Commission,
upon request, a copy of any other instrument with respect to long term debt of
the Company & its subsidiaries. Such instruments are not filed herewith because
no such instrument relates to outstanding debt in an amount greater than 10% of
the total assets of the Company and its subsidiary on a consolidated basis.
<TABLE>
<S> <C> <C>
(10) Material Contracts.
------------------
Compensation Agreements.
1989 Stock Incentive Plan. 10.1 *
10.1 10.1.1 Amended Stock Incentive Plan 10.1.1 Form 10-K for
year ended
Dec. 31, 1994
Filed Herewith:
10.1.2 1999 Stock Incentive Plan. ---- ----
10.1.3 1999 Stock Option Plan for Directors. ---- ----
10.2 Profit-Sharing Savings Plan. 10.2 **
10.3 Deferred Supplemental No. 1 to Deferred Supplemental 10.3.1 Form 10-K for
Savings Plan. year ended
Dec. 29, 1990
10.4 Deferred Compensation Plan for Directors. 10.4 *
10.5 1989 Stock Option Plan for Directors. 10.4 *
10.5.1 Amended Stock Option Plan for Directors. 10.5.1 Form 10-K for
year ended
Dec. 31, 1994
10.7 Forms of Indemnification Agreements between Aerovox
Incorporated and its directors and certain officers. 10.7 *
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
10.8 Severance Agreements:
(a) Severance Agreement with Robert D. Elliott. 10.8 Form 10-K for year
ended Dec. 28, 1996
(b) Severance Agreement with Jeffrey A. Templer. 10.8
(c) Severance Agreement with Timothy J. Brown. 10.8 Form 10-K for year
ended Jan. 2, 1999
(d) Form of Severance Agreement with other
executives. 10.8 **
10.9 Consulting Agreements:
(a) Consulting Agreement with Clifford H. Tuttle. 10.9 Form 10-K for
year ended
Jan. 1, 1994
(b) Consulting Agreement with Ronald F. Murphy. 10.9
Other Agreements
10.10 Form of Sales Representative Agreement. 10.10 **
10.11 Purchase Agreement dated March 5, 1993 between the 2.1 Form 8-K dated
Company and Cooper Ind. March 5, 1993
10.12 Purchase Agreement dated April 5, 1999 between the 10.12 Form 8-K dated
Company and the former shareholders of Capacitores April 14, 1999
Unidos S.A. de C.V.
(13) Annual Report to Security Holders.
---------------------------------
Filed Herewith:
13.1 The Annual Report to Shareholders for the
fiscal year ended January 1, 2000. With the
exception of the information specifically
incorporated by reference in Parts I, II and
IV of this report on Form 10-K, the Annual ---- ----
Report Stockholders for the fiscal year ended
January 1, 2000 is not being filed as part of
this report.
(21) Subsidiaries.
-------------
Filed Herewith:
21.1 List of Subsidiaries of the Company. ---- ----
(23) Consents of Experts and Counsel.
-------------------------------
Filed Herewith:
23.1 Consent of PricewaterhouseCoopers LLP ---- ----
</TABLE>
* Filed as an Exhibit to Registration Statement on Form 10 filed with the
Securities and Exchange Commission on October 4, 1989, and incorporated
herein by reference.
24
<PAGE>
** Filed as an Exhibit to Amendment No. 1 to the Registration Statement to
Form 10 filed with the Securities and Exchange Commission on December
1, 1989, and incorporated herein by reference.
*** Filed as and Exhibit to Amendment on Form 8 to the Registration
Statement on Form 10, filed with the Securities and Exchange Commission
on February 16, 1990.
25
<PAGE>
Exhibit 4.3.1
Aerovox Incorporated
And
ChaseMellon Shareholder Services, L.L.C.
(as successor rights agent to Mellon Bank, N.A.)
as Rights Agent
Amendment No. 1 to the
Rights Agreement
Dated as of December 1, 1989
Amendment No. 1
This Amendment No. 1, dated as of October 7, 1999 (this "Amendment"),
---------
is among Aerovox Incorporated, a Delaware corporation (the "Company"), and
-------
ChaseMellon Shareholder Services, L.L.C. (as successor rights agent to Mellon
Bank, N.A.), as Rights Agent:
WHEREAS, pursuant to Section 27 of the Rights Agreement (as defined
below), the Company may from time to time supplement or amend the Rights
Agreement in accordance with the provisions of Section 27 thereof;
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Rights
Agent shall join with the company in the execution and delivery of any
supplement or amendment;
WHEREAS, the Company desires to make certain amendments to the Rights
Agreement; and
WHEREAS, the execution and delivery of the Amendment by the Company and
the Rights Agent have been in all respects duly authorized by each of them;
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Rights Agreement: Definitions. This Amendment amends the Rights
------------------------------
Agreement (as in effect prior to giving effect to this Amendment,
the "Rights Agreement"). Terms defined in the Rights Agreement as
----------------
amended hereby (the "Amended Rights Agreement") and not otherwise
------------------------
defined herein are used with the meaning so defined.
Amendment of Rights Agreement. Effective upon the date hereof, the Rights
-----------------------------
Agreement is amended as follows:
2.1. Amendment of Section 21. The term "$50 million" in
subsection (i) of Section 21 of the Rights Agreement is
hereby replaced by the term "$10 million."
3. General. This Amendment may be executed in any number of
counterparts, which together shall constitute one instrument, and
shall bind and inure to the benefit of the parties and their
respective successors and assigns. This Amendment shall be
26
<PAGE>
governed by and construed in accordance with the laws (other than
the conflict of law rules) of The State of Delaware.
Each of the undersigned has caused this Amendment to be executed and delivered
by its duly authorized officer as an agreement under seal as of the date first
written above.
AEROVOX INCORPORATED
By: Robert D. Elliott
Title: President and Chief Executive Officer
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
(as successor rights agent to Mellon Bank,
N.A.), as Rights Agent
By: Michael A. Nespoli
Title: Vice President
27
<PAGE>
Exhibit 4.3.2
Aerovox Incorporated
and
American Stock Transfer & Trust Company
as successor Rights Agent
Amendment No. 2 to the
Rights Agreement
Dated as of December 1, 1989
Amendment No. 2
This Amendment No. 2, dated as of October 20, 1999 (this "Amendment"),
---------
is among Aerovox Incorporated, a Delaware corporation (the "Company"), and
-------
ChaseMellon Shareholder Services, L.L.C. (as successor rights agent to Mellon
Bank, N.A.), as Rights Agent:
WHEREAS, pursuant to Section 21 of the Rights Agreement, the Company
removed ChaseMellon Shareholder Services (as successor rights agent to Mellon
Bank, N.A.) as Rights Agent and appointed American Stock Transfer & Trust
Company as successor Rights Agent, both effective October 13, 1999.
WHEREAS, pursuant to Section 27 of the Rights Agreement (as defined
below), the Company may from time to time supplement or amend the Rights
Agreement in accordance with the provisions of Section 27 thereof;
WHEREAS, the Company desires to make certain amendments to the Rights
Agreement; and
WHEREAS, the execution and delivery of the Amendment by the Company and
the Rights Agent have been in all respects duly authorized by each of them;
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
1. Rights Agreement: Definitions. This Amendment amends the Rights
-----------------------------
Agreement (as in effect prior to giving effect to this Amendment,
the "Rights Agreement"). Terms defined in the Rights Agreement as
----------------
amended hereby (the "Amended Rights Agreement") and not otherwise
------------------------
defined herein are used with the meaning so defined.
2. Amendment of Rights Agreement. Effective upon the date hereof,
-----------------------------
the Rights Agreement is amended as follows:
3.1. "Acquiring Person" shall mean any Person (as such term is
herein after defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of
20% or more of the Common Shares of the Company then
outstanding, but shall not include (i) the Company, (ii) any
Subsidiary (as such term is hereinafter defined) of the
Company, (iii) any employee
28
<PAGE>
benefit plan of the Company or of any Subsidiary of the
Company, (iv) any Person organized, appointed or established
by the Company or any Subsidiary of the Company pursuant to
the terms of any plan described in clause (iii) above or (v)
any Person who (A) has reported or is required to report
such ownership on Schedule 13G under the Securities Exchange
Act of 1934 (the "Exchange Act") (or any comparable or
successor report) or on Schedule 13D under the Exchange Act
(or any comparable or successor report) which Schedule 13D
does not state any intention to or reserve the right to
control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4
of such Schedule (other than the disposition of the Common
Shares), (B) within 10 Business Days of being requested
(including but not limited to, by telephone or facsimile) by
the Company to advise it regarding the same, certifies to
the Company that such Person acquired Common Shares in
excess of 19.9% inadvertently or without knowledge of the
terms of the Rights, provided, however, that if the Person
-------- -------
requested to so certify fails to do so within 10 Business
Days, then such Person shall become an Acquiring Person
immediately after such 10 Business Day Period, (C) together
with all of such Person's Affiliates, thereafter does not
acquire additional Common Shares while the Beneficial Owner
of 20% or more of the Common Shares then outstanding and (D)
if requested to do so by the Company, within a specified
number of Business Days (to be specified by the Company, but
in no case fewer than ten) following such request (including
but not limited to, by telephone or facsimile) from the
Company to such Person, reduces its Beneficial Ownership of
Common Shares to below 20% of the Common Shares then
outstanding provided, however, that if the Person requested
-------- -------
to so reduce its Beneficial Ownership fails to do so within
such specified number of Business Days, then such Person
shall become an Acquiring Person immediately after such
specified number of Business Days. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person"as
the result of an acquisition of Common Shares by the Company
which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially
owned by such Person to 20% or more of the Common Shares of
the Company then outstanding; provided, however, that
-------- -------
if a Person shall become the Beneficial Owner of 20% or more
of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after
such share purchases by the Company, become the Beneficial
Owner of any additional Common Shares of the Company (other
than pursuant to the operation of any employee benefit plan
of the Company), then such Person shall be deemed to be an
"Acquiring Person."
3.2. Amendment of Section 7(a). of the Rights Agreement is
-------------------------
amended to read in its entirety as follows:
"Section 7. Exercise of Rights; Purchase Price; Expiration
----------------------------------------------
Date of Rights. (a) The Rights are not exercisable until the
--------------
Distribution Date. The registered holder of any Right
Certificate may exercise the Rights evidenced thereby
29
<PAGE>
(except as otherwise provided herein) in whole or in part at
any time on or after the Distribution Date upon surrender of
the Right Certificate, with the form of election to purchase
and certification on the reverse side thereof duly executed,
to the Rights Agent at the office of the Rights Agent
designated for such purpose, together with payment of the
Purchase Price for each one-hundredth of a Preferred Share
as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on December 1, 2009
(the "Final Expiration Date"), (ii) the time at which the
Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date"), or (iii) the time at which such Rights
are exchanged as provided in Section 24 hereof."
4. General. This Amendment may be executed in any number of counterparts,
-------
which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties and their respective successors
and assigns. This Amendment shall be governed by and construed in
accordance with the laws (other than the conflict of law rules) of The
State of Delaware.
Each of the undersigned has caused this Amendment to be executed and delivered
by its duly authorized officer as an agreement under seal as of the date first
written above.
AEROVOX INCORPORATED
By: Robert D. Elliott
Title: President and Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY
as successor Rights Agent
By: Herbert J. Lemmer
Title: Vice President
30
<PAGE>
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
dated as of June 30, 1999
by and between
AEROVOX INCORPORATED
(the "Borrower")
and
BANKBOSTON, N.A.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
(S)1. DEFINITIONS AND RULES OF INTERPRETATION....................................................... 36
---------------------------------------
(S)1.1. Definitions.......................................................................... 36
-----------
(S)1.2. Rules of Interpretation.............................................................. 46
-----------------------
(S)2. REVOLVING CREDIT LOANS........................................................................ 47
----------------------
(S)2.1. Commitment to Lend................................................................... 47
------------------
(S)2.2. Reduction of Loan Commitment......................................................... 47
----------------------------
(S)2.3. Note................................................................................. 47
----
(S)2.4. Interest on Loans.................................................................... 48
-----------------
(S)2.5. Election of Eurodollar Rate; Notice of Election; Interest Periods; Minimum Amounts... 48
----------------------------------------------------------------------------------
(S)2.6. Requests for Revolving Credit Loans.................................................. 49
-----------------------------------
(S)2.7. Interest on Overdue Amounts.......................................................... 49
---------------------------
(S)2.8. Termination of Credit................................................................ 49
---------------------
(S)2.9. Maturity of the Loans................................................................ 49
---------------------
(S)2.10. Optional Prepayments or Repayments of Loans......................................... 49
-------------------------------------------
(S)2.11. Mandatory Repayment................................................................. 50
-------------------
(S)2.12. Lockbox Provisions.................................................................. 50
------------------
(S)3. LETTERS OF CREDIT, BANKERS' ACCEPTANCES AND SUPPLEMENTAL FACILITIES........................... 51
-------------------------------------------------------------------
(S)3.1. Letter of Credit Issuance............................................................ 51
------ -- ------ --------
(S)3.2. Bankers' Acceptance Facility......................................................... 51
-------- ---------- --------
(S)3.3. Supplemental Commitment Facilities................................................... 52
------------ ---------- ----------
(S)3.4. Reimbursement Obligation of the Borrower............................................. 52
----------------------------------------
(S)3.5. Letter of Credit Payments............................................................ 54
-------------------------
(S)3.6. Obligations Absolute................................................................. 54
--------------------
(S)3.7. Reliance by Bank..................................................................... 54
----------------
(S)4. FEES; PAYMENTS AND COMPUTATIONS............................................................... 54
-------------------------------
(S)4.1. Fees................................................................................. 54
----
(S)4.2. Payments............................................................................. 55
--------
(S)4.3. Computations......................................................................... 55
------------
(S)4.4. Interest Limitation.................................................................. 56
-------------------
(S)4.5. Additional Costs, Etc................................................................ 56
---------------------
(S)4.6. Capital Adequacy..................................................................... 57
----------------
(S)4.7. Eurodollar Indemnity................................................................. 57
--------------------
(S)4.8. Illegality; Inability to Determine Eurodollar Rate................................... 57
--------------------------------------------------
(S)5. REPRESENTATIONS AND WARRANTIES................................................................ 58
------------------------------
(S)5.1. Corporate Authority.................................................................. 58
-------------------
(S)5.2. Governmental Approvals............................................................... 59
----------------------
(S)5.3. Title to Properties; Leases.......................................................... 59
---------------------------
(S)5.4. Financial Statements; Solvency....................................................... 59
------------------------------
(S)5.5. No Material Changes, Etc............................................................. 60
------------------------
(S)5.6. Franchises, Patents, Copyrights, Etc................................................. 60
------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(S)5.7. Litigation........................................................................... 60
----------
(S)5.8. No Materially Adverse Contracts, Etc................................................. 60
------------------------------------
(S)5.9. Compliance With Other Instruments, Laws, Etc......................................... 60
--------------------------------------------
(S)5.10. Tax Status.......................................................................... 60
----------
(S)5.11. No Event of Default................................................................. 61
-------------------
(S)5.12. Holding Company and Investment Company Acts......................................... 61
-------------------------------------------
(S)5.13. Absence of Financing Statements, Etc................................................ 61
------------------------------------
(S)5.14. Certain Transactions................................................................ 61
--------------------
(S)5.15. Employee Benefit Plans.............................................................. 61
----------------------
(S)5.16. Use of Proceeds..................................................................... 62
---------------
(S)5.17. Environmental Compliance............................................................ 62
------------------------
(S)5.18. Perfection of Security Interests.................................................... 63
--------------------------------
(S)5.19. True Copies of Charter and Other Documents.......................................... 64
------------------------------------------
(S)5.20. Disclosure.......................................................................... 64
----------
(S)5.21. Year 2000 Problem................................................................... 64
-----------------
(S)6. AFFIRMATIVE COVENANTS OF THE BORROWER......................................................... 64
-------------------------------------
(S)6.1. Punctual Payment..................................................................... 64
----------------
(S)6.2. Maintenance of Office................................................................ 64
---------------------
(S)6.3. Records and Accounts................................................................. 64
--------------------
(S)6.4. Financial Statements, Certificates and Information................................... 64
--------------------------------------------------
(S)6.5. Corporate Existence and Conduct of Business.......................................... 66
-------------------------------------------
(S)6.6. Maintenance of Properties............................................................ 66
-------------------------
(S)6.7. Insurance............................................................................ 66
---------
(S)6.8. Taxes................................................................................ 67
-----
(S)6.9. Inspection of Properties, Books, and Contracts....................................... 67
----------------------------------------------
(S)6.10. Compliance with Laws, Contracts, Licenses and Permits............................... 67
-----------------------------------------------------
(S)6.11. Further Assurances.................................................................. 68
------------------
(S)6.12. Notice of Potential Claims or Litigation............................................ 68
----------------------------------------
(S)6.13. Deposit Accounts.................................................................... 68
----------------
(S)6.14. Environmental Indemnification....................................................... 68
-----------------------------
(S)6.15. Notice of Certain Events Concerning Insurance and Environmental Claims.............. 68
----------------------------------------------------------------------
(S)6.16. Response Actions.................................................................... 70
----------------
(S)6.17. Notice of Default................................................................... 70
-----------------
(S)7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.................................................... 70
------------------------------------------
(S)7.1. Restrictions on Indebtedness......................................................... 70
----------------------------
(S)7.2. Restrictions on Liens................................................................ 71
---------------------
(S)7.3. Restrictions on Investments.......................................................... 72
---------------------------
(S)7.4. Merger, Consolidations, Sales........................................................ 73
-----------------------------
(S)7.5. Sale and Leaseback................................................................... 73
------------------
(S)7.6. Restricted Distributions and Redemptions............................................. 73
----------------------------------------
(S)7.7. Employee Benefit Plans............................................................... 73
----------------------
(S)7.8. Minimum Excess Availability.......................................................... 74
---------------------------
(S)8. FINANCIAL COVENANTS........................................................................... 74
-------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(S)8.1. Debt to Worth Ratio.................................................................. 74
-------------------
(S)8.2. Debt Service Coverage................................................................ 74
---------------------
(S)8.3. Capital Expenditures................................................................. 74
--------------------
(S)9. CLOSING CONDITIONS............................................................................ 74
------------------
(S)9.1. Representations and Warranties....................................................... 74
------------------------------
(S)9.2. Performance; No Default.............................................................. 74
-----------------------
(S)9.3. Corporate Action..................................................................... 75
----------------
(S)9.4. Loan Documents, Etc.................................................................. 75
-------------------
(S)9.5. Certified Copies of Charter Documents................................................ 75
-------------------------------------
(S)9.6. Incumbency Certificate............................................................... 75
----------------------
(S)9.7. Validity of Liens.................................................................... 75
-----------------
(S)9.8. Perfection Certificates and UCC Search Results....................................... 75
----------------------------------------------
(S)9.9. Certificates of Insurance............................................................ 75
-------------------------
(S)9.10. Borrowing Base Report............................................................... 75
---------------------
(S)9.11. Accounts Receivable Aging Report.................................................... 75
--------------------------------
(S)9.12. Financial Statements................................................................ 75
--------------------
(S)9.13. Opinions of Counsel................................................................. 76
-------------------
(S)9.14. Environmental Matters............................................................... 76
---------------------
(S)10. CONDITIONS OF LOANS.......................................................................... 77
-------------------
(S)10.1. Representations True; No Event of Default........................................... 77
-----------------------------------------
(S)10.2. Performance; No Event of Default.................................................... 77
--------------------------------
(S)10.3. Borrowing Base Report............................................................... 77
---------------------
(S)10.4. No Legal Impediment................................................................. 77
-------------------
(S)10.5. Governmental Regulation............................................................. 77
-----------------------
(S)10.6. Proceedings and Documents........................................................... 77
-------------------------
(S)10.7. EPA Consent Order................................................................... 77
-----------------
(S)11. EVENTS OF DEFAULT; ACCELERATION.............................................................. 77
-------------------------------
(S)12. COLLATERAL SECURITY.......................................................................... 80
-------------------
(S)13. SETOFF....................................................................................... 80
------
(S)14. EXPENSES..................................................................................... 80
--------
(S)15. INDEMNIFICATION.............................................................................. 80
---------------
(S)16. SURVIVAL OF COVENANTS, ETC................................................................... 81
--------------------------
(S)17. SYNDICATION AND PARTICIPATION................................................................ 81
-----------------------------
(S)18. PARTIES IN INTEREST.......................................................................... 82
-------------------
(S)19. NOTICES, ETC................................................................................. 82
------------
(S)20. MISCELLANEOUS................................................................................ 82
-------------
(S)21. ENTIRE AGREEMENT, ETC........................................................................ 83
---------------------
(S)22. WAIVER OF JURY TRIAL......................................................................... 83
--------------------
(S)23. SEVERABILITY................................................................................. 83
------------
(S)24. GOVERNING LAW................................................................................ 83
-------------
(S)25. CONSENTS, AMENDMENTS, WAIVERS, ETC........................................................... 83
----------------------------------
</TABLE>
<PAGE>
Exhibit A - Note
Exhibit B - Loan and Letter of Credit Request
Exhibit C - Borrowing Base Report
Exhibit D - Perfection Certificate
Exhibit E - Legal Opinion
Schedule 5.7 - Litigation
Schedule 5.8 - Materially Adverse Agreements
Schedule 5.14 - Contracts with Related Parties
Schedule 5.17 - Environmental Compliance
Schedule 6.13 - Deposit Accounts
Schedule 7.1(c) - Existing Letters of Credit
Schedule 7.1(f) - Existing Indebtedness
<PAGE>
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as
of the 30th day of June, 1999 between AEROVOX INCORPORATED, a Delaware
corporation with chief executive office at 740 Belleville Avenue, New Bedford,
Massachusetts 02745 (the "Borrower"), and BANKBOSTON, N.A. (f/k/a The First
National Bank of Boston) (the "Bank"), a national banking association having its
principal place of business at 100 Federal Street, Boston, Massachusetts 02110.
WHEREAS, the Borrower, BHC Aerovox, Ltd., as Guarantor (the
"Guarantor"), and the Bank are parties to an Amended and Restated Revolving
Credit Agreement dated as of July 8, 1993, as amended (the "First Amended Credit
Agreement"), pursuant to which the Bank has made loans to the Borrower; and
WHEREAS, the Borrower and the Bank desire to amend and restate the
terms of the First Amended Credit Agreement; and
WHEREAS, in connection with such amendment and restatement, the Bank is
willing to release the Guarantor from its obligations under the First Amended
Credit Agreement;
NOW THEREFORE, the Bank and the Borrower agree that the First Amended
Credit Agreement is amended and restated in its entirety as set forth herein.
(S)1. DEFINITIONS AND RULES OF INTERPRETATION.
----------- --- ----- -- --------------
(S)1.1. Definitions. The following terms shall have the meanings set forth in
-----------
this (S)1 or elsewhere in the provisions of this Agreement referred to below:
Acceptance Agreement. See (S)3.2.
---------- ---------
Acceptance Face Amount. The aggregate amount, from time to time, of
---------- ---- ------
the face amount of all Bankers' Acceptances created and outstanding hereunder.
Accountants. See (S)6.4(a).
-----------
ACH Advances. See (S)3.3.
--- --------
Adjusted Consolidated Operating Cash Flow. For any period, an amount
-------- ------------ --------- ---------
equal to (i) the sum of (A) EBIT for such period (net of non-recurring items),
plus (B) depreciation, and amortization and all other noncash charges for such
period, less (ii) the sum of (A) cash payments for all income taxes paid during
such period, plus (B) Capital Expenditures for
36
<PAGE>
such period to the extent permitted by (S)8.3, provided, however, that Capital
-------- -------
Expenditures financed by term debt shall be excluded in computing Adjusted
Consolidated Operating Cash Flow.
Agreement. This Second Amended and Restated Revolving Credit
---------
Agreement, including the Exhibits and Schedules hereto, as amended from time to
time.
Applicable Laws. See (S)6.10.
---------- ----
Balance Sheet Date. December 31, 1998.
------- ----- ----
Bank. See Preamble.
----
Bankers' Acceptance Fee. See (S)4.2(a).
-------- ---------- ---
Bankers' Acceptances. Bankers' acceptances issued by the Bank from
------- -----------
time to time pursuant to (S)3.2 hereof.
Base Rate. The higher of (a) the rate per annum (rounded upward, if
---- ----
necessary, to the next higher 1/100 of 1%) equal to the annual rate of interest
announced from time to time by the Bank at its head office in Boston,
Massachusetts, as its "Base Rate" or (b) one-half percent (1/2%) above the
overnight federal funds effective rate, as published by the Board of Governors
of the Federal Reserve System as in effect from time to time.
Base Rate Loans. Loans bearing interest calculated by reference to the
---- ---- -----
Base Rate.
Borrower. See Preamble.
--------
Borrowing Base. At the relevant time of reference thereto, an amount
--------- ----
determined by the Bank by reference to the most recent Borrowing Base Report
delivered to the Bank pursuant to (S)6.4(d), which is equal to the sum of:
(a) 85% of Eligible Receivables owing from account debtors located
within the United States or a territory thereof or Canada less than 60 days past
due under the original terms of sale; plus
(b) 50% of Eligible Receivables owing from account debtors located
outside the United States and its territories or Canada less than 30 days past
due under the original terms of sale; plus
(c) the lesser of (i) 50% of the Eligible Inventory Amount, or (ii)
$7,000,000.
Borrowing Base Report. See (S)6.4(d).
--------- ---- ------
Business Day. Any day on which commercial banking institutions in
-------- ---
Boston, Massachusetts are open for the transaction of banking business.
37
<PAGE>
Cash Collateral Amount. See (S)3.4.
---- ---------- ------
Capitalized Leases. Leases under which the Borrower or any of its
----------- ------
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
Certified. With respect to the financial statements of any Person,
---------
such statements as audited by a firm of independent auditors, whose report
expresses the opinion, without qualification, that such financial statements
present fairly the financial position of such Person.
CFO. See (S)6.4(b).
---
CIT Loan Agreement. Credit agreement between the Borrower and The CIT
------------------
Group dated as of March 30, 1992, as amended as of February 25, 1999.
Closing Date. The date on which the conditions precedent set forth
------- ----
in (S)9 hereof are satisfied.
Code. The Internal Revenue Code of 1986, as amended and in effect
----
from time to time.
Collateral. All of the personal property, rights and assets of the
----------
Borrower that are or are intended to be subject to the security interest created
by the Security Agreement, which excludes machinery and equipment.
Commitment Fee. See (S)4.1(a).
---------- ---
Consolidated or consolidated. With reference to any term defined
------------ -- ------------
herein, shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with GAAP, after eliminating all
intercompany items.
Consolidated Annual Financial Obligations. With respect to any fiscal
------------ ------ --------- -----------
year, an amount equal to the sum of all payments on Indebtedness (including, but
not limited to payments of principal and interest) that become due and payable
or that are to become due and payable during such fiscal year pursuant to any
agreement or instrument to which the Borrower or any of its Subsidiaries is a
party relating to the borrowing of money or the obtaining of credit or in
respect of Capitalized Leases or the EPA Consent Order. Demand obligations shall
be deemed to be due and payable during any fiscal year during which such
obligations are outstanding.
Consolidated Earnings Before Interest, Taxes, or EBIT. For any period,
------------ -------- ------ -------- ----- -- ----
the consolidated net income (or deficit) of the Borrower and its Subsidiaries
determined in accordance with GAAP, plus (a) interest expense, and (b) provision
----
for income tax expense for such period.
38
<PAGE>
Consolidated Financial Obligations. With respect to any given period,
------------ --------- -----------
an amount equal to the sum of all payments on Indebtedness (including, but not
limited to payments of principal and interest) that become due and payable or
that are to become due and payable during such period pursuant to any agreement
or instrument to which the Borrower or any of its Subsidiaries is a party
relating to the borrowing of money or the obtaining of credit or in respect of
Capitalized Leases. Demand obligations shall be deemed to be due and payable
during any period during which such obligations are outstanding.
Consolidated Net Income. The consolidated net income of the Borrower
------------ --- ------
and its Subsidiaries, after deduction of all expenses, taxes, and other proper
charges, determined in accordance with GAAP.
Consolidated Operating Cash Flow. For any period, an amount equal to
------------ --------- ---- ----
(i) the sum of (A) EBIT for such period, plus (B) depreciation, and amortization
----
and all other noncash charges for such period, less (ii) the sum of (A) cash
----
payments for all taxes paid during such period, plus (B) Capital Expenditures
----
made during such period to the extent permitted by (S)8.3.
Consolidated Tangible Net Worth. The excess of the Consolidated Total
------------ -------- --- -----
Assets over Consolidated Total Liabilities, and less the sum of:
(a) the total book value of all assets of the Borrower and it
Subsidiaries which would be treated as intangibles under GAAP,
including, without limitation, such items as goodwill, trademarks,
trade names, service marks, brand names, copyrights, patents and
licenses, and rights with respect to the foregoing; and
(b) all amounts representing any write-up in the book value of
any consolidated assets resulting from a revaluation thereof
subsequent to the Interim Balance Sheet Date.
Consolidated Total Assets. All assets of the Borrower and its
------------ ----- ------
Subsidiaries determined on a consolidated basis in accordance with GAAP.
Consolidated Total Liabilities. All liabilities of the Borrower and
------------ ----- -----------
its Subsidiaries determined on a consolidated basis in accordance with GAAP.
Credit Instruments. Letters of Credit and Bankers' Acceptances.
------ -----------
CU Acquisition. The Borrower's acquisition of Capacitores Unidos, S.A.
-- ----------
de C.V, a Mexican corporation ("CU") pursuant to a Purchase Agreement dated
April 5, 1999.
Default. See (S)11.
-------
Depository Accounts. See (S)6.13.
---------- --------
Disposal. See "Release."
--------
39
<PAGE>
Distribution. The declaration or payment of any dividend on or in
------------
respect of any shares of any class of capital stock of any Person, other than
dividends payable solely in shares of common stock of such Person; or the
purchase, redemption, or other retirement of any shares of any class of capital
stock of such Person, directly or indirectly through a Subsidiary or otherwise;
the return of capital by any Person to its shareholders as such; any other
distribution on or in respect of any shares of any class of capital stock of
such Person.
Dollars or $. Dollars in lawful currency of the United States of
------- -- -
America.
Drawdown Date. The date on which any Loan is made or is to be made.
-------- ----
Eligible Finished Goods Inventory. The gross book value, as reflected
-------- -------- ----- ---------
on the books of the Borrower in accordance with GAAP consistently applied, of
salable products and finished goods at the Eligible Inventory Locations as to
which (a) the Borrower has acquired title and, except as provided below, (b) the
Bank has a valid and perfected first priority security interest under applicable
law subject only to the Permitted Liens and (c) the Borrower has furnished
reasonably detailed information to the Bank in a Borrowing Base Report,
determined after taking into account all charges and liens of all kinds (other
than those of the Bank and carrier, warehouse, customs, and similar statutory
liens arising in the ordinary course of business) against such finished goods
and reductions in the market value thereof, all as determined by the Bank in its
reasonable discretion, which, absent manifest error, shall be final and binding
upon the Borrower. Finished goods inventory immediately loses the status of
Eligible Finished Goods Inventory if and when the Borrower sells it, otherwise
passes title thereto, removes it or allows it to be removed from the Eligible
Inventory Locations or consumes it, or the Bank releases or transfers its
security interest therein, or if and when an Eligible Account Receivable arises
by virtue of constituting proceeds of such inventory. Notwithstanding the
foregoing, but without duplication, Eligible Finished Goods Inventory shall be
reduced by the amount of any specific reserve established by the Borrower with
respect to any Eligible Finished Goods Inventory. Calculation of Eligible
Finished Goods Inventory will be made on a FIFO basis.
Eligible Inventory Amount. Eligible Finished Goods Inventory plus
-------- --------- ------
Eligible Raw Materials.
Eligible Inventory Locations. New Bedford, Massachusetts; Huntsville,
-------- --------- ---------
Alabama; El Paso, Texas; Juarez, Mexico, and other locations as from time to
time approved by the Bank in writing.
Eligible Raw Materials. An amount equal to the gross book value, as
-------- --- ---------
reflected on the books of the Borrower in accordance with GAAP consistently
applied, of raw material at the Eligible Inventory Locations used in the
production of Eligible Finished Goods Inventory, as to which (a) the Borrower
has acquired title and, except as provided below, (b) the Bank has a valid and
perfected first priority security interest under applicable law subject only to
the Permitted Liens and (c) the Borrower has furnished reasonably detailed
information to the Bank in a Borrowing Base Report, determined after taking into
account all charges and
40
<PAGE>
liens of all kinds (other than those of the Bank and carrier, warehouse, customs
and similar statutory liens arising in the ordinary course of business) against
such raw materials and reductions in the market value thereof, all as determined
by the Bank in its reasonable discretion, which, absent manifest error, shall be
final and binding upon the Borrower. Raw material immediately loses the status
of Eligible Raw Material if and when the Borrower sells it, otherwise passes
title thereto, removes it or allows it to be removed from the Eligible Inventory
Locations, consumes it, or materially changes it in the course of processing the
same, or the Bank releases or transfers its security interest therein.
Notwithstanding the foregoing, but without duplication, Eligible Raw Materials
shall be reduced by the amount of any specific reserve established by the
Borrower with respect to any Eligible Raw Materials. Calculation of Eligible Raw
Materials will be made on a FIFO basis.
Eligible Receivables. The net amount, as reflected on the books of the
-------- -----------
Borrower in accordance with GAAP consistently applied, of trade accounts
receivable outstanding and owed to the Borrower by account debtors which are not
Subsidiaries of the Borrower, as to which the Bank has a valid and perfected
first priority security interest under all applicable laws and as to which the
Borrower has furnished reasonably detailed information to the Bank in a
Borrowing Base Report, determined after deducting from the aggregate amount
thereof all payments, adjustment, discounts and credits applicable thereto, all
charges and liens (other than those of the Bank) of all kinds against such
accounts receivable, all amounts due thereon considered by the Bank to be
difficult to collect or uncollectible by reason of return, rejection,
repossession, loss or damage of or to the merchandise giving rise thereto,
merchandise-related or other disputes, insolvency of the account debtor, or any
other reason, and excluding (a) any accounts receivable arising out of
transactions with respect to which there shall exist any payables, discounts
other than prompt payment discounts in the ordinary course of business
consistent with past practices, or other similar offsets or reductions, (b) any
accounts receivable that are due from any single account debtor if more than
twenty percent (20%) of the aggregate amount of all accounts receivable owing to
the Borrower from such account debtor would otherwise not be Eligible
Receivables, and (c) any accounts receivable owing to the Borrower from any
distributor that has the right to return unsold goods to the Borrower (but only
to the extent of such right) which are 60 days or more past due under the
original terms of sale (in the case of account debtors located in the United
States or any territory thereof) or 30 days or more past due under the original
terms of sale (in the case of account debtors located outside the United States
and its territories), all as determined by the Bank in its reasonable
discretion, which, absent manifest error, shall be final and binding upon the
Borrower.
Employee Benefit Plan. Any employee benefit plan within the meaning of
-------- ------- ----
(S)3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
Environmental Laws: All laws pertaining to environmental matters,
------------- ----
including without limitation the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response Compensation and Liability
Act of 1980
41
<PAGE>
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control
Act, in each case as amended, any other federal, state or local statute or
ordinance relating to health, safety or the environment, and all rules,
regulations, judgments, decrees, orders and licenses arising under all such
laws.
EPA. See (S)5.17(b).
---
EPA Consent Order. The Administrative Order on Consent to be entered
--- ------- -----
into by and between the Borrower and the EPA related to Section 7003 of RCRA.
ERISA. The Employee Retirement Income Security Act of 1974, as amended
-----
and in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single employer with
----- ---------
the Borrower or any of its Subsidiaries under (S)414(b) and (c) of the Code.
ERISA Reportable Event. A reportable event with respect to a
----- ---------- -----
Guaranteed Pension Plan within the meaning of (S)4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice has not
been waived.
Eurodollar Business Day. Any Business Day on which dealings in foreign
---------- -------- ---
currency and exchange are carried
on among banks in London, England.
Eurodollar Interest Determination Date. For any Interest Period, the
---------- -------- ------------- ----
date three Eurodollar Business Days prior to the first day of such Interest
Period.
Eurodollar Loans. Loans bearing interest calculated by reference to
---------- -----
the Eurodollar Rate.
Eurodollar Offered Rate. The rate per annum at which deposits of
---------- ------- ----
dollars are offered to the Bank by prime banks in whatever Eurodollar interbank
market may be selected by the Bank, in its sole discretion, acting in good
faith, at or about 11:00 a.m. local time in such interbank market, on the
Eurodollar Interest Determination Date for a period equal to the period of the
applicable Interest Period in an amount substantially equal to the principal
amount requested to be loaned at or converted to a rate based on the Eurodollar
Offered Rate.
Eurodollar Rate. The rate per annum, rounded upwards to the nearest
---------- ----
1/16 of 1%, determined by the Bank with respect to an Interest Period, in
accordance with the following formula:
Eurodollar Rate = Eurodollar Offered Rate
-----------------------
1-Reserve Rate
Event of Default. See (S)11.
----- -- -------
42
<PAGE>
First Amended Credit Agreement. See recitals.
----- ------- ------ ---------
Foreign Exchange Transactions. See (S)3.3.
------- -------- ------------
Generally Accepted Accounting Principles or GAAP. (i) When used in
--------- -------- ---------- ---------- -- ----
general, GAAP means principles which are (1) consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors or successors, in effect for the fiscal year ended on the Balance
Sheet Date and (2) such that a certified public accountant would, insofar as the
use of accounting principles is pertinent, be in a position to deliver an
unqualified opinion as to financial statements in which such principles have
been properly applied; and (ii) when used with reference to the Borrower and/or
any of its Subsidiaries such principles shall include (to the extent consistent
with such principles) the accounting practice of the Borrower and/or such
Subsidiaries reflected in their financial statements for the year ended on the
Balance Sheet Date.
Guaranteed Pension Plan. Any pension benefit plan within the meaning
---------- ------- ----
of (S)3(2) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate the benefits of which are guaranteed on termination in full or in part
by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan.
Hazardous Substances. See (S)5.17(b).
--------- ----------
Indebtedness. All obligations, contingent and otherwise, which in
------------
accordance with GAAP should be classified upon the obligor's balance sheet as
liabilities, or to which reference should be made by footnotes thereto,
including, without limitation, in any event and whether or not so classified:
(i) all debt and similar monetary obligations, whether direct or indirect; (ii)
all liabilities secured by any mortgage, pledge, security interest, lien,
charge, or other encumbrance existing on property owned or acquired subject
thereto, whether or not the liability secured thereby shall have been assumed;
and (iii) all guarantees, endorsements and other contingent obligations whether
direct or indirect in respect of Indebtedness of others, including any
obligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor, to purchase Indebtedness, or to assure the owner of
Indebtedness against loss, through an agreement to purchase goods, supplies, or
services for the purpose of enabling the debtor to make payment of the
Indebtedness held by such owner or otherwise, and the obligations to reimburse
the issuer of any letters of credit.
Interest Period. With respect to each Eurodollar Loan:
-------- ------
(a) initially, the period commencing on the date of a conversion
from a Base Rate Loan into a Eurodollar Loan or the making of a
Eurodollar Loan, and ending thirty (30), sixty (60) or ninety (90)
days thereafter, as the case may be, as the Borrower may select; and
43
<PAGE>
(b) thereafter, each subsequent Interest Period shall begin on
the last day of the preceding Interest Period, and end thirty (30),
sixty (60), or ninety (90) days thereafter, as the case may be, as the
Borrower may select;
(c) provided that any Interest Period which would otherwise end
on a day which is not a Business Day shall be adjusted to the next
Business Day.
Interim Balance Sheet Date. March 31, 1999.
------- ------- ----- ----
Investments. All cash expenditures made and all liabilities incurred
-----------
(contingently or otherwise) for the acquisition of stock, all or substantially
all of the assets of, or Indebtedness of, or for loans, advances, capital
contributions or transfers of property to, or in respect of any guaranties (or
other commitments as described under Indebtedness), or obligations of, any
Person. In determining the aggregate amount of Investments outstanding at any
particular time, (i) the amount of any Investment represented by a guaranty
shall be taken at not less than the principal amount of the obligations
guaranteed and still outstanding; (ii) there shall be included as an Investment
all interest accrued with respect to Indebtedness constituting an Investment
unless and until such interest is paid, (iii) there shall be deducted in respect
of each such Investment any amount received as a return of capital (but only by
repurchase, redemption, retirement, repayment, liquidating dividend or
liquidating distribution); (iv) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment, whether as
dividends, interest or otherwise, except that accrued interest included as
provided in the foregoing clause (ii) may be deducted when paid; and (v) there
shall not be deducted from the aggregate amount of Investments any decrease in
the value thereof.
IRB. See (S)7.1(c).
---
Letters of Credit. Standby Letters of Credit issued or to be issued by
------- -- ------
the Bank under (S)3 hereof for the account of the Borrower.
Letter of Credit Applications. Letter of Credit Applications in such
------ -- ------ ------------
form as may be agreed upon by the Borrower and the Bank from time to time which
are entered into pursuant to (S)3 hereof as such Letter of Credit Applications
are amended, varied or supplemented from time to time.
Letter of Credit Fee. See (S)4.1(b).
------ -- ------ ---
Loans. Revolving credit loans made or to be made by the Bank to the
-----
Borrower pursuant to this Agreement.
Loan Commitment. See (S)2.1.
---- ----------
Loan and Letter of Credit Request. See (S)2.6.
---- --- ------ -- ------ -------
44
<PAGE>
Loan Documents. Collectively, this Agreement, the Note, the Letters of
---- ---------
Credit, the Letter of Credit Applications, the Bankers' Acceptances, the
Acceptance Agreements, any agreements relating to the ACH Advances or Foreign
Exchange Transactions, and the Security Documents, as each may be amended and in
effect from time to time.
Maturity Date. May 31, 2002.
-------- ----
Maximum Drawing Amount. The maximum aggregate amount from time to time
------- ------- ------
that the beneficiaries may draw under outstanding Letters of Credit.
Multiemployer Plan. Any multiemployer plan within the meaning
------------- ----
of (S)3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
Note. The promissory note of the Borrower evidencing the Loans dated
----
the date of this Agreement and in substantially the form of Exhibit A hereto.
---------
Obligations. All indebtedness, obligations and liabilities of the
-----------
Borrower to the Bank or any of its banking affiliates, existing on the date of
this Agreement or arising thereafter, direct or indirect, joint or several,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Agreement or any other Loan Document or in
respect of Loans made or the Credit Instruments issued, and the Note, or other
instruments at any time evidencing any thereof, and including without limitation
any obligations to the Bank with respect to the ACH Advances or Foreign Exchange
Transactions.
PBGC. The Pension Benefit Guaranty Corporation created by (S)4002 of
----
ERISA and any successor entity or entities having similar responsibilities.
Permitted Liens. See (S)7.2.
--------- -----
Person. Any individual, corporation, partnership, trust,
------
unincorporated association, business, or other legal entity, and any government
or any governmental agency or political subdivision thereof.
Real Property. The real properties owned or operated by the Borrower
---- --------
or its Subsidiaries.
Reimbursement Obligations. The obligation of the Borrower to reimburse
------------- -----------
the Bank on account of any drawing under, or payment made with respect to, any
Credit Instrument, ACH Advance or Foreign Exchange Transaction as provided in
(S)3.
Release. Shall have the meaning specified in CERCLA and the term
-------
"Disposal" (or "Disposed") shall have the meaning specified in RCRA and
regulations promulgated thereunder; provided that, in the event either CERCLA or
--------
RCRA is amended so as to broaden the meaning of any term defined thereby, such
broader meaning shall apply as of the effective date of such amendment and
provided further, to the extent that the laws of a
- -------- -------
45
<PAGE>
state wherein the property lies establishes a meaning for "Release" or
"Disposal" which is broader than specified in either CERCLA or RCRA, such
broader meaning shall apply.
Reserve Rate. The rate, expressed as a decimal, at which the Bank would be
------- ----
required to maintain reserves under Regulation D of the Board of Governors of
the Federal Reserve System (or any subsequent or similar regulation relating to
such reserve requirements) against "Eurocurrency Liabilities" (as such term is
defined in Regulation D), or against any other category of liabilities which
might be incurred by the Banks to fund Eurodollar Loans if such liabilities were
outstanding.
Security Agreement. The Second Amended and Restated Security Agreement
-------- ---------
dated as of the Closing Date between the Borrower and the Bank in form and
substance satisfactory to the Bank.
Security Documents. The Security Agreement, as amended and in effect from
-------- ---------
time to time, and any additional documents evidencing or perfecting the Bank's
lien on the Collateral.
Subsidiary. 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 of the outstanding
capital stock or other interest entitled to vote generally.
Supplemental Commitment. See (S)3.3.
------------ ----------
Total Commitment. The Loan Commitment plus the Supplemental Commitment.
----- ---------- ----
Total Loan Outstandings. At the relevant time of reference thereto, the sum
----- ---- ------------
of (a) the aggregate outstanding principal balance of the Loans, plus (b) the
Maximum Drawing Amount of all Letters of Credit, plus (c) the Acceptance Face
----
Amount.
Total Outstandings. At the relevant time of reference thereto, (a) the
----- ------------
Total Loan Outstandings, plus (b) the aggregate amount of all unpaid
----
Reimbursement Obligations, without duplication.
(S)1.2. Rules of Interpretation.
----- -- --------------
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time in
accordance with its terms and the terms of this 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.
46
<PAGE>
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms capitalized but 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) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by GAAP, which terms
are defined in the Uniform Commercial Code as in effect in the Commonwealth of
Massachusetts, have the meanings assigned to them therein.
(h) Reference to a particular "(S)" refers to that section of this
Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Agreement as a whole and not to any particular section or
subdivision of this Agreement.
(S)2. REVOLVING CREDIT LOANS.
--------- ------ -----
(S)2.1. Commitment to Lend. Subject to the terms and conditions set forth in
---------- -- ----
this Agreement, the Bank agrees to lend to the Borrower and the Borrower may
borrow and reborrow from time to time between the Closing Date and the Maturity
Date, upon notice to the Bank given in accordance with (S)2.6 hereof, such sums
as are requested by the Borrower up to a maximum principal amount outstanding
(after giving effect to all amounts requested and the amount of the Total Loan
Outstandings) at any one time not to exceed the lesser of (a) the Borrowing
Base, or (b) $14,360,000, as such amount maybe reduced pursuant to (S)2.2
hereof (the "Loan Commitment"). Each request for Loans hereunder shall
constitute a representation by the Borrower that the conditions set forth in
(S)(S) 9 and 10 hereof have been satisfied on the date of such request.
(S)2.2. Reduction of Loan Commitment. The Borrower shall have the right at any
--------- -- ---- ----------
time and from time to time upon five (5) Business Days' written notice to the
Bank to reduce by $500,000 or an integral multiple thereof or terminate entirely
the amount of the unborrowed portion of the Loan Commitment, whereupon the Loan
Commitment shall be reduced by the amount specified in such notice or
terminated, as the case may be. Upon the effective date of any such reduction or
termination, the Borrower shall pay to the Bank the full amount of any
Commitment Fee then accrued on the amount of the reduction. No reduction of the
Loan Commitment hereunder shall be subject to reinstatement.
(S)2.3. Note. The Loans shall be evidenced by the Note of the Borrower in
----
substantially the form of Exhibit A hereto, dated the Closing Date with
------- -
appropriate insertions, representing the obligation of the Borrower to pay the
Loan Commitment or, if less, the aggregate unpaid principal amount of all Loans
made by the Bank hereunder, plus interest accrued thereon, as set forth below.
The Borrower irrevocably authorizes the Bank to make or cause to be made, in
connection with a Drawdown Date of any Loan or at the time of receipt of any
payment of principal on the Note, an appropriate notation on the Bank's records
reflecting the making
47
<PAGE>
of such Loan or the receipt of such payment (as the case may be). The
outstanding amount of the Loans set forth on the Bank's record shall be prima
-----
facie evidence of the principal amount thereof owing and unpaid to the Bank, but
- -----
the failure to record, or any error in so recording, any such amount shall not
limit or otherwise affect the obligations of the Borrower hereunder or under the
Note to make payments of principal of or interest on the Note when due.
(S)2.4. Interest on Loans. The outstanding principal amount of the Loans shall
-------- -- -----
bear interest at the rate per annum equal to (a) the Base Rate, or (b) at the
Borrower's option as provided herein, at the Eurodollar Rate plus two percent
(2%). Interest shall be payable (i) monthly in arrears on the first Business Day
of each calendar month of each year, commencing June 1, 1999, on Base Rate
Loans, and (ii) on the last day of the applicable Interest Period, and, if such
Interest Period is longer than 30 days, also monthly during such Interest Period
on Eurodollar Loans, and (iii) on the Maturity Date for all Loans.
(S)2.5. Election of Eurodollar Rate; Notice of Election; Interest Periods;
-------- -- ---------- ---- ------ -- -------- -------- -------
Minimum Amounts.
- ------- -------
(a) At the Borrower's option, so long as no Default or Event of
Default has occurred and is then continuing, the Borrower may (i) elect to
convert any Base Rate Loan or a portion thereof to a Eurodollar Loan, (ii)
at the time of any Loan and Letter of Credit Request, specify that such
requested Loan shall be a Eurodollar Loan, or (iii) upon expiration of the
applicable Interest Period, elect to maintain an existing Eurodollar Loan
as such, provided that the Borrower gives notice to the Bank pursuant to
--------
(S)2.5(b) hereof. Upon determining any Eurodollar Rate, the Bank shall
forthwith provide notice thereof to the Borrower, and each such notice to
the Borrower shall be considered prima facie correct and binding, absent
----- -----
manifest error.
(b) Three (3) Eurodollar Business Days prior to the making of any
Eurodollar Loan or the conversion of any Base Rate Loan to a Eurodollar
Loan, or, in the case of an outstanding Eurodollar Loan, the expiration
date of the applicable Interest Period, the Borrower shall give written,
telex or telecopy notice received by the Bank not later than 12:00 noon
(Boston time) of its election pursuant to (S)2.5(a). Each such notice
delivered to the Bank shall specify the aggregate principal amount of the
Loans to be borrowed or maintained as or converted to Eurodollar Loans and
the requested duration of the Interest Period that will be applicable to
such Eurodollar Loan, and shall be irrevocable and binding upon the
Borrower. If the Borrower shall fail to give the Bank notice of its
election hereunder together with all of the other information required by
this (S)2.5(b) with respect to any Loan, whether at the end of an Interest
Period or otherwise, such Loan shall be deemed a Base Rate Loan.
(c) Notwithstanding anything herein to the contrary, the Borrower may
not specify an Interest Period that would extend beyond the Maturity Date.
(d) All Eurodollar Loans shall be in a minimum amount of not less than
$1,000,000. In no event shall the Borrower have more than five (5)
different maturities of Eurodollar Loans outstanding at any time.
48
<PAGE>
(S)2.6. Requests for Revolving Credit Loans. The Borrower shall give to the Bank
-------- --- --------- ------ -----
written notice in the form of Exhibit B hereto (or telephonic notice confirmed
------- -
by telecopy the same day in the form of Exhibit B hereto) of each Loan requested
------- -
hereunder (a "Loan and Letter of Credit Request") not later than 12:00 noon (a)
on the proposed Drawdown Date of any Base Rate Loan, or (b) three Eurodollar
Business Days prior to the Drawdown Date of any Eurodollar Loan. Each such
notice shall be given by the Borrower and shall specify the principal amount of
the Loan requested and shall include a current Loan and Letter of Credit
Request, reflecting the Total Loan Outstandings. Each Loan and Letter of Credit
Request shall be made in the Minimum amount of $25,000 or a greater integral
multiple of $10,000, and shall be irrevocable and binding on the Borrower and
shall obligate the Borrower to accept the Loan requested from the Bank on the
proposed Drawdown Date. Each of the representations and warranties made by or on
behalf of the Borrower to the Bank in this Agreement or any other Loan Document
shall be true and correct in all material respects when made and shall, for all
purposes of this Agreement, be deemed to be repeated on and as of the date of
the submission of any Loan and Letter of Credit Request and on and as of the
Drawdown Date of such Loan or the date of issuance of such Credit Instrument
(except to the extent of changes resulting from transactions contemplated or
permitted by this Agreement and the other Loan Documents and changes occurring
in the ordinary course of business that singly or in the aggregate are not
materially adverse and to the extent that such representations and warranties
expressly relate to an earlier date).
(S)2.7. Interest on Overdue Amounts. Except as otherwise limited by (S)4.4
-------- -- ------- -------
hereof, amounts due hereunder not paid within ten (10) days of the due date will
be subject to a late payment charge equal to five percent (5%) of such overdue
amount.
(S)2.8. Termination of Credit. If any Event of Default shall occur, the Bank
----------- -- ------
may, by notice to the Borrower, terminate the unused portion of the Total
Commitment hereunder, and upon such notice being given such unused portion of
the Total Commitment hereunder shall terminate immediately and the Bank shall be
relieved of all further obligations to make Loans to the Borrower, to issue
Credit Instruments for the account of the Borrower hereunder, to make ACH
Advances to the Borrower and to effect Foreign Exchange Transactions for the
Borrower, provided that if an Event of Default specified in (S)(S)11(g) or (h)
--------
hereof shall occur, the Total Commitment shall terminate without the requirement
of notice from the Bank. No termination of any portion of the Total Commitment
hereunder shall relieve the Borrower of any of its existing Obligations to the
Bank hereunder or elsewhere. Upon termination of the Total Commitment under this
(S)2.8, all Loans, all ACH Advances and all amounts outstanding with respect to
Foreign Exchange Transactions shall become immediately due and payable.
(S)2.9. Maturity of the Loans. The Loans shall be due and payable on the
-------- -- --- -----
Maturity Date. The Borrower promises to pay on the Maturity Date all Loans
outstanding on such date, together with any and all accrued and unpaid interest
thereon.
(S)2.10. Optional Prepayments or Repayments of Loans. The Borrower shall have
-------- ----------- -- ---------- -- -----
the right, at its election, to repay or prepay the outstanding amount of the
Loans, as a whole or in part, at any time without penalty or premium. The
Borrower shall give the Bank, no later than 12:00 noon, Boston time, on the
Business Day of such proposed prepayment or repayment, written notice (or
telephonic notice confirmed in writing or by telecopy by the Borrower) of
49
<PAGE>
any proposed prepayment or repayment pursuant to this (S)2.10, specifying the
proposed date of repayment of Loans and the principal amount to be paid,
provided that a Eurodollar Loan may be repaid only on the last day of the
- --------
applicable Interest Period.
(S)2.11. Mandatory Repayment. If at any time the aggregate amount of the Total
--------- ---------
Loan Outstandings shall exceed (a) the Loan Commitment (whether by reduction of
the Loan Commitment or otherwise) or (b) the Borrowing Base then in effect, the
Borrower shall immediately make a payment to the Bank in the amount required to
eliminate any such excess.
(S)2.12. Lockbox Provisions.
------- ----------
(a) The Borrower agrees to maintain at the Bank its existing
depository account established pursuant to the Schedule to Cash Management
Master Agreement for Lockbox Service dated as of November 3, 1998 (the
"Lockbox Account") upon the terms stated therein.
(b) The Borrower agrees that all amounts received by the Bank in
the Lockbox Account will be the sole and exclusive property of the Bank.
If, notwithstanding the existence of the lockbox accounts, the Borrower
receives any cash proceeds of any of the Collateral, whether in the form of
money, checks or otherwise, the Borrower will hold such cash proceeds in
trust for the benefit of the Bank and turn such cash proceeds promptly over
to the Bank in the identical form received, with appropriate endorsements.
The Bank shall, on the second Business Day immediately following the day of
the Bank's receipt of payments into the Lockbox Account or cash proceeds
from the Borrower or on such later date as the Bank determines that good
funds will be received, and on a provisional basis until final receipt of
good funds, credit to the Obligations as contemplated by (S)2.12(c) all
such cash proceeds which are in the form of money, checks or like items.
For purposes of the foregoing provisions of this (S)2.12(b), the Bank shall
not be deemed to have received any such cash proceeds on any day unless
received by the Bank before 3:00 p.m. (Boston time) on such day. The
Borrower further acknowledges and agrees that any such provisional credit
shall be subject to reversal if final collection in good funds of the
related item is not received by the Bank in accordance with the Bank's
customary procedures and practices for collecting provisional items.
(c) All payments to be applied towards the Obligations pursuant
toss (S)2.12(b) shall, except as otherwise provided, be applied to the
Obligations as follows: (i) first, to any unpaid Reimbursement Obligations;
-----
(ii) second, to any interest on the Loans then due and payable (and if
------
interest is due and payable on more than one Loan, in such order as the
Bank may determine in its own discretion); (iii) third, (A) first, to the
-----
outstanding principal amount of the Loans, and (B) second to any other
outstanding Obligations; (iv) fourth, unless the Bank shall otherwise
------
elect, as cash collateral for any settlement of provisional credit; and (v)
fifth, the excess, if any, shall be credited to the Borrower's
-----
50
<PAGE>
operating account with the Bank. In the event that the Bank shall
elect at any time not to apply the payment as contemplated by the
foregoing clause (iv), such election shall not be deemed a waiver of
the Bank's rights to apply payments pursuant to such clause at a later
time, and the Bank shall be entitled to apply payments pursuant to
such at such later time and from time to time thereafter.
(S)3. LETTERS OF CREDIT, BANKERS' ACCEPTANCES AND SUPPLEMENTAL FACILITIES.
------- -- ------ -------- ----------- --- ------------ ----------
(S)3.1. Letter of Credit Issuance. Subject to the terms and conditions hereof
------ -- ------ --------
and the execution and receipt of a Loan and Letter of Credit Request reflecting
the Maximum Drawing Amount of all Letters of Credit (including the requested
Letter of Credit) and a Letter of Credit Application at least four Business Days
prior to issuance, the Bank, in reliance upon the representations and warranties
of the Borrower contained herein, may, at its discretion, issue standby letters
of credit in such form as may be requested from time to time by the Borrower and
agreed to by the Bank (the "Letters of Credit"); provided, however, that, no
-------- -------
Letter of Credit shall have an expiration date later than the earlier of (i) one
year after the date of issuance of the Letter of Credit, or (ii) thirty (30)
days prior to the Maturity Date and provided further that, after giving effect
-------- -------
to the requested Letter of Credit, the aggregate Maximum Drawing Amount of all
Letters of Credit issued hereunder shall not exceed $1,000,000.
(S)3.2. Bankers' Acceptance Facility. Subject to the terms and conditions set
-------- ---------- --------
forth in this Agreement and the execution by the Borrower of an Acceptance
Agreement in the Bank's customary form, completed to the satisfaction of the
Bank with supporting documentation acceptable to the Bank (the "Acceptance
Agreement"), upon the written request of the Borrower at least three (3)
Business Days prior to the requested date of issuance, the Bank, in reliance
upon the representations and warranties of the Borrower contained herein, agrees
to issue Bankers' Acceptances for the account of the Borrower in a minimum face
amount of $500,000 in such form as the Borrower and the Bank may agree;
provided, however, that any Bankers' Acceptance issued shall provide for a
- -------- -------
maturity date not later than 90 days from the date of issuance (but in no event
shall such maturity extend beyond the Maturity Date); and provided, further,
-------- -------
that the aggregate Acceptance Face Amount shall at no time exceed $4,000,000;
and provided, further, that, after giving effect to such request, the Total Loan
-------- -------
Outstandings unpaid shall not exceed the lesser of the Loan Commitment or the
Borrowing Base; and provided, further, that the Bank shall not issue any
-------- -------
Bankers' Acceptance if the face amount of all outstanding drafts accepted by the
Bank which are of the type described in 12 U.S.C. (S)372, as amended from time
to time, or any successor statute, would cause the Bank to violate any
limitation imposed upon it under said statute or would cause the Bank to violate
such limitation if all such drafts were sold by the Bank in the secondary
market. Upon the satisfaction of the conditions set forth in (S)9 and (S)10
hereof, the Bank shall make available to the Borrower at the time of issuance of
each Bankers' Acceptance an amount equal to the amount requested, plus an amount
(computed on the basis of a year of three hundred sixty (360) days for the
actual days elapsed) equal to the sum of (a) the per annum average discount rate
quoted to the Bank on the day a request for a Bankers' Acceptance is presented
by the Bank's bankers' acceptance traders for acceptances which are of the type
described in 12 U.S.C. (S)372, as amended from time to time, or any successor
statute, and
51
<PAGE>
which approximate the face amount and mature on the maturity date requested plus
----
(b) one and three-quarters percent (1.75%) per annum (the "Bankers' Acceptance
Fee").
(S)3.3. Supplemental Commitment Facilities. In addition to making the Loans and
------------ ---------- ----------
issuing the Credit Instruments, and subject to the terms and conditions set
forth in this Agreement, the Bank agrees to fund payroll and other obligations
of the Borrower incurred pursuant to cash management services provided to the
Borrower by the Bank ("ACH Advances"), in an amount not to exceed $1,000,000 in
the aggregate at any one time and not to exceed more than $1,000,000 in any one
week, and to perform foreign exchange transactions on request of the Borrower in
accordance with documentation acceptable to the Bank, in amounts not to exceed
$500,000 in the aggregate at any one time, subject to a daily delivery limit of
$250,000 (the "Foreign Exchange Transactions" and, with the ACH Advances, the
"Supplement Commitment"), provided, however, that the Bank shall have no
-------- -------
obligation to make ACH Advances or to perform Foreign Exchange Transactions if
an Event of Default should occur, whether or not the Bank has accelerated the
Borrower's Obligations pursuant to (S)11 hereof.
(S)3.4. Reimbursement Obligation of the Borrower. In order to induce the Bank
------------- ---------- -- --- --------
to issue, extend and renew each Credit Instrument, to fund the ACH Advances and
to perform the Foreign Exchange Transactions, the Borrower hereby agrees to
reimburse or pay to the Bank with respect to each such facility as follows:
(a) On each date that any draft presented under any Letter of Credit
is honored by the Bank or the Bank otherwise makes payment with respect
thereto, or, in the case of Bankers' Acceptances, on the maturity date of
each such Bankers' Acceptance (i) the amount paid by the Bank under or with
respect to such Letter of Credit, and, with respect to the Bankers'
Acceptances, the amount of such Bankers' Acceptances then maturing and (ii)
the charges or other costs and expenses whatsoever incurred by the Bank in
connection with any payment made by the Bank under, or with respect to,
such Credit Instrument.
(b) Upon receipt of notice from the Bank that the Bank has made an ACH
Advance, (i) the principal amount of such advance and (ii) the charges or
any other costs and expenses whatsoever incurred by the Bank in connection
with any payment made by the Bank in connection with such advance.
(c) With respect to the Foreign Exchange Transactions, in accordance
with the documentation separately executed by the Borrower and the Bank.
(d) Upon the reduction (but not termination) of the Total Loan
Commitment to an amount less than the sum of the Maximum Drawing Amount,
plus the Acceptance Face Amount, plus all unpaid Reimbursement Obligations,
---- ----
an amount equal to such difference, which amount shall be held by the Bank
as cash collateral for all Reimbursement Obligations.
(e) Upon the termination of the Total Commitment, or the acceleration
of the Reimbursement Obligations in accordance with (S)11, an amount equal
to the
52
<PAGE>
then Maximum Drawing Amount, plus the Acceptance Face Amount, plus any
---- --- ----
unpaid ACH Advance, plus 105% of any foreign exchange exposure
----
(collectively, the "Cash Collateral Amount"), which amount shall be held by
the Bank as cash collateral for all Reimbursement Obligations.
(f) Each such payment shall be made to the Bank in accordance with
(S)4.2 hereof. Interest on any and all amounts remaining unpaid by the
Borrower in respect of Reimbursement Obligations at any time from the date
such amounts become due and payable (whether as stated in this (S)3.4, by
acceleration or otherwise) until payment in full (whether before or after
judgment) shall be payable to the Bank on demand at the rate specified in
(S)2.7 for overdue amounts.
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<PAGE>
(S)3.5. Letter of Credit Payments. If any draft shall be presented or other
------ -- ------ --------
demand for payment shall be made under any Letter of Credit, the Bank shall
notify the Borrower of the date and amount of the draft presented or demand for
payment and of the date and time when it expects to pay such draft or honor such
demand for payment. On the date that such draft is paid or other payment is made
by the Bank, the Bank shall promptly notify the Borrower of the amount of any
unpaid Reimbursement Obligation. All such unpaid Reimbursement Obligations with
respect to Letters of Credit shall be deemed to be Loans.
(S)3.6. Obligations Absolute. The Borrower's obligations under this (S)3 shall
----------- --------
be absolute and unconditional under any and all circumstances and irrespective
of the occurrence of any Default or Event of Default or any condition precedent
whatsoever or any setoff, counterclaim or defense to payment which the Borrower
may have or have had against the Bank or any beneficiary of a Credit Instrument.
The Borrower further agrees with the Bank that the Bank shall not be responsible
for, and the Borrower's Reimbursement Obligations under (S)3.4 shall not be
affected by, among other things, the validity or genuineness of documents or of
any endorsements thereon, even if such documents should in fact prove to be in
any or all respects invalid, fraudulent or forged, or any dispute between or
among the Borrower, the beneficiary of any Credit Instrument or any financing
institution or other party to which any Credit Instrument may be transferred or
any claims or defenses whatsoever of the Borrower, or against the beneficiary of
any Credit Instrument or any such transferee. The Bank shall not be liable for
any error, omission, interruption or delay in transmission, dispatch or delivery
of any message or advice, however transmitted, in connection with any Credit
Instrument, ACH Advance or Foreign Currency Transaction. The Borrower agrees
that any action taken or omitted by the Bank under or in connection with each
Credit Instrument, ACH Advance or Foreign Currency Transaction and the related
drafts and documents, if done in good faith, shall be binding upon the Borrower
and shall not result in any liability on the part of the Bank to the Borrower.
(S)3.7. Reliance by Bank. To the extent not inconsistent with (S)3.6, the Bank
-------- -- ----
shall be entitled to rely, and shall be fully protected in relying upon, any
Credit Instrument, draft, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document believed by it to be genuine and correct and
to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel, independent accountants and other
experts selected by the Bank.
(S)4. FEES; PAYMENTS AND COMPUTATIONS.
---- -------- --- ------------
(S)4.1. Fees.
----
(a) Commitment Fees. The Borrower agrees to pay commitment fees
---------- ----
at the rate of one-quarter percent (1/4%) per annum on the unused portion
of the Loan Commitment during each calendar month or portion thereof from
the Closing Date to the Maturity Date (or to the date of termination in
full of the Total Commitment, if earlier) (the "Commitment Fee"). For
purposes of computing the Commitment Fee, the Acceptance Face Amount shall
be considered usage of the Total Loan Commitment. The Commitment Fee shall
be payable on the Closing Date and in
54
<PAGE>
arrears on the first day of each calendar month for the immediately
preceding month with a final payment on the Maturity Date.
(b) Letter of Credit Fee. The Borrower shall pay a fee (the "Letter of
------ -- ------ ---
Credit Fee") to the Bank equal to one percent (1%) per annum (pro-rated for
the period for which such Letter of Credit shall remain outstanding) of the
Maximum Drawing Amount of each Letter of Credit payable in advance on the
date of issuance of the applicable Letter of Credit (but in no case less
than $350.00), plus the Bank's customary issuance fee, payable in
----
accordance with the Bank's customary practice.
(c) Collateral Management Fee. The Borrower agrees to pay a collateral
---------- ---------- ---
management fee to the Bank in the amount of $600.00 per month, payable in
advance on the first day of each month commencing with June 1999, for as
long as any Obligations remain outstanding.
(S)4.2. Payments.
--------
(a) All payments of principal, interest, Bankers' Acceptance Fees,
Commitment Fees, Collateral Management Fees and any other amounts due
hereunder or under the Loan Documents shall be made by the Borrower to the
Bank in immediately available funds at the Bank's office at 100 Federal
Street, Boston, Massachusetts 02110. The Bank shall be entitled to debit
the Borrower's operating account with the Bank in the amount of each such
payment when due in order to effect timely payment thereof.
(b) All payments by the Borrower hereunder and under any of the other
Loan Documents shall be made without set-off or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the
Borrower with respect to any amount payable by it hereunder or under any of
the other Loan Documents, the Borrower will pay to the Bank, on the date on
which such amount is due and payable hereunder or under such other Loan
Document, such additional amount in Dollars as shall be necessary to enable
the Bank to receive the same net amount which the Bank would have received
on such due date had no such obligation been imposed upon the Borrower. The
Borrower will deliver promptly to the Bank certificates or other valid
vouchers for all taxes or other charges deducted from or paid with respect
to payments made by the Borrower hereunder or under such other Loan
Document.
(S)4.3. Computations. All computations of interest on the Loans and of
------------
Commitment Fees shall be based on a 360-day year and paid for the actual number
of days elapsed including the first day, but excluding the last day. Whenever a
payment hereunder or under the Note becomes due on a day which is not a Business
Day, the due date for such payment shall be
55
<PAGE>
extended to the next succeeding Business Day, and interest shall accrue during
such extension.
(S)4.4. Interest Limitation. Notwithstanding any other term of this Agreement or
-------- ----------
the Note or any other document referred to herein or therein, the maximum amount
of interest which may be charged to or collected from the Borrower hereunder or
under any Note by the Bank shall be absolutely limited to, and shall in no event
exceed, the maximum amount of interest which could lawfully be charged or
collected under applicable law (including, to the extent applicable, the
provisions of Section 5197 of the Revised Statutes of the United States of
America, as amended, 12 U.S.C. Section 85, as amended), so that the maximum of
all amounts constituting interest under applicable law, howsoever computed,
shall never exceed such lawful maximum, and any term of this Agreement, the
Note, or any other document referred to herein or therein which could be
construed as providing for interest in excess of such lawful maximum shall be
and hereby is made expressly subject to and modified by the provisions of this
paragraph.
(S)4.5. Additional Costs, Etc. If any present or future applicable law, which
---------- ----- ---
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to the Bank by
any central bank or other fiscal, monetary or other authority (whether or not
having the force of law), shall:
(a) subject the Bank to any tax, levy, impost, duty, charge, fee, deduction
or withholding of any nature with respect to this Agreement, the other Loan
Documents, the Total Commitment, the Loans (other than taxes based upon or
measured by the income or profits of the Bank), or
(b) materially change the basis of taxation (except for changes in taxes on
income or profits) of payments to the Bank of the principal or of the interest
on any Loans or any other amounts payable to the Bank under this Agreement or
the other Loan Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar requirements
(whether or not having the force of law) against assets held by, or deposits in
or for the account of, or loans by, or commitments of, an office of the Bank, or
(d) impose on the Bank any other conditions or requirements with respect to
this Agreement, the other Loan Documents, the Loans, the Total Commitment, or
any class of loans or commitments of which any of the Loans or the Total
Commitment forms a part,
and the result of any of the foregoing is
(i) to increase the cost to the Bank of making, funding, issuing,
renewing, extending or maintaining the Loans, or the Total Commitment;
56
<PAGE>
(ii) to reduce the amount of principal, interest or other amount
payable to the Bank hereunder on account of the Total Commitment, or
the Loans;
(iii) to require the Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment
or foregone interest or other sum is calculated by reference to the
gross amount of any sum receivable or deemed received by the Bank from
the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by the Bank at
any time and from time to time and as often as the occasion therefor may arise,
pay to the Bank such additional amounts as will be sufficient to compensate the
Bank for such additional cost, reduction, payment or foregone interest or other
sum (after the Bank shall have allocated the same fairly and equitably among all
customers of any class generally affected thereby).
(S)4.6. Capital Adequacy. If any present or future applicable law, governmental
------- --------
rule, regulation, policy, guideline or directive (whether or not having the
force of law) or the interpretation thereof by a court or governmental authority
with appropriate jurisdiction affects the amount of capital required or expected
to be maintained by the Bank or any corporation controlling the Bank and the
Bank determines that the amount of capital required to be maintained by it is
increased by or based upon the Bank's commitment to make, or maintenance of,
Loans hereunder, then the Bank may notify the Borrower of such fact. To the
extent that the costs of such increased capital requirements are not reflected
in the Base Rate, the Borrower and the Bank shall thereafter attempt to
negotiate in good faith, within thirty (30) days of the day on which the
Borrower receives such notice, an adjustment payable hereunder that will
adequately compensate the Bank in light of these circumstances. If the Borrower
and the Bank are unable to agree to such adjustment within thirty (30) days of
the date on which the Borrower receives such notice, then commencing on the date
of such notice (but not earlier than the effective date of any such increased
capital requirement), the fees payable hereunder shall increase by an amount
that will, in the Bank's reasonable determination, provide adequate compensation
to the Bank, such amount to be considered prima facie correct and binding,
absent manifest error. The Bank shall allocate such cost increases among its
customers in good faith and on an equitable basis.
(S)4.7. Eurodollar Indemnity. The Borrower agrees to indemnify the Bank and to
---------- ---------
hold it harmless from and against any loss, cost or expenses (including loss of
anticipated profits) that the Bank may sustain or incur as a consequence of
default by the Borrower in making a borrowing or conversion after the Borrower
has given (or is deemed to have given) notice pursuant to (S)2.5 or (S)2.6, the
making of any payment of a Eurodollar Loan or the making of any conversion of
any such Eurodollar Loan to a Base Rate Loan on a day that is not the last day
of the applicable Interest Period with respect thereto, including interest or
fees payable by any bank to lenders of funds obtained by it in order to maintain
any such Loans.
(S)4.8. Illegality; Inability to Determine Eurodollar Rate. Notwithstanding any
---------- --------- -- --------- ---------- ----
other provision of this Agreement, if (a) the introduction of, any change in, or
any change in the interpretation of, any law or regulation applicable to the
Bank shall make it unlawful, or any central bank or other governmental authority
having jurisdiction thereof shall assert that it is unlawful, for the Bank to
perform its obligations in respect of any Eurodollar Loans, or
57
<PAGE>
(b) if the Bank shall reasonably determine with respect to Eurodollar Loans that
(i) by reason of circumstances affecting any Eurodollar interbank market,
adequate and reasonable methods do not exist for ascertaining the Eurodollar
Rate which would otherwise be applicable during any Interest Period, or (ii)
deposits of Dollars in the relevant amount for the relevant Interest Period are
not available to the Bank in any Eurodollar interbank market, or (iii) the
Eurodollar Rate does not or will not accurately reflect the cost to the Bank of
obtaining or maintaining the applicable Eurodollar Loans during any Interest
Period, then the Bank shall promptly give telephonic, telex or cable notice of
such determination to the Borrower (which notice shall be conclusive and binding
upon the Borrower). Upon such notification by the Bank, the obligation of the
Bank to make Eurodollar Loans shall be suspended until the Bank determines that
such circumstances no longer exist, and the outstanding Eurodollar Loans shall
continue to bear interest at the applicable rate based on the Eurodollar Rate
until the end of the applicable Interest Period, and thereafter shall be deemed
converted to Base Rate Loans.
(S)5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
--------------- --- ----------
the Bank that on and as of the date of this Agreement:
(S)5.1. Corporate Authority.
--------- ---------
(a) Incorporation; Good Standing. Each of the Borrower and its
------------- ---- --------
Subsidiaries (i) is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of
incorporation, (ii) has all requisite corporate power to own its
property and conduct its business as now conducted and as presently
contemplated, and (iii) is in good standing as a foreign corporation
and is duly authorized to do business in each jurisdiction in which its
property or business as presently conducted or contemplated makes such
qualification necessary except where a failure to be so qualified would
not have a material adverse effect on the business, assets or financial
condition of the Borrower or such Subsidiary.
(b) Authorization. The execution, delivery and performance of the
-------------
Loan Documents and the transactions contemplated hereby and thereby (i)
are within the corporate authority of the Borrower, (ii) have been duly
authorized by all necessary corporate proceedings, (iii) do not
conflict with or result in any material breach or contravention of any
provision of law, statute, rule or regulation to which the Borrower is
subject or any judgment, order, writ, injunction, license or permit
applicable to the Borrower so as to materially adversely affect the
assets, business or any activity of the Borrower, and (iv) do not
conflict with any provision of the corporate charter or bylaws of the
Borrower or any agreement or other instrument binding upon the
Borrower.
(c) Enforceability. The execution, delivery and performance of
--------------
the Loan Documents will result in valid and legally binding obligations
of the Borrower, enforceable in accordance with the respective terms
and provisions hereof and thereof, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and
58
<PAGE>
except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of the
court before which any proceeding therefor may be brought.
(S)5.2. Governmental Approvals. The execution, delivery and performance by the
------------ ---------
Borrower of the Loan Documents and the transactions contemplated hereby and
thereby do not require any approval or consent of, or filing with, any
governmental agency or authority other than those already obtained.
(S)5.3. Title to Properties; Leases. The Borrower and its Subsidiaries own all
----- -- ---------- ------
of their respective assets reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries as at the Interim Balance Sheet Date 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 mortgages,
capitalized leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except those permitted by (S)7.2 hereof.
(S)5.4. Financial Statements; Solvency.
--------- ---------- --------
(a) There has been furnished to the Bank a consolidated balance sheet
of the Borrower and its Subsidiaries dated the Balance Sheet Date, and a
consolidated statement of operations for the fiscal year then ended, certified
by the Borrower's independent certified public accountants. There has also been
furnished to the Bank a consolidated unaudited balance sheet of the Borrower and
its Subsidiaries dated the Interim Balance Sheet Date. Such balance sheets and
statements of operations have been prepared in accordance with GAAP and fairly
present the financial condition of the Borrower and its Subsidiaries as at the
close of business on the date thereof and the results of operations for the
period then ended. There are no contingent liabilities of the Borrower or any of
its Subsidiaries as of such dates involving material amounts, known to the
officers of the Borrower not disclosed in said financial statements and the
related notes thereto. Since the Interim Balance Sheet Date, the Borrower and
its Subsidiaries have not incurred any liabilities other than in the ordinary
course of business or as permitted by (S)7.1 hereof.
(b) The Borrower and its Subsidiaries (both before and after giving
effect to the transactions contemplated by this Agreement) are solvent, have
assets having a fair value in excess of the amount required to pay their
probable liabilities on their existing debts as they become absolute and
matured, and have, and will have, access to adequate capital for the conduct of
their business and the ability to pay their debts from time to time incurred in
connection therewith as such debts mature.
59
<PAGE>
(S)5.5. No Material Changes, Etc. Since the Interim Balance Sheet Date, there
-- -------- ------- ---
have occurred no material adverse changes in the financial condition or business
of the Borrower and its Subsidiaries as shown on or reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries as at the
Balance Sheet Date, or the consolidated statement of operations for the fiscal
year then ended, other than changes in the ordinary course of business which
have not had any material adverse effect either individually or in the aggregate
on the business or financial condition of the Borrower or its Subsidiaries.
Since the Balance Sheet Date, there has not been any Distribution by the
Borrower except as permitted by (S)7.6 hereof.
(S)5.6. Franchises, Patents, Copyrights, Etc. Each of the Borrower and its
---------- ------- ---------- ---
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, 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.
(S)5.7. Litigation. Except as set forth on Schedule 5.7, there are no actions,
---------- -------- ---
suits, proceedings or investigations of any kind pending or threatened against
the Borrower or any of its Subsidiaries before any court, tribunal or
administrative agency or board which, if adversely determined, might, either in
any case or in the aggregate, materially adversely affect the properties,
assets, financial condition or business of the Borrower and its Subsidiaries,
considered as a whole, or materially impair the right of the Borrower and its
Subsidiaries, considered as a whole, to carry on business substantially as now
conducted, or result in any substantial liability not adequately covered by
insurance, or for which adequate reserves are not maintained on the consolidated
balance sheets of the Borrower and its Subsidiaries, or which question the
validity of any of the Loan Documents, or any action taken or to be taken
pursuant hereto or thereto.
(S)5.8. No Materially Adverse Contracts, Etc. Except as set forth in Schedule
-- ---------- ------- --------- --- --------
5.8, neither the Borrower nor any of its Subsidiaries is subject to any charter,
- ---
corporate or other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Borrower's officers has or is expected
in the future to have a materially adverse effect on the business, assets or
financial condition of the Borrower and its Subsidiaries as a whole. Neither the
Borrower nor any of its Subsidiaries is a party to any contract or agreement
which in the judgment of the Borrower's officers has or is expected to have any
materially adverse effect on the business of the Borrower and its Subsidiaries
as a whole, except as otherwise reflected in adequate reserves.
(S)5.9. Compliance With Other Instruments, Laws, Etc. Neither the Borrower nor
---------- ---- ----- ----------- ---- ---
any of its Subsidiaries are violating any provision of their charter documents
or bylaws or any agreement or instrument by which any of them may be subject or
by which any of them or any of their properties may be bound or any decree,
order, judgment, or any statute, license, rule or regulation, in a manner which
could result in the imposition of substantial penalties or materially and
adversely affect the financial condition, properties or business of the Borrower
or any of its Subsidiaries.
(S)5.10. Tax Status. The Borrower and its Subsidiaries have made or filed all
--- ------
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which any of them are subject (unless and only
to the extent that the Borrower or such Subsidiary has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes); and have paid all taxes and other governmental assessments
60
<PAGE>
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith;
and have set aside on their 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.
(S)5.11. No Event of Default. No Default or Event of Default has occurred and is
-- ----- -- -------
continuing as of the date of this Agreement.
(S)5.12. Holding Company and Investment Company Acts. Neither the Borrower nor
------- ------- --- ---------- ------- ----
any of its Subsidiaries is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor are any of them a
"registered investment company", or an "affiliated company" or a "principal
underwriter" of a "registered investment company", as such terms are defined in
the Investment Company Act of 1940, as amended.
(S)5.13. Absence of Financing Statements, Etc. Except as contemplated by (S)7.2
------- -- --------- ---------- ---
of this Agreement, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, which purports to cover,
affect or give notice of any present or possible future lien on, or security
interest in, any assets or property of the Borrower or any of its Subsidiaries
or rights thereunder which constitute Collateral.
(S)5.14. Certain Transactions. Except as set forth in Schedule 5.14, none of the
------- ------------ -------- ----
officers, directors, or employees of the Borrower or its Subsidiaries is
presently a party to any transaction with the Borrower or any Subsidiary (other
than for services as employees, officers and directors or for services or
transactions described in the Borrower's proxy or other statements and reports
required by law and issued by the Borrower prior to the Closing Date),
including, without limitation, 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.
(S)5.15. Employee Benefit Plans.
-------- ------- -----
(a) In General. Each Employee Benefit Plan has been maintained
-- -------
and operated in compliance in all material respects with the provisions
of ERISA and, to the extent applicable, the Code, including but not
limited to the provisions thereunder respecting prohibited
transactions.
(b) Terminability of Welfare Plans. Under each Employee Benefit
------------- -- ------- -----
Plan which is an employee welfare benefit plan within the meaning of
(S)3(1) or (S)3(2)(B) of ERISA, no benefits are due unless the event
giving rise to the benefit entitlement occurs prior to plan termination
(except as required by Title I, part 6 of ERISA.) The Borrower or any
of its Subsidiaries or any ERISA Affiliate, as appropriate, may
61
<PAGE>
terminate each such Plan at any time (or at any time subsequent to the
expiration of any applicable bargaining agreement) in the discretion of
the Borrower or any of its Subsidiaries or any ERISA Affiliate without
liability to any Person.
(c) Guaranteed Pension Plans. Neither the Borrower nor any of
---------- ------- -----
its Subsidiaries is a sponsor of, or contributor to, a Guaranteed
Pension Plan.
(d) Multiemployer Plans. Neither the Borrower nor any of its
------------- -----
Subsidiaries nor any ERISA Affiliate has incurred any material
liability (including secondary liability) to any Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer
Plan under (S)4201 of ERISA or as a result of a sale of assets
described in (S)4204 of ERISA. Neither the Borrower nor any of its
Subsidiaries nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization or is insolvent under and
within the meaning of (S)4241 or (S)4245 of ERISA or that any
Multiemployer Plan intends to terminate or has been terminated under
(S)4041A of ERISA.
(S)5.16. Use of Proceeds. The proceeds of the Loans and Credit Instruments shall
--- -- --------
be used for working capital, general corporate purposes, and acquisitions to be
closed on or after the date of this Agreement with the prior consent of the Bank
and related transaction expenses. No proceeds of the Loans or Credit Instruments
shall be used in any way that will violate Regulations G, T, U or X of the Board
of Governors of the Federal Reserve System.
(S)5.17. Environmental Compliance. The Borrower has taken all necessary steps to
------------- ----------
investigate the past and present condition and usage of its and its
Subsidiaries' properties and the operations conducted thereon and, based upon
such diligent investigation, has determined that, except as set forth in
Schedule 5.17 or in Borrower's proxy or other statements and reports required by
- -------- ----
law and issued by the Borrower prior to the Closing Date:
(a) Neither the Borrower, its Subsidiaries nor any operator of their
properties is in violation, or alleged violation, of any judgment, decree,
order, law, license, rule or regulation pertaining to environmental matters,
including without limitation, those arising under Environmental Laws, which
violation would have a material adverse effect on the environment or the
business, assets or financial condition of the Borrower and its Subsidiaries on
a consolidated basis.
(b) Neither the Borrower nor any of its Subsidiaries has received
notice from any third party including, without limitation: any federal, state or
local governmental authority, (i) that any one of them has been identified by
the United States Environmental Protection Agency ("EPA") as a potentially
responsible party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste,
as defined by 42 U.S.C. (S) 6903(5), any hazardous substances as defined by 42
U.S.C. (S) 9601(14), any pollutant or contaminant as defined by 42 U.S.C. (S)
9601(33) and any toxic substance, oil or hazardous materials or other chemicals
or substances regulated by any Environmental Laws ("Hazardous Substances") which
any one of them has generated, transported or disposed of has been found at any
site at which a federal, state or local agency
62
<PAGE>
or other third party has conducted or has ordered that the Borrower or any of
its Subsidiaries conduct a remedial investigation, removal or other response
action pursuant to any Environmental Law; or (iii) that it is or shall be a
named party to any claim, action, cause of action, complaint, legal or
administrative proceeding arising out of any third party's incurrence of costs,
expenses, losses or damages of any kind whatsoever in connection with the
release of Hazardous Substances.
(c) (i) No portion of the Borrower's or any of its Subsidiaries' Real
Properties has been used for the handling, processing, storage or disposal of
Hazardous Substances except in accordance with applicable Environmental Laws;
and no underground tank or other underground storage receptacle for Hazardous
Substances is located on such Real Property; (ii) in the course of any
activities conducted by the Borrower, its Subsidiaries or operators of their
Real Property, no Hazardous Substances have been generated or are being used on
such Real Properties except in accordance with applicable Environmental Laws;
(iii) there have been no unpermitted Releases (i.e. any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, disposing or dumping) or threatened Releases of Hazardous
Substances on, upon, into or from the properties of the Borrower or any of its
Subsidiaries, which releases would have a material adverse effect on the value
of such Real Properties or adjacent properties or the environment; (iv) to the
best of the Borrower's knowledge, there have been no Releases on, upon, from or
into any real property in the vicinity of the Real Properties of the Borrower or
any of its Subsidiaries which, through soil or groundwater contamination, may
have come to be located on, and which would have a material adverse effect on
the value of, any Real Properties of the Borrower or any of its Subsidiaries;
and (v) in addition, any Hazardous Substances that have been generated on the
Real Properties of the Borrower or its Subsidiaries have been transported
offsite only by carriers having an identification number issued by the EPA,
treated or disposed of only by treatment or disposal facilities maintaining
valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the Borrower's
knowledge, operating in compliance with such permits and applicable
Environmental Laws.
(d) None of the Real Properties of the Borrower or any of its
Subsidiaries are or shall be subject to any applicable environmental clean up
responsibility law or environmental restrictive transfer law or regulation by
virtue of the transactions set forth herein and contemplated hereby.
(e) The Borrower further represents that it has provided or made
available to the Bank true and complete copies of all material, documents,
reports, site assessments, data, communications and other materials relating to
the EPA Consent Order in its possession or to which it has access which contain
information with respect to potential environmental liabilities of the Borrower
or its Subsidiaries related to compliance with Environmental Laws.
(S)5.18. Perfection of Security Interests. The Collateral and the Bank's rights
---------- -- -------- ---------
with respect to the Collateral are not subject to any setoff, claims,
withholdings or other defenses, except
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for Permitted Liens. The Borrower is the owner of the Collateral free from any
lien, security interest, encumbrance and any other claim or demand, except for
Permitted Liens.
(S)5.19. True Copies of Charter and Other Documents. The Borrower has furnished
---- ------ -- ------- --- ----- ---------
the Bank copies, in each case true and complete as of the Closing Date, of (a)
all charter and other incorporation documents (together with any amendments
thereto) and (b) by-laws (together with any amendments thereto).
(S)5.20. Disclosure. No representation or warranty made by the Borrower in this
----------
Agreement or in any agreement, instrument, document, certificate, statement or
letter furnished to the Bank by or on behalf of or at the request of the
Borrower in connection with any of the transactions contemplated by the Loan
Documents contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading in light of the circumstances in which they are made.
(S)5.21. Year 2000 Problem. The Borrower has (i) reviewed the areas within its
---- ---- -------
business and operations which could be adversely affected by failure to become
"Year 2000 Compliant" (i.e., that computer applications, imbedded microchips and
other systems used by the Borrower or any of its material vendors, will be able
properly to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii) developed a
detailed plan and timetable to become Year 2000 Compliant in a timely manner,
and (iii) committed adequate resources to support the Year 2000 plan of the
Borrower. Based upon such review, the Borrower reasonably believes that the
Borrower will become "Year 2000 Compliant" in a timely manner except to the
extent that failure to do so will not have any materially adverse effect on the
business or financial condition of the Borrower.
(S)6. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees
----------- --------- -- --- --------
that, so long as any part of the Total Commitment is outstanding or the Bank has
any obligation to make Loans or extend financial accommodations hereunder or
under the Loan Documents:
(S)6.1. Punctual Payment. The Borrower will duly and punctually pay or cause to
-------- -------
be paid the principal and interest on the Loans, and all fees and other amounts
provided for in this Agreement and the other Loan Documents, all in accordance
with the terms of this Agreement and such other Loan Documents.
(S)6.2. Maintenance of Office. The Borrower will maintain its chief executive
----------- -- ------
offices at 740 Belleville Avenue, New Bedford, Massachusetts 02745 or at such
other place in the United States of America as the Borrower shall designate upon
30 days prior written notice to the Bank.
(S)6.3. Records and Accounts. The Borrower will keep, and will cause each of its
------- --- --------
Subsidiaries to keep, true and accurate records and books of account in which
full, true and correct entries will be made in accordance with GAAP and with the
requirements of all regulatory authorities and maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Subsidiaries, all other contingencies, and all other proper reserves.
(S)6.4. Financial Statements, Certificates and Information. The Borrower will
--------- ---------- ------------ --- -----------
deliver to the Bank:
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(a) as soon as practicable, but, in any event not later than 90
days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries as at
the end of such year, statements of cash flows, and the related
consolidated statement of operations, each setting forth in comparative
form the amounts for the previous fiscal year, all such consolidated
statements to be in reasonable detail, prepared in accordance with
GAAP, and certified without qualification by Price Waterhouse Coopers
or by other independent certified public accountants satisfactory to
the Bank (the "Accountants"), together with a written statement from
the Accountants to the effect that they have read a copy of this
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 the 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 the
Accountants shall not be liable to the Bank for failure to obtain
knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later than 30
days after the end of each month, copies of the unaudited consolidated
and consolidating balance sheet and statement of operations of the
Borrower and its Subsidiaries as at the end of such month, subject to
year end audit adjustments, and consolidated statement of cash flows,
all in reasonable detail and prepared in accordance with GAAP, and
including in comparative form the amounts for the fiscal year to date
and for the corresponding month of the previous year, together with a
certification by the principal financial or accounting officer of the
Borrower ("CFO") that such financial statements have been prepared in
accordance with GAAP and fairly present the financial condition of the
Borrower and its Subsidiaries as at the close of business on the date
thereof and the results of operations for the period then ended,
subject to normal year-end audit adjustments;
(c) as soon as practicable, but in any event not later than 45
days after the end of each quarter of the Borrower's fiscal year, and
simultaneously with the delivery of the financial statement referred to
in (b) above respecting the last month of each such quarter, a
statement certified by the CFO of the Borrower that the Borrower is in
compliance with the covenants contained in (S)(S)6, 7 and 8 hereof as
of the end of the quarter and setting forth in reasonable detail
computations evidencing such compliance, provided that, if the Borrower
--------
shall at the time of issuance of such certificate or at any other time
obtain knowledge of any Default or Event of Default, the Borrower shall
include in such certificate or otherwise deliver forthwith to the Bank
a certificate specifying the nature and period of existence thereof and
what action the Borrower proposes to take with respect thereto;
(d) simultaneously with the delivery of the financial statements
referred to in (a) and (c) above, a certification by the Borrower's CFO
that no Default or Event of Default has occurred or is continuing;
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(e) not later than the fifteenth (15th) day of each month, (i) a
certificate in the form of Exhibit C hereto (the "Borrowing Base
------- -
Report"), setting forth the Borrowing Base as at the end of such month
with supporting schedules, (ii) an accounts receivable aging and (iii)
inventory designation reports, all certified by the CFO;
(f) promptly with the filing or mailing thereof, copies of all
material of a financial nature filed with the Securities and Exchange
Commission or sent to the stockholders of the Borrower; and
(g) from time to time such other financial data and information
(including pro forma financial projections) as the Bank may reasonably
request.
The Borrower hereby authorizes the Bank to disclose any information obtained
pursuant to this Agreement to all appropriate governmental regulatory
authorities where required by law; provided, however, that the Bank shall, to
-------- -------
the extent allowable under law, notify the Borrower at the time any such
disclosure is made; and provided, further, this authorization shall not be
-------- -------
deemed to be a waiver of any rights to object to the disclosure by the Bank of
any such information which the Borrower has or may have under the federal Right
to Financial Privacy Act of 1978, as in effect from time to time.
(S)6.5. Corporate Existence and Conduct of Business. The Borrower will do or
--------- --------- --- ------- -- --------
cause to be done all things necessary to preserve and keep in full force and
effect its and its Subsidiaries' corporate existence, corporate rights and
franchises; effect and maintain their foreign qualifications, licensing,
domestication or authorization except as terminated by their Boards of Directors
in the exercise of their reasonable judgment; use its best efforts to comply
with all Applicable Laws; and shall not become obligated under any contract or
binding arrangement which, at the time it was entered into would materially
adversely impair the financial condition of the Borrower and its Subsidiaries,
on a consolidated basis. The Borrower will, and will cause each of its
Subsidiaries to, continue to engage primarily in the businesses now conducted by
them and in related businesses.
(S)6.6. Maintenance of Properties. The Borrower will cause all of its properties
----------- -- ----------
and those of its Subsidiaries used or useful in the conduct of its business or
the business of its Subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
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; provided, however, that nothing in this
-------- -------
section shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties or those of its Subsidiaries if such
discontinuance is, in the judgment of the Borrower, desirable in the conduct of
its or their business and which do not in the aggregate materially adversely
affect the business of the Borrower and its Subsidiaries on a consolidated
basis.
(S)6.7. Insurance. The Borrower will maintain, and cause its Subsidiaries to
---------
maintain, with financially sound and reputable insurance companies, funds or
underwriters satisfactory to
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the Bank insurance of the kinds, covering the risks and in the relative
proportionate amounts usually carried by reasonable and prudent companies
conducting businesses similar to that of the Borrower (but in no event shall the
amount of the Borrower's insurance be less than the Total Commitment),
including, to the extent it is commercially available to the Borrower at a
reasonable cost, environmental impairment insurance. The Bank shall be named as
loss payee on all the Borrower's insurance policies as its interest may appear
with respect to claims for $25,000 or more.
(S)6.8. Taxes. The Borrower will and will cause each of its Subsidiaries to duly
-----
pay and discharge, or cause to be paid and discharged, before the same shall
become overdue, all taxes, assessments and other governmental charges (other
than taxes, assessments and other governmental charges imposed by foreign
jurisdictions which in the aggregate are not material to the business or assets
of the Borrower on an individual basis or of the Borrower and its Subsidiaries
on a consolidated basis) imposed upon it and its Real Properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies, which if unpaid might by
law become a lien or charge upon any of its property; provided, however, that
-------- -------
any such tax, assessment, charge, levy or claim need not be paid if the validity
or amount thereof shall currently be contested in good faith by appropriate
proceedings and if the Borrower or such Subsidiary shall have set aside on its
books adequate reserves with respect thereto; and provided, further, that the
-------- -------
Borrower and such Subsidiary will pay all such taxes, assessments, charges,
levies or claims forthwith upon the commencement of proceedings to foreclose any
lien which may have attached as security therefor.
(S)6.9. Inspection of Properties, Books, and Contracts.
---------- -- ---------- ----- --- ---------
(a) The Borrower shall permit the Bank or any of its designated
representatives, to visit and inspect any of the properties of the Borrower or
any of its Subsidiaries, to examine the books of account of the Borrower and its
Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries with,
and to be advised as to the same by, their officers, all at such reasonable
times and intervals as the Bank may reasonably request. For each day that the
Bank or its designated representative is conducting such inspection, the
Borrower shall pay an auditing charge of $650 per day plus expenses.
(b) In connection with any inspection conducted pursuant to (S)6.9(a)
hereof, the Bank shall have the right to contact any of the Borrower's account
debtors directly to verify the information in such books and records.
(S)6.10. Compliance with Laws, Contracts, Licenses and Permits. The Borrower
---------- ---- ---- --------- -------- --- -------
will and will cause each of its Subsidiaries to comply with (i) the provisions
of its charter documents and by-laws and all agreements and instruments by which
it or any of its properties may be bound; and (ii) all applicable laws and
regulations (including Environmental Laws), decrees, orders and judgments
("Applicable Laws") except where noncompliance with such agreements, instruments
or Applicable Laws would not have a material adverse effect in the aggregate on
the financial condition, properties or business of the Borrower or any
Subsidiary. If at any time while the Note or any Loan is outstanding or the Bank
has any
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<PAGE>
obligation to make Loans hereunder, any authorization, consent, approval, permit
or license from any officer, agency or instrumentality of any government shall
become necessary or required in order that the Borrower may fulfill any of its
obligations hereunder, the Borrower will immediately take or cause to be taken
all reasonable steps within the power of the Borrower to obtain such
authorization, consent, approval, permit or license and furnish the Bank with
evidence thereof.
(S)6.11. 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 the Bank's satisfaction the transactions contemplated by
this Agreement.
(S)6.12. Notice of Potential Claims or Litigation. The Borrower shall deliver to
------ -- --------- ------ -- ----------
the Bank, within 30 days of the Borrower's receipt of notice thereof, written
notice of any pending action, claim, complaint, or any other notice of dispute
or potential litigation (including without limitation any alleged violation of
any Environmental Law), wherein the potential liability is unspecified or in
excess of $500,000, together with a copy of each such notice received by the
Borrower or its Subsidiaries.
(S)6.13. Deposit Accounts. Other than its principal demand deposit account and
------- --------
lockbox account maintained at the Bank's head office (the "Depository
Accounts"), the Borrower maintains the deposit accounts listed on Schedule 6.13
hereto and no other deposit accounts. The aggregate amount of collected funds
held in each such deposit account at the close of any Business Day shall not
exceed the amount specified for such account on Schedule 6.13; any amounts in
excess of the amounts specified in Schedule 6.13 shall be immediately
transferred to the Depository Accounts.
(S)6.14. Environmental Indemnification. The Borrower covenants and agrees that
------------- ---------------
it will indemnify and hold the Bank harmless from and against any and all
claims, expense, damage, loss or liability incurred by the Bank (including all
costs of legal representation incurred by the Bank) relating to (a) any Release
or threatened Release of Hazardous Substances on the Real Property; (b) any
violation of any Environmental Laws with respect to conditions at the Real
Property or the operations conducted thereon; or (c) the investigation or
remediation of offsite locations at which the Borrower or its Subsidiaries, or
their predecessors, are alleged to have directly or indirectly Disposed of
Hazardous Substances. It is expressly acknowledged by the Borrower that this
covenant of indemnification shall survive any foreclosure or any modification,
release or discharge of any or all of the Loan Documents or the payment of the
Loans and the Note and shall inure to the benefit of the Bank, its successors
and assigns.
(S)6.15. Notice of Certain Events Concerning Insurance and Environmental Claims.
------ -- ------- ------ ---------- --------- --- --------------------
(a) The Borrower will provide the Bank with written notice as to
any cancellation or material change in any insurance of the Borrower or
its Subsidiaries within ten (10) Business Days after the Borrower's or
such Subsidiary's receipt of any notice (whether formal or informal) of
such cancellation or change by any of its insurers.
(b) The Borrower will promptly notify the Bank in writing of any
of the following events:
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<PAGE>
(i) upon the Borrower's or any Subsidiary's
obtaining knowledge of any violation of any Environmental Law
regarding the Real Properties or the Borrower's or any
Subsidiary's operations which violation could have a material
adverse effect on the Borrower's and its Subsidiaries'
consolidated operations;
(ii) upon the Borrower's or any Subsidiary's
obtaining knowledge of any potential or known Release, or
threat of Release, of any Hazardous Substance at, from, or
into the Real Properties which it reports in writing or which
it is required to report in writing to any governmental
authority or which could materially affect the consolidated
financial condition of the Borrower and its Subsidiaries;
(iii) upon the Borrower's or any Subsidiary's receipt
of any notice of violation of any Environmental Laws or of any
Release or threatened Release of Hazardous Substances,
including a notice or claim of liability or potential
responsibility from any third party (including without
limitation any federal, state or local governmental officials)
representing a potential liability in excess of $500,000; or
(iv) any setoff, claims (including, with respect to
the Real Properties, environmental claims), withholdings or
other defenses to which any of the Collateral, or the Bank's
rights with respect to the Collateral, are subject.
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<PAGE>
(S)6.16. Response Actions. The Borrower covenants and agrees that if any Release
-------- -------
or Disposal of Hazardous Substances shall occur or shall have occurred on the
Real Property, the Borrower will undertake the appropriate containment and
removal of such Hazardous Substances and remediation of the Real Property as
necessary to comply with all Environmental Laws.
(S)6.17. Notice of Default. The Borrower will promptly notify the Bank in
------ -- -------
writing of the occurrence of any Default or Event of Default. If any Person
shall give any notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under this Agreement or any
other note, evidence of indebtedness, indenture or other obligation evidencing
indebtednesses in excess of $250,000 as to which the Borrower or any Subsidiary
is a party or obligor, whether as principal or surety, the Borrower shall
forthwith give written notice thereof to the Bank, describing the notice of
action and the nature of the claimed default.
(S)7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower agrees that,
------- -------- --------- -- ------------
so long as the Note is outstanding or the Bank has any obligation to make Loans
hereunder:
(S)7.1. Restrictions on Indebtedness. The Borrower will not, and will not
------------ -- ------------
permit any Subsidiary to, create, incur, assume, guarantee or be or remain
liable, contingently or otherwise, with respect to any Indebtedness other than:
(a) Indebtedness to the Bank arising under this Agreement or the
other Loan Documents;
(b) Indebtedness of any Subsidiary of the Borrower to the
Borrower in the form of intercompany loans or advances so long as such
indebtedness is reflected as such in the Borrower's and such
Subsidiary's books and records, provided that, at the time such loan or
advance is made, no Event of Default has occurred or would be created
by such loan or advance;
(c) Existing cash-secured letters of credit listed on Schedule
--------
7.1(c) on the terms and conditions in effect as of the date hereof;
------
(d) The industrial revenue bond in the original amount of
$4,050,000 in effect as of the date hereof (the "IRB"), or any
replacement industrial revenue bond satisfactory to the Bank;
(e) Indebtedness to CIT pursuant to the CIT Loan Agreement on the
terms and conditions in effect as of the date hereof;
(f) Additional existing Indebtedness as listed on Schedule
--------
7.1(f), in the amounts and on the terms and conditions in effect as of
------
the date hereof;
(g) Current liabilities of the Borrower and its Subsidiaries
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
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<PAGE>
extended and in fact extended in connection with normal purchases of
goods and services;
(h) Indebtedness in respect of taxes, assessments, governmental
charges or levies 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
(i) Indebtedness under the terms and conditions of the EPA
Consent Order, provided that such Indebtedness does not exceed the
--------
amounts disclosed in Schedule 5.17;
-------- ----
(j) [intentionally deleted];
(k) Indebtedness in respect of judgments or awards which 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 or its Subsidiaries shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of which
a stay of execution shall have issued pending such appeal or review and
in respect of which the Borrower or its Subsidiaries have maintained
reserves in an amount satisfactory to the Bank;
(l) Incurrence by the Borrower or its Subsidiaries of guaranty,
suretyship or indemnification obligations in connection with the
Borrower's or any of its Subsidiaries' performance of services for its
respective customers in the ordinary course of its business;
(m) Purchase money Indebtedness secured by Liens permitted
by (S)7.2(j);
(n) Office equipment and office leases not considered capital
leases and entered into in the ordinary course of business, and
guaranties of such leases entered into in the ordinary course of
business by any Subsidiary of the Parent; and
(o) Indebtedness of any Subsidiary of the Borrower to another
lender for working capital or corporate purposes, provided that such
Indebtedness is not guaranteed by the Borrower and that there is no
recourse to the Borrower whatsoever respecting such Indebtedness.
(S)7.2. Restrictions on Liens. The Borrower will not, nor will the Borrower
------------ -- -----
permit any Subsidiary to, 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 which constitute Collateral whether now owned or hereafter acquired,
or upon the income or profits therefrom; or transfer any of such property or
assets 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
71
<PAGE>
of its general creditors; or acquire, or agree or have an option to acquire, any
such property or assets upon conditional sale or other title retention or
purchase money security agreement, device or arrangement; or suffer to exist for
a period of more than 30 days after the same shall have been incurred any
Indebtedness or claim or demand against it which if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors; or sell, assign, pledge or otherwise transfer any
accounts, contract rights, general intangibles or chattel paper, with or without
recourse, except the following (the "Permitted Liens"):
(a) Liens granted to the Bank under the Security Agreement;
(b) Liens to secure taxes, assessments and other government
charges or claims for labor, material or supplies in respect of
obligations not overdue;
(c) 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;
(d) Liens in respect of judgments or awards, the Indebtedness
with respect to which is permitted by (S)7.1(k); and
(e) 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.
(S)7.3. Restrictions on Investments. Neither the Borrower nor its Subsidiaries
------------ -- -----------
will make or permit to exist or to remain outstanding any Investment except as
permitted in writing by the Bank and except the following:
(a) Marketable direct or guaranteed obligations of the United
States of America which mature within one year from the date of
purchase;
(b) Certificates of deposit, time deposits or repurchase
agreements which are fully insured or are issued by commercial banks
organized under the laws of the United States of America or any state
thereof and having a combined capital, surplus, and undivided profits
of not less than $100,000,000;
(c) Commercial paper issued by a corporation organized and
existing under the laws of the United States of America or any state
thereof which at the time of purchase have been rated and the ratings
for which are not less than "P-1" if rated by Moody's Investors
Services, Inc., and not less than "A-1" if rated by Standard and
Poor's;
(d) Joint manufacturing ventures, provided, however, that cash
and/or assets having an aggregate market value of not more than
$1,000,000 may be invested therein;
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<PAGE>
(e) Investments with respect to Indebtedness permitted
by (S)7.1(b) so long as the obligor remains a Subsidiary of the
Borrower; and
(f) Investments in Subsidiaries, provided that no Event of
--------
Default has occurred or would be created by such Investment.
(S)7.4. Merger, Consolidations, Sales. Neither the Borrower nor any of its
------ -------------- -----
Subsidiaries shall be a party to any merger, consolidation or exchange of stock,
or purchase or otherwise acquire all or substantially all of the assets or stock
of any class of, or any partnership or joint venture interest in, any other
Person except a merger or consolidation where the Borrower is the surviving
corporation or an acquisition made by the Borrower with the Bank's prior written
consent (such consent not to be unreasonably withheld), or sell, transfer,
convey or lease any assets or group of assets (except for (i) sales of inventory
in the ordinary course or business, (ii) sales or dispositions of other assets
having an aggregate fair market value of less than $500,000 in any fiscal year)
or sell or assign, with or without recourse, any receivables.
(S)7.5. Sale and Leaseback. Neither the Borrower nor any of its Subsidiaries
---- --- ---------
will enter into any arrangement, directly or indirectly, whereby the Borrower or
any Subsidiary shall sell or transfer any Collateral owned by it in order then
or thereafter to lease such Collateral or lease other Collateral which the
Borrower or any Subsidiary intends to use for substantially the same purpose as
the Collateral being sold or transferred.
(S)7.6. Restricted Distributions and Redemptions. Neither the Borrower nor any
---------- ------------- --- -----------
of its Subsidiaries will declare or pay any Distributions (other than
Distributions payable solely in common stock and distributions made to the
Borrower by its Subsidiaries) without the prior written consent of the Bank,
which consent will not be unreasonably withheld. In addition, the Borrower and
its Subsidiaries shall not redeem, convert, retire or otherwise acquire shares
of any class of their capital stock. The Borrower shall not effect or permit any
change in or amendment to any document or instrument pertaining to the terms of
the Borrower's or any of its Subsidiaries' capital stock.
(S)7.7. Employee Benefit Plans. Neither the Borrower nor any Subsidiary of the
-------- ------- -----
Borrower nor any ERISA Affiliate will:
(a) engage in any "prohibited transaction" within the meaning
of (S)406 of ERISA or (S)4975 of the Code which could result in a
material liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in (S)302 of ERISA,
whether or not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could result in the imposition of a lien or encumbrance on the
assets of the Borrower or any of its Subsidiaries pursuant to (S)302(f)
or (S)4068 of ERISA; or
73
<PAGE>
(d) permit or take any action which would result in the aggregate
benefit liabilities (with the meaning of (S)4001 of ERISA) of all
Guaranteed Pension Plans exceeding the value of the aggregate assets of
such Plans, disregarding for this purpose the benefit liabilities and
assets of any such Plan with assets in excess of benefit liabilities.
The Borrower and its Subsidiaries will (i) promptly upon filing the
same with the Department of Labor or Internal Revenue Service, furnish to the
Bank a copy of the most recent actuarial statement required to be submitted
under (S)103(d) of ERISA and Annual Report, Form 5500, with all required
attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon
receipt or dispatch, furnish to the Bank any notice, report or demand sent or
received in respect of a Guaranteed Pension Plan under (S)(S)302, 4041, 4042,
4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan,
under (S)(S)4041A, 4202, 4219, or 4245 of ERISA.
(S)7.8. Minimum Excess Availability. The Borrower will not permit the amount of
------- ------ ------------
the Borrowing Base minus the Total Loan Outstandings to be less than $2,000,000
at any one time.
(S)8. FINANCIAL COVENANTS. The Borrower agrees that, so long as any Loan, the
--------- ---------
Note, or any Letter of Credit is outstanding or the Bank has any obligation to
make Loans hereunder:
(S)8.1. Debt to Worth Ratio. As of the end of any fiscal quarter commencing
---- -- ----- -----
with the fiscal quarter ending March 31, 1999, the ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth shall be 2.50:1 or less.
(S)8.2. Debt Service Coverage. As of the end of any fiscal quarter commencing
---- ------- --------
with the fiscal quarter ending March 31, 1999, the ratio of Adjusted
Consolidated Operating Cash Flow to Consolidated Financial Obligations for the
quarter just ended together with the immediately preceding three quarters shall
not be less than 1.25:1.
(S)8.3. Capital Expenditures. As at the end of the fiscal year ending December
------- ------------
31, 1999, the total amount of Capital Expenditures for such fiscal year shall
not exceed $11,000,000. The total amount of Capital Expenditures for each
subsequent fiscal year shall not exceed $7,000,000.
(S)9. CLOSING CONDITIONS. The obligations of the Bank to make the first Loan
------- ----------
hereunder and otherwise be bound by the terms of this Agreement shall be subject
to the satisfaction of each of the following conditions precedent:
(S)9.1. Representations and Warranties. The representations and warranties
--------------- --- ----------
contained in (S)5 hereof and otherwise made by the Borrower in writing in
connection with the transactions contemplated by this Agreement shall have been
correct as of the date on which made and shall also be correct at and as of the
date of the first Loan with the same effect as if made at and as of such time,
except to the extent that the facts upon which such representations and
warranties are based may in the ordinary course be changed by the transactions
permitted or contemplated hereby.
(S)9.2. Performance; No Default. The Borrower and its Subsidiaries shall have
----------- ----------
performed and complied with all terms and conditions herein required to be
performed or complied with by them prior to or at the time of the first Loan,
and at the time of the first Loan, as certified
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<PAGE>
by the CFO, there shall exist no Default or Event of Default or condition which
would, with either or both the giving of notice or the lapse of time, result in
a Default or Event of Default upon consummation of the first Loan.
(S)9.3. Corporate Action. All corporate action necessary for the valid
--------- ------
execution, delivery and performance by the Borrower of the Loan Documents shall
have been duly and effectively taken, and evidence thereof satisfactory to the
Bank shall have been provided to the Bank.
(S)9.4. Loan Documents, Etc. Each of the Loan Documents shall have been duly
---- ---------
and properly authorized, executed and delivered by the respective parties
thereto, shall be in full force and effect and shall be in form and substance
satisfactory to the Bank. The Bank shall have received a fully executed copy of
each such document.
(S)9.5. Certified Copies of Charter Documents. The Bank shall have received
--------- ------ -- ------- ---------
from the Borrower and each Subsidiary a copy, certified by a duly authorized
officer of such Person to be true and complete on the Closing Date, of each of
(a) its charter or other incorporation documents as in effect on such date of
certification, and (b) its by-laws as in effect on such date.
(S)9.6. Incumbency Certificate. The Bank shall have received an incumbency
---------- -----------
certificate, dated as of the Closing Date, signed by duly authorized officers
giving the name and bearing a specimen signature of each individual who shall be
authorized: (a) to sign the Loan Documents on behalf of the Borrower (b) to make
Loan Requests; and (c) to give notices and to take other action on the
Borrower's behalf under the Loan Documents.
(S)9.7. Validity of Liens. The Security Agreement shall be effective to create
-------- -- -----
in favor of the Bank a legal, valid and enforceable security interest in and
lien upon the Collateral, subject only to the Permitted Liens. All filings,
recordings, deliveries of instruments and other actions necessary or desirable
in the opinion of the Bank to protect and preserve such security interests shall
have been duly effected. The Bank shall have received evidence thereof in form
and substance satisfactory to the Bank.
(S)9.8. Perfection Certificates and UCC Search Results. The Bank shall have
---------- ------------ --- --- ------ -------
received a completed and fully executed Perfection Certificate and the results
of UCC searches with respect to the Collateral owned by the Borrower, indicating
no liens other than Permitted Liens and otherwise in form and substance
satisfactory to the Bank.
(S)9.9. Certificates of Insurance. The Bank shall have received (i) a
------------ -- ---------
certificate of insurance from an independent insurance broker dated as of the
Closing Date, or within 15 days prior thereto, identifying insurers, types of
insurance, insurance limits, and policy terms, and otherwise describing the
insurance obtained in accordance with the provisions of the Loan Documents and
showing that the Bank has been named loss payee thereof as its interest may
appear and (ii) copies of all policies evidencing such insurance (or
certificates therefor signed by the insurer or an agent authorized to bind the
insurer).
(S)9.10. Borrowing Base Report. The Bank shall have received from the Borrower
--------- ---- ------
the initial Borrowing Base Report dated as of the Closing Date.
(S)9.11. Accounts Receivable Aging Report. The Bank shall have received from the
-------- ---------- ----- ------
Borrower the most recent accounts receivable aging of the Borrower dated as of a
date which shall be no more than 30 days prior to the Closing Date.
(S)9.12. Financial Statements. The Borrower shall have delivered to the Bank
--------- ----------
audited consolidated financial statements for the year ended the Balance Sheet
Date and unaudited
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<PAGE>
consolidated financial statements for the period ended the Interim Balance Sheet
Date, which shall fairly represent the business and financial condition of the
Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP,
and there shall have been no material adverse change in the assets, business,
financial condition or prospects of the Borrower since the Balance Sheet Date.
(S)9.13. Opinions of Counsel. The Bank shall have received a favorable opinion
-------- -- -------
from Stanley B. Kay, counsel to the Borrower, dated the Closing Date in the form
attached hereto as Exhibit E.
(S)9.14. Environmental Matters. The Bank shall have received satisfactory
------------- -------
assurance of compliance by the Borrower and its Subsidiaries with all
Environmental Laws.
(S)9.15. Legal Documents. The Borrower shall have provided the Bank with
----- ---------
duly executed copies of the most recent draft of the EPA Consent Order and such
documents concerning the CU Acquisition as the Bank may request.
(S)9.16. Minimum Availability. The amount of the Borrowing Base shall
------- ------------
exceed(S)5,000,000.
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<PAGE>
(S)10. CONDITIONS OF LOANS. The obligation of the Bank to make the first Loan
---------- -- -----
and any Loan subsequent to the first Loan is subject to the following conditions
precedent:
(S)10.1. Representations True; No Event of Default. Each of the representations
and warranties of the Borrower contained in this Agreement or in any document or
instrument delivered pursuant to or in connection with this Agreement shall be
true as of the date as of which they were made and shall also be true at and as
of the time of the making of the Loan with the same effect as if made at and as
of that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Agreement and changes occurring in the
ordinary course of business which singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date) and no Default or Event of Default shall have
occurred and be continuing. Each request by the Borrower for a Loan subsequent
to the first Loan shall constitute certification by the Borrower that the
conditions specified in this (S)10 will be duly satisfied on the Drawdown Date
of such Loan.
(S)10.2. Performance; No Event of Default. The Borrower shall have performed
----------- -- ----- -- -------
and complied with all terms and conditions herein required to be performed or
complied with by it prior to or at the time of the Loan, and at the time of the
Loan, there shall exist no Event of Default or condition which would result in
an Event of Default upon consummation of the Loan.
(S)10.3. Borrowing Base Report. The Bank shall have received from the Borrower
--------- ---- ------
the most recent Borrowing Base Report required to be delivered to the Bank in
accordance with (S)6.4(d) and, if requested by the Bank, a Borrowing Base Report
dated within five (5) Business Days of the Drawdown Date of such Loan.
(S)10.4. No Legal Impediment. No change shall have occurred in any law or
-- ----- ----------
regulations thereunder or interpretations thereof which in the reasonable
opinion of the Bank would make it illegal for the Bank to make Loans hereunder.
(S)10.5. Governmental Regulation. The Bank shall have received such statements
------------ ----------
in substance and form reasonably satisfactory to the Bank as it shall have
requested in writing from the Borrower for the purpose of compliance with any
applicable regulations of the Comptroller of the Currency or the Board of
Governors of the Federal Reserve System.
(S)10.6. Proceedings and Documents. All proceedings in connection with the
----------- --- ---------
transactions contemplated by this Agreement and all documents incident thereto
shall be satisfactory in substance and in form to the Bank, and the Bank shall
have received all information and such counterpart originals or certified or
other copies of such documents as the Bank may reasonably request.
(S)10.7. EPA Consent Order. With respect to any Loan Request made by the
--- ------- -----
Borrower on or after September 30, 1999, the Borrower shall have delivered the
final EPA Consent Order signed by all relevant parties, the terms of which shall
be substantially in accordance with the terms of the draft dated May __, 1999.
(S)11. EVENTS OF DEFAULT; ACCELERATION. If any of the following events
------ -- ------- ------------
("Events of Default" or, if the giving of notice or the lapse of time or both
are required, then, prior to such notice and/or lapse of time, "Defaults") shall
occur:
77
<PAGE>
(a) if the Borrower shall fail to pay any principal of the Loans
when the same shall become due and payable, whether at the stated date
of maturity or any accelerated date of maturity or at any other date
fixed for payment;
(b) if the Borrower shall fail to pay any interest, Commitment
Fees, Bankers' Acceptance Fees, Letter of Credit Fees or any other fees
within five (5) Business Days after the same shall become due and
payable whether at the stated date of maturity or any accelerated date
of maturity or at any other date fixed for payment;
(c) if the Borrower shall fail to comply with its covenants
contained in (S)(S)6, 7, or 8 hereof;
(d) if the Borrower shall fail to perform any term, covenant
or agreement herein contained (other than those specified in
subsections (a), (b), and (c) above) within five (5) Business Days
after written notice of such failure has been given to Borrower by the
Bank;
(e) if any representation or warranty contained in this
Agreement or in any document or instrument delivered pursuant to or in
connection with this Agreement shall prove to have been false in any
material respect upon the date when made or repeated;
(f) if the Borrower or any Subsidiary shall (i) fail to pay at
maturity, or within any applicable period of grace, any obligation for
borrowed money or (ii) fail to observe or perform any material term,
covenant or agreement contained in any agreement by which it is bound,
evidencing or securing borrowed money in an amount in excess of
$250,000 for such period of time as would, or would have permitted
(assuming the giving of appropriate notice if required) the holder or
holders thereof or of any obligations issued thereunder to accelerate
the maturity thereof;
(g) if the Borrower or any Subsidiary makes an assignment for
the benefit of creditors, or admits in writing its inability to pay or
generally fails to pay its debts as they mature or become due or
petitions or applies for the appointment of a trustee or other
custodian, liquidator or receiver of the Borrower or any Subsidiary or
of any substantial part of the assets of the Borrower or its
Subsidiaries or commences any case or other proceeding relating to the
Borrower or its Subsidiaries under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in
effect, or takes any action to authorize or in furtherance of any of
the foregoing, or if any such petition or application is filed or any
such case or other proceeding is commenced against the Borrower or its
Subsidiaries and the Borrower or its Subsidiaries indicates its
approval thereof, consent thereto or acquiescence therein;
78
<PAGE>
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or its
Subsidiaries 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 Subsidiary in an involuntary case under
Federal bankruptcy laws as now or hereafter constituted, and such
decree or order remains in effect for more than 30 days, whether or not
consecutive;
(i) if there shall remain in force, undischarged, unsatisfied
and unstayed, for more than 30 days, whether or not consecutive, any
final judgment against the Borrower or any Subsidiary which, with other
outstanding final judgments, undischarged, against the Borrower and any
Subsidiary exceeds in the aggregate $100,000 after taking into account
any insurance coverage;
(j) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Bank shall have determined
in its reasonable discretion that such event reasonably could be
expected to result in liability of the Borrower or any of its
Subsidiaries to the PBGC or the Plan in an aggregate amount exceeding
$500,000 and such event in the circumstances occurring reasonably could
constitute grounds for the termination of such Plan by the PBGC or for
the appointment by the appropriate United States District Court of a
trustee to administer such Plan; or a trustee shall have been appointed
by the United States District Court to administer such Plan; or the
PBGC shall have instituted proceedings to terminate such Plan;
(k) if 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 or any of its
stockholders, 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
(l) if the Borrower shall fail to comply with any term of the
EPA Consent Order;
then, the Bank may by notice in writing to the Borrower declare all amounts
owing with respect to this Agreement, the Note, and the other Loan Documents,
and all Reimbursement Obligations to be, and they shall thereupon forthwith
mature and become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
the Borrower; provided, that in the event of any Event of Default specified in
--------
(S)(S)11(g) or 11(h) hereof, all such amounts shall become immediately due
79
<PAGE>
and payable automatically and without any requirement of notice from the Bank.
Upon demand by the Bank after the occurrence of any Event of Default, the
Borrower shall immediately provide to the Bank cash in an amount equal to the
Cash Collateral Amount to be held by the Bank as collateral security for the
Obligations. In case any one or more of the Events of Default shall have
occurred and be continuing, and whether or not the Bank shall have accelerated
the maturity of the Loans pursuant to the foregoing, the Bank, if owed any
amount with respect to the Loans, may proceed to protect and enforce its rights
by suit in equity, action at law and/or other appropriate proceeding, whether
for the specific performance of any covenant or agreement contained in this
Agreement or any instrument pursuant to which the Obligations to the Bank
hereunder are evidenced, including as permitted by applicable law the obtaining
of the ex parte appointment of a receiver, and, if such amount shall have become
due, by declaration or otherwise, proceed to enforce the payment thereof or any
other legal or equitable right of the Bank. No remedy herein conferred upon the
Bank or the holder of the Note is intended to be exclusive of any other remedy
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or any other provision of law.
(S)12. COLLATERAL SECURITY. The Obligations shall be secured by a perfected
---------- --------
security interest (having, with respect to each category of Collateral, the
respective rights and priorities set forth in the Security Documents) in all of
the Collateral, whether now owned or hereafter acquired, pursuant to the terms
of the Security Documents.
(S)13. SETOFF. Regardless of the adequacy of any collateral, during the
------
continuance of an Event of Default, any deposits or other sums credited by or
due from the Bank to the Borrower and any securities or other property of the
Borrower in the possession of the Bank may be applied to or set off against the
payment of the Obligations hereunder and under the Note and any and all other
liabilities, direct, or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of the Borrower to the Bank.
(S)14. EXPENSES. Whether or not the transactions contemplated herein shall be
--------
consummated, the Borrower hereby promises to reimburse the Bank for all
reasonable out-of-pocket attorneys' fees and disbursements incurred or expended
in connection with the preparation or interpretation of this Agreement, the
Note, or any other Loan Document or any amendment hereof or thereof, or with the
collection or enforcement of any Obligations or the satisfaction of any
indebtedness of the Borrower hereunder or thereunder, or in connection with any
litigation, proceeding or dispute in any forum, including without limitation
federal bankruptcy court, in any way related to the Loan Documents and the
credit extended hereunder, including without limitation the so-called "work-out"
thereof after the occurrence of a Default or Event of Default. The Borrower will
pay any taxes (including any interest and penalties in respect thereof), other
than the Bank's federal and state income taxes, payable on or with respect to
the transactions contemplated by this Agreement (the Borrower hereby agreeing to
indemnify the Bank with respect thereto).
(S)15. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the
---------------
Bank, as well as the Bank's shareholders, directors, agents, officers,
subsidiaries and affiliates, from and against all damages, losses, settlement
payments, obligations, liabilities, claims, actions or causes of action, whether
statutorily created or under the common law, and
80
<PAGE>
reasonable costs and expenses incurred, suffered, sustained or required to be
paid by an indemnified party by reason of or resulting from the transactions
contemplated hereby. In any investigation, proceeding or litigation, or the
preparation therefor, the Bank shall be entitled to select its own counsel and,
in addition to the foregoing indemnity, the Borrower agrees to pay promptly the
reasonable fees and expenses of such counsel. In the event of the commencement
of any such proceeding or litigation, the Borrower shall be entitled to
participate in such proceeding or litigation with counsel of its choice at its
expense, provided that such counsel shall be reasonably satisfactory to the
Bank. The covenants of this (S)15 shall survive payment or satisfaction in full
of amounts owing with respect to the Note or any other Loan Document.
(S)16. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations
-------- -- --------- ---
and warranties made herein, in the other Loan Documents or in any documents or
other papers delivered by or on behalf of the Borrower pursuant hereto shall be
deemed to have been relied upon by the Bank, notwithstanding any investigation
heretofore or hereafter made by it, and shall survive the making by the Bank of
the Loans as herein contemplated, and shall continue in full force and effect so
long as any amount due under this Agreement or the Note remains outstanding and
unpaid or the Bank has any obligation to make any Loans hereunder. All
statements contained in any certificate or other paper delivered to the Bank at
any time by or on behalf of the Borrower pursuant hereto or in connection with
the transactions contemplated hereby shall constitute representations and
warranties by the Borrower hereunder.
(S)17. SYNDICATION AND PARTICIPATION. It is understood and agreed that the Bank
----------- --- -------------
shall have the right, at any time after making Loans hereunder in excess of
$1,000,000, to syndicate or participate at any time any portion of the Total
Loan Commitment and interests in the risk relating to any Loans to additional
banks or other financial institutions so long as the Bank will be the agent bank
thereunder, and that each bank or other financial institution which executes and
delivers to the Bank and the Borrower hereunder a counterpart joinder in form
and substance satisfactory to the Bank and such bank or financial institution
shall, on the date specified in such counterpart joinder, become a party to this
Agreement and the other Loan Documents for all purposes of this Agreement and
the other Loan Documents, and its commitment amount shall be as set forth in
such counterpart joinder. Upon the execution and delivery of such counterpart
joinder, (a) the Borrower shall issue to the bank or other financial institution
a Note in the amount of such bank's or other financial institution's commitment
amount dated the Closing Date or such other date as may be specified by the Bank
and otherwise completed in substantially the form of Exhibit A; (b) this
Agreement shall be deemed to be amended to reflect the commitment amount and
interest in the risk related to Loans of such bank or other financial
institution and the Bank's portion of the Total Loan Commitment shall be reduced
by a like amount; (c) the Bank shall distribute to the Borrower and such bank or
financial institution a schedule reflecting such changes; and (d) this Agreement
shall be appropriately amended to reflect (i) the status of such bank or
financial institution as a party hereto and (ii) the status and rights of the
Bank as agent for itself and such other bank or financial institution hereunder.
The Bank shall also have the right to assign to, or grant participations to one
or more banks or other financial institutions in, all or any part of any Loan
owing to the Bank and the Note held by the Bank,
81
<PAGE>
provided that the only rights granted to the participant pursuant to such
- --------
participation arrangements with respect to waivers, amendments, or modifications
of this Agreement shall be the right to approve waivers, amendments or
modifications with respect to (a) the reduction in or forgiveness of the stated
principal of or rate of interest on or Commitment Fee with respect to the
portion of any Loan subject to such participation or assignment, (b) the
extension or postponement of any stated date fixed for payment of principal or
interest or Commitment Fee with respect to the portion of any Loan subject to
such participation or assignment, or (c) the waiver or reduction of any right to
indemnification of the participant hereunder. Notwithstanding the foregoing, no
syndication or participation shall operate to increase the Total Loan Commitment
hereunder or otherwise alter the substantive terms of this Agreement.
(S)18. PARTIES IN INTEREST. All the terms of this Agreement and the other Loan
------- -- --------
Documents shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto and thereto;
provided that the Borrower shall not assign or transfer its rights hereunder
without the prior written consent of the Bank.
(S)19. NOTICES, ETC. Except as otherwise expressly provided in this Agreement,
------- ---
all notices and other communications made or required to be given pursuant to
this Agreement or the other Loan Documents shall be in writing and shall be
delivered in hand, mailed by United States first-class mail, postage prepaid, or
sent by telegraph, telex or telecopier and confirmed by letter, addressed as
follows:
(a) if to the Borrower, at 740 Belleville Avenue, New Bedford,
Massachusetts 02745, Attention: Jeffrey Templer, Senior Vice President
and Treasurer (telephone: (508) 910-3673; telecopy: (508) 910-3123);
(b) if to the Bank, at 100 Federal Street, Boston, Massachusetts
02110, USA, Attention: Mark Evitts, Vice President (telephone: (617)
434-7404; telecopy: (617) 434-7534));
or at such other address for notice as shall last have been furnished
in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand to a responsible
officer of the party to which it is directed, at the time of the receipt thereof
by such officer, (b) if sent by registered or certified first-class mail,
postage prepaid, five (5) Business Days after the posting thereof, and (c) if
sent by telex, telecopy, or cable, at the time of the dispatch thereof, if in
normal business hours in the country of receipt, or otherwise at the opening of
business on the following Business Day.
(S)20. MISCELLANEOUS. The rights and remedies herein expressed are cumulative
-------------
and not exclusive of any other rights which the Bank would otherwise have. The
captions in this Agreement are for convenience of reference only and shall not
define or limit the provisions hereof. This Agreement and any amendment hereof
may be executed in several counterparts
82
<PAGE>
and by each party on a separate counterpart, each of which when so executed and
delivered shall be an original, but all of which together shall constitute one
instrument. In proving this Agreement it shall not be necessary to produce or
account for more than one such counterpart signed by the party against whom
enforcement is sought.
(S)21. ENTIRE AGREEMENT, ETC. This Agreement, together with the other Loan
------ -------- ---
Documents and any other documents executed in connection herewith or therewith,
express the entire understanding of the parties with respect to the transactions
contemplated hereby. Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated orally or in writing, except as provided in
(S)25.
(S)22. WAIVER OF JURY TRIAL. The Borrower hereby waives its right to a jury
------ -- ---- -----
trial with respect to any action or claim arising out of any dispute in
connection with this Agreement, the Note or any of the other Loan Documents, any
rights or obligations hereunder or thereunder or the performance of such rights
and obligations. Except as prohibited by law, the Borrower hereby waives any
right it may have to claim or recover in any litigation referred to in the
preceding sentence any special, exemplary, punitive or consequential damages or
any damages other than, or in addition to, actual damages. The Borrower (a)
certifies that no representative, agent or attorney of the Bank has represented,
expressly or otherwise, that the Bank would not, in the event of litigation,
seek to enforce the foregoing waivers and (b) acknowledges that the Bank has
been induced to enter into this Agreement and the other Loan Documents to which
it is a party because of, among other things, the Borrower's waivers and
certifications contained herein.
(S)23. SEVERABILITY. The provisions of this Agreement are severable and if any
------------
one clause or provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
(S)24. GOVERNING LAW. THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS ARE
--------- ---
CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL BE
DEEMED TO BE DOCUMENTS UNDER SEAL AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH (EXCLUDING THE
LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER CONSENTS TO THE
JURISDICTION OF ANY OF THE FEDERAL OR STATE COURTS LOCATED IN THE COMMONWEALTH
OF MASSACHUSETTS IN CONNECTION WITH ANY SUIT TO ENFORCE THE RIGHTS OF THE BANK
UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
(S)25. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly
-------- ---------- ------- ---
provided in this Agreement, any consent or approval required or permitted by
this Agreement to be given by the Bank may be given, and any term of this
Agreement or of any other instrument related hereto or mentioned herein may be
amended, and the performance or observance by the Borrower of any terms of this
Agreement or such other instrument or the continuance of any Default or Event of
Default may be waived (either generally or in a
83
<PAGE>
particular instance and either retroactively or prospectively) with, but only
with, the written consent of the Borrower and the Bank. No waiver shall extend
to or affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of the Bank in
exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon the Borrower shall entitle the
Borrower to other or further notice or demand in similar or other circumstances.
84
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement under
seal as of the date first set forth above.
(Corporate Seal)
The BORROWER:
--- --------
AEROVOX INCORPORATED
By:_________________________________
Title:______________________________
THE BANK:
--- ----
BANKBOSTON, N.A.
By:_________________________________
Title:______________________________
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<PAGE>
Exhibit 4.6.1
AMENDMENT NO. 1
TO
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
AMENDMENT No. 1 (the "Amendment") dated as of March 17, 2000 is made to
that certain Second Amended and Restated Credit Agreement dated June 30, 1999
(the "Loan Agreement"), by and between AEROVOX INCORPORATED, a Delaware
corporation with a chief executive office at 740 Belleville Avenue, New Bedford,
Massachusetts (the "Borrower"), and FLEET NATIONAL BANK, as successor to
BANKBOSTON, N.A., a national banking association with a banking office at One
Hundred Federal Street, Boston, Massachusetts (the "Bank").
Each of the capitalized terms which are used herein without definition
and which are defined in the Loan Agreement referred to below shall have the
same meaning herein as in the Loan Agreement, as amended hereby.
RECITALS
The Borrower and the Bank are parties to the Loan Agreement.
The Borrower and the Bank wish to amend the Loan Agreement to eliminate
the Debt to Worth Ratio and the Minimum Excess Availability requirement under
the Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, the parties hereto
hereby agree as follows:
(S)1. Letter of Credit Issuance. Section 3.1 of the Loan Agreement is
-------------------------
hereby amended and restated in its entirety and substituting the following
therefor:
"(S)3.1 Letter of Credit Issuance. Subject to the terms and conditions
-------------------------
hereof and the execution and receipt of a Loan and Letter of Credit
Request reflecting the Maximum Drawing Amount of all Letters of Credit
(including the requested Letter of Credit) and a Letter of Credit
Application at least four Business Days prior to issuance, the Bank, in
reliance upon the representations and warranties of the Borrower
contained herein, may, at its discretion, issue standby letters of
credit in such form as may be requested from time to time by the
Borrower and agreed to by the Bank (the "Letters of Credit"); provided,
--------
however, that, no Letter of Credit shall have an expiration date later
-------
than the earlier of (i) one year after the date of issuance of the
Letter of Credit, or (ii) thirty (30) days prior to the
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Maturity Date and provided further that, after giving effect to the
-------- -------
requested Letter of Credit, the aggregate Maximum Drawing Amount of
all Letters of Credit issued hereunder shall not exceed $2,000,000."
(S)2. Minimum Excess Availability. Section 7.8 of the Loan Agreement
---------------------------
providing for minimum excess availability under the Borrowing Base is hereby
deleted in its entirety.
(S)3. Debt to Worth Ratio. Section 8.1 of the Loan Agreement relating
-------------------
to maintenance by the Borrower of a maximum ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth is hereby replaced with the
words: "Intentionally Deleted."
(S)4. Scope of Amendment. Except as specifically amended by this
------------------
Amendment, the Loan Agreement shall remain in full force and effect and the
terms and conditions thereof are ratified and confirmed by the Borrower and the
Bank.
(S)5. Representations and Warranties; No Default;. The Borrower
-------------------------------------------
hereby represents, warrants and covenants to the Bank that each of the
representations and warranties of the Borrower contained in the Loan Agreement
or in any other Loan Document was true and correct as of the date as of which it
was made and is true and correct in all material respects as of the date of this
Amendment, except to the extent such representations and warranties expressly
related to a prior date (in which case they shall be true and correct as of such
earlier date). No Default or Event of Default has occurred and is continuing as
of the date of this Amendment. The Borrower also acknowledges and agrees that
the Bank has fully performed all of its obligations under the Loan Agreement up
to and including the date of this Amendment.
(S)6. Conditions to Effectiveness. Upon receipt by the Bank of this
---------------------------
Amendment executed by the Borrower, this Amendment shall be deemed to be
effective as of the date hereof.
(S)7. Execution in Counterparts. This Amendment may be executed in
-------------------------
any number of counterparts, but all such counterparts shall together constitute
but one integrated instrument. In making proof of this Amendment, it shall not
be necessary to produce or account for more than one counterpart signed by each
party hereto by and against which enforcement hereof is sought.
(S)8. Governing Law. This Amendment shall be construed according to
-------------
and governed by the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as an agreement under seal as of the date set forth at the
beginning of this Amendment.
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SIGNATURE LINES APPEAR ON THE NEXT NUMBERED PAGE.
AEROVOX INCORPORATED
By: F. Randal Hunt
Title: Vice President, Finance
FLEET NATIONAL BANK, as successor to
BANKBOSTON, N.A.
By: Ruben V. Klein
Vice President
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Exhibit 4.7
Lloyds Bank PLC
Business Loan Agreement (Corporate)
We Lloyds Bank PLC of Beach House, 28/30 Wimborne Rd., Poole, Dorset offer you
BHC Aerovox Ltd. (company registered number 2775957 and referred to in this
agreement as the "Customer") of 20-21 Cumberland Drive, Weymouth, DT4 9TE, a
loan on the following terms and conditions and where this agreement includes any
optional wording (as noted by a box or an asterisk) the wording marked with an
"X" or with a tick or, as appropriate, the wording not deleted shall apply.
SPECIFIC TERMS AND CONDITIONS
THE LOAN
The maximum amount of the loan (excluding any amounts of interest that will be
added to the loan if the agreement provides for this) shall be (pound)500,000.
The amount is to be used for refinance and may be borrowed in one amount on or
before June 30, 1999 or such later date as the Bank may agree. Any amount which
has not been borrowed by the agreed date will be cancelled. The proceeds of the
loan will be credited to the Customer's current account. Unless the Bank agrees
otherwise, no drawing may be made until all the PRECONDITIONS set out below have
been satisfied.
PRECONDITIONS AND SECURITY
Unless received by the Bank prior to the date on which this agreement is signed
by the Bank, the Bank is to receive in form and substance acceptable to the Bank
the security (if any) listed in the Security Schedule to this agreement together
with such evidence as the Bank may require to confirm the value of such security
and to confirm that such security is fully effective, and the documents,
evidence or other requirement of the preconditions (if any) set out in the
Preconditions Schedule to this agreement.
FEES AND COSTS
The Customer shall pay any costs and expenses incurred by the Bank is assessing
the loan, in the preparation of this agreement and in the preparation,
valuation, taking or release of any guarantee or security at any time given in
connection with this agreement. In particular the following charges shall be
paid to the Bank by the Customer on demand by the Bank. These charges are to be
paid even if the loan is not drawn down.
Valuation Fee(Pounds)1,468.75
An arrangement fee is also payable. This fee shall be paid to the Bank by the
Customer as
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follow:
(Pounds)5,000 on the date of the first drawing under this agreement
As mentioned in clauses 3 & 6 of the General Terms and Conditions of this
agreement, other costs to the Customer may arise in connection with the loan.
INTEREST
The rate of interest payable on the loan will be Base Rate plus 1.75% per annum,
currently 7% per annum in total.
(i) References in this agreement to Base Rate mean the Bank's Base Rate from
time to time. This rate will be displayed in the branch of the Bank where
the Customer's account is held and may be varied (either up or down) by
the Bank at any time.
(ii) Fixed rate - Not applicable.
(iii) Interest shall be added to the loan.
(iv) If the Customer fails to pay any amount payable under this agreement when
due the rate of interest may be increased in accordance with clause 6.3
of the General Terms and Conditions of this agreement.
REPAYMENT
The loan is payable by 120 consecutive monthly instalments representing
principal and interest commencing one month after drawdown. The amount of these
instalments will vary with changes in the interest rate and the number of days
in the month. If the full amount of the loan is not borrowed the amounts of the
instalments detailed above will be reduced accordingly.
EARLY REPAYMENTS
As mentioned in clause 2 of the General Terms and Conditions of this agreement,
the loan may be repaid early. On the date of each early repayment the Customer
shall pay to the Bank a fee equal to (Pound)0.
PERIOD OF OFFER
This agreement shall come into effect only if the Bank receives from the
Customer and finds in order a signed copy of this agreement on or before May 31,
1999.
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GENERAL TERMS AND CONDITIONS
Use of Loan Proceeds
1.1 Unless the loan is only for working capital or general business purposes,
each amount borrowed shall be held in trust for the Bank until used for the
purpose stated in the Specific Terms and Conditions of this agreement.
Repayment
2.1 The Customer will repay the loan on the dates, and in the manner set out in
the Specific Terms and Conditions of this agreement.
2.2 Unless interest on the loan is then being calculated at a margin over a
fixed rate of interest quoted by the Bank's Treasury Division, the Customer
may at any time after giving at least 7 days' notice to the Bank make early
repayment of all or any part of the loan but no amount repaid early may be
borrowed again. Each early repayment of part of the loan must be of at
least (Pounds) 2,000 and will be applied to reduce subsequent repayments
proportionately unless the Customer gives notice to the Bank to apply the
early repayment to the then latest scheduled repayment installment(s) so as
to reduce the term of the loan.
2.3 At any time interest on the loan is being calculated at a margin over a
fixed rate of interest quoted by the Bank's Treasury Division, the Customer
may at any time after giving at least 7 day's notice to the Bank make early
repayment of all (but not part) of the loan. The loan may not be borrowed
again once it has been repaid.
2.4 Should a fixed rate of interest apply to the loan and the Customer not
drawdown the loan on the date at any time agreed or, for any reason, repay
or be required to repay the loan or any part of the loan other than in
accordance with the terms of clause 2.1 above, the Customer shall, in
addition to any fee that may be specified in the Specific Terms and
Conditions of this agreement, pay to the Bank immediately on demand any
cost or loss to the Bank which in the Bank's opinion results from such
action. Such cost or loss will include, but will not be limited to:
(a) Any loss or expense sustained or incurred by the Bank in
repaying or re-employing deposits acquired by the Bank at a fixed rate
of interest in order to make or maintain the loan, and
(b) Any loss or expense sustained or incurred by the Bank in
respect of any agreement it has entered into to compensate for the
potential cost to the Bank of on-lending at a fixed rate of interest
deposits acquired by the Bank at a variable rate of interest in order
to make or maintain the loan, including any loss or expense sustained
or incurred by the Bank:
(i) In fulfilling or terminating any obligation it may have under any
such agreement: and
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(ii) In entering into and fulfilling any obligation it may have under
any other agreement it may enter into to offset the cost of
continuing such first agreement.
2.5 If the sixth repayment option set out in the Specific Terms and Conditions
of this agreement is to apply:
(a) The Bank may (but is under no obligation) at any time after
giving the Customer at least 7 days' notice vary the repayment
instalment amount to take account of any change in the rate of
interest applicable to the loan, and
(b) The Bank may, if changes in the rate of interest applicable
to the loan are not taken into account by variations in the repayment
instalment amount or if for any reason whatsoever any amount remains
owing to the Bank on the anticipated final repayment date, require the
Customer to continue the repayment instalments until such time as all
amounts owing under in connection with this agreement have been repaid
in full.
Increased Costs and Changes in Circumstances
3.1 In running its business the Bank and any holding company of the Bank each
has to comply with certain regulations and requirements laid down by the
Bank of England and other official organisations or bodies as well as the
law generally. The rate of interest quoted in the Specific Terms and
Conditions of this agreement has been set in the light of how this affects
the cost (to the Bank and any such holding company) of the Bank making the
loan available at the time the Bank signed this agreement. If, as a result
of any new laws, regulations or requirements or any changes in existing
ones, the cost to the Bank or any such holding company of the Bank agreeing
to make or of making the loan available is increased the Bank may increase
the rate of interest charged on the loan to compensate for that extra cost.
3.2 If the rate of interest specified in the Specific Terms and Conditions of
this agreement is stated as including liquidity costs, it includes the cost
to the Bank of complying with the monetary control requirements of the Bank
of England existing at the time the Bank signed this agreement. While in
such circumstances it would be the Bank's intention to apply a fixed rate
of interest until the Review Date or (if a fixed rate of interest is to
apply for the term of the loan) for the term of the loan, liquidity costs
may vary from time to time and any variation in liquidity costs may result
in a change in the rate of interest payable on the loan. The Bank will
determine the liquidity costs on each date interest on the loan is due to
be paid by the Customer and, if in the Bank's opinion there is then a
material difference (either up or down) in liquidity costs it will promptly
advise the Customer of the new rate of interest then to apply to the loan.
3.3 If at any time the currency in which the loan is denominated is due to be
or has been converted into the euro or any other currency as a result of a
change in law or by agreement between the Bank and the Customer then:
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(a) The Bank may in its sole discretion determine and shall notify
the Customer in writing of the currency or currency unit in which
amounts payable under this agreement shall be paid. After the expiry
of 7 days from the date of such notice all payments falling due under
this agreement shall be made in such currency or currency unit, and
(b) (i) the Bank may be giving not less than 21 days' written notice
to the Customer change any of the terms applying to the loan
but only to the extent that the Bank reasonably considers
any such change necessary to take account of differences in
market practice or to compensate for increases in costs to
the Bank or to any holding company of the Bank arising from
or related to such conversion or arising from or related to
the introduction of monetary union within the European
Union. Any such change shall amend the terms of this
agreement upon expiry of such period of notice, and
(ii) at any time within 21 days of receipts of the Bank's notice
the Customer may make early repayment of all (but not part)
of the loan without incurring any early repayment fee that
might otherwise be payable. Such repayment shall otherwise
be in accordance with the terms of clauses 2 and 3.3(a)
above.
Representations
4.1 The customer represents that:
(a) All action required or necessary to authorise its execution of this
agreement and the performance of its obligations under and in
connection with this agreement has been taken and neither the
execution of this agreement nor the performance of the Customer's
obligations will constitute or result in any breach of any agreement,
law, requirement or regulation,
(b) No material litigation, Administrative or judicial proceedings are
presently pending or threatened against the Customer or any of its
subsidiaries,
(c) There has been no material adverse change in the financial condition
of the Customer or any of its subsidiaries since the date of the
financial statement received by the Bank prior to the date on which
this agreement is signed by the Bank, and
(d) No Event of Default (as described in clause 6.1 of this agreement) has
occurred and is continuing and no circumstance has occurred which,
with the giving of notice or the passing of time, could become or
cause an Event of Default.
4.2 The Customer shall be deemed to repeat the above representations on each
day (with reference to the facts and circumstances then existing) prior to
drawdown of the loan and thereafter until all amounts payable to the Bank
under this agreement have been
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paid.
Undertakings
Prior to drawdown of the loan and thereafter until all amounts payable to the
Bank under this agreement have been paid:
5.1 Neither the Customer nor any of its subsidiaries shall:
(a) Without the Bank's consent create or allow to be in place any
mortgage, charge, or other security interest or encumbrance over the
whole or any part of its business or any of the property, income or
other assets of its business or enter into any transaction which in
the Bank's opinion has a similar effect, or factor or assign any
debts, or
(a) Sell, lease or otherwise dispose or attempt to dispose of the whole or
any of the property, income or other assets of its business other than
for a full and fair value, or
(b) change the nature of its business as it is now conducted, and
5.2 The Customer shall promptly provide the Bank with copies of any financial
information that the Bank may form time to time reasonably request
including:
(a) Copies of its financial statement within 150 days of the end of each
financial year of the Customer, and
(b) Copies of its periodic management accounts at such intervals as the
Bank may require in a form acceptable to the Bank within 30 days of
the end of the period to which they relate. The Bank may at its
opinion require such management accounts to incorporate an age-
analysis of debtors, a schedule of all tenancies (if any) of all
property security existing at the date of the accounts, and/or a
breakdown of stock in trade, and
5.3 The customer and each of its subsidiaries shall maintain with reputable
underwriters or insurance companies adequate insurance on and over its
respective business and assets, such insurance to be against such risks and
to the extent usual for persons carrying on a business such as that carried
on by the Customer or, as the case may be, by the relevant subsidiary and,
from time to time upon the request of the Bank, the Customer shall furnish
the Bank with evidence of such insurance, and
5.4 Unless any specific requirements set out in nay Additional Terms and
Conditions added to this agreement (which requirements shall take
precedence over this clause) the Customer agrees to reduce the loan (in
accordance with the terms of clause 2 above) or to provide the Bank with
additional security acceptable to the Bank if the ratio of the loan to the
value of the security given to the Bank is at any time higher than that
applicable on the date this agreement was signed by the Bank and agrees
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to provide such evidence as the Bank may form time to time require to
confirm the value of such security and to confirm that the security remains
fully effective.
Default and Termination
6.1 The events listed in (a) to (i) below are called "Events of Default".
As soon as an Event of Default happens or at any time thereafter, by giving
notice to the Customer, the Bank may cancel any obligations it has to lend money
to the Customer and may also make the loan become repayable on demand. When the
loan is repayable on demand, the Customer must repay the loan to the Bank
together with all interest, which has accrued on the loan as soon as the Bank
requests the Customer to pay these amounts. The Bank may do this at the time the
loan becomes repayable on demand or at any later time.
Events of Default
(a) The Customer fails to pay when due any indebtedness owed by the
Customer to the Bank or fails to comply with any other obligation
under or condition of this agreement,
(b) The Customer fails to pay when due any indebtedness owed by it to
another creditor or any creditor of the Customer changes (or obtains
the right to change) the original date on which that indebtedness is
or was due to be paid to an earlier date as a result of the Customer's
failure to comply with obligations in connection with that
indebtedness,
(c) Any representation or statement made by the Customer to the Bank,
whether or not in connection with this agreement, proves to have been
incorrect or inaccurate when made or deemed made,
(d) Any person with a legal claim takes possession or a receiver,
custodian, trustee, liquidator or similar official is appointed of the
whole or any part of the Customer's business of any of the Customer's
assets or a petition is presented for the making of an administration
order or a judgement, degree or diligence is made or granted against
the Customer,
(e) A petition is presented or an order is made or a resolution is passed
for the winding up of the Customer or, the Customer is or becomes
insolvent or stops or threatens to stop payment of its debts generally
or is deemed by law unable to pay its debts or the directors of the
Customer convene a meeting of shareholders or creditors with a view to
winding up or the Customer makes or seeks to make any other
arrangement or composition with its creditors.
(f) The customer ceases or threatens to cease to carry on its business in
the normal course or fails to maintain or breaches any franchise,
licence or right necessary to conduct its business or breaches any
legislation relating to its business, including but not limited to any
applicable environmental protection laws.
(g) The persons who now control the Customer cease to have control of the
Customer,
(h) Any guarantee, other security or other document or arrangement relied
upon by the Bank in connection with the loan ceases to be continuing
or ceases to remain fully effective or if the Bank reasonably believes
that the effectiveness of any such
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document or arrangement is in doubt or if any provision such document
or arrangement is not complied with for any reason,
(i) any of the above events occur or a similar circumstance arises in
relation to any parent of subsidiary of the Customer or any guarantor
of or other provider of security for the loan or, it any individual
provides any guarantee or other security for the loan, a petition is
presented for a bankruptcy order against any such individual or an
application is make in connection with a proposal to creditors for a
voluntary arrangement by any such individual or any such individual
dies or becomes incapable of managing his or her affairo by reason of
mental disorder, or
(j) the Customer fails to disclose to the Bank any important information
that is relevant to the loan or the security required or the Customer
undertakes or is subject to any action or occurrence which the Bank
reasonably believes could place at risk the payment of any amount
owing to the Bank.
6.2 If any Event of Default happens or anything happens that might lead to an
Event or Default, the Customer shall inform the Bank immediately.
6.3 If any amount payable in respect or this agreement is not paid when due
(including any amount payable under this clause 6) the Customer shall pay
interest on that amount at the default rate from the date on which the
amount was due until it is paid to the Bank. Interest, if unpaid, shall be
added to the amount in default at monthly intervals. The default rate shall
be the rate determined by the Bank to be 3% amount higher than the rate of
interest specified in the Specific Terms and Conditions of this agreement
that would normally apply.
6.4 The Customer shall indemnify the Bank against any cost incurred or losses
sustained by the Bank as the result of any Event of Default happening or
any failure by the Customer to pay any amount demanded by the Bank as a
result of an Event of Default.
6.5 The Customer shall also pay any costs and expenses incurred by the Bank in
enforcing or perfecting any security for the loan and in enforcing or
preserving its right under this agreement.
Other
7.1 This agreement shall be construed and have effect in accordance with the
applicable law and in subject to the jurisdiction of the Courts in the
jurisdiction of the applicable law. The applicable law will be the laws of
England and Wales or the laws of Scotland; at will be the governing law of
the country in which the branch or office of the Bank given at the heading
of this agreement is situated on the date this agreement is signed by the
Bank. The Bank may take action against the Customer in any other
jurisdiction where proceedings may be lawfully commenced.
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7.2 If at any time the Bank delays exercising any of the rights it has
under this agreement or exercises only part of those rights it will
still have the right to exercise all or any of those or any other
rights at any later time.
7.3 If any drawing of the loan or if any payment becomes due from the
Customer on a day which is not a business day then the amount
concerned will be drawn or, as the case may be, will become payable
on the next business day. A business day is a day other than a
Saturday or a Sunday on which banks in the jurisdiction of the
applicable law are open for normal business.
7.4 The Bank may use any credit balance there may be on any of the
Customer's accounts towards; payment of any amounts owed by the
Customer to the Bank under this agreement without notifying the
Customer beforehand whether such credit balances are in sterling or
any other currency or are deposited for fixed or determinable
periods.
7.5 Unless otherwise agreed by the Bank the Customer shall at all times
during the term of this agreement keep a current account with the
Bank and all amounts from time to time due to the Bank under this
agreement may be debited to that account. The Customer shall keep
enough money in the current account (or ensure that there are
sufficient funds available within any agreed overdraft) to meet all
such payments as they become due.
7.6 Any security given to the Bank (whether given before the date on
which this agreement is signed by the bank or at any time in the
future and whether or not specified in this agreement) shall,
unless otherwise agreed by the Bank, be security not only for the
loan but also for all other moneys and liabilities whether certain
or contingent at any time due, owing or incurred to the Bank by the
Customer.
7.7 Members of the Lloyds TSB group may transfer information regarding
the Customer among themselves and to their auditors for the time
being but not further or otherwise without the Customer's prior
written consent unless such information is in the public domain or
unless required by law so to do.
7.8 This agreement and all communications from the Customer to the Bank
in connection with this agreement and the loan (all off which are
to be sent in writing to the Bank) shall be signed on behalf of the
Customer in accordance with the mandate given by the Customer to
the Bank.
7.9 Any change to this agreement that is not permitted in this
agreement must be made in writing and be signed by both the Bank
and the Customer.
7.10 The Specific Terms and Conditions and General Terms and Conditions
of this agreement together with any Additional Terms and Conditions
attached to this agreement shall be read and construed as one
agreement.
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7.11 References in this agreement to:
(a) The "Bank" means and includes Lloyds bank Plc and its successors
and assigns.
(b) "control" shall have the meaning given to it in Section 840 of the
Income and Corporation Taxes Act 1988 or any amendment to or
restatement of that Act for the time being in force.
(c) "financial statement" means at any particular time the latest
consolidated balance sheet and profit and loss account (being
audited or signed by an independent accountant if so required by
law or by the Bank at any time and being prepared on the same basis
and in accordance with the same accounting principles as the latest
such balance sheet and profit and loss account received by the Bank
prior to the date on which this agreement is signed by the Bank) of
the Customer and its subsidiaries together with the notes to both,
(d) "loan" means, at any particular time, the total amount which may be
borrowed by the Customer under this agreement or, if appropriate,
the total amount which has been debited to the loan account and
remains outstanding at such time.
(e) "month" means calendar month except that, when the rate of interest
is quoted as "per month", it means one twelfth (1/12th) of a year,
and
(f) "parent" and "subsidiary" shall have respectively the meaning given
`parent undertaking' and `subsidiary undertaking' in Section 258 of
the Companies Act 1985 or any amendment to or restatement of that
Act for the time being in force.
- --------------------------------------------------------------------------------
Preconditions Schedule
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Security Schedule
- --------------------------------------------------------------------------------
First Legal Mortgage Over Freehold and Leasehold Properties
- --------------------------------------------------------------------------------
Repayment Schedule
- --------------------------------------------------------------------------------
Date Amount Date Amount
- --------------------------------------------------------------------------------
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The Customer acknowledges receipt of a copy of this agreement and, in
consideration of the Bank agreeing to grant the loan, agrees to the Specific
Terms and Conditions and to the General Terms and Conditions set out above * and
to the attached Additional Terms and Conditions (Forms numbered 1321 and 1322)/.
The Customer also acknowledges that this agreement comprises all the terms which
is not set out in this agreement and, in deciding to enter into this agreement
and to proceed with any transaction or project for which the loan has been
sought, has not received or relied upon any advice given by the Bank.
<TABLE>
<S> <C>
Signed for and on behalf of the Customer by Signed for and on behalf of the Bank by
Graham Yates Neil Cullum
- ------------ ------------
* Director * Manager
and by Date 15/4/99
Signed for and on behalf of the Customer by
Julian Boardman
- ---------------
* Director
at Weymouth
Date 22/4/99
</TABLE>
This agreement creates legal obligations. Before signing you may wish to take
- --------------------------------------------------------------------------------
independent advice.
- ------------------
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Additional Terms and Conditions
Property Security Requirement
(Business Mortgage)
When this document has been signed by both Lloyds Bank Plc (the "Bank") and BHC
Aerovox Ltd. (the "Customer") the following terms and conditions will be added
to those terms and conditions set out in the BUSINESS LOAN AGREEMENT entered
into between the Bank and the Customer which was signed by the Bank on April 15,
1999 (the "Agreement"). These Additional Terms and Conditions shall apply for as
long as any moneys are owing to the Bank or the Bank in under any obligation
under the Agreement.
Definition of "Property"
1.1 The expression "Property" when used in these Additional Terms and
Conditions means the freehold and/or leasehold property that is to be
used (or is then being used) as security by agreement between the Bank
and the Customer.
Conditions to be met prior to drawing
2.1 No drawings may be made under the Agreement until the Bank has received the
following in form and substance acceptable to it and at the Customer's
expense:
(a) a valuation of each Property to be charged to the Bank prepared in
accordance with clause 3.1 of these Additional Terms and Conditions,
(b) a satisfactory report on title to each Property from the Bank's
solicitors
(c) confirmation that each Property is insured with insurers acceptable to
the Bank, for an amount and against such risks as the Bank may
require, and
(d) any other information concerning the Property or the Customer as the
Bank may reasonably require including, without limitation, any
schedule required by clause 4.2 of these Additional Terms and
Conditions.
2.2 The Bank shall have the right upon receipt of the documents referred
to in clause 2.1 above to cancel its obligation to grant the loan or
reduce the amount of the loan or to amend the terms and conditions
upon which the loan is offered if the content of the documents is not
fully acceptable to the Bank.
Security
3.1 The Bank has the right to require from time to time, at the expense of
the Customer, a valuation of any Property. Each valuation shall be
prepared by professional valuers acceptable to and reporting to the
Bank on a basis acceptable to the Bank. If at any time the Bank
determines (as a result of any valuation received) that the total
amount owing to the Bank by the Customer in connection with the
Agreement exceeds 65%
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of the aggregate value of the Property charged to the Bank (after
taking into account any amounts owing ranking in priority to amounts
owing to the Bank) the Customer shall promptly either (i) charge
additional Property with a value which in the Bank's opinion will
restore the Bank's security value requirements, or (ii) reduce the
amounts owing by such an amount as shall be necessary to restore the
security value requirements.
3.2. The Customer may at any time substitute any Property charged to the
Bank with alternative Property if the alternative Property has a value
at least equal to the value of the Property to be released. When the
Bank is satisfied that the alternative security is fully effective it
will discharge the security being substituted.
Undertakings
4.1 Where the purpose stated in the Specific Terms and Conditions of the
Agreement involves building works or works enabling building works
affecting any Property, the Customer agrees that promptly upon request
by the Bank at any time the Customer shall:
(a) provide the Bank with evidence in a form acceptable to the Bank
that the Customer has obtained all necessary permissions and
approvals for the proposed works and has entered into (in a form
of contract acceptable to the Bank) all contracts necessary for
the due completion of the proposed works. The Customer will at
all times ensure that any other party to any such contract
(whether or not such contract has been provided to the Bank)
complies with the contract in accordance with its terms. The
Customer shall not, without the consent of the Bank agree to any
modification in the terms of any contract which has been provided
to the Bank, or terminate any such contract or stop work on any
proposal works prior to completion of the works, and (b) provide
to the Bank confirmations (each in a form and from a party
acceptable to the Bank) of all expenditure on the works. The Bank
may refuse to permit any drawing of the loan if the total of all
drawings made under this agreement in respect of the works
exceeds the total expenditure detailed in the confirmation.
4.2 The Customer shall supply to the Bank:
(i) at the time each Property is accepted by the Bank as security,
schedules in a form and substance acceptable to the Bank of all
tenancies of that Property existing at the date of the schedule
and the Customer shall update each schedule at intervals of not
less than 6 months. No schedule will be required for any Property
that is fully occupied by the Customer, and
(ii) upon request, a written authority for any third party connected
with any Property to disclose to the Bank information about the
Property.
Default
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5.1 The following shall be included as an Event of Default:
any tenant or group of tenants of any Property fails in arrears with
payments of rent or there is an adverse change in the financial condition
of any tenant, in either case to an extent which the Bank believes could
place at risk the payment of any amount owing to the Bank.
Costs
6.1 The Customer shall pay to the Bank on demand any costs and expenses
incurred by the Bank which are stated in these Additional Terms and
Conditions to be at the Customer's expense.
Signed for and on behalf of the Customer by
Graham Yates
Director
and by
Julian Boardman
Director
at Weymouth, April 22, 1999
Signed for and on behalf of the Bank by
Neil Cullum
Manager
April 15, 1999
102
<PAGE>
Additional Terms and Conditions
Financial Covenants
When this document has been signed by both Lloyds Bank Plc (the "Bank") and BHC
Aerovox Ltd. (the "Customer") the terms and conditions below marked with an "X"
or with a tick will be added to those terms and conditions set out in the
BUSINESS LOAN AGREEMENT which was signed by the Bank on April 15, 1999 (the
"Agreement"). These Additional Terms and Conditions shall apply for as long as
any moneys are owing to the Bank under the Agreement or the Bank is under any
obligation under the Agreement.
The Customer shall maintain Net Worth at not less than (pound)4,250,000 with
effect from December 12, 1998 and shall ensure that Net Worth increases annually
by not less than (pound)0 as a result of profits retained.
The Customer shall not permit the Net Borrowing of the Customer and (in the case
of a Customer which is a company) its subsidiaries to exceed 75 per cent of Net
Worth.
The Customer shall not permit the total interest paid and payable shown in any
financial statement or in any management accounts provided by the Company to
exceed 40 per cent of the profit before taxation and interest paid and payable
as shown in those accounts.
The Customer shall not permit the total principal repayments and interest paid
and payable shown in any financial statements or in any management accounts
provided by the Customer to exceed 65 per cent of the profit before taxation,
depreciation and interest paid and payable as shown in those accounts.
The expression:
Net Borrowing shall include all borrowed moneys and all liabilities and
indebtedness, whether or not then due, under acceptance credits and hire
purchase, instalment credit, equipment leasing or similar agreements, any amount
guaranteed and all other actual or contingent liabilities but excluding trade
debts and liabilities for the payment of tax, less all freely available cash
balances and credit balances with banks.
Net Worth shall mean at any particular time:
the aggregate of the amount paid up on its issued share capital and the
consolidated distributable and non-distributable reserves of the Customer and
its subsidiaries but (i) after deducting the total of any debit balance on
profit and loss account and the book value of goodwill and any other intangible
assets, and (ii) excluding any minority interests in subsidiaries and any
increase in the valuation of assets subsequent to the date of the financial
statement.
current assets and current liabilities shall be calculated in accordance with
generally accepted
<PAGE>
accounting principles and, in the case of a Customer which is a company, shall
relate to the Customer and its subsidiaries, and
profit before taxation shall exclude credit items of an extraordinary nature and
credit items of an exceptional nature unless taken into account at the Bank's
discretion for the purpose of any relevant calculation.
If the Customer is a company, subsidiary shall have the meaning set out in the
Agreement. During any period in which the Customer does not have a subsidiary,
all references to subsidiaries and consolidated shall be ignored and the
relevant text read and construed accordingly.
Signed for and on behalf of the Customer by:
Graham Yates
Director
and by
Julian Boardman
Director
at Weymouth, April 22, 1999
Signed for and on behalf of the Bank by:
Neil Cullum
Manager
April 15, 1999
104
<PAGE>
Dated 19________________________________
BHC AEROVOX LIMITED
AND
LLOYDS BOWMAKER LIMITED
__________________________________________________
CHARGE over equipment
to secure a loan of(pound)500,000 and all moneys
__________________________________________________
105
<PAGE>
THIS FIXED CHARGE is made on the day of 19
BETWEEN BHC AEROVOX LIMITED (Company No. 2775957) whose registered office is at
20-21 Cumberland Drive, Granby Industrial Estate, Weymouth, Dorset DT4 9TE ("the
Borrower") and LLOYDS BOWMAKER LIMITED whose registered office is at 51
Holdenhurst Road, Bournemouth BH8 8EP ("LB")
IN CONSIDERATION of LB lending to the Borrower the sum ("the Loan") referred to
in the First Schedule hereto on terms as to repayment of capital and payment of
interest as appears in the said First Schedule it has been agreed that the
Borrower shall give security to LB as is hereinafter mentioned as well for
moneys (if any) now owing as for any moneys which may hereafter during the
continuance of this security become owing by the Borrower to LB
THIS DEED WITNESSED AS FOLLOWS:-
1. The Borrower with full title guarantee charges by way of first fixed charge
the property more particularly described in the Second Schedule hereto (the
Charged Property") with payment to LB pursuant to the terms on which each
sum was or will be advanced or in the absence of any such terms upon demand
of all and every sum or sums of money for which these presents are declared
to be a security.
2. These presents shall be a security to LB for the payment to LB and
discharge of all moneys and liabilities now or hereafter due from or
incurred by the Borrower to LB in any manner whatever and whether actually
or contingently alone or jointly with any other parties and whether as
principal or surety (including without prejudice to the generality of the
foregoing advances made or other financial assistance rendered and all
liabilities on Bills of Exchange and promissory notes and other instruments
and guarantees and other obligations of all kinds and including obligations
of the Borrower which may be assigned to LB and whether before or after the
creation of this security together with in respect of each advance or
rendering of assistance by LB such interest (if any) payable at such rate
and on such dates as shall have been or shall be agreed upon between the
Borrower and LB at the time of each advance or rendering of financial
assistance).
3. The Borrower shall not without the consent in writing of LB part with
possession of the Charged Property or create or permit to come into being
any encumbrance, hiring, mortgage, charge, sale, disposition or lien in
respect of the Charged Property.
107
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4. The Borrower HEREBY CONVENANTS with LB as follows:-
(a) To pay to LB the Principle Amount ("the Principal Amount") shown
in the First Schedule hereto and Business Security Cover Insurance
Premium (if any) together with interest thereon at the times and in
the amounts stated in the said First Schedule
(b) To pay to LB all other moneys from time to time owing to LB on
such dates as shall have been or shall be agreed upon between the
Borrower and LB or in the event of no date for the payment of any
moneys having been so agreed to pay such moneys forthwith on demand by
LB.
(c) At all times during the continuance of this security to keep the
Charged Property insured (as far as it is possible to insure) against
loss or damage by fire, theft, accident or any other cause whatsoever
to its full value and to pay all premiums necessary for effecting and
keeping up such insurance and on demand in writing to produce to LB
the policy or policies of such insurance and the receipt for every
such payment of premium. The Borrower shall notify the insurer of the
interest of LB in the Charged Property and shall cause the insurer to
issue a note or memorandum that such interest has been noted by the
insurer on the policy of insurance. If default shall be made at any
time by the Borrower in effecting and keeping up such insurance it
shall be lawful for LB to insure and keep insured the Charged Property
to its full value and any moneys expended by LB for such purpose
together with interest thereon at the rate specified in clause 9 from
the time of such moneys having been expended by LB shall on demand be
repaid by the Borrower and until such repayment shall be charged on
the Charged Property. The Borrower will not create any mortgage or
charge over the policy or policies of such insurance nor assign the
benefit thereof nor the benefit of the insurance proceeds during the
continuance of this security. The Borrower will not assign to any
other person its right to cancel the policy or policies of such
insurance.
(d) At all times during the continuance of this security to keep the
Charged Property in good repair and proper working order and in a
condition satisfactory to LB and to permit LB from time to time to
enter on the premises where the Charged Property may then be and view
and inspect and take an inventory thereof.
5. The whole of the moneys payable or to become payable hereunder or secured
hereby plus interest and late payment interest accrued but unpaid (if any)
plus an amount equal to three months' interest on the Principal Amount
calculated at the rate of 5 per cent above Finance House Base Rate from
time to time current (or in the event of the period of the Loan having at
such date less than three months to run an amount equal to interest for
such period on the Principal Amount calculated at the rate aforesaid) shall
immediately become due and payable on demand.
108
<PAGE>
(a) if the Borrower shall fail to make payment of the due date therefor of
any moneys hereby covenanted to be made or
(b) if default be made by the Borrower in the observance or performance of
any of the covenants or obligations herein expressed or implied (other than
for payment of moneys), or
(c) if default be made by the Borrower in the terms upon which any moneys
were advanced or provided to the Borrower by LB, or
(d) if a petition for an Administration Order is presented in respect of
the Borrower, or
(e) if a receiver or a receiver and manager shall be appointed over all or
any part of the assets or undertaking of the Borrower or any guarantor or
indemnifier of the Borrower's obligations hereunder, or
(f) if an administrative receiver shall be appointed in respect of the
Borrower, or
(g) if an order shall be made or a resolution passed for the winding up of
the Borrower or any guarantor or indemnifier of the Borrower's obligations
hereunder (other than for the purposes of reconstruction or amalgamation on
terms previously approved by LB), or
(h) if the Borrower or its servants or agents shall do or suffer any act
or thing which in the opinion of LB is prejudicial to the security hereby
created, or
(i) if a distress or execution is levied or issued or diligence is
executed against any of the Borrower's chattels or property and is not paid
out within 7 days, or
(j) if the Borrower shall be in default in payment under any loan hire-
purchase rental or conditional sale agreement or other credit facility
provided by LB or by any subsidiary (within the meaning of section 736 of
the Companies Act 1985) from time to time of LB
(k) if the Borrower shall cease or threaten to cease to carry on the whole
or a substantial part of its business or (without the prior written consent
of LB) shall dispose or threaten to dispose of the whole or a material part
of its undertaking or assets, or
(l) if the Borrower shall enter into any arrangement with its creditors,
or
109
<PAGE>
(m) if any part of the Changed Property shall be stolen or so damaged
as to be a total loss or a constructive total loss, or
(n) if any of the events specified in this clause 5 shall occur
(mutatis mulandis) in relation to a surety or holding company (as
defined in section 736 Companies Act 1985) of the Borrower, or
(o) if any other event the occurrence of which has been or may be
agreed between the Borrower and LB as enabling LB to make demand for
the whole or any part of the moneys payable or to become payable
hereunder shall occur
And in each case LB may do all or any of the following things:-
(i) Take immediate steps to realise its security and to sell the Charged
Property either with or without taking possession of the same and
either by public auction or private contract and on such conditions as
LB shall deem proper (including a provision that the purchase price is
payable by instalments) without being responsible for any loss
occasioned thereby and without the restriction imposed by section 103
of the Law of Property Act 1925.
(ii) Appoint in writing under the hand of a Director or Authorised
Signatory of LB or under the seal of LB any person or persons whether
an officer of LB or not to be a Receiver or Receivers in respect of
all or any part of the Charged Property (if more than one person is so
appointed all such persons may act severally as well as jointly with
the others of them)
6. (1) A Receiver or Receivers appointed pursuant to clause 5 hereof or
pursuant to any other power possessed by LB shall be the agent(s) of
the Borrower for all purposes and shall have power.
(a) to sell let deal with and take possession of the Charged Property
or any part thereof (including a provision that on the sale of
the Charged Property or any part thereof the purchase price may
be payable by instalments) and to carry any such sale into effect
by conveying or assuring the Charged Property or any part thereof
in the name and on behalf of the Borrower and
(b) to make such alterations additions repairs and improvement to the
Charged Property as he or they shall think fit and
110
<PAGE>
(c) to obtain such licenses permits permissions and consents in
respect of the Charged Property as he or they shall think fit or
desirable in order to protect the same or for the purpose of
selling disposing of or dealing with the same, and
(d) to take any proceedings in relation to the Charged Property or
any part thereof in the name of the Borrower or otherwise as may
seem expedient including proceedings for the collection of
rentals in arreas at the date of his or their appointment, and
(e) to enter into any agreement or make any arrangement or compromise
as he or they shall think fit in respect of the Charged Property,
and
(f) to insure the Charged Property or any part thereof in such manner
as he or they shall think fit or as LB shall from time to time
direct, and
(g) to appoint managers agents (which may be or include LB)
solicitors values contractors officers servants workmen and
others for any of the aforesaid purposes at such remuneration and
for such periods as he or they may determine, and
(h) to do all such other things as may be incidental to or as he or
they may think conducive to the realization of LB's security, and
(i) to raise moneys upon such terms and at such rate of interest as
he or they may decide and upon the security of the Charged
Property (which is hereby changed with the payment thereof) for
the purposes of doing all or any of such things as aforesaid
PROVIDED ALWAYS that nothing herein contained shall make LB liable to any such
Receiver or Receivers as aforesaid in respect of his or their remuneration costs
charges or expenses or otherwise and PROVIDED FURTHER that the Borrower shall be
solely responsible for the acts or defaults of the Receiver or Receivers.
(2) The Borrower irrevocably appoints any Receiver or Receivers appointed
hereunder to be the Attorney(s) of the Borrower to do any act or
execute and deliver any deed or document for all or any of the
purposes mentioned in sub-clauses (1) of this clause and the powers
conferred by this clause shall be in addition to all powers given by
statute to LB or to any such Receiver. Without prejudice to the
generality of the foregoing the Borrower hereby covenants with LB and
separately with each such Receiver that if required so to do the
Borrower will ratify and confirm all transactions entered into by the
Receiver or Receivers or by the Borrower at the instance of the
Receiver or Receivers in the exercise or purported exercise of the
powers of the Receiver or Receivers and the Borrower irrevocably
111
<PAGE>
Acknowledges and agrees that the said power of attorney is (inter
alias) given to the Receiver or Receivers to secure the performance of
such obligation to ratify and confirm owed to him or them by the
Borrower.
(3) The net proceeds of sale disposal dealing or realization and all
monies got in by any such Receiver or Receivers shall be applied by
the Receiver or Receivers subject to the claims of all secured or
unsecured creditors (if any) in ranking in priority to this Chargo:-
FIRST in payment of all costs charges and expenses of and incidental
to the appointment of the receiver or receivers and the exercise by
him or them all or any of the powers as aforesaid including the
remuneration of the receiver or receivers at a rate or of an amount to
be agreed by LB;
SECONDLY In or toward payment to LB of arrears of interest,
THIRDLY in or toward payment to LB all other moneys owing to LB;
FOURTHLY in or towards payment of any other moneys and liabilities
secured hereby and it he event of the shortfall in such proportions as
he or they shall think fit; and
FIFTHLY any surplus shall be paid to the persons or persons entitled
thereto.
7. The Borrower agrees to indemnify LB and as a separate covenant any Receiver
or Receivers appointed hereunder against all existing and future rents
rates taxes duties charges assessments impositions and outgoings whatsoever
(whether imposed by deed or statute or otherwise and whether of the nature
of capital or revenue) now or at any time payable in respect of any
freehold or leasehold premises on or in which the Charged Property may be
situated or by the owner or occupier of such premises. If any such sums
shall be paid by LB or by any Receiver or Receivers the same shall be
reimbursed by the Borrower on demand with interest at the rate specified in
clause 9 hereof from the date of payment by LB or by any Receiver or
Receivers until the date of reimbursement by the Borrower and until
reimbursement by the Borrower the Charged Property shall be charged with
the said sums with interest but LB shall not be deemed to have taken
possession of the Charged Property or of any freehold or leasehold premises
in which the Charged Property may be situated by reason of such payments.
8. LB may at any time after appointing a Receiver or Receivers or entering
into possession of all or any part of the Charged Property under the power
herein contained remove such Receiver or Receivers (or any of them) or
relinquish such possession on giving notice to the Borrower. If LB removes
any such Receiver then it may (but shall not be bound to do so) appoint
another in his stead.
112
<PAGE>
9. All costs including Value Added Tax and disbursements (on an indemnity
basis) of any legal proceedings and any other action to enforce the terms
of these presents shall be paid by the Borrower on demand and such monies
with interest at the rate of 5% above Finance House Base from time to time
current shall be charged upon the Charged Property.
10. (a) The foregoing provisions shall take effect by way of variation and
extension of sections 101 and 104 to 109 inclusive of the Law of
Property Act 1925 and the provisions of such sections and the powers
conferred on a mortgagee or receiver by such sections as so varied and
extended shall apply to and be exercisable by any such receiver as
aforesaid as far as possible.
(b) LB may appropriate any payment made by the Borrower to any sum due to
LB or to any subsidiary from time to time of LB from the Borrower
whether under these terms or not and whether the Borrower purports to
appropriate payments to any particular sum or not.
11. Any demand or notice required or authorized by this Charge or by statute to
be given to or to be served on the Borrower shall be in writing and shall
be sufficiently served if it is served in any manner in which a notice may
be served on a mortgagor under section 196 of the Law of Property Act 1925
or if it is sent by ordinary pre-paid post addressed to the Borrower at his
or their last known address and a notice so served shall be deemed to have
been served on the day following that on which the letter containing such
notice shall have been posted.
12. A demand or notice by a Director or official of LB as to the money and
liabilities for the time being due or incurred by LB to the Borrower and
secured hereby shall be conclusive evidence against the Borrower (save in
the case of manifest error) in any legal proceedings in respect thereof.
13. In this charge where the context so admits:-
(a) :the Borrower" includes the persons deriving title under him or them
and if more than one person is stated to be the Borrower then "the
Borrower" shall include reference to all such persons and the persons
deriving title under them or any of them.
(b) "LB" includes its assigns and persons deriving title under it.
(c) Words importing the masculine gender only include the feminine and
words Importing the singular only include the plural and vice versa.
(d) If more than one person is stated to be the Borrower then the
agreements and covenants herein of the Borrower shall be joint and
several.
113
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14. The charges hereby created is in addition to any other security or
securities now or hereafter held by LB and where this charge initially
takes effect as a collateral or further security then notwithstanding any
receipt release or discharge endorsed on or given in respect of the money
and liabilities owing under the principal security to which this charge
operates as a collateral or further security this charge shall in respect
of any money which was originally intended to be secured be an independent
security for any such money.
15. The Borrower hereby agrees that if a monthly insurance premium for Business
Security Cover Insurance is shown in the First Schedule hereto then:
(a) The Borrower will pay LB for a period coinciding with the period for
repayment of the Principal Amount as specified in the First Schedule
hereto the said monthly premiums on the same dates as are specified in
the First Schedule for repayment of the Principal Amount;
(b) LB will collect the monthly premiums on behalf of the insurer;
(c) The Borrower acknowledges that he has applied for such Insurance and
has received details of the cover and the limitations thereof;
(d) LB will be entitled to supply to the insurer any information
concerning the Borrower for which the insurer may ask and LB us
authorized to approach any person to obtain that information;
(e) If moneys become payable by the insurer LB will be entitled to receive
these from the insurer and will be entitled to apply the same in or
towards satisfaction of all moneys hereby secured;
(f) If the Principal Amount and interest thereon and all other moneys
secured by this Charge are paid by the Borrower to LB at any time
prior to expiry of the period for repayment thereof specified in the
said First Schedule the Borrower will be entitled to terminate the
insurance cover by paying to LB a sum equal to two monthly premiums
together with any arrears of monthly premiums due.
114
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THE FIRST SCHEDULE before referred to
(Loan and Repayment Details)
----------------------------
Fixed Rate
Principal Amount (pound)500,000.00
Optional Business Security Cover monthly premium: (pound)
- --------------------------------------------------------------------------------
The Principal Amount together with interest amounting to (pound)87,500.20 is
repayable by 60 instalments of (pound)9,791.67 per month commencing on the 1
June 1999 and the Borrower will pay a documentation fee of (pound)60.00 to LB on
the date on which the last of the monthly instalments is due. If the Borrower
does not pay any instalment on the due date the Borrower shall pay late payment
interest on the unpaid sum at the rate of 15% per annum (" the Interest Rate")
115
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The Second Schedule hereinbefore referred to
The Charged Property
--------------------
----------------------------------------------------
Description of Goods
----------------------------------------------------
Arcotronics AVE 233 PM233115C
----------------------------------------------------
Arcotronics AVE 189 PM037/C
----------------------------------------------------
Arcotronics AVE 263B 263M274C
----------------------------------------------------
Arcotronics AVE 263D PM263 718D
----------------------------------------------------
Arcotronics AVE 263C PM263 721A
----------------------------------------------------
Arcotronics AVE 263D 263M 274D
----------------------------------------------------
Arcotronics AVE 263B 263M231C
----------------------------------------------------
Baron Impregnation System
----------------------------------------------------
TOGETHER WITH all other plant and machinery, fittings and equipment (not being
the Company's stock in trade or work in progress) now or at any time hereafter
belonging to the Company or in which the Company is legally, beneficially or
otherwise interested, wherever situated and whether or not affixed to any
freehold or leasehold property of the Company.
116
<PAGE>
-11-
THE COMMON SEAL of
BHC AEROVOX LIMITED
was hereunto affixed in
the presence of:
Director
Secretary
SIGNED as a Deed by
BHC AEROVOX LIMITED
acting by either a Director
and its Secretary or two
Directors
Signed ------------------ ---------------------- --------------------------
Director Secretary/Director
Name in block
------------------------------ --------------------------
capitals
117
<PAGE>
CERTIFICATE
-----------
I hereby certify that the Directors of BHC AEROVOX LIMITED ("the Borrower")
resolved that the Borrower enter into and execute a Fixed Charge over goods and
equipment in favour of Lloyds Bowmaker Limited as security for all monies due
and payable from time to time to Lloyds Bowmaker Limited.
Dated 19
- --------------------------------
Director
118
<PAGE>
The Directors
BHC Aerovox Limited
20-21 Cumberland Drive
Granby Industrial Estate
Weymouth
Dorset DT4 9TE
Your Ref: Our Ref: 14 April, 1999
Dear Sirs,
OVERDRAFT FACILITY AND OTHER FACILITIES
We Lloyds Bank Plc. (the "Bank"), are pleased to offer to BHC Aerovox Limited
an overdraft facility on currency account number 11283596, 86018991, 2474528
and/or your sterling account number 2471758 on the following terms and
conditions.
Amount
The maximum aggregate amount outstanding at any facility at any one time
(calculated on the basis of cleared funds) shall not exceed (pound)2,500,000.
For the purpose of determining whether the total amount owing is at any
particular time within or in excess of this limit, amounts owing in a currency
other than sterling shall be notionally converted into sterling on the basis of
the Bank's exchange rate for buying that currency with sterling at that time.
Availability
Any amounts from time to time owing under the facility are repayable on demand
but it is the Bank's present intention to make the facility available until 29
February 2000. All monies from time to time owing to the Bank under this
facility shall be repaid no later than this date owing at any time may include
interest, costs or charges debited to the account in accordance with the terms
of this letter.
The Bank shall have the right at the time of making demand or at any time
thereafter to convert all amounts then due and payable in a currency other than
sterling into sterling at the Bank's exchange rate for selling that currency
against sterling at that time. The Bank shall as soon as possible after such
conversion advise you of the sterling amount then owing.
119
<PAGE>
Interest
- --------
Interest is calculated in the cleared daily balance of each account and will be
payable on amounts owing up to the aforesaid limit at 1.5% per annum over the
Bank's Base Rate from time to time (currently 6.75% per annum in total) in the
case of amounts owing in sterling and at 1.5% per annum over the Bank's relevant
short term offered rate from time to time in the case of amounts owing in any
other currency.
Amounts owing in excess of the agreed limit will be deemed to be amounts owing
in sterling and interest will be payable thereon at Lloyds Bank Unauthorized
Overdraft Rate (presently 2% per month, Equivalent Annual Rate 24%). If there
are no amounts owing in sterling, or the amounts are less than the excess, or,
as the case may be, on the amount by which the excess exceeds the overdrawn
balance of the sterling account on such currency account or accounts as the Bank
shall determine at the Bank's unauthorized currency borrowing rate from time to
time (currently 12% per annum over the Bank's relevant short term offered
rates).
Interest will be debited to the relevant account monthly in arrears (normally on
the 20th of each month or on the next working day) and additionally on the date
upon which the facility ceases to be available.
The Bank's Base Rate and Unauthorized Overdraft Rate may be varied (either up or
down) by the Bank at any time and notices of changes will be displayed in the
branch of the Bank where your account is held. The Bank's short term offered
rate for each currency may vary from day to day and upon request the Bank will
advise you of the rates then applicable. Interest will be calculated on the
basis of the actual number of days elapsed and a 360 day year or a 365 day year
as is in the Bank's reasonable opinion the usual market practice for the
relevant currency.
Costs and Charges
Charges will be payable on the sterling account as follows:
Free for the first three months and thereafter transaction charges will be
payable on the account monthly in accordance with the itemised Business Tariff
detailed on the enclosed fact sheet.
In addition, further charges will be payable for other services provided, as
shown in the enclosed tariff leaflet.
These charges will be debited to the account and may be varied by the Bank at
any time and notice of changes will be advised to you.
All costs and expenses incurred by the Bank in creating, preserving or enforcing
the security referred to below in excess of the security fee shall be debited to
the account under advice
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to you.
Security
It is a condition of the facility and of the other facilities referred to below
that amounts owing shall be secured by the following.
Any security which is not already in place is to be provided to the Bank in a
form acceptable to the Bank.
a. An unlimited debenture from you.
b. A first legal charge over 20-21 Cumberland Drive, Granby Industrial
Estate, Weymouth, Dorset.
Financial Information
Whilst the facility and/or any of the other Facilities remain available you
should provide to the Bank copies of any financial information that the Bank may
from time to time reasonably request, including:
(a). Your audited annual accounts and
(b). Your monthly management accounts,
As soon as possible after the end of the period to which they relate which
shall not be later than 150 days in respect of your annual accounts or 30 days
in respect of your management accounts from the end of each relevant period.
Other Facilities
In addition to the overdraft facility we are pleased to offer to you the
facilities numbered 1 to 2 on the attached Schedule. These additional facilities
will be available upon such terms and conditions as shall from time to time be
specified by the Bank and may be cancelled by the Bank at any time, but it is
the Bank's present intention to keep these facilities in place for the period of
availability of the overdraft facility. Your liability in respect of any
utilisation of these facilities may, however, extend beyond such period of
availability.
Amounts outstanding in connection with the facility numbered 1 on the attached
Schedule may be in sterling or in any other currency. For the purpose of
determining whether there is sufficient availability within the specified limit
for any particular utilisation, amounts outstanding in a currency other than
sterling shall be notionally converted into sterling on the date of the proposed
utilisation on the basis of the Bank's exchange rate for buying the relevant
currency with sterling at that time.
Charges relating to these facilities will be as set out in the enclosed tariff
leaflet or as agreed from time to time.
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The Bank may debit any amount owing in connection with these additional
facilities to the Company's current account with the Bank whether or not that
would cause the account to become overdrawn or the agreed overdraft limit on
the account to be breached.
Period of Offer
Please confirm your acceptance of the facilities offered by returning the
attached duplicate of this letter with the acknowledgement signed in accordance
with the Bank mandate currently held by the Bank. If such confirmation is not
received by this office within one month of the date of this letter the offer
will lapse.
Yours faithfully,
For and on behalf of Lloyds Bank Plc.
Neil Cullum
Senior Manager
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We hereby acknowledge and accept the terms of your offer dated 14 April, 1999 of
which this is a duplicate and agree all the terms and conditions therein
contained
For and on behalf of BHC Aerovox Limited
Signed by: Graham Yates
22/4/99
Signed by: Julian Boardman
22/4/99
This document creates legal obligations. Before signing you may wish to take
independent advice.
To be signed in accordance with the account mandate held by the Bank.
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SCHEDULE OF OTHER FACILITIES
- ----------------------------
The following additional facilities are available to you:
1. A foreign exchange facility of (pound)200,000 for spot and forward exchange
------------------
contract of up to 12 months. You may enter into foreign exchange
contracts with the Bank provided that the aggregate of (a) 10% of the
value of contracts with a maturity date of 6 months or less from the
contract date, [and] (b) 15% of the value of contracts with a maturity
date of 12 months or less (but of more than 6 months) from the contract
date, [and (c) 20% of the value of contracts with a maturity date of
more than 12 months from the contract date] outstanding at any time does
not exceed the limit detailed above.
2. An indemnity line of (pound)200,000 to cover bonds, indemnities and
-----------------------------------
guarantees ("BIGs") issued by the Bank or its correspondents on your
behalf. The total value of all BIGs that may be outstanding at any one
time may not exceed the limit detailed above. You should note that the
total liability of the Bank under certain custom and excise guarantees is
twice the amount quoted on the guarantee.
The Bank shall be under no obligation to issue any BIG unless the terms of the
BIG and the expiry date of the BIG (or means by which the Bank can terminate its
liability) are acceptable to the Bank. The Bank is to be indemnified to its
complete satisfaction for its liability in connection with each BIG issued.
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Exhibit 4.8
THIS SALE AGREEMENT is made the 15 February 1999
BETWEEN:
(1) BHC AEROVOX LIMITED, A COMPANY REGISTERED IN ENGLAND UNDER NUMBER 2775957
WHOSE REGISTERED OFFICE IS 20-21 CUMBERLAND DRIVE, GRANBY INDUSTRIAL
ESTATE, WEYMOUTH, DORSET, DT4 9TE, ("THE VENDOR"); AND
(2) BARCLAYS MECANTILE BUSINESS FINANCE LIMITED A COMPANY REGISTERED IN ENGLAND
UNDER NUMBER 898129 WHOSE REGISTERED OFFICE IS AT CHURCHILL PLAZA,
CHURCHILL WAY, BASINGSTOKE, HAMPSIRE RG21 1GP ("THE PURCHASER").
WHEREBY IT IS HEREBY AGREED as follows:
1. As obligations separate and independent from any other obligations of the
Vendor and the Purchaser and subject only to the terms of this Agreement
and the relevant VAT invoice the Vendor agrees to sell outright and the
Purchaser agrees to purchase, the equipment described in the Schedule
attached.
2. The total price payable by the Purchaser to the Vendor for the Equipment
shall be as stated in the Schedule attached (the "Purchase Price") plus
value added tax.
3. Full title to and risk in the Equipment shall pass to the Purchaser from
the Vendor on payment of the Purchase Price plus value added tax.
4. In consideration of the Purchaser entering into this Agreement, the Vendor
hereby represents and warrants to the Purchaser that:
(i) the entering into of this Agreement by the Vendor and the due and
proper performance of its obligations hereunder will not conflict
with or result in a breach of any term of or constitute a default
under or result in the creation or imposition of any lien security
interest, charge or encumbrance upon the Equipment;
(ii) the description and other details of the Equipment set out in the
Schedule attached are accurate and the Equipment is complete and of
satisfactory quality and it for its purpose;
(iii) the Vendor is the legal owner of the Equipment free and clear of all
liens, Mortgages, charges and encumbrances; and
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(iv) there are no outstanding disputes claims or proceedings relating to
or arising from the condition, possession or operation of the
Equipment.
5. This Agreement shall be governed by English law.
IN WITNESS whereof this Agreement has been entered into the day and year first
before written.
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SCHEDULE
Equipment Serial No. Purchase Price
Plant & Machinery as documented on (pound)764,975.06 plus VAT
Agreement Number 64/46577987-5
SIGNED for and on behalf of BHC Aerovox Ltd.
By: Julian Boardman
Title: Financial Director
SIGNED for and on behalf of
BARCLAYS MERCANTILE BUSINESS FINANCE LIMITED
By: P. A. Hyman
Title: Team Leader
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Exhibit 10.1.2
AEROVOX INCORPORATED
1999 STOCK INCENTIVE PLAN
Section 1. General Purpose of the Plan; Definitions.
The name of the plan is Aerovox Incorporated 1999 Stock Incentive Plan (the
"Plan"). The purpose of the Plan is to secure for Aerovox Incorporated (the
"Company") and its stockholders the benefit of the incentives inherent in Common
Stock ownership and the receipt of incentive awards by selected key employees of
the Company and its Subsidiaries who contribute to and will be responsible for
continued long-term growth of the Company, and to reward employees for such
contributions. The Plan is intended to stimulate the efforts of such persons by
providing an opportunity for capital appreciation and giving suitable
recognition for services which contribute materially to the success of the
Company.
The following terms shall be defined as set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(1) "Award" or "Awards" except where referring to a particular
category of grant under the Plan shall include Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Unrestricted Stock Awards, Deferred Stock Awards, Performance Unit
Awards, and Other Stock-based Awards.
(2) "Award Agreement" or "Award Agreements" except where referring to
an agreement for a particular category of grant under the Plan shall
include Restricted Stock Award Agreements, Deferred Stock Award Agreements,
Performance Unit Award Agreements, and Other Stock-based Award Agreements.
(3) "Board" means the Board of Directors of the Company.
(4) "Code" means the Internal Revenue Code of 1986, as amended, and
any successor Code, and related rules, regulations, and interpretations.
(5) "Committee" means the Committee referred to in Section 2. If at
any time no Committee shall be in office, the functions of the Committee
shall be exercised by the Board.
(b) "Deferred Stock Award" is defined in Section 9(a).
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(c) "Discretionary Payment" means a payment made pursuant to
Section 7(d).
(d) "Fair Market Value" on any given date means the highest closing
sale price on the date immediately preceding the date in question of a
share of Stock on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such Stock is not quoted on the Composite Tape, on the New
York Stock Exchange, or, if such Stock is not listed on such Exchange, on
the principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such Stock is listed, or, if such
Stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such Stock on the date immediately preceding the
date in question on the National Association of Securities Dealers, Inc.
Automated Quotation System or any similar system then in use, or if no such
quotation system is available, the fair market value on the date in
question as determined in good faith by the Committee in accordance with
the applicable provisions of the Code.
(e) "Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" as defined in the Code.
(f) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3 promulgated under the Act, or any successor definition under the Act,
excluding any director who would not also be an "outside director" for
purposes of Section 162(m) of the Code.
(g) "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(h) "Other Stock-based Award" is defined in Section 11(a).
(i) "Performance Unit Award" is defined in Section 10(a).
(j) "Restricted Stock Award" is defined in Section 8(a).
(k) "Stock" or "Common Stock" means the common stock, $1.00
par value, of the Company, subject to adjustments pursuant to Section 3.
(l) "Stock Appreciation Right" or "SAR" means a right described in
Section 7(a) and granted either independently of other Awards or in tandem
with the grant of a Stock Option.
(m) "Stock Option" or "Option" means an option to purchase
shares of Stock granted pursuant to Section 6.
(n) "Subsidiary" means any corporation or other entity (other than
the Company) in an unbroken chain beginning with the Company if each of the
entities (other than the
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last entity in the unbroken chain) owns stock or other interests possessing
50% or more of the total combined voting power of all classes of stock or
other interest in one of the other corporations in the chain.
(o) "Unrestricted Stock" is defined in Section 8(f).
Section 2. Committee Authority to Select Participants and Determine Awards,
Etc.
The Plan shall be administered by a Committee of not less than two
directors, all of whom are Non-Employee Directors. Members of the Committee
shall be appointed by the Board and shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant Awards consistent with
the terms of the Plan, including the power and authority: (a) to select the
officers and other key employees of the Company and its Subsidiaries to whom
Awards may from time to time be granted; (b) to determine the time or times of
grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock, Unrestricted Stock,
Deferred Stock, Performance Units, and any Other Stock-based Awards, or any
combination of the foregoing, granted to any one or more participants; (c) to
determine the number of shares to be covered by any Award; (d) to determine the
terms and conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among individual
Awards and participants; (e) to determine whether, to what extent, and under
what circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the participant and
whether and to what extent the Company shall pay or credit amounts equal to
interest (at rates determined by the Committee) or dividends or deemed dividends
on such deferrals; and (f) to adopt, alter, and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable, to interpret the terms and provisions of
the Plan and any Award (including related Award Agreements), to make all
determinations it deems advisable for the administration of the Plan; to decide
all disputes arising in connection with the Plan, and otherwise to supervise the
administration of the Plan. All decisions and interpretations of the Committee
shall be binding on all persons, including the Company and Plan participants.
Section 3. Shares Issuable Under The Plan; Mergers; Substitution.
(a) Shares Issuable. The maximum number of shares of Stock reserved and
---------------
available for issuance under the Plan shall be 500,000. For purposes of the
foregoing limitations, Awards and Stock which are forfeited, reacquired by the
Company, or satisfied without the issuance of Stock shall not be counted.
Subject to such overall limitation, shares may be issued up to such maximum
pursuant to any type or types of Award, including Incentive Stock Options.
Shares issued under the Plan may be authorized but unissued shares or shares
reacquired by the Company.
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(b) Stock Dividends, Mergers, etc. In the event of a stock dividend,
-----------------------------
stock split, or similar change in capitalization affecting the Stock, the
Committee shall make appropriate adjustments in (i) the number and kind of
shares of stock or securities on which Awards may thereafter be granted, (ii)
the number and kind of shares remaining subject to outstanding Awards, and (iii)
the option or purchase price in respect of such shares. Subject to subsection
(d) below, in the event of a consolidation or merger in which the Company is not
the surviving corporation or which results in the acquisition of all or
substantially all of the Company's outstanding Stock by a single person or
entity or by a group or persons and/or entities acting in concert, or in the
event of the sale or transfer of all or substantially all of the Company's
assets or the dissolution or liquidation of the Company, (any of the foregoing,
a "covered transaction"), all Awards that are not automatically converted into
other securities in the covered transaction shall expire; provided, that if
there is a surviving or acquiring corporation, the Committee in its sole
discretion may arrange, subjection to consummation of the covered transaction,
for the assumption of Awards or the grant of replacement awards by the surviving
or acquiring corporation or an affiliate thereof.
(c) Substitute Awards. The Company may grant Awards under the Plan in
-----------------
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute Awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances. The shares which may be delivered
under such substitute Awards shall be in addition to the maximum number of
shares provided for in Section 3(a).
(d) Change of Control. Notwithstanding any other provision of this
-----------------
Plan, in the event of a Change of Control of the Company as defined in Exhibit A
hereto: (i) each Stock Option and Stock Appreciation Right shall automatically
become fully exercisable (unless the Committee shall otherwise expressly provide
at the time of grant), and (ii) restrictions and conditions on Restricted Stock,
Deferred Stock, Performance Units and Other Stock-Based Awards shall
automatically be deemed waived (but only if and to the extent specified by the
Committee at or after the time of grant). The provisions of this subsection (d)
shall apply prior to the application of the second sentence of subsection (b)
above.
Section 4. Eligibility.
Participants in the Plan will be such full or part-time officers and
other key employees of the Company and its Subsidiaries (excluding a director
who is not a full-time employee) who are selected from time to time by the
Committee in its sole discretion.
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Section 5. Limitations on Term and Dates of Awards.
(a) Duration of Awards. Subject to Sections 15(a) and 15(c) below, no
------------------
restrictions or limitations on Awards shall extend beyond 10 years from the
grant date, except that deferrals, elected by participants, of the receipt of
Stock or other benefits under the Plan may extend beyond such date.
(b) Special Limitations Applicable to Certain Awards. Subject to
------------------------------------------------
adjustment as provided in Section 3, to the extent such adjustment is consistent
with the continued satisfaction by exempt Options and SARs of the requirements
of Section 162(m)(4)(C) of the Code, the maximum number of shares of Common
Stock for which Options may be awarded under the Plan to any participant in any
calendar year, and the maximum number of shares of Common Stock for which SARs
may be awarded under the Plan to any participant in any calendar year, is in
each case 50,000 shares. For purposes of the preceding sentence, the regrant of
a canceled Option or SAR, or the repricing of an Option or SAR, shall be treated
as a separate Award to the extent required under Section 162(m)(4)(C) of the
Code.
(c) Latest Grant Date. No Award shall be granted more then 10 years
-----------------
after the date the Plan is approved by the Board, but then outstanding Awards
may extend beyond such date.
Section 6. Stock Options.
Each Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve. Each Stock Option granted under the
Plan shall be deemed to be a Non-Qualified Stock Option unless it is designated
as an Incentive Stock Option at time of grant. Stock Options granted under the
Plan shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:
(1) Option Price. The option price per share of Stock purchasable under
------------
a Stock Option shall be determined by the Committee at the time of grant but
shall be, in the case of Incentive Stock Options, not less than 100% of Fair
Market Value on the date of grant. If any employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation and an Incentive Stock Option is
granted to such employee, the option price shall be not less than 110% of Fair
Market Value on the date of grant.
(2) Option Term. The term of each Stock Option shall be fixed by the
-----------
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Option is granted. If an employee owns or is deemed to own (by reason
of the attribution rules of Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company
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or any Subsidiary or parent corporation and an Incentive Stock Option is granted
to such employee, the term of such Option shall be no more than five years from
the date of grant.
(3) Exercisability. Stock Options shall be exercisable at such future time
--------------
or times, whether or not in installments, as shall be determined by the
Committee at or after the date of grant. The Committee may at any time
accelerate the exercisability of all or any portion of any Stock Option.
(4) Method of Exercise. Stock Options may be exercised in whole or in part
------------------
by giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in full of
the purchase price, either by (i) in cash or by certified check, bank draft or
money order payable to the order of the Company or (ii) if permitted by the
Committee, in its discretion, at (or, in the case of Non-Qualified Stock
Options, at or after) the time of grant, (A) through the delivery of shares of
Stock having a Fair Market Value on the last business day preceding the date of
exercise equal to the purchase price (which shares, if previously acquired from
the Company, shall have been outstanding for six months or such other period as
the Committee may require) or (B) by delivery of a promissory note of the
optionee to the Company payable on such terms as are specified by the Committee,
or by a combination of cash (or cash and Stock) and the optionee's promissory
note; provided, that if the Stock delivered upon exercise of the Stock Option is
an original issue of authorized Stock, at least so much of the exercise price as
represents the par value of such Stock must be paid in cash if the Committee
determines that cash payment is required by law, or (C) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price, (D) by any combination of
the permissible forms of payment.
(5) Nontransferability of Options. Unless otherwise provided by the
-----------------------------
Committee, a Stock Option shall not be transferable by the optionee other than
by will or by the laws of descent and distribution and shall be exercisable,
during the optionee's lifetime, only by the optionee.
(6) Termination by Death. If an optionee's employment by the Company and
--------------------
its Subsidiaries terminates by reason of death, the Stock Option may thereafter
be exercised, to the extent then exercisable (or on such accelerated basis as
the Committee shall at any time determine prior to death), by the legal
representative or legatee of the optionee, for a period of three years (or such
other period, not to exceed three years, as the Committee shall specify at or
after the time of grant) from the date of death or until the expiration of the
stated term of the Option if earlier.
(7) Termination by Reason of Disability. Any Stock Option held by an
-----------------------------------
optionee whose employment by the Company and its Subsidiaries has terminated by
reason of permanent disability may thereafter be exercised to the extent it was
exercisable at the time of such
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termination (or on such accelerated basis as the Committee shall at any time
determine prior to such termination) for a period of three years (or such other
period, not to exceed three years, as the Committee shall specify at or after
the time of grant) from the date of such termination of employment or until the
expiration of the stated term of the Option, if earlier. Except as otherwise
provided by the Committee at the time of grant, the death of an optionee during
the final year of such exercise period shall extend such period for one year
following death, or until the expiration of the stated term of the Option if
earlier.
(8) Termination by Reason of Retirement. Any Stock Option held by an
-----------------------------------
optionee whose employment by the Company and its Subsidiaries has terminated by
reason of retirement may thereafter be exercised to the extent it was
exercisable at the time of such termination (or on such accelerated basis as the
Committee shall at any time determine prior to such termination) for a period of
three years (or such other period, not to exceed three years, as the Committee
shall specify at or after the time of grant) from the date of such termination
of employment or until the expiration of the stated term of the Option, if
earlier. Except as otherwise provided by the Committee at the time of grant, the
death of an optionee during the final year of such exercise period shall extend
such period for one year following death, or until the expiration of the stated
term of the Option if earlier.
(9) Other Termination. Unless otherwise determined by the Committee, if
-----------------
an optionee's employment by the Company or its Subsidiaries terminates for any
reason other than death, permanent disability, or retirement, any Stock Option
held by such optionee may thereafter be exercised to the extent it was
exercisable on the date of termination of employment (or on such accelerated
basis as the Committee shall determine at or after the time of grant) for a
period of three months (or such longer period up to three years as the Committee
shall specify at or after the time of grant) from the date of termination of
employment or until the expiration of the stated terms of the Option if earlier.
(10) Form of Settlement. Subject to Section 16(a) and Section 16(c)
------------------
below, shares of Stock issued upon exercise of a Stock Option shall be free of
all restrictions under the Plan, except as provided in the following sentence.
The Committee may provide at time of grant that the shares to be issued upon the
exercise of a Stock Option shall be in the form of Restricted Stock or Deferred
Stock, or may reserve the right to so provide after time of grant.
Section 3. Stock Appreciation Rights; Discretionary Payments.
(1) Nature of Stock Appreciation Right. A Stock Appreciation Right is an
----------------------------------
Award entitling the recipient to receive an amount in cash or shares of Stock
(or forms of payment permitted under paragraph (e) below) or a combination
thereof having a value equal to (or if the Committee shall so determine at time
of grant, less than) the excess of the Fair Market Value of a share of Stock on
the date of exercise over the Fair Market Value of a share of Stock on the date
of grant (or over the option exercise price, if the Stock Appreciation Right was
granted in tandem
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with a Stock Option) multiplied by the number of shares with respect to which
the Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(2) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation
-----------------------------------------------
Rights may be granted in tandem with, or independently of, any Stock Option
granted under the Plan. In the case of a Stock Appreciation Right granted in
tandem with a Non-Qualified Stock Option, such right may be granted either at or
after the time of the grant of such Option. In the case of a Stock Appreciation
Right granted in tandem with an Incentive Stock Option, such right may be
granted only at the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall not be reduced until the exercise or
termination of the related Stock Option exceeds the number of shares not covered
by the Stock Appreciation Right.
(3) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation
-------------------------------------------------
Rights shall be subject to such terms and conditions as shall be determined from
time to time by the Committee, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Stock Options
shall be exercisable only at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon the exercise of a Stock Appreciation Right, the applicable
portion of any related Stock Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with a Stock Option
shall be transferable only with such Stock Option. Stock Appreciation
Rights shall not be transferable otherwise than by will or the laws of
descent and distribution. All Stock Appreciation Rights shall be
exercisable during the participants's lifetime only by the participant or
the participant's legal representative.
(iv) A Stock Appreciation Right granted in tandem with an Incentive
Stock Option may be exercised only when the market price of the Stock
subject to the Incentive Stock Option exceeds the exercise price of such
Option.
(4) Discretionary Payments. Notwithstanding that a Stock Option at the
----------------------
time of exercise shall not be accompanied by a related Stock Appreciation Right,
if the market price of the shares subject to such Stock Option exceeds the
exercise price of such Stock Option at the
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time of its exercise, the Committee may, in its discretion, cancel such Stock
Option, in which event the Company shall pay to the person exercising such Stock
Option an amount equal to the difference between the Fair Market Value of the
Stock to have been purchased pursuant to such exercise of such Stock Option
(determined on the date the Stock Option is canceled) and the aggregate
consideration to have been paid by such person upon such exercise. Such payment
shall be by check or in Stock (or in a form of payment permitted under paragraph
(e) below) having a Fair Market Value (determined on the date the payment is to
be made) equal to the amount of such payments or any combination thereof, as
determined by the Committee. The Committee may exercise its discretion under the
first sentence of this paragraph (d) only in the event of a written request of
the person exercising the Option, which request shall not be binding on the
Committee.
(5) Settlement in the Form of Restricted Shares or Rights to Receive
----------------------------------------------------------------
Deferred Stock. Subject to Sections 15(a) and 15(c) below, shares of Stock
- --------------
issued upon exercise of a Stock Appreciation Right or as a Discretionary Payment
shall be free of all restrictions under the Plan, except as provided in the
following sentence. The Committee may provide at the time of grant in case of a
Stock Appreciation Right (and at the time of payment in the case of a
Discretionary Payment) that such shares shall be in the form of shares of
Restricted Stock or rights to acquire Deferred Stock, or in the case of a Stock
Appreciation Right may reserve the right to so provide at any time after the
time of grant. Any such shares and any shares subject to rights to acquire
Deferred Stock shall be valued at Fair Market Value on the date of exercise of
the Stock Appreciation Right or the date the Stock Option is canceled in the
case of Discretionary Payments.
Section 4. Restricted Stock; Unrestricted Stock.
(1) Nature of Restricted Stock Award. A Restricted Stock Award is an Award
--------------------------------
entitling the recipient to acquire shares of Stock for a purchase price (which
may be zero), subject to such conditions, including a Company right during a
specified period or periods to repurchase such shares at their original purchase
price (or to require forfeiture of such shares, if the purchase price was zero)
upon the participant's termination of employment, as the Committee may determine
at the time of grant.
(2) Award Agreement. A participant who is granted a Restricted Stock Award
---------------
shall have no rights with respect to such Award unless the participant shall
have accepted the Award within 60 days (or such other period as the Committee
may specify) following the award date by making payment to the Company by
certified or bank check or other instrument acceptable to the Committee in an
amount equal to the specified purchase price, if any, of the shares covered by
the Award and by executing and delivering to the Company a Restricted Stock
Award Agreement in such form as the Committee shall determine.
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<PAGE>
(3) Rights as a Shareholder. Upon complying with paragraph (b) above, a
-----------------------
participant shall have all the rights of a shareholder with respect to the
Restricted Stock including voting and dividend rights, subject to
nontransferability restrictions and Company repurchase or forfeiture rights
described in this Section and subject to any other conditions contained in the
Award Agreement. Unless the Committee shall otherwise determine, certificates
evidencing shares of Restricted Stock shall remain in the possession of the
Company until such shares are free of any restrictions under the Plan.
(4) Restrictions on Transfer. Shares of Restricted Stock may not be sold,
------------------------
assigned, transferred, pledged, or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment of the
participant with the Company and its Subsidiaries for any reason, such shares
shall be resold to the Company at their purchase price, or forfeited to the
Company if the purchase price was zero, except as set forth below:
(i) The Committee at the time of grant shall specify the date or
dates (which may depend upon or be related to the attainment of performance
goals or other conditions) on which the nontransferability of the
Restricted Stock and the obligation to resell such shares to the Company
shall lapse. The Committee at any time may accelerate such date or dates
and otherwise waive, or subject to Section 13, amend any conditions of the
Award.
(ii) Except as may otherwise be provided in the Award Agreement, in
the event of termination of employment of a participant with the Company
and its Subsidiaries for any reason (including death), the participant or
the participant's legal representative shall offer to resell to the
Company, at the price paid therefor, all Restricted Stock and the Company
shall have the right to purchase the same at such price, or if the price
was zero to require forfeiture of the same, provided that except as
provided in the Award Agreement, the Company must exercise such right of
repurchase or forfeiture not later than the 60th day following such
termination of employment.
(5) Waiver, Deferral, and Investment of Dividends. The Restricted Stock
---------------------------------------------
Award Agreement may require or permit the immediate payment, waiver, deferral,
or investment of dividends paid on the Restricted Stock.
(6) Unrestricted Stock. The Committee may, in its sole discretion, grant
------------------
(or sell at such purchase price, if any, as the Committee may determine) to any
participant shares of Stock free of restrictions under the Plan ("Unrestricted
Stock"). Shares of Unrestricted Stock may be granted or sold as described in the
preceding sentence in respect of past services or other valid consideration. Any
sale of Unrestricted Stock must take place within 60 days (or such other period
as the Committee may specify) after the time of grant of the right to purchase
such shares.
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Section 5. Deferred Stock Awards.
(1) Nature of Deferred Stock Award. A Deferred Stock Award is an award
------------------------------
entitling the recipient to acquire shares of Stock without payment in one or
more installments at a future date or dates, all as determined by the Committee.
The Committee may also condition such acquisition on the attainment of specified
performance goals.
(2) Award Agreement. A participant who is granted a Deferred Stock Award
---------------
shall have no rights with respect to such Award unless within 60 days of the
grant of such Award or such other period as the Committee may specify, the
participant shall have accepted the Award by executing and delivering to the
Company a Deferred Stock Award Agreement.
(3) Restrictions on Transfer. Deferred Stock Awards and all rights with
------------------------
respect to such Awards may not be sold, assigned, transferred, pledged, or
otherwise encumbered.
(4) Rights as a Shareholder. A participant receiving a Deferred Stock
-----------------------
Award will have rights of a shareholder only as to shares actually received by
the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate for shares of Deferred Stock only upon
satisfaction of all conditions therefor specified in the Deferred Stock Award
Agreement.
(5) Termination. Except as may otherwise be provided in the Award
-----------
Agreement, a participant's rights in all Deferred Stock Awards shall
automatically terminate upon the participant's termination of employment by the
Company and its Subsidiaries for any reason (including death).
(6) Acceleration, Waiver, etc. At any time prior to the participant's
-------------------------
termination of employment the Committee may in its discretion accelerate, waive,
or, subject to Section 13, amend any or all of the restrictions or conditions
imposed under any Deferred Stock Award Agreement.
(7) Payments in Respect of Deferred Stock. Without limiting the right of
-------------------------------------
the Committee to specify different terms, the Deferred Stock Award Agreement may
either make no provisions for, or may require or permit the immediate payment,
deferral, or investment of amounts equal to, or less than, any cash dividends
which would have been payable on the Deferred Stock had such Stock been
outstanding, all as determined by the Committee in its sole discretion.
Section 6. Performance Unit Awards.
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(1) Nature of Performance Units. A Performance Unit Award is an award
---------------------------
entitling the recipient to acquire cash or shares of Stock, or a combination of
cash and Stock, upon the attainment of specified performance goals. The
Committee in its sole discretion shall determine whether and to whom Performance
Unit Awards shall be made, the performance goals applicable under each such
Award, the periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded Performance Units may be
awarded independent of or in connection with the granting of any other Award
under the Plan.
(2) Award Agreement. A participant shall have no rights with respect to a
---------------
Performance Unit Award unless, within 60 days of the grant of such Award or such
other period as the Committee may specify, the participant shall have accepted
the Award by executing and delivering to the Company a Performance Unit Award
Agreement.
(3) Restrictions on Transfer. Performance Unit Awards and all rights with
------------------------
respect to such Awards may not be sold, assigned, transferred, pledged, or
otherwise encumbered, and if exercisable over a specified period, shall be
exercisable during the participant's lifetime only by the participant or the
participant's legal representative.
(4) Rights as a Shareholder. A participant receiving a Performance Unit
-----------------------
Award will have rights of a shareholder only as to shares actually received by
the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Unit Award only upon satisfaction of all conditions
therefor specified in the Performance Unit Award Agreement.
(5) Termination. Except as may otherwise be provided by the Committee at
-----------
any time prior to termination of employment, a participant's rights in all
Performance Unit Awards shall automatically terminate upon the participant's
termination of employment by the Company and its Subsidiaries for any reason
(including death).
(6) Acceleration, Waiver, etc. At any time prior to the participant's
-------------------------
termination of employment by the Company and its Subsidiaries, the Committee may
in its sole discretion accelerate, waive, or, subject to Section 13, amend any
or all of the goals, restrictions, or conditions imposed under any Performance
Unit Award.
(7) Exercise. The Committee in its sole discretion shall establish
--------
procedures to be followed in exercising any Performance Unit, which procedures
shall be set forth in the Performance Unit Award Agreement. The Committee may at
any time provide that payment under a Performance Unit shall be made, upon
satisfaction of the applicable performance goals, without exercise by the
participant. Except as otherwise specified by the Committee, (i) a Performance
Unit granted in tandem with a Stock Option may be exercised only while the Stock
Option is exercisable, and (ii) the exercise of a Performance Unit granted in
tandem with any
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Award shall reduce the number of shares subject to the related award on such
basis as is specified in the Performance Unit Award Agreement
140
<PAGE>
Section 7. Other Stock-Based Awards; Supplemental Grants.
(1) Nature of Awards. The Committee may grant other Awards under which
----------------
Stock is or may in the future be acquired ("Other Stock-based Awards"). Such
awards may include, without limitation, debt securities convertible into or
exchangeable for shares of Stock upon such conditions, including attainment of
performance goals, as the Committee shall determine. Subject to the purchase
price limitations in paragraph (b) below, such convertible or exchangeable
securities may have such terms and conditions as the Committee may determine at
the time of grant. However, no convertible or exchangeable debt shall be issued
unless the Committee shall have provided (by Company right of repurchase, right
to require conversion or exchange, or other means deemed appropriate by the
Committee) a means of avoiding any right of the holders of such debt to prevent
a Company transaction by reason of covenants in such debt.
(2) Purchase Price; Form of Payment. The Committee may determine the
-------------------------------
consideration, if any, payable upon the issuance or exercise of an Other
Stock-based Award. The Committee may permit payment by certified check or bank
check or other instrument acceptable to the Committee or by surrender of other
shares of Stock (excluding shares then subject to restrictions under the Plan).
(3) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver of
--------------------------------------------------------------------
Restrictions. The Committee may determine the conditions under which an Other
- ------------
Stock-based Award shall be forfeited or, in the case of an Award involving a
payment by the recipient, the conditions under which the Company may or must
repurchase such Award or related Stock. At any time the Committee may in its
sole discretion accelerate, waive, or, subject to Section 13, amend any or all
of the limitations or conditions imposed under any Other Stock-based Award.
(4) Award Agreements. A participant shall have no rights with respect to
----------------
any Other Stock-based Award unless within 60 days after the grant of such Award
(or such other period as the Committee may specify) the participant shall have
accepted the Award by executing and delivering to the Company an Other Stock-
based Award Agreement.
(5) Nontransferability. Other Stock-based Awards may not be transferred
------------------
other than by will or by the laws of descent and distribution and if requiring
exercise shall be exercisable during the participant's lifetime only by the
participant or the participant's legal representative.
(6) Rights as a Shareholder. A recipient of any Other Stock-based Award
-----------------------
will have rights of a shareholder only at the time and to the extent, if any,
specified by the Committee in the Other Stock-based Award Agreement.
(7) Deemed Dividend Payments; Deferrals. Without limiting the right of the
-----------------------------------
Committee to specify different terms, an Other Stock-based Award Agreement may
require or
141
<PAGE>
permit the immediate payment, waiver, deferral, or investment of dividends or
deemed dividends payable or deemed payable on Stock subject to the Award.
(8) Supplemental Grants. The Company may in its sole discretion make a
-------------------
loan to the recipient of an Award hereunder, either on or after the date of
grant of such Award. Such loans may be made either in connection with the
exercise of a Stock Option, a Stock Appreciation Right, or an Other Stock-based
Award, in connection with the purchase of shares under any Award, or in
connection with the payment of any federal income tax in respect of income
recognized under an Award. The Committee shall have full authority to decide
whether to make a loan hereunder if it determines that the making of such loan
is in the best interest of the Company, and to determine the amount, term, and
provisions of any such loan, including the interest rate (which may be zero)
charged in respect of any such loan, whether the loan is to be secured or
unsecured, the terms on which the loan is to be repaid and the conditions, if
any, under which it may be forgiven. However, no loan hereunder shall provide or
reimburse to the borrower the amount used by him for the payment of the par
value of any shares of Common Stock issued, have a term (including extensions)
exceeding ten years in duration, or be in an amount exceeding the total exercise
or purchase price paid by the borrower under an Award or for related Stock under
the Plan plus an amount equal to the cash payment permitted in the following
paragraph.
The Committee may at any time authorize a cash payment in respect of the
grant or exercise of an Award under the Plan or the lapse or waiver of
restrictions under an Award which shall not exceed the amount which would be
required in order to pay in full the federal income tax due as a result of
income recognized under both the Award and such cash payment, in each case
assuming that such income is taxed at the regular maximum marginal rate
applicable to individuals under the Code as in effect at the time such income is
includable in the recipient's income. Subject to the foregoing, the Committee
shall have complete authority to decide whether to make such cash payments in
any case, to make provision for such payments either simultaneously with or
after the grant of the associated Award, and to determine the amount of each
such payment.
Section 8. Transfer, Leave of Absence, Etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(1) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(2) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
reemployment is
142
<PAGE>
guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
Section 9. Amendments and Termination.
The Board may at any time amend or discontinue the Plan and the
Committee may at any time amend or cancel any outstanding Award (or provide
substitute Awards at the same or a reduced exercise or purchase price or with no
exercise or purchase price) for the purpose of satisfying changes in law or for
any other lawful purpose, but no such action shall adversely affect rights under
any outstanding Award without the holder's consent. However, no such amendment,
unless approved by stockholders, shall be effective if it would cause the Plan
to fail to satisfy the incentive stock option requirements of the Code or the
requirements of Section 162(m) of the Code as in effect on the date of such
amendment.
Section 10. Status of Plan.
With respect to the portion of any Award which has not been exercised
and any payments in cash, stock, or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trust or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
Section 11. General Provisions.
(1) No Distribution; Compliance with Legal Requirements, etc. The
--------------------------------------------------------
Committee may require each person acquiring shares pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof. No shares of Stock shall be
issued pursuant to an Award until all applicable securities laws and other legal
and stock exchange requirements have been satisfied. The Committee may require
the placing of such stop-orders and restrictive legends on certificates for
Stock and Awards as it deems appropriate.
(2) Other Compensation Arrangements; No Employment Rights. Nothing
-----------------------------------------------------
contained in this Plan shall prevent the Board of Directors from adopting other
or additional compensation arrangements, subject to stockholder approval if such
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases. The adoption of the Plan does not confer
upon any employee any right to continued employment with the Company or a
Subsidiary, nor does it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
143
<PAGE>
(3) Tax Withholding, etc. Each participant shall, no later than the date as
--------------------
of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
federal income tax purposes, pay to the Company or make arrangements
satisfactory to the Committee regarding payment of, any federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
Section 12. Effective Date of Plan.
The Plan shall not become effective unless approved by the stockholders of
the Company in a manner satisfying the stockholder approval requirements under
Sections 162(m) and 422 of the Code. Subject to such effectiveness, and to the
requirement that no Stock may be issued hereunder prior to such approval,
Options and other Awards may be granted hereunder on and after adoption of the
Plan by the Board.
ADOPTED: March 9, 1999
144
<PAGE>
Exhibit A
---------
A Change of Control will occur for purposes of this Plan if (i) any
individual, corporation, partnership, company or other entity (a "Person")
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of securities of the Company representing more than 30% of
the combined voting power of the Company's then-outstanding securities (other
than as a result of acquisition of such securities from the Company); (ii) there
is a change of control of the Company of a kind which would be required to be
reported under Item 6(e) of Schedule 14A of Regulations 14A promulgated under
the Securities Exchange Act of 1934 (the "Act") (or a similar item in a similar
schedule or form), whether or not the Company is then subject to such reporting
requirement; (iii) the Company is a party to, or the stockholders approve, a
merger, consolidation, or other reorganization (other than (a) a merger,
consolidation or other reorganization which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent, either by remaining outstanding or be being converted into vesting
securities of the surviving entity, more than 50% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger, consolidation, or other reorganization, or (b) a
merger, consolidation, or other reorganization effected to implement a
recapitalization of the Company, or similar transaction, in which no Person
acquires more than 20% of the combined voting power of the Company's then
outstanding securities), a sale of all or substantially all assets, or a plan of
liquidation; or (iv) individuals who, at the date hereof, constitute the Board
cease for any reason to constitute a majority thereof, provided, however, that
-------- -------
any director who is not in office at the date hereof but whose election by the
Company's shareholders was approved by a vote of at least a majority of the
directors then still in office who either were directors at the date hereof or
whose election or nomination for election was previously so approved (other than
an election or nomination of an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Act) shall be deemed to have been in
office at the date hereof for purposes of this definition.
Notwithstanding the foregoing provisions of this Exhibit A, a "Change in
Control" will not be deemed to have occurred solely because of the acquisition
of securities of the Company (or any reporting requirements under the Act
relating thereto) by an employment benefit plan maintained by the Company for
its employees.
145
<PAGE>
Exhibit 10.1.3
AEROVOX INCORPORATED
1999 STOCK OPTION PLAN FOR DIRECTORS
1. PURPOSE
-------
The purpose of this 1999 Stock Option Plan for Directors (the "Plan") is to
advance the interests of Aerovox Incorporated (the "Company") by enhancing the
ability of the Company to attract and retain directors who are in a position to
make significant contributions to the success of the Company and to reward
directors for such contributions through ownership of shares of the Company's
common stock (the "Stock").
2. ADMINISTRATION
--------------
The Plan shall be administered by a committee (the "Committee") of the
Board of Directors (the "Board") of the Company consisting of those directors
who are not eligible to receive options under the Plan. The Committee shall have
authority, not inconsistent with the express provisions of the Plan, (a) to
grant options in accordance with the Plan to such directors as are eligible to
receive options; (b) to prescribe the form or forms of instruments evidencing
options and any other instruments required under the Plan and to change such
forms from time to time; (c) to adopt, amend and rescind rules and regulations
for the administration of the Plan; (d) to interpret the terms and provisions of
the Plan; and (e) to settle all controversies and disputes that may arise in
connection with the Plan. Such interpretations and determinations of the
Committee shall be conclusive and shall bind all parties. Subject to Section 8,
the Committee shall also have the authority, both generally and in particular
instances, to waive compliance by a director with any obligation to be performed
by him or her under an option and to waive any condition or provision of an
option.
3. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on the date on which the Plan is approved
by the stockholders of the Company. No option shall be granted under the Plan
after the completion of ten years from the date on which the Plan was adopted by
the Board, but options previously granted may extend beyond that date.
146
<PAGE>
4. SHARES SUBJECT TO THE PLAN
--------------------------
(a) Number of Shares. Subject to adjustment as provided in Section
----------------
4(c), the aggregate number of shares of Stock that may be delivered upon the
exercise of options granted under the Plan shall be 25,000. If any option
granted under the Plan terminates without having been exercised in full, the
number of shares of Stock as to which such option was not exercised shall be
available for future grants within the limits set forth in this Section 4(a).
(b) Shares to be Delivered. Shares delivered under the Plan shall be
----------------------
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in
treasury. No fractional shares of Stock shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend, stock split
----------------
or combination of shares, recapitalization or other change in the Company's
capital stock, the number and kind of shares of stock or securities of the
Company subject to options then outstanding or subsequently granted under the
Plan, the maximum number of shares or securities that may be delivered under the
Plan, the exercise price, and other relevant provisions shall be appropriately
adjusted by the Committee, whose determination shall be binding on all persons.
5. ELIGIBILITY FOR OPTIONS
-----------------------
Directors eligible to receive options under the Plan ("Eligible
Directors") shall be any director who is not an employee of the Company.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) Number of Options. Each Eligible Director who is first elected to
-----------------
the Board on or after the date the Plan is approved by the stockholders of the
Company shall be awarded, as of the date of such election, an initial option
grant covering 2,500 shares of Stock. Each Eligible Director who has received an
initial grant as described in the preceding sentence or who received an initial
grant under the Company's 1989 Stock Option Plan for Directors shall receive, on
the date of each annual meeting of the stockholders of the Company following his
or her initial grant (disregarding for this purpose any meeting of stockholders
occurring prior to the meeting at which this Plan is approved by stockholders),
provided that he or she is still then serving as an Eligible Director, an option
grant covering an additional 1,000 shares of Stock. If less than one full year
elapses between an initial grant
147
<PAGE>
and an annual grant, the Eligible Director shall receive options covering 250
shares for each quarter of service.
(b) Exercise Price. The exercise price of each option shall be 100%
--------------
of the fair market value per share of the Stock at the time the option is
granted, but not less, in the case of an original issue of authorized stock,
than par value per share.
(c) Duration of Options. The latest date on which an option may be
-------------------
exercised (the "Final Exercise Date") shall be the date which is ten years from
the date the option was granted.
(d) Exercise of Options.
-------------------
(i) Each option shall become exercisable in full on the first
anniversary of the date of grant; provided, that any option
awarded on the date of an annual meeting of stockholders of
the Company shall become exercisable in full on the earlier
of the first anniversary of such annual meeting or the date
which immediately precedes the date of the annual meeting of
stockholders of the Company for the year following the year
in which the option was granted.
(ii) Any exercise of an option shall be in writing, signed by the
proper person and delivered or mailed to the Company,
accompanied by (a) the option certificate and any other
documents required by the Committee and (b) payment in full
for the number of shares for which the option is exercised.
(iii) If an option is exercised by the executor or administrator
of a deceased director, or by the person or persons to whom
the option has been transferred by the director's will or
the applicable laws of descent and distribution, the Company
shall be under no obligation to deliver Stock pursuant to
such exercise until the Company is satisfied as to the
authority of the person or persons exercising the option.
(e) Payment for and Delivery of Stock. Stock purchased under the
---------------------------------
Plan shall be paid for as follows: (i) in cash or by certified check, bank draft
or money order payable to the order of the Company; (ii) through the delivery of
shares of Stock (which shares, if previously acquired from the Company, shall
have been outstanding for at least six months or such other period as the
Committee may require) having a fair market value on the last business day
preceding the date of exercise equal to the purchase price; or (iii) by a
combination of cash and Stock as provided in clauses (i) and (ii) above.
148
<PAGE>
An option holder shall not have the rights of a shareholder with regard to
awards under the Plan except as to Stock actually received by him or her under
the Plan.
The Company shall not be obligated to deliver any shares of Stock (a)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, and (b) if the outstanding Stock
is at the time listed on any stock exchange, until the shares to be delivered
have been listed or authorized to be listed on such exchange upon official
notice of issuance, and (c) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
option, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
(f) Nontransferability of Options. Except as otherwise provided by the
-----------------------------
Committee, no option may be transferred other than by will or by the laws of
descent and distribution, and during a director's lifetime an option may be
exercised only by him or her.
(g) Death. Upon the death of any Eligible Director granted options under
-----
this Plan, all options not then exercisable shall terminate. All options held by
the director that are exercisable immediately prior to death may be exercised by
his or her executor or administrator, or by the person or persons to whom the
option is transferred by will or the applicable laws of descent and
distribution, at any time within the three-year period ending with the third
anniversary of the director's death (subject, however, to the limitations of
Section 6(c) regarding the maximum exercise period for such option). After
completion of that period, such options shall terminate to the extent not
previously exercised.
(h) Other Termination of Status of Director. If a director's service with
---------------------------------------
the Company terminates for any reason other than death, all options held by the
director that are not then exercisable shall terminate. Options that are
exercisable on the date of termination shall continue to be exercisable for a
period of three months, subject to Section 6(c). After completion of that
period, such options shall terminate to the extent not previously exercised.
(i) Mergers, etc. Subject to Section 7, in the event of a consolidation or
------------
merger in which the Company is not the surviving corporation or which results in
the acquisition of all or substantially all of the Company's outstanding Stock
by a single person or entity or by a group or persons and/or entities acting in
concert, or in the event of the sale or transfer
149
<PAGE>
of all or substantially all of the Company's assets or the dissolution or
liquidation of the Company, (any of the foregoing, a "covered transaction"), all
Awards that are not automatically converted into other securities in the covered
transaction shall expire; provided, that if there is a surviving or acquiring
corporation, the Committee in its sole discretion may arrange, subjection to
consummation of the covered transaction, for the assumption of Awards or the
grant of replacement awards by the surviving or acquiring corporation or an
affiliate thereof.
7. CHANGE OF CONTROL
-----------------
Notwithstanding any other provision of this Plan, in the event of a Change
of Control of the Company as defined in Exhibit A hereto, each option held by
each Eligible Director will immediately become fully exercisable. The provisions
of this Section shall apply prior to the application of Section 6(i) above.
8. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
---------------------------------------------------------------
Neither adoption of the Plan nor the grant of options to a director shall
affect the Company's right to grant to such director options that are not
subject to the Plan, to issue to such directors Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
directors.
The Board may at any time discontinue granting options under the Plan and
may at any time or times amend the Plan for the purpose of satisfying any
changes in applicable laws or regulations or for any other purpose which may at
the time be permitted by law; provided, that no such amendment shall adversely
affect the rights of any director (without his or her consent) under any option
previously granted.
Adopted: March 9, 1999
150
<PAGE>
Exhibit A
---------
A Change of Control will occur for purposes of this Plan if (i) any
individual, corporation, partnership, company or other entity (a "Person")
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of securities of the Company representing more than 30% of
the combined voting power of the Company's then-outstanding securities (other
than as a result of acquisition of such securities from the Company); (ii) there
is a change of control of the Company of a kind which would be required to be
reported under Item 6(e) of Schedule 14A of Regulations 14A promulgated under
the Securities Exchange Act of 1934 (the "Act") (or a similar item in a similar
schedule or form), whether or not the Company is then subject to such reporting
requirement; (iii) the Company is a party to, or the stockholders approve, a
merger, consolidation, or other reorganization (other than (a) a merger,
consolidation or other reorganization which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent, either by remaining outstanding or be being converted into vesting
securities of the surviving entity, more than 50% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger, consolidation, or other reorganization, or (b) a
merger, consolidation, or other reorganization effected to implement a
recapitalization of the Company, or similar transaction, in which no Person
acquires more than 20% of the combined voting power of the Company's then
outstanding securities), a sale of all or substantially all assets, or a plan of
liquidation; or (iv) individuals who, at the date hereof, constitute the Board
cease for any reason to constitute a majority thereof, provided, however, that
-------- -------
any director who is not in office at the date hereof but whose election by the
Company's shareholders was approved by a vote of at least a majority of the
directors then still in office who either were directors at the date hereof or
whose election or nomination for election was previously so approved (other than
an election or nomination of an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Act) shall be deemed to have been in
office at the date hereof for purposes of this definition.
Notwithstanding the foregoing provisions of this Exhibit A, a "Change in
Control" will not be deemed to have occurred solely because of the acquisition
of securities of the Company (or any reporting requirements under the Act
relating thereto) by an employment benefit plan maintained by the Company for
its employees.
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Aerovox 1999 Annual Report Exhibit 13.1
Markets & Applications
Aerovox CAPACITORS are components in:
MOTORS
Compressors, air conditioners, refrigerators, laundry equipment, pumps, garage
door openers, hospital beds
LIGHTING
Electromagnetic and electronic ballasts for fluorescent and HID fixtures and
strobe lights
POWER ELECTRONICS
Variable speed drives, uninterruptible power systems (UPS), telecommunication
equipment, audio/visual equipment, battery chargers
SPECIALTY MARKETS
Medical equipment (defibrillators, X-ray equipment), lasers and industrial
equipment
Power Factor Correction equipment and systems
Power supplies, computer and telecommunication equipment and appliances
Aerovox EMI FILTERS are components in:
Telecommunication equipment, medical equipment, industrial equipment, encryption
equipment and white goods appliances.
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Aerovox Worldwide Locations
NEW BEDFORD, MASSACHUSETTS
Corporate Headquarters and Manufacturing Facility
HUNTSVILLE, ALABAMA
Foil Operations
JUAREZ, MEXICO
Aerovox de Mexico
MEXICO CITY, MEXICO
Aerovox de Mexico
WEYMOUTH, ENGLAND
BHC Aerovox Ltd.
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Corporate Information
Directors and Executive Officers
Directors
Sherel D. Horsley 1
Chairman, Aerovox Inc.
Senior Vice President and Manager of Marketing, the Digital Imaging Group of
Texas Instruments Incorporated
Robert D. Elliott 1, 4
President and Chief Executive Officer
John F. Brennan 1, 2
Dean, Sawyer School of Management, Suffolk University
Dennis J. Horowitz 1, 3
President and Chief Executive Officer, Wolverine Tube, Inc.
William G. Little 3, 4
President and Chief Executive Officer, Quam Nichols Company, Inc.
Benedict P. Rosen 3
Chairman and Chief Executive Officer, AVX Corporation
John L. Sprague 2, 4
President, John L. Sprague Associates
Enrique Sanchez Aldunate
Senior Vice President, Aerovox Inc.
President, Aerovox de Mexico
Executive Officers
Robert D. Elliott
President and Chief Executive Officer
Timothy J. Brown
Senior Vice President, Marketing and Sales
Martin Hudis
Senior Vice President, Technology Development
F. Randal Hunt
Vice President, Finance and Corporate Controller
Ted M. Miller
Senior Vice President, Engineering and Operations
Enrique Sanchez Aldunate
Senior Vice President, Aerovox Inc.
President, Aerovox de Mexico
Graham Yates
Sr. Vice President, Aerovox Inc.
Managing Director, BHC Aerovox Ltd.
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Committee Member
/1/ Executive
/2/ Audit
/3/ Compensation
/4/ Nominating
Corporate Office
Aerovox Inc.
740 Belleville Avenue
New Bedford, MA 02745-6194
Form 10K/Investor Contact
Copies of the Company's annual and quarterly reports filed with the Securities
and Exchange Commission on Form 10-K and Form 10-Q are available on request from
the Company. Requests and other investor contacts should be directed to F.
Randal Hunt, Vice President, Finance and Corporate Controller.
Internet Access
Corporate news releases, Forms 10-K and 10-Q, parts of the annual report and
other information about the Company are available through Aerovox's web site on
the Internet. The address is http://www.aerovox.com.
----------------------
Annual Meeting
The Annual Meeting of Shareholders of Aerovox Incorporated will be held on
Tuesday, May 2, 2000 at 11:00 a.m., at the offices of Ropes & Gray, One
International Place, Room 36/1, Boston, Massachusetts 02110.
Common Stock and Dividend Information
The Company's common stock trades on The Nasdaq Stock Market(R), under the
symbol ARVX. As of February 28, 2000, Aerovox had approximately 8,500
shareholders. Of that total, 5,946 were shareholders of record.
The Company currently intends to retain all earnings for use in its business and
does not expect to pay dividends for the forseeable future.
The following table sets forth the high and low sales price information as
reported by Nasdaq:
<TABLE>
<CAPTION>
Common Stock Price
1999 1998
High Low High Low
- ------------------------------------------------
<S> <C> <C> <C> <C>
First $3.00 $2.06 $4.75 $3.13
Quarter
Second $3.00 $2.06 $3.69 $2.75
Quarter
Third $3.23 $2.28 $4.00 $2.75
Quarter
Fourth $3.25 $2.25 $3.13 $1.38
Quarter
</TABLE>
155
<PAGE>
Transfer Agent and Registrar
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005 Phone: (800) 937-5449
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Aerovox is a leading manufacturer of film, paper and aluminum electrolytic
capacitors. The Company sells its products worldwide, principally to original
equipment manufacturers ("OEMs") of electrical and electronic products.
Applications include air conditioners, fluorescent and high-intensity discharge
lighting fixtures, a variety of appliances, motors, power supplies,
photocopiers, telecommunication, computer and medical equipment and industrial
electrical equipment and systems.
The Company's manufacturing facilities are located in New Bedford,
Massachusetts; Huntsville, Alabama; Weymouth, England; and Juarez and Mexico
City, Mexico.
Financial Highlights
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For Fiscal Years
1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Operating Results
Net sales $ 110,438 $ 116,194 $ 119,658
Income (loss) from operations (2,273) 2,648 (12,574)
Net income (loss) (3,471) 1,786 (11,499)
Net income (loss) per share (0.64) 0.33 (2.15)
Cash Flow
Net cash provided by operating activities $ 5,938 $ 1,731 $ 9,361
Financial Position
Total assets $ 70,520 $ 70,571 $ 71,559
Long-term obligations 21,344 17,888 23,808
Redeemable common stock 2,546 -- --
Stockholders' equity 22,206 25,289 23,766
1999 Sales by Market (millions U.S.$ $110.5)
</TABLE>
157
<PAGE>
[GRAPH APPEARS HERE]
Motors: 39% Power Electronics: 31% Lighting: 24% Specialty: 4% EMI Filters: 4%
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Letter to Shareholders
Dear Fellow Shareholders,
Persistence, determination and strategic thinking....all qualities needed to put
together a jigsaw puzzle. Deciding how those small pieces interlock to produce a
complete picture can be challenging, at times frustrating, but when successful,
always rewarding.
The revitalization of Aerovox over the last three years has been much like
working on a jigsaw puzzle. We laid out every part of the business, evaluated
how each contributes to the company, determined where each belongs, and in some
cases, located a few missing pieces. 1999 was a year in which the final pieces
of the puzzle were identified and positioned for final placement.
We have repeatedly stressed the importance of utilizing key metrics such as
on-time deliveries and end-to-end lead times to measure our responsiveness to
customers. I am proud to report that in 1999, company-wide on-time deliveries
averaged over 95% with continually shortening lead times. As a result, customer
satisfaction is much improved and Aerovox was awarded supplier performance
awards from several major customers during the year.
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The use of modern flow manufacturing techniques and internal pull systems are
now widely used throughout all of our plants. The new methods have been largely
successful due to the commitment and drive of our dedicated people. In addition,
the collaboration between our company and our key customers and suppliers to
adopt these techniques has been effective. Overall, these new systems are
working, as they have helped to improve our responsiveness to customers while
reducing company-wide inventory levels.
A three-year re-capitalization project at BHC Aerovox Ltd., our subsidiary in
the United Kingdom, is now nearing completion. Since 1996, we have invested
several million dollars in the future of BHC by purchasing new,
flexible-automation production equipment to improve manufacturing consistency,
customer response times and to lower costs. Although our European subsidiary
faced weak market conditions and therefore, did not perform as well financially
as expected in 1999, the new investments have demonstrated positive results.
When the European market rebounds, BHC Aerovox will be well positioned to lead
the industry.
Construction is well underway on our new plant in New Bedford, Massachusetts.
The facility, which will also house our corporate headquarters, is slated to be
completed during the third quarter. A phased move will follow, with
manufacturing areas shifting production at staggered times throughout the fourth
quarter. The transition is scheduled to be complete by the end of 2000.
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The new building will allow us to further improve operational efficiencies and
to retain our highly-skilled and experienced workforce, a crucial piece to the
success of our company.
In April 1999, we completed the purchase of Compania General de Electronica of
Mexico City. The acquisition represented an integral piece of the puzzle for
which we had been searching. This lean, efficient operation made Aerovox the
largest supplier of motor start capacitors in the world and opened up key
markets in Latin America. The integration of CGE into Aerovox sales, marketing
and manufacturing efforts has been a smooth combination, with both of our teams
welcoming the opportunity to work together.
As importantly, the addition of CGE, now known as Aerovox de Mexico, has allowed
us to re-align our North American operations. As we announced last summer, we
are currently undergoing a restructuring effort in which our two plants in
Juarez are being consolidated into one. In addition, all North American
production of motor start capacitors has been shifted from Juarez to Mexico
City.
By the end of 2000, Aerovox will operate five streamlined and more fully
utilized plants, ranging in size from 90,000 to 140,000 square feet. Each
location has room for
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expansion, so while we have improved efficiencies, we have not hindered our
ability to grow.
There is a changing culture present within our company. Not only do we have a
solid management team and experienced Board of Directors guiding Aerovox into
the 21st century, but our adoption of a "shared leadership" philosophy
throughout the company has also taken hold. Our organization is more dynamic,
more fluid and quicker to react to the changing needs of the markets we serve.
Our people are more involved than ever before in making decisions which affect
how we operate the business. They are being challenged at higher levels, sharing
their ideas and contributing to their full potential. Cooperation between teams
has resulted in significant improvements being made in the entire supply chain -
from customers to suppliers. With this team spirit and commitment as our
foundation, I am excited about what lies ahead for Aerovox.
As we look to the future, we realize that the "fix it" phase in the recent
history of Aerovox is nearing completion. We must now remain focused on what
will lead to financial growth.
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We are currently as good as our best competitors, but that is not enough. We
need to be, and will be, much better than the others in our industry. We will
continue to focus on expanding our strong customer base. As a customer-driven
supplier, with customer satisfaction as our paramount priority, we will continue
to earn higher share in our markets.
We also realize that in as competitive an industry as this, significant growth
of our company will come through strategic partnerships and acquisitions. We
will continue to search for sound investment opportunities and economically
worthwhile ventures that will benefit the business and increase shareholder
value.
We have great people at Aerovox, committed to doing what our customers want
better than anyone else knows how. Through their enthusiasm, innovation,
persistence and determination, we will prevail as the preeminent supplier in our
selected markets.
Thank you for your continued support.
Sincerely,
Robert D. Elliott
President and Chief Executive Officer
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements concerning the Company's anticipated performance including future
revenues, costs and profits, or about the development of the Company's markets,
made through this Annual Report, may be deemed forward-looking statements. Such
statements are based on the current assumptions of Aerovox management, which are
believed to be reasonable. However, they are subject to significant risks and
uncertainties, including, but not limited to the important factors described
under "Certain Factors That May Affect Future Results" that could cause actual
results to differ materially from those described in the forward-looking
statements.
Results of Operations
The table below depicts significant components from the statements of operations
as percentages of net sales.
<TABLE>
<CAPTION>
For Fiscal Years
1999 1998 1997
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 82.1% 82.7% 85.9%
Gross profit 17.9% 17.3% 14.1%
Research and development 2.0% 2.1% 2.3%
Selling, general and administrative expenses 13.2% 12.9% 11.5%
Provision for environmental charges -- -- 10.9%
Provision for restructuring costs 4.8% -- --
Income (loss) from operations (2.1)% 2.3% (10.5)%
</TABLE>
Fiscal years 1999 and 1997 included 52 weeks. Fiscal year 1998 included 53
weeks. The additional week in 1998 was required to comply with Company policy
that the fiscal year end on the Saturday nearest to December 31. Because the
additional week included in 1998 was the week between the Christmas and New Year
holiday, during which shipping activity is historically slow and included only
three shipping days, the Company believes the effect on sales and income from
operations was immaterial.
1999 versus 1998
Sales
Consolidated net sales for 1999 were $110.4 million versus $116.2 million in
1998, a decline of 5.0%. Net sales at BHC Aerovox Ltd. ("BHC"), a wholly owned
subsidiary in the United
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Kingdom, decreased 18.9% to $21.5 million in 1999 from $26.5 million in 1998 due
principally to weak demand in Europe. Management believes that the Company has
maintained its market share in Europe and that the Company and its competitors
experienced a broad decline within the markets into which we sell our
capacitors.
Sales of products manufactured in North America decreased by 0.9%, to $88.9
million in 1999 from $89.7 million in 1998. An increase in net sales
attributable to the newly acquired Mexico City business in April was essentially
offset by the Company's exit from several unprofitable product lines and
customers, as well as by declining prices in the electrical equipment and
appliance markets. Additionally, the sale of the Power Factor Correction Systems
("PFC") business in the third quarter of 1998 contributed to decreased sales in
this year-to-year comparison.
In general, the Company's sales are seasonal, with the first two quarters having
higher shipping rates due mainly to seasonal production schedules among OEM
manufacturers of air conditioning equipment. The strength and variation of these
seasonal patterns vary from year to year depending upon weather and other
conditions.
Gross Profit
Excluding inventory write-offs relating to restructuring activities of $0.3
million, gross profit on sales increased to $20.2 million (18.3% of net sales)
in 1999 from $20.1 million (17.3% of net sales) in 1998 as a result of a
significant cost reduction effort which began in the fourth quarter of 1997 and
continued throughout 1999.
During 2000 the Company will close one of its three manufacturing facilities in
Mexico and relocate its New Bedford operation from a turn-of-the-century textile
mill building into a state-of-the-art, single-floor manufacturing facility, also
in New Bedford. These moves are expected to reduce overall manufacturing space
by approximately 350,000 square feet and result in further reductions in
operating expense while maintaining ample floor space for current and projected
manufacturing demand.
Research and Development
Expenditures for research, product development and engineering totaled $2.2
million and $2.5 million for 1999 and 1998, respectively. The decrease resulted
from the aforementioned cost reduction efforts.
Selling, General and Administrative
Selling, general and administrative expenses decreased to $16.8 million in 1999
from $17.5 million in 1998, primarily due to lower spending on Year 2000
projects and the impact of the cost reduction programs mentioned above. This was
accomplished simultaneously with the integration of the newly acquired business
in Mexico City.
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Provision for Restructuring Costs
During the fourth quarter of 1999 the Company recorded pre-tax restructuring
charges totaling $5.7 million related to the consolidation of three plants in
Mexico to two, closure of foil processing operations in England, exit from a
capacitor product line in North America and write-down of manufacturing
equipment in New Bedford, which has been abandoned and will not be moved to the
new facility. The provision for restructuring costs reflects the initiation of
the final phase of our three-year cost reduction program and we anticipate that
the restructuring activities will be completed during 2000.
The components of the costs related to these restructuring activities are as
follows:
<TABLE>
<CAPTION>
Cash Non-Cash Total
--------------- ----------------- ----------------
<S> <C> <C> <C>
Impairment of fixed assets $ -- $ 4,723 $ 4,723
Employee terminations 609 -- 609
Inventory write-down -- 344 344
--------------- ----------------- ----------------
Pre-tax provision for restructuring costs $ 609 $ 5,067 $ 5,676
=============== ================= ================
</TABLE>
Interest Expense
Interest expense for 1999 of $1.7 million was higher by $0.2 million compared to
1998 as a result of borrowings related to the acquisition of the capacitor
business of Compania General de Electronica S.A. de C.V. ("CGE") in April 1999.
Other Income
The $1.2 million decrease in other income to $0.3 million in 1999 from $1.5
million in 1998 principally reflects the gain recorded in 1998 of $0.9 million
on the sale of the PFC business.
Provision for Income Taxes
The provision for income taxes included debits against deferred tax accounts of
$0.4 million and taxes currently payable of $0.1 million. Due to the uncertainty
surrounding the realization of favorable tax attributes in future tax returns
related to the write-down of impaired assets and other restructuring costs in
the United States, the increase in deferred tax assets has been fully offset by
a valuation allowance.
1998 versus 1997
Sales
Consolidated net sales for 1998 were $116.2 million versus $119.7 million in
1997, a decline of 2.9%. Sales of products manufactured by the Company's North
American business units declined 5.3%, to $89.7 million in 1998 from $95.0
million in 1997; whereas, net sales at BHC increased 6.0% to $26.5 million in
1998 from $25.0 million in 1997. The decline in net sales was due to declining
prices in the electrical equipment and appliances markets served by both the
North American and European operations of the Company, the loss of
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<PAGE>
several key customers for the Company's line of microwave and motor run
capacitors, as well as the elimination of the PFC business in the second half of
the year. Price erosion experienced by BHC was overcome by increases in sales of
certain electrolytic capacitors used in power electronics applications.
In general, the Company's sales are seasonal, with the first two quarters having
higher shipping rates due mainly to seasonal production schedules among OEM
manufacturers of air conditioning equipment. The strength and variation of these
seasonal patterns vary from year to year depending upon weather and other
conditions. During 1998 the Company experienced sharply lower demand in the
first two quarters as compared to 1997 and year-to-date sales at June 28, 1998
were lower by $5.0 million than sales for the same period of the prior year.
During the second half of the 1998 sales increased by $1.6 million over those of
the last six months of 1997, due mainly to weather-related demand for air
conditioning equipment in the United States.
Gross Profit
Gross profit on sales increased to $20.1 million in 1998 from $16.9 million in
1997 as a result of a significant cost reduction effort, which began in the
fourth quarter of 1997 and continued throughout 1998. Declining prices noted
above offset the positive impact of the cost reductions by approximately $3.0
million.
Research and Development
Expenditures for research, product development and engineering aggregated $2.5
million and $2.7 million for 1998 and 1997, respectively. In 1997 these costs
were included with cost of sales on the statement of operations, and
presentation of that year's results has been restated to provide comparability.
Selling, General and Administrative
Selling, general and administrative expenses increased to $17.5 million in 1998
from $16.5 million in 1997, primarily due to $0.8 million of expenses related to
the implementation of new information systems throughout the Company, which
address improvement of the planning and control systems of the Company as well
as compliance with Year 2000 computing.
Interest Expense
Interest expense for 1998 of $1.5 million was lower by $0.2 million compared to
1997 as a result of more favorable interest rates and a lower average
outstanding balance on the Company's lines of credit and outstanding term loans.
Other Income
The $1.2 million increase in other income to $1.5 million in 1998 from $0.3
million in 1997 resulted primarily from the sale of the Company's PFC business
to a unit of General Electric Company. This business entailed the assembly of
capacitor and other component into
165
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<PAGE>
systems sold to large industrial consumers of electrical power. The Company
remains in the business of manufacturing capacitors used in power factor
systems. A gain on the sale of $0.9 million was recorded in the third quarter of
1998. An increase in royalty income from licensees and foreign currency exchange
losses account for the remaining $0.2 million increase in other income.
Provision for Income Taxes
The provision for income taxes included credits against deferred tax accounts of
$0.8 million and taxes currently payable of $37,000.
Liquidity and Capital Resources
Working capital, calculated as total current assets less total current
liabilities at January 1, 2000 was $15.0 million compared to $13.5 million at
the end of fiscal 1998. The increase was due to recoverable value-added taxes in
Mexico, shown as other current assets. Other changes in current assets and
current liabilities essentially offset each other. Working capital increased
during 1999 to $15.0 million from $13.5 million. Current ratio was 1.74 at
year-end 1999 and 1.60 at year-end 1998. Net accounts receivable and days sales
outstanding in accounts receivable were $14.9 million (49 days) compared with
$14.2 million (45 days) in fiscal 1998. Inventories decreased by $2.4 million
during 1999 primarily due to efficiency gains in supply chain management and
reduced scrap rates on production lines. Net cash provided by operating
activities in 1999 totaled $5.9 million compared to $1.7 million in 1998 and
$9.4 million in 1997.
The Company invested approximately $4.3 million in capital assets in 1999
compared to $2.8 million in 1998 and $2.7 million in 1997. Of these totals,
investment in capital assets at BHC was $0.7 million, $1.6 million and $0.6
million, respectively. The increase in overall investment in 1999 is
attributable to construction in progress on the new manufacturing facility in
New Bedford.
The Company's Revolving Credit Agreement, as amended on June 30, 1999, provides
for a credit line of $15.0 million to the Company. The agreement, which extends
to May 31, 2002, also includes various interest rate options which, for fiscal
1999, have varied from 6.88% to 8.50% on an annualized basis. The collateral for
this line of credit is accounts receivable and inventories. The outstanding
balance of loans at fiscal years ended January 1, 2000 and January 2, 1999 was
$3.6 million and $14.5 million, respectively. Net availability under this line
at January 1, 2000 was $10.7 million.
BHC has an agreement with a bank which provides for (i) a ten-year mortgage on
real property in the amount of 0.5 million British pounds ($0.8 million at
year-end exchange rates) with an outstanding balance at January 1, 2000 of $0.8
million, (ii) a five-year loan collateralized by machinery and equipment in the
amount of 0.5 million British pounds with an outstanding balance at January 1,
2000 of $0.7 million and (iii) an "Overdraft" credit line
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<PAGE>
allowing borrowings in British pounds, euros or U.S. dollars up to the
equivalent of 2.5 million British pounds ($4.0 million at year-end exchange
rates) with an outstanding balance at January 1, 2000 of $2.4 million.
With the exception of the five-year loan collateralized by plant and machinery
which has an interest rate of 5.73%,interest is charged at variable rates based
upon the bank base rate. The ten-year mortgage agreement includes certain
financial covenants. At January 1, 2000 BHC was in violation of two covenants
regarding interest coverage and net worth. On February 24, 2000 the lender
waived its right to accelerate payments on this loan in respect of the violation
through January 1, 2001.
BHC has an agreement with another bank which provides for a five-year loan at
8.12% per annum collateralized by machinery and equipment in the amount of 0.8
million British pounds ($1.2 million at year-end exchange rates) with an
outstanding balance at January 1, 2000 of $1.0 million.
The Company also has a term line of credit with an equipment financing company
with an outstanding balance at the end of 1999 of $7.8 million compared to an
outstanding balance at the end of 1998 of $2.3 million. On February 26, 1999 the
Company amended its agreement with the equipment financing company. Under this
amendment, the balances outstanding at that date were repaid and additional
funds borrowed under a new promissory note and security agreement in the amount
of $9.0 million. Principal payments due under that note in 1999 were $1.3
million, and $1.5 million per year thereafter. This loan, collateralized by
equipment at the Company's New Bedford and Huntsville facilities, matures in the
year 2005, and carries an annual interest rate of 7.8%. The Company was in
violation of the minimum tangible net worth covenant on January 1, 2000. On
March 2, 2000 the lender waived its right to accelerate payment of this debt for
violation of this financial covenant. The waiver of this covenant does not
extend beyond January 1, 2000 and all covenants contained in the agreement
remain in effect for all subsequent periods.
Other long-term debt of the Company consists of an Industrial Revenue Bond
maturing on July 1, 2002, with an annual interest rate of 7.42% and quarterly
payments on the principal. The outstanding balance at fiscal year-end 1999 was
$1.3 million versus a balance at year-end 1998 of $1.8 million.
The Company also has two notes payable to the original shareholders of
Capacitores Unidos, S.A. de C.V ("Capacitores") in the amounts of $1.1 million
and $0.4 million, accruing interest at rates of 5.22% and 5.32% per annum,
respectively, and due April 4, 2001 and April 5, 2002, respectively.
Capacitores has two notes payable to CGE in the amounts of $1.5 million and $0.2
million which bear interest at 5.10% and 5.22% per annum, respectively, and
mature at April 1, 2000 and April 1, 2001, respectively. Capacitores also has a
bank loan with an outstanding
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<PAGE>
balance at January 1, 2000 of $1.0 million bearing interest at 9.67% of which
$0.8 million is due June 5, 2000 and $0.3 million is due June 9, 2000.
Cash at January 1, 2000, totaled $0.7 million compared to $1.1 million at
January 2, 1999.
Acquisition and Related Party Transactions
On April 5, 1999 the Company purchased all of the outstanding capital stock of
Capacitores, a corporation organized under the laws of Mexico. In a prior
transaction, Capacitores had previously acquired the assets of the capacitor
business of CGE, a Mexican corporation. These assets consisted primarily of
inventory and machinery and equipment related to the capacitor business of CGE,
along with an assignment of employees, and all technical know-how, customer
lists and other intangible assets related to the business. During 1998 the
capacitor business accounted for $11.5 million of the sales of CGE, and
approximately $1.4 million of earnings before interest and taxes. CGE purchased
approximately $1.5 million of high-purity aluminum capacitor foil from the
Company during 1998 for use in AC-rated motor start capacitors.
The aggregate consideration of $7.8 million paid for the capital stock of
Capacitores consisted of (i) the assumption of obligations of Capacitores
arising from its purchase of assets from CGE, principally three notes totaling
$3.5 million, one of which, in the amount of $1.8 million, was paid by the
Company on April 6, 1999; the remaining two notes are in the amounts of $1.5
million and $0.2 million, and bear interest at 5.10% and 5.22% per annum
respectively, and mature at April 1, 2000 and April 1, 2001 respectively, (ii)
notes of the Company aggregating $1.1 million, accruing interest at a rate of
5.22% per annum and payable in full on April 4, 2001, (iii) notes of the Company
aggregating $0.4 million, accruing interest at a rate of 5.32% per annum and
payable in full on April 5, 2002 and (iv) 700,000 shares of common stock of the
Company (the "Registrant Stock"). Each of the Sellers executed a stockholders
agreement, dated as of April 5, 1999, with the Company which provides for
certain restrictions on the transfer of the Registrant Stock and provides that,
in certain circumstances and at a date not earlier than April 5, 2003, nor later
than May 5, 2003, the holders of such Registrant Stock may require the Company
to purchase the Registrant Stock at the then current book value of the Company.
A total of $2.9 million was ascribed to the Registrant Stock which was composed
of the fair market value of the stock on the date of the transaction and the
amount ascribed to the right of the Sellers to require the Company to repurchase
the stock at a future date at the then current book value. As of January 1, 2000
the fair value of the right of the Sellers to require the Company to repurchase
the stock was approximately $0.5 million.
The acquisition has been accounted for under the purchase method of accounting;
the operating results of Capacitores have been included in the Company's
consolidated statement of operations from April 5, 1999. Excess of cost over the
fair value of net assets acquired,
170
<PAGE>
$4.3 million, is being amortized on a straight-line basis over ten years.
The Company leases production space in Mexico City, Mexico from CGE. Payments
under this lease agreement totaled $74,000 in 1999. Certain services related to
the security, maintenance and insurance of the buildings are contracted through
CGE, payments for which were $0.2 million in 1999.
Certain of the Company's supervisory and managerial personnel, as well as
certain support departments, such as accounting and human resources, provide
services to CGE. The Company charged CGE for all such services rendered, which
totaled $0.3 million in 1999.
None of these related party transactions existed prior to the acquisition.
Other Matters
Patent Infringement Suit
On September 28, 1999 the Company announced that it filed a patent infringement
suit in Los Angeles, CA against several Korean manufacturers and their U.S.
affiliates. The lawsuit names Korean manufacturers Samwha Capacitor Company
Ltd., Kuk Kwang Electric Company Ltd. and Dae Yeong Company Ltd. Also named are
the companies' American associates, Samwha U.S.A. and Pacific Rim Components
Corporation.
The suit alleges the named parties have, and continue to, infringe its patent
for the impregnation and encapsulation of motor run capacitors. The Company is
seeking a permanent injunction against all of the defendants and unspecified
damages.
Recently Issued Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). In June 1999 SFAS 137 "Deferral of the
Effective Date of SFAS 133" was issued to amend the effective date of SFAS 133
to fiscal years beginning after June 15, 2000. The Statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. Under the new Statement, the accounting for changes in the fair value of
a derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. The Company will adopt SFAS 133 for
its fiscal year beginning December 31, 2000. Management estimates that the
effect of adopting SFAS 133 would not be material to the consolidated financial
statements.
171
<PAGE>
Certain Factors That May Affect Future Results
Environmental Status
In June 1997 the United States Environmental Protection Agency ("EPA") conducted
tests that revealed the presence of polychlorinated biphenyls ("PCBs") on
surfaces within the Company's New Bedford plant. While the Company and its
expert advisors consider the PCBs to represent no threat to the health of the
employees of the Company or the surrounding community, subsequent engineering
studies indicated that the cost to remove PCBs within the building to the levels
proscribed by the EPA and the Toxic Substances Control Act would be prohibitive.
Therefore, the Company decided, and informed the EPA, that it intends to vacate
the building, to demolish it, and to dispose of all contaminated building
materials in a legally compliant manner. Accordingly, the Company wrote-off, as
of December 27, 1997, the undepreciated value of that building, all improvements
thereto, and certain machinery and equipment, and a reserve was established and
charged to income as of December 27, 1997, in the amount of $7.2 million, which
the Company believes is adequate to dismantle and dispose of the building, clean
equipment located within it, and to pay for related engineering, legal and
professional services. Additionally, the Company wrote-off, as of December 27,
1997 the depreciated value of that building, all improvements thereto and
certain machinery and equipment which the Company believes will become surplus,
abandoned or otherwise unusable upon disposal of the building. The amount of
this write-off was $5.8 million. Of this amount, $0.1 million and $0.4 million
were expended during 1999 and 1998, respectively for such legal and professional
services. During 1998 the EPA approved the Company's plan to dismantle and
dispose of the building. In December 1999 the Company reached a final agreement
with the EPA regarding the timing of the planned dismantling and disposal
activity. Under the settlement, the Company has agreed to relocate its New
Bedford operations within 16 months of the agreement and to demolish the
existing building and cap the site no later than November 2011.
Year 2000 Issue
Prior to January 1, 2000 the Company completed implementation of a
state-of-the-art and Year 2000 ("Y2K")-compliant enterprise resource planning
("ERP") system at all locations. The ERP system includes the principal
accounting, manufacturing, and customer service information processing systems
for the Company. All such identified equipment and software were in compliance
with Y2K standards by September 30, 1999.
Historical costs to implement the ERP system totaled approximately $1.0 million,
which management believes to be the final aggregate expenditure for the Y2K
project.
Management is unaware of any problems that have arisen with respect to Y2K
issues in the Company's current software products, internal information systems
or in the information
172
<PAGE>
system of its customers or vendors. As a result, management does not anticipate
any material problems related to the Y2K issue in the future.
173
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
For The Years Ended
(Amounts in thousands, except per share data) Jan. 1, 2000 Jan. 2, 1999 Dec. 27, 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 110,438 $ 116,194 $ 119,658
Cost of sales 90,623 96,062 102,731
--------------------------------------------------------------------
Gross profit 19,815 20,132 16,927
Research and development 2,237 2,492 2,708
Selling, general and administrative expenses 14,519 14,992 13,793
Provision for environmental charges -- -- 13,000
Provision for restructuring costs 5,332 -- --
--------------------------------------------------------------------
Income (loss) from operations (2,273) 2,648 (12,574)
Other income (expense):
Interest expense (1,735) (1,530) (1,741)
Other income 311 1,520 323
--------------------------------------------------------------------
Income (loss) before income taxes (3,697) 2,638 (13,992)
Provision for (benefit from) income taxes (226) 852 (2,493)
--------------------------------------------------------------------
Net income (loss) $ (3,471) $ 1,786 $ (11,499)
====================================================================
Earnings (loss) per share - basic and diluted $ (0.64) $ 0.33 $ (2.15)
====================================================================
Weighted average number of shares outstanding 5,398 5,390 5,348
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Stockholders' Comprehensive
(Amounts in thousands) Stock Capital Earnings Profit (Loss) Equity Income (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 28, 1996 $ 5,315 $ 842 $ 28,781 $ 135 $ 35,073
Net loss -- -- (11,499) -- (11,499) $ (11,499)
Proceeds from employee stock 69 195 -- -- 264
purchase plan and exercise of stock
options (69,384 shares)
Foreign currency translation -- -- -- (72) (72) (72)
----------------
Comprehensive loss $ (11,571)
----------------------------------------------------------------------------================
Balances at December 27, 1997 5,384 1,037 17,282 63 23,766
---------------------------------------------------------------------------
Net income -- -- 1,786 -- 1,786 $ 1,786
</TABLE>
174
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Proceeds from employee stock 9 22 -- -- 31
purchase plan and exercise of stock
options (8,842 shares)
Foreign currency translation -- -- -- (294) (294) (294)
----------------
Comprehensive income $ 1,492
----------------------------------------------------------------------------================
Balances at January 2, 1999 5,393 1,059 19,068 (231) 25,289
---------------------------------------------------------------------------
Net loss -- -- (3,471) -- (3,471) $ (3,471)
Proceeds from employee stock 11 19 -- -- 30
purchase plan and exercise of stock
options (11,645 shares)
Revaluation of redeemable -- -- 372 -- 372
common stock
Foreign currency translation -- -- -- (14) (14) (14)
----------------
Comprehensive income $ (3,485)
----------------------------------------------------------------------------================
Balances at January 1, 2000 $ 5,404 $ 1,078 $ 15,969 $ (245) $ 22,206
===========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(Amounts in thousands) Jan. 1, 2000 Jan. 2, 1999
=====================================================================================================================
<S> <C> <C>
Assets
Current assets:
Cash $ 742 $ 1,149
Accounts receivable, net of allowance for doubtful
accounts of $511 in 1999 and $606 in 1998 14,881 14,220
Inventories 17,511 19,906
Prepaid expenses and other current assets 2,214 566
---------------------------------------
Total current assets 35,348 35,841
Property, plant and equipment, at cost:
Land 290 290
Buildings and improvements 3,312 3,197
Machinery and equipment 46,367 63,351
---------------------------------------
49,969 66,838
Less accumulated depreciation and amortization (22,448) (36,338)
---------------------------------------
27,521 30,500
Goodwill, net of accumulated amortization of $323 in 1999 3,989 --
Deferred income taxes 3,592 4,146
Other assets 70 84
---------------------------------------
Total assets $ 70,520 $ 70,571
=======================================
</TABLE>
175
<PAGE>
<TABLE>
<S> <C> <C>
Liabilities, Redeemable Common Stock and Stockholders' Equity
Current liabilities:
Accounts payable $ 8,285 $ 9,490
Accrued compensation and related expenses 2,540 3,048
Other accrued expenses 2,090 2,374
Current maturities of long-term debt 7,362 7,376
Income taxes 47 84
---------------------------------------
Total current liabilities 20,324 22,372
Deferred income taxes 4,100 5,022
Industrial revenue bond 800 1,292
Long-term debt less current maturities 13,571 9,916
Reserve for environmental costs and plant remediation 6,470 6,033
Deferred compensation 503 647
Commitments and contingencies
Redeemable common stock 2,546 --
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued -- --
Common stock; $1.00 par value; 20,000,000 shares authorized;
5,404,866 and 5,393,221 shares issued and outstanding 5,404 5,393
Additional paid-in capital 1,078 1,059
Retained earnings 15,969 19,068
Accumulated other comprehensive loss (245) (231)
---------------------------------------
Total stockholders' equity 22,206 25,289
---------------------------------------
Total liabilities, redeemable common stock and
stockholders' equity $ 70,520 $ 70,571
=======================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For The Years Ended
(Amounts in thousands) Jan. 1, 2000 Jan. 2, 1999 Dec. 27, 1997
================================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,471) $ 1,786 $ (11,499)
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization 4,741 4,366 4,602
Environmental costs and plant remediation -- -- 13,000
</TABLE>
176
<PAGE>
<TABLE>
<S> <C> <C> <C>
Write-down of impaired assets and other restructuring 5,676 -- --
costs
Gain on sale of business unit -- (949) --
Gain (loss) on disposal of assets (3) -- 349
Deferred income taxes (349) 833 (2,801)
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable (488) (371) 1,819
Inventories 3,694 (1,912) 2,682
Prepaid expenses (1,135) 82 408
Other assets 15 -- --
Accounts payable (939) (790) 2,045
Accrued compensation and related expenses (741) 55 (244)
Other accrued expenses (706) (1,097) (1,131)
Income taxes payable (356) (272) 131
------------------------------------------------------------
Net cash provided by operating activities 5,938 1,731 9,361
------------------------------------------------------------
Cash flows from investing activities:
Cash paid for acquisition, net of cash (1,721) -- --
acquired
Proceeds from sale of business unit -- 2,000 --
Acquisition of property and equipment (4,388) (2,785) (2,661)
Other 304 (400) 147
------------------------------------------------------------
Net cash used in investing activities (5,805) (1,185) (2,514)
------------------------------------------------------------
Cash flows from financing activities:
Proceeds from employee stock purchase plan and
exercise of stock options 30 30 264
Net borrowings (repayments) under line of credit (3,332) 1,855 (4,616)
Proceeds from issuance of long-term debt 12,851 -- 946
Repayments of long-term debt (10,018) (1,861) (3,646)
------------------------------------------------------------
Net cash provided by (used in) financing activities (529) 24 (7,052)
------------------------------------------------------------
Effects of exchange rates on cash (71) (114) 34
------------------------------------------------------------
Increase (decrease) in cash (407) 456 (171)
Cash at beginning of year 1,149 693 864
------------------------------------------------------------
Cash at end of year $ 742 $ 1,149 $ 693
=================== ==================== ===================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,465 $ 1,530 $ 1,733
=================== ==================== ===================
Cash paid during the year for income taxes $ 395 $ 398 $ 461
=================== ==================== ===================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
177
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions have been
eliminated. Certain reclassifications have been made to prior years'
financial statements to conform to the presentation.
Fiscal Year
The Company uses a fiscal calendar, which normally includes 52 weeks, and
ends on the Saturday nearest to December 31. Fiscal years 1999 and 1997
ended on January 1 and December 27, respectively and included 52 weeks.
Fiscal year 1998 ended on January 2 and included 53 weeks.
Translation of Foreign Currencies
Assets and liabilities of all foreign subsidiaries are translated at
period-end rates of exchange and income statement accounts are translated
at average rates of exchange. Resulting translation adjustments are
recorded as a separate component of stockholders' equity, "Accumulated
other comprehensive loss." Foreign currency transaction gains and losses
are included in other income and expense.
Cash
Cash consists of cash on hand.
Concentrations of Credit Risks
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's customer base consists of a large number of geographically
dispersed customers. The Company maintains reserves for potential credit
losses on trade receivables and such losses, in aggregate, have not
exceeded management's expectations.
Financial Instruments
Derivative financial instruments are used by the Company in the management
of foreign currency exposures to reduce commodity and financial market risk
and are accounted for on an accrual basis. Gains and losses resulting from
effective hedges of existing assets, liabilities or firm commitments are
deferred and recognized when the offsetting gains and losses are recognized
on the related hedged items (see Note 8). The Company does not enter into
derivative transactions for speculative purposes.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out ("FIFO") method.
178
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Provisions for
depreciation of plant and equipment are computed using the straight-line
method over the estimated useful lives of the assets (buildings and
improvements, 5-40 years; leasehold improvements, over the life of the
lease or the useful life of the asset, whichever is shorter; machinery and
equipment, 3-15 years). Expenditures for repairs and maintenance are
charged to expense when incurred. Improvements which materially extend the
life of the related assets are capitalized and depreciated. Upon retirement
or other disposition of property and equipment, the cost and related
depreciation are removed from the accounts and the resulting gain or loss
is reflected in earnings.
Depreciation and amortization expense was approximately $4,418,000,
$4,366,000 and $4,602,000 for 1999, 1998 and 1997, respectively.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of," the Company records impairment losses on long-
lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Revenues from product sales are recorded when the product is shipped.
Provisions for product returns and allowances are recorded in the same
period as the related revenue.
Research and Development
Expenditures for research and product development and engineering are
expensed as incurred.
Advertising Costs
The Company expenses the cost of advertising as incurred, or as
appropriate, the first time the advertising takes place. Advertising
expense was approximately $147,000, $109,000 and $309,000 for 1999, 1998
and 1997, respectively.
Software Development Costs
179
<PAGE>
The Company has implemented Statement of Position ("SOP") No. 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." Under SOP 98-1, costs associated with developing or
obtaining internal use software should be capitalized upon meeting certain
criteria. As of January 1, 2000 these capitalized costs and the related
amortization have not been material to the Company's consolidated financial
statements, and all such costs and amortization have been included in
property, plant and equipment.
Environmental Remediation Costs
The Company accrues for costs associated with environmental remediation
obligations when such expenditures are probable and reasonably estimable.
Accruals for estimated costs of environmental remediation obligations
generally are recognized no later than completion of the remedial
feasibility study. Such accruals are adjusted as further information
develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are not discounted to their present
value.
Income Taxes
Deferred tax liabilities and assets are determined based on the differences
between the financial statement basis and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. FAS 109 requires a valuation allowance
against net deferred tax assets, if based upon the available evidence, it
is more likely than not that some or all of the deferred tax assets will
not be realized.
Net Income (Loss) Per Share (Basic and Diluted)
Net income (loss) per share is computed based on the weighted average
number of common and common equivalent shares outstanding during the year,
calculated under the treasury stock method.
Options to purchase 627,875 shares of common stock at prices ranging from
$2.8125 to $9.625 per share were outstanding at January 1, 2000 but were
not included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of
common shares.
Options to purchase 743,375 shares of common stock at prices ranging from
$3.00 to $9.625 per share were outstanding at January 2, 1999 but were not
included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of
common shares.
Options to purchase 313,250 shares of common stock at prices ranging from
$6.125 to $9.625 per share were outstanding at December 27, 1997 but were
not included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of
common shares. Options to purchase 251,625 shares of common stock at prices
ranging from $3.00 to $5.00 per share were outstanding at December 27, 1997
but were not included because the options were anti-dilutive.
180
<PAGE>
New Pronouncements
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 1999 SFAS 137
"Deferral of the Effective Date of SFAS 133" was issued to amend the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
The Statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. Under the new Statement,
the accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation. The Company will adopt SFAS 133 for its fiscal year
beginning December 31, 2000. Management estimates that the effect of
adopting SFAS 133 would not be material to the consolidated financial
statements.
Note 2 - Acquisition and Related Party Transactions:
On April 5, 1999 the Company purchased all of the outstanding capital stock
of Capacitores Unidos, S.A. de C.V. ("Capacitores"), a corporation
organized under the laws of Mexico. In a prior transaction, Capacitores had
previously acquired the assets of the capacitor business of CGE, a Mexican
corporation. These assets consisted primarily of inventory and machinery
and equipment related to the capacitor business of CGE, along with an
assignment of employees, and all technical know-how, customer lists and
other intangible assets related to the business. During 1998 the capacitor
business accounted for $11,500,000 of the sales of CGE and approximately
$1,400,000 of earnings before interest and taxes. CGE purchased
approximately $1,500,000 of high-purity aluminum capacitor foil from the
Company during 1998 for use in AC-rated motor start capacitors.
The aggregate consideration of $7,826,643 paid for the capital stock of
Capacitores consisted of (i) the assumption of obligations of Capacitores
arising from its purchase of assets from CGE, principally three notes
totaling $3,470,000, one of which, in the amount of $1,750,000, was paid by
the Company on April 6, 1999; the remaining two notes are in the amounts of
$1,509,000 and $211,000, and bear interest at 5.10% and 5.22% per annum
respectively, and mature at April 1, 2000 and April 1, 2001 respectively,
(ii) notes of the Company aggregating $1,089,000, accruing interest at a
rate of 5.22% per annum and payable in full on April 4, 2001, (iii) notes
of the Company aggregating $350,000, accruing interest at a rate of 5.32%
per annum and payable in full on April 5, 2002 and (iv) 700,000 shares of
common stock of the Company (the "Registrant Stock"). Each of the Sellers
executed a stockholders agreement, dated as of April 5, 1999, with the
Company which provides for certain restrictions on the transfer of the
Registrant Stock and provides that, in certain circumstances and at a date
not earlier than April 5, 2003, nor later than May 5, 2003, the holders of
such Registrant Stock may require the Company to purchase the Registrant
Stock at the then current book value of the Company. A total of $2,917,643
was ascribed to the Registrant Stock which was composed of the fair market
value of the stock on the date of the transaction and the amount ascribed
to the right of the Sellers to require the Company to repurchase the
181
<PAGE>
stock at a future date at the then current book value. As of January 1,
2000 the fair value of the right of the Sellers to require the Company to
repurchase the stock was approximately $468,000.
The acquisition has been accounted for under the purchase method of
accounting; the operating results of Capacitores have been included in the
Company's consolidated statement of operations from April 5, 1999. Excess
of cost over the fair value of net assets acquired, $4,312,000, is being
amortized on a straight-line basis over ten years.
The Company leases production space in Mexico City, Mexico from CGE.
Payments under this lease agreement totaled $74,000 in 1999. Certain
services related to the security, maintenance and insurance of the
buildings are contracted through CGE, payments for which were $191,000 in
1999.
Certain of the Company's supervisory and managerial personnel, as well as
certain support departments, such as accounting and human resources,
provide services to CGE. The Company charged CGE for all such services
rendered, which totaled $332,000 in 1999.
None of these related party transactions existed prior to the acquisition.
Note 3 - Inventories:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
January 1, 2000 January 2, 1999
Domestic Foreign Total Domestic Foreign Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Raw materials $ 5,948 $ 3,429 $ 9,377 $ 7,309 $ 2,528 $ 9,837
Work in process 1,949 359 2,308 1,935 276 2,211
Finished goods 4,838 988 5,826 7,021 837 7,858
--------------------------------------------------------------------------
$ 12,735 $ 4,776 $17,511 $16,265 $ 3,641 $19,906
==========================================================================
</TABLE>
Note 4 - Debt:
The Company maintains a Revolving Credit Agreement (the "Agreement") with a
bank, which, as amended, provides a credit line of $14,360,000 to the
Company. This debt is collateralized by inventory and accounts receivable.
Interest on the credit line is at the bank's prime rate payable in arrears
on the outstanding loan balance. The Company has the option to convert from
a bank base rate loan into a eurodollar loan at the then eurodollar (LIBOR)
rate plus 2%. The Company also has the option to convert up to $4,000,000
of loans to a bankers' acceptance facility at interest rates equal to the
per annum average discount rate quoted to the bank on the date of request
for such facility plus 2% per annum. The agreement matures on May 31, 2002.
A commitment fee, equal to one-quarter percent per annum will be charged on
the unused portion of the total commitment. At January 1, 2000 borrowings
outstanding under this agreement were $3,630,000 and at January 2, 1999 the
amount was $14,506,000, including 3,194,000 British pounds ($5,284,000 at
year-end exchange rates), owed by BHC Aerovox Ltd. ("BHC"), a
182
<PAGE>
wholly owned subsidiary in the United Kingdom. Net availability under this
line at January 1, 2000 was approximately $10,730,000.
BHC has an agreement with a bank which provides for (i) a ten-year mortgage
on real property in the amount of 500,000 British pounds ($808,000 at year-
end exchange rates) with an outstanding balance at January 1, 2000 of
$774,000, (ii) a five-year loan collateralized by machinery and equipment
in the amount of 500,000 British pounds with an outstanding balance at
January 1, 2000 of $1,719,000, and (iii) an "Overdraft" credit line
allowing borrowings in British pounds, euros or U.S. dollars up to the
equivalent of 2,500,000 British pounds ($4,038,000 at year-end exchange
rates) with an outstanding balance at January 1, 2000 of $2,410,000.
With the exception of the five-year loan collateralized by plant and
machinery which has an interest rate of 5.73%, interest is charged at
variable rates based upon the bank base rate. The ten-year mortgage
agreement includes certain financial covenants. At January 1, 2000 BHC was
in violation of two covenants regarding interest coverage and net worth. On
February 24, 2000, the lender waived its right to accelerate payments on
this loan in respect of the violation through January 1, 2001.
BHC has an agreement with another bank which provides for a five-year loan
at 8.12% per annum collateralized by machinery and equipment in the amount
of 765,000 British pounds ($1,239,000 at year-end exchange rates) with an
outstanding balance at January 1, 2000 of $992,000.
A ten-year Industrial Revenue Bond was issued by the Massachusetts
Industrial Finance Agency in July 1982 to finance the acquisition of
equipment. The bond was transferred to another purchaser in June 1992.
Interest at the rate of 12.5% per annum through June 1992 and 7.42% per
annum thereafter and principal are payable monthly commencing July 1, 1992
to July 1, 2002. The amount of each installment is calculated on an assumed
ten-year amortization schedule. Principal in the amount of $458,000 was
payable in 1999. On January 1, 2000 and January 2, 1999 the bond balance
outstanding under this agreement was $1,292,000 and $1,750,000,
respectively.
Other long-term debt of the Company consists of a term line of credit
agreement with an equipment financing company in the amount of $10,000,000,
collateralized by certain equipment. Payments of principal and interest are
due monthly. On February 26, 1999 the Company amended its agreement with
the equipment financing company. Under this amendment, the balances
outstanding at that date were repaid and additional funds borrowed under a
new promissory note and security agreement in the amount of $9,000,000.
Principal payments due under that note in 1999 were $1,250,000, and
$1,500,000 per year thereafter.
At January 1, 2000 borrowings outstanding under this agreement were
$7,750,000 at an annualized interest rate of 7.80%, and maturing in the
year 2005; and at January 2, 1999, $2,328,000 at annualized interest rates
ranging from 7.16% to 8.13%. The agreement
183
<PAGE>
contains several financial covenants requiring the Company to maintain
certain ratios regarding debt, equity, and interest costs. The Company was
in violation of the minimum tangible net worth covenant on January 1, 2000.
On March 2, 2000 the lender waived its right to accelerate payment of this
debt for violation of this financial covenant. The waiver of this covenant
does not extend beyond January 1, 2000 and all covenants contained in the
agreement remain in effect for all subsequent periods.
The Company also has two notes payable to the original shareholders of
Capacitores in the amounts of $1,089,000 and $350,000, accruing interest at
rates of 5.22% and 5.32% per annum, respectively, and due April 4, 2001 and
April 5, 2002, respectively.
Capacitores has two notes payable to CGE in the amounts of $1,509,000 and
$211,000 which bear interest at 5.10% and 5.22% per annum, respectively,
and mature at April 1, 2000 and April 1, 2001, respectively. Capacitores
also has a bank loan with an outstanding balance at January 1, 2000 of
$1,000,000 bearing interest at 9.67% of which $750,000 is due June 5, 2000
and $250,000 is due June 9, 2000.
Total maturities of long-term debt over the next five years are:
Year (in thousands)
-------------------------------------------------------
2000 $ 5,622
2001 3,230
2002 2,178
2003 1,500
2004 1,500
Thereafter 250
-------------------------------------------------------
$ 14,280
=======================================================
Note 5 - Sale of Business Unit:
On July 29, 1998 the Company sold its Power Factor Correction ("PFC")
Systems business. The PFC unit manufactured and sold equipment used to
enhance the efficient use of power by large industrial plants. Proceeds
from the sale were $2,000,000 resulting in a gain of $949,000.
Note 6 - Other Accrued Expenses:
Other accrued expenses consist of the following at January 1, 2000 and
January 2, 1999 (in thousands):
1999 1998
-------------------------
Warranty $ 498 $ 654
Duty 579 550
Environmental cost and
plant remediation 150 730
Other 863 440
184
<PAGE>
-------------------------
$ 2,090 $ 2,374
=========================
Note 7 - Commitments and Contingencies:
The Company leases manufacturing space, equipment and software under
various non-cancelable operating leases. Rental expense amounted to
$1,480,000 in 1999, $1,717,000 in 1998 and $1,721,000 in 1997. On January
1, 2000 future minimum annual rental payments under all leases are as
follows (in thousands):
Year
-----------------------------------------------
2000 $ 1,221
2001 957
2002 872
2003 757
2004 196
Thereafter 320
The Company leases, and in turn sublets, office space in North Dartmouth,
Massachusetts. Since rental income from the sublease substantially offsets
rental expense under the lease, the future minimum annual rental payments
above exclude payments related to those offices.
The Company is self insured for workers' compensation benefits for some of
its employees. The amounts charged to expense for workers' compensation
were $373,000 in 1999, $359,000 in 1998 and $352,000 in 1997, based upon
reported claims and estimates of claims incurred but not reported.
The Company is also self insured for a portion of health care costs not
covered by insurance for some of its U.S. employees. The Company is liable
for claims up to $150,000 per employee and aggregate claims up to a maximum
of $1,875,000 (based on average monthly enrollment) for 1999. Costs accrued
are based upon reported claims and estimates of claims incurred but not
reported. The amount charged to expense for health care costs, which
includes paid claims, individual and aggregate stop/loss coverage and
administrative fees, less employee contributions, was $1,603,000 in 1999,
$1,816,000 in 1998 and $1,867,000 in 1997.
Note 8 - Financial Instruments:
The Company operates internationally with manufacturing facilities,
customers, and vendors in several countries outside of the United States.
The Company may reduce its exposure to fluctuations in foreign exchange
rates by creating offsetting positions through the use of foreign currency
forward contracts, a type of derivative financial instrument. The Company
does not use derivative financial instruments for trading or speculative
purposes, nor is the Company a party to leveraged derivatives.
At January 2, 1999 the Company held foreign currency forward contracts with
costs totaling approximately $1,509,000 (910,000 British pounds sterling).
These contracts matured on
185
<PAGE>
various dates through February 1999. The fair value of these contracts at
January 2, 1999 was $1,523,000.
The Company held no foreign currency forward contracts as of January 1,
2000.
Note 9 - Incentive and Other Plans:
1989 and 1999 Stock Incentive Plan
The 1989 and 1999 Stock Incentive Plans ("Plans") permit the granting of a
variety of stock and stock-based awards, including stock options, rights to
receive cash or shares for increases in the value of the Company's common
stock, the award of restricted and unrestricted shares, rights to receive
cash or shares on a deferred basis or based on performance, cash payments
sufficient to offset the Federal ordinary income taxes under the Plans,
loans to participants in connection with awards and other common stock-
based awards, including the sale or award of convertible securities that
meet the requirements of the Plans. The Plans also provide that option
holders may surrender outstanding options in exchange for a cash payment
during the sixty-day period following a change in control as defined in the
Plans.
The 1989 Stock Incentive Plan expired in April 1999. The 1999 Stock
Incentive Plan ("1999 Plan") was approved by the Company's shareholders in
May 1999. A total of 500,000 shares of common stock have been reserved and
may be issued under the 1999 Plan to full or part-time officers and other
key employees of the Company and its subsidiaries. The Plans limit the
terms of awards to ten years and prohibit the granting of awards more than
ten years after the effective date of the Plans. The Plans permit the
granting of non-transferable stock options that qualify as incentive stock
options ("ISOs") for United States Federal income tax purposes and options
that do not so qualify. The exercise price of each option may not be less
than 100% of the fair market value, or 110% in the case of a person holding
10% or more of the outstanding voting power of all classes of stock of the
Company, on the date of grant in the case of ISOs and not less than 50% of
the fair market value in the case of non-qualified options. The term of
each option is fixed by the board of directors but may not exceed ten years
from the date of grant (five years in the case of a 10% shareholder) with
respect to ISOs and ten years and a day with respect to non-qualified
options.
In the event of termination of employment by reason of retirement,
disability or death, an option may be exercised (to the extent it was then
exercisable) for a period of three years. In the event of termination for
other reasons, an option may be exercised (to the extent it was then
exercisable) for three months.
Each option becomes exercisable at the rate of 20% per year beginning on
the first anniversary of the date of grant and expires ten years from the
date of grant. Information for fiscal years 1999, 1998, and 1997, with
respect to the Plans, is as follows:
1999 1998 1997
Stock Incentive Plans
186
<PAGE>
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 643,500 $4.92 471,000 $5.59 500,000 $5.59
Granted 113,500 $2.79 239,000 $3.48 67,000 $4.50
Exercised -- -- -- -- (61,500) $3.00
Canceled (216,500) $4.62 (66,500) $4.55 (34,500) $8.01
-------------------------------------------------------------------------------------------
Outstanding at end of year 540,500 $4.59 643,500 $4.91 471,000 $5.59
===========================================================================================
Options exercisable at end of year 243,000 $5.65 265,300 $5.50 257,300 $4.95
===========================================================================================
Options available for future grant 495,000 117,000 289,500
===========================================================================================
</TABLE>
The following table summarizes information about stock options outstanding at
January 1, 2000:
<TABLE>
<CAPTION>
Stock Incentive
Plans Options Outstanding Options Exercisable
Weighted
Number Average Weighted Number Weighted
Exercise Price Outstanding at Remaining Average Exercisable at Average
Range January 1, 2000 Contractual Life Exercise Price January 1, 2000 Exercise Price
<S> <C> <C> <C> <C> <C>
$2.00 - $2.50 5,000 9.9 $2.44 -- --
$2.51 - $3.00 97,000 8.3 $2.83 10,000 $3.00
$3.01 - $4.50 272,000 7.0 $3.67 99,700 $3.73
$4.51 - $6.75 87,500 4.9 $6.05 64,500 $5.99
$6.76 - $9.00 79,000 4.8 $8.40 68,800 $8.50
--------------------------------------------------------------------------------------------------
$2.00 - $9.00 540,500 6.6 $4.59 243,000 $5.65
==================================================================================================
</TABLE>
Non-Statutory Stock Option Award Agreement
On September 1, 1996 an officer of the Company was awarded options to
purchase 50,000 shares of Aerovox common stock, bearing an exercise price
of $6.00 per share. The option are exercisable at the rate of 20% per year
and expire ten years from the date of grant. On January 1, 2000 options for
30,000 shares were exercisable under this agreement.
<PAGE>
1989 and 1999 Stock Option Plan for Directors
The 1989 Stock Option Plan for Directors expired in April 1999. The 1999
Stock Option Plan for Directors (the "1999 Directors Plan") was approved by
the Company's shareholders in May 1999. The 1999 Directors Plan reserved
25,000 shares of common stock for the granting of options to purchase stock
at 100% of the fair market value on the date of grant. Directors who are
not employees of the Company are eligible under the Directors Plan. Each
newly elected director will be awarded options to purchase 2,500 shares of
common stock on the date of election. Following the initial grant, each
person who is an eligible director on the day of each annual meeting of
shareholders of the Company will receive options to purchase 1,000 shares
or 250 for each quarter of service if less than one year elapses between
the initial grant and an annual grant.
Options expire ten years from the grant date and become exercisable on the
first anniversary of the grant date. No options may be awarded under the
1999 Directors Plan after April 2009. In the event of termination by
retirement, an option may be exercised for a period of three years, or
until expiration, if earlier; or for one year after death in the event an
optionee dies during the final year of such exercise period or until the
expiration of the stated term of the option. In the event of termination by
reason of death, an option may be exercised (to the extent it was then
exercisable) for a period of three years. In the event of termination for
other reasons, an option may be exercised (to the extent it was then
exercisable) for three months.
Information for fiscal years 1999, 1998, and 1997, with respect to the
Directors Plans, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Stock Option Plans
for Directors
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at 49,875 $5.70 43,875 $6.00 34,375 $6.41
beginning of year
Granted 6,000 $2.50 6,000 $3.50 9,500 $4.50
Exercised -- -- -- -- -- --
Canceled (7,500) $3.00 -- -- -- --
------------------------------------------------------------------------------------------------
Outstanding at end of year 48,375 $5.72 49,875 $5.70 43,875 $6.00
================================================================================================
Options exercisable at
year-end 42,375 $6.18 43,875 $6.00 34,375 $6.42
================================================================================================
Options available for
future grant 19,000 18,292 24,292
================================================================================================
</TABLE>
<PAGE>
The following table summarizes information about stock options outstanding
at January 1, 2000:
<TABLE>
<CAPTION>
Stock Option Options Outstanding Options Exercisable
Plans for
Directors
Number Weighted Weighted Number Weighted
Outstanding at Average Average Exercisable at Average
Exercise Price January 1, Remaining Exercise January 1, Exercise
Range 2000 Contractual Life Price 2000 Price
<S> <C> <C> <C> <C> <C>
$2.50 - $2.99 6,000 9.3 $2.50 -- --
$3.00 - $4.50 16,625 7.2 $4.14 16,625 $4.14
$4.51 - $6.75 11,500 4.9 $6.54 11,500 $6.54
$6.76 - $9.63 14,250 4.9 $8.27 14,250 $8.27
-------------------------------------------------------------------------------------------------
$2.50 - $9.63 48,375 6.2 $5.72 42,375 $6.18
=================================================================================================
</TABLE>
Accounting for Stock Options
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("SFAS 123") describes a "fair value" method for
calculating the effect of options granted on the reported earnings of the
Company. This method uses certain historical data regarding outstanding
options and the price history of a company's shares in a mathematical model
to determine the hypothetical value of the option had it been sold in the
open securities market rather than granted to the plan participant. This is
in contrast to the valuation method prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), which calculates the value at the date of
grant as the difference, if any, between the exercise price and the market
price of the shares on that date.
Calculated in accordance with SFAS 123, the weighted average fair value at
date of grant for options granted in 1999, 1998 and 1997 was $1.14, $2.09
and $2.83 per option, respectively. The fair value of these options at the
date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions for 1999, 1998 and 1997: risk-free
interest rates as of the grant dates from 4.42% to 5.59%; no dividend
yields; a volatility factor of the expected market price of the Company's
common stock of 42.38%, 38.28% and 33.82%, respectively; and a weighted
average expected life of the options of 9.34, 9.79 and 9.81 years,
respectively.
As allowed by SFAS 123, the Company elected the disclosure-only
alternative, and continues to calculate and report net income and net
income per share according to APB 25 for employee and director stock-based
compensation. Had compensation cost for the Company's 1999, 1998, and 1997
grants for stock-based employee and director compensation plans been
determined using the fair value method as prescribed by SFAS 123,
<PAGE>
the Company's net income, and net income per share for those years would
approximate the pro forma amounts below (in thousands except for per share
data).
<TABLE>
<CAPTION>
January 1, 2000 January 2, 1999 December 27, 1997
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $(3,471) $(3,547) $1,786 $1,673 $(11,499) $(11,784)
Basic earnings (loss) per share $ (0.64) $ (0.66) $ 0.33 $ 0.31 $ (2.15) $ (2.20)
Diluted earnings (loss) per share $ (0.64) $ (0.66) $ 0.33 $ 0.31 $ (2.15) $ (2.20)
</TABLE>
Employee Stock Purchase Plan
In 1989 the Company established the Employee Stock Purchase Plan (the
"ESPP") under which 100,000 shares of common stock were reserved for
purchase by employees. The ESPP was amended in August 1999 to expand the
common stock reserved to 200,000 shares. The ESPP provides for the sale of
common stock at the average of the reported high and low sales prices of
the stock on the last business day of the accounting period each month.
Common stock purchases are paid through regular payroll deductions of up to
15% of eligible compensation plus Company payments equal to 10% of the
participant's payment plus an additional 0.75% for each full year of
continuous employment with the Company since January 1, 1973, up to a
maximum of 25% of the participant's payment. In 1999, 1998 and 1997,
11,645, 8,842 and 7,884 shares, respectively, were sold under the ESPP.
There were 88,733 shares qualified for future sale on January 1, 2000.
Change of Control Severance Benefits
The Company has severance agreements with certain key employees which
provide that if, within 24 months following a change in control (as defined
in the severance agreements), the Company were to terminate the employee's
employment other than for cause or the employee were to terminate his
employment for reasons specified in the agreements, the employee would
receive amounts of up to three times that person's annual base salary plus
target bonus for such year without deduction for any amounts previously
paid under the bonus plan. The agreements also provide for the immediate
vesting of bonus awards, stock options and similar awards, the immediate
payment of deferred compensation amounts and the continuation of certain
benefits. The maximum contingent liability under these agreements on
January 1, 2000 was approximately $2,285,000.
Profit-Sharing Savings Plan
The Company maintains a Profit-Sharing Savings Plan ("PSSP") which covers
substantially all domestic employees with at least six months of service.
Under the PSSP, each employee can elect to make a pre-tax contribution to
the PSSP of not less than 3% and not more than 15% of qualified
compensation, of which up to the first 8% is eligible for a Company match.
<PAGE>
The Company makes regular contributions to the PSSP on behalf of each
participating employee in an amount which, together with any forfeitures
during the PSSP year, is equal to each employee's voluntary contribution up
to a maximum aggregate contribution of 6% of the pre-tax income of the
Company, as defined, or 50% of the aggregate pre-tax contributions of the
participating employees or 50% of the first 8% of the aggregate pre-tax
contribution of the participating employees. The Company's subsidiary in
the United Kingdom maintains a plan covering its eligible employees wherein
Company contributions are made on the basis of the individual's age and
amount of contribution. Expense under these plans amounted to $648,000 in
1999 $639,000 in 1998 and $506,000 in 1997.
Deferred Supplemental Savings Plan
The Company has a Deferred Supplemental Savings Plan under which certain
key employees may defer a percentage of their compensation equal to the
difference between pre-tax amounts of compensation eligible to be
contributed to the PSSP and amounts actually eligible for contributing to
the PSSP under Section 401k of the Revenue Code of the United States. Under
the Deferred Supplemental Savings Plan, the Company will make a matching
contribution in an amount equal to the matching contribution which would
have been made if such contribution had been made under the PSSP. Expense
related to the Deferred Supplemental Savings Plan amounted to $52,000 in
1999, $85,000 in 1998 and $85,000 in 1997.
Consulting Agreements
The Company has Consulting, Non-Competition and Confidentiality Agreements
with two former executives. Under the Agreements, which expire on December
28, 2006, the executives are paid an aggregate of $160,000 per year.
Note 10 - Preferred Stock:
The Company is authorized to issue up to 5,000,000 shares of preferred
stock without further stockholder approval in such series and with such
preferences, terms and other provisions as may be designated by the board
of directors.
On August 16, 1989 the board of directors voted to create a series of
55,000 shares of preferred stock, par value $0.01 per share, designated as
Series A Junior Participating Preferred Stock ("Series A Preferred"). Each
Series A Preferred share is entitled to receive a minimum preferential
quarterly dividend of $1.00 per share and an aggregate dividend of 100
times any dividend declared per share of common stock. Each share of Series
A Preferred is entitled to one hundred votes and votes together as one
class with the common stock. Upon liquidation or dissolution of the
Company, the holder of each share of Series A Preferred is entitled to a
liquidation payment of $100 per share plus an aggregate payment of 100
times the payment made per share on the common stock. The Series A
Preferred shares are not redeemable and rank junior to all other series of
preferred stock of the Company.
191
<PAGE>
In the event of any merger, consolidation or other transaction in which
shares of the Company's common stock are exchanged, each Series A Preferred
share will be entitled to receive 100 times the amount received per share
of common stock.
On January 1, 2000 55,000 shares of Series A Preferred were reserved for
issuance for stock purchase rights (see Note 11). No such rights have
become exercisable and no shares of Series A Preferred have been issued.
Note 11 - Preferred Share Purchase Rights:
On August 16, 1989 the board of directors approved a preferred share rights
plan (the "Rights Plan") pursuant to which one preferred share purchase
right (a "Right") was distributed for each share of outstanding common
stock. Each Right entitles the holder to purchase from the Company one one-
hundredth of a share of Series A Junior Participating Preferred Stock,
$0.01 par value per share, at a price of $16.00 per one one-hundredth of a
Series A Preferred Share, subject to adjustment. On September 22, 1999 the
board of directors approved a ten-year extension of the Rights Plan. The
Rights, which do not have voting rights, expire on December 1, 2009, unless
redeemed earlier by the Company.
As amended by the board of directors on September 22, 1999, the Rights Plan
will become effective and Rights will become exercisable on the date (the
"Shares Acquisition Date") that a person or group of affiliated or
associated persons (an "Acquiring Person") acquires beneficial ownership of
20% or more of the outstanding shares of the Company's common stock or
following the commencement of, or announcement of, an intention to make a
tender offer or exchange offer which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of
the Company's common stock.
At any time on or prior to the Shares Acquisition Date, the Company may
redeem the Rights in whole, but not in part, at a price of $0.01 per Right.
In the event that the Company is acquired in a merger or other business
combination transaction or 30% or more of its consolidated assets or
earnings power are sold, the Rights Plan requires that proper provision be
made so that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of
the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times
the exercise price of the Right. In the event that any person becomes an
Acquiring Person, the holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which would thereafter be void), will have
the right to receive upon exercise that number of shares of common stock
having a net value of two times the exercise price of the Right.
At any time after the Shares Acquisition Date and prior to the acquisition
by an Acquiring Person of 50% or more of the outstanding shares of the
Company's common stock, the Company may exchange the Rights (other than
Rights owned by Acquiring Persons which have become void), in whole or in
part, at an exchange ratio of one share of common stock,
192
<PAGE>
or one one-hundredth of a Series A Preferred Share (or of a share of a
class or series of the Preferred Stock of the Company having equivalent
rights, preferences and privileges), per Right (subject to adjustment).
Note 12 - Segment Information:
The Company is engaged in one operating segment, the manufacture of
capacitors and EMI filters. The Company adopted SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information" during the fourth
quarter of 1998. Statement No. 131 establishes standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports issued to stockholders. It also established standards for related
disclosures about products, services and geographic areas.
Information about the Company's operations by geographic area is as follows
(in thousands):
Operations by Geographic Area:
<TABLE>
<CAPTION>
United United
States Kingdom Mexico Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended January 1, 2000
Sales to unaffiliated customers $ 73,238 $ 21,493 $ 12,707 $ - $ 110,438
Transfer between geographic areas 3,270 - 2,610 (5,880) -
---------------------------------------------------------------------------------
Total sales $ 79,508 $ 21,493 $ 15,317 (5,880) $ 110,438
=================================================================================
Operating profit (loss) $ (1,101) $ (1,366) $ $ (106) $ (2,273)
300
Interest expense (1,735)
Interest income 311
---------------------------------------------------------------------------------
Loss before income taxes (3,697)
=================================================================================
Identifiable assets $ 45,321 $ 13,133 $ 12,071 $ (5) $ 70,520
=================================================================================
Year Ended January 2, 1999
Sales to unaffiliated customers $ 89,348 $ 26,465 $ 381 $ - $ 116,194
Transfer between geographic areas 3,981 - 7,073 (11,054) -
---------------------------------------------------------------------------------
Total sales $ 93,329 $ 26,465 $ 7,454 $ (11,054) $ 116,194
=================================================================================
Operating profit $ 872 $ 1,474 $ 302 $ - $ 2,648
Interest expense (1,530)
Interest income 1,520
---------------------------------------------------------------------------------
Income before income taxes $ 2,638
=================================================================================
Identifiable assets $ 60,166 $ 16,569 $ 1,806 $ (7,970) $ 70,571
=================================================================================
Year Ended December 27, 1997
Sales to unaffiliated customers $ 93,778 $ 24,966 $ 914 $ - $ 119,658
</TABLE>
193
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Transfer between geographic areas 3,870 - 7,325 (11,195) -
---------------------------------------------------------------------------------
Total sales $ 97,648 $ 24,966 $ 8,239 (11,195) $ 119,658
=================================================================================
Operating profit (loss) $ (13,824) $ 1,244 $ 281 $ - $ (12,299)
Interest expense (1,741)
Interest income 48
---------------------------------------------------------------------------------
Loss before income taxes $ (13,992)
=================================================================================
Identifiable assets $ 63,103 $ 15,362 $ 1,030 $ (7,936) $ 71,559
=================================================================================
</TABLE>
Transfers between geographic areas are accounted for at cost plus 15% in
1999, 1998, and 1997, except for transfers of etched and formed foil in all
years which were accounted for at prices intended to approximate sales to
unrelated third parties. Operating profit (loss) is total sales less
operating expenses which in 1999 included a special provision for
restructuring costs, in 1998 included a special gain on the sale of certain
assets related to a product line, and in 1997 included a special provision
for environmental costs and asset write-down. Identifiable assets are those
assets of the Company that are identified with the operations in each
geographic area.
Note 13 - Provision for Income Taxes:
The provision for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
Jan. 1, 2000 Jan. 2, 1999 Dec. 27, 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 259 $ (315) $ -
State 25 - -
Foreign (141) 352 338
------------------------------------------------------
Total Current 143 37 338
Deferred:
Federal - 691 (1,974)
State - 124 (950)
Foreign (369) - 93
------------------------------------------------------
Total deferred taxes (369) 815 (2,831)
------------------------------------------------------
Provision for (benefit from) income taxes $ (226) $ 852 $ (2,493)
======================================================
Deferred income taxes arise from (in thousands):
Environmental reserve $ (114) $ 350 $ (2,901)
Accelerated depreciation (1,028) (355) (2,477)
Net operating losses 951 42 (633)
Inventory valuation (459) (25) (363)
Allowance for doubtful accounts 1 4 26
Compensation related costs 82 162 286
Warranty reserve 47 74 210
Restructuring reserve (1,774) - -
Other 60 509 (95)
Tax credits 615 133 (22)
Valuation allowance 1,619 (79) 3,138
</TABLE>
194
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------------------------------------------------
$ - $ 815 $ (2,831)
======================================================
Income taxes are reconciled to the United States
statutory corporate tax rate as follows (in thousands):
United States corporate tax at statutory rate $ (1,256) $ 897 $ (4,756)
Increase (decrease) arising from:
State taxes (220) 124 (934)
Foreign taxes (509) (193) 50
Other 140 103 9
Change in valuation allowance 1,619 (79) 3,138
------------------------------------------------------
$ (226) $ 852 $ (2,493)
======================================================
</TABLE>
Deferred U.S. income taxes have not been provided on basis differences
related to investments in certain foreign subsidiaries and affiliates.
These basis differences consist primarily of undistributed earnings
considered permanently invested in the businesses. Determination of the
deferred income tax liability on these unremitted earnings is not
practicable since such liability, if any, is dependent on circumstances
existing if and when remittance occurs.
The components of the Company's deferred tax assets and liabilities as of
January 1, 2000 and January 2, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
January 1, 2000 January 2, 1999
Deferred Taxes: Assets Liabilities Assets Liabilities
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating loss carryforwards 2,020 - $ 3,025 $ -
Compensation related cost 472 - 261 -
Allowance for doubtful accounts 172 - 173 -
Depreciation - 4,099 - 5,091
Environmental reserve 2,665 - 2,551 -
Restructuring reserve 1,775 - - -
Inventory reserves 739 - 160 -
Warranty reserves 160 - 208 -
Tax credit carryforwards 483 - 1,043 -
Valuation allowance (4,894) - (3,275) -
Other - - - (69)
---------------------------------------------------------------------
Total $ 3,592 $ 4,099 $ 4,146 $ 5,022
=====================================================================
</TABLE>
Due to the uncertainty surrounding the realization of favorable tax
attributes in future tax returns related to the write-down of impaired
assets and other restructuring costs in the United States, the increase in
deferred tax assets has been fully offset by a valuation allowance. The
change in valuation allowance is due to the addition of the restructuring
reserve. At January 1, 2000 the Company had a net operating loss
carryforward of approximately $5,038,000 for tax purposes, which begin to
expire in 2012. At January 1, 2000 the Company also had $483,000 of foreign
and other tax credits which expire from 2000 to 2012.
Note 14 - Environmental Matters:
195
<PAGE>
The Company manufactures film capacitors and maintains its corporate
offices in a building located in New Bedford, Massachusetts which has been
occupied by the Company and predecessor organizations also engaged in the
manufacture of capacitors since 1938. In June 1997 the United States
Environmental Protection Agency ("EPA") conducted preliminary tests within
the building that revealed the presence of polychlorinated biphenyls
("PCBs") on surfaces within the plant. Subsequent engineering tests by
independent consultants retained by the Company confirmed the presence of
residual PCBs throughout the plant, which resulted from their use prior to
1978. While the Company and its expert advisors consider the PCBs to
represent no threat to the health of the employees of the Company or the
surrounding community, subsequent engineering studies indicated that the
cost to remove PCBs within the building to the levels proscribed by the EPA
and the Toxic Substances Control Act would be prohibitive. Therefore, the
Company has decided, and has so informed the EPA, that it intends to vacate
the building, to demolish it, and to dispose of all contaminated building
materials in a legally compliant manner. Accordingly, a reserve was
established and charged to income as of December 27, 1997 in the amount of
$7,233,000, which the Company believes is adequate to dismantle and dispose
of the building, clean equipment located within it, and to pay for related
engineering, legal and professional services. Of this amount, $6,470,000
has been classified as a long-term liability. Additionally, the Company
wrote-off, as of December 27, 1997 the depreciated value of that building,
all improvements thereto, and certain machinery and equipment which the
Company believes will become surplus, abandoned, or otherwise unusable upon
disposal of the building. The amount of this write-off was $5,767,000.
During 1998 the EPA approved the Company's plan to dismantle and dispose of
the building. In December 1999 the Company reached a final agreement with
the EPA regarding the timing of the planned dismantling and disposal
activity. Under the settlement, the Company has agreed to relocate its New
Bedford operations within 16 months of the agreement, and to demolish the
existing building and cap the site no later than November 2011.
On February 9, 1990 the Company entered into a settlement agreement (the
"Settlement Agreement") with the United States and The Commonwealth of
Massachusetts (the "governments") resolving litigation commenced by the
governments in the U.S. District Court for the District of Massachusetts,
on December 10, 1983 under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, commonly known as the "Superfund"
legislation. The litigation concerned the alleged disposal by various
defendants of PCBs in the Acushnet River and New Bedford Harbor. The
Settlement Agreement resolved all of the governments' claims against the
Company and Aerovox Industries, Inc. (a predecessor of the Company) arising
out of the contamination of the Acushnet River and New Bedford Harbor with
PCBs, including cleanup costs, study costs and damages to natural
resources, now or hereafter incurred, except that the Settlement Agreement
provides that the governments may seek damages from the Company and Aerovox
Industries, Inc. for future liability in the event that such future
liability arises out of unknown conditions at the site. The Company, based
on information presently available, does not believe that this matter will
have any further material adverse effect on the Company's financial
condition.
196
<PAGE>
Note 15 - Restructuring Costs:
In December 1999 the Company recorded charges of $5,676,000 related to the
exit costs from certain activities and asset impairments arising from the
consolidation and relocation of certain facilities. The components of these
charges were as follows (in thousands):
Impairment of property, plant and equipment $4,723
Write-off of certain inventory 344
Involuntary employee terminations 609
------
$5,676
The impairments of property, plant and equipment were a result of the
closure and consolidation of plants in Mexico, the closure of foil
processing operations in the United Kingdom, the cessation of a North
American product line and the abandonment of manufacturing equipment
resulting from the relocation of the Company's corporate headquarters and
manufacturing plant in New Bedford, Massachusetts to a new facility. These
costs have been recorded as provisions for restructuring costs in the
Company's Consolidated Statements of Operations.
The write-off of certain inventory was a result of the Company's decision
to exit a capacitor product line in North America and the closure of foil
processing operations in the United Kingdom. These costs have been recorded
as charges to cost of sales.
The involuntary employee terminations were a result of the closure and
consolidation of plants in Mexico and the closure of foil processing
operations in the United Kingdom. As a result of these actions, 54
employees were terminated, primarily from production, supervisory and
manufacturing support functions. The termination benefits related to these
employees have been accrued and charged to the provision for restructuring
costs.
Note 16 - Foreign Operations:
Summarized financial information for the Company's foreign operations is as
follows (in thousands):
<TABLE>
<CAPTION>
January 1, January 2, December 27,
2000 1999 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 13,639 $ 10,122 $ 9,045
Non-current assets 13,353 7,826 7,470
------------------------------------------------------------------
$ 26,992 $ 17,948 $ 16,515
==================================================================
Current liabilities $ 8,488 $ 5,808 $ 3,138
Due to parent 1,788 428 238
Deferred income taxes 456 824 835
Long-term debt 2,253 2,465 4,097
Stockholders' equity 14,007 8,423 8,207
</TABLE>
197
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------------------------------------------------------------
$ 26,992 $ 17,948 $ 16,515
==================================================================
Net sales $ 34,200 $ 26,846 $ 25,880
==================================================================
Net income $ (1,188) $ 1,005 $ 720
==================================================================
</TABLE>
198
<PAGE>
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Jan. 1, Jan. 2, Dec. 27, Dec. 28, Dec. 30,
(Amounts in thousands, except per share data) 2000 1999 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $ 110,438 $ 116,194 $ 119,658 $125,975 $129,311
Income (loss) from operations (2,273) 2,648 (12,574) 143 4,666
Net income (loss) (3,471) 1,786 (11,499) (1,347) 1,601
Basic earning (loss) per share (0.64) 0.33 (2.15) (0.25) 0.31
Diluted earnings (loss) per share (0.64) 0.33 (2.15) (0.25) 0.30
Weighted average shares outstanding;
Basic 5,398 5,390 5,348 5,388 5,164
Diluted 5,398 5,390 5,348 5,388 5,336
Balance sheet data:
Total assets $ 70,520 $ 70,571 $ 71,559 $ 84,976 $ 89,331
Redeemable common stock 2,546 - - - -
Long-term obligations 21,344 17,888 23,808 23,806 28,777
Total stockholders' equity 24,752 25,289 23,766 35,073 35,505
</TABLE>
Summary of Quarterly Results of Operations
<TABLE>
<CAPTION>
(Unaudited) Quarter
(Amounts in thousands, except per share data) First Second Third Fourth
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended January 1, 2000
Net sales $ 28,375 $ 30,637 $ 26,718 $ 24,708
Gross profit 4,973 6,111 4,777 3,954
Net income 330 801 104 (4,706)
Earnings (loss) per share - basic and diluted $ 0.06 $ 0.15 $ 0.02 $ (0.87)
Year Ended January 2, 1999
Net sales $ 29,528 $ 32,228 $ 27,384 $ 27,054
Gross profit 5,227 6,168 4,538 4,199
Net income 325 748 550 163
Earnings per share - basic and diluted $ 0.06 $ 0.14 $ 0.10 $ 0.03
</TABLE>
199
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Aerovox Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Aerovox
Incorporated (the "Company") at January 1, 2000 and January 2, 1999 and the
results of their operations and their cash flows for each of the three years in
the period ended January 1, 2000 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 auditing standards generally accepted in the
United States, 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.
PricewaterhouseCoopers LLP (signed)
Boston, Massachusetts
February 14, 2000
<PAGE>
(Aerovox Logo)
740 Belleville Avenue
New Bedford, Massachusetts 02745-6194
www.aerovox.com
<PAGE>
Exhibit 21.1
Aerovox Incorporated
Subsidiaries
Aerovox de Mexico S.A. de C.V.
Ave. Fernando Borreguero # 3328
Parque Industrial Juarez,
Cd. Juarez, Chihuahua CP32630
Mexico
Aerovox de Mexico S.A. de C.V.
Tezozomoc 239
San Antonio Azcapotzalco 02760
Mexico City, Mexico
BHC Aerovox Ltd.
20-21 Cumberland Drive
Granby Industrial Estate
Weymouth, Dorset DT4 9TE
England
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Registration Statements on
Form S-8 of Aerovox Incorporated of our report dated February 14, 2000 relating
to the consolidated financial statements, which appears in the Annual Report to
Stockholders, which is incorporated by reference in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report dated
February 14, 2000 relating to the financial statement schedule, which appears in
this Form 10-K.
By /s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-01-2000 JAN-02-1999
<PERIOD-START> JAN-03-1999 DEC-28-1997
<PERIOD-END> JAN-01-2000 JAN-02-1999
<CASH> 742 1,149
<SECURITIES> 0 0
<RECEIVABLES> 15,392 14,826
<ALLOWANCES> 511 606
<INVENTORY> 17,511 19,906
<CURRENT-ASSETS> 35,348 35,841
<PP&E> 49,969 66,838
<DEPRECIATION> 22,448 36,338
<TOTAL-ASSETS> 70,520 70,571
<CURRENT-LIABILITIES> 20,324 22,372
<BONDS> 0 0
0 0
0 0
<COMMON> 5,404 5,393
<OTHER-SE> 16,802 19,896
<TOTAL-LIABILITY-AND-EQUITY> 70,520 70,571
<SALES> 110,438 116,194
<TOTAL-REVENUES> 110,438 116,194
<CGS> 90,623 96,062
<TOTAL-COSTS> 107,379 113,546
<OTHER-EXPENSES> (311) (1,520)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,735 1,530
<INCOME-PRETAX> (3,697) 2,638
<INCOME-TAX> (226) 852
<INCOME-CONTINUING> (3,471) 1,786
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,471) 1,786
<EPS-BASIC> (0.64) 0.33
<EPS-DILUTED> (0.64) 0.33
</TABLE>
