<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1996
REGISTRATION NO. 333-09379
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONTROL DEVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 3625 01-0490335
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
228 NORTHEAST ROAD STANDISH, MAINE 04084 (207) 642-4535
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRUCE D. ATKINSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONTROL DEVICES, INC.
228 NORTHEAST ROAD
STANDISH, MAINE 04084
(207) 642-4535
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JAMES A. STRAIN, ESQ. F. GEORGE DAVITT, ESQ.
SOMMER & BARNARD, PC TESTA, HURWITZ & THIBEAULT, LLP
4000 BANK ONE TOWER HIGH STREET TOWER 125
INDIANAPOLIS, INDIANA 46204 HIGH STREET BOSTON, MA 02110
(317) 630-4000 (617) 248-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
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<S> <C> <C>
Common Shares................... $27,600,000(1) $9,518.00(2)
</TABLE>
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(1) Estimated maximum offering price of the securities registered hereby
calculated pursuant to Rule 457(o).
(2) Previously paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
[LOGO]
Dated September 10, 1996
2,000,000
CONTROL DEVICES, INC.
COMMON SHARES
-----------
The Common Shares offered hereby are being offered by Control Devices, Inc.
(the "Company").
-----------
Prior to the Offering, there has been no public market for the Common Shares of
the Company. The initial public offering price will be determined by agreement
between the Company and the Underwriters. It is currently estimated that the
initial public offering price will be between $9.00 and $11.00. See "Under-
writing." Application has been made to include the Common Shares for quota-
tion on the Nasdaq National Market under the symbol "SNSR".
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------
<S> <C> <C> <C>
PER SHARE $ $ $
TOTAL(3) $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at
$1,000,000.
(3) The Company has granted the several Underwriters a 30-day option to
purchase up to an additional 300,000 Common Shares to cover over-
allotments, if any. If all such shares are purchased, total price to
public, underwriting discounts and commissions and proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
-----------
The Common Shares are being offered by the Underwriters named herein when and
if received and accepted by them subject to their right to reject orders in
whole or in part and subject to certain other conditions. It is expected that
the delivery of the shares will be made in New York, New York on or about ,
1996.
-----------
DEAN WITTER REYNOLDS INC. CLEARY GULL REILAND & MCDEVITT INC.
, 1996
<PAGE>
INSIDE FRONT COVER PAGE
Under the heading "Automotive Markets--Control Devices provides a wide range
of circuit breakers and electronic sensors to the Automotive Market," there is
a photograph of a number of the Company's metal based circuit breakers and a
labeled schematic of a generic automobile with the caption "Control Devices
sells circuit breakers and electronic sensors to major automobile OEMs in
North America and Europe. Circuit breakers protect small electric motors from
current and heat overload. Electronic sensors control certain comfort and
safety features such as climate control and headlamp intensity."
Below these are photographs of selected sensors with the caption "Control
Devices' sensors generate electronic signals for climate control systems,
power steering systems and daytime running lamps" and a photograph of chip-on-
board technology with the caption "Control Devices has developed a lower cost
`next generation' sensor utilizing chip-on-board technology."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
----------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR SINCE THE DATES AS OF WHICH INFORMATION IS SET FORTH
HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 8
Company History..................... 13
Use of Proceeds..................... 14
Dividend Policy..................... 14
Dilution............................ 15
Capitalization...................... 16
Unaudited Pro Forma Financial Data.. 17
Selected Financial Information...... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
</TABLE>
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UNTIL , 1996, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Business......................... 27
Management....................... 39
Certain Transactions............. 44
Principal Shareholders........... 45
Description of Capital Shares.... 46
Shares Eligible for Future Sale.. 48
Underwriting..................... 49
Legal Matters.................... 50
Experts.......................... 50
Additional Information........... 50
Index to Financial Statements.... F-1
</TABLE>
The Control Devices logo is a registered trademark of the Company and Maxi
Breaker is a trademark of the Company. This Prospectus also includes
trademarks and tradenames of companies other than the Company. All other
company or product names are trademarks or registered trademarks of their
respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes that the
Underwriters' over-allotment option to purchase up to 300,000 additional Common
Shares is not exercised and is adjusted to give effect to (i) the exercise of
all outstanding warrants to purchase an aggregate of 564,100 Class B Series 1
Common Shares at $0.01 per share, (ii) the conversion of all 999,996 Class B
Series 1 Common Shares outstanding after such exercise into a like number of
Class A Common Shares, (iii) the reclassification of Class A Common Shares into
Common Shares and the elimination of the designations of Class A Common Shares
and Class B Common Shares and (iv) the conversion of all RDI Convertible Notes
(as defined below) into 89,240 Common Shares (assuming an initial public
offering price of $10.00 per share). The adjustments discussed above will occur
immediately prior to the closing of this Offering. See "Company History," and
"Description of Capital Shares." Reference herein to the "Company" includes
predecessors of the Company and the Company's consolidated subsidiaries, unless
the context otherwise requires. Prospective investors should carefully consider
the information set forth under the heading "Risk Factors."
THE COMPANY
Control Devices, Inc. ("CDI" or the "Company") designs, manufactures and
markets circuit breakers, electronic sensors and electronic ceramic component
parts used by original equipment manufacturers ("OEMs") in the automotive,
appliance and telecommunications markets. The Company is a leading supplier of
automatically resetting circuit breakers and solar sensors for the automotive
market and of glass enclosed circuit breakers for the appliance market. The
Company has supplied circuit breakers to automotive OEMs for more than 30
years, and in 1991 expanded its offerings to the automotive market by
introducing its initial sensor product, a solar sensor used to automatically
signal adjustments in climate control systems in luxury cars. The Company's
products are sold to the three major North American automotive OEMs, General
Motors Corporation ("GM"), Ford Motor Company ("Ford") and Chrysler Corp.
("Chrysler"), as well as to foreign OEMs such as Mercedes, Peugeot, Volkswagen
and Valeo. Sales to GM, Ford and Chrysler, and their suppliers, in North
America accounted for approximately 45% of net sales in 1995. Other principal
customers include Danfoss, Celwave and Siecor.
In April 1996, the Company acquired all of the outstanding capital stock of
Realisations et Diffusion pour l'Industrie ("RDI"), which is headquartered near
Paris, France. RDI markets, distributes, assembles and packages a full line of
circuit protection devices, including various fuses and circuit breaker
components and assemblies manufactured by other companies. The Company
purchased RDI primarily to enhance its market penetration of the automotive OEM
market in Europe, in part by locating itself closer to European customers.
Management believes that the resulting expansion of its European presence and
improvement of its European distribution network will enhance the Company's
ability to distribute in Europe existing, internally developed and newly
acquired products.
Since 1991, CDI has shipped approximately 4.2 million solar sensor units. To
complement its solar sensor product lines, in July 1995, the Company commenced
shipments of its steering wheel sensor to Ford, and in September 1996 commenced
shipments of its twilight sensor to GM to be used in GM's Daytime Running Lamp
("DRL") program beginning with certain 1997 models. The Company is also in
various stages of development of its rain, window fog and other solar (climate
control)/twilight (headlamp control) sensors for a number of domestic and
foreign automotive OEMs. In late 1995, in an effort to encourage automotive
OEMs' use of sensors in a greater range of vehicle models, the Company sought
to lower the cost of its sensors by incorporating chip-on-board manufacturing
technology. With chip-on-board technology, the Company bonds custom silicon
wafers directly onto an integrated circuit board, to incorporate both the
function of numerous discrete electronic components and a photodiode. This
technology significantly reduces the number
4
<PAGE>
of components in the Company's sensor products, thereby lowering the cost of
the sensor as well as providing greater design flexibility through reduced
board size requirements. The Company's chip-on-board technology is currently
employed on the twilight sensor being delivered to GM, and the Company is
redesigning all of its sensor products to incorporate this technology.
On July 29, 1994, the Company acquired substantially all of the assets and
certain liabilities (the "Business") of GTE Control Devices Incorporated and
Dominican Overseas Trading Company, two subsidiaries of GTE Corporation
(collectively referred to herein as "GTE"). For periods prior to July 29, 1994,
the Business is sometimes referred to herein as the "Predecessor Company." The
Company is an Indiana corporation incorporated in June 1994 to purchase the
Business. See "Company History."
The principal executive offices of the Company are located at 228 Northeast
Road, Standish, Maine 04084, and its telephone number is (207) 642-4535.
THE OFFERING
Common Shares being Offered by the 2,000,000 shares
Company............................
Common Shares to be outstanding
after the Offering................. 4,653,334(1)
Use of Proceeds..................... Repayment of long-term indebtedness
(including accrued interest), redemption
of outstanding preferred shares
(including payment of accrued dividends)
and the balance, if any, for working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol............................. SNSR
- --------
(1) Excludes a currently exercisable option to purchase 200,000 Common Shares
and options to purchase 150,000 Common Shares granted, subject to the
closing of this Offering, and not yet exercisable. See "Description of
Capital Shares."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR CONTROL
COMPANY(1) DEVICES, INC. PRO FORMA(2) CONTROL DEVICES, INC.
--------------------------------- ------------- ------------ ----------------------------
SEVEN FIVE
MONTHS MONTHS YEAR YEAR SIX MONTHS
YEARS ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
------------------------ -------- ------------- ------------ ------------ ---------------
1991 1992 1993 1994 1994 1994 1995 1995 1996(3)
------- ------- ------- -------- ------------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales.............. $38,088 $39,747 $39,807 $24,995 $18,847 $43,842 $38,881 $20,713 $28,180
Gross profit........... 2,394 5,328 9,761 7,319 6,688 14,007 13,160 7,380 10,310
Operating income
(loss)(4)............. (3,512) 1,084 4,380 3,825 3,223 7,053 6,916 4,006 4,273
Net income (loss)(5)... (2,107) 650 2,628 2,295 1,576 3,319 3,458 1,964 2,123
Net income applicable
to common
shareholders(6)....... 1,466 3,055 3,194 1,832 1,991
Net income per
share(6)(7)........... $ 0.57 $ 1.19 $ 1.25 $ 0.71 $ 0.78
======= ======= ======= ======= =======
Weighted average number
of common shares and
equivalents
outstanding(6)........ 2,564 2,564 2,564 2,564 2,564
OTHER DATA:
Research and
development........... $ 863 $ 651 $ 2,144 $ 1,598 $ 1,052 $ 2,650 $ 2,740 $ 1,402 $ 1,880
Research and
development as a
percentage of net
sales(8).............. 2.3% 1.6% 5.4% 6.4% 5.6% 6.0% 7.0% 6.8% 6.7%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED(9)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 8,515 $ 9,273
Total assets........................................... 42,986 42,067
Long-term debt, net of current maturities.............. 16,743 1,487
Redeemable preferred shares............................ 2,400 --
Shareholders' equity................................... 7,274 25,688
</TABLE>
- --------
(1) On July 29, 1994, the Company purchased the Business. See "Company
History." The data prior to July 29, 1994 represent the financial
information of the Predecessor Company, and has been prepared by the
Company. See Note 1 to the Company's Financial Statements.
(2) Pro forma year ended December 31, 1994 amounts were prepared as if the
acquisition of the Business and initial capitalization of the Company had
occurred on January 1, 1994. These pro forma results include adjustments
for depreciation and amortization of assets acquired based on their fair
market values at the acquisition date, increased interest on acquisition
debt, additional preferred share dividends, limination of allocated
employee benefit and administrative expenses, additional professional fees
and the related income tax effect. The unaudited pro forma consolidated
financial data do not purport to represent what the results of operations
of the Company would actually have been if the acquisition and initial
capitalization had in fact occurred on January 1, 1994, or to project the
results of operations of the Company for any future date or period. See
Note 3 to the Company's Financial Statements.
(3) The Summary Financial Information for the six months ended June 30, 1996
includes RDI's results of operations from April 1, 1996, the date of the
acquisition.
(4) The Predecessor Company incurred an operating loss in the year ended
December 31, 1991, due in part to the GTE corporate allocation charge of
approximately $2,000,000 and higher cost of sales associated with
manufacturing facilities closed in 1991.
(5) For purposes of computing the income tax provision (benefit), an effective
tax rate of 40% was used for the Predecessor Company results of operations
because no income taxes were allocated to the Predecessor Company.
(6) See Note 2 to the Company's Financial Statements. Net income, net income
applicable to common shareholders, and weighted average number of common
shares and equivalents outstanding are not presented for periods prior to
and including July 29, 1994 as the Business did not operate as an
independent entity during such periods.
(7) The supplemental net income per share would have been $0.99 and $0.56 for
the year ended December 31, 1995, and the six month period ended June 30,
1996, respectively, assuming the conversion of the RDI Convertible Notes,
the issuance of 1,816,500 and 1,842,600 Common Shares, respectively, at a
public offering price of $10.00 per share (the midpoint of the estimated
range of the initial public offering price), and the application of
proceeds thereof and cash on hand to retire the Company's 10% Senior Notes
plus accrued interest, 11% Subordinated Notes plus accrued interest and the
Redeemable Preferred Shares plus accrued dividends, as of the beginning of
each period.
(8) Research and development as a percentage of net sales for the six months
ended June 30, 1996 includes the financial data for RDI. The percentage for
the six months ended June 30, 1996 without RDI was 8.5%.
(9) After giving effect to (i) the adjustments described above in this
Prospectus Summary and (ii) the sale by the Company of the Common Shares
offered hereby at an assumed initial public offering price of $10.00 per
share (the midpoint of the estimated range of the initial public offering
price) and application of the net proceeds therefrom and cash on hand. See
"Use of Proceeds".
6
<PAGE>
SUMMARY PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA(1)(2)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------------- ----------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales.............. $ 65,621 $ 34,803
Gross profit........... 22,211 12,958
Operating income....... 8,342 4,675
Net income............. 3,460 2,198
Net income applicable
to common
shareholders.......... 3,196 2,066
Net income per
share(3).............. $ 1.25 $ 0.81
Weighted average number
of common shares and
equivalents
outstanding........... 2,564 2,564
</TABLE>
--------
(1) The summary pro forma unaudited consolidated financial data of the
Company for the year ended December 31, 1995 and for the six months
ended June 30, 1996 were prepared as if the acquisition of RDI had
occurred on January 1 of the respective period. The unaudited pro
forma consolidated financial data do not purport to represent what
the results of operations of the Company would actually have been
if the events described in the pro forma unaudited consolidated
statements of income included elsewhere in this Prospectus had in
fact occurred at the beginning of such period, or to project the
results of operations of the Company for any future date or period.
(2) No pro forma consolidated balance sheet as of June 30, 1996 is
presented as the actual financial data for RDI is included in the
actual consolidated balance sheet of the Company as of June 30,
1996.
(3) The supplemental pro forma net income per share would have been
$0.97 and $0.58 for the year ended December 31, 1995, and the six
month period ended June 30, 1996, respectively, assuming the
conversion of the RDI Convertible Notes, the issuance of 1,816,500
and 1,842,600 Common Shares, respectively, at a public offering
price of $10.00 per share (the midpoint of the estimated range of
the initial public offering price), and the application of the
proceeds thereof and cash on hand to retire the Company's 10%
Senior Notes plus accrued interest, 11% Subordinated Notes plus
accrued interest and the Redeemable Preferred Shares plus accrued
dividends, as of the beginning of each period.
7
<PAGE>
RISK FACTORS
Prospective purchasers should carefully consider the following factors, as
well as the other information contained in this Prospectus, in evaluating an
investment in the Common Shares offered by this Prospectus. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in the following factors.
CYCLICALITY OF AUTOMOTIVE AND APPLIANCE INDUSTRIES
The major markets for the Company's circuit breakers and sensors are the
automotive and, to a lesser extent, appliance industries, which are cyclical
and have historically experienced periodic downturns. The cyclical nature of
these industries is due to general economic conditions beyond the control of
the Company. For example, the level of interest rates, consumer confidence,
patterns of consumer spending and the automobile and appliance replacement
cycles affect the level of automobile and appliance purchases. The Company's
operating results may be adversely affected by future downturns in these
industries. See "Business--Products and Markets."
RELIANCE ON OEMS
There is continuing pressure from the major automotive and appliance OEMs to
reduce costs, including costs associated with outside suppliers such as the
Company. In addition, for quality control and pricing reasons, OEMs prefer to
deal with a limited number of preferred suppliers and favor suppliers that can
provide the OEM with a number of different products in sufficient quantities
to meet all of the OEM's needs. The Company believes that its ability to
develop new proprietary products to meet specific customer needs, to control
its own costs and to deliver its products in quantities sufficient to meet the
requirements of OEMs will allow the Company to remain competitive. However,
there can be no assurance that the Company will remain a preferred OEM
supplier or that the Company will be able to improve or maintain its gross
margins on product sales to OEMs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
In the automotive industry, new car model development generally begins three
to five years prior to the marketing of such models to the public.
Consequently, a substantial portion of the Company's sales for the short term
depend on sales of the automobile models in which the Company's products are
currently used. In the long term, a substantial portion of the Company's sales
will also depend on the Company's ability to continue as a supplier of parts
for new automobile models. The inability of the Company to develop new
products to replace products whose life cycles have come to an end could have
a material adverse effect on the Company. See "Business--Products and
Markets."
RISK OF CUSTOMER LABOR INTERRUPTIONS
Substantially all of the hourly employees of North American automotive OEMs
are represented by the United Automobile, Aerospace and Agricultural Implement
Workers of America ("UAW") under similar collective bargaining agreements. The
collective bargaining agreements applicable to GM, Ford and Chrysler are
scheduled to expire in September 1996. The failure of GM, Ford or Chrysler to
reach agreement with the UAW relating to the terms of a new collective
bargaining agreement resulting in either a work stoppage or strike at any of
their respective production facilities could have a material adverse effect on
the Company. A 17-day March 1996 work stoppage in two Dayton, Ohio, GM plants
resulted in a loss of revenue because of the lack of demand for products for
GM vehicles. Although the Company took steps to minimize the consequences of
the work stoppage, the Company lost approximately $450,000 in revenue as a
result of the 17-day strike.
COMPETING TECHNOLOGIES
The Company's circuit breakers are sold to GM, Ford and Chrysler in North
America. Commencing in 1995, Ford began a program, which continues in 1996, to
replace various circuit breakers in certain of its North American vehicle
models with fuses, which can be used as an alternative to circuit breakers
when an automatically resetting product is determined not to be required. The
Company's net sales in 1995 declined $5.0 million, or 11.3%, as compared to
combined 1994, of which $2.2 million was a result of Ford's decision.
8
<PAGE>
Although the Company believes Ford will not expand its program to other
applications or other vehicle models, and believes that neither GM nor
Chrysler is considering a similar decision, the decision by any of the
Company's significant customers, including GM or Ford, to replace circuit
breakers with fuses could have a material adverse effect on the Company's
results of operations and financial condition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
SHIFT IN BUSINESS FOCUS FROM CIRCUIT BREAKERS TO SENSORS
Historically, the Company has derived over 80% of its total revenue from
sales of its circuit breakers. Because this market is relatively mature and
intensely price competitive, the Company has begun to shift its focus for
growth to its sensor products. In the future, the Company expects to derive an
increasing portion of its total revenue and net income from sales of its
sensor products. Continued growth of the Company's sensor business will depend
upon several factors, including continued demand for these sensors, the
Company's ability to develop new products to meet the changing requirements of
the OEMs, technological changes and competitive pressures. There can be no
assurance that the Company's sensor business will continue to grow. See
"Business--Products and Markets" and "--Business Strategies."
CUSTOMER CONCENTRATION
In 1995, the Company sold approximately 72% of its products to 15 customers.
One of the Company's customers, GM, accounted for approximately 17%, 20% and
12% of net sales in 1994, 1995 and the first six months of 1996, respectively.
These sales were primarily to two divisions of GM, Packard Electric and Delco
Electronics, both of which manufacture electrical systems for automotive
companies, including GM. In addition, in 1995 sales to Danfoss accounted for
approximately 14% of the Company's net sales. Loss of, or the failure to
replace, any significant portion of sales to any significant customer could
have a material adverse effect on the Company. See "Business--Marketing and
Customers."
FLUCTUATION IN QUARTERLY RESULTS
The Company's quarterly results may fluctuate as a result of a variety of
factors, including the timing of orders, declines in net sales caused by
seasonal retooling and shut-downs of OEMs, delays of shipments to customers,
new product introductions by the Company or its competitors, levels of market
acceptance for new products or the hiring of additional staff. The fluctuation
of quarterly results may have a material adverse effect on the market price of
the Common Shares. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."
ENVIRONMENTAL RISKS
On July 29, 1994, the Company purchased the Business from GTE. In connection
with the acquisition, GTE agreed to retain certain liabilities and indemnify
the Company for damages that may be incurred by the Company as a result of
such retained liabilities, including liabilities relating to certain
environmental matters. GTE retained liability for claims relating to soil and
groundwater contamination from the surface impoundment and the out-of-service
leachfield at the Company's Standish, Maine facility known to exist prior to
the acquisition. Such contamination is currently being remediated at GTE's
expense. Although the Company believes GTE's indemnity is enforceable, if the
Company were unable to enforce such indemnification obligations against GTE,
the Company could become liable for any such retained liability. The inability
to proceed against GTE could have a material adverse effect on the Company.
See "Business--Environmental Matters."
RISKS ASSOCIATED WITH ACQUISITIONS
The acquisition of RDI was the Company's first acquisition. Acquisitions
pose a number of risks including the inability to integrate operations
effectively. The Company currently has no specific agreements or
understandings regarding future acquisitions. However, to the extent that the
Company does engage in future acquisitions, there can be no assurance that the
Company will realize any or all of the expected synergies from such
transactions or that the Company will be able to successfully integrate such
new businesses into its existing business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
9
<PAGE>
RISKS ASSOCIATED WITH INTERNATIONAL MANUFACTURING
The Company has a manufacturing plant in San Cristobal, Dominican Republic
at which it manufactures a substantial portion of its circuit breakers and
certain of its sensors. In 1995, such products represented, in the aggregate,
approximately 40% of the Company's net sales. The Company's operations in the
Dominican Republic are subject to risks associated with manufacturing products
internationally, including: political and economic uncertainties; tariff
regulations or trade restrictions; currency controls; unexpected or sudden
increases in wage rates or other manufacturing costs; and exchange rate
fluctuations. Any such risk could have a material adverse effect on the
Company's business, operating results and financial condition. The Company
expects to continue to manufacture a substantial portion of its products in
the Dominican Republic. See "Business--Manufacturing and Supply."
RISKS ASSOCIATED WITH INTERNATIONAL DISTRIBUTION
With the acquisition of RDI, the Company has strengthened its distribution
capability to automotive and appliance OEMs in Europe. As a result of the
acquisition, however, the Company has increased exposure to general economic
conditions in Europe and the cyclical nature of the automotive industry in
Europe. Factors which can affect automobile purchases in Europe, and which
contribute to the industry's cyclicality, include the level of interest rates,
consumer confidence, patterns of consumer spending and the automobile
replacement cycle, all of which are beyond the control of the Company and
which could have a material adverse effect on the Company's financial
condition and results of operations. In addition, RDI generates revenues and
incurs expenses primarily in currencies other than the U.S. dollar. The
Company does not engage in currency hedging transactions. As a result, the
Company has increased financial risk based on fluctuations in currency
exchange rates, which could have a material adverse effect on the Company's
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation" and "Business."
TECHNOLOGICAL CHANGE AND INTELLECTUAL PROPERTY
The market for the Company's sensor products is subject to rapid
technological change, new product introductions and enhancements and evolving
industry standards. The Company's ability to remain competitive in this and
other markets will depend in part upon its ability to respond to technological
changes by developing and introducing new systems, and enhancing its present
products, to satisfy customer needs. The Company's success in doing so depends
upon efficient completion of product design and manufacturing, product
performance and effective sales and marketing. Because new product commitments
must be made well in advance of sales, such decisions must anticipate both
future demand and the future technology. There can be no assurance that the
Company will be successful in selecting, developing, manufacturing and
marketing new products or enhancing its existing products. In addition, new
technology or new product introductions by competitors could cause a decline
in sales or market acceptance of the Company's existing products. There can be
no assurance that products or technologies developed by others, or existing
technologies which become commercially viable, will not render the Company's
products non-competitive or obsolete.
While there have been no material challenges to date and the Company
believes that its technology is adequately protected, there can be no
assurance that any of the Company's present or future patents will afford
protection against competitors or survive a validity challenge. Although the
Company believes that its technology and products do not infringe upon the
proprietary rights of others, there can be no assurance that third parties
will not assert infringement claims against the Company or that the Company
will be successful in defending its patent position if challenged.
Additionally, the Company licenses certain patents from third parties under
long-term agreements. If one or more of these patent licenses are
discontinued, there can be no assurance that the Company will be able to
develop future products or obtain alternative sources or, if able, that such
efforts would not result in delays or cost increases that could have a
material adverse effect on the Company's business. See "Management--Key
Consultant."
10
<PAGE>
SOLE OR LIMITED SOURCES OF SUPPLY
Due to its high quality standards, the Company relies on a sole supplier or
a limited group of suppliers for certain key components of its products. The
Company does not have a long-term supply agreement with any of these
suppliers, and operates under purchase orders. The Company's reliance on sole
or a limited group of suppliers involves several risks, including a potential
inability to obtain an adequate supply of required components and reduced
control over pricing and timely delivery of components. Although the
timeliness, yield and quality of deliveries to date from the Company's
suppliers have been acceptable, any prolonged inability to obtain adequate
deliveries or any other circumstance that would require the Company to seek
alternative sources of supply could delay the Company's ability to ship its
products, which could damage relationships with current and prospective
customers and could therefore have a material adverse effect on the Company.
See "Business--Manufacturing and Supply."
COMPETITION
The Company has many competitors with respect to its products, and the
automotive parts supply industry in particular is highly competitive. Many of
its competitors in the automotive industry are companies which are larger,
more diversified and have greater financial resources than the Company. In
general, competition in the circuit breaker market is based on price, although
the Company also seeks to compete based on product performance. The automotive
market for circuit breakers is a relatively mature, small market, and the
Company competes principally with Texas Instruments and Otter Controls, Inc.
In the appliance market for circuit breakers, the Company competes principally
with Texas Instruments. The Company also competes in the circuit breaker
market with suppliers of alternative technologies, such as fuses which can be
used as an alternative to circuit breakers. Automatically resetting circuit
breakers do not need to be replaced as frequently as fuses, and for some
applications an automatically resetting feature is essential for safety.
However, fuses are lower priced than circuit breakers. In its circuit breaker
lines, the Company's highly automated Maine facilities and low cost Dominican
Republic facility generally enable the Company to be competitive on price.
However, the Company's competitors are from time to time competitive for
reasons including the ability to adapt existing technology to a particular
circuit breaker application, which results in a lower price, and the existence
of established marketing relationships, especially in Europe. Competition in
the sensor market is primarily based on technology, quality, delivery,
reliability, price, functionality and engineering support. The suppliers who
compete with the Company's sensor business for the most part are sophisticated
manufacturers with similar quality, reliability, delivery and engineering
support as the Company. As a result, decisions are often based primarily on
price and technological advantage as to which the Company believes it is
competitive with other suppliers. Furthermore, the Company believes that its
patented lensing technology enables its solar sensors to measure direct solar
heating more accurately then competitors' products. However, certain of the
Company's competitors are larger, better financed and better known than the
Company. Therefore, there can be no assurance that the Company will be able to
continue its current technological advantage or that its technological
advantage will translate into superior sales. The Company's principal
competitors in this market are Texas Instruments, Eaton, Motorola, Panasonic,
Philips and Nippondenso. In the ceramics market, the Company competes on the
basis of supplying niche products and on service, delivery and product
technology. Its principal competitors in this market are NTK, TDK, Alpha
Industries, Murata and Siemens. While the Company believes that its
responsiveness and technology are competitive advantages across all of its
product lines, there can be no assurance that the Company's products will be
able to compete successfully with the products of its competitors. Increased
competition generally, and the introduction or promotion of competing products
specifically, could adversely affect the Company's revenues and profitability
by exerting pricing pressure, reducing market share and margins and creating
other obstacles. In the European distribution market, the Company competes
with similar electronic component distributors. While the Company believes
that its customer service and distribution capabilities are a competitive
advantage in the European distribution market, there can be no assurance that
the Company will be able to compete successfully with the distribution
capabilities of its competitors. See "Business--Products and Markets" and "--
Competition."
DEPENDENCE ON KEY PERSONNEL AND KEY CONSULTANT
The success of the Company's business depends upon the services of its
executive officers and certain other key managers and employees including
Bruce D. Atkinson, the Company's Chief Executive Officer,
11
<PAGE>
Jeffrey G. Wood, the Company's Chief Financial Officer, and Michel Hauser-
Kauffmann, General Manager of RDI. Except for Mr. Hauser-Kauffmann, none of
such persons has an employment agreement with the Company. While the Company
is not presently aware of any intention by any of its key employees to leave
the Company, the failure to retain such persons could materially adversely
affect the Company's business, financial condition and results of operations.
See "Management."
The Company also has a six year consulting agreement expiring on March 31,
2001 with Dr. Dennis J. Hegyi, a Professor of Physics at the University of
Michigan. The Company is the exclusive licensee of certain patents and know-
how used in its solar, twilight, rain, window fog and solar position sensors
from Dr. Hegyi. The loss of Dr. Hegyi's services or one or more of the
licenses could have a material adverse effect on the Company. See
"Management--Key Consultant."
CONCENTRATION OF SHARE OWNERSHIP
Upon completion of this Offering, the Company's officers and directors (who
include certain affiliates of Hammond, Kennedy, Whitney & Company, Inc.) will
beneficially own approximately 22% of the outstanding Common Shares. In
addition, institutional investors affiliated with Massachusetts Mutual Life
Insurance Company will own in the aggregate approximately 22% of the
outstanding Common Shares. As a result, these shareholders will continue to be
in a position to significantly affect the outcome of all actions requiring
shareholder approval, including the election of the Board of Directors,
thereby affecting the future direction and management of the Company. See
"Principal Shareholders."
ANTI-TAKEOVER PROVISIONS; EFFECT OF PREFERRED SHARES
The Indiana Business Corporation Law (the "IBCL") contains provisions that
could restrict the acquisition of or a change in control of the Company. The
IBCL limits certain business combinations between the Company and an
"interested" shareholder. These restrictions may discourage a person from
making a tender offer for, or otherwise acquiring outstanding voting
securities of, the Company. See "Description of Capital Shares--Effects of
Indiana Law."
The Board of Directors of the Company is authorized to issue, from time to
time, without any further action on the part of the Company's shareholders, up
to 3,000,000 preferred shares in one or more series, with such relative
rights, powers, preferences, limitations and restrictions as are determined by
the Board of Directors at the time of issuance. The issuance of preferred
shares could be used in certain circumstances to render more difficult or
discourage a merger, tender offer or proxy contest or a removal of incumbent
management. Preferred shares may be issued with voting and conversion rights
that could adversely affect the voting power and other rights of the holders
of Common Shares. See "Description of Capital Shares."
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of outstanding Common Shares and Common Shares issuable
upon the exercise of outstanding options will become eligible for future sale
in the public market at prescribed times pursuant to Rule 144, Rule 701 and
other available exemptions from registration under the Securities Act of 1933,
as amended (the "Securities Act") or pursuant to registration rights. Sales of
such Common Shares in the public market could adversely affect the market
price of the Common Shares. See "Shares Eligible for Future Sale."
DILUTION
The price per share for this Offering is expected to be substantially higher
than the book value per Common Share of the Company. Purchasers in this
Offering will incur immediate and substantial dilution in the net tangible
book value of their Common Shares. See "Dilution."
NO PRIOR PUBLIC MARKET FOR COMMON SHARES; DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Shares. The initial public offering price will be determined by negotiations
between the Company and the Underwriters. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price.
There can be no assurance that an active trading market will develop after
this Offering or, if developed, that such a market will be sustained. The
market price for Common Shares may be significantly affected by such factors
as news announcements or changes in general economic, industry or market
conditions.
12
<PAGE>
COMPANY HISTORY
The Company is an Indiana corporation organized by Hammond, Kennedy, Whitney
& Company, Inc. ("HKW"), a New York private capital firm, to purchase the
circuit breaker, electronic sensor and electronic ceramic component parts
business (the "Business") of GTE. The Company purchased the Business on July
29, 1994.
The circuit breaker business acquired by the Company was started by Sylvania
Electrical Products ("Sylvania") in 1956 when Sylvania obtained a patent to
produce an automatically resetting circuit breaker. Sylvania developed and
operated the business until 1959, when GTE acquired all of Sylvania's assets
and business. GTE expanded the circuit breaker business and added the
electronic sensor and electronic ceramic component parts product lines. GTE
also used the resources of the Business to establish a start-up
telecommunications division in 1983, to develop and market protection and
interface devices for use in the wired telecommunications industry (the
"Telecommunications Division").
In 1991, GTE announced its decision to divest all of its non-core
businesses, which included all of the businesses acquired from Sylvania. Bruce
D. Atkinson, President and Chief Executive Officer of the Company, served as
the General Manager of the Business and the Telecommunications Division which
had combined annual revenues in excess of $80,000,000 in 1992. In September
1993, Siecor Corporation purchased the assets and business of the
Telecommunications Division. In July 1994, the Company purchased the Business
for a total purchase price of $17,900,000 plus the assumption of certain
liabilities. The Company paid $16,400,000 in cash and delivered its Junior
Subordinated Promissory Note in the principal amount of $1,500,000 (the
"Seller Note"), which was repaid in full in March 1996. See "Certain
Transactions".
In April 1996, the Company acquired all of the issued and outstanding
capital stock of RDI for a total purchase price of $8,964,000. The Company
paid $6,964,000 in cash, delivered $1,108,000 aggregate principal amount of
its 8.0% Subordinated Promissory Notes (the "RDI Notes"), and delivered
$892,000 aggregate principal amount of its 6.5% Automatically Converting
Subordinated Promissory Notes (the "RDI Convertible Notes"). See "Certain
Transactions."
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of Common Shares offered hereby at an assumed
public offering price of $10.00 per share are estimated to be $17,600,000
($20,390,000 if the Underwriters' over-allotment option is exercised in full),
after deducting the underwriting discounts and commissions and the estimated
offering expenses payable by the Company.
The Company intends to use a portion of the net proceeds from this Offering
to (i) repay outstanding long-term indebtedness consisting of $10.0 million of
10% Senior Secured Fixed Rate Notes due July 31, 2004 (the "Senior Notes")
plus accrued interest thereon and $4.5 million of 11% Senior Subordinated
Notes due July 31, 2004 (the "Subordinated Notes") plus accrued interest
thereon; and (ii) redeem 580 of the outstanding 11% Cumulative Preferred
Shares (the "Redeemable Preferred Shares") at $1,000 stated value per share
plus accrued dividends. The proceeds of the Senior Notes, the Subordinated
Notes and the Redeemable Preferred Shares were used to purchase the Business.
See "Company History," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Senior Notes,
Subordinated Notes and 580 Redeemable Preferred Shares are held by
Massachusetts Mutual Life Insurance Company and certain of its affiliates
("MassMutual"). See "Principal Shareholders." The Company is required to
redeem the Redeemable Preferred Shares held by MassMutual upon repayment of
the Senior Notes and Subordinated Notes.
The total amount necessary to repay the Senior Notes and Subordinated Notes
(plus accrued interest) and to redeem 580 Redeemable Preferred Shares (plus
accrued dividends) is approximately $15.5 million as of September 30, 1996
(the "MassMutual Amount"). To the extent net proceeds from this Offering
exceed the MassMutual Amount, the Company intends to use such proceeds to
redeem all remaining 1,820 Redeemable Preferred Shares plus accrued dividends
for a total of approximately $2.3 million. If the net proceeds are not
sufficient to redeem all of the Redeemable Preferred Shares, the Company
intends to use a portion of its cash on hand or borrowings under its line of
credit for such purpose. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Excess proceeds from this Offering, if any, will be used for general
corporate purposes, including working capital, funding internal growth and
possible future acquisitions. The Company currently has no specific agreements
or understanding with respect to any acquisitions.
Pending such uses, the net proceeds of this Offering will be invested in
short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on the Common Shares. The
Company will pay all accrued but unpaid dividends on the Redeemable Preferred
Shares in connection with the redemption thereof. See "Use of Proceeds." The
Company currently anticipates that all future earnings will be retained by the
Company to support its growth strategy and does not anticipate paying any cash
dividends on the Common Shares in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions.
If fewer than all of the Redeemable Preferred Shares are redeemed in
connection with this Offering, all accrued and unpaid dividends on the
Redeemable Preferred Shares must be paid before dividends may be paid on the
Common Shares.
14
<PAGE>
DILUTION
The net tangible book value of the Company's Common Shares at June 30, 1996,
was approximately $0.49 per share after giving effect to the adjustments
described in the Prospectus Summary. "Net tangible book value" per share
represents total tangible assets reduced by the amount of total liabilities
and Redeemable Preferred Shares, divided by the number of Common Shares
outstanding. Without taking into account any other changes in the net tangible
book value after June 30, 1996 other than to give effect to the adjustments
described in the Prospectus Summary and the sale by the Company of Common
Shares in this Offering at an assumed initial offering price of $10.00 per
share (the midpoint of the estimated range of the initial public offering
price) for assumed net proceeds to the Company of $17,600,000 and the
application of the net proceeds therefrom, the pro forma net tangible book
value of the Company's Common Shares on June 30, 1996 would have been
$18,819,000 or $4.04 per share. This represents an increase in net tangible
book value of $3.55 per share to existing common shareholders and an immediate
dilution in net tangible book value of $5.96 per share to new investors
purchasing Common Shares in this Offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1)........... $10.00
Net tangible book value per share before offering........... $0.49
Increase in net tangible book value per share attributable
to new investors........................................... 3.55
-----
Pro forma net tangible book value per share after offering.... 4.04
------
Dilution per share to new investors........................... $ 5.96
======
</TABLE>
- --------
(1) Before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The following table summarizes, as of June 30, 1996, the differences in
total consideration paid and the average price per share paid between the
existing common shareholders and the new investors with respect to the number
of Common Shares purchased from the Company (based upon an assumed initial
offering price of $10.00 per share):
<TABLE>
<CAPTION>
SHARES ISSUED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 2,564,094 55.1% $ 606,000 2.8% $ 0.24
Holders of RDI Convertible
Notes...................... 89,240 1.9 892,400 4.2 10.00
New investors (1)........... 2,000,000 43.0 20,000,000 93.0 10.00
--------- ----- ----------- -----
Total................... 4,653,334 100.0% $21,498,400 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) If the Underwriters' over-allotment option is exercised in full, the
shares purchased by the new investors would be 2,300,000 or 46.4% of the
outstanding Common Shares and the percent of shares held would be 51.8%
for the existing shareholders and 1.8% for the holders of the RDI
Convertible Notes.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, (i) on an actual basis; (ii) on a pro forma basis to give effect to
the adjustments described in the Prospectus Summary and (iii) as adjusted to
reflect the sale of the Common Shares offered by the Company hereby (at an
assumed initial public offering price of $10.00 per share (the midpoint of the
estimated range of the initial public offering price) and after deducting the
estimated offering expenses and underwriting discount) and the application of
the net proceeds therefrom and cash on hand. See "Use of Proceeds." This table
should be read in conjunction with the Financial Statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" appearing elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- -------------- ----------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Debt:
CDI--10% Senior Secured Fixed
Rate Notes.................. $10,500 $10,500 $ --
CDI--11% Senior Subordinated
Notes (face value $4,500)... 4,364 4,364 --
RDI Convertible Notes........ 892 -- --
RDI Notes.................... 1,108 1,108 1,108
RDI--other debt.............. 1,812 1,812 1,812
------------- ------------- -------------
Total debt................. 18,676 17,784 2,920
------------- ------------- -------------
Redeemable Preferred Shares,
stated value $1,000 per share;
2,400 shares authorized,
issued and outstanding actual
and pro forma; none
authorized, issued or
outstanding pro forma as
adjusted...................... 2,400 2,400 --
------------- ------------- -------------
Shareholders' equity:
Preferred Shares; 997,600
authorized, none issued and
outstanding actual;
3,000,000 shares authorized,
none issued and outstanding,
pro forma and pro forma as
adjusted.................... -- -- --
Common Shares, no par value;
no shares authorized, issued
or outstanding actual;
16,000,000 shares authorized
pro forma and pro forma as
adjusted; 2,653,334 shares
issued and outstanding pro
forma; 4,653,334 shares
issued and outstanding pro
forma as adjusted........... -- 1,743 19,343
Class A Common Shares, no par
value; 10,000,000 shares
authorized actual; 1,564,098
shares issued and
outstanding actual; none
authorized, issued or
outstanding pro forma and
pro forma as adjusted....... 520 -- --
Class B Series 1 Common
Shares, no par value;
4,000,000 shares authorized
actual; 435,896 shares
issued and outstanding
actual; none authorized,
issued or outstanding pro
forma and pro forma as
adjusted.................... 145 -- --
Warrants to purchase 564,100
shares of Class B Series 1
Common Shares at $0.01 per
share actual; none
outstanding pro forma and
pro forma as adjusted....... 180 -- --
Retained earnings............ 6,651 6,651 6,567
Foreign currency translation
adjustment.................. (222) (222) (222)
------------- ------------- -------------
Total shareholders' equity. 7,274 8,172 25,688
------------- ------------- -------------
Total capitalization....... $28,350 $28,356 $ 28,608
============= ============= =============
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma consolidated statements of income for the year ended
December 31, 1995, and the six months ended June 30, 1996 are based upon the
historical consolidated financial statements of CDI and RDI. The unaudited pro
forma consolidated statements of income have been prepared after giving effect
to pro forma adjustments described in the notes thereto as if the acquisition
of RDI occurred on January 1 of the respective period.
The unaudited pro forma consolidated statements of income do not purport to
represent what the results of operations of the Company would actually have
been if the events described in the notes thereto had in fact occurred at the
beginning of such period, or to project the results of operations of the
Company for any future date or period.
The unaudited pro forma consolidated statements of income should be read in
conjunction with CDI's and RDI's financial statements including the notes
thereto and other financial information included elsewhere in this Prospectus.
No pro forma consolidated balance sheet as of June 30, 1996 is presented as
the actual financial data for RDI is included in the actual consolidated
balance sheet of the Company as of June 30, 1996. See "Index to Financial
Statements".
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CDI RDI PRO FORMA
HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 38,881 $30,009 $(3,269) (1) $ 65,621
Cost of sales........... 25,721 20,909 (3,220) (1)(2) 43,410
--------- ------- ------- ---------
Gross profit.......... 13,160 9,100 (49) 22,211
--------- ------- ------- ---------
Selling, general and
administrative
expenses............... 3,504 7,323 55 (2)(3) 10,882
Research and
development............ 2,740 247 -- 2,987
--------- ------- ------- ---------
6,244 7,570 55 13,869
--------- ------- ------- ---------
Operating income...... 6,916 1,530 (104) 8,342
Interest expense........ 1,380 579 615 (4) 2,574
--------- ------- ------- ---------
Income before income
taxes................ 5,536 951 (719) 5,768
Income tax
provision(benefit)..... 2,078 438 (208) (5) 2,308
--------- ------- ------- ---------
Net income............ 3,458 513 (511) 3,460
Preferred share
dividends.............. (264) -- -- (264)
--------- ------- ------- ---------
Net income applicable
to common
shareholders......... $ 3,194 $ 513 $ (511) $ 3,196
========= ======= ======= =========
Earnings per share...... $ 1.25 $ 1.25
========= =========
Weighted average number
of common shares and
equivalents
outstanding............ 2,564,094 2,564,094
========= =========
</TABLE>
17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RDI
THREE MONTHS
ENDED
MARCH 31, PRO FORMA
ACTUAL(A)(B) 1996(A)(C) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 28,180 $8,013 $(1,390) (1) $34,803
Cost of sales........... 17,870 5,419 (1,444) (1)(2) 21,845
--------- ------ ------- ---------
Gross profit.......... 10,310 2,594 54 12,958
--------- ------ ------- ---------
Selling, general and
administrative
expenses............... 4,157 2,149 44 (2)(3) 6,350
Research and
development............ 1,880 53 -- 1,933
--------- ------ ------- ---------
6,037 2,202 44 8,283
--------- ------ ------- ---------
Operating income...... 4,273 392 10 4,675
Interest expense........ 828 134 113 (4) 1,075
--------- ------ ------- ---------
Income before income
taxes................ 3,445 258 (103) 3,600
Income tax provision.... 1,322 58 22 (5) 1,402
--------- ------ ------- ---------
Net income............ 2,123 200 (125) 2,198
--------- ------ ------- ---------
Preferred share
dividends.............. (132) -- -- (132)
--------- ------ ------- ---------
Net income applicable
to common
shareholders......... $ 1,991 $ 200 $ (125) $ 2,066
========= ====== ======= =========
Earnings per share...... $ 0.78 $ 0.81
========= =========
Weighted average number
of common shares and
equivalents
outstanding............ 2,564,094 2,564,094
========= =========
</TABLE>
(a) RDI's historical statements of income were translated into U.S. dollars
using the average exchange rate prevailing throughout the applicable
period. See Note 2 to the Company's Financial Statements. RDI's historical
statements of income have been prepared in accordance with French
generally accepted accounting principles and have been adjusted to U.S.
generally accepted accounting principles with pro forma adjustment number
3.
(b) Represents the consolidated results for CDI for the six months ended June
30, 1996, including RDI for the period from April 1, 1996 (date of RDI
acquisition) to June 30, 1996.
(c) Represents the results of RDI for the period January 1, 1996 to March 31,
1996 (prior to the acquisition).
- --------
(1) Elimination of intercompany sales and profit of products held in RDI
inventory.
(2) Adjustment for amortization of goodwill related to the acquisition of RDI,
and adjustment for depreciation of property, plant and equipment acquired
based on their estimated fair values.
(3) Adjustment to pension expense under United States generally accepted
accounting principles for RDI.
(4) Adjustments to interest expense:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Interest on short term debt........................... $ 264 $ --
Interest on RDI Notes and RDI Convertible Notes....... 147 37
Elimination of interest expense on Seller Note (repaid
in connection with the acquisition) ................. (150) (38)
Elimination of interest on excess cash balances....... 354 114
----- ----
$ 615 $113
===== ====
</TABLE>
(5) Income tax effect of the pro forma adjustments at assumed rate of 40%,
except for the adjustment to goodwill amortization which was not tax
effected.
18
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data for the year ended December 31, 1993, for the seven months
ended July 29, 1994, as of and for the five months ended December 31, 1994,
and as of and for the year ended December 31, 1995, have been derived from the
Company's Financial Statements audited by Arthur Andersen LLP, the Company's
independent public accountants. Their report on the financial statements is
included elsewhere in this Prospectus. The statement of income data for the
years ended December 31, 1991 and 1992, and the balance sheet data as of
December 31, 1991, 1992 and 1993 have been derived from audited financial
statements of the Company not included in this Prospectus. The selected
statement of income data for the six months ended June 30, 1995 and 1996, and
the selected balance sheet data as of June 30, 1996, have been derived from
unaudited interim financial statements of the Company, and reflect, in
management's opinion, all adjustments necessary for a fair presentation of the
financial position and results of operations for these periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the full year. This data should be read in conjunction with the
Company's Financial Statements and related notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included herein.
<TABLE>
<CAPTION>
CONTROL
PREDECESSOR COMPANY(1) DEVICES, INC. PRO FORMA(2) CONTROL DEVICES, INC.
--------------------------------- ------------- ------------ ----------------------------
SEVEN
MONTHS FIVE MONTHS SIX MONTHS
YEARS ENDED ENDED ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
------------------------ -------- ------------- ------------ ------------ ---------------
1991 1992 1993 1994 1994 1994 1995 1995 1996(3)
------- ------- ------- -------- ------------- ------------ ------------ ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............... $38,088 $39,747 $39,807 $24,995 $18,847 $43,842 $38,881 $20,713 $28,180
Cost of sales........... 35,694 34,419 30,046 17,676 12,159 29,835 25,721 13,333 17,870
------- ------- ------- ------- ------- -------- ------- ------- -------
Gross profit........... 2,394 5,328 9,761 7,319 6,688 14,007 13,160 7,380 10,310
Operating expenses:
Selling, general and
administrative......... 5,043 3,593 3,237 1,896 2,413 4,304 3,504 1,972 4,157
Research and
development............ 863 651 2,144 1,598 1,052 2,650 2,740 1,402 1,880
------- ------- ------- ------- ------- -------- ------- ------- -------
Operating income
(loss)(4)............. (3,512) 1,084 4,380 3,825 3,223 7,053 6,916 4,006 4,273
Interest expense........ -- -- -- -- 657 1,581 1,380 732 828
------- ------- ------- ------- ------- -------- ------- ------- -------
Income (loss) before
income taxes.......... (3,512) 1,084 4,380 3,825 2,566 5,472 5,536 3,274 3,445
Income tax provision
(benefit)(5)........... (1,405) 434 1,752 1,530 990 2,153 2,078 1,310 1,322
------- ------- ------- ------- ------- -------- ------- ------- -------
Net income (loss)...... $(2,107) $ 650 $ 2,628 $ 2,295 $ 1,576 $ 3,319 $ 3,458 $ 1,964 $ 2,123
======= ======= ======= ======= ======= ======== ======= ======= =======
Net income applicable
to common sharehold-
ers(6)................ $ 1,466 $ 3,055 $ 3,194 $ 1,832 $ 1,991
Net income per
share(6)(7)........... $ 0.57 $ 1.19 $ 1.25 $ 0.71 $ 0.78
Weighted average number
of common shares and
equivalents outstand-
ing(6)................. 2,564 2,564 2,564 2,564 2,564
OTHER DATA:
Research and
development as a
percentage of net
sales(8).............. 2.3% 1.6% 5.4% 6.4% 5.6% 6.0% 7.0% 6.8% 6.7%
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY CONTROL DEVICES, INC.
----------------------- ------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
----------------------- --------------- --------
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 4,623 $ 2,665 $ 4,891 $ 9,255 $13,662 $ 8,515
Total assets.................. 23,700 21,226 22,385 26,051 30,141 42,986
Long-term debt, net of current
maturities................... -- -- -- 16,320 15,853 16,743
Redeemable preferred shares... -- -- -- 2,400 2,400 2,400
Shareholders' equity.......... -- -- -- 2,311 5,505 7,274
</TABLE>
- --------
(1) On July 29, 1994, the Company purchased the Business. See "Company
History." The data prior to July 29, 1994 represents the financial
information of the Predecessor Company, and has been prepared by the
Company. See Note 1 to the Company's Financial Statements.
(2) Pro forma year ended December 31, 1994 amounts were prepared as if the
acquisition of the Business and initial capitalization of the Company had
occurred on January 1, 1994. These pro forma results include adjustments
for depreciation and amortization of assets acquired based on their fair
market values at the acquisition date, increased interest on acquisition
debt, additional preferred share dividends, elimination of allocated
employee benefit and administrative expenses, additional professional fees
and the related income tax effect. The unaudited pro forma consolidated
financial data do not purport to represent what the results of operations
of the Company would actually have been if the acquisition and initial
capitalization had in fact occurred on January 1, 1994, or to project the
results of operations of the Company for any future date or period. See
Note 3 to the Company's Financial Statements.
(3) The Selected Financial Data presented for the six months ended June 30,
1996 includes RDI's results of operations from April 1, 1996, the date of
the acquisition.
(4) The Predecessor Company incurred operating losses in the year ended
December 31, 1991, due in part to GTE corporate allocation charges of
approximately $2,000,000 and higher cost of sales associated with
manufacturing facilities closed in 1991.
(5) For purposes of computing income tax provision (benefit), an effective tax
rate of 40% was used for the Predecessor Company results of operations
because no income taxes were allocated to the Predecessor Company.
(6) See Note 2 to the Company's Financial Statements. Net income per share,
net income applicable to common shareholders and weighted average number
of Common Shares and equivalents outstanding are not presented for periods
prior to and including July 29, 1994 as the Business was not operated as
an independent entity during such periods.
(7) The supplemental net income per share would have been $0.99 and $0.56 for
the year ended December 31, 1995, and the six month period ended June 30,
1996, respectively, assuming the conversion of the RDI Convertible Notes,
the issuance of 1,816,500 and 1,842,600 Common Shares, respectively, at a
public offering price of $10.00 per share (the midpoint of the estimated
range of the initial public offering price), and the application of the
proceeds thereof and cash on hand to retire the Company's Senior Notes
plus accrued interest, the Subordinated Notes plus accrued interest and
the Redeemable Preferred Shares plus accrued dividends, as of the
beginning of each period.
(8) Research and development as a percentage of net sales for the six months
ended June 30, 1996 includes the financial data for RDI. The percentage
for the six months ended June 30, 1996 without RDI was 8.5%.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The Company purchased the Business from GTE on July 29, 1994 for a total
purchase price of $17,900,000 plus the assumption of certain liabilities. The
Company had no operations prior to that date. The Company paid $16,400,000 in
cash and delivered the Seller Note. In March 1996, the Company repaid the
Seller Note and in April 1996, acquired all of the issued and outstanding
capital stock of RDI for a total purchase price of $8,964,000. The Company
paid $6,964,000 in cash, delivered RDI Notes totaling $1,108,000 and delivered
the RDI Convertible Notes totaling $892,000. See "Certain Transactions."
The financial information for the periods prior to July 29, 1994 does not
reflect the impact of the acquisition of the Business or the related financing
and purchase accounting adjustments on the financial position and results of
operations of the Company. The financial statements prior to July 29, 1994,
have been prepared solely by the Company as if the Business was operated as a
separate entity for the periods presented. The Predecessor Company financial
statements do not include an allocation of GTE's assets and liabilities not
specifically identifiable to the Business, including cash and intercompany
debt. Prior to September 28, 1993, the Telecommunications Division shared
certain facilities and functions with the Business. Certain costs and
expenses, including manufacturing overhead and selling, general and
administrative expenses, were prorated by the Company between the Business and
the Telecommunications Division in preparing the Predecessor Company financial
statements. Expenses were allocated by the Company based on actual usage or
other allocation methods which approximate actual usage. Management of the
Company believes that the allocation methods are reasonable. The purchase
method of accounting was used to record assets acquired by the Company. Such
accounting generally results in increased amortization and depreciation
reported in future periods. Accordingly, the financial statements of the
Predecessor Company and the Company are not comparable in all material
respects since the financial statements report on two separate entities.
Since the acquisition of the Business in July 1994, the Company's financial
strategy has been to improve gross profits in its circuit breaker business,
maintain stable selling, general and administrative expenses and expand its
sensor business. The Company has increased its research and development
expenditures, which increase was primarily devoted to its sensor products,
from $651,000 in 1992 to $2.7 million in 1995. During the same period, the
Company's sales of sensors have grown from $ 3.2 million in 1992 to $5.3
million in 1995 and $4.0 million for the first six months of 1996.
In addition, the Company's financial strategy contemplates making
acquisitions which complement the Company's existing businesses. See
"Business--Business Strategies." The Company's acquisition of RDI in April
1996, which was funded in part with $7.4 million in cash generated from
operations, is intended to enhance the Company's market penetration of the
automotive OEM market in Europe. RDI, which is a European-based distributor of
products of the Company and other manufacturers, historically, due to the
nature of the distribution business, has had lower gross margins and higher
selling, general and administrative expenses (measured as a percentage of net
sales) than the Company. Although the Company's gross profit and operating
income have increased as a result of the RDI acquisition, when expressed as a
percentage of sales, the Company's gross profit and operating income have
decreased due to the lower margins associated with distribution businesses
generally.
RDI generates revenues and incurs expenses primarily in currencies other
than the U.S. dollar. The Company does not engage in currency hedging
transactions. RDI's currency of account is the French franc. RDI's assets and
liabilities are translated into U.S. dollars using the exchange rate in effect
at the balance sheet date. RDI's results of operations are translated into
U.S. dollars using the average exchange rate prevailing throughout the
applicable period. See Note 2 to the Company's Financial Statements.
21
<PAGE>
RESULTS OF OPERATIONS
Summary Data
Management's discussion and analysis of the operating results of the Company
are based on amounts in the table set below which were derived from the
Financial Statements appearing elsewhere herein.
The 1994 combined financial information was based on the summation of the
financial information for the seven months ended July 29, 1994 of the
Predecessor Company and the five months ended December 31, 1994 of the
Company. The combined financial information is presented for comparison
purposes only and does not purport to reflect the results of the Company had
they been under common control.
The following table presents selected financial information derived from the
Company's statements of income, expressed as a percentage net sales for the
periods indicated:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMBINED CONTROL DEVICES, INC.
------------ ------------ -------------------------
SIX MONTHS
ENDED
JUNE 30,
------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1995 1996
------------ ------------ ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 24.5 31.9 33.8 35.6 36.6
Selling, general and ad-
ministrative expenses.. 8.1 9.8 9.0 9.5 14.8
Research and develop-
ment................... 5.4 6.0 7.0 6.8 6.7
Operating income........ 11.0 16.1 17.8 19.3 15.2
Net income.............. 6.6 8.8 8.9 9.5 7.5
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales were $28.2 million in the first six months of 1996, an increase of
$7.5 million, or 36.0%, as compared to the first six months of 1995. Net sales
increased primarily as a result of the acquisition of RDI which contributed
$6.6 million to net sales in the first six months of 1996.
Sales of circuit breaker products declined 9.5% to $15.7 million in the
first six months of 1996 from $17.3 million in first six months of 1995,
primarily due to lower European shipments and the switch in 1995 from the use
of circuit breakers to fuses on certain models of Ford vehicles. This decrease
was partially offset by a 72.9% increase in sales of sensor products to $4.0
million in the first six months of 1996 from $2.3 million in the first six
months of 1995, primarily as a result of the Company's shipment of its new
steering sensor. The decrease was also partially offset by an increase of
74.8% in sales of ceramics products to $1.9 million in the first six months of
1996 from $1.1 million in the first six months of 1995, primarily due to
shipments of ceramics to the PCS and cellular equipment manufacturers.
Gross profit in the first six months of 1996 was $10.3 million, an increase
of $2.9 million, or 39.7%, as compared to the same period in 1995. As a
percentage of net sales, gross profit in the first six months of 1996 was
36.6% as compared to 35.6% in the first six months of 1995. The increase in
gross profit, as a percentage of net sales, resulted from improved
productivity due in part to the continuing success of an employee gain sharing
program as well as from improved plant utilization and efficiencies.
Selling, general and administrative expenses in the first six months of 1996
were $4.2 million, an increase of $2.2 million, or 110.8%, as compared to the
first six months of 1995. The increase consisted primarily of RDI expenses
which were $2.0 million. As a percentage of net sales, selling, general and
administrative expenses were 14.8% in the first six months of 1996 as compared
to 9.5% in the first six months of 1995.
22
<PAGE>
Excluding RDI, selling, general and administrative expenses as a percentage of
net sales increased to 10.1% in the first six months of 1996 from 9.5% in the
first six months of 1995, primarily as a result of increased expenses for
bonus plans.
Research and development expenses in the first six months of 1996 were $1.9
million, an increase of $0.5 million, or 34.1%, as compared to the first six
months of 1995. The increased research and development expense was primarily a
result of increased staffing and expenses required to develop products for
introduction in the 1997-1999 period. In addition, resources have been added
to develop a chip-on-board manufacturing line to reduce the cost and enhance
market penetration of the Company's sensor products. As a percentage of net
sales, research and development expense was 6.7% in the first six months of
1996, as compared to 6.8% in the first six months of 1995. Due to the
distribution nature of RDI's business, research and development is a minimal
expense for RDI. Excluding RDI, research and development spending increased to
8.5% in the first six months of 1996 from 6.8% in the first six months of
1995.
Operating income in the first six months of 1996 was $4.3 million, an
increase of $0.3 million, or 6.7%, as compared to the first six months of
1995. As a percentage of net sales, operating income was 15.2% in the first
six months of 1996 as compared to 19.3% in the first six months of 1995. The
decrease in operating income as a percentage of net sales resulted primarily
from the acquisition of RDI. RDI is primarily a distributor and, on a
historical basis, has incurred selling, general and administrative expenses
higher, as a percentage of net sales, than the Company. Similarly, as a
distributor, RDI's operating income as a percentage of net sales is typically
lower than that of the Company.
Interest expense was $0.8 million in the first six months of 1996, an
increase of $0.1 million, or 13.1%, as compared to the first six months of
1995. The increased interest expense was primarily the result of lower
interest income due to the use of cash for the acquisition of RDI.
The provision for income tax was $1.3 million in the first six months of
1996 and the first six months of 1995. The effective tax rate was 38.4% in the
first six months of 1996 compared to 40.0% in the first six months of 1995.
Net income was $2.1 million in the first six months of 1996, an increase of
$0.2 million, or 8.1%, as compared to the first six months of 1995. The
increase in net income was a result of the acquisition and the improvement in
operating income partially offset by increased research and development and
interest expense. As a percentage of net sales, net income was 7.5% in the
first six months of 1996 as compared to 9.5% in the first six months of 1995.
1995 COMPARED TO COMBINED 1994
Net sales were $38.9 million in 1995, a decrease of $5.0 million, or 11.3%,
as compared to combined 1994. Net sales decreased primarily as a result of the
weakened economic conditions in North America and Europe, particularly related
to automotive sales. Sales of circuit breaker products decreased 13.6% to
$30.9 million in 1995 from $35.8 million in 1994. Approximately $2.2 million
of the decrease in net sales was attributable to decreased demand for the
Company's automotive circuit breaker products as Ford switched certain models
of vehicles from circuit breakers to fuses. Sales of sensor products increased
25.5% to $5.3 million in 1995 from $4.2 million in combined 1994 as the
Company began shipping sensors to European automakers. Ceramic sales declined
31.2% to $2.6 million in 1995 from $3.8 million in 1994 primarily due to a
decrease in air heater sales.
Gross profit in 1995 was $13.2 million, a decrease of $0.8 million, or 6.0%,
as compared to combined 1994. As a percentage of net sales, gross profit in
1995 was 33.8% as compared to 31.9% in combined 1994. The increase in gross
profit, as a percent of net sales, resulted from increased productivity due in
part to the success of an employee gain sharing program instituted in 1994 as
well as from improved plant utilization.
Selling, general and administrative expenses in 1995 were $3.5 million, a
decrease of $0.8 million, or 18.7%, as compared to combined 1994. The decrease
in administrative expenses was a result of management
23
<PAGE>
initiative to contain expenses as a result of the decreased sales volume. As a
percentage of net sales, selling, general and administrative expenses were
9.0% in 1995 as compared to 9.8% in combined 1994.
Research and development expenses in 1995 were $2.7 million, an increase of
$0.1 million, or 3.4%, as compared to combined 1994. The increased research
and development expenses were a result of the Company's continued focus on new
product development in the sensor product line. As a percentage of net sales,
research and development expenses were 7.0% in 1995 as compared to 6.0% in
combined 1994. In 1995, approximately 75% of the research and development
expenses were related to sensor development projects, primarily in the rain
and solar/twilight areas. See "Business--Research and Development."
Operating income in 1995 was $6.9 million, a decrease of $0.1 million, or
1.9%, as compared to combined 1994. The decreased operating income was a
result of the lower sales volume substantially offset by higher gross margins
and reduced selling, general and administrative expenses. As a percentage of
net sales, operating income was 17.8% in 1995 as compared to 16.1% in combined
1994.
Interest expense was $1.4 million in 1995, an increase of $0.7 million from
combined 1994. The Predecessor Company did not receive an allocation of
interest expense from GTE in 1994.
Provision for income tax was $2.1 million in 1995, as compared to $2.5
million in combined 1994. The effective tax rate was 37.5% in 1995 as compared
to a rate of 39.4% in combined 1994.
Net income was $3.5 million in 1995, a decrease of 10.7%, as compared to
$3.9 million in combined 1994. The decrease in net income was primarily
attributable to the additional interest expense in 1995. As a percentage of
net sales, net income was 8.9% in 1995 as compared to 8.8% in combined 1994.
COMBINED 1994 COMPARED TO 1993
Net sales were $43.8 million in combined 1994, an increase of $4.0 million,
or 10.1%, as compared to 1993. Net sales increased primarily as a result of
improved economic conditions in North America and Europe, particularly related
to automotive sales. Sales of circuit breaker products increased 4.6% to $35.8
million in 1994 from $34.2 million in 1993. This increase was primarily due to
the strength of the worldwide automotive market. Sensor sales also increased
26.2% to $4.2 million in 1994 from $3.4 million in 1993 as solar sensors
benefited from improving market conditions and increased market acceptance.
Ceramic sales increased 71.0% to $3.8 million in 1994 from $2.2 million in
1993 in part due to increased sales of air heaters.
Gross profit in combined 1994 was $14.0 million, an increase of $4.2
million, or 43.5%, as compared to 1993. As a percentage of net sales, gross
profit in combined 1994 was 31.9% as compared to 24.5% in 1993. The increase
in gross profit, as a percent of net sales, resulted from improved
productivity due in part to the success of an employee gain sharing program
instituted in 1994 as well as from improved plant utilization and efficiency.
Selling, general and administrative expenses in combined 1994 were $4.3
million, an increase of $1.1 million, or 33.1%, as compared to 1993. The
increase in administrative expenses consisted primarily of corporate expenses
associated with being an independent company in 1994. As a percentage of net
sales, selling, general and administrative expenses were 9.8% in combined 1994
as compared to 8.1% in 1993.
Research and development expenses in combined 1994 were $2.7 million, an
increase of $0.5 million, or 23.6%, as compared to 1993. The increased
research and development expenses were a result of the Company's increased
focus on new product development in the sensor product line. As a percentage
of net sales, research and development expenses were 6.0% in combined 1994 as
compared to 5.4% in 1993.
Operating income in combined 1994 was $7.0 million, an increase of $2.7
million, or 60.9%, as compared to 1993. The increased operating income was a
result of the improvement in gross profit partially offset by higher selling,
general and administrative and research and development expenses. As a
percentage of net sales, operating income was 16.1% in combined 1994 as
compared to 11.0% in 1993.
24
<PAGE>
Interest expense was $0.7 million in 1994. The Predecessor Company did not
receive an allocation of interest expense from GTE in 1993.
Provision for income tax was $2.5 million in combined 1994, as compared to
$1.8 million in 1993. The effective tax rate was 39.4% in combined 1994 as
compared to 40.0% in 1993.
Net income was $3.9 million in combined 1994, as compared to $2.6 million in
1993. The increase in net income was a result of the improvement in operating
income partially offset by interest expense and income taxes. As a percentage
of net sales, net income was 8.8% in combined 1994 as compared to 6.6% in
1993.
QUARTERLY RESULTS
The following tables present the Company's operating results for each of the
six quarters for the period ended June 30, 1996, including such amounts
expressed as a percentage of net sales. The information for each of these
quarters is unaudited, but has been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of the Company's
management, reflects all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of such information when read
in conjunction with the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus. Operating results for any
quarter are not necessarily indicative of results for any future periods.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $10,916 $9,798 $9,063 $9,104 $10,772 $17,408
Cost of sales........... 6,919 6,414 6,132 6,256 6,919 10,951
------- ------ ------ ------ ------- -------
Gross profit........... 3,997 3,384 2,931 2,848 3,853 6,457
Operating expenses:
Selling, general and
administrative
expenses............... 943 1,027 816 718 1,075 3,082
Research and develop-
ment................... 771 632 641 696 959 921
------- ------ ------ ------ ------- -------
Operating income....... 2,283 1,725 1,474 1,434 1,819 2,454
Interest expense........ 368 364 336 312 312 516
------- ------ ------ ------ ------- -------
Income before income
taxes................. 1,915 1,361 1,138 1,122 1,507 1,938
Income tax provision.... 766 544 433 335 580 742
------- ------ ------ ------ ------- -------
Net income............. 1,149 817 705 787 927 1,196
Preferred share divi-
dends.................. 66 66 66 66 66 66
------- ------ ------ ------ ------- -------
Net income applicable
to common
shareholders.......... $ 1,083 $ 751 $ 639 $ 721 $ 861 $ 1,130
======= ====== ====== ====== ======= =======
Earnings per share...... $ 0.42 $ 0.29 $ 0.25 $ 0.28 $ 0.34 $ 0.44
======= ====== ====== ====== ======= =======
Weighted average number
of common shares and
equivalents outstand-
ing.................... 2,564 2,564 2,564 2,564 2,564 2,564
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 63.4 65.5 67.7 68.7 64.2 62.9
------- ------ ------ ------ ------- -------
Gross profit........... 36.6 34.5 32.3 31.3 35.8 37.1
Operating expenses:
Selling, general and
administrative
expenses............... 8.6 10.4 8.9 7.9 10.0 17.7
Research and develop-
ment................... 7.1 6.5 7.1 7.6 8.9 5.3
------- ------ ------ ------ ------- -------
Operating income....... 20.9 17.6 16.3 15.8 16.9 14.1
Interest expense........ 3.4 3.7 3.7 3.4 2.9 3.0
------- ------ ------ ------ ------- -------
Income before income
taxes................. 17.5 13.9 12.6 12.4 14.0 11.1
Income tax provision.... 7.0 5.6 4.8 3.7 5.4 4.2
------- ------ ------ ------ ------- -------
Net income............. 10.5% 8.3% 7.8% 8.7% 8.6% 6.9%
======= ====== ====== ====== ======= =======
</TABLE>
25
<PAGE>
SEASONALITY
The Company's performance is dependent primarily on automotive vehicle
production which is seasonal in nature. The Company's revenues tend to be
somewhat lower in the third and fourth quarters as automotive OEMs schedule
plant tooling changeovers, vacations and holiday shutdowns.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation and initial capitalization, the Company has financed its
operations and investments in property, equipment and the RDI acquisition
primarily through cash generated from operations, the issuance of the RDI
Notes and the RDI Convertible Notes and bank borrowings. At June 30, 1996, the
Company had capital expenditure commitments of approximately $1.5 million. The
commitments relate primarily to capital expenditures associated with the
Company's design, development, manufacturing and marketing of sensors.
The Company has an existing $3.0 million line of credit with MassMutual (the
"Existing Line of Credit") under which no amounts are outstanding as of the
date hereof. The Existing Line of Credit is expected to be terminated in
connection with the closing of this Offering.
Cash and cash equivalents totaled $3.7 million at June 30, 1996 compared to
$10.5 million at December 31, 1995. The $6.7 million decrease in cash and cash
equivalents during this period resulted primarily from the Company's payment
of $7.4 million in connection with the RDI acquisition and the repayment of
the $1.5 million Seller Note, offset by $2.2 million generated by the Company.
The Company's cash and cash equivalents increased $5.2 million in 1995 and
$4.4 million in the five month period ending December 31, 1994 as a result of
cash generated from operations.
RDI has various credit facilities available to it totaling $4.5 million with
rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. At
June 30, 1996, RDI had borrowings aggregating $3.8 million under these
facilities.
The Company believes its current cash and cash equivalents, together with
its credit facilities and cash flows from operations, will be sufficient to
meet the Company's cash requirements, including capital expenditures, for at
least the next twelve months.
Fleet Bank of Maine ("Fleet Bank") and the Company have entered into a
commitment agreement, pursuant to which Fleet Bank has agreed to provide a
$15.0 million revolving line of credit facility to the Company to fund
strategic acquisitions and, if needed, for working capital. The new revolving
line of credit facility, which is subject to raising $15.0 million in this
Offering and the repayment of the Senior Notes, the Subordinated Notes and the
Existing Line of Credit, is expected to close simultaneously with the closing
of this Offering and will mature on September 30, 1998. The facility will have
three interest rate options consisting of (i) Fleet Bank's prime rate for
daily rate borrowings, (ii) Fleet Bank's cost of funds rate plus 1.5% for
borrowings of 30 days or less, or (iii) the corresponding London Interbank
Offering Rate (LIBOR) plus 1.5% for borrowings of 30, 60, 90 or 180 days. The
line of credit will be unsecured and contain covenants less restrictive than
those of the Existing Line of Credit. To date, no credit agreement has been
executed and no assurance can be given that the new line of credit will be
executed on such terms.
26
<PAGE>
BUSINESS
GENERAL OVERVIEW
The Company designs, manufactures and markets circuit breakers, electronic
sensors and electronic ceramic component parts used by OEMs in the automotive,
appliance and telecommunications markets. The Company has supplied circuit
breakers to automotive OEMs for more than 30 years, and in 1991 the Company
expanded its offerings to the automotive market by introducing its initial
sensor product, a solar sensor used for climate control in luxury cars. The
Company believes it is a leading supplier of automatically resetting circuit
breakers and solar sensors for the automotive market and of glass enclosed
circuit breakers for the appliance market. In addition to continued shipments
of its solar sensor, in July 1995, the Company commenced shipping its steering
wheel sensor to Ford, and, in June 1996, commenced shipping its twilight
sensor to GM. The Company is in various stages of development of its rain,
window fog and other solar (climate control)/twilight (headlamp control)
sensors for a number of automotive OEMs. Frost & Sullivan's Sensor Market
Sourcebook, 1995 Edition (the "F&S Sourcebook") estimates that the size of the
North American automotive sensor market will increase from $1.4 billion in
1992 to $2.6 billion in 1998 based in part on increased consumer demand for
safety, performance, convenience and comfort.
In April 1996, the Company acquired RDI primarily to enhance its market
penetration of the automotive OEM market in Europe, in part by locating itself
closer to European customers. The Company's customers include GM, Ford and
Chrysler in North American and Mercedes, Peugeot, Rockwell, Valeo, Opel and
Danfoss in Europe. Sales to GM, Ford and Chrysler and their suppliers in North
America were approximately $17.6 million, or 45.4% of the Company's net sales,
in 1995 and approximately $10.0 million, or 46.2% of net sales excluding RDI,
in the first six months of 1996.
PRODUCTS AND MARKETS
Circuit Protection. The Company manufactures and markets for the automotive
and appliance industries, circuit breakers which protect transformers, battery
chargers, compressors and small motors from heat and current overloads. The
technology utilized in such devices traces back to automatically resetting
circuit breakers developed as an alternative to fuses by Sylvania in 1956. Due
to the resetting feature, Sylvania's circuit breakers provided the same
protection from current overloads as fuses without the need for replacement.
The Company manufactures over 250 types of circuit breakers, including over
150 types of glass enclosed circuit breakers. Through RDI, the Company markets
and distributes in Europe a full line of circuit protection devices, including
various fuses and circuit breaker components and assemblies manufactured by
other companies. The Company's sales of circuit breakers were $30.9 million,
or 79.6% of net sales, in 1995, and $15.7 million, or 72.7% of net sales
excluding RDI, in the first six months of 1996.
Electronic Sensors. The Company's automotive sensors use optical sensing
technologies to recognize external conditions and send an electronic signal to
a central processor which automatically triggers a control response, that in
many cases, had required manual operation. The functions automatically
controlled by the Company's sensors include climate control and headlight
intensity in response to sunlight, power steering assist in response to
driving conditions, wiper control in response to precipitation and defrost
operation in response to window fog. In addition to continued sales of its
existing solar sensors, in July 1995, the Company began shipping its steering
wheel sensor to Ford. The Company's steering wheel sensor replaced a
competitor's product and is currently used in a number of Ford models. In
September 1996, the Company commenced shipping its twilight sensor to GM. The
Company's twilight sensor signals the vehicle's headlight system to switch
from low intensity to full intensity in twilight conditions and was developed
for use in GM's DRL program beginning with certain 1997 models. The Company's
sales of sensors were $5.3 million, or 13.7% of net sales in 1995, and $4.0
million, or 18.4% of net sales excluding RDI, in the first six months of 1996.
27
<PAGE>
In late 1995, in an effort to encourage automotive OEMs to use sensors in a
greater range of vehicle models, the Company sought to lower the cost of its
sensors by incorporating chip-on-board manufacturing technology. The Company's
original sensor technology uses discrete electronic components together with
prepackaged photodiodes. With chip-on-board technology, the Company has
designed silicon wafers which incorporate both the function of the discrete
electronic components and the photodiode and also reduce board size
requirements and assembly costs. The Company packages the wafer directly on a
circuit board resulting in savings which will permit the Company to introduce
a new line of lower cost sensors. Currently, the Company's twilight sensor
product, which possesses chip-on-board technology, is being shipped to GM, and
the Company is redesigning the remainder of its sensor products to incorporate
chip-on-board technology.
The Company's rain, window fog, and "next generation" solar (climate
control)/twilight (headlamp control) sensors are in various stages of
development. See "--Research and Development." The Company is continually
working with customers to provide new sensor products which will provide
increased comfort and safety in vehicles. In response to customer requests for
"next generation" functionality, prototypes of these advanced sensor products
have been shipped to GM, Ford, Mercedes, Volvo, Fiat, BMW and Volkswagen, as
well as to major tier one suppliers such as Valeo.
Electronic Ceramics. The Company's ceramic products include PTC (Positive
Temperature Coefficient) thermistors and dielectric resonators. PTC
thermistors, which convert electrical current into heat, are used as component
parts in room air heaters and protection devices for switching equipment
critical to the operation of telephone companies' central offices (facilities
that provide the local switching and distribution functions for telephone
companies). Dielectric resonators are used to filter frequencies in wireless
communications equipment. In addition to sales to wireless communications
equipment manufacturers, in the fourth quarter of 1995 the Company began
shipping custom designed dielectric resonators to Personal Communication
Systems ("PCS") equipment manufacturers. The Company's sales of ceramics were
$2.6 million, or 6.7% of net sales, in 1995, and $1.9 million, or 8.9% of net
sales excluding RDI, in the first six months of 1996.
Acquisition of RDI. In April 1996, the Company acquired RDI primarily to
enhance the Company's market penetration of the automotive OEM market in
Europe. In addition, through RDI, the Company distributes a number of
electronic components in Europe such as capacitors, connectors and various
electronic fuses and aftermarket products. These components are supplied to
the automotive, appliance, and telecommunication OEM markets and are sourced
and stocked by RDI. RDI's sales (excluding an amount equal to the Company's
sales to RDI) were $6.6 million for the three months ended June 30, 1996.
28
<PAGE>
The Company sells its products primarily to three markets: automotive,
appliance and telecommunications. In 1995, the Company's sales to these markets
were $22.3 million, $14.4 million and $2.2 million, respectively. The following
table generally describes the products currently being sold or being developed
for each of the markets addressed by the Company:
<TABLE>
<CAPTION>
PRODUCT LINES AUTOMOTIVE APPLIANCE TELECOMMUNICATIONS
- ------------------ ----------------------- ----------------------- -------------------
<S> <C> <C> <C>
Circuit Breakers Mini Remote Reset Glass Enclosed Circuit --
Mini Positive Make-and- Breakers
Break Metal Control Devices
Maxi Breakers Recessed Lighting
Vehicle Protectors Protection
Thermal Relays
Micro Positive Make-
and- Break
Electronic Sensors Solar Sensor (climate -- --
control)
Steering Wheel Sensor
Twilight Sensor
(headlamp control)
Rain Sensor
Window Fog Sensor
Electronic Ceramic PTC Thermistors for use PTC Thermistors for use Current Limiters
Devices in auxiliary heaters in portable air Dielectric
heaters Resonators
</TABLE>
<TABLE>
<C> <S>
Products Distributed Circuit Protection Devices (including Fuses, Circuit
by RDI Breakers, Components and
Assemblies) and Electronic Components
</TABLE>
Automotive Market
The Company believes it is a leading supplier of automatically resetting
circuit breakers and solar sensors to the automotive market and has a growing
presence in the expanding automotive sensor market.
Circuit Protection. The Company produces over 100 types of metal-based
(covered or uncovered) automatically resetting circuit breakers. These products
utilize a bimetal technology which essentially protects electrical circuits and
motors from heat and current overloads. The Company offers a broad line of
automotive circuit breakers which operate in a wide range of ambient
temperatures, thereby enabling customers to choose the protection most
appropriate for the particular application. The Company believes that it is a
leading supplier of circuit breakers to North American automotive OEMs. Typical
applications include protection for wiring harnesses, headlamps and small
motors. An automobile's electric wiring system (harness) delivers electricity
to door locks, cigarette lighters, window lift motors, windshield wiper motors
and power antennae motors. Typically, there is a circuit breaker or fuse for
each of these applications to protect against electrical current overload.
The Company's circuit breakers include automatically resetting circuit
breakers used as protectors for 12-volt DC motors. These products are cycling,
or self-resetting, circuit breakers created for mounting in the motor and are
used to protect motors with currents ranging from 20 amps (such as windshield
wiper motors) to 40 amps (such as power seat motors). Another line of the
Company's automatically resetting circuit breakers are installed in automotive
fuse blocks or wiring harnesses and are used to protect circuits which
occasionally experience momentary overloads (e.g., headlamps, for which fuses
can present a safety hazard) and to minimize the inconvenience of fuse
replacement (e.g., cigarette lighters, which can overload if used for other
applications). The Company's other electromechanical automotive products
include thermal relays, which provide a time delay for automotive courtesy
lights and seat belt warning lights.
29
<PAGE>
In Europe, the Company distributes a full line of circuit protection
products through RDI. These products include those manufactured by the Company
and complementary products distributed for other manufacturers.
Electronic Sensors. The Company's sensors use proprietary optical sensing
technologies to recognize external conditions and send an electronic signal to
a central processor which automatically triggers a control response that, in
many cases, had required manual operation. These operations include climate
control and headlight intensity in response to sunlight, power steering assist
in response to driving conditions, wiper control in response to precipitation
and defrost operation in response to window fog. In addition to continued
sales of its existing solar and steering wheel sensors, in June 1996, the
Company commenced shipping its twilight sensor to GM. The Company's twilight
sensor signals the vehicle's headlight system to switch from low intensity to
full intensity in twilight conditions and was developed for use in GM's DRL
program. The F&S Sourcebook estimates that the size of the North American
automotive sensor market will increase from $1.4 billion in 1992 to $2.6
billion in 1998. In 1994 and 1995, the Company devoted approximately 75% of
its research and development expenditures to electronic sensors. See
"Business--Research and Development."
The Company's solar sensor, used for automatic climate control in several
current GM, Mercedes and Peugeot luxury cars, measures the direct solar
heating felt by the automobile's occupants. The Company's solar sensor is
customized for each car model by taking into account the roof line and
placement of windows. The Company believes that its patented lensing
technology enables its solar sensors to measure direct solar heating more
accurately than competitors' products. This technological advantage leads the
Company to believe that its solar sensors have gained wide industry acceptance
as standard in automatic climate control systems. The Company's solar sensors
can be found on vehicles manufactured by Cadillac, Buick, Oldsmobile, Jeep,
Mercedes, Opel and Peugeot, among others.
In July 1995, the Company began shipments of steering wheel sensors to Ford
for vehicles sold in North America. These sensors optically measure the speed
and direction of the steering column rotation, and send electric signals to
the car's central processor to make adjustments in the stiffness of the power
steering system of the car. The technology used in its steering wheel sensor
has other automotive applications which the Company is pursuing.
Building on a design effort commenced in late 1995, the Company shipped its
first sensor incorporating chip-on-board technology in June 1996. This
technology results in savings which will permit the Company to introduce a new
line of lower cost sensors.
The Company's rain, window fog and "next generation" solar (climate
control)/twilight (headlamp control) sensors are in various stages of
development and will incorporate the Company's chip-on-board manufacturing
technology. The Company's rain sensor measures precipitation on the windshield
and sends a signal to adjust the windshield wiper speed. The window fog sensor
optically detects condensation or frost on front and/or rear windows and sends
a signal to adjust the defroster before such condensation or frost is
detectable by the human eye. By eliminating frost and condensation before it
has a chance to accumulate, the driver's visibility remains unimpaired.
Appliance Market
The Company believes it is a leading supplier of glass enclosed circuit
breakers for the small motor appliance market. The Company also supplies
ceramic PTC thermistor based heaters to the appliance market and, through RDI,
distributes component parts manufactured by others. The products distributed
by RDI include capacitors, filters and condensers.
Circuit Protection. The Company manufactures a number of different types of
circuit breakers for the appliance market and believes it is one of only two
companies in the world producing glass enclosed circuit breakers. Most of its
revenues in the appliance market are derived from the sale of the Company's
150 types
30
<PAGE>
of glass enclosed circuit breakers. The Company's glass enclosed circuit
breakers are generally sold for applications in which quality, cycle life and
dependability are the critical factors. These products prolong motor life by
shutting off motors in the presence of excess ambient heat or current. A key
feature of the glass circuit breakers is the hermetic seal created by the
glass enclosure. This hermetic seal makes it the lowest cost type of circuit
breaker which can be totally immersed in a liquid or gas environment and still
maintain consistent operation. Typical uses include protection of compressor
motors and other small motors where the breaker is required to be mounted
directly inside the motor, such as refrigerator compressor motors, dishwasher
motors and garage door opener motors. Internal mounting in motors places the
circuit breaker in close proximity to the source of heat, allowing for faster
response times under fault conditions than can be delivered by externally
mounted breakers. Internal mounting also eliminates the need for an external
mounting location and associated wiring connectors, and facilitates greater
efficiency in compressor motor design.
The Company also supplies circuit breakers to recessed lighting
manufacturers. These breakers protect the fixture from heat overloads and
cause the light to blink in a fault condition.
Electronic Components. The Company supplies ceramic PTC thermistors for use
in small electric air heaters. The PTC ceramic is designed to maintain a
constant temperature, making them safer than certain other electric air
heating technologies. In addition, RDI distributes electronic components to
the European appliance industry.
Telecommunications Market
The Company manufactures and markets PTC current limiters and dielectric
resonators for applications in the telecommunications market.
PTC Current Limiters. The Company supplies PTC current limiters for use in
modules which prevent current surges from damaging line cards (circuit boards)
in telephone companies' central office switching systems. The Company's
products are sold as a component part in Siecor's central office module
(protection device). The PTC current limiters are being supplied to Siecor
under a five-year exclusive requirements contract entered into in September
1993 for use by GTE on its installed base of 23 million telephone lines.
Dielectric Resonators. The Company supplies a line of dielectric resonators
to OEMs of wireless telecommunications equipment. Dielectric resonators are an
integral part of wireless communication filters, which capture the desired
frequencies and keep the desired frequencies from interfering with others.
These filters are typically placed at transmission sites, where space is at a
premium, and the Company therefore believes that the size of dielectric
resonator based filters, which are smaller than air cavity based filters,
offer a competitive advantage. The markets for theses products include
cellular and PCS wireless applications.
PCS is the term used to describe the wireless telecommunications services
that will be offered by those companies that acquired or will acquire licenses
for a radio spectrum (frequency range 1850-1990 MHz) in the FCC auctions and
are the newest entrants in the wireless telecommunications market. PCS will
initially compete directly with existing cellular telephone, paging and mobile
radio services. PCS will also include features which are not generally offered
by cellular providers, such as: (i) the provision of all services to one
untethered, mobile number; (ii) lower-priced service options; and (iii) in the
near future, medium-speed data transmissions to and from portable computers,
advanced paging services and facsimile services. PCS providers may be the
first to be able to offer mass market wireless local loop applications, in
competition with switched and direct access local telecommunications services.
BUSINESS STRATEGIES
Pursue Selected Growth Opportunities Utilizing Technology. The Company
intends to pursue opportunities to apply new and existing technologies to
develop additional products to fulfill anticipated
31
<PAGE>
customer needs. The Company's current emphasis is on electronic optical
sensors for the automotive market. The F&S Sourcebook projects growth in the
electronic sensor market as auto consumers demand improved safety, performance
and comfort. The Company also believes that its proprietary optical sensor
technology gives the Company's sensors an advantage in quality and accuracy of
function over competitors' sensors.
Building on a design effort commenced in late 1995, the Company shipped its
first sensor incorporating chip-on-board technology in June 1996. This
technology results in savings which will permit the Company to introduce a new
line of lower cost sensors. The chip-on-board technology also provides greater
design latitude by miniaturizing the process.
The Company expects to continue to expand its research and development
efforts in electronic sensor technology. In 1994 and 1995, approximately 75%
of the Company's total expenditures for research and development were for its
electronic sensor products. The Company's research and development staff has
grown from approximately 20 employees in July 1994 to approximately 33
employees in June 1996.
Maintain Market Leadership in Automotive Circuit Breakers and Glass Enclosed
Circuit Breakers. The Company is a leading supplier of circuit breakers for
the automotive market and glass enclosed circuit breakers for the small motor
appliance market. The Company believes that its experience and expertise in
these markets, developed over more than thirty years, its strong customer
relationships, and its strategy of continuous improvement in productivity and
cost management, will enable it to maintain its leadership position. In turn,
the Company believes that its leadership position provides a stable base from
which to pursue growth opportunities for its other existing and new products,
especially electronic sensors.
Strategic Acquisitions. The Company is pursuing an acquisition strategy
designed to complement the Company's existing businesses, including
acquisitions of complementary products, expanding its line of electronic
sensors and expanding its distribution base. In April 1996, the Company
acquired RDI primarily to enhance the Company's market penetration of the
automotive OEM market in Europe. RDI expands the Company's presence in Europe
and strengthens its ability to market its electronic sensor and other
products. Management believes that a European based distribution network will
enhance the Company's ability to distribute existing, internally developed and
newly acquired products. The Company currently has no specific agreements or
understandings with respect to any acquisitions.
Operating Efficiency and Cost Management. The Company is dedicated to
continuous improvement of its operations, including cost management. These
improvements have led to an increase in operating profit margins from 2.7% in
1992 to 17.8% in 1995. The Company's current strategy is to develop and
initially manufacture products at its facilities in Maine and, as they mature,
move production offshore to the Company's lower cost facility in the Dominican
Republic. Other cost reduction strategies being pursued by the Company include
efforts to improve manufacturing yields, eliminate non-value added labor and
reduce manufacturing cycle time. The Company has achieved significant success
in pursuing such efforts, in part due to a gain sharing program implemented in
1994. Virtually all Company employees receive incentive compensation based on
operating results or cost improvements.
Focus on Customer Relationships and the Manufacture of Quality Products. The
Company builds on its longstanding customer relationships in the development
of new products and new applications for existing products. These products and
applications are designed either to fulfill an existing customer need or to
meet an expected future market requirement. By working closely with customers
on the initial design and specification of products, management believes the
Company has a competitive advantage. The Company has implemented comprehensive
systems and statistical tools in conjunction with its customers to assure the
production of quality products. The Company's commitment to quality has
resulted in the Company's having received, in addition to other awards, ISO
(International Standards Organization) 9001-1994 registration (the highest
attainable) in June 1995, GM's Mark of Excellence Award (the highest
attainable) and Ford's Q1 quality rating.
32
<PAGE>
MARKETING AND CUSTOMERS
The Company markets its products through a direct sales and service force
located in the Company's Dearborn, Michigan sales office, at the Company's
corporate headquarters in Standish, Maine and at RDI's headquarters near
Paris, France. The Company also sells and distributes its products through a
number of independent agents and distributors in Europe and Asia. In Europe,
RDI acts as a technical and value added resource to its customers.
In the automotive market, the Company sells its products primarily to parts
suppliers, including subsidiaries of automotive manufacturers, rather than
directly to the automobile manufacturer. The Company must generally market its
products both to the manufacturer (to insure the design of the automobile
incorporates the Company's product) and to the supplier of the particular
parts in which the Company's products will be incorporated. As is typical in
the automotive and appliance industries, the Company's customers buy products
through the use of purchase orders rather than long-term contracts.
For export sales, see Note 15 of the Company's Financial Statements.
One of the Company's customers, GM, accounted for approximately 17%, 20% and
12% of net sales in 1994, 1995 and the six months ended June 30, 1996,
respectively. These sales were primarily to two divisions of GM, Packard
Electric and Delco Electronics, both of which manufacture electrical systems
for automotive companies, including GM. Net sales to Danfoss were 13.6% in
1995. No other customer accounted for more than 10% of sales in 1994, 1995 and
the six months ended June 30, 1996. See "Risk Factors."
The following table shows certain of the Company's key customers for each of
its product lines:
<TABLE>
<CAPTION>
PRODUCT LINE KEY CUSTOMERS
------------ ---------------------------------------------------------
AUTOMOTIVE APPLIANCE TELECOMMUNICATION
-------------------- ----------------- -----------------
<S> <C> <C> <C>
Circuit Protection... GM, Ford, Chrysler, Danfoss --
Valeo
Electronic Sensors... GM, Ford, Mercedes -- --
Electronic Ceramic
Devices............. -- -- Celwave, Siecor
Products Distributed
by RDI.............. Rockwell, Mercedes, -- --
Volkswagen
</TABLE>
Danfoss is a manufacturer of compressors for refrigeration and other uses;
Celwave is a manufacturer of microwave communications components; and Siecor
manufactures telecommunications products.
The following table shows the car and truck models, as of June 30, 1996,
which incorporate circuit breakers and sensors manufactured by the Company:
<TABLE>
<CAPTION>
CUSTOMER CIRCUIT BREAKERS SENSORS
- -------- ---------------------------------- ------------------------
<S> <C> <C>
GM
Buick........... Century, LeSabre, Park Avenue, LeSabre, Park Avenue,
Regal, Riviera, Roadmaster, Riviera, Roadmaster
Skylark
Cadillac........ DeVille, Eldorado, Fleetwood DeVille, Eldorado,
Brougham, Seville Fleetwood Brougham,
Seville
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
CUSTOMER CIRCUIT BREAKERS SENSORS
- -------- ---------------------------------- ------------------------
<S> <C> <C>
Chevrolet....... Astro, Beretta, Blazer, Camaro, Corvette
Caprice, Cargo Van, Cavalier, C/K
Pick-up, Corsica, Corvette,
Lumina, Lumina Van, Monte Carlo,
S-10, Sport Van, Suburban, Tahoe
GMC............. Jimmy, P Model Truck, Safari, --
Sonoma, Suburban, Yukon
Oldsmobile...... Achieva, Aurora, Bravada, Ciera, Aurora, Cutlass, 88, 98,
Cutlass Supreme, 88, 98, Supreme
Silhouette
Pontiac......... Bonneville, Firebird, Grand Am, Bonneville
Grand Prix, Sunfire, Trans Sport
Ford
Ford............ Crown Victoria, Aerostar, Thunderbird, Explorer,
F-Series Truck, Taurus Crown Victoria
Lincoln......... Town Car, Mark VIII, Continental Town Car, Mark VIII
Mercury......... Grand Marquis, Cougar, Villager, Cougar, Grand Marquis
Sable
Chrysler
Chrysler........ Concorde, Cirrus, New Yorker, --
Sebring, Town & Country
Dodge........... Intrepid, Neon, Stratus, Ram Van, --
Dakota, Ram Wagon, Caravan, T-300,
Viper
Eagle........... Vision --
Plymouth........ Breeze, Neon, Voyager --
Jeep............ Cherokee, Grand Cherokee Grand Cherokee
Mercedes.......... -- E-Class, S-Class
Renault........... Laguna, Clio, 19 --
Peugeot........... 306, 106, 405 806, 506
Volkswagen/Audi... Golf, Passat, A6, A8 --
Citroen........... ZX, Xantia, XM Evasion
Opel.............. 2900 Vectra --
Seat.............. Ibiza --
Nissan............ Quest --
Honda............. Odyssey --
</TABLE>
RESEARCH AND DEVELOPMENT
The Company incurred research and development expenses of $2.1 million, $2.7
million, and $2.7 million in 1993, 1994 and 1995, respectively, and $1.9
million for the six months ended June 30, 1996. The increase from 1993 to 1995
was a result of the Company's focus on new product development in the
electronic sensor
34
<PAGE>
product line based on the Company's existing optical sensing technologies. In
1995 and the first six months of 1996, the Company devoted over 7.0% and 8.5%,
respectively, of net sales excluding RDI to research and development. In 1994
and 1995, the Company devoted approximately 75% of its research and
development expenditures to electronic sensors. The Company maintains a
research and development staff at its Standish, Maine facility of 33 employees
as of June 30, 1996, 28 of whom, including 22 engineering professionals, were
devoted to new sensor product development.
In addition to the recently introduced twilight sensor, the Company also has
under development rain and window fog sensors which will control intermittent
windshield wiper and/or defroster functions, and a solar position sensor for
multi-zone automatic climate control. The Company has a six year consulting
agreement expiring on March 31, 2001 with Dr. Dennis J. Hegyi, a Physics
Professor at the University of Michigan, relating to its sensor products. The
Company currently licenses five of Dr. Hegyi's patents for its sensor
products. See "Products and Markets" and "Management--Key Consultant."
The following tables summarize the results of the Company's historical
research and development activities and the focus of its current research and
development activities.
<TABLE>
<CAPTION>
YEAR OF INTRODUCTION PRODUCT APPLICATION CUSTOMERS
- -------------------- --------------------- ------------------------- -------------
<S> <C> <C> <C>
1991 Solar Sensor Automatic Climate Control Numerous OEMs
1993 Dielectric Resonator Wireless Telecom-Cellular Celwave
1995 Steering Wheel Sensor Power Steering Assist Ford
1995 Dielectric Resonator Wireless Telecom-PCS Numerous OEMs
1996 Twilight Sensor Daytime Running Lamps GM
</TABLE>
<TABLE>
<CAPTION>
DEVELOPMENT STAGE PRODUCTS APPLICATION STATUS
- -------------------------- ---------------------------- -------------------------------------------
<S> <C> <C>
Solar Twilight Sensor Combined Climate and OEMs have tested and requested quotes.
Headlamp Control
Rain Sensor Wiper Function and Testing with a North American OEM.
Speed Control
Window Fog Sensor Defrost Control Prototypes provided to European OEMs.
Solar Quadrant Sensor Multi-zone Automatic Climate Prototypes provided to a European OEM.
and Headlamp Control
Electric Vehicle Heaters Automobile Heaters Development funding has been received from
Ford and Chrysler. The Company has started
production tooling for Ford.
</TABLE>
PATENTS, LICENSES AND TRADEMARKS
The Company owns 11 patents and has two patents pending. The Company does
not consider any single patent to be material to its business. The Company
typically requires its employees to execute appropriate non-competition and
patent rights agreements. The Control Devices logo is a registered trademark
of the Company and Maxi Breaker is a trademark of the Company.
The Company is licensed to use technology in patents and know-how owned by
Dr. Hegyi, a consultant to the Company. See "Management--Key Consultant."
35
<PAGE>
MANUFACTURING AND SUPPLY
The Company manufactures and assembles its products at its plants in
Standish and Caribou, Maine, and San Cristobal, Dominican Republic and has
certain value added operations at its distribution facility in France. The
Company's facility in the Dominican Republic, where the Company has an average
total burdened labor cost of $4.00 per hour, has been audited by
representatives of Chrysler, Valeo and Packard Electric and has been certified
as an approved supplier by all three. The Company manufactures its products
using components purchased from third parties and from parts manufactured by
the Company with various raw materials.
During and after the manufacturing process, products undergo extensive
inspection and testing to insure quality control. The Company's commitment to
quality has resulted in the Company having received, in addition to other
awards, ISO (International Standards Organization) 9001-1994 registration (the
highest attainable) in June 1995, GM's Mark of Excellence Award (the highest
attainable) and Ford's Q1 quality rating. The Company is currently in the
process of qualifying for the QS-9000 certification which it expects to
complete in 1996.
Certain of the Company's components are standard items and are available
from multiple sources. The Company also sources components produced from
custom tools or molds. These custom parts may be single sourced in some
circumstances in order to take advantage of price and quality considerations.
The Company has never had any significant supply interruptions in these
components and it believes it could develop alternative sources of supply if
supply interruptions were to occur.
Backlog consists of firm orders received from customers and distributors
with delivery dates requested by customers at some future date. At June 30,
1996, backlog was approximately $8.3 million versus approximately $4.5 million
at June 30, 1995. This backlog increase is primarily due to the acquisition of
RDI. All of the Company's current backlog is expected to be shipped by year
end.
COMPETITION
The Company has many competitors with respect to all of its products, and
the automotive parts supply industry, in particular, is highly competitive.
Many of its competitors in the automotive industry are companies which are
larger, more diversified and have greater financial resources than the
Company. In general, competition in the circuit breaker market is based on
price, although the Company also seeks to compete based on product
performance. The automotive market for circuit breakers is a relatively
mature, small market and the Company competes principally with Texas
Instruments and Otter Controls Inc. In the appliance market for circuit
breakers, the Company competes principally with Texas Instruments. The Company
also competes in the circuit breaker market with suppliers of alternative
technologies, such as fuses which can be used as an alternative to circuit
breakers. Automatically resetting circuit breakers do not need to be replaced
as frequently as fuses, and for some applications an automatically resetting
feature is essential for safety. However, fuses are lower-priced than circuit
breakers. In its circuit breaker lines, the Company's highly automated Maine
facilities and low cost Dominican Republic facility generally enable the
Company to be competitive on price. However, the Company's competitors are
from time to time competitive for reasons including the ability to adapt
existing technology to a particular circuit breaker application, which results
in a lower price, and the existence of established marketing relationships,
especially in Europe. Competition in the sensor market is primarily based on
technology, quality, delivery, reliability, price, functionality and
engineering support. The suppliers who compete with the Company's sensor
business for the most part are sophisticated manufacturers with similar
quality, reliability, delivery and engineering support as the Company. As a
result, decisions are often based on price and technological advantage as to
which the Company believes it is competitive with other suppliers.
Furthermore, the Company believes that its patented lensing technology enables
its solar sensors to measure direct solar heating more accurately than
competitors' products. However, certain of the Company's competitors are
larger, better financed and better known than the Company. Therefore, there
can be no assurance that the Company will be able to continue its current
technological advantage or that its technological advantage will translate
into superior sales. The Company's principal competitors in this market are
Texas Instruments, Eaton, Motorola, Panasonic, Philips and Nippondenso. In the
ceramics market, the Company competes on the basis of supplying niche products
and on service, delivery and product technology. Its principal competitors in
this market are NTK, TDK, Alpha Industries, Murata and Siemens. In the
European distribution market, the Company competes with similar electronic
distributors.
36
<PAGE>
PROPERTIES
The Company's facilities are kept in good condition and the capacity of such
facilities is adequate for the Company's needs. The Company expects to renew
leases expiring in December 1996 but believes that, if such leases are not
renewed, alternative space would be available on comparable terms. The
following table sets forth certain information, as of June 30, 1996, relating
to the Company's facilities:
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION PRINCIPAL ACTIVITIES SQUARE FEET LEASED
- -------- --------------------------------- ----------- --------
<S> <C> <C> <C>
Standish, Maine......... Corporate Headquarters; Research 120,000 Owned
and Development; Manufacture of
Electronic Sensors, Glass
Enclosed Circuit Breakers and
Electronic Ceramic Devices
Caribou, Maine.......... Manufacture of Circuit Breakers 33,000 Leased
(Yearly
Renewal)
San Cristobal, Manufacture of Circuit Breakers, 26,000 Leased
Dominican Republic..... Electronic Sensors (Expires
December
1996)
Dearborn, Michigan...... Sales Office 1,320 Leased
(Expires
December
1996)
Villepinte, France...... RDI Headquarters, European 27,500 Owned
Warehouse, Manufacturing and
Distribution.
</TABLE>
EMPLOYEES
As of June 30, 1996, the Company had 808 employees, consisting of 207
employees based in Standish, 92 employees based in Caribou, three employees
based in Dearborn, 396 employees based in the Dominican Republic and 110
employees in France. None of the Company's employees are currently represented
by a labor union; RDI's employees enjoy the benefits of a state-mandated
collective bargaining agreement (Convention Collective de la Metallurgie)
which applies to numerous French companies whose business relates to metal
products, including RDI. The Company believes its relations with employees are
good.
ENVIRONMENTAL MATTERS
The Company's owned and leased facilities are subject to numerous
environmental laws and regulations concerning, among other things, emissions
to the air, discharges to surface and ground water, and the generation,
handling, storage, transportation, treatment and disposal of toxic and
hazardous substances. Under various Federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may become liable for the costs of removal or remediation of
hazardous or toxic substances on, under or in such property, typically without
regard to fault.
Pursuant to the terms of an Environmental Agreement dated July 6, 1994, GTE
has retained liability and agreed to indemnify the Company for any and all
liabilities arising under CERCLA and other environmental requirements related
to contamination and cleanup of the Standish facility, treatment, storage and
disposal of hazardous materials transported offsite and remediation required
by the State of Maine Department of Environmental Protection ("MEDEP") or U.S.
Environmental Protection Agency ("EPA") not known to exist or occur prior to
July 29, 1994. GTE's indemnification for these various unknown liabilities
expires on July 29, 1997 and July 29, 1999. GTE has also retained complete
liability for claims relating to soil and groundwater contamination from the
surface impoundment and the out-of-service leachfield at the Company's
Standish, Maine facility known to exist prior to the acquisition. Such
contamination is currently being remediated at GTE's sole expense. GTE's
obligation to remediate such contamination and its indemnification for any
claims relating thereto expire several years after the MEDEP and EPA conclude
remediation has been completed.
37
<PAGE>
Except as set forth above, the Company believes that its facilities are in
compliance in all material respects with all applicable United States federal,
state and local environmental laws, ordinances and regulations, as well as
comparable laws and regulations outside the United States. No assurances can
be given, however, that the current environmental condition of the Company's
owned and leased facilities are not other than as currently understood by the
Company, or will not be adversely affected by the condition of properties in
the vicinity of the Company's owned and leased properties, or by the
activities of third parties unrelated to the Company or by former owners or
operators of the Company's owned or leased facilities, or that future laws,
ordinances or regulations will not impose any material environmental liability
on the Company.
LEGAL PROCEEDINGS
The Company is not engaged in any legal proceedings other than ordinary
routine litigation incidental to its business. The Company is not involved in
any pending or threatened legal proceedings which the Company believes could
reasonably be expected to have a material effect on the Company's financial
condition, liquidity or results of operations.
38
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and certain key employees of the Company
and their ages as of the date of this Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Ralph R. Whitney, Jr.(1)(2). 61 Chairman of the Board
Bruce D. Atkinson........... 55 Chief Executive Officer, President and
Director
Jeffrey G. Wood............. 40 Vice President, Chief Financial Officer,
Secretary and Treasurer
Michel Hauser-Kauffmann..... 53 General Manager, RDI
Keith J. Coulling........... 38 Engineering Manager--Research and
Development
Richard E. Griffin.......... 53 Plant Manager, Caribou, Maine
Frederick B. Howard, Jr. ... 33 Materials/Marketing Manager
Paul M. Manganelli.......... 51 Quality Assurance/Engineering Manager
Meo J. Poliquin............. 44 Plant Manager, Standish, Maine
Lee A. Prager............... 45 Sales Manager
Jose M. Ricardo............. 32 Plant Manager, Dominican Republic
Charles M. Brennan, III(1).. 54 Director
John D. Cooke(1)(2)......... 55 Director
James O. Futterknecht, Jr. . 49 Director
Alan I. Mossberg(2)......... 64 Director
John M. Ramey............... 43 Director
Glenn Scolnik............... 45 Director
</TABLE>
- --------
(1)Member of Audit Committee
(2)Member of the Compensation Committee
Mr. Whitney has been Chairman of the Board of the Company since July 1994,
and was Chief Executive Officer from July 29, 1994 until June 22, 1995. Mr.
Whitney has been a principal of HKW, a New York private capital firm, since
1971. Mr. Whitney is also a director of Excel Industries, Inc. ("Excel"),
Baldwin Technology Company, Inc., Adage, Inc., IFR Systems, Inc., and Selas
Corp. of America.
Mr. Atkinson has been President and a Director of the Company since July
1994, and has been Chief Executive Officer since June 22, 1995. Mr. Atkinson
was General Manager of the Business and the Telecommunications Division from
1978 until September 1993, and was General Manager of the Business from
September 1993 until July 1994.
Mr. Wood has been Vice President, Chief Financial Officer, Secretary and
Treasurer of the Company since July 1994. Mr. Wood was Controller of the
Business and the Telecommunications Division from 1990 to September 1993 and
was Controller of the Business from September 1993 until July 1994. From 1987
to 1990 Mr. Wood was Controller of the Caribbean operations of the special
products division of GTE.
Mr. Coulling has been the Company's New Product Manager since 1994. Mr.
Coulling was an Engineering Supervisor for the Company from 1993 to 1994 and a
Special Project Engineer from 1989 to 1993. He has been with the Company in
various capacities for a total of 14 years.
Mr. Griffin has been Plant Manager at the Caribou manufacturing facility
since 1982. Mr. Griffin was a Manufacturing Supervisor at Standish from 1966
to 1982. Mr. Griffin has been with the Company in various capacities for 33
years.
Mr. Howard has been Materials/Marketing Manager since June 1996. Mr. Howard
was Marketing Manager from 1992 to 1996 and was Marketing Manager
Telecommunications Division from 1991 to 1992. He has been with the Company in
various capacities for seven years.
39
<PAGE>
Mr. Manganelli has been the Company's Quality Assurance/Engineering Manager
since February 1994. Mr. Manganelli was an Engineering Supervisor for the
Company from 1985 to 1994 and held various other engineering positions with
the Company from 1975 to 1985.
Mr. Poliquin has been Plant Manager of the Company's Standish, Maine, plant
since 1993. Mr. Poliquin was Operations Manager--Caribbean Operations for the
Company from 1991 to 1993 and was Plant Manager of the Company's Oxford, Maine
feeder plant from 1977 to 1981.
Mr. Prager has been the Company's Sales Manager since October 1993. Mr.
Prager was Manager of Electronic Ceramics from March to October 1993, PTC
Product Manager from 1986 to 1993, Manager of Research and Development from
1983 to 1986 and held engineering positions with the Company from 1980 to
1983.
Mr. Ricardo has been Plant Manager at the Dominican Republic Manufacturing
facility since 1993. Mr. Ricardo was Manufacturing Supervisor from 1988 to
1993. He has been with the Company in various capacities for eight years.
Mr. Brennan has been a Director of the Company since July 1994. Mr. Brennan
has been Chairman of the Board and Chief Executive Officer of MYR Group Inc, a
specialty electrical and telecommunications contractor, since 1989. Mr.
Brennan is also a director of UNR Industries, Inc.
Mr. Cooke has been a Director of the Company since July 1994. Mr. Cooke has
been Senior Vice President-Investments of Prudential Securities, Inc. since
1991. For more than five years prior thereto he was Senior Vice President-
Investments of Thompson McKinnon Securities.
Mr. Futterknecht has been a Director of the Company since October 1995. Mr.
Futterknecht has been Chairman of the Board, President and Chief Executive
Officer of Excel, an Elkhart, Indiana automotive parts supplier, since
September 1995. Mr. Futterknecht was President and Chief Operating Officer of
Excel from 1992 to September 1995, and Executive Vice President of Excel from
1990 to 1992.
Mr. Mossberg has been a Director of the Company since July 1994. Mr.
Mossberg has been Chief Executive Officer and President of O. F. Mossberg &
Sons, Inc. ("O. F. Mossberg"), a North Haven, Connecticut manufacturer of
shotguns, for more than five years.
Mr. Ramey has been a Director of the Company since June 1994. Mr. Ramey has
been a principal of HKW since 1986 and sits on the boards of several private
companies.
Mr. Scolnik has been a Director of the Company since June 1994. Mr. Scolnik
has been a principal of HKW since April 1993. Mr. Scolnik was a member of the
law firm of Sommer & Barnard, PC, Indianapolis, Indiana, for more than five
years prior to April 1993, and was of counsel to such firm from April 1993 to
January 1995. Mr. Scolnik is a director of WavePhore, Inc., a data
broadcasting company, and sits on the boards of several private companies.
All directors hold office until the next annual meeting of shareholders or
until their successors are elected and qualified. Executive officers serve at
the discretion of the Board of Directors. Directors who are not officers are
paid $14,200 per year payable quarterly plus $200 per board meeting attended
and $200 per committee meeting if not held on the date of a board meeting.
Non-employee directors will also be granted options to purchase 1,000 Common
Shares, at the fair market value on the date of grant, annually upon
reelection commencing with the 1997 meeting of shareholders. The options will
expire at the earlier of one year after termination of the director's Board
membership or ten years after the date of grant. Directors who are employees
of the Company receive no fees or options for serving as directors.
40
<PAGE>
KEY CONSULTANT
Dr. Dennis J. Hegyi, age 53, has been a key consultant to the Company with
respect to the development of its sensor products, in particular its solar
sensor, since 1989. Dr. Hegyi has been a tenured Professor of Physics at the
University of Michigan in Ann Arbor since 1986. Dr. Hegyi received a B.S. in
Physics from Massachusetts Institute of Technology in 1963 and a Ph.D. in
Physics from Princeton University in 1968.
In April 1995, the Company and Dr. Hegyi entered into a new Consultant's
Agreement, three new license agreements and a new Agreement to Grant License
which were designed to continue, on a long term basis, the relationship
between Dr. Hegyi and the Company started in 1989 when the Company and Dr.
Hegyi entered into a consulting agreement and a solar sensor license agreement
(the "1989 License Agreement"). Under the new Consultant's Agreement, the
Company guarantees Dr. Hegyi a minimum of 720 consulting hours per year,
although the actual number of hours up to 720 hours is at Dr. Heygi's
discretion. Dr. Hegyi's consulting activities include design, design
modification and marketing assistance services regarding any current or
prospective automotive sensor products. The term of the new agreement is for
six years through March 31, 2001 and requires the Company to pay Dr. Hegyi
$257 per hour (in 1996), plus a cost of living escalator in each subsequent
year. The new agreement replaced a consulting agreement entered into in 1989
which was restricted to the solar sensor currently being sold by the Company.
The three new license agreements entered into in April 1995 supplement the
1989 License Agreement regarding the Company's existing solar sensor product.
The three new license agreements are substantially similar to each other and
to the 1989 License Agreement and cover the twilight sensor, the rain and/or
window fog and solar position sensor products also in the development stage at
the Company. The 1989 License Agreement and the new twilight sensor license
agreement each require royalty payments to Dr. Hegyi equal to 5% of the net
selling price of products sold by the Company which are covered by valid
claims in any patent owned by Dr. Hegyi. The royalty rate for the rain and/or
window fog sensor and the solar position sensor is 6% of the net selling price
to the extent the product is covered by a valid claim in a patent owned by Dr.
Hegyi. If any of these products sold by the Company is not covered by a valid
patent claim, but instead utilizes know-how supplied by Dr. Hegyi, the royalty
rate for that product is 5% (6% for rain and/or window fog products and solar
position products) for three years (six years for rain and/or window fog
products and solar position products), 3% for three years (six years with
respect to products in models for which the Company is the sole source
supplier), and 1% for three years. The 1989 License Agreement provides for
minimum annual royalty payments of $35,000. Pursuant to the three new license
agreements, the Company has guaranteed to Dr. Hegyi annual minimum royalty
payments, starting at an aggregate of $15,000 for 1996 and increasing to an
aggregate of $260,000 for 2002 and each year thereafter.
The three new license agreements also require the Company to pay Dr. Hegyi
certain cash payments in the event the Company receives a purchase order from
an automotive OEM for a twilight, rain, window fog, or solar position sensor
expected to generate at least $1,000,000 in sales to the Company over the life
of the agreement. The amount of such up front payments are $225,000 for each
of the twilight, rain and window fog sensor products and $125,000 for the
solar position sensor product. The three new license agreements and the 1989
License Agreement grant the Company an exclusive, world-wide license to make,
use, sell, or sublicense the licensed products and require the Company to use
reasonable efforts to commercialize the licensed products.
In April 1995, the Company and Dr. Hegyi also entered into an Agreement to
Grant License which obligates Dr. Hegyi to offer to license to the Company any
new invention of his which involves an automotive component part or any type
of circuit breaker or thermoprotector. This agreement expires in 2001 and any
license required to be granted thereunder must be upon substantially the same
terms as the rain and/or window fog sensor license agreement, except that the
payment on signing the agreement granting such license is $15,000, and the
royalty rate is 7.5%. Under the Consultant's Agreement, Dr. Hegyi is
prohibited from competing with the Company through March 31, 2001, except with
respect to a new invention offered to, but declined by, the Company for
license. In consideration for Dr. Hegyi's obligations in this agreement, the
41
<PAGE>
Company paid him $200,000 and issued him a non-qualified stock option to
purchase up to 200,000 Common Shares exercisable at any time prior to March
31, 2002. The exercise price per share is the lower of $10.00 or the offering
price per share in this Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Douglas H. Bagin and Messrs. Mossberg and Whitney were members of the
compensation committee of the Board of Directors during the year ended
December 31, 1995. Mr. Atkinson was a member of the compensation committee
until he became Chief Executive Officer of the Company on June 22, 1995. Mr.
Bagin, who became a principal of HKW in 1996, resigned from the Board on July
29, 1996. He had no disagreement with management of the Company or the Board.
Mr. Bagin was an executive officer of Maine Rubber Company ("MRC") during
1995. Mr. Whitney is the Chief Executive Officer and Chairman of the Board of
MRC, and a member of the executive committee of the Board of Directors of MRC,
which performs the functions of a compensation committee.
Since the acquisition of the Business, the Company has paid HKW management
fees of $15,000 per month as compensation for HKW providing managerial and
financial consulting and merger and acquisition advice and assistance. In
1994, 1995, and the first seven months of 1996, such fees totaled $75,000,
$180,000 and $105,000, respectively. Since the acquisition of the Business,
the Company has paid directors' fees, but no salary, to Mr. Whitney. See
"Management."
Mr. Mossberg is an executive officer of O.F. Mossberg. Mr. Whitney is a
director and a member of the compensation committee of the Board of Directors
of O. F. Mossberg.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by the Company for the year ended December 31, 1995 to the
Company's executive officers. No executive officer held any options to
purchase Common Shares at December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------
OTHER ALL
ANNUAL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (1) COMPENSATION COMPENSATION
- --------------------------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Ralph R. Whitney, Jr.,
Chairman........................ $ -- $ -- $ -- $15,000(2)
Bruce D. Atkinson,
President and CEO............... 211,647 35,219 1,381(3) 6,660(4)
Jeffrey G. Wood,
Vice President and CFO.......... 145,248 21,011 602(5) 6,587(4)
</TABLE>
- --------
(1) Represents bonus for the five months ended December 31, 1994 paid in 1995.
(2) Represents director's fees paid to Mr. Whitney.
(3) Includes value of personal use of a Company leased automobile and Company
paid life insurance.
(4) Represents contributions to a defined contribution plan by the Company.
(5) Includes value of Company paid life insurance.
EMPLOYEE STOCK OPTION PLANS
The Company has reserved 300,000 Common Shares for issuance pursuant to its
1996 Stock Compensation Plan (the "Plan"). The Plan permits the grant of
Incentive Stock Options within the meaning
42
<PAGE>
of Section 422 of the Internal Revenue Code, nonstatutory options and
performance units payable in cash or Common Shares. On September 6, 1996, the
Company granted, conditioned on the closing of this Offering, options to
purchase an aggregate of 150,000 Common Shares under the Plan, at an exercise
price equal to the initial public offering price, to certain employees of the
Company and RDI, including an option to purchase 14,000 Common Shares granted
Mr. Hauser-Kauffman, an executive officer of the Company. The Plan is
administered by the compensation committee of the Board of Directors.
HAUSER-KAUFFMANN EMPLOYMENT AGREEMENT
The terms of Michel Hauser-Kauffmann's employment with RDI are governed by
(i) his written employment agreement dated January 10, 1986, with amendments
dated March 23, 1993 and March 29, 1996 (the "Employment Agreement"), and (ii)
by the provisions of French law and the National Metal Workers' collective
bargaining agreement.
The Employment Agreement provides that Mr. Hauser-Kauffmann will receive a
gross annual base salary of FF 975,000 (approximately $195,000 at current
exchange rates), plus an annual bonus payment of up to FF 487,500
(approximately $97,000 at current exchange rates). The amount of bonus payment
will depend on whether Mr. Hauser-Kauffmann satisfies certain performance
objectives set annually by management. In addition to his base salary and
bonus payment, Mr. Hauser-Kauffmann receives the use of a company car, health
insurance and supplemental retirement benefits. The Employment Agreement
provides for a contractual severance payment to Mr. Hauser-Kauffmann if RDI
terminates the Employment Agreement for any reason (other than for serious
professional misconduct) prior to March 29, 1998. The amount of the
contractual severance payment is equal to two years salary and bonus.
In addition, Mr. Hauser-Kauffmann benefits from the provisions of French
labor law, and the National Metal Workers' collective bargaining agreement
(Convention Collective de la Metallurgie; the "Collective Bargaining
Agreement"), which applies to numerous French companies whose businesses
relate to metal products, including RDI. Both French labor law and the
Collective Bargaining Agreement provide for a minimum notice period prior to
dismissal of an employee and for the payment of termination indemnities. In
addition to these termination indemnities, French law also provides for the
payment of damages if the dismissal is without "real and serious cause."
In general, if Mr. Hauser-Kauffmann is dismissed before March 29, 1998, he
would receive a severance payment under his Employment Agreement. The
Employment Agreement provides that this severance payment is inclusive of any
damages and termination indemnities that may be due under French law or the
Collective Bargaining Agreement. If Mr. Hauser-Kauffmann is dismissed after
March 29, 1998, damages and termination indemnities would be payable under
French law and the Collective Bargaining Agreement, which would take into
account Mr. Hauser-Kauffmann's age and seniority.
43
<PAGE>
CERTAIN TRANSACTIONS
In connection with the purchase of the Business, the Company sold securities
to certain officers and directors in transactions exceeding $60,000, as
follows: 320,690 Common Shares and one Redeemable Preferred Share to Ralph R.
Whitney, Jr. for an aggregate consideration of $110,808; 153,846 Common Shares
and 48 Redeemable Preferred Shares to Bruce D. Atkinson for an aggregate
consideration of $60,000; 20,000 Common Shares and 94 Redeemable Preferred
Shares to Charles M. Brennan III for an aggregate consideration of $100,000;
20,000 Common Shares and 94 Redeemable Preferred Shares to John D. Cooke for
an aggregate consideration of $100,000; and 20,000 Common Shares and 94
Redeemable Preferred Shares to James O. Futterknecht, Jr. for an aggregate
consideration of $100,000. See "Principal Shareholders."
The Company was initially capitalized with an equity investment of
$3,000,000, consisting of $600,000 for an aggregate of 2,000,000 Class A and
Class B Series 1 Common Shares and $2,400,000 for 2,400 Redeemable Preferred
Shares. The Company financed the acquisition of the Business in part with
$15,000,000 from MassMutual and the $1,500,000 Seller Note from GTE. The
Company also obtained a $1,500,000 line of credit from MassMutual, which was
subsequently increased to $3,000,000 in connection with the RDI acquisition.
As part of this financing, the Company sold to MassMutual (i) 435,896 Class B
Series 1 Common Shares for an aggregate consideration of $145,000, (ii) 580
Redeemable Preferred Shares at the stated value of $1,000 per share for a
total of $580,000, and (iii) warrants to purchase 564,100 Class B Series 1
Common Shares. In connection with the RDI acquisition, the Company paid off
the Seller Note with cash on hand.
MassMutual beneficially owns all of the outstanding Class B Series 1 Common
Shares and all of the outstanding warrants to purchase Class B Series 1 Common
Shares. MassMutual is expected to exercise such warrants and to convert its
Class B Series 1 Common Shares into Class A Common Shares effective upon the
closing of this Offering. In August 1996, an amendment to the Company's
Articles of Incorporation was approved by the shareholders of the Company, to
take effect at the closing of this Offering, reclassifying the Class A Common
Shares and Class B Common Shares as Common Shares and eliminating the
designations of Class A Common Shares and Class B Common Shares. See
"Description of Capital Shares."
On April 1, 1995, the Company entered into a Consultant's Agreement and
certain license agreements with Dr. Dennis J. Hegyi, and, in connection
therewith, granted to Dr. Hegyi an option to purchase up to 200,000 Common
Shares. See "Management--Key Consultant" and "Description of Capital Shares--
Options."
HKW provides management services and acquisition advice and assistance to
the Company. Messrs. Whitney, Ramey, Scolnik and Bagin and Mr. Forrest E.
Crisman, Jr. are principals of HKW and each owns Common Shares. Mr. Whitney
owns one Redeemable Preferred Share. See "Compensation Committee Interlocks
and Insider Participation." The Company pays HKW monthly management fees of
$15,000 and pays directors fees to the HKW principals who are members of the
board of directors of the Company. The management and directors fees amounted
to $91,000, $240,000, $120,000 and $127,500 for the five months ended December
31, 1994, for the year ended December 31, 1995, and for the six months ended
June 30, 1995 and 1996, respectively. Mr. Scolnik also assists the Company in
the management of its legal affairs and is paid fees for such services. Such
fees amounted to $16,635, $58,923, $26,890 and $18,465 for the five months
ended December 31, 1994, for the year ended December 31, 1995, and for the six
months ended June 30, 1995 and 1996, respectively. The Company believes the
transactions with HKW and its principals are at least as fair as could be
obtained from unaffiliated third parties. The Company's policy regarding
transactions with affiliates requires that a majority of the disinterested
directors approve any such transaction after the Company has determined the
transaction to be fair and reasonable.
In April 1996, the Company acquired all of the issued and outstanding
capital stock of RDI for a total purchase price of $8,964,000. The Company
paid $6,964,000 in cash, delivered the RDI Notes and delivered the RDI
Convertible Notes. The price was determined in arms length negotiations
between the directors of the Company and the shareholders of RDI, none of whom
were officers of the Company at the time. Mr. Michel Hauser-Kauffman, General
Manager of RDI, received from such consideration in exchange for his shares of
RDI a total of $1,285,515 in cash and $369,200 in aggregate principal amount
of RDI Convertible Notes. Mr. Hauser-Kaufmann's RDI Convertible Notes will
convert automatically upon the closing of this Offering into 36,920 Common
Shares of the Company assuming an initial offering price of $10.00 per share.
44
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership as of June 30, 1996, of (i) each person known by the Company to
beneficially own 5% or more of the Common Shares, (ii) each current director
of the Company, (iii) each executive officer of the Company and (iv) all
current directors and executive officers as a group. Except as otherwise
indicated, each shareholder has sole voting and investment power with respect
to the shares listed.
<TABLE>
<CAPTION>
PERCENT OWNED
------------------------------
NAME NUMBER OF SHARES (1) BEFORE OFFERING AFTER OFFERING
- ---- -------------------- --------------- --------------
<S> <C> <C> <C>
Ralph R. Whitney, Jr. (2).. 320,690(3) 12.1% 6.9%
Bruce D. Atkinson (2)...... 153,846 5.8 3.3
Jeffrey G. Wood (2)........ 102,564 3.9 2.2
Michel Hauser-Kauffman (2). 36,920(4) 1.4 0.8
Charles M. Brennan, III
(2)....................... 20,000 0.8 0.4
John D. Cooke (2).......... 20,000 0.8 0.4
James O. Futterknecht, Jr.
(2)....................... 20,000(5) 0.8 0.4
Alan I. Mossberg (2)....... 10,000(6) 0.4 0.2
John M. Ramey (2).......... 160,345(7) 6.0 3.4
Glenn Scolnik (2).......... 160,345 6.0 3.4
Massachusetts Mutual Life
Insurance Company......... 999,996(8) 37.7 21.5
Dennis J. Hegyi (9)........ 200,000(10) 7.5 4.3
Forrest E. Crisman, Jr.
(11)...................... 160,345 6.0 3.4
All directors and executive
officers as a group
(10 persons).............. 1,004,710 37.9 21.6
</TABLE>
- --------
(1) Assumes the adjustments described in the Prospectus Summary and
redemption of all of the Redeemable Preferred Shares. See "Use of
Proceeds."
(2) The address for each shareholder, each of whom is an officer or director
of the Company, is the principal office of the Company.
(3) Includes 80,172 shares owned by Mr. Whitney's wife, as to which Mr.
Whitney disclaims beneficial ownership.
(4) Assumes conversion of Mr. Hauser-Kauffman's RDI Convertible Note in the
aggregate principal amount of $369,200 at an assumed initial public
offering price of $10.00 per share.
(5) Includes 5,000 shares held by a revocable trust of which Mr. Futterknecht
is trustee, 5,000 shares held by a revocable trust of which Mr.
Futterknecht's wife is trustee and 10,000 shares held by two irrevocable
trusts for the benefit of Mr. Futterknecht's children, all of such shares
as to which Mr. Futterknecht disclaims beneficial ownership.
(6) Represents shares owned by Mr. Mossberg's wife, as to which Mr. Mossberg
disclaims beneficial ownership.
(7) Includes 60,000 shares owned by Mr. Ramey's wife, as to which Mr. Ramey
disclaims beneficial ownership.
(8) Assuming the adjustments described in the Prospectus Summary, includes
174,199 shares (6.8% before the Offering and 3.8% after the Offering)
owned by MassMutual Corporate Investors, 57,999 shares owned by
MassMutual Participation Investors, each of which is a mutual fund
managed by Massachusetts Mutual Life Insurance Company, and 174,199
shares (6.8% before the Offering and 3.8% after the Offering) owned by
MassMutual Corporate Value Partners Limited, for which Massachusetts
Mutual Life Insurance Company acts as investment adviser. Pursuant to a
Securities and Exchange Commission Executive Order issued pursuant to
Section 17(d) of the Investment Company Act, Massachusetts Mutual Life
Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors and MassMutual Corporate Value Partners Limited
must sell shares in proportion to their respective holdings, unless the
joint transactions committees of the Boards of Trustees of MassMutual
Corporate Investors and MassMutual Participation Investors approve a
disproportionate disposition of the shares. Massachusetts Mutual Life
Insurance Company disclaims beneficial ownership of any shares in which
it has no actual pecuniary interest. The address of each shareholder is
Massachusetts Mutual Life Insurance Company, 1295 State Street,
Springfield, Massachusetts 01111.
(9) Dr. Hegyi's address is 1708 Morton Avenue, Ann Arbor, Michigan 48104.
(10) Represents Common Shares issuable upon exercise of a presently
exercisable option.
(11) Mr. Crisman's address is 230 Park Avenue, New York, NY 10169.
45
<PAGE>
DESCRIPTION OF CAPITAL SHARES
On August 30, 1996, the existing shareholders of the Company approved two
amendments to the Company's Articles of Incorporation. The first amendment
will reclassify the then outstanding Class A Common Shares and Class B Common
Shares as Common Shares and will eliminate the designations of the Class A and
Class B Common Shares immediately prior to the closing of the Offering. The
second amendment will eliminate the Redeemable Preferred Shares if all of the
Redeemable Preferred Shares are redeemed in connection with this Offering.
Thereafter, the Company will have authorized 16,000,000 Common Shares and
3,000,000 preferred shares. As of September 1, 1996, assuming the adjustments
described in the Prospectus Summary, 2,653,334 Common Shares and 2,400
Redeemable Preferred Shares would have been outstanding. As of September 1,
1996, there were 69 holders of record of Common Shares and 49 holders of
record of Redeemable Preferred Shares.
COMMON SHARES
Holders of Common Shares are entitled to one vote per share. Subject to the
rights of holders of any class having a preference over the Common Shares as
to dividends or upon liquidation, holders of Common Shares are entitled to
such dividends as may be declared by the Company's Board of Directors out of
funds lawfully available therefor. See "Dividend Policy." Subject to the
rights of holders of any class or series of shares having a preference over
the Common Shares upon liquidation, holders of Common Shares are entitled upon
liquidation to receive pro rata the assets available for distribution to
shareholders. The outstanding Common Shares, the Common Shares to be issued on
the occurrence of the events described in the Prospectus Summary, and the
Common Shares offered hereby are, or when issued will be, fully paid and
nonassessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is The First National
Bank of Boston.
PREFERRED SHARES
The Company has issued and outstanding 2,400 Redeemable Preferred Shares
with a stated value of $1,000 per share, which it intends to redeem with the
proceeds of this Offering and cash on hand. See "Use of Proceeds." The holders
of Redeemable Preferred Shares are entitled to receive cummulative cash
dividends at a rate of 11% per annum, which dividends are required to be paid
annually in an amount not to exceed 25% of the Company's Excess Cash Flow (as
defined in its Articles of Incorporation). The Redeemable Preferred Shares,
which are not convertible, are required to be redeemed on July 29, 2006 at
their stated value plus accrued but unpaid dividends. In addition, the Company
is required to redeem (i) the Redeemable Preferred Shares to the extent 25% of
annual Excess Cash Flow exceeds accrued but unpaid dividends by more than
$24,000 and (ii) 580 Redeemable Preferred Shares issued to MassMutual, plus
accrued but unpaid dividends upon the repayment of the Senior Notes and
Subordinated Notes.
Except to the extent that any of the Redeemable Preferred Shares are not
redeemed in connection with this Offering, there will be no preferred shares
outstanding after this Offering. The Board of Directors will have the
authority, without further action by the shareholders, to issue additional
preferred shares in one or more series and fix the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
preferred shares and to fix the number of shares constituting any series and
the designation of such series, without any further vote or action by the
shareholders. The issuance of preferred shares may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the shareholders, may discourage bids for the Company's
Common Shares at a premium over the market price of the Common Shares and may
adversely affect the market price of and the voting and other rights of the
holders of Common Shares. The Company has no present plans to issue any
additional preferred shares.
CONVERTIBLE SECURITIES
The Company has issued an option to purchase 200,000 Common Shares at a
price equal to the lower of $10.00 per share or the public offering price per
share in this Offering. Such option expires on March 31,
46
<PAGE>
2002. See "Management--Key Consultant." Pursuant to the Plan, the Company may
issue options exercisable for 300,000 Common Shares. On September 6, 1996, the
Company granted, conditioned upon the closing of this Offering, options to
purchase an aggregate of 150,000 Common Shares under the Plan, at an exercise
price equal to the initial public offering price, to certain employees of the
Company and RDI. In addition, as a result of the Company's acquisition of RDI,
there are $892,400 in aggregate principal amount of RDI Convertible Notes that
will automatically convert upon the closing of this Offering into 89,240
Common Shares, assuming an initial public offering price of $10.00 per share.
EFFECTS OF INDIANA LAW
In the event any person acquires 10% of the voting power of the Company's
Common Shares (an "Interested Shareholder"), then, for a period of five (5)
years after such acquisition, the IBCL prohibits certain business combinations
between the Company and such Interested Shareholder unless prior to the
acquisition of such Common Shares by the Interested Shareholder, the Board of
Directors of the Company approves of such acquisition of Common Shares or
approves of such business combination. After such five-year period, only the
following three types of business combinations between the Company and such an
Interested Shareholder are permitted: (i) a business combination approved by
the Board of Directors of the Company before acquisition of Common Shares by
the Interested Shareholder, (ii) a business combination approved by holders of
a majority of the Common Shares not owned by the Interested Shareholder, and
(iii) a business combination in which the shareholders receive a price for
their Common Shares at least equal to a formula price based on the highest
price per Common Share paid by the Interested Shareholder.
REGISTRATION RIGHTS
Upon completion of this Offering, MassMutual and its assigns (the
"Rightsholders") will be entitled to require the Company to register under the
Securities Act up to a total of 999,996 Common Shares (the "Registrable
Shares"), pursuant to the terms of the Securities Purchase Agreements dated as
of July 29, 1994 (the "Securities Purchase Agreements"). The Securities
Purchase Agreements provide that, subject to certain conditions and
limitations, Rightsholders holding at least 25% of the Registrable Shares may
require the Company to prepare and file up to two registration statements
under the Securities Act with respect to their Registrable Shares. The
registration rights are freely transferable by the Rightsholders with the
underlying Registrable Securities. In connection with this Offering,
MassMutual has agreed not to exercise such registration rights or transfer its
Registrable Shares for 180 days from the date of this Prospectus. In addition,
the Securities Purchase Agreements provide that in the event the Company
proposes to register any of its securities, each Rightsholder may require the
Company to include Registrable Shares in such registration; however, in any
underwritten offering, the managing underwriter may exclude some or all
Registrable Shares for marketing reasons but solely to the extent such
exclusion is applied pro rata to all persons, other than the Company,
participating in such offering. MassMutual has waived such registration rights
with respect to this Offering. The Company is generally required to bear the
expenses of all such registrations, except underwriting discounts and
commissions. The Company is required to indemnify each Rightsholder in
connection with any such registration.
Prior to this Offering, there has been no public market for the Common
Shares of the Company and no prediction can be made as to the effect, if any,
that market sales of shares or the availability of shares for sale will have
on the market price of the Common Shares prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Shares, or the perception
that such sales could occur, could adversely affect prevailing market prices
for the Common Shares and could impair the Company's future ability to obtain
capital through an offering of equity securities.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Shares. Future sales of substantial amounts of Common Shares in the public
market could adversely effect the trading price of the Common Shares.
Upon completion of this Offering, the Company will have outstanding
4,653,334 Common Shares. Of those shares, 2,000,000 Common Shares sold in this
Offering will be freely tradeable in the public market without restriction or
further registration under the Securities Act unless purchased by "affiliates"
of the Company within the meaning of Rule 144. Of the remaining Common Shares,
2,564,094 Common Shares (collectively the "Restricted Shares") are "restricted
securities" within the meaning of Rule 144 and may not be sold in the absence
of registration under the Securities Act except in compliance with the
limitations set forth in Rule 144 or pursuant to an exemption from
registration.
A total of 1,999,994 of the Restricted Shares will be eligible for resale in
the public market pursuant to Rule 144 beginning 180 days after the date of
this Prospectus upon expiration of certain lock-up agreements. The balance of
the Restricted Shares will be eligible for resale pursuant to Rule 144
beginning two years after the closing of this Offering. Also, beginning 180
days after the date of this Prospectus, upon expiration of a lock-up
agreement, an additional 200,000 Common Shares issuable upon exercise of an
outstanding option may be resold in the public market pursuant to Rule 701.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years (including the holding period of any prior owner other than
an affiliate) is entitled to sell in "broker's transactions" or to market
makers, within any three-month period, a number of shares that does not exceed
the greater of (i) one percent of the number of Common Shares then outstanding
(approximately 46,500 shares immediately after this Offering), or (ii) the
average weekly trading volume in the Common Shares during the four calendar
weeks preceding the required filing of a Form 144 with respect to such sale.
Affiliates of the Company may sell shares only in compliance with the
foregoing restrictions regardless of whether or not the shares sold are
Restricted Shares. Sales under Rule 144 are also subject to certain provisions
relating to the manner and notice of sale and availability of current public
information about the Company. Under Rule 144(k), a person is entitled to sell
shares beneficially owned by him or her without compliance with the manner of
sale, public information, volume limitation or notice provisions of Rule 144,
provided that such person is not deemed to have been an affiliate of the
Company at any time during the last ninety days preceding a sale, and a period
of at least three years has elapsed since the later of the date the securities
were acquired from the issuer or from an affiliate of the issuer. In general,
under Rule 701, persons other than affiliates of an issuer may resell
securities in reliance on Rule 144 without compliance with a holding period or
volume limitations.
The Company sold the RDI Convertible Notes pursuant to Regulation S under
the Securities Act. Regulation S applies to sales of securities to non-U.S.
persons in offshore transactions. A total of 89,400 Common Shares (assuming an
initial public offering price of $10.00 per share) issuable at the closing of
the Offering upon conversion of the RDI Convertible Notes may be eligible for
resale pursuant to exemptions from registration after the later of (i) the
expiration of lock-up agreements beginning 180 days after the date of this
Prospectus or (ii) April 1, 1997, which is one year after the date of sale of
such Notes.
MassMutual has certain registration rights with respect to 999,996 Common
Shares acquired pursuant to the Securities Purchase Agreements. See
"Description of Capital Shares--Registration Rights."
48
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Dean Witter Reynolds Inc. and Cleary
Gull Reiland & McDevitt Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of an underwriting agreement (the "Underwriting Agreement"), to purchase from
the Company the number of Common Shares set forth opposite their respective
names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Dean Witter Reynolds Inc....................................
Cleary Gull Reiland & McDevitt Inc..........................
---------
Total..................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they must purchase all of the Common Shares offered to
the public, if any such Common Shares are purchased.
Prior to the Offering, there has been no public market for the Common
Shares. The initial public offering price for the Common Shares was determined
through agreement among the Company and the Representatives. Among the factors
considered in making such determination were the prevailing market conditions
and general economic conditions, the market prices of securities and certain
financial and operating information of publicly traded companies which the
Company and the Representatives believed to be comparable to the Company, the
earnings and certain other financial and operating information of the Company
in recent periods, the future prospects of the Company and its industry in
general and other factors deemed relevant.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Common Shares directly to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers (who may include Underwriters) at the public offering price
less a concession not to exceed $ per share. Such dealers may reallow a
concession not to exceed $ per share in sales to other dealers. After the
initial public offering, the public offering price and concessions and
reallowances to dealers may be changed by the Underwriters.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company has granted to the Underwriters an option, exercisable within 30
days from the date of this Prospectus, to purchase up to an additional 300,000
Common Shares at the initial public offering price
49
<PAGE>
less underwriting discounts and commissions. The Underwriters may exercise the
option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of the Common Shares to the public. To the
extent that the Underwriters exercise such option, the Underwriters will be
committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment.
The Company, each of its directors and executive officers who own Common
Shares, certain family affiliates of such directors and executive officers,
each person who beneficially owns more than five percent of the Company's
Common Shares and certain other shareholders of the Company have agreed with
the Underwriters that they will not offer, sell or contract to sell, or
otherwise dispose of or enter into any agreement to sell, directly or
indirectly, any securities convertible into, or exchangeable or exercisable
for, Common Shares for a period of 180 days after the date of this Prospectus
without the prior written consent of Dean Witter Reynolds Inc. See "Shares
Eligible for Future Sale."
At the Company's request, the Representatives have reserved up to 90,000
Common Shares for sale at the initial public offering price to the Company's
employees and other persons having certain relationships with the Company. The
number of Common Shares available for sale to the general public will be
reduced to the extent these persons purchase such reserved shares. Any
reserved shares not purchased will be offered by the Underwriters to the
general public on the same terms as the other shares offered hereby.
LEGAL MATTERS
The validity of the issuance of the Common Shares being offered hereby will
be passed upon for the Company by Sommer & Barnard, PC, Indianapolis, Indiana,
counsel for the Company. Certain legal matters will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP and
Barbier Frinault & Associes, independent public accountants, as indicated in
their reports thereto, and are included herein in reliance upon the authority
of said firms as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended, with respect to the Common Shares
offered hereby (the "Registration Statement"). This Prospectus does not
contain all the information set forth in the Registration Statement and in the
exhibits and schedules thereto. For further information about the Company and
the securities offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules thereto. The Registration
Statement, including the exhibits and schedules thereto, may be inspected and
copied at the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Northeast Regional Office, 7 World Trade Center, New York, New
York, 10048, and Midwest Regional Office, CitiCorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621-2511. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site (http://www.sec.gov) that contains information
regarding registrants that file electronically with the Commission. The Common
Shares are quoted on the Nasdaq National Market, and information regarding the
Company may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, DC, 20006.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONTROL DEVICES, INC.
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
DECEMBER 31, 1993, 1994, AND 1995, AND JUNE 30, 1995 AND 1996
Report of Independent Public Accountants........................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995,
and June 30, 1996 (Unaudited).................................. F-3
Consolidated Statements of Income for the Year Ended December
31, 1993, the Seven Months Ended July 29, 1994, the Five Months
Ended December 31, 1994, the Year Ended December 31, 1995 and
the Six Months Ended June 30, 1995 and 1996 (Unaudited)........ F-4
Consolidated Statements of Shareholders' Equity for the Five
Months Ended December 31, 1994, the Year Ended December 31,
1995 and the Six Months Ended June 30, 1996 (Unaudited)........ F-5
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1993, the Seven Months Ended July 29, 1994, the
Five Months Ended December 31, 1994, the Year Ended December
31, 1995 and the Six Months Ended June 30, 1995 and
1996 (Unaudited)............................................... F-6
Notes to Consolidated Financial Statements...................... F-7 to F-20
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE ("RDI")
Report of Independent Public Accountants........................ F-21
Consolidated Balance Sheets as of December 31, 1994 and 1995.... F-22
Consolidated Statements of Income for the Three Years in the
Period Ended December 31, 1995................................. F-23
Consolidated Statements of Changes in Stockholders' Equity for
the Three Years in the Period Ended December 31, 1995.......... F-24
Consolidated Statements of Cash Flows for the Three Years in the
Period Ended December 31, 1995................................. F-25
Notes to Consolidated Financial Statements...................... F-26 to F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO CONTROL DEVICES, INC.:
We have audited the accompanying balance sheets of Control Devices, Inc. (an
Indiana corporation) as of December 31, 1994 and 1995, and the related
statements of income, shareholders' equity and cash flows for the five months
ended December 31, 1994 and for the year ended December 31, 1995. We have also
audited the accompanying combined statements of income and cash flows of the
Electromechanical Business of GTE Control Devices Incorporated and Dominican
Overseas Company ("Predecessor Company") for the year ended December 31, 1993
and for the seven months ended July 29, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Control Devices, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for five months ended December 31, 1994 and for the year ended December
31, 1995, and of the results of operations and cash flows for the Predecessor
Company for the year ended December 31, 1993 and for the seven months ended
July 29, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut, January 21, 1996 (except for Note 4 as to which the
date July 15, 1996)
F-2
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 5,304 $10,459 $ 3,724
Receivables, less allowance for doubtful accounts
of $257, $277 and $484, respectively............ 5,111 4,305 10,482
Inventories...................................... 2,999 3,279 7,158
Other current assets............................. 613 1,001 1,195
------- ------- -------
Total current assets........................... 14,027 19,044 22,559
PROPERTY, PLANT AND EQUIPMENT, net................. 12,024 11,097 13,558
GOODWILL, net...................................... -- -- 6,869
------- ------- -------
$26,051 $30,141 $42,986
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................ $ -- $ 500 $ 1,279
Short-term debt.................................. -- -- 654
Accounts payable................................. 1,520 1,429 5,356
Accrued employee benefits........................ 1,311 1,459 3,140
Accrued expenses................................. 1,941 1,994 3,615
------- ------- -------
Total current liabilities...................... 4,772 5,382 14,044
LONG-TERM DEBT..................................... 16,320 15,853 16,743
OTHER LIABILITIES.................................. 248 1,001 2,525
REDEEMABLE PREFERRED SHARES........................ 2,400 2,400 2,400
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY:
Class A Common Shares, no par value; 10,000,000
authorized and 1,564,098 issued................. 520 520 520
Class B Series 1 Common Shares, no par value;
4,000,000 authorized and 435,896 issued......... 145 145 145
Warrants......................................... 180 180 180
Foreign currency translation adjustment.......... -- -- (222)
Retained earnings................................ 1,466 4,660 6,651
------- ------- -------
Total shareholders' equity..................... 2,311 5,505 7,274
------- ------- -------
$26,051 $30,141 $42,986
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
PREDECESSOR COMPANY ENDED JUNE 30,
------------------------- -------------------
SEVEN MONTHS FIVE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995 1995 1996
------------ ------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES............... $39,807 $24,995 $ 18,847 $ 38,881 $ 20,713 28,180
COST OF SALES........... 30,046 17,676 12,159 25,721 13,333 17,870
------- ------- --------- --------- --------- ---------
Gross profit........... 9,761 7,319 6,688 13,160 7,380 10,310
------- ------- --------- --------- --------- ---------
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 3,237 1,896 2,413 3,504 1,972 4,157
RESEARCH AND
DEVELOPMENT............ 2,144 1,598 1,052 2,740 1,402 1,880
------- ------- --------- --------- --------- ---------
5,381 3,494 3,465 6,244 3,374 6,037
------- ------- --------- --------- --------- ---------
Operating income....... 4,380 3,825 3,223 6,916 4,006 4,273
INTEREST EXPENSE........ -- -- 657 1,380 732 828
------- ------- --------- --------- --------- ---------
Income before income
taxes................. 4,380 3,825 2,566 5,536 3,274 3,445
INCOME TAX PROVISION 1,752 1,530 990 2,078 1,310 1,322
------- ------- --------- --------- --------- ---------
Net income............. $ 2,628 $ 2,295 1,576 3,458 1,964 2,123
======= =======
PREFERRED SHARE
DIVIDENDS REQUIREMENTS. 110 264 132 132
--------- --------- --------- ---------
Net income applicable
to common
shareholders.......... $ 1,466 $ 3,194 $ 1,832 $ 1,991
========= ========= ========= =========
EARNINGS PER SHARE...... $ 0.57 $ 1.25 $ 0.71 $ 0.78
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND
EQUIVALENTS
OUTSTANDING............ 2,564,094 2,564,094 2,564,094 2,564,094
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
CLASS A CLASS B CURRENCY
COMMON COMMON TRANSLATION RETAINED
SHARES SHARES WARRANTS ADJUSTMENT EARNINGS TOTAL
------- ------- -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at July 29, 1994
(Initial
Capitalization)......... $455 $145 $ -- $ -- $ -- $ 600
Value assigned to
warrants and Class A
Common Shares issued to
employees (Notes 7 and
10)..................... 65 -- 180 -- -- 245
Net income for the five
months ended
December 31, 1994....... -- -- -- -- 1,576 1,576
Preferred share
dividends............... -- -- -- -- (110) (110)
---- ---- ----- ----- ------ ------
BALANCE, at December 31,
1994.................... 520 145 180 -- 1,466 2,311
Net income............... -- -- -- -- 3,458 3,458
Preferred share
dividends............... -- -- -- -- (264) (264)
---- ---- ----- ----- ------ ------
BALANCE, at December 31,
1995.................... 520 145 180 -- 4,660 5,505
Net income for the six
months ended June 30,
1996 (unaudited)........ -- -- -- -- 2,123 2,123
Preferred share dividends
(unaudited)............. -- -- -- -- (132) (132)
Foreign currency
translation adjustment
(unaudited)............. -- -- -- (222) -- (222)
---- ---- ----- ----- ------ ------
BALANCE, at June 30, 1996
(unaudited)............. $520 $145 $ 180 $(222) $6,651 $7,274
==== ==== ===== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------
SEVEN SIX MONTHS
MONTHS FIVE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31, ----------------
1993 1994 1994 1995 1995 1996
------------ -------- ------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATIONS:
Net income............. $ 2,628 $ 2,295 $ 1,576 $ 3,458 $ 1,964 $ 2,123
Adjustments to
reconcile net income
to cash provided by
operations:
Depreciation and
amortization.......... 1,734 949 673 1,774 872 987
Deferred income taxes.. -- -- (358) 941 595 395
Amortization of debt
discount.............. -- -- -- 33 21 12
Stock compensation
expense............... -- -- 65 -- -- -
Changes in assets and
liabilities:
(Increase) decrease in
receivables.......... (1,260) 1,261 (367) 806 259 (1,507)
(Increase) decrease in
inventories.......... (537) 277 561 (280) (555) (324)
(Increase) decrease in
other current assets. 212 (31) (7) (466) (18) 265
Increase (decrease) in
accounts payable..... 666 (531) 55 (91) (250) (251)
Increase (decrease) in
accrued employee
benefits............. (490) (121) 795 148 247 643
Increase (decrease) in
accrued expenses..... (812) (388) 1,342 (321) (1,348) 616
Increase in other
long-term
liabilities.......... -- -- -- -- -- 18
------- ------- -------- ------- ------- -------
Cash provided by
operations............ 2,141 3,711 4,335 6,002 1,787 2,977
------- ------- -------- ------- ------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of the
Business (including
transaction fees and
expenses), net of cash
acquired.............. -- -- (16,929) -- -- (7,232)
Capital expenditures... (1,308) (812) (102) (847) (284) (1,086)
------- ------- -------- ------- ------- -------
Cash used in investing
activities............ (1,308) (812) (17,031) (847) (284) (8,318)
------- ------- -------- ------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of debt............... -- -- 14,820 -- -- --
Repayment of debt...... -- -- -- -- -- (1,685)
Net change in short-
term debt............. -- -- -- -- -- 293
Proceeds from issuance
of redeemable
preferred shares...... -- -- 2,400 -- -- --
Proceeds from issuance
of common shares...... -- -- 600 -- -- --
Proceeds from issuance
of warrants........... -- -- 180 -- -- --
Net transfers to
Sellers............... (833) (2,899) -- -- -- --
------- ------- -------- ------- ------- -------
Cash provided by (used
in) financing
activities............ (833) (2,899) 18,000 -- -- (1,392)
------- ------- -------- ------- ------- -------
EFFECT OF EXCHANGE RATES
ON CASH................ -- -- -- -- -- (2)
------- ------- -------- ------- ------- -------
Increase (decrease) in
cash and cash
equivalents........... -- -- 5,304 5,155 1,503 (6,735)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. -- -- -- 5,304 5,304 10,459
------- ------- -------- ------- ------- -------
CASH AND CASH
EQUIVALENTS, end of
period................. $ -- $ -- $ 5,304 $10,459 $ 6,807 $ 3,724
======= ======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30,
1995 AND 1996 IS UNAUDITED.)
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Control Devices, Inc. ("CDI"), which was organized on June 10, 1994,
designs, manufactures and markets circuit breakers, electronic sensors and
electronic ceramic component parts used by original equipment manufacturers
("OEMs") in the automotive, appliance and telecommunications markets. On April
1, 1996, CDI purchased Realisations et Diffusion pour l'Industrie ("RDI"),
which distributes these and other products in the Northern European market
from its headquarters near Paris, France. CDI is headquartered in Standish,
Maine and has manufacturing facilities in Standish and Caribou, Maine and San
Cristobal, Dominican Republic. CDI also maintains a sales office in Dearborn,
Michigan. CDI had no significant operations from incorporation through July
29, 1994. The accompanying financial statements include the results of CDI and
RDI from the date of acquisition. The "Company" refers to both CDI and RDI and
its consolidated subsidiaries.
On July 29, 1994, CDI purchased certain assets and liabilities (the
"Business") of GTE Control Devices Incorporated and Dominican Overseas Trading
Company (collectively, the "Seller"), indirect wholly-owned subsidiaries of
GTE Corporation. For periods prior to the acquisition date, the Business is
referred to as the "Predecessor Company". The accompanying financial
statements, including those of the Predecessor Company prior to the
acquisition date have been prepared by CDI management and present the
financial position and results of operations of CDI from the acquisition date
and of the Business for the periods prior to the acquisition date.
Accordingly, the financial information for periods prior to the acquisition
date does not reflect the significant impact of the acquisition, the related
financing and the purchase accounting adjustments on the financial position
and results of operations of CDI.
The Predecessor Company financial statements include all significant
components of the Business and have been prepared solely by CDI as if the
Business were operated as a separate entity for the periods presented. The
Predecessor Company financial statements do not include an allocation of any
assets and liabilities not specifically identified to the Business, including
cash and intercompany debt. Prior to September 28, 1993, the Predecessor
Company also included a telecommunications product division and shared certain
facilities and functions with this division. The results of operations of the
telecommunications product division are not included in the accompanying
statements of income. Certain costs and expenses, including manufacturing
overhead and selling, general and administrative expenses, were prorated by
CDI between the Business and the telecommunications division in preparing the
accompanying Predecessor Company financial statements. Expenses were allocated
based on actual usage or other allocation methods which approximate actual
usage. Management of CDI believes that the allocation methods are reasonable.
(2) SUMMARY OF ACCOUNTING POLICIES:
Principles of consolidation--
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated.
Basis of accounting--
The Company maintains its books in accordance with generally accepted
accounting principles. The preparation of the 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
F-7
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF ACCOUNTING POLICIES--(CONTINUED):
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.
Foreign currency translation and transactions--
Assets and liabilities of the Company's foreign operations are translated
into U.S. dollars using the exchange rate in effect at the balance sheet date.
Results of operations are translated using the average exchange rate
prevailing throughout the period. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
included in the foreign currency translation adjustment component of
shareholders' equity, while gains and losses resulting from foreign currency
transactions are included in net income.
Cash and cash equivalents--
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
Trade receivables--
RDI's practice is to sell part of its trade receivables to finance their
business. At June 30, 1996, such sales with recourse amounted to $3,108,000
which have been deducted from trade receivables. Based on historical
collectibility of trade receivables, RDI's obligations under the recourse
provisions are not material.
Inventories--
Inventories are stated at the lower of cost or market value. Cost of
inventories is determined by the first-in, first-out ("FIFO") method of
inventory valuation.
Property, plant and equipment--
Depreciation is provided using the straight-line and various accelerated
methods over the estimated useful lives of the related plant and equipment.
Ranges of the estimated useful lives are as follows:
<TABLE>
<S> <C>
The Company
Machinery and equipment................................... 3 to 15 years
Building and building equipment........................... 40 years
Predecessor Company
Machinery and equipment................................... 3 to 16 years
Building and building equipment........................... 10 to 50 years
</TABLE>
Leasehold improvements are amortized over the terms of the respective leases
or the estimated useful lives of the improvements, whichever is less.
Maintenance, repairs and renewals are expensed as incurred; betterments are
capitalized.
Goodwill--
As part of the acquisition of RDI, goodwill was recorded which represented
the difference between the purchase price and the fair value of the
identifiable underlying net assets acquired and is carried as an asset, less
accumulated amortization which is calculated on a straight-line basis over the
estimated useful life of 40 years.
The Company periodically evaluates the periods over which intangible assets
are amortized to determine whether events have occurred which would require
modification to the amortization period. The Company reviews anticipated
future operating results and cash flows on an undiscounted basis in
determining whether there has been an impairment in the value of the excess of
purchase price over net assets acquired. An impairment loss would be measured
as the amount by which the carrying amount of the impaired asset exceeds the
fair value of the asset. That fair value would then become the asset's new
cost basis.
F-8
<PAGE>
CONTROL DEVICES, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF ACCOUNTING POLICIES--(CONTINUED):
Income taxes--
CDI utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using presently enacted tax rates and
regulations.
Retirement benefits--
RDI maintains a defined contribution plan for their employees. The Company
applies SFAS No. 87, "Employer's Accounting for Pensions" to account for
retirement benefits.
Research and development--
Expenditures for Company-sponsored research and new product development are
expensed as incurred.
Environmental expenditures--
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations and that do not contribute to
current or future revenues are expensed.
Revenue recognition--
Revenue is recognized when products are shipped.
Earnings per share--
Earnings per share is based on the weighted average number of common shares
and dilutive common share equivalents outstanding during the period.
Fair value of financial instruments--
The fair values of financial instruments closely approximate their carrying
value. The Company has no involvement with derivative financial instruments.
Interim financial statements--
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments, all of which are of a normal
recurring nature, necessary to present fairly the financial position of the
Company as of June 30, 1996 and the results of their operations and changes in
their cash flows for the six month periods ended June 30, 1995 and 1996.
(3) ACQUISITION OF THE BUSINESS:
On July 29, 1994, CDI purchased the Business for $16.4 million in cash and a
$1.5 million note payable to GTE Control Devices Incorporated (the "Seller
Note"). The cash portion of the purchase price and related transaction fees of
approximately $500,000 were financed through a combination of long-term debt
and common and preferred shares issued to various investors.
F-9
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) ACQUISITION OF THE BUSINESS--(CONTINUED)
The purchase method was used to account for the acquisition. The aggregate
purchase price has been allocated to the assets and liabilities of the
Business based on fair market value.
The net assets acquired after allocating the purchase price are as follows
(in thousands):
<TABLE>
<S> <C>
Receivables..................................................... $ 4,744
Inventories..................................................... 3,560
Other current assets............................................ 110
Property, plant and equipment................................... 12,213
Other assets.................................................... 382
Accounts payable................................................ (1,465)
Accrued employee benefits....................................... (516)
Accrued expenses................................................ (599)
-------
$18,429
=======
</TABLE>
Pursuant to the asset purchase agreement, the Seller retained certain assets
and liabilities including, but not limited to, liabilities for pensions and
post-retirement life and health insurance, certain employee benefits for
active employees and reserves for environmental matters.
The unaudited pro forma results of operations for the years ended December
31, 1993 and 1994, respectively, had the acquisition and initial
capitalization of the Company occurred at the beginning of each of the periods
presented, are provided in the following table. These pro forma results
include adjustments for depreciation and amortization of assets acquired based
on their fair market values at the acquisition date, increased interest on
acquisition debt, additional preferred share dividends, elimination of
allocated employee benefit and administrative expenses, additional
professional fees and the related income tax effect. For purposes of computing
income taxes, an effective tax rate of 40% was used for the Predecessor
Company results of operations. The unaudited pro forma information does not
necessarily represent what the results of operations would have been in such
periods and is not intended to be indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994
-------- --------
(UNAUDITED-
IN THOUSANDS
EXCEPT PER SHARE)
<S> <C> <C>
Net sales............................................... $39,807 $43,842
Net income applicable to common shareholders............ 1,349 3,055
Earnings per share...................................... 0.53 1.19
</TABLE>
(4) ACQUISITION OF RDI:
On April 1, 1996, the Company purchased all of the issued and outstanding
stock of RDI for $8,964,000. The Company paid $6,964,000 in cash plus
transaction fees of approximately $400,000 from existing cash on hand,
delivered Subordinated Promissory Notes ("RDI Notes") totaling $1,108,000 and
delivered Automatically Converting Subordinated Promissory Notes ("RDI
Convertible Notes") totaling $892,000.
The purchase method was used to account for the acquisition. The aggregate
purchase price has been allocated to the assets and liabilities of RDI based
on preliminary estimates of fair market value. Any adjustments resulting from
the final purchase price allocation, which could result in changes to the
carrying values of assets and liabilities, including goodwill, are not
expected to be material to the financial statements.
F-10
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) ACQUISITION OF RDI--(CONTINUED):
The net assets acquired after allocating the purchase price are as follows
(in thousands):
<TABLE>
<S> <C>
Cash.............................................................. $ 132
Receivables....................................................... 5,888
Inventories....................................................... 3,642
Other current assets.............................................. 549
Goodwill and other intangible assets.............................. 7,144
Property, plant and equipment..................................... 2,376
Accounts payable.................................................. (5,387)
Accrued expenses.................................................. (3,236)
Debt.............................................................. (1,744)
-------
$ 9,364
=======
</TABLE>
The unaudited pro forma results of operations for the six months ended June
30, 1995 and 1996, respectively, had the acquisition of RDI occurred at
January 1, 1995 and January 1, 1996, respectively, are provided in the
following table. These pro forma results include adjustments for depreciation
and amortization of assets acquired based on their estimated fair market
values at the acquisition date, adjustments for additional interest expense on
acquisition debt, adjustments for the decrease in interest expense on the
Seller Note which was repaid in connection with the acquisition of RDI,
adjustments for the elimination of interest income on excess cash balances,
adjustments for the elimination of intercompany sales and profit in inventory,
and the related income tax effect. The unaudited pro forma information does
not necessarily represent what the results of operations would have been in
such periods and is not intended to be indicative of future results.
<TABLE>
<CAPTION>
SIX MONTHS JUNE
30,
-----------------
1995 1996
-------- --------
(UNAUDITED-
IN THOUSANDS
EXCEPT PER SHARE)
<S> <C> <C>
Net sales............................................... $ 34,968 $ 34,803
Net income applicable to common shareholders............ 1,987 2,066
Earnings per share...................................... 0.77 0.81
</TABLE>
(5) INVENTORIES:
Classes of inventories as of December 31, 1994 and 1995 and June 30, 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Raw materials and supplies........................... $1,055 $1,174 $1,298
Work-in-process...................................... 703 613 769
Finished goods....................................... 1,241 1,492 5,091
------ ------ ------
$2,999 $3,279 $7,158
====== ====== ======
</TABLE>
F-11
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) PROPERTY, PLANT AND EQUIPMENT:
Classes of property, plant and equipment as of December 31, 1994 and 1995,
and June 30, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Land.............................................. $ 181 $ 181 $ 486
Building.......................................... 1,440 1,440 2,987
Equipment......................................... 10,796 11,513 13,016
Leasehold improvements............................ 248 248 248
------- ------- -------
12,665 13,382 16,737
Accumulated depreciation.......................... (641) (2,285) (3,179)
------- ------- -------
$12,024 $11,097 $13,558
======= ======= =======
</TABLE>
(7) DEBT:
Debt consists of the following as of December 31, 1994 and 1995, and June
30, 1996, (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
10% Senior Secured Fixed Rate Notes................. $10,500 $10,500 $10,500
11% Senior Subordinated Notes (face value of
$4,500)............................................ 4,320 4,353 4,364
RDI Notes........................................... -- -- 1,108
RDI Convertible Notes............................... -- -- 892
RDI fixed rate loans................................ -- -- 1,158
RDI short-term debt ................................ -- -- 654
Junior Subordinated Promissory Note (Seller Note)... 1,500 1,500 --
------- ------- -------
$16,320 $16,353 $18,676
======= ======= =======
</TABLE>
On July 29, 1994, and as amended on March 29, 1996, CDI entered into
agreements (the "Securities Purchase Agreements") with a group of affiliated
lenders to provide CDI with $15.0 million of term loans and up to $3.0 million
in revolving credit loans (collectively referred to as "Senior Debt"). Loans
available under the revolving credit loan (the "Revolver") will be used from
time to time for working capital and general corporate purposes. The maturity
date of the Revolver is July 29, 1999. Borrowings bear interest at the prime
rate plus 1.5%. A facility fee of 0.5% of the unused commitment under the
Revolver is payable quarterly in arrears. As of, and for the five months ended
December 31, 1994, as of and for the year ended December 31, 1995, and as of
and for the six months ended June 30, 1996, there were no loans outstanding
under the Revolver.
The term loans are comprised of the 10% Senior Secured Fixed Rate Notes and
the 11% Senior Subordinated Notes (collectively the "Senior Notes") both due
July 31, 2004. Interest on the Senior Notes is payable semi-annually on each
January 31 and July 31. The 10% Senior Secured Fixed Rate Notes are payable
beginning July 31, 1996. The 11% Senior Subordinated Notes are payable
beginning July 31, 2000. Optional prepayments without a premium may be made on
the Senior Notes up to an annual maximum of $3,750,000. Upon a change of
control (as defined) or upon an initial public offering of the Company's
common or preferred shares, CDI may also redeem the entire amount of Senior
Notes without a premium. The Senior Debt ranks senior to all other
indebtedness of CDI and is secured by substantially all of the Company's
assets.
F-12
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) DEBT--(CONTINUED):
Under the Securities Purchase Agreements, warrants to purchase 564,100
shares of Class B Series 1 Common Shares at $.01 per share were issued to the
lenders. The proceeds received upon the issuance of the 11% Senior
Subordinated Notes of $4.5 million were allocated between the notes and the
warrants based on their estimated relative fair values. Accordingly, $180,000,
which represents the amount of the proceeds allocated to the warrants, has
been credited to additional paid-in-capital. The discount is being amortized
over the life of the notes.
In connection with the acquisition of RDI, the Seller Note was repaid
without premium in March 1996. The Seller Note earned interest at 10% payable
quarterly and was due in full on July 29, 1999.
The Securities Purchase Agreements, contains certain restrictive covenants
which include, among other things, a restriction on the payment of dividends
(to no more than 25% of cash flow, as defined), maintenance of a current ratio
of 1.4 and limitation on other indebtedness. The Company was in compliance
with all covenants in 1994 and 1995 and for the six months ended June 30,
1996.
The RDI fixed rate loans bear interest at the weighted average rate of 7.7%
and are secured by certain assets of RDI.
The RDI Notes bear interest at 8% per annum and are due in three equal
annual installments commencing on April 1, 1997. CDI has the right to prepay
the RDI Notes at any time without premium.
The RDI Convertible Notes bear interest at 6.5% per annum and are payable in
full on demand after April 1, 1999. Prior to April 1, 2001, the RDI
Convertible Notes may be prepaid with the consent of the holders. Thereafter,
the RDI Convertible Notes may be prepaid by CDI without premium. Upon the
closing of an initial public offering of CDI's Class A Common Shares, any
remaining principal balance of the RDI Convertible Notes shall be converted
into Class A Common Shares. The conversion price shall be equal to the initial
public offering price per share.
The RDI Notes and RDI Convertible Notes are subordinate to the Senior Debt.
Scheduled principal payment due on debt in the next five years are as
follows (in thousands):
<TABLE>
<CAPTION>
RDI RDI RDI
10% 11% RDI CONVERTIBLE SHORT-TERM FIXED
NOTES NOTES NOTES NOTES DEBT RATE LOANS TOTAL
------ ------ ----- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1996.......... $ 500 $ -- $-- $-- $654 $191 $ 1,345
1997.......... 500 -- 369 -- -- 336 1,205
1998.......... 750 -- 369 -- -- 267 1,386
1999.......... 750 -- 370 892 -- 152 2,164
2000.......... 1,000 900 -- -- -- 80 1,980
Thereafter.... 7,000 3,600 -- -- -- 132 10,732
</TABLE>
Cash paid for interest for the five month period ended December 31, 1994,
for the year ended December 31, 1995 and for the six months ended June 30,
1995 and 1996 was $65,000, $1,702,500, $851,000 and $854,000, respectively.
F-13
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) OTHER LONG-TERM LIABILITIES:
Other long-term liabilities as of December 31, 1994, 1995 and June 30, 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ------ ------
<S> <C> <C> <C>
Deferred tax liabilities................................. $138 $1,001 $1,258
Accrued redeemable preferred share dividends............. 110 -- --
RDI--Retirement benefits................................. -- -- 812
RDI--Profit sharing...................................... -- -- 455
---- ------ ------
$248 $1,001 $2,525
==== ====== ======
</TABLE>
See Note 12 for discussion of RDI retirement benefits and profit sharing.
(9) REDEEMABLE PREFERRED SHARES:
In connection with the acquisition of the Business, CDI issued 2,400 shares
of 11% Cumulative Preferred Shares ("Redeemable Preferred Shares") for $2.4
million. The Redeemable Preferred Shares accrue cumulative dividends at a rate
of 11% per annum and have a liquidation preference value of $2,400,000 plus
accrued and unpaid dividends. The liquidation preference value of the
Redeemable Preferred Shares ($1,000 per share plus accrued dividends) was
$2,510,000, $2,774,000 and $2,906,000 at December 31, 1994 and 1995 and June
30, 1996, respectively. At December 31, 1994 and 1995, and June 30, 1996,
accrued and unpaid dividends were $110,000, $374,000, and $506,000,
respectively, which have been included in accrued expenses, at December 31,
1995, and June 30, 1996 and other long-term liabilities at December 31, 1994.
Dividends are payable after October 1996 assuming that a certain level of cash
flow, as defined, is achieved. The Redeemable Preferred Shares are subject to
redemption at the option of the Company, without a premium, from time to time
with mandatory redemption on July 29, 2006. In addition, 580 Preferred Shares
(aggregating $580,000) issued to the lenders, plus accrued and unpaid
dividends, must be redeemed without a premium if the Senior Notes are prepaid
in full.
(10) SHAREHOLDERS' EQUITY/NET ASSETS:
In connection with the acquisition of the Business, CDI issued 1,564,098
shares of Class A Common Shares and 435,896 shares of Class B Series 1 Common
Shares for an aggregate price of $600,000. The Class A Common Shares are
identical in all respects to the Class B Series 1 Common Shares, except that
the Class B Series 1 Common Shares have limited voting rights. The Class B
Series 1 Common Shares are convertible at any time at the option of the holder
into Class A Common Shares currently on a one-for-one basis, subject to
dilution. No dividends on the Class A Common Shares or the Class B Series 1
Common Shares may be paid until the Seller Note is repaid in full and while
any dividends on the Redeemable Preferred Shares remain unpaid. Accordingly,
no dividends on Common Shares could have been paid as of December 31, 1994 and
1995 and June 30, 1996.
Certain Class A Common Shares were issued to officers of CDI at a price
which was less than the amount paid by other investors. A non-cash charge of
$65,000 was recorded in 1994 as compensation expense for the difference
between the fair value and the purchase price for these shares.
Warrants to purchase 564,100 shares of Class B Series 1 Common Shares for
$.01 per share are outstanding at December 31, 1994. The warrants expire on
July 31, 2004 (see Note 7).
As further discussed in Note 17, in 1995 the Company issued a non-qualified
stock option to purchase 200,000 Class A Common Shares.
In July 1996, the Company reserved, subject to shareholder approval, 300,000
Common Shares for issuance pursuant to its 1996 Stock Compensation Plan (the
"Plan"). The Plan permits the grant of Incentive Stock Options within the
meaning of Section 422 of the Internal Revenue Code, nonstatutory options and
performance units payable in cash or Common Shares. No options or performance
units have been granted to date. The Plan is administered by the compensation
committee of the Board of Directors.
F-14
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) SHAREHOLDERS' EQUITY/NET ASSETS--(CONTINUED):
The Company will account for the Plan under SFAS No. 123, "Accounting for
Stock Based Compensation". Under SFAS No. 123, the Company may either adopt
the new fair value based accounting method or provide pro forma disclosures of
net earnings and earnings per share as if the accounting provisions of SFAS
No. 123 had been adopted. The Company plans to adopt only the disclosure
requirements of SFAS No. 123.
Net assets--
Changes in Predecessor Company net assets were as follows (in thousands):
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, JULY 29,
1993 1994
------------ ------------
<S> <C> <C>
Balance, beginning of period.......................... $15,539 $17,334
Net income............................................ 2,628 2,295
Net transfers......................................... (833) (2,899)
------- -------
Balance, end of period................................ $17,334 $16,730
======= =======
</TABLE>
(11) INCOME TAXES:
The Predecessor Company operated as a division, and income taxes were not
allocated to it. The accompanying financial statements of the Predecessor
Company reflect an allocated provision for income taxes using an effective tax
rate of 40%, the estimated combined rate for current and deferred state and
federal income taxes. The related current or deferred income taxes payable
would have been transferred to the Seller, if allocated, and are included in
the net assets of the Predecessor Company.
The components of the provision (benefit) for income taxes for the Company
for the five months ended December 31, 1994, for the year ended December 31,
1995 and for the six months ended June 30, 1995 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------- -------------
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Current:
Federal..................................... $1,029 $ 907 $ 572 $ 764
State....................................... 319 230 143 234
------ ------ ------ ------
1,348 1,137 715 998
====== ====== ====== ======
Deferred:
Federal..................................... (277) 729 461 266
State....................................... (81) 212 134 58
------ ------ ------ ------
(358) 941 595 324
------ ------ ------ ------
$ 990 $2,078 $1,310 $1,322
====== ====== ====== ======
</TABLE>
A reconciliation of the income tax provision calculated at the federal
income tax statutory rate and the Company's effective income tax rate for the
five months ended December 31, 1994, for the year ended December 31, 1995 and
for the six months ended June 30, 1995 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------- --------------
1994 1995 1995 1996
------ ------- ------- ------
<S> <C> <C> <C> <C>
Tax at statutory rate..................... $ 872 $ 1,882 $ 1,114 $1,171
State income taxes, net of federal bene-
fit...................................... 157 292 183 193
Other, net................................ (39) (96) 13 (42)
----- ------- ------- ------
$ 990 $ 2,078 $ 1,310 $1,322
===== ======= ======= ======
</TABLE>
F-15
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) INCOME TAXES--(CONTINUED):
The significant components of deferred income tax asset (liability) at
December 31, 1994 and 1995, and June 30, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----- ------- ------
<S> <C> <C> <C>
Current:
Inventory reserves.............................. $ 108 $ 112 $ 127
Accrued employee benefits....................... 258 76 439
Other........................................... 130 230 287
----- ------- ------
496 418 853
===== ======= ======
Noncurrent:
Depreciation.................................... (240) (1,012) (1,274)
Other........................................... 102 11 16
----- ------- ------
(138) (1,001) (1,258)
----- ------- ------
$ 358 $ (583) $ (405)
===== ======= ======
</TABLE>
The significant components of the deferred income tax provision (benefit)
for the five months ended December 31, 1994, for the year ended December 31,
1995 and for the six months ended June 30, 1995 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------- -----------
1994 1995 1995 1996
------ ------ ----- ----
<S> <C> <C> <C> <C>
Current:
Inventory reserves......................... $ (108) $ (4) $ (2) $ (3)
Accrued employee benefits.................. (258) 182 115 16
Other...................................... (130) (100) (63) 54
------ ------ ----- ----
(496) 78 50 67
------ ------ ----- ----
Noncurrent:
Depreciation............................... 240 772 487 262
Other...................................... (102) 91 58 (5)
------ ------ ----- ----
138 863 545 257
------ ------ ----- ----
$ (358) $ 941 $ 595 $324
====== ====== ===== ====
</TABLE>
Cash paid for income taxes for the five months ended December 31, 1994, for
the year ended December 31, 1995, and for the six months ended June 30, 1995
and 1996 was $1,036,600, $1,946,000, $240,000 and $792,000, respectively.
(12) EMPLOYEE BENEFITS:
Effective as of the acquisition date, CDI established a 401(k) savings plan.
Under the plan, CDI matches employee contributions subject to the discretion
of the board of directors. The expense for the employer contribution for the
five months ended December 31, 1994, for the year ended December 31, 1995 and
for the six months ended June 30, 1995 and 1996 was $137,000, $301,000,
$145,000 and $230,000, respectively.
F-16
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) EMPLOYEE BENEFITS--(CONTINUED):
The Predecessor Company employees participated in Seller-sponsored defined
benefit, postretirement health and life insurance, and savings and investment
plans. The expense (income) for these plans, which was allocated by the seller
to the Predecessor Company (see Note 1), was $182,000 and $94,000, for the
year ended December 31, 1993 and for the seven months ended July 29, 1994,
respectively. Pursuant to the Asset Purchase Agreement, the Seller retained
all obligations under these plans. CDI does not sponsor defined benefit or
postretirement benefit plans. Information with respect to actuarial
valuations, funded status, investment activities and other information
regarding the Predecessor Company's participation in the plans is not
available from the Seller, and, accordingly, is not presented.
RDI (Unaudited)--
RDI maintains a government mandated retirement plan for substantially all of
its employees. These benefits do not vest until retirement. The amount of the
benefits to be paid depends upon, among other things, the seniority and salary
of the employees at retirement date. RDI maintains a government mandated
employee profit plan for all employees. The amount of the benefits are based
upon a formula which includes, among other things, net taxable income. The
liability is generally not payable for a period of five years, and is
internally funded. In addition, RDI maintains an incentive plan for certain of
its key executives. The amount of the benefits are based upon a formula which
includes, among other things, net income. The expense for the above plans for
RDI was $99,000 for the three months ended June 30, 1996.
(13) COMMITMENTS AND CONTINGENCIES:
Operating leases--
The Company leases certain buildings, office space, automobiles and
equipment under noncancellable operating leases expiring at various dates
through May 1999. Rental expense under operating leases amounted to $521,000,
$362,000, $236,000, $446,000, $199,000 and $272,000 for the year ended
December 31, 1993, the seven months ended July 29, 1994, the five months ended
December 31, 1994, the year ended December 31, 1995, and for the six months
ended June 30, 1995 and 1996, respectively.
Future minimum rental payments under leases extending for one year or more
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1996............................................................. $512
1997............................................................. 315
1998............................................................. 115
1999............................................................. 23
</TABLE>
Employment Agreements (Unaudited)--
The Company has entered into employment agreements with two executives at
RDI. The agreements provide that each executive will receive annual
compensation of up to FF 975,000 (approximately $195,000), plus an annual
bonus of up to FF 487,000 (approximately $97,000), which is based upon meeting
certain performance objectives. The agreements provide for a severance payment
if the Company terminates the executive for any reason other than misconduct
prior to March 29, 1998. The amount of the severance payment to each executive
is equal two years' salary and bonus.
Legal proceedings--
The Company has various claims and contingent liabilities arising in the
ordinary conduct of business. In the opinion of management, they are not
expected to have a material adverse effect on the financial position of the
Company.
F-17
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) RELATED PARTY TRANSACTIONS:
CDI--
Hammond, Kennedy, Whitney & Company ("HKW") provides management services to
the Company. Certain directors of the Company are principals of HKW and own
shares of the Company's common and preferred shares. The Company pays HKW
monthly management fees of $15,000 and board of directors fees. These fees
amounted to $91,000, $240,000, $120,000 and $128,000 for the five months ended
December 31, 1994, for the year ended December 31, 1995, and for the six
months ended June 30, 1995 and 1996, respectively. In addition, fees paid to
one of the principals of HKW for professional services amounted to $17,000,
$59,000, $27,000 and $18,000, for the five months ended December 31, 1994, for
the year ended December 31, 1995, and for the six months ended June 30, 1995
and 1996, respectively.
Indemnification from Seller--
Pursuant to the terms of an Environmental Agreement dated July 6, 1994, the
Seller has retained liability and agreed to indemnify CDI for any and all
liabilities arising under CERCLA and other environmental requirements related
to contamination and cleanup at acquired facilities, treatment, storage and
disposal of hazardous materials transported offsite and remediation required
by the State of Maine Department of Environmental Protection or U.S.
Environmental Protection Agency existing or occurring prior to the acquisition
date. The Seller has indemnified CDI against claims pursuant to the
aforementioned issues to the extent the amounts exceed $50,000 in the
aggregate. The Seller has liability for claims relating to soil and
groundwater contamination from the surface impoundment and out-of-service
leachfield at the Company's Standish facility known to exist prior to the
acquisition to the extent the liability exceeds $50,000. The indemnifications
provided by the Seller begin to expire three years after the acquisition date,
with certain indemnifications continuing indefinitely. Although the Company
believes the Seller's indemnity is enforceable, if the Company were unable to
enforce such indemnification obligations against the Seller, the Company could
become liable for any such retained liability. The inability to proceed
against the Seller could have a material adverse effect on the Company's
financial condition and results of operations.
Predecessor Company--
The Seller allocated expenses to the Predecessor Company for corporate
accounting, legal and administrative support services. Expenses charged
amounted to $179,000 and $128,000 for the year ended December 31, 1993 and for
the seven months ended July 29, 1994, respectively, and are reflected as
selling, general and administrative expenses in the accompanying statements of
income.
(15) CUSTOMER INFORMATION:
CDI sells its products primarily to OEMs on a worldwide basis in the
automotive, appliance and telecommunications industries. RDI distributes its
products primarily to automobile OEMs in the Northern European market. Sales
are concentrated in North America and Europe with the top 15 customers
accounting for approximately 72% of sales in 1995. Export sales to Europe and
the Far East were $7,728,000 and $1,972,000, $4,834,000 and $2,158,000,
$3,897,000 and $972,000, $9,634,000 and $1,906,000, $5,757,000 and $1,374,000,
and $12,003,000 and $1,186,000 for the year ended December 31, 1993, the seven
months ended July 29, 1994, the five months ended December 31, 1994, the year
ended December 31, 1995, and for the six months ended June 30, 1995 and 1996,
respectively. For the year ended December 31, 1993, the seven months ended
July 29, 1994, the five months ended December 31, 1994, the year ended
December 31, 1995 and for the six months ended June 30, 1995 and 1996, Danfoss
accounted for approximately $2,707,000, $1,924,000, $1,745,000, $5,270,000,
$2,744,000 and $2,452,000 of sales, respectively, and General Motors accounted
for $5,889,000, $4,029,000, $3,315,000, $7,647,000, $3,973,000 and $3,246,000
of sales, respectively.
F-18
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) SUPPLIER INFORMATION:
The Company relies on a sole supplier or a limited group of suppliers for
certain key components of its products. The Company does not have a long-term
supply agreement with any of these suppliers, and operates under purchase
orders. The Company's reliance on sole or a limited group of suppliers
involves several risks, including a potential inability to obtain an adequate
supply of required components and reduced control over pricing and timely
delivery of components. Although the timeliness, yield and quality of
deliveries to date from the Company's suppliers have been acceptable, any
prolonged inability to obtain adequate deliveries or any other circumstances
that would require the Company to seek alternative sources of supply could
delay the Company's ability to ship its products, which could damage
relationships with current and prospective customers and could therefore have
a material adverse effect on the Company's results of operations.
(17) CONSULTING AGREEMENTS:
In April 1995, the Company entered several agreements with an individual to
provide design and marketing consulting services to the Company. The terms of
the agreements also provide for minimum cash royalty and license payments. The
agreements begin to expire in March 2001, and allow for cancellation by either
party in certain circumstances. In connection with these agreements, the
Company paid the individual a one time payment of $200,000 in 1995 and granted
a non-qualified stock options to purchase up to 200,000 Class A Common Shares
at any time until March 31, 2002 at the lesser of $10.00 or the initial public
offering price per share. In addition, royalty payments were approximately
$223,000, $115,000 and $120,000 for the year ended December 31, 1995, and for
the six months ended June 30, 1995 and 1996, respectively.
(18) INTERNATIONAL MANUFACTURING AND DISTRIBUTION:
The Company has international manufacturing facilities located in San
Cristobal, Dominican Republic. Included in the Company's balance sheet at
December 31, 1995, are the net assets of the Company's international
manufacturing operations which totaled approximately $1,686,000. This
operation manufactured, products accounting for approximately 40% of the
Company's gross revenues in 1995.
RDI distributes its products primarily to automotive OEMs in Northern
Europe. The Company's results of operations are therefore subject to European
economic conditions. RDI generates revenues and incurs expenses primarily in
currencies other than the U.S. dollar, and the Company does not engage in
currency hedging transactions. As a result, there is increased financial risk
to the Company based on fluctuations in currency exchange rates. Changes in
exchange rates, therefore, may have a significant effect on the Company's
financial condition and results of operations. At June 30, 1996, the net
assets of RDI, including goodwill, were approximately $9.3 million.
(19) SUPPLEMENTARY BALANCE SHEET INFORMATION:
Accrued expenses consisted of the following as of December 31, 1994 and
1995, and June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Interest................................................ $ 655 $ 652 $ 692
Dividends............................................... -- 374 791
Legal................................................... 214 176 146
Environmental........................................... 255 305 305
Taxes................................................... 306 34 572
Other................................................... 511 453 1,109
------ ------ ------
$1,941 $1,994 $3,615
====== ====== ======
</TABLE>
F-19
<PAGE>
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(20) SUBSEQUENT EVENTS (UNAUDITED):
The Company plans to sell 2,000,000 Common Shares (assuming no exercise of
an underwriters' overallotment option) in an initial public offering (the
"offering") in October 1996. The following transactions will occur
substantially simultaneously with the close of the offering:
a. the exercise of the outstanding warrants described in Note 7 to purchase
564,100 Class B Series 1 Common Shares at $0.01 per share;
b. the conversion of all 999,996 Class B Series 1 Common Shares outstanding
after the exercise of the warrants into a like number of Class A Common
Shares;
c. the reclassification of the Class A Common Shares into Common Shares and
the elimination of the designations of Class A Common Shares and Class B
Common Shares; and
d. the conversion of the RDI Convertible Notes into 89,240 Common Shares
(assuming an initial offering price of $10.00 per share).
Set forth below is summary balance sheet information as of June 30, 1996,
and pro forma June 30, 1996, assuming the above transactions occurred (except
for the completion of the offering and the application of the net proceeds
therefrom):
<TABLE>
<CAPTION>
JUNE PRO FORMA
30, JUNE 30,
1996 1996
------- ---------
<S> <C> <C>
Total assets........................................... $42,986 $42,992
======= =======
Long-term debt......................................... $16,743 $15,851
======= =======
Shareholders' equity:
Common Shares......................................... $ -- $ 1,743
Class A Common Shares................................. 520 --
Class B Series 1 Common Shares........................ 145 --
Warrants.............................................. 180 --
Foreign currency translation adjustment............... (222) (222)
Retained earnings..................................... 6,651 6,651
------- -------
Total shareholders' equity........................... $ 7,274 $ 8,172
======= =======
</TABLE>
The weighted average number of Common Shares outstanding on a pro forma
basis at June 30, 1996, assuming the transactions described above (other than
the offering) occurred on such date, would be 2,653,334.
The Company intends to use the proceeds from the offering to retire the
Senior Notes and the Redeemable Preferred Shares. The pro forma net income per
share would have been $0.99 and $0.56 for the year ended December 31, 1995,
and the six month period ended June 30, 1996, respectively, assuming the
conversion of the RDI Convertible Notes, the issuance of 1,816,500 and
1,842,600 Common Shares, respectively, at a public offering price of $10.00
per share, and the application of the proceeds thereof to retire the Company's
Senior Notes plus accrued interest and the Redeemable Preferred Shares plus
accrued dividends, as of the beginning of each period.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO REALISATIONS ET DIFFUSION POUR L'INDUSTRIE ("RDI"):
We have audited the accompanying consolidated balance sheets of RDI and its
subsidiaries (the "Company") as of December 31, 1994 and 1995 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of RDI and its subsidiaries as of
December 31, 1994 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with French generally accepted accounting principles.
Accounting practices used by the Company in preparing the accompanying
financial statements conform with generally accepted accounting principles in
France, but do not conform with accounting principles generally accepted in
the United States. A description of these differences and a complete
reconciliation of consolidated net income and stockholders' equity to United
States generally accepted accounting principles is set forth in Note 3.
---------------------------------
BARBIER FRINAULT & ASSOCIES
Member of Andersen Worldwide SC
Thierry Aymonier
Paris, France, May 19, 1996
F-21
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. 305 380
Receivables ............................................... 30,089 26,930
Inventories ............................................... 14,823 17,221
Deferred tax assets ....................................... 1,049 1,660
Other current assets....................................... 122 296
------ ------
Total current assets..................................... 46,388 46,487
------ ------
GOODWILL AND OTHER INTANGIBLES, net......................... 4,388 4,615
PROPERTY, PLANT AND EQUIPMENT, net ......................... 11,076 13,607
INVESTMENTS AND OTHER ASSETS................................ 722 94
------ ------
Total non-current assets................................. 16,186 18,316
------ ------
62,574 64,803
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ........................................... 7,582 6,355
Trade accounts payable..................................... 18,515 20,810
Accrued employee benefits and tax expenses................. 7,761 8,146
Other accrued expenses..................................... 1,385 1,514
------ ------
Total current liabilities................................ 35,243 36,825
------ ------
DEFERRED TAX LIABILITIES ................................... 342 515
PROVISION FOR LIABILITIES AND ACCRUALS ..................... 2,181 2,786
LONG TERM DEBT.............................................. 8,445 6,753
------ ------
Total long-term liabilities.............................. 10,968 10,054
------ ------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY:
Common stock, 100 nominal value, 70,000 shares authorized,
issued and outstanding in 1995............................ 5,000 7,000
Retained earnings.......................................... 11,363 10,924
------ ------
Total stockholders' equity............................... 16,363 17,924
------ ------
62,574 64,803
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-22
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
NET SALES........................................... 97,662 127,058 149,685
COST OF SALES....................................... (66,483) (82,744) (104,295)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........ (26,201) (34,961) (36,526)
RESEARCH AND DEVELOPMENT EXPENSE.................... (1,193) (1,299) (1,231)
------- ------- --------
Operating income................................... 3,785 8,054 7,633
INTEREST EXPENSE, NET (Note 13)..................... (2,160) (2,365) (2,889)
------- ------- --------
Income before income tax........................... 1,625 5,689 4,744
INCOME TAX PROVISION (Note 11)...................... (556) (1,888) (2,183)
------- ------- --------
Net income......................................... 1,069 3,801 2,561
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-23
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- ------
<S> <C> <C> <C>
BALANCE, at January 1, 1993............................. 5,000 8,293 13,293
Dividends paid (FF 18 per share)...................... -- (900) (900)
Net income............................................ -- 1,069 1,069
----- ------ ------
BALANCE, at December 31, 1993........................... 5,000 8,462 13,462
Dividends paid (FF 18 per share)...................... -- (900) (900)
Net income............................................ -- 3,801 3,801
----- ------ ------
BALANCE, at December 31, 1994........................... 5,000 11,363 16,363
Stock issued.......................................... 2,000 (2,000) --
Dividends paid (FF 14 per share)...................... -- (1,000) (1,000)
Net income............................................ -- 2,561 2,561
----- ------ ------
BALANCE, at December 31, 1995........................... 7,000 10,924 17,924
===== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-24
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1993 1994 1995
------- ------ ------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.......................................... 1,069 3,801 2,561
Depreciation and amortization..................... 910 1,352 1,356
Loss on disposal of fixed assets.................. 111 32 65
Decrease (Increase) in inventories................ 451 (1,700) (1,264)
Decrease (Increase) in receivables................ 185 (4,035) 5,687
Decrease (Increase) in other current assets....... (60) (206) (735)
Increase (Decrease) in trade accounts payable..... (960) 1,089 257
Increase (Decrease) in accrued employee benefits
and tax expenses................................. (43) 1,846 (46)
Increase (Decrease) in other accrued expenses..... 357 373 129
Increase (Decrease) in other liabilities.......... 653 633 778
------- ------ ------
Cash provided by operations....................... 2,673 3,185 8,788
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment........... (1,484) (3,457) (3,459)
Sale of property, plant and equipment............... 24 30 284
Acquisition of businesses, net of cash acquired..... (5,880) (2,121) (1,619)
------- ------ ------
Cash used in investing activities................. (7,340) (5,548) (4,794)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend............................................ (900) (900) (1,000)
Increase in long-term debt.......................... 4,520(a) 7,630 930
Decrease in long-term debt.......................... -- (a) (7,788) (2,622)
Net variation in short-term debt.................... 1,165 3,558 (1,227)
------- ------ ------
Cash provided by (used in) financing activities... 4,785 2,500 (3,919)
------- ------ ------
Increase in cash and cash equivalents............. 118 137 75
------- ------ ------
CASH AND CASH EQUIVALENTS, beginning of period........ 50 168 305
------- ------ ------
CASH AND CASH EQUIVALENTS, end of period.............. 168 305 380
======= ====== ======
</TABLE>
- --------
(a) The split between increase and decrease in long-term debt was not
available for 1993, and will be presented as a net increase in long-term
debt in 1993.
The accompanying notes are an integral part of these consolidated statements.
F-25
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF FRENCH FRANCS UNLESS OTHERWISE INDICATED)
(1) ACCOUNTING PRINCIPLES AND POLICIES:
The consolidated financial statements of Realisations et Diffusion pour
l'Industrie ("RDI") (the "Company") have been prepared in accordance with the
French law of January 3, 1985 and its Application Decree of February 17, 1986.
Certain reclassifications of items have been made in these consolidated
financial statements in order to conform to a presentation format which is
more understandable to a United States reader.
Basis of consolidation--
The Company's financial statements include the accounts of all subsidiaries
in which RDI holds, directly or indirectly, a controlling interest.
The results from operations of subsidiaries acquired or sold during the year
are consolidated as from or up to their respective dates of acquisition or
disposal.
Goodwill and intangible assets--
On the acquisition of a subsidiary, goodwill representing the difference
between the purchase price and the fair value of the identifiable underlying
net assets acquired is carried as an asset in the balance sheet and amortized
on a straight line basis against income over a period of 40 years.
Other intangible assets include patents, licenses and trademarks and
software, which are amortized over their useful life ranging from 1 to 5
years.
The Company periodically evaluates the periods over which the intangible
assets are amortized to determine whether events have occurred which would
require modification to the amortization period. The Company reviews
anticipated future operating results and cash flows on an undiscounted basis
in determining whether there has been an impairment in the value of the excess
of purchase price over net assets acquired.
Property, plant and equipment--
Property, plant and equipment are shown at historical cost. Depreciation is
provided, except on freehold land, on a straight-line basis over the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings.................................................. 40 years
Industrial plant and machinery............................. 5 to 10 years
Other tangible assets...................................... 5 to 10 years
</TABLE>
Investments in unconsolidated companies--
Investments in which the Company owns less than 20% are carried at cost
after deducting appropriate allowances for permanent impairment in value.
Inventories--
Inventories, including work in progress, are valued at the lower of cost and
estimated net realizable value. Cost is determined on an average weighted cost
basis. The cost of work in progress and finished goods comprises materials,
labor and attributable manufacturing overheads.
F-26
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ACCOUNTING PRINCIPLES AND POLICIES--(CONTINUED):
Cash and cash equivalents--
Cash and cash equivalents are made up of cash held in banks and in hand and
short-term investments generally having an original maturity of two months or
less (mainly debt securities, short-term loans and accrued interest).
Retirement benefits--
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
87 "Employer's Accounting for Pensions" to account for retirement benefits
except for the non-recognition of minimum liability adjustments reflecting the
excess of the accumulated benefit obligation over the liability accrued in the
financial statements (refer to Notes 3 and 12).
Deferred tax--
The Company utilizes the liability method of accounting for income taxes as
set forth in SFAS No. 109 "Accounting for Income Taxes" effective January 1,
1993. Under this method, deferred income taxes are determined based on the
difference between the financial statement and the tax bases of assets and
liabilities using presently enacted tax rates and regulations. The cumulative
effect of adopting SFAS No. 109 was not significant.
Research and development--
Expenditures for Company research and new product development are expensed
as incurred.
Revenue recognition--
Sales are recorded upon transfer of ownership of the products which usually
corresponds to the date when products are shipped.
(2) ACQUISITIONS AND SIGNIFICANT EVENTS:
Acquisition (1993)--
In April 1993, the Company acquired Totem representing yearly net sales of
FF 18 million.
Acquisitions and significant events (1994)--
In February 1994, the Company acquired Spetelec (yearly net sales of FF 8
million) and in November 1994, Lucca (yearly net sales of FF 9 million).
As part of a reorganization, the activities and the net assets of Totem and
Spetelec were transferred to RDI on January 1, 1994 for Totem, and October 1,
1994 for Spetelec and the subsidiaries were liquidated.
Acquisition (1995)--
In June 1995, RDI acquired Futurelec which represented yearly net sales of
FF 2 million.
F-27
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) ACQUISITIONS AND SIGNIFICANT EVENTS--(CONTINUED):
The following represents the non-cash impact of the acquisitions noted
above:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Fair value of assets acquired...................... 10,546 4,107 3,764
Liabilities assumed................................ (7,471) (3,415) (2,469)
Goodwill........................................... 2,805 1,429 324
------ ------ ------
Cash paid.......................................... (5,880) (2,121) (1,619)
====== ====== ======
</TABLE>
(3) SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE
COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The accompanying consolidated financial statements have been prepared in
accordance with the accounting policies described in Accounting Principles and
Policies above ("French GAAP") which differ in certain respects from those
applicable in the United States ("US GAAP").
a) Retirement benefits
Under US GAAP, a minimum liability adjustment would have been recognized as
a reduction in shareholders' equity for the difference between the accumulated
benefit obligation and the net accrual at year end.
The minimum liability adjustment amounts to:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Minimum liability adjustment................................. 1,317 1,085
Deferred tax effect.......................................... (439) (398)
----- -----
Minimum liability adjustment, net............................ 878 687
===== =====
</TABLE>
b) Other differences
Other differences relate to the non-capitalization of capital leases, to the
non-recognition of unrealized exchange gains and to the lack of capitalization
of interest incurred during the construction period of RDI's headquarters.
None of these items in the aggregate or individually have an impact on
shareholders' equity as of December 31, 1995 and 1994 or net income for 1994
and 1995 higher than FF 200 before tax.
Therefore, these items were not included in the reconciliation below between
French and US GAAP.
c) US GAAP reconciliation
The following is a summary of the adjustments to shareholders' equity for
the years ended December 31, 1994 and 1995 which would be required if US GAAP
had been applied instead of French GAAP.
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
AS OF DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Amounts per accompanying consolidated financial
statements........................................ 16,363 17,924
Retirement benefits, net........................... (878) (687)
---------- ----------
Approximate amounts under US GAAP.................. 15,485 17,237
========== ==========
</TABLE>
F-28
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE
COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES--
(CONTINUED):
There is no significant adjustments to be made to reconcile 1995 and 1994 net
income from French to US GAAP.
(4) GOODWILL AND OTHER INTANGIBLES:
<TABLE>
<CAPTION>
OTHER
GOODWILL INTANGIBLES TOTAL
-------- ----------- -----
<S> <C> <C> <C>
Gross book value at January 1, 1994.............. 3,065 390 3,455
Accumulated depreciation at January 1, 1994...... (58) (361) (419)
----- ---- -----
Net book value at January 1, 1994............ 3,007 29 3,036
Additions........................................ 1,429 49 1,478
Amortization provided in 1994.................... (76) (50) (126)
----- ---- -----
Gross book value at December 31, 1994............ 4,494 439 4,933
Accumulated depreciation at December 31, 1994.... (134) (411) (545)
----- ---- -----
Net book value as of December 31, 1994....... 4,360 28 4,388
Additions........................................ 324 93 417
Amortization provided in 1995.................... (91) (99) (190)
----- ---- -----
Gross book value at December 31, 1995............ 4,818 532 5,350
Accumulated depreciation at December 31, 1995.... (225) (510) (735)
----- ---- -----
Net book value at December 31, 1995.......... 4,593 22 4,615
===== ==== =====
</TABLE>
Other intangible assets mainly comprise software, patent licenses and
trademarks.
(5) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment as of December 31, 1994 and 1995, consists of:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Land..................................................... 1,383 1,383
Building................................................. 6,372 10,587
Equipment................................................ 8,665 8,544
Other.................................................... 1,779 --
------ ------
18,199 20,514
Less: Accumulated depreciation........................... (7,123) (6,907)
------ ------
Total................................................ 11,076 13,607
====== ======
</TABLE>
(6) INVENTORIES:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Raw materials and consumable............................. 1,409 1,194
Work in progress......................................... 117 243
Finished goods........................................... 15,141 16,962
------ ------
16,667 18,399
Less: Valuation allowance................................ (1,844) (1,178)
------ ------
Total................................................ 14,823 17,221
====== ======
</TABLE>
F-29
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) TRADE AND OTHER RECEIVABLES:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Trade receivables............................................ 30,055 26,451
Other receivables............................................ 916 1,347
------ ------
30,971 27,798
Less: Allowance for doubtful accounts........................ (882) (868)
------ ------
Total.................................................... 30,089 26,930
====== ======
</TABLE>
The Company's practice is to sell part of its trade receivables to finance
the business ("discounted bills with recourse"). At December 31, 1995, such
sales with recourse amounted to FF 16,708 (1994--FF 7,416) which have been
deducted from trade receivables accordingly. Based on historical
collectibility of trade receivables, RDI's obligations under the recourse
provisions are not material. Discounted bills with recourse are disclosed in
Note 16.
For cash flow statement purposes, proceeds from these transfers of
receivables have been classified in cash from operating activities.
(8) LONG-TERM DEBT:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Employee profit sharing.......................................... 1,486 1,851
Banks loans...................................................... 6,735 4,753
Other............................................................ 224 149
----- -----
Total long-term debt......................................... 8,445 6,753
===== =====
</TABLE>
Loan repayment schedule (excluding short-term portion of long-term debt).
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
1996............................................................. 2,384 --
1997............................................................. 2,164 2,118
1998............................................................. 1,475 1,485
1999............................................................. 1,562 1,360
2000............................................................. 413 1,343
2001 and thereafter.............................................. 447 447
----- -----
Total........................................................ 8,445 6,753
===== =====
</TABLE>
All long term loans are in French Francs and are secured by certain assets
of the Company.
Analysis of long term debt by interest rate:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Fixed rates:
--8% and under................................................... 5,008 3,955
--over 8%........................................................ 1,064 391
Floating rates (*)............................................... 2,373 2,407
----- -----
Total........................................................ 8,445 6,753
===== =====
</TABLE>
- --------
(*)Floating rates are principally based on PIBOR.
F-30
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) SHORT-TERM DEBT:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Bank overdraft................................................... 3,625 2,135
Current portion of long-term debt................................ 1,996 2,319
Other............................................................ 1,961 1,901
----- -----
Total........................................................ 7,582 6,355
===== =====
</TABLE>
(10) COMMON STOCK:
The common stock consists of fully paid shares with a nominal value of FF
100:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(IN NUMBER OF SHARES)
<S> <C> <C>
At January 1st,........................................ 50,000 50,000
Issued................................................. -- 20,000
---------- ----------
At December 31,...................................... 50,000 70,000
========== ==========
</TABLE>
The increase in common stock was effected through a stock dividend.
At December 31, 1995 there are no outstanding shares that might be issued.
(11) INCOME TAX:
Provision for income tax basis is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Current:
Domestic............................................. (549) (1,849) (2,621)
Deferred:
Domestic............................................. (7) (39) 438
---- ------ ------
Total.............................................. (556) (1,888) (2,183)
==== ====== ======
</TABLE>
The provision for income tax differs from the amount computed by applying the
French statutory income tax rate of 33 1/3% in 1993 and 1994 and 36 2/3% in
1995 because of the effect of the following items:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net income.......................................... 1,069 3,801 2,561
Provision for income tax............................ (556) (1,888) (2,183)
------ ------ ------
Pretax income....................................... 1,625 5,689 4,744
French statutory tax rate........................... 33 1/3% 33 1/3% 36 2/3%
------ ------ ------
Computed income tax at French statutory tax rate.... 542 1,896 1,739
Permanent differences............................... 18 42 (14)
Change in valuation allowance on deferred tax
assets............................................. -- -- 492
Other, net.......................................... (4) (50) (34)
------ ------ ------
Provision for income tax............................ 556 1,888 2,183
====== ====== ======
</TABLE>
F-31
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) INCOME TAX--(CONTINUED):
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carry forwards............................ -- 492
Allowances and accruals not currently deductible for tax
purposes.................................................... 356 648
Retirement benefits.......................................... 693 1,012
----- -----
Gross deferred tax assets.................................... 1,049 2,152
Valuation allowance on deferred tax assets................... -- (492)
----- -----
Deferred tax assets........................................ 1,049 1,660
Gross deferred tax liabilities:
Excess book over tax basis of property, plant and equipment.. 342 515
----- -----
Deferred tax liabilities................................... 342 515
----- -----
Net deferred tax asset................................... 707 1,145
===== =====
</TABLE>
Distribution to shareholders of the FF 10,990 retained earnings of the parent
company available for distribution as of December 31, 1995 would trigger a
taxation ("precompte") of a total amount of approximately FF 309 which would be
withheld from the amount distributed.
(12) PROVISIONS FOR LIABILITIES AND ACCRUALS:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Retirement benefits.............................................. 2,078 2,762
Other............................................................ 103 24
----- -----
Total.......................................................... 2,181 2,786
===== =====
</TABLE>
Movements in provisions are analyzed as follows:
<TABLE>
<CAPTION>
RETIREMENT PURCHASE OTHER
BENEFITS ACCOUNTING PROVISIONS TOTAL
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
At, January 1, 1994................. 1,440 922 176 2,538
Additions........................... 638 -- 103 741
Purchase accounting and other
movements.......................... -- 836 -- 836
Deductions made against expenses
incurred........................... -- (1,758) (176) (1,934)
----- ------ ---- ------
At, December 31, 1994............... 2,078 -- 103 2,181
Additions........................... 684 -- 24 708
Purchase accounting and other
movements.......................... -- 165 -- 165
Deductions made against expenses
incurred........................... -- (165) (103) (268)
----- ------ ---- ------
At, December 31, 1995............... 2,762 -- 24 2,786
===== ====== ==== ======
</TABLE>
Retirement indemnities
The Company has applied SFAS No. 87 "Employers' Accounting for Pensions"
except for the non-recognition of a minimum liability as explained in Note 3 as
follows:
F-32
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) PROVISIONS FOR LIABILITIES AND ACCRUALS--(CONTINUED):
The transition obligation has been determined as of January 1, 1993 as
being the difference between the liabilities accounted for under prior
years' accounting policies and the funded status of the plans resulting
from actuarial calculations; this transition obligation as determined at
January 1, 1993, has been reduced to its amortized value as if SFAS No. 87
had been applied from 1989. The amortization period is the average residual
active life of the population covered by the plan (13 years). The remaining
transition obligation is amortized over 6 years;
The plan covered is a retirement lump sum indemnities plan. The actuarial
method used is the projected unit credit method.
The funded status of the retirement benefit plan is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation....................... -- -- --
Non-vested benefit obligation................... (2,987) (3,395) (3,847)
------ ------ ------
Accumulated benefit obligation.................... (2,987) (3,395) (3,847)
Effect of salary increases...................... (139) (158) (179)
------ ------ ------
Projected benefit obligation...................... (3,126) (3,553) (4,026)
Plan assets at fair value....................... -- -- --
------ ------ ------
Projected benefit obligation in excess of plan
assets........................................... (3,126) (3,553) (4,026)
Unrecognized net transition obligation.......... 1,686 1,475 1,264
------ ------ ------
Net pension accrual............................... (1,440) (2,078) (2,762)
====== ====== ======
</TABLE>
The net periodic pension cost of the Company's pension plan includes the
following components:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the year............... 182 195 211
Interest cost on projected benefit obligation............... 204 233 263
Actual return on plan assets................................ -- -- --
Net amortization and deferral............................... 210 210 210
--- --- ---
Net pension cost.......................................... 596 638 684
=== === ===
</TABLE>
Average assumptions used in accounting for the Company's plan were:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................ 7.0% 7.0% 7.0%
Rate of increase in compensation levels.................. 3.0% 3.0% 3.0%
</TABLE>
Post-retirement benefits
The Company does not have any post-retirement benefit obligation that could
be covered by SFAS No. 106.
Purchase Accounting
These provisions relate only to purchase accounting provisions for Totem,
Spetelec and Lucca acquisitions.
F-33
<PAGE>
REALISATIONS ET DIFFUSION POUR L'INDUSTRIE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) INTEREST EXPENSE (NET):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net interest income.................................. 83 76 56
Interest on debt..................................... (2,243) (2,441) (2,945)
------ ------ ------
Total............................................ (2,160) (2,365) (2,889)
====== ====== ======
</TABLE>
(14) STAFF COSTS:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Wages and salaries including social security and other
related costs........................................ 21,696 28,012 30,066
Average number of employees during the year........... 94 100 116
Number of employees at year end....................... 100 102 114
</TABLE>
(15) SUBSEQUENT EVENTS:
RDI was acquired by Control Devices, Inc. on April 1, 1996.
As this transaction constitutes an event subsequent to the December 31, 1995
balance sheet, the consolidated financial statements of RDI for the year
ended December 31, 1995 do not give effect to any adjustments which may
arise from this transaction.
(16) COMMITMENTS AND CONTINGENCIES:
Commitments not otherwise disclosed amounted to:
<TABLE>
<CAPTION>
1994 1995
----- ------
<S> <C> <C>
Discounted bills with recourse (see Note 7)..................... 7,416 16,708
Other commitments............................................... 107 551
</TABLE>
(17) INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA:
The Company operates mainly on the European market and distributes their
products primarily to automobile original equipment manufacturers.
(18) LIST OF COMPANY ENTITIES AT DECEMBER 31, 1995:
<TABLE>
<CAPTION>
COMPANY PERCENTAGE
COMPANY ENTITIES COUNTRY INTEREST OF CONTROL
---------------- ------- -------- ----------
<S> <C> <C> <C>
Lucca France 100% 100%
Futurelec France 100% 100%
</TABLE>
F-34
<PAGE>
INSIDE BACK COVER PAGE
Under the heading "Appliance Market--Control Devices provides the appliance
market with circuit breakers for many residential and industrial
applications," there is a photograph of a number of the Company's glass
enclosed circuit breakers with the caption "The Company is one of only two
worldwide manufacturers of glass enclosed hermetic circuit breakers for many
residential and commercial applications" and a photograph of a compressor with
the caption "A typical application for the Company's hermetic glass enclosed
circuit breakers is to protect compressor motors used in residential and
commercial refrigeration equipment."
Under the heading "Telecommunications Market--Control Devices designs and
manufactures ceramic products for both wire and wireless applications," there
is a photograph of Dielectric Resonators with the caption "Dielectric
Resonators are an integral part of the rapidly expanding wireless PCS and
cellular communication markets," and a photograph of PTC thermistors and a
protection module with the caption "The Company has an exclusive contract to
supply its PTC thermistors for use in the module that protects GTE's central
office equipment."
<PAGE>
CONTROL DEVICES, INC.
[LOGO]
2,000,000
COMMON SHARES
PROSPECTUS
DEAN WITTER REYNOLDS INC.
CLEARY GULL REILAND & MCDEVITT INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the actual or estimated expenses, other than the
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the Common Shares being registered. All
of the amounts shown are estimates except for the SEC registration fee, the
NASD filing fee and the Nasdaq Application Fee:
<TABLE>
<S> <C>
Registration Fee............................................... $ 9,518
Printing of Registration Statement and Prospectus.............. 130,000
Accounting Fees and Expenses................................... 360,000
Legal Fees..................................................... 300,000
Transfer Agent Fees and Expenses............................... 5,000
NASD Filing Fees............................................... 3,260
Nasdaq Application Fee......................................... 16,500
Blue Sky Fees and Expenses..................................... 20,000
Miscellaneous.................................................. 155,722
----------
Total...................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 37 of the Indiana Business Corporation Law, as amended (the "Act")
grants to each Indiana corporation broad powers to indemnify directors,
officers, employees or agents against expenses incurred in certain proceedings
if the conduct in question was found to be in good faith and was reasonably
believed to be in the corporation's best interests. This statute provides,
however, that this indemnification should not be deemed exclusive of any other
indemnification rights provided by the articles of incorporation, by-laws,
resolution or other authorization adopted by a majority vote of the voting
shares then issued and outstanding. The Company's Articles of Incorporation
are silent with respect to indemnification, and the Company has not authorized
or entered into any other agreement with respect to indemnification of
officers and directors except Section 7.02 of the Code of By-Laws of the
Company, which reads as follows:
Clause 7.021. Definitions. Terms defined in Chapter 37 of the Indiana
Business Corporation Law (Ind. Code (S)(S) 23-1-37, et seq.) which are used in
this Article 7 shall have the same definitions for purposes of this Article 7
as they have in such chapter of the Indiana Business Corporation Law.
Clause 7.022. Indemnification of Directors and Officers. The Corporation
shall indemnify any individual who is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise whether or not for profit, against liability and expenses,
including attorneys fees, incurred by him in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, and whether formal
or informal, in which he is made or threatened to be made a party by reason of
being or having been in any such capacity, or arising out of his status as
such, except (i) in the case of any action, suit, or proceeding terminated by
judgment, order, or conviction, in relation to matters as to which he is
adjudged to have breached or failed to perform the duties of his office and
the breach or failure to perform constituted willful misconduct or
recklessness; and (ii) in any other situation, in relation to matters as to
which it is found by a majority of a committee composed of all directors not
involved in the matter in controversy (whether or not a quorum) that the
person breached or failed to perform the duties of his office and the breach
or failure to perform constituted willful misconduct or recklessness. The
Corporation may pay for or reimburse reasonable expenses incurred by a
director or officer in defending any action, suit, or proceeding in advance of
the final disposition thereof upon receipt of (i) a written affirmation of the
II-1
<PAGE>
director's or officer's good faith belief that such director or officer has
met the standard conduct prescribed by Indiana law; and (ii) an undertaking of
the director or officer to repay the amount paid by the Corporation if it is
ultimately determined that the director or officer is not entitled to
indemnification by the Corporation.
Clause 7.023. Other Employees or Agents of the Corporation. The Corporation
may, in the discretion of the Board of Directors, fully or partially provide
the same rights of indemnification and reimbursement as hereinabove provided
for directors and officers of the Corporation to other individuals who are or
were employees or agents of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
whether or not for profit.
Clause 7.024. Non-exclusive Provision. The indemnification authorized under
Section 7.02 above is in addition to all rights to indemnification granted by
Chapter 37 of the Indiana Business Corporation Law (Ind. Code (S)(S) 23-1-37,
et seq.) and in no way limits the indemnification provisions of such Chapter.
The Company currently has a directors' and officers' liability policy with a
$1,000,000 limit. It does not cover liability of the directors and officers
resulting from a public offering of securities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is provided with respect to all sales of
securities by the Company within the past three years which were not
registered under the Securities Act:
On July 29, 1994, the Company: (i) sold 1,564,098 Common Shares for an
aggregate consideration of $455,000 in cash, to 56 persons each of whom was an
accredited investor, including each of the executive officers and directors of
the Company; (ii) sold 435,896 Common Shares to MassMutual for an aggregate
consideration of $145,000 in cash; (iii) granted to MassMutual warrants to
purchase up to 564,100 Common Shares for no additional consideration; (iv)
sold 2,400 11% Cumulative Preferred Shares to certain of the purchasers
referred to in (i) and (ii) for an aggregate consideration of $2,400,000 in
cash; (v) sold to MassMutual $10,500,000 in principal amount of 10% Senior
Secured Fixed Rate Notes; and (vi) sold to MassMutual $4,500,000 in principal
amount of 11% Senior Subordinated Notes. All of such transactions were
effected in reliance on the exemption under Rule 506 of Regulation D.
On April 1, 1995, the Company granted to Dr. Dennis J. Hegyi, in connection
with the execution by Dr. Hegyi of a consulting agreement and certain license
agreements, an option to purchase 200,000 Common Shares, in reliance on the
exemption from registration under Section 4(2) of the Securities Act.
On April 1, 1996, the Company sold: (i) $1,108,000 in aggregate principal
amount of the RDI Notes; and (ii) $892,000 in aggregate principal amount of
the RDI Convertible Notes, as part of the consideration for the acquisition
for RDI to seven residents of France, in reliance on Regulation S.
On September 6, 1996, the Company granted options to purchase 150,000 Common
Shares under the Plan, conditioned on the closing of this Offering, at an
exercise price equal to the intial public offering price to certain employees.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1.1 Form of Articles of Incorporation of the Company to be filed at
closing of the offering
3.1.2 Form of Articles of Incorporation of the Company, to be filed upon
redemption of all outstanding Redeemable Preferred Shares
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.2 Form of Code of By-laws of the Company to be effective at the closing
of the offering
4.1 Specimen of Common Share certificate
4.2 Article III of the Articles of Incorporation of the Company (included
in Exhibit 3.1.1)
4.3 The Code of By-laws of the Company (included in Exhibit 3.2)
4.4* Form of (i) Securities Purchase Agreement dated July 29, 1994 entered
into between Control Devices, Inc. and certain investors ("SPA"); and
(ii) 10% Senior Secured Fixed Rate Notes, 11% Senior Subordinated
Notes, and Senior Secured Floating Rate Revolving Credit Notes issued
pursuant to the Securities Purchase Agreement.
4.5* Agreement to furnish copies of certain long term debt agreements.
4.6 Form of First Amendment dated March 29, 1996, to SPA and Senior
Revolving Credit Notes
4.7 Form of Second Amendment dated August 16, 1996 to SPA and Waiver
dated August 19, 1996
4.8 Commitment letter from Fleet Bank of Maine dated August 1, 1996
5.1 Opinion of Sommer & Barnard, PC
10.1* Environmental Agreement dated July 6, 1994 among Control Devices,
Inc., GTE Products of Connecticut Corporation, GTE Corporation, GTE
Control Devices Incorporated and Dominican Overseas Trading Company
10.2* Lease Assignment, Assumption Agreement and Release dated July 29,
1994 between GTE Control Devices, Incorporated and Control Devices,
Inc. with respect to the Lease dated September 23, 1993 between
Westinghouse Electric Corporation and GTE Control Devices,
Incorporated attached as Exhibit 1 thereto
10.3* Lease Assignment, Assumption Agreement and Release dated July 29,
1994 between GTE Control Devices, Incorporated and Control Devices,
Inc. with respect to the Lease dated December 1, 1993 between John
Hancock Mutual Life Insurance Company and GTE Control Devices
Incorporated attached as Exhibit 1 thereto
10.4* Lease Agreement dated December 30, 1994 between Mecon Mfg. and
Control Devices, Inc.
10.5.1 1996 Stock Compensation Plan
10.6* Consultant's Agreement dated April 1, 1995 between Control Devices,
Inc. and Dr. Dennis J. Hegyi
10.7* Agreement to Grant License dated April 1, 1995 between Control
Devices, Inc. and Dr. Dennis J. Hegyi
10.8* Option to Purchase 200,000 Class A Common Shares of Control Devices,
Inc. granted to Dr. Dennis J. Hegyi
10.9* Agreement dated April 1, 1995 between Control Devices, Inc. and Dr.
Dennis J. Hegyi
10.10* License Agreement (Rain Sensor and Fog Sensor) dated April 3, 1995,
between Control Devices, Inc. and Dr. Dennis J. Hegyi
10.11* License Agreement (Solar Position Sensor) dated April 3, 1995,
between Control Devices, Inc. and Dr. Dennis J. Hegyi
10.12* License Agreement (Twilight Sensor) dated April 3, 1995, between
Control Devices, Inc. and Dr. Dennis J. Hegyi
10.13* Stock Purchase Agreement dated March 29, 1996, by and among the
Company and each of the shareholders of RDI
10.14* Employment Agreement with Michel Hauser-Kauffmann
10.15 License Agreement dated November 6, 1989 between GTE Products
Corporation and Dennis J. Hegyi
11 Statement regarding computation of per share earnings
23.1 Consent of Sommer & Barnard, PC (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
23.3 Consent of Barbier Frinault & Associes, Independent Public
Accountants
24* Power of Attorney (included on signature page of the Registration
Statement)
27* Financial Data Schedule
</TABLE>
- --------
* Filed Previously
II-3
<PAGE>
(b) Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions
described in Item 14, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(3) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF STANDISH, STATE OF
MAINE, ON THE 10TH DAY OF SEPTEMBER, 1996.
Control Devices, Inc.
/s/ Jeffrey G. Wood
By: __________________________________
JEFFREY G. WOOD
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, SECRETARY AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSON IN THE CAPACITIES AND
ON THE DATES INDICATED.
SIGNATURE TITLE(S) DATE
Chairman of the
/s/ Ralph R. Whitney, Jr.* Board September 10,
- ------------------------------------ 1996
RALPH R. WHITNEY, JR. Principal Executive
Officer
/s/ Jeffrey G. Wood Vice President,
- ------------------------------------ Chief Financial September 10,
JEFFREY G. WOOD Officer, Secretary 1996
and Treasurer
Principal Financial
and Accounting
Officer
President, Chief
/s/ Bruce D. Atkinson* Executive Officer September 10,
- ------------------------------------ and Director 1996
BRUCE D. ATKINSON
Director
/s/ C. M. Brennan* September 10,
- ------------------------------------ 1996
C. M. BRENNAN
Director
/s/ John D. Cooke* September 10,
- ------------------------------------ 1996
JOHN D. COOKE
Director
/s/ James O. Futterknecht, Jr.* September 10,
- ------------------------------------ 1996
JAMES O. FUTTERKNECHT, JR.
II-5
<PAGE>
SIGNATURE TITLE(S) DATE
Director
/s/ Alan I. Mossberg* September 10,
- ------------------------------------- 1996
ALAN I. MOSSBERG
Director
/s/ John M. Ramey* September 10,
- ------------------------------------- 1996
JOHN M. RAMEY
Director
/s/ Glenn Scolnik* September 10,
- ------------------------------------- 1996
GLENN SCOLNIK
/s/ Jeffrey G. Wood
---------------------------------
*By:
JEFFREY G. WOOD ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1.1 Form of Articles of Incorporation of the Company to be filed
at closing of the offering
3.1.2 Form of Articles of Incorporation of the Company, to be filed
upon redemption of all outstanding Redeemable Preferred Shares
3.2 Form of Code of By-laws of the Company to be effective at the
closing of the offering
4.1 Specimen of Common Share certificate
4.2 Article III of the Articles of Incorporation of the Company
(included in Exhibit 3.1.1)
4.3 The Code of By-laws of the Company (included in Exhibit 3.2)
4.4* Form of (i) Securities Purchase Agreement dated July 29, 1994
entered into between Control Devices, Inc. and certain
investors ("SPA"); and (ii) 10% Senior Secured Fixed Rate
Notes, 11% Senior Subordinated Notes, and Senior Secured
Floating Rate Revolving Credit Notes issued pursuant to the
Securities Purchase Agreement.
4.5* Agreement to furnish copies of certain long term debt
agreements.
4.6 Form of First Amendment dated March 29, 1996, to SPA and
Senior Revolving Credit Notes
4.7 Form of Second Amendment dated August 16, 1996 to SPA and
Waiver dated August 19, 1996
4.8 Commitment letter from Fleet Bank of Maine dated August 1,
1996
5.1 Opinion of Sommer & Barnard, PC
10.1* Environmental Agreement dated July 6, 1994 among Control
Devices, Inc., GTE Products of Connecticut Corporation, GTE
Corporation, GTE Control Devices Incorporated and Dominican
Overseas Trading Company
10.2* Lease Assignment, Assumption Agreement and Release dated July
29, 1994 between GTE Control Devices, Incorporated and Control
Devices, Inc. with respect to the Lease dated September 23,
1993 between Westinghouse Electric Corporation and GTE Control
Devices, Incorporated attached as Exhibit 1 thereto
10.3* Lease Assignment, Assumption Agreement and Release dated July
29, 1994 between GTE Control Devices, Incorporated and Control
Devices, Inc. with respect to the Lease dated December 1, 1993
between John Hancock Mutual Life Insurance Company and GTE
Control Devices Incorporated attached as Exhibit 1 thereto
10.4* Lease Agreement dated December 30, 1994 between Mecon Mfg. and
Control Devices, Inc.
10.5.1 1996 Stock Compensation Plan
10.6* Consultant's Agreement dated April 1, 1995 between Control
Devices, Inc. and Dr. Dennis J. Hegyi
10.7* Agreement to Grant License dated April 1, 1995 between Control
Devices, Inc. and Dr. Dennis J. Hegyi
10.8* Option to Purchase 200,000 Class A Common Shares of Control
Devices, Inc. granted to Dr. Dennis J. Hegyi
10.9* Agreement dated April 1, 1995 between Control Devices, Inc.
and Dr. Dennis J. Hegyi
10.10* License Agreement (Rain Sensor and Fog Sensor) dated April 3,
1995, between Control Devices, Inc. and Dr. Dennis J. Hegyi
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.11* License Agreement (Solar Position Sensor) dated April 3, 1995,
between Control Devices, Inc. and Dr. Dennis J. Hegyi
10.12* License Agreement (Twilight Sensor) dated April 3, 1995,
between Control Devices, Inc. and Dr. Dennis J. Hegyi
10.13* Stock Purchase Agreement dated March 29, 1996, by and among
the Company and each of the shareholders of RDI
10.14* Employment Agreement with Michel Hauser-Kauffmann
10.15 License Agreement dated November 6, 1989 between GTE Products
Corporation and Dennis J. Hegyi
11 Statement regarding computation of per share earnings
23.1 Consent of Sommer & Barnard, PC (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
23.3 Consent of Barbier Frinault & Associes, Independent Public
Accountants
24* Power of Attorney (included on signature page of the
Registration Statement)
27* Financial Data Schedule
</TABLE>
- --------
* Filed Previously
<PAGE>
Draft: 9/10/96
2,000,000 Shares
Control Devices, Inc.
Common Shares
UNDERWRITING AGREEMENT
----------------------
_____________, 1996
DEAN WITTER REYNOLDS INC.
CLEARY GULL REILAND & MCDEVITT INC.
As Representatives of the several Underwriters
c/o Dean Witter Reynolds Inc.
2 World Trade Center
65th Floor
New York, New York 10048
Dear Sirs:
1. Introductory. Control Devices, Inc., an Indiana corporation (the
------------
"Company"), proposes to issue and sell, pursuant to the terms of this Agreement,
-------
to the several Underwriters named in Schedule A hereto (the "Underwriters" which
---------- ------------
term also shall include any underwriter substituted as hereinafter provided in
Section 11) an aggregate of 2,000,000 Common Shares (the "Common Stock") of the
------------
Company. The aggregate of 2,000,000 shares proposed to be sold are hereinafter
referred to as the "Firm Stock". The Company also proposes to sell severally to
----------
the Underwriters, on a pro rata basis, at the option of the Underwriters, an
aggregate of not more than 300,000 additional shares of Common Stock, as
provided in Section 3 of this Agreement. The aggregate of 300,000 shares so
proposed to be sold is herein called the "Optional Stock". The Firm Stock and
--------------
the Optional Stock are collectively referred to herein as the "Stock". Dean
-----
Witter Reynolds Inc. and Cleary Gull Reiland & McDevitt Inc. are acting as
representatives of the several Underwriters and in such capacity are hereinafter
referred to as the "Representatives".
---------------
Before the purchase and public offering of the Stock by the several
Underwriters, the Company and the Representatives, acting on behalf of the
several Underwriters, shall enter into an agreement substantially in the form of
Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the
- --------- -----------------
form of an exchange of any standard form of written telecommunication between
the Company and the Representatives and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the Stock will
---------
be governed by this Agreement, as
-1-
<PAGE>
supplemented by the Pricing Agreement. From and after the date of the execution
and delivery of the Pricing Agreement, this Agreement shall be deemed to
incorporate the Pricing Agreement.
2. (a) Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, the several Underwriters, as of the
date hereof and as of the date of the Pricing Agreement (such later date being
hereinafter referred to as the "Representation Date"), that:
-------------------
(i) A registration statement on Form S-1 (File No. 333-09379) with
-----
respect to the Stock, a copy of which has heretofore been delivered to you, has
been carefully prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the published rules and
---
regulations (the "Rules and Regulations") of the Securities and Exchange
---------------------
Commission (the "Commission") under the Act, and has been filed with the
----------
Commission under the Act; and the Company has so prepared and proposes so to
file prior to the effective date of such registration statement an amendment to
such registration statement including the final form of prospectus (which may
omit such information as permitted by Rule 430A of the Rules and Regulations).
Such registration statement as amended and the prospectus constituting a part
thereof (including in each case the information, if any, deemed to be a part
thereof pursuant to Rule 430A(b) or Rule 434 of the Rules and Regulations) are
hereinafter referred to as the "Registration Statement" and the "Prospectus",
---------------------- ----------
respectively, except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the Stock
which differs from the prospectus on file at the Commission at the time the
Registration Statement becomes effective (whether or not such prospectus is
required to be filed by the Company pursuant to Rule 424(b) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised prospectus from
----------
and after the time it is first provided to the Underwriters for such use. If
the Company elects to rely on Rule 434 under the Rules and Regulations, all
references to the Prospectus shall be deemed to include, without limitation, the
form of prospectus and the term sheet, taken together, provided to the
Underwriters by the Company in reliance on Rule 434 under the Rules and
Regulations (the "Rule 434 Prospectus"). If the Company files a registration
-------------------
statement to register a portion of the Securities and relies on Rule 462(b) for
such registration statement to become effective upon filing with the Commission
(the "Rule 462 Registration Statement"), then any reference to "Registration
------------------------------- ------------
Statement" herein shall be deemed to be to both the registration statement
- ---------
referred to above (No. 333-09379) and the Rule 462 Registration Statement, as
each such registration statement may be amended pursuant to the Act.
(ii) When the Registration Statement becomes effective and as of the
Representation Date, the Registration Statement and the Prospectus will conform
in all material respects to the requirements of the Act and the Rules and
Regulations. At the time the Registration Statement becomes effective and at
the Representation Date, the Registration Statement will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus, at the time the Registration Statement becomes effective and as of
the Representation Date (unless the term "Prospectus" refers to a prospectus
----------
which has been provided to the Underwriters by the Company for use in connection
with the offering of the Stock which differs from the prospectus on file at
-2-
<PAGE>
the Commission at the time the Registration Statement becomes effective, in
which case at the time it is first provided to the Underwriters for such use)
and at the Closing Date (as hereinafter defined), will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing
-------- -------
representations, warranties and agreements shall not apply to information
contained in or omitted from the Registration Statement or the Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof.
(iii) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, except as otherwise expressly
disclosed in the Registration Statement and Prospectus, (A) neither the Company
nor any of its subsidiaries has incurred any liabilities or obligations
(indirect, direct or contingent) or entered into any oral or written agreements
or other transactions not in the ordinary course of business that, singly or in
the aggregate, could reasonably be expected to be material to the Company and
its subsidiaries considered as a whole or that could reasonably be expected to
result in a material reduction in the earnings of the Company and its
subsidiaries considered as a whole, (B) neither the Company nor any of its
subsidiaries has sustained any loss or interference with its business or
properties from strike, fire, flood, windstorm, accident or other calamity
(whether or not covered by insurance) that, singly or in the aggregate, could
reasonably be expected to be material to the Company and its subsidiaries
considered as a whole, (C) there has been no material change in the indebtedness
of the Company, no change in the capital stock of the Company and no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock, and (D) there has not been any material adverse change, nor
any development that could, singly or in the aggregate, result in a material
adverse change in the condition (financial or other), business, prospects or
results of operations of the Company and its subsidiaries considered as a whole,
whether or not arising in the ordinary course of business.
(iv) The financial statements, together with the related notes and
schedules, set forth in the Prospectus and elsewhere in the Registration
Statement, fairly present, on the basis stated in the Registration Statement,
the financial position and the results of operations and changes in financial
position of the Company and its consolidated subsidiaries at the respective
dates or for the respective periods therein specified. Such financial
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis except as
may be set forth in the Prospectus. The summary financial information and
selected financial data set forth in the Prospectus under the captions fairly
present, on the basis stated in the Registration Statement, the information set
forth therein.
(v) Arthur Andersen LLP, who have expressed their opinions on the
audited financial statements and related schedules included in the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(vi) The Company has been duly organized and is validly existing as a
corporation, and each of its subsidiaries have been duly organized and are
validly existing and in good standing as
-3-
<PAGE>
corporations, under the laws of their respective jurisdictions of organization,
with power and authority (corporate and other) to own, lease and operate their
properties and to conduct their businesses as described in the Registration
Statement and Prospectus; the Company is and each of its subsidiaries are in
possession of and operating in compliance with all material franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
required for the conduct of its business, all of which are valid and in full
force and effect, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or modification of
any such franchise, grant, authorization, license, permit, easement, consent,
certificate or order which, singly or in the aggregate, if the subject of an
unfavorable decision, would result in a materially adverse change in the
condition (financial or otherwise), business, prospects or results of operations
of the Company and its subsidiaries considered as a whole; and the Company is
and each of such subsidiaries are duly qualified to do business and in good
standing as foreign corporations in all other jurisdictions where their
ownership or leasing of properties or the conduct of their businesses requires
such qualification, except where the failure to be so qualified or in good
standing would not have a material adverse effect on the condition (financial or
otherwise), business, prospects or results of operations of the Company and its
subsidiaries taken as a whole.
(vii) The Company has authorized, issued and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus (except for
subsequent issuances, if any, pursuant to reservations or agreements referred to
in the Prospectus); the issued and outstanding shares of Capital Stock
(including the Stock) of the Company conform to the description thereof in the
Prospectus and have been duly authorized and validly issued and are fully paid
and nonassessable; the stockholders of the Company have no preemptive rights
with respect to any shares of capital stock of the Company (except for
MassMutual (as defined in the Registration Statement) which has waived its
preemptive rights) and all outstanding shares of capital stock of each corporate
subsidiary have been duly authorized and validly issued, and are fully paid and
nonassessable and are owned directly by the Company or by another subsidiary of
the Company free and clear of any liens, encumbrances, equities or claims
(except for the shares of RDI and FSC, which have been pledged to MassMutual,
which pledge will be released upon the closing of the sale of Stock to the
Underwriters pursuant hereto).
(viii) The Stock to be issued and sold by the Company to the Underwriters
hereunder has been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein and in the Pricing Agreement, will
be duly and validly issued and fully paid and nonassessable and will conform to
the description thereof in the Prospectus.
(ix) Except as disclosed in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any subsidiary is the
subject, that are required to be disclosed in the Registration Statement (other
than as described therein), or which, if determined adversely to the Company or
any subsidiary, would individually or in the aggregate result in a material
adverse change in the condition (financial or otherwise), business, prospects or
results of operations of the Company and its subsidiaries considered as a whole
or which might materially and adversely affect
-4-
<PAGE>
the consummation of this Agreement; and to the best of the Company's knowledge
no such proceedings are threatened or contemplated by governmental authorities
or threatened by others.
(x) Neither the Company nor any of its subsidiaries is, or with the
giving of notice or passage of time or both would be, in breach or violation of
any of the terms or provisions of or in default under (A) any statute, rule or
regulation applicable to the Company or any of its subsidiaries, (B) any
indenture, contract, lease, mortgage, deed of trust, note or other agreement or
instrument to which the Company or such subsidiary is a party or by which it may
be bound, (C) its certificate of incorporation, by-laws or other organizational
documents, and (D) any order, decree or judgment of any court or governmental
agency or body having jurisdiction over the Company or any of its subsidiaries.
The performance of this Agreement and the consummation of the transactions
herein contemplated will not, with the giving of notice or passage of time or
both, result in a breach or violation of any of the terms or provisions of or
constitute a default under (W) any statute, rule or regulation applicable to the
Company or any of its subsidiaries, (X) any indenture, contract, mortgage,
lease, deed of trust, note or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which it is bound, (Y) the Company's
or any such subsidiary's certificate of incorporation, by-laws or other
organizational documents, or (Z) any order, decree judgment of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties.
(xi) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the best of the Company's knowledge, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
might be expected to result in any material adverse change in the condition
(financial or otherwise), or in the earnings, affairs or business prospects of
the Company and its subsidiaries considered as a whole.
(xii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is required
for the issuance and sale of the Stock by the Company or for the consummation by
the Company of the transactions contemplated by this Agreement, including,
without limitation, the use of the proceeds from the sale of the Stock to be
sold by the Company in the manner contemplated in the Prospectus under the
caption "Use of Proceeds," except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under the Act or the
----
securities or Blue Sky laws of any jurisdiction in connection with the purchase
and distribution of the Stock by the Underwriters.
(xiii) This Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by the Company.
(xiv) The Company and its subsidiaries own or have obtained valid
licenses for all trademarks, trademark registrations, service marks, service
mark registrations, trade names and copyrights described in the Prospectus as
being owned, licensed or used by the Company or any of its subsidiaries or that
are necessary for the conduct of their respective businesses as described in the
Prospectus (collectively, "Intellectual Property") and neither the Company nor
---------------------
any of its subsidiaries is aware of any
-5-
<PAGE>
claim (or of any facts that would form a reasonable basis for any claim) to the
contrary or any challenge by any third party to the rights of the Company or any
of its subsidiaries with respect to any such Intellectual Property or to the
validity or scope of any such Intellectual Property and neither the Company nor
any of its subsidiaries has any claim against a third party with respect to the
infringement by such third party of any such Intellectual Property, which claims
or challenges, if adversely determined, could, singly or in the aggregate, have
a material adverse effect on the condition (financial or otherwise), business
prospects or results of operations of the Company and its subsidiaries
considered as a whole. The Company has a good faith belief in the
distinctiveness and enforceability of all trademarks, service marks and trade
names comprising the Intellectual Property.
(xv) The Company and its subsidiaries have such material certificates,
permits, licenses, franchises, consents, approvals, authorizations and
clearances as are necessary to own, lease or operate their respective properties
and to conduct their respective businesses in the manner described in the
Prospectus ("Licenses") and all such Licenses are valid and in full force and
--------
effect. The Company and each of its subsidiaries are in compliance in all
material respects with their respective obligations under such Licenses and no
event has occurred that allows, or after notice or lapse of time or both would
allow, revocation, suspension or termination of any such License or would result
in a material violation of any such laws or regulations. No such License
contains a burdensome restriction on the Company or any of its subsidiaries that
is not adequately disclosed in the Registration Statement and the Prospectus.
(xvi) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(xvii) The Company and its subsidiaries have good and marketable title to
all properties (real and personal) owned by the Company and its subsidiaries,
free and clear of any mortgage, pledge, lien, security interest, claim or
encumbrance of any kind that could reasonably be expected to materially
interfere with the use of such properties or the conduct of the business of the
Company and its subsidiaries considered as a whole; and all material properties
held under lease or sublease by the Company or its subsidiaries are held under
valid, subsisting and enforceable leases or subleases.
(xviii) The Company and its subsidiaries maintain accurate books and
records reflecting their respective assets and maintain internal accounting
controls which provide reasonable assurance that (A) transactions are executed
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of financial statements and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with management's
authorization and (D) the reported accountability of assets is compared with
existing assets at reasonable intervals.
(xix) The Company has complied, and will continue to comply, with all
provisions of Section 517.075 of the Florida Statutes (Chapter 92-198, Laws of
Florida) and the rules thereunder.
-6-
<PAGE>
(xx) The Company and its subsidiaries carry or are entitled to the
benefits of insurance in such amounts and covering such risks as is generally
maintained by or on behalf of companies of established repute engaged in the
same or similar business, and all such insurance is in full force and effect.
(xxi) The properties, assets and operations of the Company and its
subsidiaries are in compliance with all applicable federal, state, local and
foreign laws, rules and regulations orders, decrees, judgments, permits and
licenses relating to public and worker health and safety and to the protection
and clean-up of the natural environment and activities or conditions related
thereto, including, without limitation, those relating to the generation,
handling, disposal, transportation or release of hazardous materials
(collectively, "Environmental Laws"), except to the extent that failure to
------------------
comply could not, singly or in the aggregate, have a material adverse effect on
the condition (financial or otherwise), business, prospects or results of
operations of the Company and its subsidiaries considered as a whole. With
respect to such properties, assets and operations, including any previously
owned, leased or operated properties, assets or operations, there are no past,
present or, to the best knowledge of the Company, reasonably anticipated future
events, conditions, circumstances, activities, practices, incidents, actions or
plans of the Company or any of its subsidiaries that may interfere with or
prevent compliance or continued compliance in all material respects with
applicable Environmental Laws. Neither the Company nor any of its subsidiaries
is the subject of any federal, state, local or foreign investigation, and
neither the Company nor any of its subsidiaries has received any notice or claim
(or is aware of any facts that would form a reasonable basis for any claim), nor
entered into any negotiations or agreements, with any third party relating to
any liability or remedial action or potential liability or remedial action under
Environmental Laws, nor are there any pending, reasonably anticipated or, to the
best knowledge of the Company, threatened actions, suits or proceedings against
or affecting the Company, any of its subsidiaries or their properties, assets,
or operations, in connection with any such Environmental Laws. The term
"hazardous materials" shall mean those substances that are regulated by or form
the basis for liability under any applicable Environmental Laws. The
representations in this Section 2(xxi) are qualified to the extent expressly set
forth in the Prospectus in the second paragraph of "Business - Environmental
Matters" and the second paragraph of Note 14 to the Company's Financial
Statements.
(xxii) The Company and its subsidiaries have filed all federal, state,
local and foreign tax returns required to be filed, such returns are complete
and accurate in all material respects, and all taxes shown by such returns or
otherwise assessed that are due have been paid, except such taxes as are being
contested in good faith and as to which adequate reserves have been provided.
The charges, accruals and reserves on the books of the Company and its
subsidiaries in respect of any tax liability for any year not finally determined
are adequate to meet any assessments or reassessments for additional taxes; and
there has been no tax deficiency asserted and, to the best knowledge of the
Company, no tax deficiency might be asserted or threatened against the Company
or any of its subsidiaries that could, singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise), business,
prospects or results of operations of the Company and its subsidiaries
considered as a whole.
-7-
<PAGE>
(xxiii) Each "employee benefit plan" within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), in which employees
-----
of the Company or any of its subsidiaries are eligible to participate is in
compliance in all material respects with the applicable provisions of ERISA and
the Internal Revenue Code of 1986, as amended. Neither the Company nor any of
its subsidiaries has any liability under Title IV of ERISA, nor does the Company
or any of its subsidiaries expect that any such liability will be incurred, that
could singly or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), business, prospects or results of operations
of the Company and its subsidiaries considered as a whole.
(xxiv) No transaction has occurred between or among the Company, its
subsidiaries and any of their respective officers, directors or affiliates or,
to the best of the Company's knowledge, any affiliate of any such officer or
director, that is required to be described in the Registration Statement that is
not so described.
(xxv) There are no contracts, agreements or understandings between the
Company or its subsidiaries and any third party (whether acting in an
individual, fiduciary or other capacity) granting such third party the right to
require the Company to file a registration statement under the Act with respect
to any securities of the Company owned or to be owned by such third party or to
require the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the Act
(except for registration rights held by MassMutual, which have been waived with
respect to this Registration Statement).
(xxvi) There are no statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the registration Statement that are
not described or filed as required. The contracts so described in the
Registration Statement and the Prospectus are in full force and effect and
neither the Company or any of its subsidiaries nor, to the best knowledge of the
Company, any other party is in breach of or default under any such contracts.
(xxvii) The Company has not taken and will not take, directly or
indirectly, any action designed to or that could reasonably be expected to cause
or result in the stabilization or manipulation of the price of the Common Stock
and the Company has not distributed and will not distribute any offering
material in connection with the offering and sale of the Stock other than any
preliminary prospectus filed with the Commission or the Prospectus or other
materials, if any, permitted by the Act or the Rules or Regulations.
(xxviii) Neither the Company nor any of its subsidiaries has, at any time
during the last five years, (A) made any unlawful contributions to any candidate
for foreign office or failed to disclose fully any contributions in violation of
law or (B) made any payment to any federal, state or local governmental officer
or official or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
-8-
<PAGE>
(xxix) Except as contemplated by this Agreement, there is no broker,
finder or other party that is entitled to receive from the Company or any of its
subsidiaries any brokerage or finder's fee or any other fee, commission or
similar payment in connection with the Stock to be sold by the Company.
(b) Any certificate signed by an officer of the Company and delivered
to the Representatives or counsel for the Underwriters pursuant to this
Agreement shall be deemed a representation and warranty of the Company to each
Underwriter as to the matters covered thereby.
3. Purchase by, and Sale and Delivery to, Underwriters; Closing Date.
-----------------------------------------------------------------
On the basis of the representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters the Firm Stock, and subject to the terms and
conditions herein set forth, the Underwriters agree, severally and not jointly,
to purchase from the Company, at the price per share set forth in the Pricing
Agreement, the number of shares of Firm Stock set forth opposite their names in
Schedule A (except as otherwise provided in the Pricing Agreement), subject to
adjustment in accordance with Section 11 hereof.
The Underwriters agree to reserve a maximum of 90,000 shares of Firm Stock
for offering and sale to certain officers and employees of the Company and to
certain other persons designated by the Company directly related to the conduct
of its business, at the public offering price. Any such shares of Firm Stock
not purchased by such persons immediately following the initial public offering
of the Firm Stock will be offered to the public by the Underwriters as set forth
in the Prospectus.
If the Company has elected not to rely upon Rule 430A under the Rules and
Regulations, the initial public offering price and the purchase price per share
to be paid by the several Underwriters for the Firm Stock each have been
determined and set forth in the Pricing Agreement, dated the date hereof, and an
amendment to the Registration Statement and the Prospectus will be filed before
the Registration Statement becomes effective.
If the Company has elected to rely upon Rule 430A under the Rules and
Regulations, the purchase price per share to be paid by the several Underwriters
for the Firm Stock shall be an amount equal to the initial public offering
price, less an amount per share to be determined by agreement between the
Representatives and the Company. The initial public offering price per share of
the Firm Stock shall be a fixed price to be determined by agreement between the
Representatives and the Company. The initial public offering price and the
purchase price, when so determined, shall be set forth in the Pricing Agreement.
In the event that such prices have not been agreed upon and the Pricing
Agreement has not been executed and delivered by all parties thereto by the
close of business on the fourteenth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability of any
party to any other party, unless otherwise agreed to in writing by the Company
and the Representatives.
-9-
<PAGE>
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 Noon, New York Time, on the business day preceding the Closing Date or,
if no such direction is received, in the names of the respective Underwriters in
the amount set forth opposite each Underwriter's name on Schedule A hereto),
----------
against payment of the purchase price therefor by certified or official bank
check or checks in same day funds, payable to the order of the Company, all at
the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, High Street
Tower, Boston, Massachusetts 02110. The time and date of delivery and closing
shall be at 10:00 A.M., on the fourth full business day after the Registration
Statement becomes effective (or, if the Company has elected to rely upon Rule
430A, the fourth full business day after execution of the Pricing Agreement);
provided, however, that such date and time may be accelerated or extended by
- -------- -------
agreement between the Company and the Representatives or postponed pursuant to
the provisions of Section 12 hereof. The time and date of such payment and
delivery are herein referred to as the "Closing Date". The Company shall make
------------
the certificates for the Stock available to the Representatives for examination
on behalf of the Underwriters not later than 3:00 P.M., New York Time, on the
business day preceding the Closing Date.
In addition, for the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Stock as contemplated by the
Prospectus, the Company hereby grants the Underwriters an option to purchase,
severally and not jointly, up to 300,000 shares in the aggregate of the Optional
Stock. The purchase price per share to be paid for the Optional Stock shall be
the same price per share as for the Firm Stock, less the amount of any dividend
declared by the Company and payable on any Optional Stock and as to which the
record date has occurred after the date of the Pricing Agreement. The option
granted hereby may be exercised as to all or any part of the Optional Stock at
any time not more than 30 days subsequent to the effective date of this
Agreement. No Optional Stock shall be sold and delivered unless the Firm Stock
previously has been, or simultaneously is, sold and delivered. The right to
purchase the Optional Stock or any portion thereof may be surrendered and
terminated at any time upon notice by the Representatives to the Company.
The option granted hereby may be exercised by the Representatives on behalf
of the Underwriters by giving written notice to the Company setting forth the
number of shares of the Optional Stock to be purchased by them and the date and
time for delivery of and payment for the Optional Stock. Such date and time for
delivery of and payment for the Optional Stock (which may be the First Closing
Date) is herein called the "Option Closing Date" and shall not be later than
-------------------
three business days after written notice is given. Optional Stock shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Stock set forth opposite such Underwriter's name in
Schedule A hereto bears to the total number of shares of Firm Stock (subject to
- ----------
adjustment by the Representatives to eliminate odd lots). Upon exercise of the
option by the Representatives, the Company agrees, subject to the terms and
conditions herein set forth, to sell to the Underwriters the number of shares of
Optional Stock set forth in the written notice of exercise and the Underwriters
agree, severally
-10-
<PAGE>
and not jointly, subject to the terms and conditions herein set forth, to
purchase such shares of Optional Stock.
The Company will deliver the Optional Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 Noon, New York Time, on the business day preceding the Option Closing
Date or, if no such direction is received, in the names of the respective
Underwriters), against payment of the purchase price therefor by certified or
official bank check or checks in same day funds, payable to the order of the
Company, all at the offices of Testa, Hurwitz & Thibeault, LLP, High Street
Tower, 125 High Street, Boston, Massachusetts. The Company shall make the
certificates for the Optional Stock available to the Representatives for
examination on behalf of the Underwriters not later than 3:00 P.M., New York
Time, on the business day preceding the Option Closing Date.
It is understood that Dean Witter Reynolds Inc. or Cleary Gull Reiland &
McDevitt Inc., individually and not as Representatives of the several
Underwriters, may (but shall not be obligated to) make payment to the Company
on behalf of any Underwriter or Underwriters, for the Stock to be purchased by
such Underwriter or Underwriters. Any such payment by Dean Witter Reynolds Inc.
or Cleary Gull Reiland & McDevitt Inc. shall not relieve such Underwriter or
Underwriters from any of its or their other obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters propose to make an initial public offering of the Stock at the
initial public offering price. The Representatives shall promptly advise the
Company of the making of the initial public offering.
4. Covenants and Agreements of the Company. The Company covenants and
---------------------------------------
agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective under the Act, will advise the
Representatives promptly as to the time at which the Registration Statement
becomes effective, will advise the Representatives promptly of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such
stop order and to obtain as soon as possible the lifting thereof, if
issued. If the Company elects to rely on Rule 434 under the Rules and
Regulations, the Company will prepare a term sheet that complies with the
requirements of Rule 434 under the Rules and Regulations. If Company
elects not to rely on Rule 434, the Company will provide the Underwriters
with copies of the form of Prospectus, in such number as the Underwriters
may reasonably request, and file or transmit for filing with the Commission
such Prospectus in accordance with Rule 424(b) of the Rules and Regulations
by the close of business in New York on the business day immediately
succeeding the date of the Pricing Agreement. If the Company elects to
rely on Rule 434, the Company will provide the Underwriters with the copies
of the form of Rule 434 Prospectus, in such number as the Underwriters may
reasonably request, and
-11-
<PAGE>
file or transmit for filing with the Commission the 434 Prospectus in
accordance with Rule 424(b) of the Rules and Regulations by the close of
business in New York on the business day immediately succeeding the date of
the Pricing Agreement.
(b) The Company will advise the Representatives promptly of any
request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional information, and
will not at any time file any amendment to the Registration Statement or
supplement to the Prospectus which shall not previously have been submitted
to the Representatives a reasonable time prior to the proposed filings
thereof or to which the Representatives shall reasonably object in writing
or which is not in compliance with the Act and the Rules and Regulations.
(c) The Company will prepare and file with the Commission, promptly
upon the request of the Representatives, any amendments or supplements to
the Registration Statement or the Prospectus (including any revised
prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Stock which differs from the prospectus
on file at the Commission at the time the Registration Statement becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424 of the Rules and Regulations or any term sheet
prepared in reliance on Rule 434 of the Rules and Regulations) which in the
opinion of the Representatives may be necessary to enable the several
Underwriters to continue the distribution of the Stock and will use its
best efforts to cause the same to become effective as promptly as possible.
(d) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Act any event relating to or affecting the Company
occurs or has occurred as a result of which the Prospectus would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary, at any
time to amend the Prospectus to comply with the Act, the Company will
promptly notify the Representatives thereof and will prepare an amended or
supplemented prospectus (in form and substance satisfactory to counsel to
the Underwriters) which will correct such statement or omission; and, in
case any Underwriter is required to deliver a prospectus relating to the
Stock nine months or more after the effective date of the Registration
Statement, the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Act.
(e) The Company will deliver to the Representatives, at or before the
Closing Date, signed copies of the Registration Statement and all
amendments thereto including all financial statements and exhibits thereto,
and will deliver to
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<PAGE>
the Representatives such number of copies of the Registration Statement,
including such financial statements but without exhibits, and of all
amendments thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the Representatives on
the date of the initial public offering, and thereafter from time to time
during the period when delivery of a prospectus relating to the Stock is
required under the Act, as many copies of the Prospectus, in final form or
as thereafter amended or supplemented as the Representatives may reasonably
request; provided, however, that the
-------- -------
expense of the preparation and delivery of any prospectus required for use
nine months or more after the effective date of the Registration Statement
shall be borne by the Underwriters required to deliver such prospectus.
(f) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than 60 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the Act) which will be in
reasonable detail (but which need not be audited) and which will comply
with Section 11(a) of the Act, covering a period of at least twelve months
beginning not later than the first day of the Company's fiscal quarter next
following the "effective date" (as defined in Rule 158) of the Registration
Statement.
(g) The Company will cooperate with the Representatives to enable the
Stock to be qualified for sale under the securities laws of such
jurisdictions as the Representatives may designate and at the request of
the Representatives will make such applications and furnish such
information as may be required of it as the issuer of the Stock for that
purpose; provided, however, that the Company shall not be required to
qualify to do business or to file a general consent to service of process
in any such jurisdiction. The Company will, from time to time, prepare and
file such statements and reports as are or may be required of it as the
issuer of the Stock to continue such qualifications in effect for so long a
period as the Representatives may reasonably request for the distribution
of the Stock.
(h) The Company will furnish to its shareholders annual reports
containing financial statements certified by independent public accountants
and shall also furnish quarterly summary financial information in
reasonable detail which may be unaudited. During the period of five years
from the date hereof, the Company will deliver to the Representatives and,
upon request, to each of the other Underwriters, copies of each annual
report of the Company and each other report furnished by the Company to its
shareholders; and will deliver to the Representatives, as soon as they are
available, copies of any other reports (financial or other) which the
Company shall publish or otherwise make available to any of its security
holders as such, and as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission or any
national securities exchange or the NASD.
-13-
<PAGE>
(i) The Company will file with the Nasdaq National Market all
documents and notices required by the Nasdaq National Market of companies
that have issued securities that are traded in the over-the-counter market
and quotations for which are reported by Nasdaq National Market.
(j) The Company will use the net proceeds received by it from the sale
of the Stock in the manner specified in the Prospectus under "Use of
Proceeds".
(k) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 under the Act.
(l) During a period of 180 days from the date of the Pricing
Agreement, the Company will not, without prior written consent of Dean
Witter Reynolds Inc., directly or indirectly, sell, offer to sell, grant
any option for the sale of, or otherwise dispose of or enter into any
agreement to sell, any Common Stock or any security convertible into Common
Stock (except for Common Stock issued pursuant to reservations, agreements
or employee benefit plans disclosed in the Registration Statement).
(m) At the time this Agreement is executed, the Company shall have
furnished to the Representatives a letter from each officer and director of
the Company and all shareholders of the Company addressed to the
Representatives, in which each such person agrees that, during a period of
180 days from the date of the Pricing Agreement, such person will not,
without the prior written consent of Dean Witter Reynolds Inc., directly or
indirectly, (i) sell, offer to sell, grant any option for the sale of, or
otherwise dispose of or transfer, any shares of Common Stock beneficially
owned by such person or any securities convertible into or exchangeable or
exercisable for such Common Stock, whether now owned or hereafter acquired
by such person or with respect to which such person has or hereafter
acquires the power of disposition, or file any registration statement under
the Act with respect to any of the foregoing or (ii) enter into any swap or
any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction is to be settled by delivery of
Common Stock or other securities, in cash or otherwise.
5. Payment of Expenses. The Company will pay (directly or by
-------------------
reimbursement) all expenses incident to the performance of its obligations under
this Agreement, including but not limited to all expenses and taxes incident to
delivery of the Stock to the Representatives, all expenses incident to the
registration of the Stock under the Act and the printing of copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, any
amendments or supplements thereto including any terms sheet delivered by the
Company pursuant to Rule 434 of the Rules and Regulations, the "Blue Sky"
memorandum, the Agreement Among Underwriters, Underwriters' Questionnaire and
this Agreement and furnishing the same to the Underwriters and dealers except as
otherwise provided in Sections 4(d) and 4(e), the fees and disbursements of the
Company's counsel and accountants, all filing and printing fees and expenses
(including legal fees and disbursements of counsel for the Underwriters)
incurred in connection with qualification of
-14-
<PAGE>
the Stock for sale under the laws of such jurisdictions as the Representatives
may designate, all fees and expenses (including legal fees and disbursements of
counsel for the Underwriters) paid or incurred in connection with filings made
with the NASD, the fees and expenses incurred in connection with the listing of
the Stock on the Nasdaq National Market, the costs of preparing stock
certificates, the costs and fees of any registrar or transfer agent and all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section.
6. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Underwriter, each employee, officer, partner,
director and agent of the Underwriter, and each person, if any, who controls
such Underwriter within the meaning of the Act, against any losses, claims,
damages, liabilities or expenses (including the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, as incurred, which may be based upon
the Act, or any other federal or state statute or at common law, arising out of
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the information
deemed to be part of the Registration Statement pursuant to Rule 430A(b) or Rule
434 of the Rules and Regulations, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided that the Company shall not be liable with
--------
respect to any claims made against any Underwriter or any such employee,
officer, partner, director or agent or any such controlling person under this
subsection unless such Underwriter or employee, officer, partner, director or
agent or controlling person shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Underwriter or employee, officer, partner, director or agent or controlling
person (such notification by an Underwriter shall suffice as notification on
behalf of its officers, partners, directors, employees, agents and controlling
persons), but failure to notify the Company of any such claim shall not relieve
it from any liability which it may have to such Underwriter or employee,
officer, partner, director or agent or controlling person otherwise than on
account of the indemnity agreement contained in this Section 6(a).
The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or
other indemnified party is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent (i) includes an unconditional
release of such Underwriter and each such other indemnified person or persons
from all liability arising out of such claim, action, suit or proceeding and
(ii) does not include a statement as to or as admission of fault, culpability or
a failure to act by or on behalf of any indemnified party. The Company
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<PAGE>
agrees that a breach of the preceding sentence shall cause irreparable harm to
the Underwriters and that the Underwriters shall be entitled to injunctive
relief from any appropriate court ordering specific performance of said
provision. This indemnity agreement will be in addition to any liability which
the Company might otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement, each of its employees, officers, directors and agents
and each person, if any, who controls the Company within the meaning of the Act
against any losses, claims, damages, liabilities or expenses (including the
reasonable cost of investigating and defending against any claims therefor and
counsel fees incurred in connection therewith), joint or several, as incurred,
which may be based upon the Act, or any other statute or at common law, arising
out of any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto), including
the information deemed to be part of the Registration Statement pursuant to Rule
430A(b) or Rule 434 of the Rules and Regulations, if applicable, or the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, but only insofar as any such statement or omission was made in
reliance upon, and in conformity with, written information furnished to the
Company by such Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof; provided, however, that in no
-------- -------
case is such Underwriter to be liable with respect to any claims made against
the Company or any person against whom the action is brought unless the Company
or such person shall have notified such Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Company
or such person, but failure to notify such Underwriter of such claim shall not
relieve it from any liability which it may have to the Company or such person
otherwise than on account of its indemnity agreement contained in this Section
6(b). Such Underwriter shall be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such Underwriter elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the Company or such person, as the case may be. In the event
that any Underwriter elects to assume the defense of any such suit and retain
such counsel, the Company, said employees, agents, officers and directors and
any other Underwriter or Underwriters or employee or employees or agent or
agents or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them,
respectively. The Underwriter against whom indemnity may be sought shall not be
liable to indemnify any person for any settlement of any such claim effected
without such Underwriter's consent. This indemnity agreement will be in
addition to any liability which such Underwriter might otherwise have.
(c) If the indemnification provided for in this Section 6 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each
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<PAGE>
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as incurred, in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the Stock. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party, as incurred, in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contribution were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such claim. Notwithstanding the provisions of this subsection
(c ), no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the shares of the Stock underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute are several in proportion to their respective
underwriting obligations and not joint.
7. Survival of Indemnities, Representations, Warranties, etc. The
---------------------------------------------------------
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any of its officers or directors or
any controlling person, and shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters' Obligations. The respective obligations
---------------------------------------
of the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof, the Representation
Date and the Closing Date or the Option Closing
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<PAGE>
Date, as the case may be, of the representations and warranties made herein by
the Company, to the accuracy of the statements of the Company's officers or
directors in any certificate furnished pursuant to the provisions hereof, to
compliance at and as of such Closing Date by the Company with its covenants and
agreements herein contained and other provisions hereof to be satisfied at or
prior to such Closing Date, and to the following additional conditions:
(a) The Registration Statement shall become effective not later than 3:00
P.M., New York City time, on the date hereof or, with the consent of the
Representatives, at a later time and date, not later, however, than 5:30
P.M., New York City time on the first business day following the date
hereof, or at such later date as may be approved by a majority in interest
of the Underwriters, and at such Closing Date (i) no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for
that purpose shall have been initiated or, to the knowledge of the Company
or the Representatives, threatened by the Commission, and any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives, and
(ii) there shall not have come to the attention of the Representatives any
facts that would cause them to believe that the Prospectus, at the time it
was required to be delivered to a purchaser of the Stock, contained any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If the Company
has elected to rely upon Rule 430A of the Rules and Regulations, the price
of the Stock and any price related information previously omitted from the
effective Registration Statement pursuant to Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and before the
Closing Date the Company shall have provided evidence satisfactory to the
Representatives of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules and
Regulations.
(b) At the time of execution of this Agreement, the Representatives
shall have received from Arthur Andersen LLP a letter, dated the date of
such execution, in form and substance previously approved by the
Representatives, and to the effect that:
(i) They are independent certified public accountants with respect to
the Company within the meaning of the Act and the Rules and Regulations.
(ii) In their opinion, the financial statements and supporting
schedule(s) examined by them and included in the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations
thereunder and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, prospective
financial statements and/or condensed
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<PAGE>
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the
Representatives;
(iii) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatement where applicable)
in the audited consolidated financial statements for the five such fiscal
years;
(iv) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company, inspection of the minute books of the
Company since the date of the latest audited financial statements included
or incorporated by reference in the Prospectus, inquiries of officials of
the Company responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came
to their attention that caused them to believe that:
(A) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations thereunder, or are not in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with the basis for the audited
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived the unaudited condensed
financial statements referred to in clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in clause (B) were not determined on a
basis substantially consistent with the basis for the audited
financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material
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<PAGE>
respects with the applicable accounting requirements of the Act and
the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of those statements;
(E) as of a specified date not more than three days prior to the
date of such letter, there has been any change in the consolidated
capital stock of the Company (other than issuances of capital stock
upon exercise of options, upon earn-outs of performance shares and
upon conversions of convertible securities, in each case which were
outstanding on the date of the latest balance sheet included in the
Prospectus) or any increase in the consolidated long-term debt of the
Company and consolidated subsidiaries, any decrease in the
consolidated net current assets, net assets or other items specified
by the Representatives, or any change in any other items specified by
the Representatives, in each case as compared with amounts shown in
the latest balance sheet included in the Prospectus, except in each
case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there was any decrease in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for increases or decreases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(v) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(iv) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives which are derived from the
general accounting records of the Company, which appear in the Prospectus
or in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain of
such amounts, percentages and financial information with the accounting
records of the Company and its subsidiaries and have found them to be in
agreement.
(vi) On the basis of a reading of the unaudited consolidated condensed
pro forma financial statements included in the Registration Statement and
the Prospectus, carrying out certain specified procedures and inquiries of
certain officials of the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters, and proving the
arithmetic accuracy of the application of the pro forma
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<PAGE>
adjustments to the historical amounts in the unaudited consolidated
condensed pro forma financial statements, nothing came to their attention
that caused them to believe that the unaudited consolidated condensed pro
forma financial statements do not comply as to form in all material
respects with the applicable accounting requirements of Rule 11-02 of
Regulation S-X or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of such statements.
(c) The Representatives shall have received from Arthur Andersen LLP a
letter, dated the Closing Date, to the effect that such accountants
reaffirm, as of such Closing Date, and as through made on such Closing
Date, the statements made in the letter furnished by such accountants
pursuant to paragraph (b) of this Section 8, except that the specified date
will be a date not more than three business days prior to the Closing Date.
(d) The Representatives shall have received from Sommer & Barnard,
P.C., counsel for the Company, an opinion, dated the Closing Date, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Indiana and has
power and authority (corporate and other) to own or lease its properties
and conduct its business as described in the Prospectus; the Company is in
possession of and is operating in compliance with all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and
orders required for the conduct of its business, all of which are valid and
in full force and effect; and the Company is duly qualified as a foreign
corporation in good standing in all other jurisdictions where its ownership
or leasing of properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or in good
standing would not have a material adverse effect on the condition
(financial or otherwise), business, prospects or results of operations of
the Company and its subsidiaries taken as a whole.
(ii) The Company has an authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus; all
outstanding shares of capital stock (including the Stock) conform to the
description thereof in the Prospectus and have been duly authorized and
validly issued and are fully paid and nonassessable, and the stockholders
of the Company have no preemptive rights with respect to any shares of
capital stock of the Company (except for MassMutual, which has waived its
preemptive rights).
(iii) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending other than those set forth under
"Legal Proceedings" in the Prospectus to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
subsidiary is the subject, which individually or in the aggregate are
material; and to the best of such counsel's knowledge no such proceedings
are threatened by governmental authorities or others.
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<PAGE>
(iv) This Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by the Company; and the performance of
this Agreement and the Pricing Agreement and the consummation of the
transactions herein and therein contemplated will not result in a breach or
violation of any of the terms or provisions of or constitute a default
under any statute, contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other agreement or instrument known to such
counsel to which the Company is a party or by which it is bound, the
Company's Articles of Incorporation or Code of By-laws, or any order, rule
or regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its properties.
(v) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company
of the transactions contemplated by this Agreement and the Pricing
Agreement, except such as may be required under the Act or as may be
required under the securities or Blue Sky laws of any jurisdiction or by
the NASD in connection with the purchase and distribution of the Stock by
the Underwriters.
(vi) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for
that purpose have been instituted or are pending or contemplated under the
Act.
(vii) The Common Stock has been approved for listing on the
Nasdaq National Market. The Registration Statement on Form 8-A relating to
the Common Stock has become effective under the Securities Exchange Act of
1934, as amended.
(viii) The Registration Statement and the Prospectus (other than
the financial statements and supporting schedules included therein, as to
which no opinions need be rendered), and each amendment or supplement
thereto, as of their respective effective or issue dates and as of the
Closing Date complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(ix) The descriptions in the Registration Statement and
Prospectus of contracts and other documents are accurate in all material
respects and such descriptions fairly present in all material respects the
information required to be shown; and such counsel does not know of any
legal or governmental proceedings or of any contracts or documents of a
character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement or
Prospectus which are not described and filed as required.
(x) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
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<PAGE>
(xi) Nothing has come to such counsel's attention that would lead
such counsel to believe that the Registration Statement, at the time it
became effective or at the Representation Date, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, at the Representation Date (unless the
term "Prospectus" refers to a prospectus which has been provided to the
Underwriters by the Company for use in connection with the offering of the
Stock which differs from the prospectus on file at the Commission at the
time the Registration Statement became effective, in which case at the time
it was first provided to the Underwriters for such use) or at the Closing
Date, included any untrue statement of a material fact or omitted to state
any material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(xii) Each subsidiary of the Company (collectively, the
"Subsidiaries"), have each been duly incorporated, are validly existing as
-------------
corporations in good standing under the laws of their respective
jurisdictions of incorporation and have power and authority (corporate and
other) to own their respective properties and conduct their respective
businesses as described in the Prospectus, and each of such Subsidiaries
are duly qualified as foreign corporations in good standing and in all
other jurisdictions where their ownership or leasing of properties or the
conduct of their businesses requires such qualification, except where the
failure to be so qualified or in good standing would not have a material
adverse effect on the condition (financial or otherwise), business,
prospects or results of operations of the Company and its subsidiaries
taken as a whole..
(xiii) All outstanding shares of capital stock of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned by the Company free and clear of any
liens, encumbrances, equities and claims (except for the shares of RDI and
FSC, which have been pledged to MassMutual, which pledge will be released
upon the closing of the sale of Stock to the Underwriters pursuant hereto).
(f) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, their opinion or opinions
dated the Closing Date with respect to the validity of the Stock, the
Registration Statement, the Prospectus and such other related matters as
the Representatives may require. In giving such opinion, such counsel may
rely, as to all matters governed by the laws of jurisdictions other than
the law of the Commonwealth of Massachusetts and the federal law of the
United States, upon opinions of counsel satisfactory to the
Representatives. The Company shall have furnished to such counsel such
documents as they may request for the purpose of enabling them to pass upon
such matters.
(g) The Representatives shall have received a certificate, dated such
Closing Date, of the Chief Executive Officer or the President and the chief
financial or accounting officer of the Company to the effect that: (i) no
stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for that purpose have
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been instituted or are pending or contemplated under the Act; (ii)
subsequent to the respective dates as of which information is given in the
Prospectus, neither the Company nor any of its subsidiaries has incurred
any liabilities or obligations, direct or contingent, nor entered into any
transactions, not in the ordinary course of business, which in either case
are material to the Company and its subsidiaries considered as a whole,
whether or not arising in the ordinary course of business, and there has
not been any material adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the Company and
its subsidiaries considered as a whole, or any change in the capital stock
or long-term debt of the Company and its subsidiaries considered as a whole
(except as expressly disclosed in the Prospectus); (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or before the Closing Date; (iv) the
representations and warranties of the Company in this Agreement are true
and correct at and as of the Closing Date; and (v) between the execution of
this Agreement and the Closing Date, the business and operations conducted
by the Company and its subsidiaries have not sustained a loss by strike,
fire, flood, accident or other calamity (whether or not insured) of such a
character as to interfere materially with the conduct of the business and
operations of the Company and its subsidiaries considered as a whole. As
used in this Section 8(g), the term "Prospectus" means the Prospectus in
----------
the form first used to confirm sales of Stock.
(h) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of the Closing Date, of the
representations and warranties made herein by it as to compliance at and as
of the Closing Date by it with its covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to the
Closing Date and as to other conditions to the obligations of the
Underwriters hereunder.
(i) The Stock shall have been approved for listing on Nasdaq National
Market.
(j) In the event the Underwriters exercise the option granted in
Section 3(b) hereof to purchase all or any portion of the Optional Shares,
the representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall be
true and correct as of the Option Closing Date, and you shall have
received:
(i) A letter from Arthur Andersen LLP, in form and substance
satisfactory to you and dated the Option Closing Date, substantially the
same in scope and substance as the letter furnished to you pursuant to
Section 8(b), except that the specified date in the letter furnished
pursuant to this Section 8(j) shall be a date not more than five days prior
to the Option Closing Date.
(ii) A certificate, dated the Option Closing Date, of the Chief
Executive Officer or President and the chief financial or accounting
officer of the Company confirming that the certificate delivered at the
First Closing Date pursuant to Section 8(g) remains true as of the Option
Closing Date.
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<PAGE>
(iii) The opinion of Sommer & Barnard, P.C., counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, dated the Option Closing Date, relating to the Optional Stock
and otherwise to the same effect as the opinion required by Section 8(d).
(iv) The opinion of Testa, Hurwitz & Thibeault, LLP, counsel for
the Underwriters, dated the Option Closing Date, relating to the Optional
Stock and otherwise to the same effect as the opinion required by Section
8(f).
If any of the conditions hereinabove provided for in this Section shall not
have been satisfied when and as required by this Agreement, this Agreement may
be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram at or prior to the Closing Date, but the
Representatives shall be entitled to waive any of such conditions.
9. Termination. This Agreement may be terminated by the Representatives
-----------
by notice to the Company if at or prior to the Closing Date or the Option
Closing Date, as the case may be, (i) trading in securities on the New York or
American Stock Exchanges shall have been suspended or minimum or maximum prices
shall have been established on either such exchange, or a banking moratorium
shall have been declared by New York or United States authorities; (ii) there
shall have been any adverse change in the financial markets in the United
States, Japan or Europe or any outbreak or escalation of hostilities between the
United States and any foreign power, or of any other insurrection or armed
conflict involving the United States that, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer, sell or deliver
the Firm Stock or the Optional Stock as applicable, on the terms contemplated by
the Prospectus or this Agreement; (iii) there shall have been since the
execution of this Agreement or since the respective dates as of which
information is given in the Prospectus any material adverse change in the
condition (financial or otherwise), or business, prospects or results of
operations of the Company and its subsidiaries considered as a whole; (iv) there
shall have been any development involving the business or properties or
securities of the Company or any of its subsidiaries or the transactions
contemplated by this Agreement, which, in the judgment of the Representatives,
makes it impracticable or inadvisable to offer, sell or deliver the Firm Stock
or Option Stock, as applicable, on the terms contemplated by the Prospectus or
this Agreement or (v) if there shall be any litigation, pending or threatened,
which, in the judgment of the Representatives, makes it impracticable or
inadvisable to offer or deliver the Firm Stock or the Optional Stock as
applicable on the terms contemplated by the Prospectus or this Agreement. As
used in this Section 9, the term "Prospectus" means the Prospectus in the form
----------
first used to confirm sales of Stock.
10. Reimbursement of Underwriters. Notwithstanding any other provisions
-----------------------------
hereof, if this Agreement shall be terminated by the Representatives under
Section 8, Section 9 or Section 12, the Company will bear and pay the expenses
specified in Section 5 hereof and, in addition to its obligations pursuant to
Section 6, hereof, the Company will reimburse the reasonable out-of-pocket
expenses of the several Underwriters (including reasonable fees and
disbursements of counsel for the Underwriters) incurred in connection with this
Agreement and the proposed
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<PAGE>
purchase of the Stock, and promptly upon demand the Company will pay such
amounts to you as Representatives. In addition, the provisions of Section 6
shall survive any such termination.
11. Default By Underwriters. If any Underwriter or Underwriters shall
-----------------------
default in its or their obligations to purchase shares of Firm Stock hereunder
on the First Closing Date and the aggregate number of shares of Firm Stock which
such defaulting Underwriter or Underwriters agreed but failed to purchase does
not exceed 10% of the total number of shares which the Underwriters are
obligated to purchase at the First Closing Date, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares of Firm Stock which such defaulting Underwriter or
Underwriters agreed but failed to purchase. If any Underwriter or Underwriters
shall so default and the aggregate number of shares of Firm Stock with respect
to which such default or defaults occur is more than 10% of the total number of
shares underwritten and arrangements satisfactory to the Representatives and the
Company for the purchase of such shares of Firm Stock by other persons are not
made within 48 hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or part of the shares of Firm Stock of a
defaulting Underwriter or Underwriters as provided in this Section 11, (i) the
Company shall have the right to postpone the Closing Date for a period of not
more than five full business days, in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares of Firm Stock to be purchased by the remaining Underwriters or
substituted underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained shall
relieve any defaulting Underwriter of its liability to the Company or the
Underwriters for damages occasioned by its default hereunder. Any termination
of this Agreement pursuant to this Section 11 shall be without liability on the
part of any non-defaulting Underwriter or the Company, except for expenses to be
paid or reimbursed pursuant to Section 5 and except for the provisions of
Section 6.
12. Default By the Company. If the Company shall fail at the First
----------------------
Closing Date to sell and deliver the number of shares of Stock which it is
obligated to sell hereunder, then this Agreement shall terminate without any
liability on the part of any non-defaulting party.
No action taken pursuant to this Section shall relieve the Company so
defaulting from liability, if any, in respect of such default.
13. Notices. All communications hereunder shall be in writing and, if
-------
sent to the Underwriters shall be mailed, delivered or telegraphed and confirmed
to you, as their Representatives c/o Dean Witter Reynolds Inc. at Two World
Trade Center, 65th Floor, Corporate Finance, New York, New York 10048, Attn:
Samuel H. Wolcott, III, except that notices given to an Underwriter pursuant to
Section 6 hereof shall be sent to such Underwriter at the address provided to
the Representatives or, if sent to the Company, shall be mailed, delivered
-26-
<PAGE>
or telegraphed and confirmed c/o Control Devices, Inc., 228 Northeast Road,
Standish, Maine 04084, Attn: Bruce D. Atkinson, President.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties,
covenants, agreements and indemnities of the Company contained in this Agreement
shall also be for the benefit of the person or persons, if any, who control any
Underwriter or Underwriters within the meaning of Section 15 of the Act, and the
indemnities of the several Underwriters shall also be for the benefit of each
director of the Company, each of its officers who has signed the Registration
Statement and the person or persons, if any, who control the Company within the
meaning of Section 15 of the Act.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
--------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. The Company hereby consent to personal jurisdiction in
the State of New York and voluntarily submits to the jurisdiction of the courts
of such state, including the federal district courts located in such state, in
any proceeding with respect to this Agreement.
16. Counterparts. This Agreement may be executed by one or more parties
-------------
hereto in any number of counterparts each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
17. Authority of the Representatives. In connection with this Agreement,
--------------------------------
the Representatives will act for and on behalf of the several Underwriters, and
any action taken under this Agreement by the Representatives jointly or by Dean
Witter Reynolds Inc., as representatives of the several Underwriters, will be
binding on all the Underwriters.
-27-
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
CONTROL DEVICES, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
Accepted and delivered,
as of the date first above written:
DEAN WITTER REYNOLDS INC.
CLEARY GULL REILAND & MCDEVITT INC.
Acting on their own behalf and as
Representatives of the several Underwriters
referred to in the foregoing Agreement.
BY: DEAN WITTER REYNOLDS INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
-28-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Shares
Name of Stock to be Purchased
- ------- ------------------------
<S> <C>
=========
Total.................................... 2,000,000
=========
</TABLE>
<PAGE>
EXHIBIT A
2,000,000 Shares
CONTROL DEVICES, INC.
Common Shares
PRICING AGREEMENT
-----------------
_____________, 1996
DEAN WITTER REYNOLDS INC.
CLEARY GULL REILAND & MCDEVITT INC.
As Representatives of the several Underwriters
c/o Dean Witter Reynolds Inc.
2 World Trade Center
65th Floor
New York, New York 10048
Dear Sirs:
Reference is made to the Underwriting Agreement, dated _____________,
1996 (the "Underwriting Agreement"), relating to the purchase by the several
----------------------
Underwriters named in Schedule A thereto, for whom Dean Witter Reynolds Inc. and
----------
Cleary Gull Reiland & McDevitt Inc., acting as representatives (the
"Representatives"), of the above common shares (the "Common Stock") of Control
- ---------------- ------------
Devices, Inc. (the "Company").
-------
Pursuant to Section 3 of the Underwriting Agreement, the Company
agrees with each underwriter as follows:
1. The initial public offering price per share for the Stock,
determined as provided in Section 3, shall be $_______________.
2. The purchase price per share for the Stock to be paid by the
several Underwriters shall be $_______________.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
CONTROL DEVICES, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
Accepted and delivered,
as of the date first above written:
DEAN WITTER REYNOLDS INC.
CLEARY GULL REILAND & MCDEVITT INC.
Acting on their own behalf and as
Representatives of the several Under-
writers referred to in the foregoing
Agreement.
By: DEAN WITTER REYNOLDS INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
<PAGE>
EXHIBIT 3.1.1
JULY 29, 1996
AMENDED AND RESTATED ARTICLES OF INCORPORATION
----------------------------------------------
OF
--
CONTROL DEVICES, INC.
---------------------
ARTICLE I
---------
Name
----
The name of the Corporation is Control Devices, Inc.
ARTICLE II
----------
Registered Office and Registered Agent
--------------------------------------
The street address of the Corporation's registered office in Indiana and
the name of its registered agent at that office are Glenn Scolnik, Hammond,
Kennedy, Whitney & Company, Inc., 8888 Keystone Crossing, Suite 690,
Indianapolis, Indiana 46240.
ARTICLE III
-----------
Shares
------
Section 3.1. Number. The total number of shares which the Corporation is
----------- ------
authorized to issue is Nineteen Million (19,000,000) shares.
Section 3.2. Designation of Classes and Number of Shares. The authorized
----------- -------------------------------------------
shares shall be divided into Sixteen Million (16,000,000) shares of the
Corporation which shall be designated as "Common Shares" and Three Million
(3,000,000) shares of the Corporation which shall be designated as "Preferred
Shares."
Section 3.3. Rights, Privileges, Limitations and Restrictions of Common
----------- ----------------------------------------------------------
Shares.
- ------
(1) Single Class. The Common Shares shall constitute a separate and single
------------
class and shall not be issued in series. All Common Shares shall be
identical with each other in all respects.
<PAGE>
(2) Dividends. Subject to any limitations prescribed in this
---------
Article III and any further limitations prescribed in accordance
therewith, and subject to any prior rights that may be conferred upon
the holders of any series of the Preferred Shares established by the
Board of Directors pursuant to authority herein provided, and except as
otherwise provided by law, the holders of Common Shares shall be
entitled to receive when and as declared by the Board of Directors, out
of the assets of the Corporation which are by law available therefor,
pro rata dividends payable either in cash, in property or securities of
the Corporation.
(3) Liquidation. In the event of any voluntary or involuntary
-----------
liquidation, dissolution, or winding up of the Corporation, the holders
of the Common Shares shall be entitled, after payment or provision for
payment of the debts and other liabilities of the Corporation and of
all Preferred Shares having priority over the Common Shares, to share
ratably in the remaining net assets of the Corporation.
(4) Voting Rights. Subject to any voting rights that may be
-------------
conferred upon holders of any series of Preferred Shares established by
the Board of Directors pursuant to authority herein provided or as
otherwise provided by law, every holder of Common Shares shall have the
right, at every shareholders' meeting, to one vote for each Common
Share standing in such shareholder's name on the books of the
Corporation.
Section 3.4. Rights of Preferred Shares
----------- --------------------------
(1) Preferred Shares may be issued from time to time in one or
more series, which series may have such voting powers, full or limited,
or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed
in the resolution or resolutions providing for the issue of such shares
adopted by the Board of Directors. The authority for the adoption of
such resolution or resolutions is hereby expressly granted to and
vested in the Board of Directors and shall include authority to specify
the number of Preferred Shares of any series and to provide, as to any
series of Preferred Shares, such voting powers, and such designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as are
from time to time permitted under the Indiana Business Corporation Law.
<PAGE>
(2) Designation of Rights of 11% Cumulative Preferred Shares.
--------------------------------------------------------
(a) Authorization and Designation. The Corporation is authorized
-----------------------------
to issue a series of its Preferred Shares consisting of 2,400 shares having
a stated value of One Thousand Dollars ($1,000.00) per share, to be
designated as the 11% Cumulative Preferred Shares (hereinafter referred to
as the "11% Cumulative Preferred Shares"). Holders of 11% Cumulative
Preferred Shares will not have any preemptive rights. The 11% Cumulative
Preferred Shares shall be senior, in respect of the right to receive
dividends or assets upon liquidation, dissolution or winding up of the
Corporation, to the Common Shares and all other series of Preferred Shares
hereafter established by the Board of Directors unless the holders of at
least 80% of the 11% Cumulative Preferred Shares vote for or consent to the
creation of a series having rights prior to or on a parity with the 11%
Cumulative Preferred Shares in respect of such matters.
(b) Dividends. Holders of 11% Cumulative Preferred Shares will
---------
be entitled to receive cash dividends at a rate of 11% per annum ($110.00)
per share. Dividends will be payable to holders of record of 11% Cumulative
Preferred Shares as they appear on the books of the Corporation on such
record dates, not less than 10 days and not more than 60 days preceding the
payment dates thereof, as may be fixed by the Board of Directors of the
Corporation. Dividends shall be fully cumulative and shall accrue from the
date of original issuance of the 11% Cumulative Preferred Shares. No
dividends may be paid prior to the first Mandatory Dividend Payment Date
(as defined below) except upon redemption of all of the 11% Cumulative
Preferred Shares prior to such first Mandatory Dividend Payment Date. From
and after such first Mandatory Dividend Payment Date, dividends shall be
paid at the times required below and may be paid, at the discretion of the
Board of Directors, at any other time. Dividends may be paid to the extent
that the Corporation's total assets exceed its total liabilities, without
regard to the liquidation preference of any class or series of shares
senior to the 11% Cumulative Preferred Shares.
On the 90th day after the close of each fiscal year, commencing
with the fiscal year ending July 31, 1996 (each a "Mandatory Dividend
Payment Date"), the Corporation shall be required to pay all dividends
accrued but unpaid as of the close of such fiscal year up to a maximum
aggregate amount not greater than the Maximum Required Dividend (as defined
below) as of the close of such fiscal year. "Maximum Required Dividend" for
any fiscal year, as used herein shall mean 25% of the Excess Cash Flow (as
defined below) of the Corporation for such fiscal year.
<PAGE>
"Excess Cash Flow" for any fiscal year shall mean the consolidated
net income of the Corporation for the relevant fiscal year (excluding all
extraordinary, unusual, nonrecurring and/or nonoperating items), after
restoring thereto amounts deducted for (a) taxes in respect of income and
profits, (b) interest expense, and (c) depreciation and amortization, and
after reducing the amount so obtained by (x) amounts actually expended by
the Corporation and its subsidiaries for capital expenditures during such
year and (y) all payments of principal of and/or interest on indebtedness
for borrowed money of the Corporation and its subsidiaries made during such
year, provided, however, there shall be no deduction for prepayments of
-------- -------
principal on any such indebtedness to the extent such prepayments are made
with the net proceeds of the sale by the Corporation of its securities
after July 29, 1994; all determined in accordance with generally accepted
accounting principles.
Except as described below, no dividends shall be paid or declared
and set apart for payment on any class or series of shares of the
Corporation junior to the 11% Cumulative Preferred Shares for any period
unless all dividends accrued on the 11% Cumulative Preferred Shares since
the date of original issuance thereof shall have been paid in full. In no
event may dividends be paid or declared and set apart for payment on any
class or series of shares of the Corporation junior to or on a parity with
the 11% Cumulative Preferred Shares following the twelfth anniversary of
the date of original issuance of the 11% Cumulative Preferred Shares if any
11% Cumulative Preferred Shares remain outstanding after such twelfth
anniversary. A dividend payable in Common Shares or another class of shares
junior to the 11% Cumulative Preferred Shares may, however, be made. When
full cumulative dividends are not paid upon the 11% Cumulative Preferred
Shares and any other class of shares ranking on parity with the 11%
Cumulative Preferred Shares, all dividends declared upon such shares shall
be declared pro rata in accordance with the respective dividends which
would be payable on such shares if all accrued and unpaid dividends thereon
were paid in full. The holders of 11% Cumulative Preferred Shares shall not
be entitled to the payment of interest with respect to dividend payments
that may be in arrears.
(c) Liquidation Rights. In the event of any voluntary or
------------------
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of 11% Cumulative Preferred Shares are entitled to receive out of
assets of the Corporation available for distribution to shareholders,
before any distribution or payment is made to holders of Common Shares, or
holders of any other shares of the Corporation ranking junior upon
liquidation to the 11% Cumulative Preferred
<PAGE>
Shares, liquidation distributions in the amount of $1,000.00 per share,
plus accrued and unpaid dividends. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation shall be insufficient to make the full payment of $1,000.00
per share, plus all accrued and unpaid dividends thereon, on the 11%
Cumulative Preferred Shares and similar payments on any other class of
shares ranking on a parity with the 11% Cumulative Preferred Shares upon
liquidation, then the holders of the 11% Cumulative Preferred Shares and of
such other shares will share ratably in any such distribution of assets of
the Corporation in proportion to the full respective distributable amounts
to which they are entitled. A consolidation or merger of the Corporation
with or into one or more corporations, or a sale, lease or other
disposition of all or substantially all of the assets of the Corporation
which does not involve a distribution by the Corporation of cash or other
property to the holders of the Common Shares, shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of 11% Cumulative Preferred Shares
will not be entitled to any further participation in any distributions or
payments by the Corporation.
(d) Redemption.
----------
(i) Optional Redemption. The 11% Cumulative Preferred
-------------------
Shares may be redeemed at the option of the Corporation in whole
or in part at any time or from time to time. The redemption price
will be $1,000.00 per 11% Cumulative Preferred Share plus accrued
and unpaid dividends. If less than all of the outstanding 11%
Cumulative Preferred Shares are to be redeemed, they shall be
redeemed on a pro rata basis from among all then outstanding 11%
Cumulative Preferred Shares (with adjustments to avoid fractional
shares).
(ii) Discretionary Redemption. Commencing with the
------------------------
first Mandatory Dividend Payment Date, whenever the Maximum
Required Dividend as of the close of any fiscal year exceeds the
aggregate amount of dividends accrued but unpaid on the 11%
Cumulative Preferred Shares as of the close of such fiscal year by
at least $24,000.00, the Corporation shall redeem, unless the
Board of Directors of the Corporation determines in its reasonable
discretion that such redemption would not be
<PAGE>
in the best interests of the Corporation, on the Mandatory
Dividend Payment Date for such year a number of 11% Cumulative
Preferred Shares equal to the quotient of (x) the excess of the
Maximum Required Dividend over the aggregate amount of dividends
accrued but unpaid as of the end of such fiscal year divided by
(y) 1000. The redemption price will be $1000.00 per 11% Cumulative
Preferred Share. If less than all of the outstanding 11%
Cumulative Preferred Shares are to be redeemed, they shall be
redeemed on a pro rata basis from among all then outstanding 11%
Cumulative Preferred Shares (with adjustments to avoid fractional
shares).
(iii) Mandatory Redemption on Twelfth Anniversary. On the
-------------------------------------------
twelfth anniversary of the date of original issuance of the 11%
Cumulative Preferred Shares, the Corporation shall redeem all 11%
Cumulative Preferred Shares then outstanding at a redemption price
equal to $1,000.00 per 11% Cumulative Preferred Share, plus
accrued and unpaid dividends.
(iv) Special Mandatory Redemption. Notwithstanding
----------------------------
anything to the contrary contained herein, upon the prepayment in
full of the then outstanding principal balance, if any, of the
Senior Fixed Rate Notes (as defined in the Securities Purchase
Agreements hereinafter referred to) and of the then outstanding
principal balance, if any, of the Subordinated Notes (as defined
in the Securities Purchase Agreements hereinafter referred to)
pursuant to section 9.5 or 9.7 of the Securities Purchase
Agreements dated as of July 29, 1994, as amended from time to
time, by and between the Corporation and the institutional
investors named therein, the Corporation shall, concurrently with
such prepayment, redeem all 11% Cumulative Preferred Shares which
were originally issued and sold pursuant to such Securities
Purchase Agreements and which are outstanding on the date of such
prepayment, at a redemption price equal to $1,000.00 per 11%
Cumulative Preferred Share, plus accrued and unpaid dividends.
(v) Effect of Redemption. From and after the date fixed
--------------------
for redemption of 11% Cumulative Preferred Shares, if but only if
the Corporation has duly paid in cash or set aside for payment in
cash, the full redemption price for the 11% Cumulative Preferred
Shares to be so redeemed,
<PAGE>
dividends on 11% Cumulative Preferred Shares called for redemption
shall cease to accrue, such 11% Cumulative Preferred Shares shall
no longer be deemed to be outstanding and all rights of the
holders of 11% Cumulative Preferred Shares as shareholders of the
Corporation shall cease.
(e) Voting Rights. Holders of 11% Cumulative Preferred Shares
-------------
are entitled to one vote per 11% Cumulative Preferred Share on all
matters submitted to a vote or for the consent of the shareholders.
Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, so long as any 11% Cumulative
Preferred Shares are outstanding, the Corporation will not (a) without
the affirmative vote or consent of the holders of at least 80% of the
outstanding 11% Cumulative Preferred Shares, voting as a separate voting
group, amend any of the provisions of the Articles of Incorporation so
as to affect adversely the powers, preferences or special rights of the
11% Cumulative Preferred Shares; and (b) without the affirmative vote or
consent of the holders of at least 80% of the outstanding 11% Cumulative
Preferred Shares, merge or consolidate with or into any other
corporation if such merger or consolidation would adversely affect the
powers, preferences or rights of the 11% Cumulative Preferred Shares.
ARTICLE IV
----------
Directors
---------
Any director may be removed, either with or without cause, at any
meeting of the Shareholders by the affirmative vote of a majority in number
of shares of the Shareholders of record present, in person or by proxy, and
entitled to vote for the election of directors, if notice of the intention
to act upon such matter shall have been given in the notice calling such
meeting.
ARTICLE V
---------
Incorporator
------------
The name and address of the incorporator of the Corporation are Glenn
Scolnik, Hammond, Kennedy, Whitney & Company, Inc., 8888 Keystone Crossing,
Suite 690, Indianapolis, Indiana 46240.
<PAGE>
EXHIBIT 3.1.2
AMENDED AND RESTATED ARTICLES OF INCORPORATION
----------------------------------------------
OF
--
CONTROL DEVICES, INC.
---------------------
ARTICLE I
---------
Name
----
The name of the Corporation is Control Devices, Inc.
ARTICLE II
----------
Registered Office and Registered Agent
--------------------------------------
The street address of the Corporation's registered office in Indiana and
the name of its registered agent at that office are Glenn Scolnik, Hammond,
Kennedy, Whitney & Company, Inc., 8888 Keystone Crossing, Suite 690,
Indianapolis, Indiana 46240.
ARTICLE III
-----------
Shares
------
Section 3.1. Number. The total number of shares which the Corporation is
----------- ------
authorized to issue is Nineteen Million (19,000,000) shares.
Section 3.2. Designation of Classes and Number of Shares. The authorized
----------- -------------------------------------------
shares shall be divided into Sixteen Million (16,000,000) shares of the
Corporation which shall be designated as "Common Shares" and Three Million
(3,000,000) shares of the Corporation which shall be designated as "Preferred
Shares."
Section 3.3. Rights, Privileges, Limitations and Restrictions of Common
----------- ----------------------------------------------------------
Shares.
- ------
(1) Single Class. The Common Shares shall constitute a separate and
------------
single class and shall not be issued in series. All Common Shares shall be
identical with each other in all respects.
(2) Dividends. Subject to any limitations prescribed in this Article
---------
III and any further limitations prescribed in accordance therewith, and
subject to any prior rights that may be conferred upon the holders of any
series of the Preferred Shares established by the Board of Directors
pursuant to authority herein provided, and except as otherwise provided by
law, the holders of
<PAGE>
Common Shares shall be entitled to receive when and as declared by the
Board of Directors, out of the assets of the Corporation which are by law
available therefor, pro rata dividends payable either in cash, in property
or securities of the Corporation.
(3) Liquidation. In the event of any voluntary or involuntary
-----------
liquidation, dissolution, or winding up of the Corporation, the holders of
the Common Shares shall be entitled, after payment or provision for payment
of the debts and other liabilities of the Corporation and of all Preferred
Shares having priority over the Common Shares, to share ratably in the
remaining net assets of the Corporation.
(4) Voting Rights. Subject to any voting rights that may be conferred
-------------
upon holders of any series of Preferred Shares established by the Board of
Directors pursuant to authority herein provided or as otherwise provided by
law, every holder of Common Shares shall have the right, at every
shareholders' meeting, to one vote for each Common Share standing in such
shareholder's name on the books of the Corporation.
Section 3.4. Rights of Preferred Shares Preferred Shares may be issued from
----------- --------------------------
time to time in one or more series, which series may have such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such shares adopted by the
Board of Directors. The authority for the adoption of such resolution or
resolutions is hereby expressly granted to and vested in the Board of Directors
and shall include authority to specify the number of Preferred Shares of any
series and to provide, as to any series of Preferred Shares, such voting powers,
and such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as are from time to time permitted under the Indiana Business Corporation Law.
ARTICLE IV
----------
Directors
---------
Any director may be removed, either with or without cause, at any meeting
of the Shareholders by the affirmative vote of a majority in number of shares of
the Shareholders of record present, in person or by proxy, and entitled to vote
for the election of directors, if notice of the intention to act upon such
matter shall have been given in the notice calling such meeting.
2
<PAGE>
ARTICLE V
---------
Incorporator
------------
The name and address of the incorporator of the Corporation are Glenn
Scolnik, Hammond, Kennedy, Whitney & Company, Inc., 8888 Keystone Crossing,
Suite 690, Indianapolis, Indiana 46240.
3
<PAGE>
EXHIBIT 3.2
July 12, 1996
SECOND AMENDED AND RESTATED
---------------------------
CODE OF BY-LAWS
---------------
OF
--
CONTROL DEVICES, INC.
---------------------
(AS AMENDED EFFECTIVE , 1996)
---------------------------------------------
ARTICLE 1
---------
Identification
--------------
Section 1.01. Name. The name of the Corporation is Control Devices,
------------ ----
Inc. (hereinafter referred to as the "Corporation").
Section 1.02. Fiscal Year. The fiscal year of the Corporation shall
------------ -----------
begin at the beginning of the first day of January in each year and end at the
close of the last day of December next succeeding.
ARTICLE 2
---------
Shares
------
Section 2.01. Certificates for Shares. Each shareholder of the
------------ -----------------------
Corporation shall be entitled to a certificate in such form as the Board of
Directors may prescribe from time to time signed (either manually or in
facsimile) by the President or a Vice-President and the Secretary or an
Assistant Secretary.
Section 2.02. Transfer of Shares. The shares of the Corporation
------------ ------------------
shall be transferable on the books of the Corporation upon surrender of the
certificate or certificates representing the same, properly endorsed by the
registered holder(s) or by a duly authorized attorney of the holder(s) and
accompanied by reasonable assurances that the endorsement(s) are genuine and
effective.
Section 2.03. Equitable Interests in Shares Need Not Be Recognized.
------------ ----------------------------------------------------
The Corporation and its officers shall be entitled to treat the holder of record
of any share or shares of the Corporation as the holder in fact thereof, and
accordingly shall not be required to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person or persons,
whether or not express notice thereof shall have been given to the Corporation,
save as expressly provided to the contrary by the laws of Indiana, the Articles
of Incorporation of the Corporation or these By-laws.
<PAGE>
ARTICLE 3
---------
Meetings of Shareholders
------------------------
Section 3.01. Place of Meetings. All meetings of shareholders of the
------------ -----------------
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified in the respective notices or waivers of notice thereof.
Section 3.02. Annual Meeting. The annual meeting of shareholders for
------------ --------------
the purpose of electing directors and transacting such other business as may
properly come before the meeting shall be set each year by resolution of the
Board of Directors. Failure to hold the annual meeting shall not work any
forfeiture or a dissolution of the Corporation or affect the validity of any
corporate action.
Section 3.03. Special Meetings. Special meetings of the shareholders
------------ ----------------
may be called by the Chairman of the Board, the Chief Executive Officer, the
President or the Board of Directors.
Section 3.04. Notice of Meetings and Waiver. A written or printed
------------ -----------------------------
notice, stating the place, day and hour of the meeting, and in case of a special
meeting the purpose or purposes for which the meeting is called, shall be
delivered or mailed by the Secretary or by the officers or persons calling the
meeting, to each shareholder of the Corporation at the time entitled to vote, at
such address as appears upon the records of the Corporation, no fewer than ten
nor more than sixty days before the date of the meeting. Notice of any such
meeting may be waived in writing by any shareholder, before or after the date
and time stated in the notice, if the waiver is delivered to the Corporation for
inclusion in the minutes for filing with the corporate records. Attendance at a
meeting, in person or by proxy, waives objection to lack of notice or defective
notice of the meeting unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting the business at the meeting.
Further, a shareholder's attendance at a meeting waives objection to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice unless the shareholder
objects to considering the matter when it is presented.
Section 3.05. Voting at Meetings.
------------ ------------------
Clause 3.051. Voting Rights. At all meetings of shareholders,
------------ -------------
holders of shares of the Corporation shall have the voting rights set forth for
such classes or series of shares in the Articles of Corporation of the
Corporation or as otherwise provided by law.
2
<PAGE>
Clause 3.052. Proxies. A shareholder may vote, either in
------------ -------
person or by proxy executed in writing by the shareholder or a duly authorized
attorney-in-fact. No proxy shall be valid after eleven (11) months, unless a
shorter or longer time is expressly provided in the appointment form.
Clause 3.053. Quorum. At any meeting of shareholders, a
------------ ------
majority of the shares outstanding and entitled to vote on the business to be
transacted at such meeting, represented in person or by proxy, shall constitute
a quorum. In the event that the holders of shares of any class or series are
entitled to vote as a separate voting group, a majority of the shares of that
class or series outstanding, represented in person or by proxy, shall constitute
a quorum of that voting group.
Section 3.06. Action By Shareholders Without Meeting. Any action
------------ --------------------------------------
required or permitted to be taken at any meeting of the shareholders may be
taken without a meeting if the action is taken by all shareholders entitled to
vote on the action and is evidenced by one or more written consents describing
the action taken, signed by all shareholders entitled to vote on the action and
delivered to the Corporation for inclusion in the minutes for filing with the
Corporation's records.
Section 3.07. Participation in Meetings by Means of Conference or
------------ ---------------------------------------------------
Other Similar Communications Equipment. Any shareholder may participate in an
- --------------------------------------
annual or special meeting of the shareholders by, or through the use of, any
means of communication by which all shareholders participating may
simultaneously hear each other during the meeting. A shareholder participating
in such a meeting by this means is deemed to be present in person at the
meeting.
Section 3.08. Order of Business. At each annual meeting only such
------------ -----------------
business shall be conducted as shall have been brought before the annual meeting
(a) by or at the direction of the Board of Directors or (b) by any shareholder
who complies with the procedures set forth in this Section 3.08. For business
properly to be brought by a shareholder before an annual meeting, the
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal office of the Corporation
not less than 30 days prior to the annual meeting; provided, however, that in
-------- -------
the event that less than 40 days notice or prior public disclosure of the date
of the annual meeting is given or made to shareholders, notice by the
shareholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made. To be in proper
written form, a shareholder's notice to the Secretary shall set forth in writing
as to each matter the shareholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books, of the
shareholder proposing
3
<PAGE>
such business; (iii) any material interest of the shareholder in such business.
The chairman of an annual meeting shall, if the facts warrant, determine and
declare to the annual meeting that business was not properly brought before the
annual meeting in accordance with the provisions of this Section 3.08 and, if he
should so determine, he shall so declare to the annual meeting and any such
business not properly brought before the annual meeting shall not be transacted.
ARTICLE 4
---------
The Board of Directors
----------------------
Section 4.01. Number and Election. The Board of Directors shall
------------ -------------------
consist of a minimum of one (1) and a maximum of ten (10) members. The actual
number of directors shall be fixed from time to time by resolution of the Board
of Directors. The Board of Directors shall be elected by a plurality of the
votes of the shareholders present, in person or by proxy, and who are entitled
to vote at the annual meeting of the shareholders called for such purpose. A
decrease in the number of directors does not shorten an incumbent director's
term.
Section 4.02. Annual Meeting. The Board of Directors shall meet each
------------ --------------
year immediately after the annual meeting of the shareholders, at the place
where such meeting of the shareholders has been held, for the purpose of
organization, election of officers, and consideration of any other business that
may be brought before the meeting. No notice shall be necessary for the holding
of this annual meeting. If such meeting is not held as above provided, the
election of officers may be had at any subsequent meeting of the Board
specifically called in the manner provided in Subsection 4.03 of this Article.
Section 4.03. Other Meetings. Regular meetings of the Board of
------------ --------------
Directors may be held without notice of the date, time, place or purpose of the
meeting. Special meetings of the Board of Directors may be held upon the call
of the Chairman of the Board, Chief Executive Officer, or of any member of the
Board of Directors, at any place within or without the State of Indiana, upon
forty-eight hours' notice, specifying the time, place and general purposes of
the meeting, given to each director, either personally, by mailing, or by
telegram. Such notice may be waived in writing by any director, before or after
the date stated in the notice, if the waiver is signed by the director and filed
with the Corporation's minutes or records. In addition, a director's attendance
at or participation in a meeting waives any required notice of the meeting
unless the director at the beginning of the meeting (or promptly upon his
arrival) objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.
4
<PAGE>
Section 4.04. Quorum. At any meeting of the Board of Directors, the
------------ ------
presence of a majority of the members of the Board of Directors shall constitute
a quorum for the transaction of any business except the filling of vacancies in
the Board of Directors.
Section 4.05. Action By Directors Without Meeting. Any action
------------ -----------------------------------
required or permitted to be taken at any meeting of the Board of Directors, or
any committee thereof, may be taken without a meeting if the action is taken by
all members of the Board of Directors or committee thereof, as the case may be,
and is evidenced by one or more written consents describing the action taken,
signed by each director, and is included in the minutes or filed with the
corporate records reflecting the action taken.
Section 4.06. Compensation of Directors. The Board of Directors is
------------ -------------------------
empowered and authorized to fix and determine the compensation of directors for
attendance at meetings of the Board, and additional compensation for any
additional services that the directors may perform for the Corporation.
Section 4.07. Participation in Meetings by Means of Conference or
------------ ---------------------------------------------------
Other Similar Communications Equipment. A member of the Board of Directors or
- --------------------------------------
of a committee designated by the Board may participate in a regular or special
meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in such a meeting by this
means is deemed to be present in person at the meeting.
Section 4.08. Chairman of the Board. The Board of Directors shall
------------ ---------------------
choose from among its members a Chairman of the Board who shall preside at all
meetings of the Board of Directors and of the shareholders of the Corporation
and shall have such other powers and perform such other duties for the
Corporation as may, from time to time, be assigned by the Board of Directors.
Section 4.09. Resignations. A director may resign at any time by
------------ ------------
delivering notice to the Board of Directors or the Secretary of the Corporation.
A resignation is effective when the notice is delivered unless the notice
specifies a later effective date. If a resignation is made effective at a later
date and the Corporation accepts the future effective date, the Board of
Directors may fill the pending vacancy before the effective date if the Board of
Directors provides that the successor does not take office until the effective
date.
5
<PAGE>
ARTICLE 5
---------
Officers
--------
Section 5.01. Number. The officers of the Corporation shall consist
------------ ------
of a Chairman of the Board, Chief Executive Officer, President, Vice President
and Secretary, and such other officers as may be chosen by the Board of
Directors at such time and in such manner and for such terms as the Board of
Directors may prescribe. The Chairman of the Board or the Chief Executive
Officer may appoint one or more officers or assistant officers as he may deem
necessary or advisable to carry on the operations of the Corporation. Such
appointed officer or officers shall hold office until the next annual meeting of
the Board of Directors unless removed by resolution of the Board prior to such
meeting date. Any two or more offices may be held by the same person.
Section 5.02. Election and Term of Office. The officers shall be
------------ ---------------------------
chosen annually by the Board of Directors. Each officer shall hold office until
his successor is chosen, or until his death, or until he shall have resigned or
shall have been removed in the manner hereinafter provided.
Section 5.03. Removal. Any officer may be removed, either with or
------------ -------
without cause, at any time, by a majority vote of the Board of Directors.
Section 5.04. Resignations. An officer may resign at any time by
------------ ------------
delivering notice to the Board of Directors or the Secretary of the Corporation.
A resignation is effective when the notice is delivered unless the notice
specifies a later effective date. If a resignation is made effective at a later
date and the Corporation accepts the future effective date, the Board of
Directors may fill the pending vacancy before the effective date if the Board of
Directors provides that the successor does not take office until the effective
date.
Section 5.05. Chairman of the Board. The Chairman of the Board shall
------------ ---------------------
preside at all meetings of the Board of Directors and of the shareholders of the
Corporation. The Chairman of the Board shall be the highest ranking officer of
the Corporation, subject only to the control of he Board of Directors. The
Chief Executive Officer and the President shall report to the Chairman of the
Board. The Chairman of the Board shall have such other powers and perform such
other duties as may, from time to time, be assigned by the Board of Directors.
Section 5.06. Chief Executive Officer. The Chief Executive Officer
------------ -----------------------
shall report to the Chairman of the Board. The Chief Executive Officer shall
have general supervision, direction and control over the business and affairs of
the Corporation, subject, however, to the control of the Chairman of the Board
and the Board of Directors. The Chief Executive Officer shall, in general,
perform all duties incident to the office of the Chief Executive Officer and
shall have such other powers and
6
<PAGE>
perform such other duties as may from time to time be assigned by the Chairman
of the Board or the Board of Directors. If no Chairman of the Board is elected
or appointed, the Chief Executive Officer shall preside at all meetings of
shareholders, discharge all the duties which devolve upon a presiding officer,
and perform such other duties as the Code of By-laws or the Board of Directors
may prescribe.
Section 5.07. The President. The President shall report to the
------------ -------------
Chairman of the Board. The President shall have management responsibility for
the operation of the Corporation, subject, however, to the control of the
Chairman of the Board and the Board of Directors.
Section 5.08. The Vice Presidents. Each Vice President (if one or
------------ -------------------
more Vice Presidents be elected or appointed) shall perform all duties incumbent
upon the President during any absence or disability of the President and shall
have such powers and perform such duties as this Code of By-laws provides or as
the Board of Directors may, from time to time, prescribe or delegate to him.
Section 5.09. The Secretary. The Secretary shall prepare or cause to
------------ -------------
be prepared the minutes of the meetings of the shareholders and of the Board of
Directors; shall see that all notices are duly given in accordance with the
provisions of the Code of By-laws and as required by law; shall be custodian and
responsible for the authentication of the records; and, in general, shall
perform all duties incident to the office of Secretary and such other duties as
this Code of By-laws provides or as may, from time to time, be assigned by the
Board of Directors.
Section 5.10. The Assistant Secretaries. Each Assistant Secretary
------------ -------------------------
(if one or more Assistant Secretaries be elected or appointed) shall assist the
Secretary in his duties and shall perform such other duties as the Board of
Directors may, from time to time, prescribe or delegate to him. At the request
of the Secretary, any Assistant Secretary may, in the case of the absence or
inability to act of the Secretary, temporarily act in the Secretary's place.
Section 5.11. The Treasurer. The Treasurer shall be the financial
------------ -------------
officer of the Corporation; shall have charge and custody of, and be responsible
for, all funds of the Corporation, and deposit all such funds in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected by the Board of Directors; shall receive, and give receipts for, monies
due and payable to the Corporation from any source whatsoever; and, in general,
shall perform all the duties incident to the office of Treasurer and such other
duties as this Code of By-laws provides or as may, from time to time, be
assigned by the Board of Directors.
7
<PAGE>
Section 5.12. The Assistant Treasurers. Each Assistant Treasurer (if
------------ ------------------------
one or more Assistant Treasurers be elected or appointed) shall assist the
Treasurer in her duties, and shall perform such other duties as the Board of
Directors may, from time to time, prescribe or delegate to him. At the request
of the Treasurer, the Assistant Treasurer may, in the case of the absence or
inability to act of the Treasurer, temporarily act in the Treasurer's place.
Section 5.13. Delegation of Authority. In case of the absence of any
------------ -----------------------
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may delegate the powers or duties of such officer to any
other officer, for the time being, provided a majority of the entire Board
concurs therein.
Section 5.14. Salaries. The salaries of the officers shall be fixed,
------------ --------
from time to time, by the Board of Directors or a committee thereof. No officer
shall be prevented from receiving such salary by reason of the fact he is also a
director of the Corporation.
ARTICLE 6
---------
Negotiable Instruments, Deeds, Contracts and Shares
---------------------------------------------------
Section 6.01. Execution of Negotiable Instruments. All checks,
------------ -----------------------------------
drafts, notes, bonds, bills of exchange and orders for the payment of money of
the Corporation shall, unless otherwise directed by the Board of Directors, or
unless otherwise required by law, be signed by any officer of the Corporation,
signing singly, or such other officers or employees as may be directed by the
Board of Directors.
Section 6.02. Execution of Deeds, Contracts, Etc. All deeds and
------------ -----------------------------------
mortgages made by the Corporation and other material written contracts and
agreements into which the Corporation enters other than transactions in the
ordinary course of business shall, unless otherwise directed by the Board of
Directors or required by law, be executed in its name by any officer of the
Corporation, signing singly, and, when necessary or required, shall be duly
attested by the Secretary or Assistant Secretary. In addition to the above
designated officers, written contracts and agreements in the ordinary course of
business operations may be executed by any other officer or employee of the
Corporation designated by the Chairman of the Board, the Chief Executive
Officer, the Treasurer or the Secretary to execute such contracts and
agreements.
Section 6.03. Endorsement of Stock Certificates. Subject always to
------------ ---------------------------------
the further orders and directions of the Board of Directors, any share or shares
of stock issued by any other corporation and owned by the Corporation (including
retired shares of stock of the Corporation) may, for sale or transfer, be
endorsed in the name of the Corporation by the Chief Executive Officer or the
President and such endorsement shall be duly attested by the Secretary.
8
<PAGE>
Section 6.04. Voting of Stock Owned by Corporation. Subject always
------------ ------------------------------------
to the further orders and directions of the Board of Directors, any share or
shares of stock issued by any other corporation and owned or controlled by the
Corporation may be voted at any shareholder's meeting of such other corporation
by the Chief Executive Officer or the President of the Corporation or, in their
absence, by the Secretary of the Corporation. Whenever, in the judgment of the
Chief Executive Officer or the President, it is desirable for the Corporation to
execute a proxy or give a shareholder's consent in respect to any share or
shares of stock issued by any other corporation and owned by the Corporation,
such proxy or consent shall be executed in the name of the Corporation and shall
be attested by the Secretary of the Corporation. Any person or persons
designated in the manner above stated as the proxy or proxies of the Corporation
shall have the full right, power, and authority to vote the share or shares of
stock issued by such other corporation and owned by the Corporation the same as
such share or shares might be voted by the Corporation.
ARTICLE 7
---------
Provisions for Regulation of Business
-------------------------------------
and Conduct of Affairs of Corporation
-------------------------------------
Section 7.01. Contracts. Any contract or other transaction between
------------ ---------
the Corporation and one or more of its directors, or between the Corporation and
any firm of which one or more of its directors are members or employees, or in
which they are interested, or between the Corporation and any corporation or
association of which one or more of its directors are shareholders, members,
directors, officers, or employees, or in which they are interested, shall be
valid for all purposes, notwithstanding the presence of such director or
directors at the meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction, and notwithstanding his
or their participation in such action, if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of Directors shall,
nevertheless, authorize, approve, and ratify such contract or transaction by a
vote of a majority of the directors on the Board of Directors who have no direct
or indirect interest in the contract or transaction or, if all directors have
such an interest, then by a vote of a majority of the directors. If a majority
of such directors vote to authorize, approve or ratify such contract or
transaction, a quorum is deemed to be present for purposes of taking such
action. This Section shall not be construed to invalidate any contract or other
transaction which would otherwise be valid under the common and statutory law
applicable thereto.
9
<PAGE>
Section 7.02. Indemnification.
------------ ---------------
Clause 7.021. Definitions. Terms defined in Chapter 37 of the
------------ -----------
Indiana Business Corporation Law (IND. CODE (S)(S) 23-1-37, et seq.) which are
-- ---
used in this Article 7 shall have the same definitions for purposes of this
Article 7 as they have in such chapter of the Indiana Business Corporation Law.
Clause 7.022. Indemnification of Directors and Officers. The
------------ -----------------------------------------
Corporation shall indemnify any individual who is or was a director or officer
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner or trustee of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise whether or not for profit, against liability and expenses, including
attorneys fees, incurred by him in any action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, and whether formal or
informal, in which he is made or threatened to be made a party by reason of
being or having been in any such capacity, or arising out of his status as such,
except (i) in the case of any action, suit, or proceeding terminated by
judgment, order, or conviction, in relation to matters as to which he is
adjudged to have breached or failed to perform the duties of his office and the
breach or failure to perform constituted willful misconduct or recklessness; and
(ii) in any other situation, in relation to matters as to which it is found by a
majority of a committee composed of all directors not involved in the matter in
controversy (whether or not a quorum) that the person breached or failed to
perform the duties of his office and the breach or failure to perform
constituted willful misconduct or recklessness. The Corporation may pay for or
reimburse reasonable expenses incurred by a director or officer in defending any
action, suit, or proceeding in advance of the final disposition thereof upon
receipt of (i) a written affirmation of the director's or officer's good faith
belief that such director or officer has met the standard of conduct prescribed
by Indiana law; and (ii) an undertaking of the director or officer to repay the
amount paid by the Corporation if it is ultimately determined that the director
or officer is not entitled to indemnification by the Corporation.
Clause 7.023. Other Employees or Agents of the Corporation.
------------ --------------------------------------------
The Corporation may, in the discretion of the Board of Directors, fully or
partially provide the same rights of indemnification and reimbursement as
hereinabove provided for directors and officers of the Corporation to other
individuals who are or were employees or agents of the Corporation or who are or
were serving at the request of the Corporation as employees or agents of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise whether or not for profit.
10
<PAGE>
Clause 7.024. Nonexclusive Provision. The indemnification
------------ ----------------------
authorized under Section 7.02 above is in addition to all rights to
indemnification granted by Chapter 37 of the Indiana Business Corporation Law
(IND. CODE (S)(S) 23-1-37, et seq.) and in no way limits the indemnification
-- ---
provisions of such Chapter.
ARTICLE 8
---------
Amendments
----------
Section 8.01. In General. The powers to make, alter, amend or repeal
------------ ----------
this Code of By-laws is vested in the Board of Directors, but the affirmative
vote of a majority of the number of directors in office at the time of such vote
shall be necessary to effect any alteration, amendment or repeal of this Code of
By-laws.
11
<PAGE>
EXHIBIT 4.1
[FORM OF STOCK CERTIFICATE]
NUMBER SHARES
Control Devices, Inc.
Incorporated Under the Laws of the State of Indiana
This Certificate is Transferable in CUSIP 21238C 10 3
Boston, MA. or New York, N.Y.
This Certifies that
is the record holder of
fully paid and non-assessable common shares without par value of
Control Devices, Inc., transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon the surrender of
this Certificate properly endorsed. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of its officers.
Dated:
---------------------------
/s/ Bruce D.Atkinson /s/ Jeffrey G. Wood
- --------------------------- ---------------------------
President Secretary
Countersigned and Registered
The First National Bank of Boston
Transfer Agent
and Registrar
By
Authorized Officer
<PAGE>
[Reverse Side of Form of Stock Certificate]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM --- as tenants in common UNIF TRANSFERS MIN ACT --- _____ Custodian ____________
TEN ENT --- as tenants by the entireties (Cust) (Minor)
JT TEN --- as joint tenants with right under Uniform Transfers
of survivorship and not as to Minor Act ________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
CONTROL DEVICES, INC.
The Corporation will upon written request, furnish to any shareholder
without charge, a full statement of the designation, relative rights,
preferences and limitations applicable to each class of shares and the
variations in rights, preferences and limitations determined for each series
(and the authority of the Board of Directors of the Corporation to determine
variations for future series).
For Value received _____________ hereby sell, assign and transfer unto [please
-------
insert social security or other identifying number of assignee]
- ------------------------------------------------------------------------------
(name and address of transferee should be printed or typewritten)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
the Common Shares represented by the within Certificate and do hereby
irrevocably constitute and appoint____________________________________________
Attorney to transfer the said shares on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated:____________________________ _________________________________
Signature
_________________________________
Signature
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OF ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4.6
EXECUTION COPY
FIRST AMENDMENT
TO
SECURITIES PURCHASE AGREEMENTS AND
SENIOR REVOLVING CREDIT NOTES
This First Amendment dated as of March 29, 1996 (this "First Amendment") to
the separate Securities Purchase Agreements each dated as of July 29, 1994 and
the Senior Revolving Credit Notes is between Control Devices, Inc., an Indiana
corporation (the "Company") and each of the institutions which is a signatory to
this First Amendment (collectively, the "Securityholders").
RECITALS:
A. The Company and each of the Securityholders have heretofore entered
into separate and several Securities Purchase Agreements each dated as of July
29, 1994 (collectively, the "Securities Purchase Agreements"). The Company has
heretofore issued its 10% Senior Secured Fixed Rate Notes due July 31, 2004 (the
"Senior Fixed Rate Notes"), its Senior Secured Floating Rate Revolving Credit
Notes due July 29, 1999 (the "Senior Revolving Credit Notes") and its 11% Senior
Subordinated Notes due July 31, 2004 (collectively, the "Notes"), the Preferred
Shares, the Purchased Common Shares and the Warrants (each as defined in the
Securities Purchase Agreements) and the Securityholders are the holders of 100%
of the outstanding Notes, Preferred Shares, Purchased Common Shares and
Warrants.
B. The Company has requested, in connection with its proposed acquisition
of all of the capital stock of Realisations et Diffusion pour l'Industrie, a
French societe anonyme a Directoire, that the Securities Purchase Agreements and
the Senior Revolving Credit Notes be amended in certain respects, and the
Company and the Securityholders now desire to amend the Securities Purchase
Agreements and the Senior Revolving Credit Notes in the respects, but only in
the respects, hereinafter set forth.
C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Securities Purchase Agreements unless herein defined or
the context shall otherwise require.
D. All requirements of law have been fully complied with and all other acts
and things necessary to make this First Amendment a valid, legal and binding
instrument according to its terms for the purposes herein expressed have been
done or performed.
NOW THEREFORE, the Company and the Securityholders, in consideration of
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, agree as follows:
<PAGE>
Section 1. Amendments to Securities Purchase Agreements.
---------------------------------------------
1.1. Section 6(a) of the Securities Purchase Agreements is hereby amended
by inserting the words "of the Company and its Restricted Subsidiaries" after
the words "working capital purposes" in the second sentence of such section
6(a).
1.2. The first sentence of Section 12.2 of the Securities Purchase
Agreements is hereby amended to read as follows:
"Subject to the terms and conditions hereof, you and the Other Purchasers
hereby establish for the benefit of the Company a revolving credit facility
pursuant to which the Company may borrow (and repay and reborrow) an
aggregate principal amount at any one time outstanding not in excess of (i)
$1,500,000 prior to March 29, 1996 and on or after March 29, 1997 and (ii)
$3,000,0000 during the period from and after March 29, 1996 through and
including March 28, 1997 (such commitment as reduced from time to time in
accordance with the terms hereof, the "Total Revolving Commitment")."
1.3. Section 13(b)(v) of the Securities Purchase Agreements is hereby
amended by deleting the word "and" appearing immediately before subclause (v) of
such section 13(b)(v) and inserting before the period at the end of such section
13(b)(v) the following
", (vi) Equity Securities consisting of an aggregate of US $892,400 in
aggregate principal amount of subordinated notes issued by the Company as
partial payment by the Company in its purchase of all of the outstanding
capital stock of RDI, which subordinated notes are convertible into Class A
Common Shares upon the closing of the Company's initial registered public
offering (the "Convertible RDI Notes"), and (vii) the Class A Shares issued
by the Company upon conversion of the Convertible RDI Notes"
1.4. Section 14.2(e) of the Securities Purchase Agreements is hereby
amended to read as follows
"(e) (i) with respect to the Company and its Restricted
Subsidiaries, engage primarily in the business, as now conducted after
giving effect to the Acquisition, of manufacturing, distributing and
selling electromechanical circuit protection devices, thermoprotectors,
sensors and electro/ceramic current limiters, heaters and resonators for
the automotive, appliance and lighting industries, substantially in the
manner described in the Disclosure Document and (ii) with respect to the
Unrestricted Subsidiaries, engage in the business of designing, developing,
manufacturing and distributing principally throughout Western Europe
electrical components, including but not limited to (x) thermal protectors
and sensors, thermal fuses and circuit breakers for the automotive and
appliance industries, (y) passive components, such as fuses, capacitors and
connectors, and (z) fuses, terminals and small electrical accessories,
sound, CB and GMS accessories for the automotive aftermarket, wholesalers
and automobile centers; and"
<PAGE>
1.5. Section 14.4 of the Securities Purchase Agreements is hereby amended
by inserting the following at the end thereof:
"and the Unrestricted Subsidiaries may obtain Receivables Financing in an
aggregate amount outstanding at any time not to exceed 40% of the gross
receivables of the Unrestricted Subsidiaries outstanding at such time"
1.6. Section 14.5 of the Securities Purchase Agreements is hereby amended
by deleting subsection (b) thereof in its entirety and inserting at the end of
subsection 14.5(a)(ii) the following subsections (a)(iii), (b) and (c):
"(iii) unsecured Indebtedness evidenced by the RDI Shareholder Notes;
and
(b) in the case of any Restricted Subsidiary of the Company:
(i) Funded Debt evidenced by the Note Guarantees; and
(ii) Funded Debt and/or Current Debt owing to the Company or a
Wholly-Owned Subsidiary of the Company which is a Restricted
Subsidiary, provided that such loan was made by the Company or such
--------
other Subsidiary of the Company in compliance with section 14.11; and
(c) in the case of any Unrestricted Subsidiary of the Company:
(i) Funded Debt or Current Debt of such Unrestricted Subsidiary
which is outstanding on the date the Company acquires the capital stock
of RDI, and which is described on Exhibit 5.9A attached hereto; and
------------
(ii) the Receivables Financing."
1.7. Section 14.6 of the Securities Purchase Agreements is hereby amended
by deleting subsection (f) of such section 14.6 and inserting in place thereof
the following:
"(f) The Company shall not, and shall not permit any Subsidiary to,
make any payment or prepayment in respect of (i) the Seller Note if such
payment or prepayment is prohibited by the terms of the Seller Note
Subordination Agreement or (ii) the RDI Shareholder Notes if such payment
or prepayment is prohibited by the terms of the RDI Shareholder Notes
Subordination Agreement.
Nothing contained in this section 14.6 shall prohibit (i) RDI from paying a
dividend to its former shareholders in an amount not to exceed $240,000 on
the terms and conditions set
3
<PAGE>
forth in the RDI Stock Purchase Agreement or (ii) the Company from agreeing
to be bound by section 8.2 of the RDI Stock Purchase Agreement."
1.8. Section 14.7 of the Securities Purchase Agreements is hereby amended
to read as follows:
"14.7 Current Ratio. The Company will at all times keep and
-------------
maintain Consolidated Current Assets in an amount at least equal to 140% of
Consolidated Current Liabilities , provided that if the Required Holders
--------
make the Financial Covenant Inclusion Election (as defined below), section
14.7 of the Securities Purchase Agreement shall thereupon be further
amended to read as follows:
"14.7 Current Ratio. The Company will at all times keep and
-------------
maintain Consolidated Current Assets in an amount at least equal to 140% of
Consolidated Current Liabilities, provided that for purposes of this
--------
section 14.7 Consolidated Current Liabilities shall not include the
Receivables Financing of the Unrestricted Subsidiaries."
1.9. Section 14.9 (a) of the Securities Purchase Agreements is hereby
amended by deleting the word "and" at the end of clause (iv) of such section
14.9(a), inserting "; and" at the end of clause (v) of such section 14.9 and
inserting the following new clause (vi):
"(vi) in the case of an Unrestricted Subsidiary, any Lien on any of
the assets of such Unrestricted Subsidiary if such Lien is in existence on
the date the Company acquires the capital stock of RDI and is described on
Exhibit 5.9A attached hereto."
------------
1.10 Section 14.10 of the Securities Purchase Agreements is hereby amended
by replacing the parenthetical "(other than the Company or a Wholly-Owned
Subsidiary of the Company) with the following:
"(other than the Company or a Wholly-Owned Subsidiary of the Company which
is a Restricted Subsidiary").
1.11 Section 14.18 of the Securities Purchase Agreements is hereby amended
by inserting the words "or the RDI Shareholder Notes" after the words "Seller
Note" in clause (ii) thereof.
1.12. Section 15.1 of the Securities Purchase Agreements is hereby amended
by deleting the definition of "Current Liabilities" appearing therein and
inserting the following in place thereof:
4
<PAGE>
""Current Liabilities" of any Person shall mean, at any date, all
------- -----------
Indebtedness of such Person which would, in accordance with generally
accepted accounting principles, be classified as current liabilities at
such date, but specifically excluding the current maturities of such
Person's Funded Debt."
1.13. Section 15.1 of the Securities Purchase Agreements is hereby further
amended by deleting the definitions of "Consolidated Adjusted Net Income",
"Consolidated Capitalization", "Consolidated Current Assets", "Consolidated
Current Debt", "Consolidated Current Liabilities", "Consolidated Net Income",
"Consolidated Net Worth", "Consolidated Total Assets" and "Consolidated Total
Debt" appearing therein and inserting the following in place thereof:
"Consolidated Adjusted Net Income", "Consolidated Capitalization",
------------- -------- --- ------ ------------ --------------
"Consolidated Current Assets", "Consolidated Current Debt", "Consolidated
------------- ------- ------ ------------ ------- ---- ------------
Current Liabilities", "Consolidated Net Income", "Consolidated Net Worth",
------- ----------- ------------ --- ------ ------------ --- -----
"Consolidated Total Assets" and "Consolidated Total Debt" shall mean the
------------ ----- ------ ------------ ----- ----
Adjusted Net Income, Capitalization, Current Assets, Current Debt, Current
Liabilities, Net Income, Net Worth, Total Assets and Total Debt, as the
case may be, of the Company and its Restricted Subsidiaries (whether or not
ordinarily consolidated in consolidated financial statements of the Company
and Subsidiaries), all consolidated in accordance with generally accepted
accounting principles, and after giving appropriate effect to outside
minority interests, if any, in Restricted Subsidiaries, provided that (a)
-------- -
in determining Consolidated Adjusted Net Income and Consolidated Net Income
there shall be excluded (i) the Net Income of any Person (other than a
-
Restricted Subsidiary of the Company) in which the Company or any
Restricted Subsidiary of the Company has an ownership interest, except to
the extent that any such Net Income has been actually received by the
Company or such Restricted Subsidiary in the form of dividends or similar
distributions, (ii) any undistributed Net Income of a Restricted Subsidiary
--
of the Company which for any reason is unavailable for distribution to the
Company or any other Restricted Subsidiary of the Company, (iii) the Net
---
Income of any Person accrued prior to the date it becomes a Restricted
Subsidiary of the Company or is merged into or consolidated with the
Company or a Restricted Subsidiary of the Company, (iv) in the case of a
--
successor to the Company by consolidation, merger or transfer of assets,
the Net Income of such successor accrued prior to such consolidation,
merger or transfer, and (v) any deferred or other credit representing the
-
excess of the equity in any Restricted Subsidiary of the Company at the
date of acquisition thereof over the cost of the investment in such
Restricted Subsidiary, and (b) in determining Consolidated Net Worth no
-
amount shall be included therein on account of (i) any excess cost of
-
acquisition of shares of any Restricted Subsidiary of the Company over the
book value of the assets of such Restricted Subsidiary attributable to such
shares on the books of such Restricted Subsidiary at the date of
acquisition of such shares or (ii) any excess of the book value of the
--
assets of such Restricted Subsidiary attributable to such assets at the
date of such acquisition over the cost of acquisition of such assets, other
than any such excess attributable to the Acquisition."
5
<PAGE>
,provided that within ten Business Days of the date of this First Amendment,
--------
the Required Holders of the Notes may, upon written notice to the Company, elect
to make the further amendments contemplated by section 1.8 of this First
Amendment and this section 1.13 (the "Financial Covenant Inclusion Election"),
in which event section 15.1 of the Securities Purchase Agreements shall
thereupon be further amended by deleting the definitions of "Consolidated
Adjusted Net Income", "Consolidated Capitalization", "Consolidated Current
Assets", "Consolidated Current Debt", "Consolidated Current Liabilities",
"Consolidated Net Income", "Consolidated Net Worth", "Consolidated Total Assets"
and "Consolidated Total Debt" appearing therein and inserting the following in
place thereof:
"Consolidated Adjusted Net Income", "Consolidated Capitalization",
------------ -------- --- ------ ------------ --------------
"Consolidated Current Assets", "Consolidated Current Debt", "Consolidated
------------ ------- ------ ------------ ------- ---- ------------
Current Liabilities", "Consolidated Net Income", "Consolidated Net Worth",
------- ----------- ------------ --- ------ ------------ --- -----
"Consolidated Total Assets" and "Consolidated Total Debt" shall mean the
------------ ----- ------ ------------ ----- ----
Adjusted Net Income, Capitalization, Current Assets, Current Debt, Current
Liabilities, Net Income, Net Worth, Total Assets and Total Debt, as the
case may be, of the Company and its Subsidiaries (whether or not ordinarily
consolidated in consolidated financial statements of the Company and
Subsidiaries), all consolidated in accordance with generally accepted
accounting principles, and after giving appropriate effect to outside
minority interests, if any, in Subsidiaries, provided that (a) in
-------- -
determining Consolidated Adjusted Net Income and Consolidated Net Income
there shall be excluded (i) the Net Income of any Person (other than a
-
Subsidiary of the Company) in which the Company or any Subsidiary of the
Company has an ownership interest, except to the extent that any such Net
Income has been actually received by the Company or such Subsidiary in the
form of dividends or similar distributions, (ii) any undistributed Net
--
Income of a Restricted Subsidiary of the Company which for any reason is
unavailable for distribution to the Company or any other Subsidiary of the
Company, (iii) the Net Income of any Person accrued prior to the date it
---
becomes a Subsidiary of the Company or is merged into or consolidated with
the Company or a Subsidiary of the Company, (iv) in the case of a successor
--
to the Company by consolidation, merger or transfer of assets, the Net
Income of such successor accrued prior to such consolidation, merger or
transfer, and (v) any deferred or other credit representing the excess of
-
the equity in any Subsidiary of the Company at the date of acquisition
thereof over the cost of the investment in such Subsidiary, and (b) in
determining Consolidated Net Worth no amount shall be included therein on
account of (i) any excess cost of acquisition of shares of any Subsidiary
-
of the Company over the book value of the assets of such Subsidiary
attributable to such shares on the books of such Subsidiary at the date of
acquisition of such shares or (ii) any excess of the book value of the
--
assets of such Subsidiary attributable to such assets at the date of such
acquisition over the cost of acquisition of such assets, other than any
such excess attributable to the Acquisition."
1.14. The definition of "Permitted Investments" in section 15.1 of the
Securities Purchase Agreements is hereby amended by inserting in subsection (a)
thereof the words "which is
6
<PAGE>
a Restricted Subsidiary of the Company" after the words "Wholly-Owned Subsidiary
of the Company" appearing twice in such subsection (a) of such definition.
1.15. The definition of "Permitted Investments" in section 15.1 of the
Securities Purchase Agreements is hereby further amended by deleting the "and"
appearing at the end of subsection (g) thereof, adding "; and" at the end of
subsection (h) thereof and inserting the following new subsection (i):
"(i) the acquisition of all of the capital stock of RDI
pursuant to the RDI Stock Purchase Agreement."
1.16. the definition of "Pro Forma Fixed Charges " in section 15.1 of the
Securities Purchase Agreements is hereby amended by inserting the word
"Restricted" before the word Subsidiaries appearing therein.
1.17. Section 15.1 of the Securities Purchase Agreements is hereby further
amended by inserting therein in alphabetical order the following new defined
terms:
"Convertible RDI Notes" shall have the meaning specified in section
---------------------
13(b)(v).
"RDI" shall mean Realisations et Diffusion pour l'Industrie, a French
---
societe anonyme a Directoire.
"RDI Shareholder Notes" shall mean US $2,000,000 in aggregate
---------------------
original principal amount of promissory notes (including the
Convertible RDI Notes which will be convertible into Class A Common
Shares) issued by the Company to the former shareholders of RDI at
the closing of the acquisition by the Company of all of the capital
stock of RDI pursuant to the RDI Stock Purchase Agreement.
"RDI Shareholder Notes Subordination Agreement" shall mean the
---------------------------------------------
Subordination Agreement dated March 29, 1996 by and among the
Company, the holders of the Notes and the holders of the RDI
Shareholder Notes, as amended from time to time.
"RDI Stock Purchase Agreement" shall mean the Stock Purchase Agreement
----------------------------
dated as of March 29, 1996 among the Company, RDI and Antonio Alvarez,
Jacqueline Chambrelan, Regina Combes, Raymond Fraysse, Michel Hauser-
Kauffman, Alain Lebatard, and Bernard Viret, as originally executed
and delivered.
"Receivables Financing" shall mean loans advanced to RDI by commercial
---------------------
lenders in amounts based on the aggregate amounts of receivables of
RDI outstanding from time to time and represented by promissory notes
or bills of exchange, in electronic form or otherwise, issued to RDI
by its customers.
7
<PAGE>
"Restricted Subsidiary" and "Restricted Subsidiaries" shall mean any
--------------------- -----------------------
Subsidiary other than an Unrestricted Subsidiary.
"Senior Revolving Credit Notes" shall mean the Senior Secured Floating
-----------------------------
Rate Revolving Credit Notes of the Company due July 29, 1999, together
with any notes issued in exchange therefor or replacement thereof, in
the aggregate principal amount not to exceed $3,000,000, issued and
sold pursuant to this Agreement and the Other Securities Purchase
Agreements."
"Unrestricted Subsidiary" and "Unrestricted Subsidiaries" shall mean
----------------------- -------------------------
RDI and each of its Subsidiaries, including Futurelec, a French
societe a responsabilite limitee and Realisations et Diffusion pour
l'Industrie en Telephonie, a French societe a responsabilite limitee,
each of which is a Wholly-Owned Subsidiary of RDI.
1.18. The Securities Purchase Agreements are hereby amended by deleting
Exhibit 1(a)(ii) thereto in its entirety and inserting in its place the form of
- ----------------
Exhibit 1(a)(ii) attached hereto.
- ---------------
1.19. The Securities Purchase Agreements are hereby amended by adding a new
Exhibit 5.9A in the form of Exhibit 5.9A attached hereto.
- ------------ ------------
2. Additional Security. The parties agree and acknowledge that the only
-------------------
additional Security Documents to be requested by the Securityholders pursuant to
Section 14.20 of the Securities Purchase Agreements in connection with the
Company's acquisition of RDI shall be instruments evidencing a pledge of or
grant of a security interest in 66% of the outstanding capital stock of RDI and
any Subsidiary of RDI. The parties further agree and acknowledge that except for
the pledge of or security interest in 66% of the outstanding capital stock of
RDI and any Subsidiary of RDI, Sections 1(d)(i) and 1(d)(iii) of the Securities
Purchase Agreements will not apply with respect to any assets of RDI or any
Subsidiary of RDI. The parties agree that RDI and its Subsidiaries shall not be
required to execute a Note Guarantee notwithstanding Section 1(c) of the
Securities Purchase Agreements.
8
<PAGE>
3. Amendment to Senior Revolving Credit Notes and Consent Thereto.
--------------------------------------------------------------
The Senior Revolving Credit Notes be and they hereby are amended by
replacing the figure "$1,500,000" appearing in the second paragraph thereof with
the figure "$3,000,000". Concurrent with the execution and delivery of this
First Amendment, the Securityholders are exchanging the original executed Senior
Revolving Credit Notes held by them for replacement Senior Revolving Credit
Notes in the form of Exhibit 1(a)(ii). The Securityholders, in their capacity
---------------
as holders of the Subordinated Indebtedness hereby consent to the amendment to
the Senior Revolving Credit Notes to increase the aggregate principal amount of
Senior Revolving Credit Notes from $1,500,000 to $3,000,000 and agree that the
Senior Revolving Credit Notes, as so increased in aggregate principal amount,
continue to constitute Superior Indebtedness for purposes of the Securities
Purchase Agreements, including without limitation section 10 thereof.
4. Prepayment of Seller Note. Pursuant to section 1.2(c)(ii) of the
-------------------------
Seller Note Subordination Agreement, the Securityholders hereby consent to the
prepayment in full of all principal of and accrued interest on the Seller Notes
by the Company on the date hereof concurrent with the closing of the acquisition
of the capital stock of RDI.
5. Subordination of RDI Shareholder Notes. The parties acknowledge
--------------------------------------
that upon the closing of the acquisition of the capital stock of RDI by the
Company on the date hereof, the Company will issue US $2,000,000 in aggregate
principal amount of its promissory notes (the "RDI Shareholder Notes") to the
former shareholders of RDI in payment of a portion of the purchase price for the
capital stock of RDI. Concurrent with the execution and delivery of this First
Amendment, and as a condition to its effectiveness, the Company, the
Securityholders and the shareholders of RDI are entering into a Subordination
Agreement in the form attached hereto, subordinating the payment of the RDI
Shareholder Notes to the Notes on the terms and conditions set forth therein.
6. Due Execution; Representations. The Company represents and
-------------------------------
warrants to the Securityholders that (a) this First Amendment has been duly and
validly executed and delivered, and is a valid and binding obligation of the
Company enforceable in accordance with its terms; and (b) no Default or Event of
Default (as defined in Securities Purchase Agreements) has occurred and is
continuing.
7. Miscellaneous.
-------------
7.1. This First Amendment shall be construed in connection with and as
part of each of the Securities Purchase Agreements and the Securities, and
except as modified and expressly amended by this First Amendment, all terms,
conditions and covenants contained in the Securities Purchase Agreements, the
Senior Revolving Credit Notes and the other Operative Documents are hereby
ratified and shall be and remain in full force and effect.
7.2. Any and all notices, requests, certificates and other instruments
executed and delivered after the effectiveness of this First Amendment may
refer to the Securities Purchase
9
<PAGE>
Agreements and the other Operative Documents without making specific reference
to this First Amendment but nevertheless all such references shall include this
First Amendment unless the context otherwise requires.
7.3. The descriptive headings of the various sections or parts of this
First Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
7.4. This First Amendment shall be governed by and construed in
accordance with the internal laws of The Commonwealth of Massachusetts
without giving effect to any choice of law or conflicts of law provision or rule
that would cause the application of the domestic substantive laws of any other
jurisdiction.
7.5. The execution hereof by you shall constitute a contract between us
for the uses and purposes hereinabove set forth, and this First Amendment may be
executed in any number of counterparts, each executed counterpart constituting
an original, but all together only one agreement.
10
<PAGE>
CONTROL DEVICES, INC.
By:
--------------------------
(Title)
Accepted and Agreed To:
MASSMUTUAL CORPORATE MASSACHUSETTS MUTUAL LIFE
VALUE PARTNERS LIMITED INSURANCE COMPANY
By: Massachusetts Mutual Life
Insurance Company, as By:
Investment Advisor --------------------------
(Title)
By:
--------------------------
(Title)
11
<PAGE>
MASSMUTUAL CORPORATE MASSMUTUAL PARTICIPATION
INVESTORS INVESTORS
By: By:
------------------------- --------------------------
(Title) (Title)
The foregoing is executed on The foregoing is executed on behalf of
behalf of MassMutual Corporate MassMutual Participation Investors,
Investors, organized under a organized under a Declaration of Trust,
Declaration of Trust, dated dated April 7, 1988, as amended from
September 13, 1985, as amended time to time. The obligations of such
from time to time. The Trust are not personally binding upon,
obligations of such Trust are nor shall resort be had to the property
not personally binding upon, of, any of the Trustees, shareholders,
nor shall resort be had to the officers, employees or agents of such
property of, any of the Trust, but the Trust's property only
Trustees, shareholders, shall be bound.
officers, employees or agents
of such Trust, but the Trust's
property only shall be bound.
12
<PAGE>
EXHIBIT 4.7
AUGUST 16, 1996
SECOND AMENDMENT
TO
SECURITIES PURCHASED AGREEMENTS
This Second Amendment dated as of August 16, 1996 (this "Second Amendment")
to the separate Securities Purchase Agreements each dated as of July 29, 1996 is
between Control Devices, Inc., an Indiana corporation (the "Company") and each
of the institutions which is a signatory to this Second Amendment (collectively,
the "Securityholders").
RECITALS:
A. The Company and certain of the Securityholders have heretofore entered
into separate and several Securities Purchase Agreements each dated as of July
29, 1996 which were amended by a First Amendment to Securities Purchase
Agreements and Senior Revolving Credit Notes dated March 29, 1996 (collectively,
the "Securities Purchase Agreements"). The Securityholders are the holders of
100% of the outstanding Notes, Preferred Shares, Purchased Common Shares and
Warrants issued pursuant to the Securities Purchase Agreements.
B. The Company is contemplating an initial public offering of shares of
the Company ("IPO").
C. In connection with the IPO, the Company and the Investors desire to
amend the Securities Purchase Agreements as contemplated hereby.
D. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Securities Purchase Agreements unless herein defined or
the context shall otherwise require.
E. All requirements of law have been fully complied with and all other
acts and things necessary to make this Second Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.
NOW THEREFORE, the Company and the Securityholders, in consideration of
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, agree as follows:
1. Amendments. Subject to, and effective upon, the closing of an initial
public offering of common shares of the Company on or before December 31, 1996
and the repayment of all amounts due on the Notes, including principal, interest
and penalties, if any:
1
<PAGE>
(a) the Revolving Credit Facility contemplated by Section 12 of the
Securities Purchase Agreements shall be terminated and Sections 7, 8, 9, 10, 12,
13, 14, 17, 18, 19(a)(i), and 20 of the Securities Purchase Agreements shall be
deleted in their entirety; and
(b) the Securities Purchase Agreements shall be amended to add a new
Section 7 which shall read as follows:
"Section 7. Financial Statements and Information. So long as the
---------- ------------------------------------
Securityholders shall hold any Securities, the Company shall furnish to
the Securityholders within 15 days after it files them with the United
States Securities and Exchange Commission (the "SEC"), copies of the
annual reports and quarterly reports which the Company is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If
the Company is not subject to the requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall furnish to the Securityholders,
within 15 days after it would have been required to file with the SEC if
the Company were subject to the requirements of Section 13 or 15(d) of
the Exchange Act, (i) annual consolidated financial statements,
including any notes thereto (with an auditors' report by a nationally
recognized firm of independent certified public accountants) and (ii)
quarterly consolidated financial statements comparable to that which
the Company would have been required to include in such quarterly
reports filed with the SEC."; and
(c) the Securities Purchase Agreements shall be amended to add a new
Section 30 which shall read as follows:
Section 30. 11% Cumulative Preferred Shares. The Company shall
----------- --------------------------------
not amend the terms of the 11% Cumulative Preferred Shares.
2. Fractional Shares. The Investors hereby agree to forfeit any fractional
- -----------------
Class B Shares represented by certificates registered to any of them (the
"Outstanding Certificates") and to forfeit the right to purchase any fractional
share represented by any warrant of CDI registered to any of them (the
"Warrants"). Upon request, the Investors agree to surrender the Outstanding
Certificates and the Warrants and CDI agrees to issue to the Investors, upon
such surrender, new certificates representing the next whole number of Common
Shares less than the number of Class B Shares represented by each Outstanding
Certificate, and to issue new Warrants representing the right to purchase the
next whole number of Class B Shares less than the number of Class B Shares
purchasable upon exercise of each Warrant.
2
<PAGE>
3. Due Execution: Representations. The Company represents and
-------------------------------
warrants to the Securityholders that (a) this Second Amendment has been duly and
validly executed and delivered, and is a valid and binding obligation of the
Company enforceable in accordance with its terms; and (b) no Default or Event of
Default (as defined in the Securities Purchase Agreements) has occurred and is
continuing.
4. Miscellaneous
-------------
4.1. This Second Amendment shall be construed in connection with and as
part of each of the Securities Purchase Agreements and the Securities, and
except as modified and expressly amended by this Second Amendment, all terms,
conditions and covenants contained in the Securities Purchase Agreements and the
other Operative Documents are hereby ratified and shall be and remain in full
force and effect.
4.2. Any and all notices, requests, certificates and other instruments
executed and delivered after the effectiveness of this Second Amendment may
refer to the Securities Purchase Agreements and the other Operative Documents
without making specific reference to this Second Amendment, but nevertheless all
such references shall include this Second Amendment unless the context otherwise
requires.
4.3. The descriptive headings of the various sections or parts of this
Second Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
4.4. This Second Amendment shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts without giving
effect to any choice of law or conflicts of law provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
4.5. The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Second Amendment may be
executed in any number of counterparts, each executed counterpart constituting
an original, but all together only one agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
CONTROL DEVICES, INC.
By:
--------------------------------------
Bruce D. Atkinson, CEO & President
Accepted and Agreed To:
MASSMUTUAL CORPORATE MASSACHUSETTS MUTUAL LIFE
VALUE PARTNERS LIMITED INSURANCE COMPANY
By: Massachusetts Mutual Life
Insurance Company, as By:
Investment Advisor -------------------------------------
Its:
By: -------------------------------------
--------------------------
Its:
--------------------------
MASSMUTUAL CORPORATE MASSMUTUAL PARTICIPATION
INVESTORSINVESTORS
By: By:
-------------------------- -------------------------------------
Its: Its:
-------------------------- -------------------------------------
The foregoing is executed on behalf The foregoing is executed on behalf
of MassMutual Corporate Investors, MassMutual Participation Investors,
organized under a Declaration of organized under a Declaration of
Trust, dated September 13, 1985, as Trust, dated April 7, 1988, as amended
amended from time to time. The from time to time. The obligations of
obligations of such Trust are not such Trust are not personally binding
personally binding upon, nor shall upon, nor shall resort be had to the
resort be had to the property of, property of, any of the Trustees,
any of the Trustees, shareholders, shareholders, officers, employees or
employees or agents of such Trust, or agents of such Trust, but the Trust's
but the Trust's property only shall property only shall
be bound. be bound.
GERLACH & CO.
By:
--------------------------------
Its:
--------------------------------
4
<PAGE>
August 19, 1996
Mr. Bruce D. Atkinson
Chief Executive Officer
Control Devices, Inc.
228 Northeast Road
Standish, ME 04084
RE: Securities Purchase Agreements dated July 29, 1994 (the "SPAs")
between Control Devices, Inc. ("CDI") and Massachusetts Mutual Life
Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors and MassMutual Corporate Value Partners (as
transferees of a portion of Massachusetts Mutual Life Insurance
Company's interest) (collectively, the "Investors"), respectively, as
amended.
Dear Mr. Atkinson:
CDI has requested that the Investors waive certain provisions of the SPAs.
In connection therewith, please be advised that the undersigned agree to waive
certain rights as set forth below. Capitalized terms used but not defined herein
shall have the meanings set forth for such terms in the SPAs.
1. Waiver of Notice of Prepayment
------------------------------
The Investors hereby waive the notice requirement of Section 9.5 in
connection with a redemption of the Senior Fixed Rate Notes and the Subordinated
Notes from the proceeds of an initial public offering consummated on or before
December 31, 1996 (the "Offering").
2. Waiver of Registration on Request
---------------------------------
The Investors hereby waive until 180 days after the effective date of the
registration statement related to the Offering, their rights under Section 11.2
of the SPAs. The Investors expressly reserve their rights under Section 11.2
after such 180 days.
<PAGE>
August 19, 1996
Page 2
3. Waiver of Notice of Registration
--------------------------------
The Investors hereby waive the written notice of registration required by
Section 11.3(a)(i) of the SPAs with respect only to the Offering. The Investors
expressly reserve their rights under Section 11.3(a)(i) of the SPAs with respect
to any other registration, qualification and/or compliance of any of CDI's
securities.
4. Waiver of Incidental Registration Rights
----------------------------------------
The Investors hereby waive their rights under Section 11.3(a)(ii) of the
SPAs to require CDI to include among the securities registered for sale in the
Offering any of the Registrable Shares. There being no Registrable Shares of the
Investors in the Offering, the Investors waive their rights under Sections 11.4,
11.5 and 11.6 of the SPAs. The Investors expressly reserve their rights under
Section 11.3(a)(ii), 11.4, 11.5 and 11.6 with respect to any other registration,
qualification and/or compliance of any of CDI's securities.
5. No Exercise of Preemptive Rights and Waiver of Notice
-----------------------------------------------------
The Investors hereby elect not to exercise their preemptive rights under
Section 13 of the SPAs and waive the 45 day notice period provided for in
Section 13(b)(ii) of the SPAs with respect to the issuance of Common Shares
pursuant to the terms of an underwriters agreement in connection with the
Offering. The Investors expressly reserve their rights (i) to exercise their
preemptive rights pursuant to the SPAs, as amended, with respect to any other
proposed issue of Equitable Securities by CDI and (ii) to notice pursuant to
Section 13(b)(ii) of the SPAs with respect to any other proposed issue of Equity
Securities by CDI, and/or any other provision of the SPAs or the Operative
Documents.
6. Consent to Amendment of Articles and Bylaws
-------------------------------------------
The Investors hereby waive the prohibition of Section 14.18(a)(iii) of the
SPAs with respect to (i) the amendment and restatement of CDI's charter by the
Amended and Restated Articles of Incorporation in substantially the form of
Exhibit A attached hereto, (ii) the amendment and restatement of CDI's charter
in substantially the form of the Amended and Restated Articles of Incorporation
attached hereto as Exhibit B, and (iii) the amendment and restatement of CDI's
bylaws in substantially the form of the Second Amended and Restated Code of
Bylaws of CDI attached hereto as Exhibit C, provided however, the waivers are in
-------- -------
each case conditioned upon the closing of the Offering.
<PAGE>
August 19, 1996
Page 3
7. Waiver of Notice of Board Meeting
---------------------------------
The Investors hereby waive their rights under Section 13(a) of the SPAs to
notice of a meeting of the Board of Directors of CDI held on July 29, 1996 for
the purpose of approving the Offering and certain other matters related to the
Offering. The Investors expressly reserve their rights under Section 13(a) of
the SPAs with respect to any other meeting of the Board of Directors of CDI.
8. Waiver of Anti-Dilution Provision
---------------------------------
The Investors hereby waive their rights under Section 4 of the Warrants and
Section E of Article III of the Articles of Incorporation with respect to (i)
entering into an underwriting agreement in connection with the Offering and the
issuance of shares of CDI pursuant thereto, (ii) the issuance of the Convertible
RDI Notes and the issuance of shares upon conversion thereof, and (iii) the
issuance of the Option to Purchase 200,000 Class A Common Shares granted to Dr.
Dennis Hegyi on April 1, 1995 and the issuance of Class A Common Shares pursuant
thereto. The Investors expressly reserve their rights under Section 4 of the
Warrants and Section E of Article III of the Articles of Incorporation with
respect to all other issuances of Equitable Securities.
<PAGE>
August 19, 1996
Page 4
Executed as of the date first above written.
MASSMUTUAL CORPORATE MASSACHUSETTS MUTUAL LIFE
VALUE PARTNERS LIMITED INSURANCE COMPANY
By: Massachusetts Mutual Life
Insurance Company, as By: /s/ Richard C. Morrison
Investment Advisor -------------------------
Its: Managing Director
------------------------
By: /s/ Richard C. Morrison
-------------------------
Its: Managing Director
------------------------
MASSMUTUAL CORPORATE MASSMUTUAL PARTICIPATION
INVESTORS INVESTORS
By: /s/ Richard C. Morrison By: /s/ Richard C. Morrison
------------------------- -------------------------
Its: Vice President Its: Vice President
------------------------ ------------------------
The foregoing is executed on behalf The foregoing is executed on behalf
of MassMutual Corporate Investors, of MassMutual Participation Investors,
organized under a Declaration of organized under a Declaration of
Trust, dated September 13, 1985, as Trust, dated April 7, 1988, as amended
amended from time to time. The from time to time. The obligations of
obligations of such Trust are not such Trust are not personally binding
personally binding upon, nor shall upon, nor shall resort be had to the
resort be had to the property of, any property of, any of the Trustees,
of the Trustees, shareholders, shareholders, officers, employees or
employees or agents of such Trust, agents of such Trust, but the Trust's
but the Trust's property only shall property only shall be bound.
be bound.
<PAGE>
EXHIBIT 4.8
August 1, 1996
Mr. Bruce D. Atkinson
President
Control Devices, Inc.
228 Northeast Road
Standish, ME 04084
Dear Bruce:
Fleet Bank of Maine is pleased to approve a $15,000,000 revolving line of credit
to Control Devices, Inc. This letter, when properly signed and accepted, will
constitute an agreement between Fleet Bank of Maine of Portland, Maine
(hereinafter referred to as "Bank"), which agrees to lend, and Control Devices,
Inc. of Standish, Maine (hereinafter referred to as "Borrower") which agrees to
borrow, in accordance with the following terms and conditions, in addition to
those as outlined in the loan documents:
BORROWER: Control Devices, Inc.
- ---------
PURPOSE: To provide funds for acquisition financing, working capital for the
- --------
company's ongoing operations or the issuance of commercial or standby
letters of credit. This commitment is subject to the Borrower raising a
minimum of $15,000,000 from an initial public offering and paying off the
Borrower's debt at Mass Mutual Insurance Company.
MAXIMUM AMOUNT: Fifteen million and 00/100 dollars ($15,000,000).
- ---------------
INTEREST RATE: During the term of the proposed financing, the Borrower will
- --------------
have three interest rate options:
1) 30,60,90 or 180 day London Interbank Offering Rate (LIBOR) plus 1.50%.
Indicative interest rates as of 8/1/96 would be: 30 days: 6.94%, 60 days:
7.06%, 90 days: 7.13%, 180 days: 7.34%.
2) Fleet Bank of Maine's cost of funds
plus 1.50% for borrowings of 30 days or less. An indicative interest rate as
of 8/1/96 would be 6.95%.
3) Fleet Bank of Maine's prime lending rate
(currently 8.25%), adjusted daily. Under the three rate options, interest is
payable monthly based on actual days outstanding over a 360 day year.
1
<PAGE>
Mr. Bruce D. Atkinson
August 1, 1996
COMPENSATING BALANCE REQUIREMENT: As consideration for this
- --------------------------------
commitment, Borrower agrees to maintain average collected demand deposit
compensating balances of $350,000 with Fleet Bank of Maine at all times.
TERM: Two year revolving line of credit, with interest payable monthly.
- -----
Payments not made within 10 days of the due date will be assessed a late fee
equal to 5% of the payment amount.
PREPAYMENT: There shall be no prepayment charge on such advances for
- -----------
which the variable rate of interest is elected. If the fixed rate of interest
is elected, (even if the fixed rate date is elected in advance and while
Borrower is paying interest at the variable rate), then a prepayment charge
for such advances so elected shall be payable by Borrower to Bank utilizing a
yield maintenance formula satisfactory to Bank.
COLLATERAL: Unsecured
- -----------
DEPOSIT ACCOUNTS: As consideration for this loan, Borrower is to continue
- -----------------
maintaining its primary depository relationship with Fleet Bank of Maine
during the term of this financing. If for any reason this relationship
changes, Fleet Bank of Maine specifically reserves the right to review and
modify the rate and term of the loan without waiving the demand feature
thereof.
FINANCIAL STATEMENTS: During the term of this financing, Borrower will
- ---------------------
provide to Bank its audited fiscal year end financial statements (10-K),
prepared by a certified public accountant acceptable to Bank, within 120 days
of its fiscal year end. In addition, Borrower will also provide management
prepared quarterly interim financial statements (10-Q) and covenant
compliance certificates within 45 days from the end of each quarter and
annual projections.
FINANCIAL COVENANTS: During the term of the proposed financing, the
- --------------------
Borrower will be required to maintain the following financial covenants,
measured quarterly:
* Minimum tangible net worth equal to the amount of proceeds generated from
the Initial Public Offering, but not less than $15,000,000.
* Maximum debt to tangible net worth ratio of 1 to 1.
2
<PAGE>
Mr. Bruce D. Atkinson
August 1, 1996
* Minimum cash flow coverage ratio of 1.5X, measured as follows:
Earnings before interest, taxes, depreciation and amortization
--------------------------------------------------------------
Current portion of long term debt + interest
AUTHORITY TO ACT: Borrower shall provide all evidence of its organization,
-----------------
existence, legal good standing, and authority to enter into said transactions
as may be required by Bank or its counsel.
LEGAL & COSTS: Borrower shall be responsible for bearing the cost of all
--------------
legal work to document these transactions. All instruments executed and
delivered in connection with the closing of the loan shall be in form and
substance satisfactory to Bank's counsel. All other matters relating to the
law shall be made to meet the satisfaction of such counsel. All costs
incurred by Bank to document these transactions will be borne by Borrower,
regardless of whether the loan is actually closed or the financing
consummated.
WRITTEN MODIFICATION: Borrower may not maintain any action against the
---------------------
Bank on any agreement to lend money, extend credit, forbear from collection
of a debt or make any other accommodation for repayment of a debt for more
than $250,000 unless the promise, contract or agreement is in writing and
signed by a duly authorized representative of Bank.
NONASSIGNABILITY OF COMMITMENT: This commitment is expressly offered
-------------------------------
only to Borrower and only for the purposes described herein. This
commitment may not be assigned without the written permission of Fleet
Bank of Maine.
EXPIRATION DATE: The revolving line of credit is available for your use
----------------
through September 30, 1998, and is subject to review prior to renewal.
However, Bank shall be under no obligation hereunder unless acceptance of
the terms hereof is delivered to it by September 30, 1996.
The parties hereto agree that this commitment shall survive any loan closings
under this commitment and that each of the obligations and undertakings of
Borrower hereunder shall be continuing and shall not cease until the entire
loan, together with interest is paid in full.
This commitment may be terminated by Bank at any time upon discovery, by Bank,
of a material adverse change in or any misrepresentations or erroneous
statements about Borrower's position with respect to solvency, credit
worthiness, government regulation, or any other substantial factor. Such
termination shall become effective upon the mailing of notice of termination by
Bank by certified first-class mail to Borrower at the address shown on this
commitment.
3
<PAGE>
Mr. Bruce D. Atkinson
August 1, 1996
If you are in agreement with these terms, please acknowledge your acceptance of
this commitment by signing and returning the original of this letter. You may
retain the signed copy for your records. Bruce, we greatly appreciate the
opportunity to present this commitment to your fine company, and please give me
a call if you have any questions. Thank you.
Sincerely,
Peter C. Sylvestre
Vice President
ACCEPTED AND ACKNOWLEDGED:
Control Devices, Inc.
Date: By:
------------------------ --------------------------------
Bruce D. Atkinson, President
4
<PAGE>
Exhibit 5.1
September 10, 1996
Board of Directors
Control Devices, Inc.
228 Northeast Road
Standish, ME 04084
RE: Registration Statement on Form S-1 of Control Devices, Inc.
Gentlemen:
We have acted as counsel to Control Devices, Inc. ("CDI") in connection
with the preparation and filing with the Securities and Exchange Commission of
the Registration Statement on Form S-1 (the "Registration Statement") which
covers the registration under the Securities Act of 1933 of 2,300,000 shares of
CDI's common shares, no par value (the "Registered Shares").
We have examined such records and documents, and made such investigations
of law and fact as we have deemed necessary in the circumstances. The documents
we have examined include, without limitation, the form of Underwriting Agreement
among CDI and the Underwriters referenced in the Registration Statement (the
"Underwriting Agreement") and the form of Amended and Restated Articles of
Incorporation of CDI approved by the shareholders of CDI on August 30, 1996, and
being filed today as Exhibit 3.1.1 to the Registration Statement (the "Restated
Articles"). For purposes of the opinion set forth below, we have assumed that
the Restated Articles will be filed with the Secretary of State of Indiana on
the date of the closing of the sale of the Registered Shares pursuant to the
Underwriting Agreement.
Based on the examination, investigation and assumption described above, it
is our opinion that, when issued and delivered by CDI in accordance with the
proposed Underwriting Agreement, the Registered Shares will be duly authorized,
validly issued, fully paid and non-assessable.
We consent to the use of our name under the caption "LEGAL MATTERS" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as Exhibit 5.1 to the Registration Statement.
-----------
Very truly yours,
SOMMER & BARNARD, PC
<PAGE>
EXHIBIT 10.5.1
JULY 12, 1996
CONTROL DEVICES, INC.
1996 STOCK COMPENSATION PLAN
ARTICLE I
---------
GENERAL
-------
Section 1.1. Purpose. The purpose of the 1996 Stock Compensation Plan
----------- -------
(the "Plan") of Control Devices, Inc. (the "Company") is to enhance the ability
of the Company to attract and retain qualified personnel who, as a result of the
incentive and equity interest created and encouraged by the Plan, will have an
increased stake in the prosperity of the Company and an increased identity of
interest with the Company's shareholders, and will be encouraged thereby to
exert maximum effort towards the successful operation of the Company.
Section 1.2. Definitions. Whenever used herein, the following terms shall
----------- -----------
have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Compensation Committee of the Board, which shall
consist of not less than three persons appointed by the Board from
among those Board members who are not employees of the Company or any
of its subsidiaries.
(d) "Common Shares" means the Common Shares of the Company or such other
securities into which such Common Shares may be changed pursuant to
Section 1.5 hereof.
(e) "Director Options" means options granted to non-employee directors
pursuant to Article IV of the Plan.
(f) "Fair Market Value" means, as to any day (i) the average of the
closing bid and asked price per Common Share on such day as quoted on
the Nasdaq market quotation system or any similar system of automated
dissemination of quotations if the Common Shares are so quoted, or
(ii) if the Common Shares are listed or traded on any national
securities exchange, the last sale price of the Common Shares on such
day as officially listed on the exchange, or (iii) if the Common
Shares are not quoted or traded as contemplated by (i) or (ii), then
Fair Market Value shall mean the price at which the Common Shares
would sell
<PAGE>
between a willing buyer and willing seller (neither being under
compulsion) having knowledge of all reasonable facts, as determined in
good faith by the Committee.
(g) "Incentive Stock Option" means an incentive stock option within the
meaning of Section 422 of the Code.
(h) "Non-statutory Options" means a stock option which is not an Incentive
Stock Option.
(i) "Participant" means a person selected by the Committee to participate
in the Plan pursuant to Section 1.6 hereof.
Section 1.3. Administration. The Plan shall be administered by the
----------- --------------
Committee. Members of the Committee are not eligible to be granted any options
or performance units under the Plan, except Director Options. Subject to the
foregoing and the other terms and provisions of the Plan, the Committee shall
determine the participants in the Plan and the terms and provisions of each
option or performance unit granted under the Plan, including the number of
shares subject to such options or performance units. The Committee may from
time to time prescribe rules and regulations for the administration of the Plan,
and shall decide any questions arising with respect to options or performance
units granted under the Plan. All decisions, interpretations, determinations or
actions taken by the Committee with regard to such questions shall be final and
binding upon the employees of the Company. The Committee from time to time, and
whenever requested, shall report to the Board on the administration of the Plan
and any action taken in connection therewith.
Section 1.4. Aggregate Number of Common Shares Which May be Issued. The
----------- -----------------------------------------------------
aggregate number of Common Shares which may be issued as a result of the
exercise of options granted under the Plan or as a result of attainment of
performance goals pursuant to performance units granted under the Plan, is three
hundred thousand (300,000). In the event any option expires, terminates or is
canceled for any reason prior to exercise, the shares subject to such option
shall again become available for issuance under the Plan.
Section 1.5. Adjustments. If any stock dividend is declared on the Common
----------- -----------
Shares, or if the Common Shares are subdivided, consolidated, or changed to
other securities of the Company, or in the event of any like adjustment or
change in the Company's capitalization, then in each such event, Common Shares
subject to options or performance units then in effect under the Plan, Common
Shares reserved for issuance under the Plan with respect to options or
performance units which may thereafter be granted under the Plan shall, if the
occurrence of the event would have resulted in a change in the number and/or
kind of such shares had they been outstanding, be similarly adjusted in number
and/or kind, with the nature and
2
<PAGE>
extent of such adjustments to be determined by treating such shares as being
outstanding at the time of and immediately prior to the occurrence of the event
and the purchase price to be paid for such shares subject to options then in
effect shall be appropriately changed to give effect to any such adjustment.
Section 1.6. Participants. The participants in the Plan shall be selected
----------- ------------
by the Committee from among the officers and other key employees of the Company
who are full-time employees of the Company or one of its subsidiaries (as
defined in Section 424(f) of the Code). The Committee shall take into account
the duties of the employee, the present and potential contributions of the
employee to the success of the Company, and such other factors that the
Committee, in its discretion, considers to be reasonable and appropriate in
light of the purposes of the Plan.
Section 1.7. Term of Plan. The Plan shall terminate on the earlier of
----------- ------------
(a) ten (10) years from the date of adoption of the Plan by the Board or (b)
such earlier date as the Board may determine. Options or performance units
outstanding at the date of termination of the Plan shall remain in effect until
exercised or expired.
Section 1.8. Restrictions on Transferability of Common Shares. The
----------- ------------------------------------------------
Committee may impose such restrictions as it may deem advisable on Common Shares
acquired on exercise of an option granted under the Plan or on attainment of
performance goals pursuant to performance units granted under the Plan. In
addition, unless the Common Shares so acquired are registered under the
Securities Act of 1933, the transfer of the Common Shares shall be subject to
the restrictions on transfer imposed under federal and applicable state
securities laws, and certificates representing such Common Shares shall bear a
legend to that effect.
Section 1.9. Restriction on Tandem Options. In no event may the exercise
----------- -----------------------------
of an option (whether an Incentive Stock Option or a Non-statutory Option)
granted under the Plan affect the right of a Participant to exercise any other
option granted under the Plan.
Section 1.10. Maximum Number of Common Shares Subject to Options Granted
------------ ----------------------------------------------------------
to an Individual Participant. The maximum number of Common Shares for which
- ----------------------------
options may be granted to any individual Participant during the term of the Plan
is seventy five thousand (75,000).
ARTICLE II
----------
INCENTIVE STOCK OPTIONS
-----------------------
Section 2.1. Grant of Options. Subject to the provisions of the Plan, the
----------- ----------------
Committee may grant Incentive Stock Options to purchase Common Shares to
Participants at any time and from time to time as shall be determined by the
3
<PAGE>
Committee. Subject to the provisions of the Plan, the Committee shall have
complete discretion to determine the number of shares subject to Incentive Stock
Options granted, and the terms and conditions of such Incentive Stock Options.
Section 2.2. Option Agreement. Each Incentive Option shall be evidenced
----------- ----------------
by an option agreement that shall state that the option is an Incentive Stock
Option, and specify the option price, the terms of the option, the number of
Common Shares subject to the option, and such other provisions as the Committee
shall determine. The provisions of this Plan shall be expressly incorporated in
the terms and provisions of the option agreement. In the event of any
inconsistency between the provisions of the Plan and the other provisions of the
option agreement, the provisions of the Plan shall govern.
Section 2.3. Option Price. The option price per Common Share to be paid
----------- ------------
upon the exercise of any Incentive Stock Option, as determined by the Committee,
shall be not less than Fair Market Value at the time the option is granted
provided, however, that with respect to Incentive Stock Options granted to any
- -------- -------
Participant, who at the time of grant owns shares possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Participant's employer corporation or its parent or subsidiaries under the
attribution rules set forth in Section 424(d) of the Code (a "10% Owner
Participant") the option price per Common Share shall be at least one hundred
ten percent (110%) of Fair Market Value at the time of grant.
Section 2.4. Term of Option. Unless the terms of an Incentive Stock
----------- --------------
Option provide a shorter term, or as hereinafter provided, each Incentive Stock
Option shall be exercisable no later than ten (10) years from the date it is
granted. Any Incentive Stock Option granted to a 10% Owner Participant shall be
exercisable no later than five (5) years from the date it is granted. The
Committee, in its sole discretion, will determine the vesting schedule of each
Incentive Stock Option granted under this Plan; provided, however, that no
-------- -------
Incentive Stock Option may be exercised prior to one year from the date it is
granted. Except as otherwise provided herein, no Incentive Stock Option may be
exercised unless the Participant is at the time of such exercise in the employ
of the Company or of a subsidiary thereof and shall have been continuously so
employed since the granting of the Participant's option. Military, sick leave
or other bona fide leave of absence not exceeding ninety (90) days (or longer if
the Participant's right to re-employment is guaranteed by statute or by
contract) shall not be considered an interruption of employment for purposes of
the Plan.
Section 2.5. Limitation on Granting of Options. The Committee shall not
----------- ---------------------------------
grant Incentive Stock Options to a Participant if the aggregate Fair Market
Value (determined at the time the option is granted) with respect to which
Incentive Stock Options are exercisable for the first time by the Participant
during any calendar year
4
<PAGE>
(under all option plans of the Participant's employer corporation and its parent
and subsidiary corporations) shall exceed One Hundred Thousand Dollars
($100,000).
Section 2.6. Termination of Employment. An Incentive Stock Option granted
----------- -------------------------
under the Plan may not be exercised after the Participant ceases to be employed
by the Company or a subsidiary thereof except as hereinafter provided if such
cessation of employment is on account of death, normal retirement, early
retirement, or disability. An uninterrupted transfer of employment to or
between the Company and/or any parent or subsidiary thereof shall not be
considered to be a cessation of employment.
Section 2.7. Retirement and Partial Disability of Participant. In the
----------- ------------------------------------------------
event of the normal retirement, early retirement or disability (other than
permanent and total disability within the meaning of Section 22(e)(3) of the
Code) of a Participant, an Incentive Stock Option may be exercised for a period
of three months after cessation of the employment of the Participant, or the
balance of the term of the Incentive Stock Option, whichever is shorter. The
Participant may exercise the Incentive Stock Option for the number of Common
Shares with respect to which the Incentive Stock Option has become exercisable
by its terms and any such additional number of Common Shares subject to the
Incentive Stock Option as the Committee may authorize.
Section 2.8. Death of Participant. In the event of the death of a
----------- --------------------
Participant while in the employ of the Company or a subsidiary thereof, the
Incentive Stock Options theretofore granted to the Participant shall become
immediately exercisable, whether or not theretofore exercisable, and shall be
exercisable for a period of three months after the date of death or for the
balance of the term of the Incentive Stock Option, whichever is shorter, by the
executor or administrator of the Participant's estate or by such person or
persons as shall have acquired the Participant's rights under the Incentive
Stock Option by will or by the laws of descent and distribution.
Section 2.9. Permanent and Total Disability of Participant. In the event
----------- ---------------------------------------------
the Participant becomes permanently and totally disabled (within the meaning of
Section 22(e)(3) of the Code) while in the employ of the Company or a subsidiary
thereof, the Incentive Stock Options theretofore granted to the Participant
shall become immediately exercisable, whether or not theretofore exercisable,
and shall be exercisable for a period of one year after the Participant's
cessation of employment or for the balance of the term of the Incentive Stock
Option, whichever is shorter.
Section 2.10. Nonassignability. Each Incentive Stock Option shall by its
------------ ----------------
terms provide that it is not transferable by the Participant other than by will
or the laws of descent and distribution and that it is exercisable during the
Participant's lifetime, only by the Participant or by the Participant's duly
authorized legal representative if the Participant is unable to exercise the
Incentive Stock Option as a result of the
5
<PAGE>
Participant's disability, but only if, and to the extent, permitted by Section
422 of the Code.
ARTICLE III
-----------
NON-STATUTORY OPTIONS
---------------------
Section 3.1. Grant of Options. Subject to the provisions of this Plan,
----------- ----------------
the Committee may grant Non-statutory Options to purchase Common Shares to
Participants at any time and from time to time as shall be determined by the
Committee. The Committee shall have complete discretion to determine the number
of shares subject to Non-statutory Options granted and the terms and conditions
of such Non-statutory Options.
Section 3.2. Option Agreement. Each Non-statutory Option shall be
----------- ----------------
evidenced by an option agreement that shall state that the Non-statutory Option
is not an Incentive Stock Option and shall specify the option price of the Non-
statutory Option, the number of Common Shares subject to the Non-statutory
Option, and such other provisions as the Committee shall determine. The
provisions of this Plan shall be expressly incorporated in the terms and
provisions of the option agreement. In the event of any inconsistency between
the provisions of the Plan and the other provisions of the option agreement, the
provisions of the Plan shall govern.
Section 3.3. Term of Option. No Non-statutory Option may be exercised
----------- --------------
prior to one year from the date it is granted. Unless the terms of a Non-
statutory Option provide a shorter term, each Non-statutory Option shall be
exercisable no later than ten (10) years from the date it is granted.
ARTICLE IV
----------
DIRECTOR OPTIONS
----------------
Section 4.1. Grant and Eligibility. Subject to the completion of an
----------- ---------------------
initial public offering by the Company:
(a) Initial Grant. Director Options for the purchase of one thousand
-------------
(1,000) Common Shares will be granted to each non-employee director upon
first being elected to the Board. This grant may be awarded to a non-
employee director only once.
(b) Subsequent Grants. On the date of the Company's annual meeting in
-----------------
each year, commencing with the 1997 annual meeting, Director Options for
the purchase of one thousand (1,000) Common Shares shall be granted to each
non-employee director re-elected at such meeting.
6
<PAGE>
Section 4.2. Director Option Agreement. Each Director Option shall be
----------- --------------------------
evidenced by a Director Option Agreement that shall specify the option price of
the Director Option, the term of the Director Option, the number of Common
Shares subject to the Director Option, and such other provisions as the
Committee shall determine consistent with the terms of the Plan. The provisions
of this Plan shall be expressly incorporated in the terms and provisions of the
Director Option Agreement. In the event of any inconsistency between the
provisions of this Plan and the other provisions of the Director Option
Agreement, the provisions of this Plan shall govern.
Section 4.3. Tax Status. The Director Options shall be Non-statutory
----------- ----------
Options and the Director Option Agreement shall so state.
Section 4.4. Option Price. The option price per Common Share to be paid
----------- ------------
upon exercise of a Director Option shall be Fair Market Value on the date of
grant of the Director Option.
Section 4.5. Term of Option. Each Director Option shall expire one year
----------- --------------
following the termination of the director's Board membership for any reason, but
in no event may any Director Option be exercised after the tenth anniversary of
the date of grant.
Section 4.6. Miscellaneous Provisions. Except as otherwise provided in
----------- ------------------------
this Article IV, Director Options shall be governed by the remaining provisions
of this Plan applicable to Non-statutory Options.
ARTICLE V
---------
PERFORMANCE UNITS
-----------------
Section 5.1. Performance Units. Performance units may be granted subject
----------- -----------------
to such terms and conditions as the Committee in its discretion shall determine.
Performance units may be granted either in the form of cash units, in share
units which are equal in value to one Common Share or a combination thereof.
The Committee shall establish the performance goals to be attained in respect of
the performance units, the various percentages of performance unit value to be
distributed upon attainment, in whole or in part, of the performance goals and
such other performance unit terms, conditions and restrictions as the Committee
shall deem appropriate. As soon as practicable after the termination of the
performance period, the Committee shall determine the payment, if any, which is
due on the performance unit in accordance with the terms thereof. The Committee
shall determine, among other things, whether the payment shall be made in the
form of cash or Common Shares, or a combination thereof.
7
<PAGE>
ARTICLE VI
----------
AMENDMENT AND OTHER PROVISIONS
------------------------------
Section 6.1. Method of Exercise. Exercise of an option granted under the
----------- ------------------
Plan shall be by the execution by the person entitled at the time to exercise
the option of a written notice of such exercise and delivery thereof to the
Company, which notice shall specify the number of shares being purchased. In
the case of the exercise of an option, such notice shall be accompanied by
payment in full of the option price of the Common Shares. Payment of the option
price with respect to any stock option may be made in cash, in Common Shares
valued at the Fair Market Value on the last trading day preceding the date on
which the option is exercised or in a combination of cash and Common Shares.
Upon receipt of such notice and payment, the Company will promptly issue and
deliver its certificate for the number of Common Shares being purchased pursuant
to exercise of the option. No person, estate or other entity shall have any of
the rights of a shareholder with reference to Common Shares subject to an option
until a certificate or certificates for the shares have been delivered.
Section 6.2. Amendment, Modification and Termination of the Plan. Subject
----------- ---------------------------------------------------
to Section 4.7 hereof and the last sentence of this Section 6.2, the Board may
at any time terminate, and from time to time may amend or modify the Plan;
provided, however that the approval of the shareholders of the Company shall be
- -------- -------
required to amend or modify the Plan to:
(a) materially increase the benefits accruing to Participants under the
Plan;
(b) materially increase the number of Common Shares which may be issued
under the Plan; or
(c) materially modify the requirements as to eligibility for participation
in the Plan.
No amendment, modification or termination of the Plan shall in any manner
adversely affect the rights of a Participant under any option previously granted
under the Plan, without the consent of the Participant.
Section 6.3. Rights of Employees. Nothing in this Plan limits in any way
----------- -------------------
the right of the Company or its subsidiaries to terminate any Participant's
employment at any time, nor confers upon any Participant any right to continue
in the employ of the Company or its subsidiaries. No officer or employee shall
have a right to be selected as a Participant.
8
<PAGE>
Section 6.4. Dissolution, Merger and Consolidation. Upon a dissolution or
----------- -------------------------------------
a liquidation of the Company, each Participant shall have the right to exercise
any unexercised options, whether or not theretofore exercisable, during a period
of thirty (30) days next preceding the date of such dissolution or liquidation.
In the event of a merger or consolidation in which Common Shares may be
exchanged for securities of another publicly held entity, each participant shall
be offered a firm commitment whereby such entity will tender to the Participant
new options in such entity, with terms and conditions, both as to number of
shares and otherwise, which, to the extent permitted by applicable law, will
substantially preserve to the Participant the rights and benefits of the options
outstanding hereunder. With respect to any merger or consolidation in which the
Common Shares are exchanged for (a) cash, (b) securities of an entity that is
not publicly held, or (c) a combination of (a) and (b), options then in effect
shall become immediately exercisable, whether or not theretofore exercisable,
during a period of thirty (30) days next preceding the date of consummation of
the merger or consolidation.
Section 6.5. Tax Withholding. The Company, as appropriate, shall have the
----------- ---------------
right to deduct from all payments any Federal, state or local taxes required by
law to be withheld with respect to such payments. With respect to withholding
required upon the exercise of Non-statutory Options, or upon payment in Common
Shares with respect to performance units, Participants may elect, subject to the
approval of the Committee, to satisfy the withholding required, in whole or in
part, by having the Company withhold Common Shares having a value equal to the
amount required to be withheld. The value of the shares to be withheld is to be
based on the Fair Market Value on the date that the amount of tax to be withheld
is to be determined. All elections shall be irrevocable and shall be made in
writing, signed by the Participant, and shall satisfy such other requirements as
the Committee shall deem appropriate.
Section 6.6. Requirements of Law. The granting of options or performance
----------- -------------------
units, and the issuance of Common Shares with respect to an exercise of an
option or with respect to a performance unit award, shall be subject to all
applicable laws, rules and regulations, including federal and applicable state
securities laws, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
Section 6.7. Governing Law. The Plan, and all agreements hereunder, shall
----------- -------------
be construed in accordance with and governed by the laws of the State of
Indiana.
9
<PAGE>
Exhibit 10.15
LICENSE AGREEMENT
between
GTE PRODUCTS CORPORATION
and
DENNIS J. HEGYI
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Article I. Definitions.......................... 1
Article II. License Grant........................ 4
Article III. Payments............................. 4
Article IV. Records and Accounting............... 5
Article V. Commercialization.................... 7
Article VI. Construction......................... 7
Article VII. Termination.......................... 7
Article VIII. Prosecution of Patent Applications... 9
Article IX. Infringement......................... 10
Article X. Successors and Assigns............... 11
Article XI. Applicable Law....................... 12
Article XII. Effective Prior Agreements........... 12
Article XIII. Waiver of Breach..................... 12
Article XIV. Severability......................... 12
Article XV. Force Majeure........................ 13
Article XVI. Indemnity............................ 13
Article XVII. Product Marking...................... 13
Article XVIII. Entire Agreement and Amendments...... 14
</TABLE>
<PAGE>
This license agreement, made and entered into this 6th day of November,
1989 by and between DENNIS J. HEGYI (HEGYI), an individual having a residence at
1708 Morton Avenue, Ann Arbor, Michigan 48104, and GTE Products Corporation,
Control Devices Division (GTE), a corporation, having a place of business at
Route 35, Standish, Maine 04084.
Whereas HEGYI has developed a system, with a responsivity which depends on
the direction of incident radiation, that is useful for sensing the heating
effects of solar radiation in automobiles, and has developed designs and related
know-how to sense heating effects in automobiles; and
Whereas HEGYI represents that he has the right to grant licenses under the
Invention (as hereinafter defined) and under patents that might issue thereon;
and
Whereas HEGYI represents that he has the right to grant licenses under the
Invention (as hereinafter defined) and under patents that might issue thereon;
and
Whereas HEGYI is willing to grant an exclusive license of the Invention to
GTE based on the conditions hereinafter set forth; and
Whereas GTE is willing to acquire an exclusive worldwide license to
commercialize such Invention;
Now, therefore, in consideration of the foregoing and the rights and
obligations hereinafter set forth, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I - DEFINITIONS
Section 1. When used in this Agreement, the following terms shall have
the following meaning for all purposes of this Agreement.
Section 1.1 "Invention" means the method and apparatus which (i) was
discovered by HEGYI, (ii) pertains to a diffuser and a light modulator which
controls the amount of radiation incident on a photodetector and (iii) relates
to a system with a position dependent response to radiant energy. Invention
further includes any methods, processes, electrical circuits, devices,
apparatuses, designs, equipment, and/or structures for such a system or for use
in connection therewith.
Section 1.2 "Improvements" mean any modification, amendment, or
enhancement of the Invention.
Section 1.3 "Licensed Patent(s)" means any and all letters patent owned
by HEGYI related to the Invention or Improvements that may issue or have been
issued including any and all
<PAGE>
related to the Invention or Improvements that may issue or have been issued
including any and all renewals, divisions, continuations, continuations-in-part,
reissues, substitutions, confirmations, registrations, revalidations, revisions,
extensions, or additions of or to any of the aforesaid patents and patent
applications.
Section 1.4 "Valid claim(s)" means any claim(s) in an unexpired patent
included within the applicable Licensed Patents which claim has not been held
unenforceable, unpatentable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer. If in any country there should be
two or more such decisions conflicting with respect to the validity of the same
claim, the decision of the higher or highest tribunal shall thereafter control;
however, should the tribunals be of equal rank, then the decision or decisions
upholding the claim shall prevail.
Section 1.5 "Know-How" means and includes all discoveries, inventions,
improvements, technical information, trade secrets, prototypes, models,
experience, work products, documentation, reports and data, and all results from
experiments, testing development and demonstrations, and any other data, written
or unwritten, including all such information and knowledge derived from work and
services performed prior to the date of this Agreement by HEGYI, all of which
relate to the Invention.
Section 1.6 "Affiliate(s)" of GTE means any partnership, organization,
association, company, corporation, individual or other entity which is
controlled, directly or indirectly, by GTE or wherein GTE, directly or
indirectly, owns more than fifty percent (50%) of the equity or voting stock.
Except as the context may otherwise require, for the purposes of this Agreement,
the term GTE shall mean and include the Affiliates of GTE.
Section 1.7 "Royalty Product(s)" includes any process, method,
substance, equipment, mechanism, device or other property, or combination
thereof, the manufacture, use or sale of which would but for this Agreement,
infringe one or more Valid Claims, or any process, method, substance, equipment,
mechanism, device or other property, or combination thereof, the manufacture,
use or sale of which utilizes Know-How.
Section 1.8 "Net Selling Price" means GTE's invoice price, being the
price billed exclusive of taxes, such as sales, use, or other added taxes less a
documented deduction under normal
<PAGE>
business practices for transportation, freight, insurance, promotions,
discounts, and duty if such deductions are applicable. If in any transaction a
Royalty Product is sold without a separately identifiable Net Selling Price
(either because such sale is part of a larger transaction including additional
equipment and/or services, or for any other reason), then for purposes of this
Agreement, the Selling Price shall mean the established current Net Selling
Price for equivalent quantities of Royalty Products when sold and invoiced
separately, but if no Net Selling Price has been established, the Net Selling
Price shall be deemed to be the fair market price. "Sold" (together with
conjugate terms ("sell," "sales," "selling," etc.) means transferred by GTE or
any Affiliate or sublicensee of GTE for value in an arm's length transaction
other than an Affiliate or sublicensee of GTE, and shall include without
limitation, Royalty Products which hare rented, leased, consigned or given,
except salesperson samples provided without charge. Royalty Products shall be
considered sold when billed out; or, if not billed out, then when shipped,
mailed, or otherwise delivered, or when paid for before delivery. However, upon
expiration or termination of this License Agreement, all Royalty Products
shipped or otherwise delivered on or prior to the date of such expiration or
termination, which have not been billed out or otherwise disposed of, shall be
considered sold and therefore subject to royalties hereunder. A lease, a
consignment, a transfer to a place of use or a delivery to another, regardless
of the basis of compensation, if any, is an example of a disposition to be
treated as a sale and subject to royalties. The scrapping as junk so as not to
be used for the normal contemplated or intended purpose thereof, or the mere
routine manufacturing and testing thereof, is an example of a disposition which,
in itself, is not subject to royalties. Royalties paid hereunder on Royalty
Products returned to GTE for which credit is allowed by GTE shall be entitled to
be deducted from royalties due for the period in which credit is allowed.
ARTICLE II.
LICENSE GRANT
Section 2.1 HEGYI grants GTE a worldwide exclusive license under the
Licensed Patents and/or Know-How to make, have made, use, sell or otherwise
dispose of Royalty Product(s).
Section 2.1. The exclusive license granted herein includes the right to
sublicense provided that GTE notifies HEGYI regarding any sublicense, reports to
HEGYI the sales made under such sublicense, accounts for royalties on such sales
and pays royalties thereon to HEGYI in the same
<PAGE>
manner as provided herein for sales by GTE, as though such sales were made by
GTE itself.
Section 2.3 Except as provided in Article VII herein, the exclusive
license granted to GTE precludes HEGYI from making, having made, using, selling
or otherwise disposing of Royalty Products.
ARTICLE III
PAYMENTS
Section 3.1 GTE agrees to pay HEGYI royalties on sales by GTE,
Affiliates and sublicensees anywhere in the world at a rate equal to five
percent (5%) of the Net Selling Price of Royalty Products covered by one or more
Valid Claims; or
Section 3.2 As to Royalty Products not covered by one or more Valid
Claims, GTE agrees to pay HEGYI royalties on sales by GTE, Affiliates, and
sublicensees at a rate based on the Net Selling Price of Royalty Products in
accordance with the following schedule:
(a) Five percent (5%) for three years beginning January 1, 1990;
(b) Three percent (3%) for three years beginning January 1, 1993;
(c) One percent (1%) for three years beginning January 1, 1996, after which
GTE shall have a paid-up royalty-free license on such Royalty Products not
covered by one or more Valid Claims. Such paid-up license shall become non-
exclusive if and at such time as any license to GTE under Licensed Patents is
terminated.
Section 3.3 GTE agrees to pay HEGYI an annual minimum of Thirty-Five
Thousand ($35,000) in quarterly installments beginning with the calendar year
ending December 31, 1990 and for each succeeding calendar year during the life
of this Agreement. For each quarterly reporting period ending on March 31, June
30, September 30, and December 31, GTE shall remit to HEGYI the larger of:
(a) The minimum royalty prorated to the last day of the reporting period;
or
(b) the actual royalties due on sales during the calendar year less the
amount of royalties (actual plus minimum) already paid for the particular
calendar year.
<PAGE>
ARTICLE IV
RECORDS AND ACCOUNTING
Section 4.1 GTE shall maintain accurate records in sufficient detail
and form to enable the royalties hereunder to be determined. GTE shall require
all Affiliates and sublicensees, regardless of tier, to keep true and accurate
records and books of account containing data reasonably required for the
computation and verification of royalty payments. Such records shall include
such other accounting and business documents as may, under recognized accounting
practices, contain information bearing on the amount of royalties payable
hereunder, and shall show all Royalty Products manufactured, sold, put into use,
or otherwise disposed of by GTE on which royalties are payable under Article III
hereof. GTE shall be required to keep such records for a period of six (6)
years after each respective quarterly reporting period referred to in Section
3.3.
Section 4.2 GTE shall render to HEGYI quarterly reports or abstracts
from such records (in detail showing products sold, prices at which sold and
royalty due) together with copies of customer invoices sent during each quarter
within forty-five (45) days after each March 31, June 30, September 30, and
December 31 of each calendar year, irrespective of whether any Royalty Products
are manufactured, sold, put into use, or otherwise disposed of by any of GTE,
its Affiliates, or sublicensees. Each quarterly report shall state the amount
of royalties due. Such quarterly reports shall specifically identify all taxes
or other deductions which are excluded from said Net Selling Price and which are
not itemized in an invoice. HEGYI shall keep information from such reports or
abstracts confidential and shall disclose such information only to the extent
required for tax or other similar purposes or as may be required by law.
Section 4.3 Simultaneously with the making of each such report, GTE
agrees to pay HEGYI the royalty or minimum payments specified under Article III
hereof, which is shown to be due and payable by such report.
Section 4.4 Checks for royalties and fees described above shall be in
United States currency and be made payable to:
Dennis J. HEGYI
1708 Morton Avenue
Ann Arbor, MI 48104
<PAGE>
or to such other address that HEGYI may designate by notice in writing.
Quarterly reports shall be mailed to the same address. It is contemplated
hereby that payments due under this Agreement for sales in foreign countries may
be treated differently (pursuant to notice to GTE by HEGYI) than payments for
sales in the United States. Monetary conversions, from a currency in which a
sale is made into another currency, shall be made at the official exchange rate
for royalty remittances in force in the country involved on the last business
date of the quarterly period. If there is no official exchange rate, the
conversion shall be made at the rate for such remittance on that date as
certified by Citibank N.A. of New York.
Section 4.5 In the event that no Royalty Products are sold during any
period for which a report is required hereunder, a report to that effect shall
nevertheless be rendered to HEGYI for such period.
Section 4.6 GTE covenants that it will employ a system of product
identification that will permit royalty calculations to be verified upon
subsequent review by HEGYI or his auditors.
Section 4.7 GTE agrees to permit its relevant records to be examined
upon reasonable notice during business hours by an independent certified public
account at HEGYI's expense, provided that (i) such account agrees to maintain
the confidentiality of such information and to sign an agreement with GTE to
that effect if so requested by GTE, and (ii) GTE has agreed to the auditor or
auditors in advance of the audit. If the audit reveals that GTE payments to
HEGYI have been less than 93% of the amount owed to HEGYI during the period of
audit, GTE shall pay the costs of the audit up to a maximum limit of $3,000.
ARTICLE V. COMMERCIALIZATION
Section 5.1 GTE agrees to use reasonable efforts to commercialize the
Invention. In the event that GTE fails to use such reasonable efforts, the
liquidated damages for such failure shall be limited to forty-seven thousand
five hundred dollars ($47,500). GTE shall not be liable for any other damages,
consequential or otherwise, related to its obligation to commercialize the
Invention.
ARTICLE VI. CONSTRUCTION
<PAGE>
Section 6.1 Nothing in this agreement shall be construed as:
(a) A warranty or representation by HEGYI as to the validity or scope
of any patent rights;
(b) An agreement to bring or prosecute actions or suit against third
parties for patent infringements; or
(c) An agreement by HEGYI to indemnify GTE or otherwise hold GTE
harmless, for any liability incurred regarding the manufacture, use, or sale of
the Royalty Products, including, without limitation, attorneys' fees and costs
incurred in defending claims based on warranty, product liability, infringement
of the proprietary or intellectual property rights of others, or any other
claim.
ARTICLE VII. TERMINATION
Section 7.1 In the event GTE fails to perform any of its obligations
hereunder, HEGYI may notify GTE in writing of such default and HEGYI shall have
the option of treating this Agreement as in full force and effect and of taking
proper steps to enforce compliance and to recover any royalties and other sums
payable hereunder, or of terminating this Agreement and the license granted
hereunder; provided, that in the case where HEGYI elects to terminate this
Agreement, he shall first send GTE written notice of his election to terminate
the Agreement together with a statement as to the grounds upon which the
termination is based. If within a period of thirty (30) days after such notice
GTE shall have cured such failure to perform in accordance with the provisions
of this Agreement, then the notice shall become null and void and of no effect;
otherwise, the notice shall remain effective and this Agreement shall cease and
terminate at the expiration of such period.
Section 7.2 Unless otherwise terminated as herein provided, GTE's
obligation to pay royalties on Royalty Products shall end on December 31, 1998
unless any of the Royalty Products are covered by Valid Claims, in which case
royalties shall be payable on those Royalty Products for the life of the
Licensed Patents.
Section 7.3 In the event of any termination of this Agreement, and
except as provided herein to the contrary, all rights and obligations of the
parties hereunder shall cease with respect
<PAGE>
thereto, and (i) GTE shall continue to be liable for all royalties and other
sums accruing hereunder up to the day of such termination; and (ii) GTE shall
render a final report and royalty payment and permit a final audit in accordance
with Sections 4.6 and 4.7.
Section 7.4 Upon early termination in accordance with Section 7.1 of
this Agreement for any cause, (i) HEGYI may purchase, with GTE's consent, any
GTE rights related to the Invention that were developed in the commercialization
of the Invention up to the date of such termination, (ii) upon HEGYI's request,
GTE shall transfer to HEGYI all HEGYI owned drawings, plans, models, prototypes
and other material related to the Invention, and (iii) GTE shall be permitted to
complete any contractual or other legal obligations to third parties regarding
the supply of product or spare parts until such time as HEGYI or another person
has effectively assumed such obligations.
Section 7.5 In the event HEGYI fails to perform any of his obligations
hereunder, GTE may notify HEGYI in writing of such default, including a notice
of termination and a statement of reasons for such termination. The notice of
termination shall be served upon HEGYI at least thirty (30) days before a
termination date established by GTE. Immediately upon service of such
termination, HEGYI shall have the right to begin negotiations with others for
the manufacture, sale, and use of the Royalty Products. If within a period of
thirty (30) days after such notice, HEGYI shall have cured such failure to
perform in accordance with the provisions of this Agreement, then the notice
shall become null and void and of no effect; otherwise, the notice shall remain
effective and this Agreement shall cease and terminate at the expiration of such
period.
Section 7.6 GTE may terminate this License Agreement for any reason
by providing HEGYI with thirty (30) days advanced written notice and a payment
of forty-seven thousand five hundred dollars ($47,500) at the time of
termination; provided however, such termination payment shall be reduced in
amount as set forth hereafter. If sales for the twelve-month period immediately
preceding the date of the termination notice total less than $1.1 million
dollars ("Actual Sales"), the payment to HEGYI shall be reduced to an amount
computed as follows:
(1) $1.1 million minus Actual Sales = X
(2) x
---------- times $47,500 = Y
$1 million
<PAGE>
(3) $47,500 minus Y = termination pay.
ARTICLE VIII. PROSECUTION OF PATENT APPLICATIONS
Section 8.1 HEGYI shall diligently prosecute any and all patent
applications relating to the Invention which he elects to file and shall pay all
fees due to prevent such applications or any issued patents from being abandoned
or forfeited. GTE shall reimburse HEGYI for all such reasonable costs incurred
prior to the date of this Agreement for prosecuting patent applications in
Japan, South Korea, West Germany, the United States, France, Great Britain, and
Italy. GTE shall pay for all such reasonable future costs in such countries,
provided that GTE has approved them in advance of being incurred. GTE shall not
unreasonably withhold such approval.
Section 8.2 In the event GTE requests that HEGYI file any patent
application in any country and HEGYI elects not to file, HEGYI agrees to do so
at GTE's expense. Should HEGYI decide he wishes to terminate prosecution or
otherwise intends to abandon any patent applications, HEGYI shall notify GTE of
such intention to abandon or forfeit at least sixty (60) days prior to the time
at which the application or patent would become abandoned or forfeited. In such
event, GTE shall have the option to continue prosecution or take whatever action
is necessary to prevent the application or patent from becoming abandoned or
forfeited, and GTE shall have all rights of ownership to such application or
patent.
ARTICLE IX. INFRINGEMENT
Section 9.1 GTE is empowered, at its sole option:
(a) To bring suit in its own name or, if required by law, jointly with
HEGYI, at GTE's own expense and on GTE's own behalf, for infringement of the
Licensed Patents;
(b) In any such suit, to enjoin infringement and to collect for GTE's
benefit all damages, profits, and awards of whatever nature recoverable for such
infringements; and
(c) To settle any claim or suit for infringement of the Licensed
Patents. Notwithstanding any other provision of this Agreement, in any such suit
GTE is entitled
<PAGE>
to recover GTE's expenses before HEGYI is entitled to any royalty payments.
HEGYI shall be entitled to royalty payments for such infringement but such
payments shall be limited to twenty-five percent (25%) of any excess of GTE's
recoveries over GTE's expenses.
Section 9.2 In the event HEGYI shall bring to the attention of GTE any
unlicensed infringement of the Licensed Patents and shall furnish GTE with a
written opinion by a registered patent attorney that such infringement exists,
and GTE shall not, within three (3) months,
(a) secure cessation of the infringement, or
(b) enter suit against the infringer, or
(c) provide evidence of the pendency of a bona fide negotiation for
the acceptance by the infringer of a sublicense under the Licensed Patents,
then HEGYI shall thereafter have the right, at his sole option, to
terminate the exclusive license granted herein by notifying GTE of such
termination in writing. Upon termination of GTE's exclusive license, GTE shall
retain a license on the same terms as set forth in this Agreement except that
(i) the license shall be non-exclusive and HEGYI shall have the right to license
third parties under the Licensed Patent, (2) GTE's license shall be limited to
making and selling Royalty Products for customers to whom GTE is contractually
obligated to sell Royalty Products as of the date of termination or to whom GTE
has previously sold commercial quantities of Royalty Products, and (3) GTE shall
not thereafter be able to grant any further sublicenses.
Upon such termination, HEGYI may at his option file suit for the
infringement, and any such suit shall be at HEGYI's own expense, and HEGYI shall
collect for his benefit all damages, profits, and awards of whatever nature
which are recoverable for such infringement. Provided that GTE has no
legitimate reason to refrain from cooperation, GTE agrees to cooperate with
HEGYI in such suit by (1) assigning to HEGYI GTE's damage claim for past damages
incurred up to the time of termination, (2) providing HEGYI with information and
documents reasonably needed by HEGYI to prosecute such lawsuit, and (3) making
GTE employees reasonably available to HEGYI as witnesses (or other similar
uses) up to a maximum of 15 man days. GTE shall participate in any settlement,
verdict, or finding in favor of HEGYI as follows:
(1) actual costs other than legal fees incurred by HEGYI and GTE shall
be returned to
<PAGE>
both parties in full, or prorated equally if costs cannot be reimbursed in full,
then
(2) the remainder shall be divided in proportion to the time spent by
each party, except that HEGYI's time shall be multiplied by two (2) to reflect
the higher cost for his time.
ARTICLE X. SUCCESSORS AND ASSIGNS
Section 10.1 This Agreement is intended to be binding upon the
successors and assigns of GTE and HEGYI, and their respective Affiliates.
Neither GTE nor HEGYI may assign this Agreement without the consent of the
other, except that GTE may assign this Agreement together with the sale or
transfer of the business to which this Agreement relates.
ARTICLES XI. APPLICABLE LAW
Section 11.1 This Agreement shall be constructed, interpreted, and
governed by the laws of Michigan.
ARTICLE XII. EFFECTIVE PRIOR AGREEMENTS
Section 12.1 This Agreement embodies all understandings and
agreements between the parties concerning the subject matter hereof and the
license granted, and supersedes and takes precedence over any previous or
contemporaneous understandings or agreements, oral or written, between the
parties hereto, but shall not supersede the agreement of confidentiality and
non-disclosure executed on February 1, 1989 except that GTE may disclose
information as may be necessary to effect the purposes of this Agreement.
ARTICLE XIII. WAIVER OF BREACH
Section 13.1 The failure by either party to exercise a right or
enforce an obligation hereunder shall not be construed to be a waiver of same by
either party with respect to future
<PAGE>
performance.
ARTICLE XIV. SEVERABILITY
Section 14.1 If any portion of this Agreement shall be declared void
or unenforceable by any court or administrative body of competent jurisdiction,
to the extent that such portion is not material to the underlying intent of the
agreement, such portion shall be deemed severable from the remainder of this
Agreement, which remainder shall continue in all respects valid and enforceable.
The parties mutually agree to cooperate in any revision of this contract which
may be necessary to meet the requirements of the law.
ARTICLE XV. FORCE MAJEURE
Section 15.1 Neither party shall be under any liability hereunder to
the other party on account of any loss, damage, or delay caused by the elements,
embargoes, failures of carriers, acts of God or the public enemy, or compliance
with any law, regulation or other governmental order, whether or not valid, as
long as the delay in performance under this Agreement is not greater than the
period that the above-mentioned actions or events cause disruption.
ARTICLE XVI. INDEMNITY
Section 16.1 GTE hereby agrees to indemnify and agrees to require all
Affiliates and sublicensees to indemnify HEGYI against any and all claims in the
nature of product liability, warranty, and infringement of proprietary or
intellectual property rights of others, related to Royalty Products sold, used
or disposed of by GTE, its Affiliates or sublicensees. Said indemnification
includes, but is not limited to claims for damages, attorneys' fees, or costs.
Said indemnification shall not include claims based on any warranty provided by
HEGYI. If any claim within the scope of GTE's indemnification obligation shall
be made against HEGYI involving Royalty Products, HEGYI shall inform GTE thereof
and HEGYI shall cooperate with GTE and its attorneys or insurer in a disposition
of any such matters whenever reasonably
<PAGE>
requested to do so. GTE shall assume full responsibility for defense of any
such action for the benefit of itself and HEGYI.
ARTICLE XVII. PRODUCT MARKING
Section 17.1 GTE may mark its products with an appropriate patent
notice.
ARTICLE XVIII. ENTIRE AGREEMENT AND AMENDMENTS
Section 18.1 This Agreement contains the entire understanding of the
parties with respect to the matter contained herein. The parties hereto may,
from time to time during the continuance of this Agreement, modify, vary or
alter any of the provisions of this Agreement, but only by an instrument duly
executed by both parties hereto.
Dennis J. Hegyi GTE Products Corporation
____________________________________ ____________________________________
John J. Vetere
Vice President & General Manager
Date ________________________________ Date:_______________________________
<PAGE>
[GTE LETTERHEAD]
July 28, 1992
Mr. Denis J. Hegyi
1708 Morton Avenue
Ann Arbor, MI 48104
Dear Dennis:
The Control Devices operation of GTE Products Corporation has been
formed into a separate corporation, GTE Control Devices Incorporated, because
GTE Corporation is divesting itself of its Electrical Products Group, the main
entity of GTE Products Corporation.
Accordingly, GTE Products Corporation has assigned all its rights in
the solar sensor license agreement and consultant's agreement to GTE Control
Devices Incorporated. Enclosed are copies of the assignments.
We request that you indicate your acceptance of the substitution of
GTE Control Devices Incorporated for GTE Products Corporation by signing and
dating the enclosed Acceptance of Assignment and returning it to me in the
stamped, addressed envelope.
If you have any questions, please call me at 508 750-2308.
Thank you.
Yours truly,
/s/ Jim
James Theodosopoulos
pc
Enclosure
<PAGE>
ASSIGNMENT OF HEGYI CONSULTANT AGREEMENT
A Consultant's Agreement between the Control Devices Operation of GTE Products
Corporation and Dennis J. Hegyi was executed on November 6, 1989. Said Control
Devices Operation has now been formed into GTE Control Devices Incorporated, a
corporation of Delaware.
The effect of this assignment is to substitute GTE Control Devices Incorporated
for GTE Products Corporation.
GTE PRODUCTS CORPORATION
Signed: /s/ Rolfe D. Trersan
By: Rolfe D. Trersan
Title: Vice President - General Counsel
Date: July 28, 1992
<PAGE>
ASSIGNMENT OF HEGYI LICENSE AGREEMENT
A License Agreement was entered into on November 6, 1989 between Dennis J. Hegyi
and GTE Products Corporation. Under the Agreement, Dennis J. Hegyi licensed GTE
Products Corporation to make and sell solar sensors, so called. The division of
GTE Products Corporation involved in the Agreement was the Control Devices
division. Said division has now been formed into GTE Control Devices
Incorporated, a corporation of Delaware.
Accordingly, GTE Products Corporation hereby assigns all its right, title and
interest under said Agreement to GTE Control Devices Incorporated.
The effect of this assignment is to substitute GTE Control Devices Incorporated
for GTE Products Corporation in said Agreement.
GTE PRODUCTS CORPORATION
Signed: /s/ Rolfe D. Trersan
By: Rolfe D. Trersan
Title: Vice President - General Counsel
Date: July 28, 1992
<PAGE>
Acceptance of Assignment
Dennis J. Hegyi agrees to the substitution of GTE Control Devices
Incorporated for GTE Products Corporation in (1) the License Agreement entered
into on November 6, 1989 between Dennis J. Hegyi and GTE Products Corporation,
and (2) in the Consultant's Agreement between the Control Devices Operation of
GTE Products Corporation and Dennis J. Hegyi.
Signed: /s/ Dennis J. Hegyi
By: Dennis J. Hegyi
Dated: August 3, 1992
<PAGE>
EXHIBIT 11
CONTROL DEVICES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACTUAL PROFORMA- IPO PROFORMA- RDI ACTUAL PROFORMA- IPO PROFORMA- RDI
SIX MONTHS SIX MONTHS SIX MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1996 DEC 31, 1995 DEC 31, 1995 DEC 31, 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income after tax but
before preferred share
dividends requirement.. $ 2,123 $ 2,123 $ 2,198 $ 3,458 $ 3,458 $ 3,460
Less: Preferred share
dividends
requirement.......... (132) -- -- (264) -- --
Add: Interest expense
reduction due to
extinguishment of
debt with proceeds
from offering and
exercise of warrants. -- 484 493 -- 950 986
Less: Write-off of debt
discount on Senior
Subordinated Notes... -- (90) (90) -- (111) (111)
--------- --------- --------- --------- --------- ---------
Net income applicable to
common shareholders.... $ 1,991 $ 2,517 $ 2,601 $ 3,194 $ 4,408 4,335
Detail of weighted aver-
age number of shares
outstanding:
Existing Common Shares
outstanding........... 1,999,994 1,999,994 1,999,994 1,999,994 1,999,994 1,999,994
Warrants to purchase
Common Shares issued
with Senior
Subordinated Notes.... 564,100 564,100 564,100 564,100 564,100 564,100
Conversion of RDI
Convertible Notes to
Common Shares......... -- 89,240 89,240 -- 89,240 89,240
Redemption of 11%
Senior Secured Fixed
Rate Notes............ -- 1,050,000 1,050,000 -- 1,050,000 1,050,000
Redemption of 10%
Senior Subordinated
Notes................. -- 450,000 450,000 -- 450,000 450,000
Repayment of accrued
interest on Senior
Notes................. -- 65,200 65,200 -- 65,500 65,500
Redemption of Preferred
Shares................ -- 240,000 240,000 -- 240,000 240,000
Repayment of accrued
dividends on Preferred
Shares................ -- 37,400 37,400 -- 11,000 11,000
--------- --------- --------- --------- --------- ---------
Weighted average number
of shares outstanding.. 2,564,094 4,495,934 4,495,934 2,564,094 4,469,834 4,469,834
========= ========= ========= ========= ========= =========
Earnings per share..... $ 0.78 $ 0.56 $ 0.58 $ 1.25 $ 0.99 $ 0.97
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made part of this
registration statement.
Arthur Andersen LLP
Stamford, Connecticut
September 10, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made part of this
registration statement.
-----------------------------
BARBIER FRINAULT & ASSOCIES
Member of Andersen Worlwide SC
Thierry Aymonier
Paris, France,
September 10, 1996
