<PAGE>
SECURITIES & EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996
Commission File Number: 0-21345
Control Devices, Inc.
--------------------------------------------------
(Exact name of Registrant as specified in Charter)
Indiana 01-0490335
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation of organization) No.)
228 Northeast Road Standish, Maine 04084
- ---------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
The Company's telephone number, including area code: (207) 642-4535
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
X YES NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Shares, no par value: 4,963,249 shares as of November 14, 1996.
<PAGE>
<TABLE>
<CAPTION>
CONTROL DEVICES, INC.
INDEX
-----
Page(s)
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PART I: FINANCIAL INFORMATION
- ------------------------------
<S> <C>
ITEM 1: FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995, and
September 30, 1996 (Unaudited) 2
Statements of Income for the Three and Nine
Months Ended September 30, 1996 and 1995
(Unaudited) 3
Statement of Shareholders' Equity for the Nine 4
Months Ended September 30, 1996
Statements of Cash Flows for the Nine Months Ended 5
Notes to Financial Statement 6-11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-14
PART II: OTHER INFORMATION
- ---------------------------
ITEMS 1-5: OTHER INFORMATION 15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 15
- ----------
</TABLE>
<PAGE>
CONTROL DEVICES, INC.
---------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- -------------
ASSETS (Unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,650 $10,459
Receivables, less allowance for
doubtful accounts of $452 and $277,
respectively 10,286 4,305
Inventories 6,439 3,279
Other current assets 1,704 1,001
------- -------
Total current assets 21,079 19,044
PROPERTY, PLANT AND EQUIPMENT, net 13,703 11,097
GOODWILL, net 6,794 -
------- -------
$41,576 $30,141
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,228 $ 500
Short-term debt 416 -
Accounts payable 4,487 1,429
Accrued employee benefits 3,390 1,459
Accrued expenses 2,720 1,994
------- -------
Total current liabilities 12,241 5,382
LONG-TERM DEBT 16,167 15,853
OTHER LIABILITIES 2,714 1,001
REDEEMABLE PREFERRED SHARES 2,400 2,400
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 2):
Class A Common Shares, no par value;
10,000,000 authorized and 1,564,098
issued and outstanding 520 520
Class B Series 1 Common Shares, no par
value; 4,000,000 authorized and
435,896 issued and outstanding 145 145
Warrants 180 180
Foreign currency translation
adjustment (259) -
Retained earnings 7,468 4,660
------- -------
Total shareholders' equity 8,054 5,505
------- -------
$41,576 $30,141
======= =======
</TABLE>
* See Note 2 for summary pro forma Balance Sheet information.
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
CONTROL DEVICES, INC.
---------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Thousands of dollars, except share and per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 15,979 $ 9,063 $ 44,158 $ 29,777
COST OF SALES 10,443 6,132 28,313 19,465
---------- ---------- ---------- ----------
Gross profit 5,536 2,931 15,845 10,312
---------- ---------- ---------- ----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,681 816 6,838 2,786
RESEARCH AND DEVELOPMENT 1,019 641 2,898 2,044
---------- ---------- ---------- ----------
3,700 1,457 9,736 4,830
---------- ---------- ---------- ----------
Operating income 1,836 1,474 6,109 5,482
INTEREST EXPENSE 502 336 1,329 1,068
---------- ---------- ---------- ----------
Income before income taxes 1,334 1,138 4,780 4,414
INCOME TAX PROVISION 453 432 1,774 1,743
---------- ---------- ---------- ----------
Net income 881 706 3,006 2,671
PREFERRED SHARE DIVIDENDS REQUIREMENTS 66 66 198 198
---------- ---------- ---------- ----------
Net income applicable to common shareholders $ 815 $ 640 $ 2,808 $ 2,473
========== ========== ========== ==========
EARNINGS PER SHARE $0.32 $0.25 $1.10 $0.96
========== ========== ========== ==========
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 statements.
3
<PAGE>
CONTROL DEVICES, INC.
---------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------
(Thousands of dollars)
(UNAUDITED)
<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 December 31, 1995 $520 $145 $180 $ -- $4,660 $5,505
Net income -- -- -- -- 3,006 3,006
Preferred share dividends -- -- -- -- (198) (198)
Foreign currency
translation adjustment -- -- -- (259) -- (259)
---- ---- ---- ----- ------ ------
BALANCE, at September 30, 1996 $520 $145 $180 $(259) $7,468 $8,054
==== ==== ==== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
CONTROL DEVICES, INC.
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 3,006 $ 2,671
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 1,546 1,326
Deferred income taxes 530 554
Amortization of debt discount 17 27
Changes in assets and liabilities:
(Increase) decrease in receivables (1,317) 718
(Increase) decrease in inventories 384 (338)
(Increase) decrease in other current assets (261) (330)
Increase (decrease) in accounts payable (1,112) (19)
Increase (decrease) in accrued employee benefits 895 211
Increase (decrease) in accrued expenses (349) (1,176)
Increase in other long-term liabilities 95 -
------- -------
Cash provided by operations 3,434 3,644
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of RDI (including transaction
fees and expenses), net of cash acquired (7,232) -
Capital expenditures (1,756) (419)
------- -------
Cash used in investing activities (8,988) (419)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (2,314) -
Net change in short-term debt 55 -
------- -------
Cash used in financing activities (2,259) -
------- -------
EFFECT OF EXCHANGE RATES ON CASH 4 -
Increase (decrease) in cash and cash equivalents (7,809) 3,225
CASH AND CASH EQUIVALENTS, beginning of period 10,459 5,304
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 2,650 $ 8,529
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,793 $ 1,663
Cash paid for income taxes $ 1,526 $ 1,929
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CONTROL DEVICES, INC.
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(All information as of September 30, 1996 and for the nine months
ended September 30, 1996 and 1995 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 ceramic
components parts and electronic sensors 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. The
accompanying financial statements include the results of CDI and RDI from
the date of acquisition. The "Company" refers to both CDI and RDI unless
the context otherwise requires.
The consolidated balance sheet as of September 30, 1996, the
consolidated statements of operations for the three and nine months ended
September 30, 1996 and 1995 and the consolidated statement of shareholders'
equity for the nine months ended September 30, 1996 and cash flows for the
nine months ended September 30, 1996 and 1995 have been prepared by the
Company and are unaudited. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations
and cash flows at September 30, 1996 and 1995 have been made and all such
adjustments are of a normal recurring nature. The accounting policies
followed during the interim periods reported on are in conformity with
generally accepted accounting principles and are consistent with those
applied for annual periods. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements
for the year ended December 31, 1995 included in the Company's Registration
Statement on Form S-1 (Registration Statement File No. 333-09379) as
declared effective by the Securities and Exchange Commission (the "SEC") on
October 2, 1996. The results of operations for the three and nine month
periods ended September 30, 1996 and 1995 are not necessarily indicative of
the operating results for the full year.
(2) Public Offering and Subsequent Events:
--------------------------------------
The Company filed a Registration Statement on Form S-1 with the SEC,
which was declared effective on October 2, 1996. On October 8, 1996, the
Company closed on the sale of 2,000,000 Common Shares in connection its
initial public offering (the "public offering") and received net proceeds
of approximately $15.5 million. On October 15, 1996, the Company issued
300,000 Common Shares in connection with the exercise of the underwriter's
overallotment option granted in connection with the public offering and
received net proceeds of approximately $2.6 million.
On August 30, 1996, the shareholders of the Company approved two
amendments to the Company's Articles of Incorporation. The first amendment
reclassified the outstanding Class A Common Shares and Class B Common
Shares as Common Shares and eliminated the designations of the Class A and
Class B Shares immediately prior to the closing of the public offering. The
second amendment will eliminate the 11% Cumulative Preferred Shares
("Redeemable Preferred Shares") when all of the Redeemable Preferred Shares
are redeemed in connection with the public offering.
6
<PAGE>
The following transactions occurred substantially simultaneously with
the close of the public offering:
a. the exercise of the outstanding warrants described in Note 4 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;
d. the conversion of the RDI Convertible Notes as describe in Note 3 into
99,155 Common Shares; and
e. the repayment of the Senior Notes and Redeemable Preferred Shares described
in Notes 4 and 5 with the net proceeds from the public offering.
Set forth below is summary balance sheet information as of September
30, 1996 and pro forma September 30, 1996, assuming the above transactions
occurred and the completion of the public offering and the application of the
net proceeds therefrom:
<TABLE>
<CAPTION>
Pro forma
September 30, September 30,
1996 1996
------------- -------------
<S> <C> <C>
Total assets............................ $41,576 $42,025
======= =======
Long-term debt.......................... $16,167 $ 1,405
======= =======
Shareholders' equity:
Common Shares........................... $ - $19,925
Class A Common Shares................... 520 -
Class B Series 1 Common Shares.......... 145 -
Warrants................................ 180
Foreign currency translation adjustment. (259) (259)
Retained earnings....................... 7,468 7,388
------- -------
Total shareholders' equity........... $ 8,054 $27,054
======= =======
</TABLE>
The number of Common Shares outstanding on a pro forma basis at
September 30, 1996, assuming the transactions described above occurred on such
date, would be 4,963,249.
The supplemental net income per share would have been $0.78 and $0.72
for the nine months ended September 30, 1996 and 1995 respectively, assuming the
conversion of the RDI Convertible Notes(only in 1996), the issuance of 2,146,488
and 2,018,333 Common Shares (without deducting underwriters' discount or
offering expenses), at the public offering price of $9.00 per share and the
application of 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 respective period. The supplemental net income per
share does not include the results of operations for RDI prior to April 1, 1996.
7
<PAGE>
(3) Acquisition of RDI:
-------------------
On April 1, 1996, CDI purchased all of the issued and
outstanding stock of RDI for $8,964,000. CDI 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
$1,107,600 and delivered Automatically Converting Subordinated
Promissory Notes ("RDI Convertible Notes") totaling $892,400.
The purchase method was used to account for the acquisition. In
preparing RDI's financial information, 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.
The net assets acquired after allocating the purchase price are
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash $ 132
Receivables 5,888
Inventories 3,642
Other current assets 549
Goodwill 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 nine
months ended September 30, 1996 and 1995, respectively, had the
acquisition of RDI occurred at January 1, 1996 and January 1, 1995,
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 Junior Subordinated Promissory Note payable to GTE Control
Devices, Inc. (the "Seller Note") which was repaid as part of 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>
Nine Months Ended
September 30,
1996 1995
---------- ----------
(Unaudited - in thousands)
(except per share)
<S> <C> <C>
Net sales $ 50,782 $ 49,836
Net income applicable to 2,881 2,576
common shareholders
Earnings per share $1.12 $1.00
Weighted average number of common
shares and equivalents outstanding 2,564,094 2,564,094
</TABLE>
8
<PAGE>
(4) Debt:
-----
Debt consists of the following as of September 30, 1996 and December
31, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
10% Senior Secured Fixed Rate Notes $10,000 $10,500
11% Senior Subordinated Notes 4,370 4,353
(face value of $4,500)
RDI Notes 1,108 -
RDI Convertible Notes 892 -
RDI fixed rate loans 1,025 -
RDI short-term debt 416 -
Seller Note - 1,500
------- -------
$17,811 $16,353
======= =======
</TABLE>
On July 29, 1994, and as amended on March 29, 1996, CDI entered into
an agreement (the "Securities Purchase Agreement") with a group of
affiliated lenders to provide CDI with $15 million of term loans and up to
$3.0 million in revolving credit loans. The term loans are comprised of the
10% Senior Secured Fixed Rate Notes and the 11% Senior Subordinated Notes
(collectively the "Senior Notes"). In connection with the public offering
the Senior Notes were repaid without premium in October 1996.
Under the Securities Purchase Agreement, 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 was
to be amortized over the life of the notes. In October 1996 the remaining
unamortized discount of $130,000 ($80,000 net of tax) was charged to
expense in connection with the repayment of the Senior Notes.
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. In connection with the
public offering the RDI Convertible Notes were converted into 99,155 common
shares in October 1996.
As of October 8, 1996 Fleet Bank of Maine ("Fleet Bank") and the
Company have entered into an 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 facility has a maturity date of September 30, 1998. The facility has
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 is unsecured and contains certain covenants. To date
there have been no borrowings against this line of credit facility.
9
<PAGE>
(5) Redeemable Preferred Shares:
----------------------------
In connection with the acquisition, CDI issued 2,400 shares of 11%
Cumulative Preferred Shares for $2.4 million. The Preferred Shares accrue
cumulative dividends at a rate of 11% per annum and have a liquidation
preference value of $2.4 million, plus accrued and unpaid dividends. The
liquidation preference value of the Preferred Shares ($1,000 per share plus
accrued dividends) was $2,972,000 and $2,774,000 at September 30, 1996 and
December 31, 1995, respectively. At September 30, 1996 and December 31,
1995, accrued and unpaid dividends were $572,000 and $374,000,
respectively, which have been included in accrued expenses. In connection
with the public offering the Redeemable Preferred Shares plus accrued
dividends were repaid without premium in October 1996.
(6) Commitments and Contingencies:
------------------------------
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.
(7) 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. Classes of inventories as of September 30, 1996 and
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Raw materials and supplies.. $1,293 $1,174
Work-in-process............. 868 613
Finished goods.............. 4,278 1,492
------ ------
$6,439 $3,279
====== ======
</TABLE>
(8) Supplementary Balance Sheet Information:
----------------------------------------
Accrued expenses consisted of the following as of September 30, 1996
and December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Interest $ 289 $ 652
Dividends 761 374
Environmental 305 305
Other 1,365 663
------ ------
$2,720 $1,994
====== ======
</TABLE>
10
<PAGE>
Other long-term liabilities as of September 30, 1996 and December 31,
1995, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Deferred tax liabilities $1,376 $1,001
Retirement benefits 827 -
Employee profit sharing 511 -
------ ------
$2,714 $1,001
====== ======
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales were $16.0 million for the three months ended September 30, 1996,
an increase of $6.9 million, or 76.3% as compared to the three months ended
September 30, 1995. Net sales increased primarily as a result of the acquisition
of RDI which contributed $5.5 million to net sales for the three months ended
September 30, 1996.
Gross profit in the three months ended September 30, 1996 was $5.5 million,
an increase of $2.6 million, or 88.9%, compared to the same period in 1995. As a
percentage of net sales, gross profit in the three months ended September 30,
1996 was 34.6% as compared to 32.3% for the same period in 1995. The increase in
gross profit, as a percentage of net sales, resulted from improved productivity
due in part to the continued success of an employee gain sharing program, as
well as from improved plant utilization and efficiencies.
Selling, general and administrative expenses in the three months ended
September 30, 1996 were $2.7 million, an increase of $1.9 million or 228.6% as
compared to the three months ended September 30, 1995. The increase consisted
primarily of RDI expenses of $1.7 million.
Research and development expenses in the three months ended September 30,
1996 were $1.0 million, an increase of $0.4 million, or 59.0%, as compared to
the three months ended September 30, 1995. The increased research and
development expenses was primarily a result of increased staffing and expenses
required to develop products for introduction in the 1997-1999 period.
Operating income in the three months ended September 30, 1996 was $1.8
million compared to $1.5 million for the three months ended September 30, 1995,
an increase of 25%. As a percentage of net sales, operating income was 11.5% in
the three months ended September 30, 1996 as compared to the 16.3% for the three
months in 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 CDI business. Similarly,
as a distributor, RDI's operating income as a percentage of net sales is
typically lower than that of the CDI business.
Interest expense was $0.5 million in the three months ended September 30,
1996 an increase of $0.2 million from $0.3 million in the three months ended
September 30, 1995. The increase was due to the addition of RDI interest expense
of $0.1 million and lower interest income of $0.1 million due to lower cash
balances as a result of the RDI acquisition.
The provision for income tax was $0.5 million for the three months ended
September 30, 1996, compared to $0.4 million for the three months ended
September 30, 1995. The effective tax rate was 34.0% in the three months ended
September 30, 1996 compared to 38.0% in the same period of 1995. The decrease
was the result of reinstatement of a R&D tax credit, which has reduced the year
to date effective rate to 37.1%.
Net income was $0.9 million in the three months ended September 30, 1996,
an increase of $0.2 million, or 25%, compared to the three months ended
September 30, 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 expenses. As a percentage of net sales, net income
was 5.5% in the three months ended September 30, 1996 as compared to 7.8% in the
three months ended September 30, 1995.
12
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net sales were $44.2 million for the first nine months of 1996, an increase
of $14.4 million, or 48.3% as compared to the first nine months of 1995. Net
sales increased primarily as a result of the acquisition of RDI which
contributed $12.1 million to net sales for the first nine months of 1996 and the
increased penetration of sensor products in North America and Europe.
Gross profit in the first nine months of 1996 was $15.8 million an increase
of $5.5 million, or 53.7%, compared to the same period in 1995. As a percentage
of net sales, gross profit for the first nine months of 1996 was 35.9% as
compared to 34.6% for the first nine months of 1995. The increases in gross
profit, as a percentage of net sales, resulted from improved productivity due in
part to the continued success of an employee gain sharing program as well as
from improved plant utilization and efficiencies.
Selling, general and administrative expenses in the first nine months of
1996 were $6.8 million, an increase of $4.1 million or 145.4% as compared to the
first nine months of 1995. The increase consisted primarily of RDI expenses of
$3.7 million.
Research and development expenses in the first nine months of 1996 were
$2.9 million an increase of $0.9 million, or 41.8%, as compared to the first
nine months of 1995. The increased research and development expenses was
primarily a result of increased staffing and expenses required to develop
products for introduction in the 1997-1999 period. As a percentage of net sales
research and development expense was 6.6% in the first nine months of 1996, as
compared to 6.9% in the first nine months of 1995. Excluding RDI, research and
development expense increased to 8.8% for the first nine months of 1996 as
compared to 6.9% for the same period in 1995.
Operating income in the first nine months of 1996 was $6.1 million compared
to $5.5 million for the first nine months of 1995, an increase of 11.4%. As a
percentage of net sales, operating income was 13.8% in first nine months of 1996
as compared to 18.4% for the first nine 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 CDI business. Similarly, as a distributor,
RDI's operating income as a percentage of net sales is typically lower than that
of the CDI business.
Interest expense was $1.3 million for the first nine months of the 1996 an
increase of $0.2 million from $1.1 million in the first nine months of 1995. The
increase was due to the addition of RDI interest expense and lower interest
income due to lower cash balances as a result of the RDI acquisition.
The provision for income tax was $1.8 million for the first nine months of
1996, compared to $1.7 million for the first nine months of 1995. The effective
tax rate was 37.1% in the first nine months of 1996 compared to 39.5% in the
same period of 1995.
Net income was $3.0 million in the first nine months of 1996, an increase
of $0.3 million, or 12.5%, compared to the first nine 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 expenses. As a percentage of net sales, net income was 6.8% in the
first nine months of 1996 as compared to 9.0% in the first nine months of 1995.
13
<PAGE>
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 RDI Notes and
RDI Convertible Notes and bank borrowings.
Cash and cash equivalents totaled $2.7 million at September 30, 1996
compared to $10.5 million at December 31, 1995. The decrease in cash and cash
equivalents during this period was primarily due to the acquisition of RDI and
the repayment of the $1.5 million Seller Note.
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
September 30, 1996 RDI had borrowings aggregating $2.9 million under these
facilities.
As of October 8, 1996 Fleet Bank of Maine ("Fleet Bank") and the Company
have entered into an 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 facility has a
maturity date of September 30, 1998. The facility has 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 is unsecured
and contains certain covenants. To date there have been no borrowings against
this line of credit facility.
As a result of the public offering the Company received $18.1 million in
net proceeds, of this amount $17.7 million was used to repay the Senior Notes,
Redeemable Preferred Shares and associated accrued dividends and interest. The
remaining $400,000 was invested in short-term, investment grade, interest-
bearing securities and will be used for general corporate purposes.
The Company believes its current cash and cash equivalents, together with
existing credit facilities and cash flows from operations will be sufficient to
meet the Company's cash requirements for at least the next twelve months.
This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, cyclicality of automotive and
appliance industries, reliance on OEM's, risk of customer labor interruptions,
and competing technologies.
14
<PAGE>
PART II OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
a) Annual meeting of shareholders August 30, 1996
b) Election of directors
Ralph R. Whitney Jr.
Bruce D. Atkinson
Charles M. Brennan III
John D. Cooke
James O. Futterknecht, Jr.
Alan I. Mossberg
John M. Ramey
Glenn Scolnik
c) Other items included:
1) Election of Arthur Andersen LLP as independent auditors.
2) Approval of the amended and restated Articles of
Incorporation (Restated Articles No. 1).
3) Approval of the amended and restated Articles of
Incorporation (Restated Articles No. 2).
4) Approval of Control Devices, Inc. 1996 Stock Compensation Plan.
1,559,098 out of 1,564,098 Class A Common Shares, 435,896 out of 435,896
Class B Series 1 Common Shares, and 2,376.50 Redeemable Preferred Shares voted
for all of the above matters. 5,000 Class A Common Shares and 23.5 Redeemable
Preferred Shares did not vote.
Item 6: Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<C> <S>
2 Not Applicable.
3.1 Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1.1 of Statement on Form S-1,
Registration Statement No. 333-09379).
3.2 Code of By-laws of the Company (Incorporated by reference to
Exhibit 3.2 of Amendment No. 1 to Registration Statement on
Form S-1, Registration Statement No. Registration 333-09379).
4.1 Specimen of Common Share certificate (Incorporated by reference
to Exhibit 4.1 of Amendment No. 1 to Registration Statement of
Form S-1, Registration Statement No. 333-09379).
4.2 Article III of the Articles of Incorporation of the Company
(included in Exhibit 3.1).
4.3 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 issues pursuant to the
Securities Purchase Agreement. (Incorporated by reference to
Exhibit 4.4 of Registration Statement of form S-1, Registration
Statement No. 333-09379).
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
4.5 Agreement to furnish copies of certain long term debt
agreements. (Incorporated by reference to Exhibit 4.5 of
Registration Statement of Form S-1, Registration Statement No.
333-09379).
4.6 Form of First Amendment dated March 29, 1966, to SPA and Senior
Revolving Credit Notes. (Incorporated by reference to Exhibit
4.6 of Amendment No. 1 to Registration Statement on Form S-1,
Registration Statement No. 333-09379).
4.7 Form of Second Amendment dated August 16, 1996 to SPA and
Waiver dated August 19, 1996. (Incorporated by reference to
Exhibit 4.7 of Amendment No. 1 to Registration Statement on
Form S-1, Registration Statement No. 333-09379).
4.8 Loan Agreement dated October 8, 1996, between the Company and
Fleet Bank of Maine.
10.1 1996 Stock Compensation (Plan (Incorporated by reference to
Exhibit 10.5.1 of Amendment No. 1 to Registration Statement on
Form S-1, Registration Statement No. 333-09379).
11 Statement regarding computation of per share earnings is not
required because the relevant computation can be determined
from the material contained in the Financial Statements
included herein.
15 Not Applicable.
18 Not Applicable.
22 Not Applicable.
23 Not Applicable.
24 Not Applicable.
25 Not Applicable.
27 Financial Data Schedule.
99 Not Applicable.
(b) Reports on Form 8-K
none
</TABLE>
Pursuant to the requirements to the Security Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Control Devices, Inc.
-----------------------------------
(Registrant)
Date: November 14, 1996 By /s/ Jeffrey G. Wood
---------------------------------
Name: Jeffrey Wood
Vice President,
Chief Financial Officer
16
<PAGE>
EXHIBIT 4.8
LOAN AGREEMENT
by and between
FLEET BANK OF MAINE
and
CONTROL DEVICES, INC.
Dated as of October 8, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
1. LINE OF CREDIT......................................................... 1
2. BORROWER'S REPRESENTATIONS AND WARRANTIES.............................. 5
3. BANK'S REPORTS......................................................... 8
4. SET OFF; EXPENSES...................................................... 8
5. BORROWER'S REPORTS..................................................... 9
6. GENERAL AGREEMENTS OF BORROWER......................................... 10
7. BORROWER'S NEGATIVE COVENANTS.......................................... 13
8. DEFAULT................................................................ 15
9. JURY TRIAL WAIVER...................................................... 18
10. CONSENT TO JURISDICTION................................................ 19
11. TERMINATION AND EXPIRATION NOT TO AFFECT BANK'S RIGHTS................. 19
12. ADDRESSES FOR NOTICES, ETC............................................. 19
13. MISCELLANEOUS.......................................................... 21
</TABLE>
SCHEDULES
<PAGE>
FLEET BANK OF MAINE
LOAN AGREEMENT
Portland, Maine
Dated as of October 8, 1996
This LOAN AGREEMENT, dated as of October 8, 1996, between CONTROL DEVICES,
INC., an Indiana corporation with its principal place of business in Standish,
Maine (the "Borrower"), and FLEET BANK OF MAINE, its successors and assigns (the
"Bank");
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower desires to obtain a loan for acquisition financing
and working capital; and
WHEREAS, the Bank is willing to make a line of credit available to the
Borrower for such purposes;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
1. LINE OF CREDIT.
--------------
(a) Line of Credit: Subject to the terms and provisions of this
Agreement, Bank hereby establishes a line of credit in Borrower's favor in the
principal amount of up to Fifteen Million Dollars ($15,000,000)(the "Line of
Credit"). The Line of Credit shall become available on the date that Borrower
completes the initial public offering of its stock (the "IPO"), and shall be
used in part by Borrower to pay in full its existing secured indebtedness on
that date, and will be available, subject to the terms hereof, until September
30, 1998, when the Line of Credit, if not previously extended in writing by
Bank, shall be terminated and all amounts outstanding thereunder shall be paid
in full. Notwithstanding the foregoing, if the IPO has not occurred on or before
December 30, 1996, then the Bank shall have the right to terminate this
Agreement.
(b) Purposes: Borrower shall use loan proceeds for repayment of its
existing secured indebtedness, for acquiring other businesses and/or assets, for
general working capital purposes, the issuance of letters of credit and for no
other purposes.
(c) Minimum Advance: Borrower agrees that any request for advances under
this Line of Credit shall be at least $25,000.
(d) Interest Rate Options.
---------------------
<PAGE>
(i) The Borrower shall elect from time to time to have the interest
rate applicable to one or more advances hereunder be the Prime Rate, the
Cost of Funds Rate or the LIBOR Rate, or to convert any outstanding Loan to
a Loan of another Type, provided that (i) with respect to any such
election, or conversion of a Loan of one Type into a Loan of another Type,
such conversion shall only be made on the last day of the applicable
Interest Period; and (ii) no such election of a LIBOR Loan or conversion to
a LIBOR Loan may be made when any Event of Default has occurred and is
continuing. All or any part of an outstanding Loan of any Type may be
converted as provided herein, provided that partial conversions shall be in
an aggregate principal amount of $25,000 or an integral multiple of $25,000
in excess thereof. Each request relating to a Loan shall be irrevocable by
the Borrower.
(ii) Any Loans of any Type may be continued as such upon the
expiration of an Interest Period with respect thereto by compliance by the
Borrower with the notice provisions contained in Section 1(d)(i); provided
that no Cost of Funds Loan may be continued as such when any Event of
Default has occurred and is continuing, but shall be automatically
converted to a Prime Rate Loan on the last day of the Interest Period
relating thereto.
(iii) In the event that the Borrower does not notify the Bank of its
election hereunder with respect to any Loan, such Loan shall be
automatically converted to a Prime Rate Loan at the end of the applicable
Interest Period.
(iv) All interest on Loans shall be paid at the end of the
applicable Interest Period, except that for Loans having an Interest Period
of less than thirty (30) days interest shall be paid monthly. All interest
will be based on the actual days outstanding over a 360-day year.
(e) Prepayment of Loans. The Borrower shall have the right at any time to
prepay any Loan on or before the expiration of the applicable Interest Period,
as a whole or in part, upon prior written notice to the Bank, provided that such
prepayment shall be accompanied by (a) accrued interest through the date of
prepayment, and (b), unless such loan is a Prime Rate Loan, an amount calculated
in accordance with the Yield Maintenance Formula. Such optional prepayment
privilege is in addition to, and not in substitution of, any repayment of
principal required or otherwise contemplated under this Agreement. Any payment
of a Loan that occurs prior to the expiration of the applicable Interest Period
shall be accompanied by an amount calculated in accordance with the Yield
Maintenance Formula whether such payment is payable because of default or
otherwise.
2
<PAGE>
(f) Loan Request Procedure. The Borrower may request Loans hereunder on
any Business Day, provided there is then no Event of Default hereunder; and
further provided that Debtor shall give Bank irrevocable written or telephonic
notice (which notice must be received by Bank prior to 2:00 p.m. Portland, Maine
time) on such Business Day specifying: (i) the amount to be borrowed, (ii) the
requested borrowing date, (iii) whether the borrowing is to be a Prime Rate
Loan, a Cost of Funds Loan, a LIBOR Loan or a combination thereof (and if so, in
what proportions), and (iv) for any Cost of Funds Loan or LIBOR Loan, the length
of the Interest Period. If Borrower's request fails to specify whether a request
is for a Prime Rate Loan, a Cost of Funds Loan or a LIBOR Loan, it shall be
deemed a request for a Prime Rate Loan. If Debtor fails to request the
maintenance of an existing Cost of Funds Loan or LIBOR Loan prior to the end of
the Interest Period for such Loan, in either case in accordance with the
procedure set forth herein, then the Borrower shall be deemed to have requested
that such Loan be converted into a Prime Rate Loan.
(g) Definitions. The following terms used herein, and in any notes or
other documents relating thereto, shall have the following meanings:
"Business Day" means any day other than a Saturday, Sunday or legal holiday
on which banks in Portland, Maine and Boston, Massachusetts are open for the
conduct of a substantial part of their commercial banking business. With respect
to any LIBOR Loan, a day shall not be a Business Day unless it is also a day on
which banks in London are open for commercial banking business.
"Cost of Funds" means the annual rate of interest determined by Bank as of
the first Business Day of an advance based on Bank's cost of funds for the
Interest Period to which such determination relates.
"Cost of Funds Loans" means any Loans for which the interest rate is the
Cost of Funds Rate.
"Cost of Funds Rate" means a fixed annual rate of interest equal to Cost of
Funds plus One and One Half Percent (1.50%) per annum.
"Interest Period" means (i) in the event that interest is calculated at the
Cost of Funds Rate, the Interest Period shall be a period commencing on the date
so designated by the Borrower in its irrevocable written or telephonic notice to
Bank and ending from one to thirty days thereafter, as the Borrower may elect in
such notice pursuant to subsection 1(f) and (ii) in the event that interest is
calculated at the LIBOR Rate, the Interest Period shall be a period commencing
on the date so designated by the Borrower in its irrevocable notice to Bank and
ending thirty,
3
<PAGE>
sixty, ninety or one hundred eighty days thereafter, as the Borrower may elect
in such notice pursuant to subsection 1(f); provided that:
(a) any Interest Period that would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business Day unless
such Business Day falls in another calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on
the last Business Day of the calendar month at the end of such Interest
Period; and
(c) no Interest Period may extend beyond the final due date of the
Line of Credit.
"LIBOR Loan" means any Loans for which the interest rate is the LIBOR Rate.
"LIBOR Rate" means, for each Interest Period for a LIBOR Loan, (i) the rate
of interest per annum at which U.S. Dollar deposits of a principal amount
substantially similar to the principal amount of the LIBOR Loan to be
outstanding during such Interest Period, for value and delivery on the first day
of such Interest Period and for a period equal to such Interest Period, are
offered by the Bank, in the London interbank market, as conclusively determined
in good faith by the Bank, plus (ii) One and One Half Percent (1.50%) per annum.
"Loan" means a loan, sometimes referred to herein as an advance, made to
the Borrower by the Bank pursuant to Section 1 of this Agreement, and "Loans"
means all of such loans, collectively.
"Prime Rate" means the rate of interest adopted by Fleet Bank of Maine as
its reference rate for the determination of interest rates for loans of varying
maturities in U.S. Dollars to U.S. residents of varying degrees of
creditworthiness and being quoted at such time by Fleet Bank of Maine as its
"prime rate" or "base rate" of interest for commercial loans.
"Prime Rate Loan" means any Loan for which the interest rate is the Prime
Rate.
"Tangible net worth" shall mean, as of any date, the amount of
shareholders' equity as shown on the financial statements of the Borrower at
such date, prepared in accordance with GAAP.
4
<PAGE>
"Type" means, with respect to Loans, its nature as a Prime Rate Loan, a
Cost of Funds Loan or a LIBOR Loan.
"Yield Maintenance Formula" shall be calculated as follows: The published
rate of United States Treasury Notes or Bills (Bills on a discounted basis shall
be converted to a bond equivalent) (as published weekly in the Federal Reserve
Statistical Release in the issue of such publication most recently preceding the
date of prepayment) with a maturity date that is the same as, or is the nearest
date subsequent to, the last day of the Interest Period for the Loan being
prepaid, shall be subtracted from the annual rate of interest applicable to such
Loan. If the result is zero or a negative number, there shall be no additional
amount due. If the result is a positive number, then the resulting percentage
shall be multiplied by the amount of the principal balance being prepaid. The
resulting amount will be divided by 360 and multiplied by the number of days
remaining until the end of the applicable Interest Period. Said amount shall be
reduced to present value, calculated by using the above referenced applicable
United States Treasury Note or Bill rate and the number of days remaining
between the date of the prepayment and the end of the applicable Interest
Period.
2. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that:
(a) Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana and shall hereafter remain as
such and is duly qualified and in good standing in every other jurisdiction in
which it is doing business other than any jurisdiction where the failure to so
qualify will not have a material adverse effect on its financial condition,
business or prospects, which other jurisdictions are listed on Schedule A,
annexed hereto, and shall hereafter remain duly qualified and in good standing
in every other jurisdiction in which, by reason of the nature or location of its
assets or operations, such qualification may be necessary. Borrower has
identified on Schedule B, annexed hereto, all of its subsidiaries and their
respective jurisdictions of organization, addresses and the percentage of
ownership. Each of Borrower's subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and shall hereafter remain in good standing as a corporation in
that jurisdiction, and is duly qualified and in good standing, and shall
hereafter so remain, in every other jurisdiction in which it is doing business
other than any jurisdictions where the failure to so qualify will not have a
material adverse effect on its financial condition, business or prospects, which
other jurisdictions are listed on Schedule B, annexed hereto. None of
Borrower's subsidiaries has any subsidiaries.
5
<PAGE>
(b) Borrower's exact legal name is as set forth in this Agreement and
Borrower will not undertake or commit to undertake any act which will result in
a change of Borrower's legal name, without giving Bank at least thirty (30)
days' prior written notice of the same. Borrower does not conduct business
under any other name, and will not do so without giving Bank at least thirty
(30) days' prior written notice of the same.
(c) The execution, delivery and performance of this Agreement, and of any
other documents executed in connection herewith, are within Borrower's legal
powers, have been duly authorized, are not in contravention of law or the terms
of Borrower's articles of incorporation or other organizational papers, or of
any indenture, agreement or undertaking to which Borrower is a party or by which
it or any of its properties may be bound.
(d) Borrower owns all of the assets reflected in its most recent financial
statements provided to Bank, except assets sold or otherwise disposed of in the
ordinary course of business since the date thereof, and such assets together
with any assets acquired since such date, are free and clear of any lien,
pledge, security interest, charge, mortgage or encumbrance of any nature
whatsoever, except only (i) the liens, security interests and other encumbrances
listed on Schedule C annexed hereto, (ii) those leases (if any) set forth on
Schedule D annexed hereto, (iii) liens on assets acquired through Borrower's
acquisition of equity or assets of another entity (so long as such liens existed
on such assets prior to Borrower's acquisition and so long as such liens extend
to no other property), (iv) landlords', carriers', warehousemen's, mechanics'
and other similar liens arising by operation of law in the ordinary course of
Borrower's business; (v) liens arising out of pledge or deposits under worker's
compensation, unemployment insurance, old age pension, social security,
retirement benefits or other similar legislation; (vi) purchase money liens
arising in the ordinary course of business (so long as (i) the indebtedness
secured thereby does not exceed the lesser of the cost or fair market value of
the property subject thereto, (ii) such lien extends to no other property and
(iii) the aggregate principal amount secured by purchase money liens does not at
any time exceed $1,000,000; and (vi) liens and security interests in favor of
Bank or consented to in writing by Bank (collectively, the "Permitted Liens").
(e) Borrower has made or filed all tax returns, reports and declarations
relating to any material tax liability required by any jurisdiction to which it
is subject; has paid all taxes shown or determined to be due thereon except
those being diligently contested in good faith and which it has, prior to the
date of
6
<PAGE>
such contest, identified in writing to Bank as being contested; and has
made adequate provision for the payment of all taxes so contested.
(f) Borrower, except as set forth in Schedule E, (i) is subject to no
charter or other legal restriction, or any judgment, award, decree, order,
governmental rule or regulation or contractual restriction which could have a
material adverse effect on its financial condition, business or prospects, and
(ii),, is in compliance with its charter, all contractual requirements by which
it or any of its properties may be bound and all applicable laws, rules and
regulations (including without limitation those relating to environmental
protection) other than laws, rules or regulations (i) the validity or
applicability of which it is diligently contesting in good faith and which it
has, prior to the date of such contest, identified in writing to Bank as being
contested, or (ii) the failure to comply with which cannot reasonably be
expected to materially adversely affect its financial condition, business or
prospects.
(g) There is no action, suit, proceeding or investigation pending or, to
its knowledge, threatened against or affecting Borrower or any of its assets
which, if determined adversely to it, would or could have a material adverse
effect on its financial condition, business or prospects, except as set forth on
Schedule E.
(h) Borrower is in compliance with ERISA with respect to any Plan; no
Reportable Event has occurred and is continuing with respect to any Plan; and it
has met its minimum funding requirements with respect to all Plans. The word
"Plan" as used in this Agreement means any employee plan subject to Title IV of
the Employee Retirement Income Security Act of 1974, as amended, ("ERISA")
maintained for employees of Borrower, any subsidiary of Borrower or any other
trade or business under common control with Borrower within the meaning of
Section 414(c) of the Internal Revenue Code of 1986, as amended, or any
regulations thereunder.
(i) Borrower has all permits, licenses and approvals materially necessary
to the operation of its business, and all of such items are final and in full
force and effect and none of such items are being challenged by any legal,
administrative or governmental action.
3. BANK'S REPORTS. After the end of each month, Bank will render to
Borrower a statement of Borrower's loan account with Bank hereunder, showing all
applicable credits and debits. Each statement shall be considered correct and
to have been accepted by Borrower and shall be conclusively binding upon
Borrower in respect of all charges, debits and credits of whatsoever nature
contained therein, and the closing balance shown therein, unless Borrower
notifies Bank in writing of any discrepancy within
7
<PAGE>
thirty (30) days from the mailing by Bank to Borrower of any such monthly
statement or unless such statement is patently incorrect.
4. SET OFF; EXPENSES.
(a) Any and all deposits (whether demand or time deposits) and other sums
at any time credited by or due from Bank to Borrower shall at all times
constitute additional security for all amounts due to Bank by Borrower hereunder
(the "Obligations") and may be set off against any Obligations at any time
whether other security held by Bank is considered by Bank to be adequate. Bank
shall be entitled to presume, in the absence of clear and specific written
notice to the contrary hereafter provided by Borrower to Bank, that any and all
deposits maintained by Borrower with Bank are general accounts as to which no
person or entity other than Borrower has any legal or equitable interest
whatsoever.
(b) Borrower shall pay to Bank on demand any and all reasonable counsel
fees and other expenses incurred by Bank in connection with the preparation,
interpretation, enforcement, administration or amendment of this Agreement or of
any documents relating hereto, and any and all expenses, including, but not
limited to, all attorneys' fees and expenses, and all other expenses of like or
unlike nature which may be expended by Bank to obtain or enforce payment of any
of the Obligations or in the prosecution or defense of any action or concerning
any matter growing out of or connected with the subject matter of this
Agreement, the Obligations or any of Bank's rights or interests therein or
thereto, including, without limiting the generality of the foregoing, any
reasonable counsel fees or expenses incurred in any bankruptcy or insolvency
proceedings and all costs and expenses incurred by Bank in connection with the
defense, settlement or satisfaction of any action, claim or demand asserted
against Bank in connection with the debt secured hereby (except to the extent of
Bank's willful misconduct or gross negligence).
5. BORROWER'S REPORTS.
(a) Borrower shall deliver to Bank all documents listed below, as
frequently as indicated below, or at such other times as Bank may request, and
all other documents and information requested by Bank, whether or not the same
are listed below, with such frequency as Bank may request:
Document Frequency Due
- -------- -------------
Management prepared quarterly Quarterly, within forty-five
interim financial statements days after the end of each
(including a balance sheet, fiscal quarter
8
<PAGE>
income statement and statement of cash
flows) and an officer's compliance
certificate, in each case in form
satisfactory to Bank
Annual audited financial Annually, within 120 days
statements from Arthur Anderson, after year-end
L.L.P., or another firm of
certified public accountants
acceptable to Bank (the "Acceptable
Accounts") with comparable information
from the prior year
Management prepared annual Annually, within sixty days
projections prior to the commencement of the
year to which the projections relate
Filings made with the Securities Simultaneously with submission
Exchange Commission or other to regulators
securities regulators
(b) Borrower's quarterly financials shall be prepared in accordance with
generally accepted accounting principles consistently applied, and certified by
the chief financial officer of Borrower (subject to year end adjustment).
(c) Borrower's annual financial reports shall be prepared in accordance
with generally accepted accounting principles consistently applied, accompanied
by an opinion thereon acceptable to Bank by Acceptable Accountants and with such
independent public accountant's statement that they have reviewed the provisions
of this Agreement and that they have no knowledge of any event or condition
which constitutes an Event of Default or which, after notice or expiration of
any applicable grace period or both, would constitute such an Event of Default
or, if they have such knowledge, specifying the nature and period of existence
thereof, provided, however, that in issuing such statement, such accountants
shall not be required to go beyond normal procedures conducted in connection
with their review.
(d) In addition to the foregoing, Borrower shall provide Bank promptly
with such other and additional information concerning Borrower, the operation of
Borrower's business, and Borrower's financial condition, including financial
reports and statements, as Bank may from time to time reasonably request from
Borrower in writing. All financial information provided to Bank by Borrower
shall be prepared in accordance with generally accepted accounting applied
consistently in the preparation thereof and consistently with prior periods to
fairly reflect the
9
<PAGE>
financial condition of Borrower at the close of, and its results of operations
for, the periods in question.
6. GENERAL AGREEMENTS OF BORROWER.
(a) Borrower agrees to keep all its assets insured with coverage and in
amounts not less than that usually carried by one engaged in a like business and
in any event not less than that reasonably required by Bank. In addition,
Borrower shall maintain appropriate liability insurance and all insurance
required by law, including any necessary workers' compensation insurance. All
insurance required hereunder shall be provided by insurance companies qualified
to do business in Maine, selected by Borrower and reasonably satisfactory to
Bank, shall be in such form and in such amounts as Bank may reasonably require
and, without limiting the foregoing, shall provide that such insurance shall not
be canceled or modified without at least thirty (30) days prior notice to the
Bank.
(b) Borrower will maintain its due qualification and good standing and
will obtain, or maintain, as the case may be, its qualification to do business
in other jurisdictions where such qualification is necessary or desirable for
Borrower or its business, unless the failure to do so would not have a material
adverse effect on its financial condition, business or prospects and will cause
each of its subsidiaries to so maintain their respective corporate existences in
good standing and to obtain or maintain, as the case may be, their respective
qualifications to do business in other jurisdictions where such qualification is
necessary or desirable for such subsidiary or its business, unless the failure
to do so would not have a material adverse effect on its financial condition,
business or prospects and will, to the extent applicable to Borrower or its
property or its business, and will cause each of its subsidiaries, to the extent
applicable to such subsidiary's property or its business, comply with all
material laws, ordinances and regulations of the United States, each state, each
political subdivision thereof, and of each governmental authority.
(c) Borrower will pay all real and personal property taxes, assessments
and charges and all franchise, income, unemployment, old age benefits,
withholding, sales and other taxes assessed against it, or payable by it at such
times and in such manner as will prevent any interest or penalties from accruing
and as will prevent any lien or charge from attaching to its property (except
for such taxes, assessments and charges being contested by Borrower in good
faith, prior written notice of such contest having been given to Bank).
(d) Borrower will promptly pay when due all governmental and other taxes,
charges and assessments (except for such taxes, assessments and charges being
contested by Borrower in good
10
<PAGE>
faith, prior written notice of such contest having been given to Bank), and
will, at the written request of Bank, promptly furnish Bank the receipted bills
therefor.
(e) Except as disclosed in writing to Bank or set forth on Schedule E:
(i) all facilities and property owned or leased by the
Borrower have been, and continue to be, owned or leased by the
Borrower in compliance with all environmental laws, except for such
noncompliance as could not reasonably be expected to have a material
adverse effect on the financial condition or operations of the
Borrower;
(ii) to the best of the Borrower's knowledge, there are no
pending or threatened
(A) claims, complaints, notices or requests for
information received by the Borrower with respect to any alleged
violation of any environmental law, or
(B) complaints, notices or inquiries to the Borrower
regarding potential liability under any environmental law
which could reasonably be expected to have a material adverse effect
on the financial condition or operations of the Borrower;
(iii) to the best of the Borrower's knowledge, there have been
no releases of hazardous materials at or on any property now or
previously owned or leased by the Borrower that, singly or in the
aggregate, have, or could reasonably be expected to have, a material
adverse effect on the financial condition or operations of the
Borrower;
(iv) the Borrower has been issued and is in material compliance
with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters and necessary for its
business;
(v) no property now or previously owned or leased by the
Borrower is listed or proposed for listing (with respect to owned
property only) on the National Priorities List pursuant to CERCLA, on
the CERCLIS or on any similar state list of sites requiring
investigation or clean-up;
11
<PAGE>
(vi) to the best of the Borrower's knowledge, there are no
underground storage tanks, active or abandoned, including petroleum
storage tanks, on or under any property now or previously owned or
leased by the Borrower that, singly or in the aggregate, have, or
could reasonably be expected to have, a material adverse effect on the
financial condition or operations of the Borrower;
(vii) the Borrower has not directly transported or directly
arranged for the transportation of any hazardous material to any
location for which Borrower has received notice that such location is
listed or proposed for listing on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list or
which is the subject of federal, state or local enforcement actions or
other investigations which may lead to claims against the Borrower for
any remedial work, damage to natural resources or personal injury,
including claims under CERCLA, except for any such claims which cannot
reasonably be expected to have a material adverse effect on the
financial condition or operations of the Borrower; and
(viii) there are no polychlorinated biphenyls or friable asbestos
present at any property now or previously owned or leased by the
Borrower that, singly or in the aggregate, have, or may reasonably be
expected to have, a material adverse effect on the financial condition
or operations of the Borrower.
(f) Borrower will, at its expense, upon the request of Bank promptly and
duly execute and deliver such documents and assurances and take such actions as
may be necessary or desirable in Bank's sole discretion in order to correct any
defect, error or omission which may at any time be discovered in this Agreement
or the documents related hereto, or to carry out more effectively the intent and
purpose of this Agreement or to establish, perfect and protect Bank's rights and
remedies created or intended to be created hereunder.
(g) Borrower shall maintain its primary depositary accounts with Bank at
all times during the term hereof. Borrower agrees to maintain average collected
demand deposit compensating balances of at least $350,000 in its accounts with
Bank at all times during the term hereof. The extension of credit evidenced by
this Agreement is made in express reliance on Borrower's agreement to maintain
such accounts and such compensating balances, and on Borrower's maintaining its
primary commercial banking relationship with Bank, and, without limiting any
other
12
<PAGE>
rights Bank may have, Bank shall have the right to terminate this
Agreement if Borrower shall fail to maintain such accounts and such primary
commercial banking relationship.
(h) Borrower will obtain and maintain all permits, licenses and approvals
materially necessary to the operation of its business.
7. BORROWER'S NEGATIVE COVENANTS. Borrower will not:
(a) Minimum Tangible Net Worth: permit its tangible net worth, measured as
of the end of each of Borrower's fiscal quarters, to be less than the greater of
(i) the net proceeds generated by Borrower's initial public offering and (ii)
$15,000,000, as shown on Borrower's financial statements;
(b) Debt to Worth: permit the aggregate amount of its liabilities to be
more than the amount of its tangible net worth at the end of the quarter, as
shown on Borrower's quarterly financial statements;
(c) Cash Flow Coverage Ratio: permit its net income before interest,
taxes, depreciation and amortization for any fiscal quarter ending on or after
December 31, 1996, to be less than 1.5 times the amount of its interest expense
and principal payments due or made in such fiscal quarter (excluding principal
payments on the Line of Credit and on indebtedness to Massachusetts Mutual life
Insurance Company and its affiliates that is repaid in connection with the IPO);
(d) Liens: create, permit to be created or suffer to exist any lien,
encumbrance or security interest of any kind upon any other property of
Borrower, now owned or hereafter acquired, except for the Permitted Liens;
(e) Loans: make any loans or advances to any individual, partnership,
trust, corporation or other entity, including without limitation Borrower's
directors, officers and employees, except (i) advances to officers or employees
with respect to expenses incurred by them in the ordinary course of their duties
which are properly reimbursable by Borrower (ii) loans to employees not
exceeding $100,000 in aggregate principal amount at any given time and (iii)
loans to employees, directors and/or officers not exceeding $500,000 in
aggregate principal amount at any given time and which are advanced in
connection with Borrower's IPO and are repaid within two weeks after the IPO;
(f) Guarantees: assume, guarantee, endorse or otherwise become directly or
contingently liable in respect of (including, without limitation, by way of
agreement, contingent or otherwise,
13
<PAGE>
to purchase, provide funds to or otherwise invest in a debtor or otherwise to
assure a creditor against loss), any liabilities (except guarantees by
endorsement of instruments for deposit or collection in the ordinary course of
business and guarantees in favor of Bank) of any individual, partnership trust,
corporation, or other entity; provided, however, that Borrower and its
subsidiaries may assume any of the foregoing if necessary to effectuate the
acquisition of an equity position in, or some or all of the assets of, another
entity, so long as such guarantee or contingent liability existed prior to such
acquisition and the liability thereunder does not increase after such
acquisition;
(g) Investments: use any loan proceeds to purchase or carry any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System);
(h) Subsidiaries: create any new subsidiaries or sell, transfer or
otherwise dispose of any stock of any subsidiary of Borrower or permit any
subsidiary to sell, assign, exchange or otherwise dispose of any material
portion of its assets except in the ordinary course of business, without, in
each case, providing prompt written notice thereof to Bank; or
(i) Mergers, Consolidations or Sales: (a) merge or consolidate with or
into any corporation or other entity, unless Borrower is the surviving entity;
(b) enter into any joint venture or partnership with any person, firm,
corporation or other entity without the prior written consent of Bank; (c)
convey, lease or sell all or any material portion of its property or assets or
business to any other person, firm or corporation, except for (i) any sale of
inventory in the ordinary course of its business and (ii) up to $10,000,000 in
aggregate book value of assets in any fiscal year; or (d) convey, lease or sell
any of its assets to any person, firm or corporation for less than the fair
market value thereof;
(j) Indebtedness for Borrowed Money: directly or indirectly, create,
incur, assume, or otherwise become or remain liable, directly or indirectly,
with respect to any indebtedness for borrowed money, other than:
(i) indebtedness to the Bank;
(ii) indebtedness assumed by Borrower in connection an acquisition;
(iii) indebtedness secured by a Permitted Lien;
(iv) indebtedness owed to one or more subsidiaries not exceeding
$300,000 in aggregate principal amount; and
14
<PAGE>
(v) indebtedness expressly permitted hereunder.
8. DEFAULT. Upon the occurrence of any one or more of the following
Events of Default:
(a) The execution of an assignment for the benefit of the creditors of
Borrower, or the occurrence of any other voluntary or involuntary liquidation or
extension of debt agreement for Borrower; the failure by Borrower to generally
pay the debts of Borrower as they mature; adjudication of bankruptcy or
insolvency relative to Borrower; the entry of an order for relief or similar
order with respect to Borrower in any proceeding pursuant to Title 11 of the
United States Code entitled "Bankruptcy" (commonly referred to as the Bankruptcy
Code) or any other federal bankruptcy law; the filing of any complaint,
application, or petition by or against Borrower initiating any matter in which
Borrower is or may be granted any relief from the debts of Borrower pursuant to
any other insolvency statute or procedure, but if such filing is against
Borrower by one or more third parties, only if Borrower shall fail to contest
such filing actively or shall fail to cause it to be removed within sixty (60)
days; the calling or sufferance of a meeting of creditors of Borrower; the
meeting by Borrower of a formal or informal creditor's committee; the offering
by or entering into by Borrower of any composition, extension or any other
arrangement seeking relief or extension for the debts of Borrower, or the
initiation of any other judicial or non-judicial proceeding or agreement by,
against or including Borrower which seeks or intends to accomplish a
reorganization or arrangement with creditors; or
(b) The termination of existence, dissolution, or liquidation of Borrower;
or
(c) The ceasing or failure of this Agreement, at any time after its
execution and delivery and for any reason, to be in full force and effect; or
any determination or declaration that this Agreement is null and void; or the
commencement or prosecution of any contest challenging the validity or
enforceability hereof by Borrower; or any denial by Borrower that it has any
further liability or obligation hereunder; or
(d) The service of any process upon Bank seeking to attach by trustee
process any funds of Borrower on deposit with Bank, if the aggregate of such
attachments equals or exceeds $100,000 at any given time;
then the principal of and all interest on the loans then outstanding, and all
other amounts due hereunder, shall become forthwith due and payable without
presentment, demand, protest or notice of any kind, all of which Borrower hereby
expressly waives.
15
<PAGE>
Upon the occurrence of any one or more of the following Events of Default
(together with the Events of Default listed above, the "Events of Default" and
individually an "Event of Default"):
(e) The failure by Borrower promptly, punctually and faithfully to perform
or to observe any term, covenant or agreement on its part to be performed or
observed pursuant to the following provisions of this Agreement, or the
inaccuracy of the representations and warranties included in the following
provisions, as of the time given: Sections 2(b), 6(a), 6(b), 6(c) or 7; or
(f) The determination by Bank that any material representation or warranty
heretofore, now or hereafter made by Borrower to Bank, in any document,
instrument or agreement was not materially true or accurate when given; or
(g) The failure by Borrower to pay any amount due under this Agreement,
and the continuation thereof for ten (10) days; or
(h) The failure by Borrower promptly, punctually and faithfully to perform
or to observe any material term, covenant or agreement on its part to be
performed or observed pursuant to any provisions of this Agreement (other than
as expressly set forth in this Section 8), and the continuance thereof for
fifteen (15) days after notice of such default has been given; or
(i) The occurrence of any event such that any indebtedness of Borrower in
excess of $500,000 from any lender other than Bank could be accelerated,
regardless of whether such acceleration has taken place; or
(j) Any filing against or relating to Borrower of (i) a federal tax lien
in favor of the United States of America or any political subdivision of the
United States of America, or (ii) a state tax lien in favor of any state of the
United States of America or any political subdivision of any such state, other
than a lien for taxes not yet due and payable, unless, in either case, such
filing is cleared or insured to Bank's satisfaction within ten (10) days of the
date of such filing; or
(k) The occurrence and continuation of any event of default under any
agreement between Bank and Borrower or under any instrument or document given to
Bank by Borrower, whether such agreement, instrument, or document now exists or
hereafter arises (regardless of whether Bank has exercised any of its rights
upon default under any such other agreement, instrument or document); or
16
<PAGE>
(l) The entry of any judgment against Borrower, which judgment is not
satisfied or appealed from (with execution or similar process stayed) within
forty-five (45) days of entry; or
(m) The entry of any court order which enjoins, restrains or in any way
prevents Borrower from conducting all or any substantial part of its business
affairs in the ordinary course of business; or
(n) The occurrence of any materially underinsured loss, theft, damage or
destruction to any material asset(s) of Borrower; or
(o) The existence or occurrence of any of the following events with
respect to Borrower or any ERISA affiliate: (i) any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code)
involving any Plan; (ii) any "reportable event" (as defined in Section 4043 of
ERISA and the regulations issued under such Section) with respect to any Plan;
(iii) the filing under Section 4041 of ERISA of a notice of intent to terminate
any Plan or the termination of any Plan; (iv) any event or circumstance which
might constitute grounds entitling the Pension Benefit Guaranty Corporation
("PBGC") to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any Plan, or
the institution by the PBGC of any such proceedings; or (v) any partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan; or any
reorganization, insolvency, or termination of any Multiemployer Plan; and in
each case above, such event or condition, together with all other events or
conditions, if any, could in the opinion of Bank subject Borrower to any tax,
penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or
otherwise;
then or at any time thereafter while such Event of Default described in Sections
8(e) through 8(o) is continuing, Bank may declare all indebtedness of Borrower
hereunder due and payable, whereupon it shall become forthwith due and payable,
without further presentment, demand, protest or notice of any kind, all of which
Borrower hereby expressly waives.
The occurrence of any such Event of Default shall also constitute, without
notice or demand, a default under all other agreements between Bank and Borrower
and under all instruments and documents given to Bank by Borrower, but only to
the extent included within Obligations, whether such agreements, instruments, or
documents now exist or hereafter arise.
Upon the occurrence and continuation of any Event of Default, Bank may
declare any and all obligations Bank may have hereunder to be canceled, may
declare any or all Obligations of
17
<PAGE>
Borrower to be due and payable, and may proceed to enforce payment of the
Obligations and to exercise any and all of the rights and remedies afforded to
Bank by the Uniform Commercial Code, under the terms of this Agreement, or
otherwise. In addition, upon the occurrence and continuation of any Event of
Default, if Bank proceeds to enforce payment of the Obligations, Bank may
exercise all rights and remedies afforded to Bank under the Uniform Commercial
Code, under the terms of this Agreement, or otherwise and all Obligations
(including, without limitation, principal, interest accrued to the time of
demand on the Obligations, or upon the entry of any judgment) shall bear
interest payable on demand at a rate per annum of five (5%) percent in excess of
the rate of interest that would otherwise be charged to Borrower thereunder, for
so long as the Event of Default remains uncured.
9. JURY TRIAL WAIVER. IT IS MUTUALLY AGREED BY BANK AND BORROWER THAT
THE RESPECTIVE PARTIES HERETO SHALL AND HEREBY DO WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING, COUNTERCLAIM, OBJECTION TO CLAIM IN A BANKRUPTCY CASE, OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES HERETO AGAINST ANY OF
THE OTHERS ON ANY MATTER WHATSOEVER ARISING OUT OF, RELATED TO, OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT AND/OR THE TRANSACTIONS OR DOCUMENTS CONTEMPLATED
HEREBY. WITHOUT IN ANY WAY LIMITING THE SCOPE OR EFFECT OF THE FOREGOING WAIVER
OF THE JURY TRIAL RIGHT, THE PARTIES HERETO SPECIFICALLY AGREE THAT SUCH WAIVER
SHALL BE EFFECTIVE IN ANY ACTION ARISING OUT OF OR RELATED TO: (A) ANY ALLEGED
ORAL PROMISE OR COMMITMENT BY BANK, (B) ANY ALLEGED MODIFICATION OR AMENDMENT OF
THIS AGREEMENT AND/OR THE TRANSACTIONS OR DOCUMENTS CONTEMPLATED HEREBY, WHETHER
IN WRITING, ORAL, OR BY ALLEGED CONDUCT; (C) ANY ENFORCEMENT OF THIS AGREEMENT
AND/OR THE TRANSACTIONS OR DOCUMENTS CONTEMPLATED HEREBY, AND (D) ANY
REPOSSESSION, TAKING OF POSSESSION, OR DISPOSITION OF COLLATERAL SECURING THE
INDEBTEDNESS EVIDENCED BY THIS AGREEMENT AND/OR THE TRANSACTIONS OR DOCUMENTS
CONTEMPLATED HEREBY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE PARTIES
FURTHER AGREE THAT THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY ARE WAIVED BY
OPERATION OF THIS PARAGRAPH AS TO ANY ACTION, COUNTERCLAIM, OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT AND/OR THE TRANSACTIONS OR DOCUMENTS CONTEMPLATED HEREBY OR ANY
PROVISION THEREOF.
10. CONSENT TO JURISDICTION. Borrower and Bank agree that any judicial
action or proceeding to enforce or arising out of this Agreement may, subject to
the provisions of Section 9 hereof, be commenced in any court of the State of
Maine or in the District Court of the United States for the District of Maine.
11. TERMINATION AND EXPIRATION NOT TO AFFECT BANK'S RIGHTS. Unless and
until all Loans made by Bank to Borrower hereunder and all other Obligations and
commitments of Bank under which an
18
<PAGE>
Obligation could arise, outstanding as of the time of the termination or
expiration of this Agreement, have been paid in full (and, in the case of such
commitments, have been terminated), such termination or expiration shall in no
way affect the rights and powers herein granted to Bank, and until such payment
in full (and termination) all rights and powers herein granted to Bank in and
all liabilities, obligations and agreements of Borrower hereunder, shall remain
in full force and effect. Until all of the Obligations have been fully paid and
satisfied and all commitments of Bank under which an Obligation could arise have
expired, Borrower shall continue to fully comply with the terms and conditions
of this Agreement as herein provided. Prior to such payment in full of all of
the Obligations and the simultaneous termination of all of such commitments by
Bank, Borrower's obligations under this Agreement shall constitute a continuing
agreement in every respect.
12. ADDRESSES FOR NOTICES, ETC. Unless otherwise specified herein, all
notices and other communications provided for hereunder shall be in writing,
shall become effective when received, shall be delivered by registered or
certified mail, return receipt requested, postage prepaid, or by telecopy, (with
prompt confirmation by first class mail, postage prepaid) or by express courier,
and shall be addressed as follows:
(i) if to the Borrower, at its address at:
Control Devices, Inc.
Route 25
Standish, Maine 04084
Attention: Bruce D. Atkinson, President
(ii) if to the Bank at its address at:
Fleet Bank of Maine
Two Portland Square
P.O. Box 1280
Portland, Maine 04104
Attn: Peter Sylvestre,
Vice President
or
(iii) as to each party, at such other address as such party shall
have designated by written notice to all other parties.
13. MISCELLANEOUS.
(a) No delay or omission on the part of Bank in exercising any rights
shall operate as a waiver of such right or any other
19
<PAGE>
right. Waiver on any one occasion shall not be construed as a bar to or waiver
of any right or remedy on any future or other occasion. All of Bank's rights and
remedies, whether evidenced hereby or by any other agreement, instrument or
paper, shall be cumulative and may be exercised singularly or concurrently.
(b) Bank is authorized to make loans under the terms of this Agreement
upon the request, either written or oral, in the name of Borrower or any
authorized person whose name appears at the end of this Agreement or of any
persons from time to time holding the offices of Chief Executive Officer,
President or Treasurer of Borrower or of such other officers and authorized
signatories as may from time to time be set forth in any banking and borrowing
resolutions, or of any other agents or officers with apparent authority to act
for Borrower in requesting loans hereunder.
(c) If at any time or times by assignment or otherwise, Bank assigns this
Agreement, such assignment shall carry with it Bank's powers and rights under
this Agreement, and the transferee shall become vested with said powers and
rights whether or not they are specifically referred to in the transfer. Bank
shall notify Borrower of any assignment, partial assignment or transfer by Bank
of this Agreement or of the Obligations of Borrower.
(d) Borrower agrees that any and all loans made by Bank to Borrower or for
its account under this Agreement shall be conclusively deemed to have been
authorized by Borrower and to have been made pursuant to duly authorized
requests therefor on its behalf.
(e) Unless otherwise defined in this Agreement, capitalized words shall
have the meanings set forth in the Uniform Commercial Code as in effect in the
State of Maine as of the date of this Agreement.
(f) Any paragraph and section headings used in this Agreement are for
convenience only, and shall not affect the meaning or construction of this
Agreement. If one or more provisions of this Agreement (or the application
thereof) shall be invalid, illegal or unenforceable in any respect in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
in any way the validity, legality or enforceability of such provision (or its
application) in any other jurisdiction or of any other provision of this
Agreement (or its application) in any jurisdiction. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof
and supersedes any prior written or verbal communications or instruments
relating thereto.
(g) All notices and other communications hereunder shall be made by hand
delivery, telecopier, overnight courier, or
20
<PAGE>
certified or registered mail, return receipt requested, and shall be deemed to
be received by the party to whom sent upon delivery, if delivered by hand or
sent by telecopier; one business day after sending, if sent by overnight
courier; and three business days after mailing, if sent by certified or
registered mail. All such notices shall be deemed given upon such deemed
receipt. All such notices and other communications to a party hereto shall be
addressed to such party at the address set forth in this Agreement (or to such
other address as such party may designate for itself in a notice to the other
party given in accordance with this section) and shall be sent postage and other
charges prepaid.
(h) By signing below, Borrower agrees and acknowledges that, under Maine
law, no promise, contract, or agreement to lend money, extend credit, forbear
from collection of debt or make any other accommodation for the repayment of a
debt for more than $250,000 may be enforced against Bank unless the promise,
contract, or agreement (or some memorandum or note thereof) is in writing and
signed by Bank.
(i) To the extent that there is an inconsistency between this Agreement
and the commitment letter of Bank which has been accepted by Borrower, then the
terms of this Agreement shall prevail.
(j) This Agreement, and the documents related thereto, are being executed
and delivered by Borrower in Portland, Maine, and the laws of the State of Maine
shall govern the interpretation, enforcement and construction of this Agreement
and the of rights and duties of the parties hereto. This Agreement shall take
effect as a sealed instrument and shall be effective as of the date first set
forth above.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written, regardless of the actual date of execution and
delivery.
WITNESS: CONTROL DEVICES, INC.
______________________________ By:______________________________
Print Name:___________________
Its:__________________________
FLEET BANK OF MAINE
21
<PAGE>
_______________________________ By:__________________________
Peter Sylvestre
Its Vice President
22
<PAGE>
SCHEDULES
The following Schedules to the Loan Agreement to which they are attached
are respectively described in the section indicated. Those Schedules in which
no information has been inserted shall be deemed to read "None".
23
<PAGE>
SCHEDULE A
----------
1. Other Jurisdictions In Which Borrower is Qualified ((S) 2(a))
2. Borrower's Shareholders and Their Respective Interests ((S) 2(d)).
24
<PAGE>
SCHEDULE B
----------
Subsidiaries ((S) 2(a))
Qualified in
Jurisdiction of Percent These Other
Name Incorporation Address Owned Jurisdictions
- ---- --------------- ------- ------- -------------
<PAGE>
SCHEDULE C
----------
Other Encumbrances and Liens ((S) 2(e)(i))
1.
Secured Party Description of Payment Terms and
or Mortgagee of Collateral Dates of Maturity
------------ -------------- -----------------
2. Other encumbrances:
26
<PAGE>
SCHEDULE D
----------
Leases ((S) 2(e)(ii))
Description Date of Lease
Lessor of Property and Term
------ ----------- -------------
27
<PAGE>
SCHEDULE E
----------
Litigation and Other Proceedings ((S) 2(h))
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 15,979 9,063
<TOTAL-REVENUES> 15,979 9,063
<CGS> 10,443 6,132
<TOTAL-COSTS> 10,443 6,132
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 20 2
<INTEREST-EXPENSE> 502 336
<INCOME-PRETAX> 1,334 1,138
<INCOME-TAX> 453 432
<INCOME-CONTINUING> 881 706
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 881 776
<EPS-PRIMARY> 0.32 0.25
<EPS-DILUTED> 0.32 0.25
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 2,650 0
<SECURITIES> 0 0
<RECEIVABLES> 10,738 0
<ALLOWANCES> 452 0
<INVENTORY> 6,439 0
<CURRENT-ASSETS> 21,079 0
<PP&E> 17,115 0
<DEPRECIATION> 3,412 0
<TOTAL-ASSETS> 41,576 0
<CURRENT-LIABILITIES> 12,241 0
<BONDS> 17,811 0
<COMMON> 665 0
2,400 0
0 0
<OTHER-SE> 7,389 0
<TOTAL-LIABILITY-AND-EQUITY> 41,576 0
<SALES> 44,158 29,777
<TOTAL-REVENUES> 44,158 29,777
<CGS> 28,313 19,465
<TOTAL-COSTS> 28,313 19,465
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 27 6
<INTEREST-EXPENSE> 1,329 1,068
<INCOME-PRETAX> 4,780 4,414
<INCOME-TAX> 1,774 1,743
<INCOME-CONTINUING> 3,006 2,671
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,006 2,671
<EPS-PRIMARY> 1.10 0.96
<EPS-DILUTED> 1.10 0.96
</TABLE>
