<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 June 30, 1998
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 No.)
incorporation of organization)
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. YES [ X ] 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: 8,295,823 shares as of July 10, 1998.
<PAGE>
CONTROL DEVICES, INC.
INDEX
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
PART I: FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1998 (Unaudited)
and December 31, 1997 3
Consolidated Statements of Income (Unaudited) for the Three
and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statement of Shareholders' Equity (Unaudited)
for the Six Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 1998 and 1997 6-7
Notes to Consolidated Financial Statements 8-10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-13
PART II: OTHER INFORMATION
- ---------------------------
ITEMS 1-5: OTHER INFORMATION 14-15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 15
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</TABLE>
2
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CONTROL DEVICES, INC.
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CONSOLIDATED BALANCE SHEETS
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(Thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
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ASSETS (Unaudited)
---------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $10,195 $ 9,996
Receivables, less allowance for doubtful
accounts of $524 and $468, respectively 13,715 11,311
Inventories 8,423 6,414
Other current assets 1,945 1,595
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Total current assets 34,278 29,316
PROPERTY, PLANT AND EQUIPMENT, net 13,721 14,262
GOODWILL, net 8,793 7,471
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$56,792 $51,049
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long term debt $ 563 $ 612
Short-term debt 542 320
Accounts payable 6,089 5,706
Accrued employee benefits 4,908 4,250
Accrued expenses 4,109 3,403
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Total current liabilities 16,211 14,291
LONG-TERM DEBT 174 640
OTHER LIABILITIES 2,328 2,029
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS EQUITY:
Common Shares, no par value; 16,000,000
authorized; 8,292,864 and 8,284,451
in 1998 and 1997, respectively issued
and outstanding 20,096 20,014
Foreign currency translation adjustment (635) (554)
Retained earnings 18,618 14,629
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Total shareholders' equity 38,079 34,089
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$56,792 $51,049
======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
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CONTROL DEVICES, INC.
---------------------
CONSOLIDATED STATEMENTS OF INCOME
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(Thousands of dollars, except share and per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net sales $ 19,845 $ 18,811 $ 39,122 $ 36,098
Cost of sales 12,524 11,766 25,145 22,580
---------- ---------- ---------- ----------
Gross profit 7,321 7,045 13,977 13,518
Selling, general and 2,893 3,057 5,676 5,807
administrative expenses
Research and development 1,378 1,207 2,631 2,290
---------- ---------- ---------- ----------
4,271 4,264 8,307 8,097
---------- ---------- ---------- ----------
Operating income 3,050 2,781 5,670 5,421
Interest expense (income), net (73) 60 (104) 147
---------- ---------- ---------- ----------
Income before income taxes 3,123 2,721 5,774 5,274
Income tax provision 890 1,032 1,619 2,049
---------- ---------- ---------- ----------
Net income $ 2,233 $ 1,689 $ 4,155 $ 3,225
========== ========== ========== ==========
Earnings per share:
Basic $0.27 $0.20 $0.50 $0.39
Diluted $0.25 $0.20 $0.47 $0.38
Weighted average number of
common shares and equivalents
outstanding
Basic 8,292,323 8,272,004 8,289,693 8,272,004
Diluted 8,789,907 8,450,158 8,771,717 8,454,858
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1997
(Thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Currency
Common Translation Retained
Shares Adjustment Earnings Total
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE at December 31, 1996 $19,917 $(314) $ 8,726 $28,329
Net income - - 3,225 3,225
Foreign currency translation adjustment - (214) - (214)
----------------------------------------------------------------------
BALANCE at June 30, 1997 $19,917 $(528) $11,951 $31,340
======================================================================
BALANCE at December 31, 1997 $20,014 $(554) $14,629 $34,089
Net income - - 4,155 4,155
Foreign currency translation adjustment - (81) - (81)
Payment of Dividends (166) (166)
Issuance of Common Shares 82 82
----------------------------------------------------------------------
BALANCE at June 30, 1998 $20,096 $(635) $18,618 $38,079
======================================================================
</TABLE>
5
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 4,155 $ 3,225
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 1,406 1,220
Deferred income taxes 44 131
Changes in assets and liabilities:
(Increase) decrease in receivables (1,180) (2,751)
(Increase) decrease in inventories (1,317) (92)
(Increase) decrease in other current assets 13 26
Increase (decrease) in accounts payable (173) 659
Increase (decrease) in accrued employee benefits 77 (340)
Increase (decrease) in accrued expenses 391 1,412
Increase (decrease) in other long-term liabilities (3) 67
Cash provided by operations 3,413 3,557
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Arnould ( including transaction
fees and expenses), net of cash acquired (2,100) -
Capital expenditures (728) (1,400)
Cash used in investing activities (2,828) (1,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (504) (530)
Net change in short-term debt 229 (68)
Payment of dividends (166) -
Proceeds from issuance of common shares 82 -
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Cash used in financing activities (359) (598)
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EFFECT OF EXCHANGE RATES ON CASH (27) (10)
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Increase (decrease) in cash and cash equivalents 199 1,549
CASH AND CASH EQUIVALENTS, beginning of period 9,996 6,238
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CASH AND CASH EQUIVALENTS, end of period $10,195 $ 7,787
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
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<S> <C> <C>
Cash paid for interest $ 93 $ 162
Cash paid for income taxes $ 943 $1,456
</TABLE>
The accompanying notes are an integral part of these statements.
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING ACTIVITIES:
On June 15, 1998, the Company effected a 5-for-4 stock split of its common
shares and a quarterly dividend of two cents ($0.02) per share after giving
effect to the stock split. The stock split entitled each shareholder to receive
one additional share for each four outstanding common shares held of record as
of the close of business on May 29, 1998. In addition, Control Devices paid a
quarterly cash dividend on its outstanding common shares, including the shares
distributed pursuant to the stock split, equal to $0.02 per share to
shareholders of record on May 29, 1998. All share and per share amounts in the
accompanying financial statements have been restated to give retroactive effect
to the stock split.
On June 26, 1998, CDI purchased all of the issued and outstanding stock of
Arnould Electro Industrie SA ("AEI") for $2.6 million. CDI paid $2.1 million
from existing cash on hand and delivered a promissory note totaling $0.5
million.
7
<PAGE>
CONTROL DEVICES, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(All information as of June 30, 1998 and for the three and six months
ended June 30, 1998 and 1997 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
July 29, 1994, CDI purchased certain assets and liabilities (the "Business")
of GTE Control Devices Incorporated and Dominican Overseas Trading Company
(collectively, the "Seller"), indirect wholly-owned subsidiaries of GTE
Corporation.
On April 1, 1996, CDI purchased Realisations et Diffusion pour l'Industrie
("RDI"), which distributes CDI's circuit breakers, electronic sensors and
other manufacturers products to the Northern European market from its
headquarters near Paris, France.
On June 26, 1998, CDI purchased Arnould Electro Industrie SA ("AEI"), which
distributes electronic components to the Northern European market from its
headquarters near Paris, France. The "Company" refers to CDI, RDI, AEI and
CDI's other consolidated subsidiaries.
The consolidated balance sheet as of June 30, 1998, the consolidated
statements of operations for the three and six months ended June 30, 1998 and
1997, and the consolidated statements of shareholders' equity and cash flows
for the six months ended June 30, 1998 and 1997 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 June 30, 1998 and 1997 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. The results of operations for the three and six month periods ended
June 30, 1998 and 1997 are not necessarily indicative of the operating
results for the full year.
(2) Acquisition of AEI:
-------------------
On June 26, 1998, CDI purchased all of the issued and outstanding stock of
AEI for $2.6 million. CDI paid $2.1 million from existing cash on hand and
delivered a promissory note totaling $0.5 million, payable within a year.
The purchase method was used to account for the acquisition. In preparing
AEI's financial information, the aggregate purchase price has been allocated
to the assets and liabilities of AEI based on preliminary estimates of fair
market value and are subject to change. 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.
8
<PAGE>
The net assets acquired after allocating the purchase price are as follows
(in thousands):
<TABLE>
<S> <C>
Cash $ 531
Receivables 1,349
Inventories 751
Other current assets 342
Goodwill 1,403
Property, plant and equipment 101
Accounts payable (650)
Accrued expenses (1,196)
$ 2,631
=======
</TABLE>
(3) Debt:
-----
Debt consists of the following as of June 30, 1998 and December 31, 1997
(in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
RDI Notes $ 369 $ 738
RDI fixed rate loans 368 514
RDI short-term debt 542 320
------ ------
Total debt $1,279 $1,572
Less: Current portion of long-term debt 563 612
Short-term debt 542 320
------ ------
Total long-term debt $ 174 $ 640
====== ======
</TABLE>
The outstanding notes, issued by CDI in connection with the acquisition of
RDI (the "RDI Notes"), bear interest at 8% per annum and are due in three
equal annual installments commencing on April 1, 1997. CDI has the right to
prepay the RDI Notes at any time without premium.
The RDI fixed rate loans bear interest at the weighted average rate of 7.7%
and are secured by certain assets of RDI.
On October 8, 1996, Fleet Bank of Maine ("Fleet Bank") and the Company
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 financial and other covenants including but
not limited to, minimum tangible net worth, debt to net worth, and minimum
cash flow coverage. The financial covenants are to be met on a quarterly
basis. The Company is in compliance with all covenants as of June 30, 1998
and believes that the covenants will not restrict its future operations. To
date, there have been no borrowings under this line of credit facility.
9
<PAGE>
RDI has various credit facilities available to it totaling $0.8 million with
rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. As
of June 30, 1998, RDI had borrowings aggregating $16,000 under these
facilities.
In connection with the acquisition of AEI, the Company delivered a promissory
note totaling $0.5 million, due six months after the closing of the
acquisition. There is no interest obligation associated with this note.
(4) 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.
(5) 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 June 30, 1998 and
December 31, 1997 are as follows ( in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Raw materials and supplies $1,696 $1,345
Work - in - process 1,570 1,333
Finished goods 5,157 3,736
$8,423 $6,414
====== ======
</TABLE>
(6) Comprehensive Income:
---------------------
The Company adopted SFAS No. 130. "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income and
its components. The following table reports comprehensive income for the
three and six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $2,233 $1,689 $4,155 $3,225
------ ------ ------ ------
Other comprehensive income (expense), net of tax:
Foreign currency translation adjustments (13) (69) (81) (214)
------ ------ ------ ------
Other comprehensive income (expense) (13) (69) (81) (214)
Comprehensive income $2,220 $1,620 $4,074 $3,011
====== ====== ====== ======
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net sales in the three months ended June 30, 1998 were $19.8 million an increase
of $1.0 million or 5% compared to the same period in 1997, this increase was
primarily a result of growth in the automotive sensor product area, combined
with growth in sales at RDI. Sensor sales grew 38% to $3.9 million for the three
months ended June 30, 1998 compared to the three months ended June 30, 1997, as
a result of continued volume increases in recently introduced sensor products.
Net RDI sales (gross RDI sales less inter-company sales) increased 10% in the
three months ended June 30, 1998 compared to the same period in 1997, as
strength in European markets boosted shipments. These increases more than offset
a $0.6 million or 27% decline in ceramic sales in the second quarter of 1998
compared to the second quarter of 1997. This decline is primarily due to lower
cellular telecommunication based sales, as marketplace inventory adjustments
occurred in the second quarter of 1998.
Gross profits in the three months ended June 30, 1998 were $7.3 million an
increase of $0.3 million or 4% compared to the same period in 1997. As a
percentage of net sales, gross profits for the three months ended June 30, 1998
was nearly 37%, compared to 37.5% for the same period in 1997. Gross profits,
although improving from the previous two quarters, continue to be effected by
pricing pressures and lower margins associated with new sensor products.
Management believes overall gross profits will continue below historical levels
as competitive pressures associated with the higher growth sensor business will
impact overall results.
Selling, general and administrative ("SG&A") expenses in the three months ended
June 30, 1998 were $2.9 million a decrease of $0.2 million or 5% as compared to
the three months ended June 30, 1997. As a percentage of net sales, SG&A
expenses were 15% for the three months ended June 30, 1998 as compared to 16%
for the same period in 1997. This decline was primarily the result of the
increased sales volume combined with a decrease in overall SG&A expenses.
Research and development ("R&D") expenses in the three months ended June 30,
1998 were $1.4 million an increase of $0.2 million or 14% as compared to the
three months ended June 30, 1997. As a percentage of net sales, research and
development expenses were 7% in 1998 compared to 6% in the same period of 1997.
Operating income in the three months ended June 30, 1998 were $3.1 million an
increase of $0.3 million from the same period in 1997. As a percentage of net
sales, operating income was 15% in the three months ended June 30, 1998 equaling
second quarter 1997 results.
Interest income for the three months ended June 30, 1998 was $73,000 compared to
$60,000 of interest expense in the three months ended June 30, 1997. The
decrease was due to the reduction of debt and increased income from cash
reserves.
The provision for income tax was $0.9 million for the three months ended June
30, 1998 compared to $1.0 million for the three months ended June 30, 1997. The
effective tax rate was 28% in the three months ended June 30, 1998 compared to
38% in the same period of 1997. The reduction in the effective tax rate for the
second quarter can primarily be attributed to the benefit of the international
reorganization, which took place on January 1, 1998, which resulted in certain
income being taxed at lower rates.
Net income was $2.2 million in the three months ended June 30, 1998, an increase
of $0.5 million or 32%, compared to the three months ended June 30, 1997. As a
percentage of net sales, net income was 11% in the three months ended June 30,
1998, compared to 9% for the three months ended June 30, 1997.
11
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales in the six months ended June 30, 1998 were $39.1 million an increase
of $3.0 million or 8%, compared to the same period in 1997, which was primarily
a result of growth in the automotive sensor product area. Sensor sales increased
44% to $7.7 million for the six months ended June 30, 1998, compared to the same
period in 1997, as a result of increased shipments of recently introduced sensor
products.
Gross profits in the six months ended June 30, 1998 were $14.0 million an
increase of $0.5 million or 3% compared to the same period in 1997. As a
percentage of net sales, gross profit for the six months ended June 30, 1998 was
36% compared to 37% for the same period in 1997. Gross profits, although
improving from fourth quarter 1997 levels, continued below first half 1997
levels as pricing pressures and lower margins associated with new sensor
products impacted results.
Selling, general and administrative expenses in the six months ended June 30,
1998 were $5.7 million a decrease of $0.1 million or 2% compared to the six
months ended June 30, 1997. As a percentage of net sales, SG&A expenses were
15% for the six months ended June 30, 1998, compared to 16% for the same period
in 1997.
Research and development expenses in the six months ended June 30, 1998 were
$2.6 million an increase of $0.3 million or 15% as compared to the six months
ended June 30, 1997. As a percentage of net sales, research and development
expenses were 7% in 1998 compared to 6% for the same period of 1997.
Operating income in the six months ended June 30, 1998 was $5.7 million an
increase of $0.2 million or 5% as compared to the six months ended June 30,
1997. As a percentage of net sales, operating income was 14% in the six months
ended June 30, 1998 as compared to 15% for the six months in 1997. The decrease
in operating income, as a percentage of net sales, was a result of lower gross
margins.
Interest income for the six months ended June 30, 1998 was $104,000 compared to
$147,000 of interest expense in the six months ended June 30, 1997. The
decrease was due to the reduction of debt and increased income from cash
reserves.
The provision for income tax was $1.6 million for the six months ended June 30,
1998 compared to $2.0 million for the six months ended June 30, 1997. The
effective tax rate was 28% in the six months ended June 30, 1998 compared to 39%
in the same period of 1997. The reduction in the effective tax rate for the
first half can be attributed to the benefit of the international reorganization,
which took place on January 1, 1998, and resulted in certain income being taxed
at lower rates.
Net income was $4.2 million in the six months ended June 30, 1998 an increase of
$.9 million or 29% as compared to the six months ended June 30, 1997. As a
percentage of net sales, net income was 11% in the six months ended June 30,
1998 compared to 9% in the six months ended June 30, 1997.
GENERAL MOTORS STRIKE:
As of the date of this filing the United Auto Workers are continuing their
strike of two GM plants in Flint Michigan. The strike has ceased operations in
26 of GM's 29 U.S. factories. Due to scheduled model year changeovers, CDI's
revenues in the second quarter were minimally effected. If the strike continues
further into the third quarter the Company expects revenue losses of up to $1
million per month.
12
<PAGE>
SEASONALITY
The Company's performance is dependent primarily on automotive vehicle
production which is seasonal in nature. The Company's revenues tend to be
somewhat lower in the third and fourth quarters as automotive OEM's schedule
plant tooling changeovers, vacations and holiday shutdowns.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation and initial capitalization, the Company has financed its
operations and investments in property, equipment and acquisitions primarily
through cash generated from operations.
Cash and cash equivalents totaled $10.2 million as of June 30, 1998 compared to
$10.0 million as of December 31, 1997.
On June 26, 1998, CDI purchased all of the issued and outstanding stock of AEI
for $2.6 million. CDI paid $2.1 million from existing cash on hand and
delivered a promissory note totaling $0.5 million, payable within a year.
RDI has various credit facilities available to them totaling $0.8 million with
rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. As of
June 30, 1998 and December 31, 1997 RDI had borrowings aggregating $16,000 and
$0.3 million, respectively, under these facilities.
On October 8, 1996, Fleet Bank of Maine ("Fleet Bank") and the Company 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 Company expects to secure a similar agreement
after the maturity date. The facility has three interest rate options available
to the Company. The line of credit is unsecured and contains certain covenants.
To date there have been no borrowings under this line of credit facility.
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.
EFFECT OF FASB PRONOUNCEMENTS:
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" was released in July of 1997 and will be adopted for 1998 year-end
reporting purposes.
OTHER:
In 1997, the Company began modifying its existing computer system programming to
process transactions in the year 2000 and beyond. Anticipated spending for this
modification will be expensed as incurred and is not expected to have a
significant impact on the Company's ongoing results of operations.
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, changes to U.S. and foreign tax laws
and regulations, the percentage of the Company's profits generated by foreign
operations, risk of customer labor interruptions, cyclicality of automotive and
appliance industries, reliance on OEM's, and competing technologies.
13
<PAGE>
PART II OTHER INFORMATION
Item 2: Changes in Securities
Rights Plan
On May 7, 1998, the Board of Directors of CDI declared a dividend distribution
of one right (a "Right") for each outstanding CDI common share payable on June
11, 1998 to shareholders of record at the close of business on that date. Each
Right entitles the holder to purchase one CDI common share at a purchase price
of $65.00 per share subject to certain adjustments. The Rights are initially
represented by the outstanding common share certificates and cannot be bought ,
sold or otherwise traded separately from the common shares. Initially, the
Rights will not be exercisable, but will become exercisable upon the acquisition
by any person, or the announcement of the intention of any person to commence a
tender or exchange offer upon the successful consummation of which such person
would be the beneficial owner of, 15% or more of CDI's common shares then
outstanding, without the prior approval of the CDI Board of Directors.
In the event that (1) CDI is acquired in a merger or other business combination
transaction and CDI is not the surviving corporation, or (2) any person
consolidates or merges with CDI and all or part of CDI's common shares are
exchanged for securities, cash or property of any person, or (3) 50% or more of
CDI's consolidated assets or earning power are sold, proper provision will be
made so that each holder of a Right, other than the acquiring person, will
thereafter have the right to receive, upon exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring corporation which at the time of such transaction will have a market
value of two times the exercise price of the Right. In the event that a person
acquires 15% or more of the outstanding common shares, proper provision shall be
made so that each holder of a Right, (other than the Rights beneficially owned
by the acquiring person which will thereafter be void), will thereafter have the
right to receive upon exercise that number of common shares having a market
value of two times the exercise price of the Right.
The Rights are generally designed to deter coercive takeover tactics and to
encourage all persons interested in potentially acquiring control of CDI to
treat each stockholder on a fair and equal basis.
Item 4: Submission of Matters to a Vote of Security Holders
a) At the annual meeting of shareholders on April 24, 1998, the following
items were voted on and approved:
1) Election of directors.
<TABLE>
<CAPTION>
DIRECTOR FOR WITHHELD
- --------------------------------- --------- --------
<S> <C> <C>
Ralph R. Whitney, Jr. 5,870,982 3,233
Bruce D. Atkinson 5,871,115 3,100
Charles M. Brennan, III 5,870,982 3,233
John D. Cooke 5,871,115 3,100
Forest F. Crisman, Jr. 5,871,115 3,100
James O. Futterknecht, Jr. 5,870,982 3,233
Alan I. Mossberg 5,871,115 3,100
Glenn Scolnik 5,870,982 3,233
</TABLE>
14
<PAGE>
2) Approval of the Control Devices 1997 Stock Compensation Plan.
BROKER
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
4,897,011 530,306 4,658 442,240
3) Election of Arthur Andersen, LLP as the Company's independent auditors.
BROKER
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
5,873,302 266 647 0
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
4.6 Rights Agreement dated May 7, 1998 between Control Devices, Inc. and
BankBoston, N.A., as Rights Agent, which includes as Exhibit A the form
of Rights Certificate and as Exhibit B the Summary of Rights to Purchase
Shares. (Incorporated by reference to Exhibit 4 of Form 8-K filed May
21, 1998, Commission File No. 0-21345).
10.17 Stock Purchase Agreement dated June 26,1998, by and among the
Company and of the shareholders of AEI.
11 Statement regarding computation of per share earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
Declaration of dividend of common share purchase right, filed on May 21,
1998
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: July 17, 1998 By /s/ Jeffrey G. Wood
---------------------------------
Name: Jeffrey Wood
Vice President and
Chief Financial Officer
15
<PAGE>
Exhibit 10.17
STOCK PURCHASE AGREEMENT
------------------------
BETWEEN :
- -------
- - CDI Holding International, a societe par actions simplifiee with a capital
share of 250 000 francs, having its registered office at 5 a 7, allee Louis
Breguet, 93420 Villepinte Cedex, incorporated at the Trade Registry of
Bobigny (number to be attributed) represented by M. Michel Hauser-
Kauffmann, duly authorised,
- - Hereinafter referred to as "the Buyer"
ON THE ONE HAND,
- ---------------
AND :
- ---
- - M. JEAN-CHARLES ARNOULD, residing 2, square Henri Bataille, 75016 Paris ;
Hereinafter referred to as "the Seller".
ON THE OTHER HAND.
- -----------------
<PAGE>
2
RECITALS :
- --------
1) The Seller owns 800 shares in the capital of the company Arnoult Electro-
Industrie, a French "societe anonyme" with a share capital of 2.400.000 francs,
divided into 800 shares with a par value of 3.000 francs, all in the same class
and fully paid up, which has its registered office at 62, avenue Gabriel Peri,
93407 Saint-Ouen, registered with the Trade Registry of Bobigny under number B
672.025.624 (hereinafter "the Company").
2) The Company also holds directly 2.652 shares in the capital of SIMP, a
French "societe anonyme" with a capital share of 269.100 francs, divided into
2.691 shares with a par value of 100 francs, all in the same class and fully
paid up, which has its registered office at 59 avenue Gabriel Peri, 93407 Saint-
Ouen, registered with the Trade Registry of Bobigny under number B 785.622.093
(hereafter "the Subsidiary").
3) The Seller owns 39 shares of the Subsidiary (hereafter the "SIMP Shares")
representing with the shares owned by the Company 100% of the share capital of
the Subsidiary.
4) The Buyer has indicated that it is interested in purchasing 100% of the
shares of the Company (hereafter "the AEI Shares") and of the SIMP Shares
(together the AEI Shares and the SIMP Shares will be referred to as the
"Shares").
5) The Buyer has agreed with the Seller, according to the terms and conditions
hereof, to the sale of the Shares by the Seller to the Buyer, in order to enable
the Buyer to hold directly 100% of the issued share capital of the Company and
indirectly 100% of the shares of the Subsidiary.
NOW THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE 1 SALE AND PURCHASE OF THE SHARES
-------------------------------
1.1 SALE OF SHARES
--------------
By virtue of this Agreement, the Seller agrees to transfer and assign to the
Buyer, which accepts, according to the terms and conditions hereof, all of the
Shares, together with all rights and obligations attached thereto.
Full beneficial ownership of the Shares shall be transferred with effect from
the date hereof.
<PAGE>
3
1.2 PRICE AND PAYMENT OF THE SHARES
-------------------------------
The parties have agreed on a price for the Shares of sixteen million
(16,000,000) francs allocated as follows:
- - price of AEI Shares: 15,968,800 francs i.e. 19,961 francs per share ;
- - price of SIMP Shares: 31,200 francs i.e. 800 francs per share.
The Buyer has paid on the date hereof the sum of twelve million and eight
hundred sixty thousand (12,800,000) francs, receipt of which the Seller hereby
acknowledges.
The remainder of the price, i.e. the sum of three million two hundred thousand
(3,200,000) francs shall be paid by the Buyer to the Seller on December 28, 1998
(hereinafter "the Deferred Amount").
ARTICLE 2 CLOSING AND DELIVERY OF DOCUMENTS
- --------- ---------------------------------
2.1 CLOSING OF THE TRANSFER
-----------------------
The closing of the transfer and acquisition of the Shares hereunder takes place
at the date hereof.
2.2 DELIVERY OF DOCUMENTS
---------------------
On the date hereof, each of the parties shall deliver to the other the following
documents :
A) DELIVERY BY THE SELLER TO THE BUYER
-----------------------------------
1. Share transfer forms duly signed to the benefit of the Buyer regarding the
800 AEI Shares,
2. Share transfer forms duly signed to the benefit of the Buyer regarding the
39 SIMP Shares,
3. Certified copy of the board of Directors of the Company (a) accepting the
transfer of the Shares of the Company, (b) accepting the resignation of the
directors and (c) appointing the new directors,
4. Certified copy of the board of Directors of the Subsidiary, (a) accepting
the transfer of the Shares of the Subsidiary, (b) accepting the resignation
of the directors and (c) appointing the new directors,
5. Letters of resignation of the directors of the Company,
6. Letters of resignation of the directors of the Subsidiary,
<PAGE>
4
7. First demand bank guarantee in the form attached as Annex 2.2.(a).7 hereof,
---------------
8. The share transfer register and the shareholders' accounts of the Company
and the Subsidiary, together with the share transfer forms corresponding to
the entries in the said register and shareholders' accounts, as well as to
the finalities and premises and to the safe boxes of the Company and the
Subsidiary,
9. The registers of the minutes of the meetings of the board of directors and
shareholders' general meetings and attendance sheets for such board meetings
and shareholders' general meetings of the Company and Subsidiary, duly
updated and signed together with all other statutory books, documents and
registers which the Company and the Subsidiary are required to keep.
B) DELIVERY BY THE BUYER TO THE SELLER
-----------------------------------
1) A banker's draft of 12,800,000 francs;
2) A first demand bank guarantee, in the form attached as Annex 2.2.(b)2
ARTICLE 3 CAPACITY OF THE PARTIES
-----------------------
Each of the Parties represents and warrants for itself that it has all the
necessary powers and authority (including from spouse) to enter into this
Agreement and to carry out its obligations hereunder for the Seller.
Neither the Buyer or the Seller is a party to nor otherwise the subject of any
act, fact or event or of any court or administrative decision or arbitral award
which could prevent or prohibit it from entering into this Agreement and
carrying out its obligations hereunder.
ARTICLE 4 REPRESENTATION AND WARRANTIES OF THE SELLER
-------------------------------------------
As of the date hereof, the Seller makes the following representations and
warranties in favour of the Buyer.
The Buyer, having visited the premises of the Company and of the Subsidiary,
during which certain documents and information have been provided to him on
these companies, has wished, on the basis of what has been so disclosed to it
that such representations and warranties be made to it, and which are an
essential consideration in the Buyer's decision to enter into this Agreement. No
exception to such representation or warranties shall be valid if it is not
expressly provided for in the Annex corresponding to such representation or
warranty, or if it is not expressly stated in the proper text of such
representations and warranties.
<PAGE>
5
4.1 THE COMPANY AND THE SUBSIDIARY
------------------------------
The Company is duly incorporated and validly organised under the laws of France.
Its registered office is located at 62 bis, avenue Gabriel Peri, 93407 Saint-
Ouen and it is registered at the Trade Registry of Bobigny under number B
672.025.624. The Company has a share capital of 2,400,000 francs, divided into
800 shares, all validly issued and fully paid-up with a par value of 3000 francs
each.
The Subsidiary is duly incorporated and validly organised under the laws of
France. Its registered office is located at 59, avenue Gabriel Peri, 93407
Saint- Ouen and it is registered at the Trade Registry of Bobigny under
number785.622.093. The Subsidiary has a share capital of 269,100 francs divided
into 2691 shares, all validly issued and fully paid-up with a par value of 100
francs each.
The Shares are freely negotiable and are free from any liens, pledges or other
rights whatsoever of third parties.
Neither the shareholders of the Company nor those of the Subsidiary have
authorised any issuance of stock, shares or options or stocks of any nature
whatsoever other than the shares constituting the capital of the Company and of
the Subsidiary and are not obliged to do so under any agreement entered into
with third parties.
Accordingly, except as set forth in the by-laws, there is no current agreement
or commitment obliging the Company or the Subsidiary to deliver any of its
respective shares or granting the right to purchase or pre-empt all or part of
the shares of the Company or of the Subsidiary.
Neither the Company nor the Subsidiary has issued any founder's shares,
preferential shares, non-voting priority dividend shares, securities convertible
or exchangeable for shares or granting the right to subscribe for shares, and
more generally, neither the Company nor the Subsidiary has issued any stocks or
shares giving right by way of conversion, exchange, reimbursement, presentation
of a voucher or by any other way, to the delivery, at any time or on a specific
date, of shares which are or will be issued representing a certain percentage of
the capital of the Company or of the Subsidiary. No such issuance is currently
in progress.
There is no share granting either in the Company or in the Subsidiary a double
voting right and no limitation has been made to the voting rights in particular
by application of article 177 of the law of July 24, 1966 and no such issuance
of shares with double voting rights or limitation on the voting rights is
currently in progress.
With the exception of its interest in the Subsidiary, the Company holds, as of
the date hereof, either fully or otherwise, directly or indirectly, no share,
<PAGE>
6
investment certificate or other stocks and shares in any other company,
association, single shareholder company, groupement d'interet economique, etc...
The Subsidiary holds as of the date hereof, either fully or otherwise, directly
or indirectly no share, investment certificate or other stocks and shares in any
other company, association, single shareholder company, groupement d'interet
economique, etc...
Neither the Company nor the Subsidiary are, to the knowledge of the Seller,
parties to, nor the subject of, any act, fact or event, or of any court or
administrative decision or arbitral award which could prevent or prohibit the
entering into this Agreement and the carrying out of the obligations hereunder.
4.2 FINANCIAL STATEMENTS
--------------------
The balance sheets and profit and loss accounts of the Company and the
Subsidiary as at December 31, 1997 and the Annex 4.2 thereto are correct and
---------
complete and fairly present the assets and financial position of the Company and
the Subsidiary as well as the results of their activity over such period, in
accordance with generally accepted accounting principles in France as
consistently applied by the Company and the Subsidiary (hereinafter referred to
as the "Financial Statements"). These accounts for the period ended December 31,
1997 have been certified without any reservation by the statutory auditors of
both the Company and the Subsidiary. These accounts show a net worth of the
Company that is not less than 9,601,826 francs and a net worth of the Subsidiary
that is not less than 2,071,092 francs.
The results of the Company and of the Subsidiary for the year 1997 have not been
affected in any adverse manner by any inconsistency of the accounting methods,
by the taking into account of non recurring items, income or expenses, by
transactions entered into out of the other course of business, or by any other
factor out of the ordinary course of business and generating abnormally high or
low results over all or part of such period.
All reserves booked in the accounts of the Company and the Subsidiary have been
recorded in good faith, in accordance with the generally accounting principles
in France. Such reserves cover in a satisfactory manner all risks incurred by
the Company and the Subsidiary in accordance with the accounting principles
generally accepted in France.
Except when otherwise expressly detailed in the Financial Statements, neither
the Company nor the Subsidiary has any debt or commitments of any nature
whatsoever as regards any third person whatsoever (including banks or credit
institution). In particular, neither the Company nor the Subsidiary has any debt
or commitments towards any individual or legal person related in any manner
whatsoever to the Seller, except for what is listed in the Financial Statements.
<PAGE>
7
As at December 31, 1997, all liabilities of the Company and of the Subsidiary
have been duly and exactly represented in the Financial Statements, and neither
the Company nor the Subsidiary has any offbalance sheet liabilities.
4.3 RECEIVABLES
-----------
All receivables, of any nature or amount whatsoever, recorded in the respective
books of account of the Company or of the Subsidiary as at the date hereof,
shall be entirely recovered with no extra-cost for the Company and of the
Subsidiary, with reservation of the provision that affects them within 120 days
of the date hereof.
4.4 INVENTORIES
-----------
All inventories of the Company and of the Subsidiary of whatever nature, are
duly recorded in the respective books of account of the Company and of the
Subsidiary at a value which fairly reflects their quality and quantity as stated
at Annex 4.4 at a predetermined value in accordance with generally accepted
---------
accounting principles in France as consistently applied by the Company and the
Subsidiary respectively. As at the date hereof, except for the reserve of the
inventories stated at Annex 4.4, or that shall be sold by the Company to the
---------
EURL Arnould El, all inventories of the Company and of the Subsidiary are
physically available at the places described in Annex 4.4. All inventories of
---------
the Company and of the Subsidiary that have not been provisioned for at the date
of this Annex have been maintained in a condition permitting their use and/or
commercialisation in the normal conditions of the respective activity of the
Company or of the Subsidiary].
4.5 MANAGEMENT OF THE COMPANY
-------------------------
There has been no negative or material change since December 31st, 1997, and
until the date hereof in the assets, the liabilities and the financial situation
of the Company and the Subsidiary other than in the ordinary course of business.
Since December 31, 1997, neither the Company nor the Subsidiary has decided on
or carried out any distribution of dividends.
At the date hereof, neither the Company nor the Subsidiary is subject to a
"redressement" or "liquidation judiciaire" and no administrative receiver has
been appointed to manage all or part of the assets or businesses ("fonds de
commerce") of the Company or the Subsidiary.
No fact, act or event has occurred that may negatively or materially affect the
assets, the financial position, or the business of the Company or the Subsidiary
to the knowledge of the Buyer.
<PAGE>
8
4.6 GUARANTEES AND CREDITS
----------------------
Neither the Company nor the Subsidiary have delivered or subscribed any guaranty
real or personal, comfort letter, performance bonds, first demand guaranty,
surety and other security for payment.
Except for what is stated in the Company's accounts, neither the Company nor the
Subsidiary have granted nor have promised to grant any loans or credit lines of
whatever nature (other than normal credit lines) to any third party, except for
what is listed in the Financial Statements.
4.7 TAXES
-----
The Company and the Subsidiary have lawfully and accurately filed and remitted
all the required tax, social and customs returns on time.
The Company and the Subsidiary have lawfully and fully paid or adequately made
provision for all taxes, duties and social security contributions due by them
until the date hereof.
Neither the Company nor the Subsidiary is at present subject to any tax control
by the tax, customs or social security authorities and has not received any
notification regarding a contemplated control by such authorities.
Neither the Company nor the Subsidiary is the object of any claims from any of
the tax, customs or social security authorities.
The Company does not and did not benefit from a special tax, customs or social
security regime more favourable than that provided under the common laws and
regulations applicable in France.
4.8 ASSETS
------
The Company and the Subsidiary have a valid and exclusive ownership, free and
clear of all liens, pledges or other rights of third parties to all the assets
set out in the Financial Statements, with the exception of the assets submitted
to a reserved property provision due to normal commercial practice. All
recordings, filings and publications necessary to establish or protect the
ownership title of the Company and of the Subsidiary on these assets or
otherwise required by the laws and regulations have been regularly and timely
made and, if applicable fully paid.
The Company and the Subsidiary own all the movable property that they use for
their activity with the exception of the assets submitted to a reserved property
provision. Such movable property has been correctly maintained over the past
five years and repaired in a manner permitting a perfect use of such pursuant to
their intended use. Subject to normal wear and tear these movables are currently
in a condition permitting their immediate use.
Neither the Company nor the Subsidiary owns any real estate property.
A detailed list of all immovable property rented (including as financial-lease)
by the Company or the Subsidiary is set forth in Annex 4.8, the Company and
---------
<PAGE>
9
the Subsidiary hold duly established lease agreements in respect of such
property and such lease agreements are recorded in Annex 4.8 as well as the
---------
monthly rent. All recordings, filings and publications as regards these leases
required by the laws and regulations have been regularly and timely made and, if
applicable fully paid. None of these leases is the object of a notification of
increase in rent and all such leases shall be capable of termination as of
January 1st; 1999 or at July 1st, 1999 for the lease regarding the premises at
57 avenue Gabriel Peri, 93400 Saint-Ouen signed with the Association Immobiliere
de Saint-Ouen dated May 9, 1990 and March 12, 1997, and the building lease
regarding the building at 62 bis, avenue Gabriel Peri, 93400 Saint-Ouen signed
with the SCI Raynex by a notarial deed dated September 22, 1970 (the which
wrongly designates the premises at 62 ter instead of 62 bis).
The Company and the Subsidiary have at all times complied with town planning,
zoning and construction laws and regulations.
As of the date hereof, the state of the real estate buildings and properties
used by the Company or the Subsidiary to exercise their activities, do not
require repairs or improvements for the exercise of the activities affected to
them or in order to free them after a leave that would have been given to the
respective tenants.
4.9 CONTRACTS
---------
All contracts or other agreements of whatever nature or purpose to which the
Company or the Subsidiary is, directly or indirectly, a party have been
concluded in a normal course business.
To the knowledge of the Seller, and with reservation for what is stated in Annex
-----
4.9, neither the Company nor the Subsidiary is in default or breach of its
- ---
obligations arising from the agreements to which it is a respective party which
could result in the termination of such agreement or the acceleration of payment
of any sum before its normal date or due by the Company or the Subsidiary in any
other manner, and there exist no act, fact or event which with the passage of
time or the giving of notice or the occurrence of another event would constitute
such default or breach.
Except as set forth in Annex 4.9, there exists no contract or agreement of
---------
whatever nature to which the Company or the Subsidiary is a party, directly or
indirectly :
(i) which requires the payment in one or several terms over the period for
which such agreement is concluded and in any nature whatsoever of sums
exceeding the amount of 50,000 francs or;
(ii) the duration of which exceeds 6 months, or;
(iii) the termination of which cannot take place with the delivery of a prior
3 month's notice without penalties, or;
<PAGE>
10
(iv) which has been entered into or which concerns any individual or legal
person related directly or indirectly to the Seller, under the
reservation of the provisions of Article 4.20 herebelow, or;
(v) which imposes or may impose current or future restrictions of any
nature whatsoever to the activities of the Company, or;
(vi) which relates to or results from an illicit act or transaction.
4.10 INTELLECTUAL PROPERTY
---------------------
Annex 4.10 contains the exact and complete list of all the intellectual property
- ----------
rights that belong to the Company and the Subsidiary or which are allowed to be
use by the Company and the Subsidiary. There are no claims against such
intellectual property rights involving either of the Company or the Subsidiary,
either as plaintiff or defendant.
Annex 4.10 lists all the intellectual property rights registered or pending
- ----------
registration by the Company or the Subsidiary.
All these rights have been duly registered and maintained by the Company or the
Subsidiary. Neither the Company nor the Subsidiary violates any intellectual
property rights of any third party whatsoever.
4.11 COMPLIANCE WITH LAWS - ENVIRONMENT - HEALTH AND SAFETY
------------------------------------------------------
The Company and the Subsidiary hold all the authorisations necessary to conduct
their business under its current form and have at all times complied with all
applicable laws and regulations.
Except for what is stated in Annex 4.11, the Company and the Subsidiary have
----------
complied with all applicable laws and regulations relating to environment,
health and safety standards, no proceedings, enquiry, complaint or claim have
been filed against any of them in relation with any alleged violation of such
laws and regulations.
With the exception of what is mentioned at Annex 4.11, the conduct of their
----------
respective business by the Company and the Subsidiary, as this is currently
done, complies with all existing applicable laws and regulations relating to
environment, health and safety and no significant investment is, as at the date
hereof, required to permit the Company or the Subsidiary to conduct their
business as this is currently done in compliance with said existing laws and
regulations.
Neither the Company nor the Subsidiary, nor any of their employees or agents or
persons acting on their behalf has created, produced, used, stored, transported,
treated, recycled, nor has disposed of or caused to be disposed of, nor has
manipulated in any manner whatsoever chemical waste or any waste of whatever
nature that may harm the environment or threaten the
<PAGE>
11
health of any person in any manner whatsoever in, on, over, under or near the
buildings or lands currently or previously used or occupied by the Company or
the Subsidiary.
In particular, none of the buildings listed in Annex 4.8 contains asbestos.
---------
To the knowledge of the Seller, there exists no act, fact or event that may
constitute the ground under the present regulations for a claim against the
Company or the Subsidiary, with respect to matters relating to the environment.
4.12 INSURANCE
---------
The Company and the Subsidiary hold and maintain all the insurance policies set
forth in Annex 4.12.
----------
A list of all claims made by the Company and the Subsidiary under their
respective insurance policies for the last 3 years is set out in Annex 4.12. At
----------
the date hereof, such claims have all been settled by the insurance companies.
There exists no fact, act or event that may cause the termination of any of
these policies or the increase in the premium paid under such policies. All
premiums certain and payable under these policies have been paid in a timely
manner.
4.13 LITIGATION
----------
Neither the Company nor the Subsidiary is a party either as plaintiff or
defendant to an administrative, judicial or arbitral proceeding, nor is the
object of an enquiry by an administrative body, nor has received any notice or
claim that may result in such proceeding.
4.14 NO VIOLATION
------------
With the exception of the references related to the cancellation of certain
contracts mentioned at Annex 4.14, the execution of this Agreement and the
----------
performance of the obligations hereunder will in no way violate any provision of
any agreement to which the Company or the Subsidiary is currently a party, will
not result in the forfeiture of a term as regards the Company or the Subsidiary,
will not modify any provisions of any contract, will not grant to any
contracting partner of the Company or the Subsidiary the right to terminate any
contract and will not result in the creation of any lien whatsoever or other
right to the benefit of a third party on the shares or on the assets of the
Company or the Subsidiary, and will not increase in a significant manner the
obligations of the Company or the Subsidiary under the contracts to which it is
a party, nor create new obligations to the Company or the Subsidiary.
<PAGE>
12
4.15 EMPLOYEES AND OFFICERS
----------------------
Annex 4.15 sets forth for the Company and the Subsidiary a complete and accurate
- ----------
list of all the employees and officers, together with their name, year of birth,
position, salary and other remuneration and advantages, as well as their year of
entry in the Company or the Subsidiary. Neither the Company nor the Subsidiary
has granted or promised to grant any increase in salary or any additional
advantage to any of said employees or officers, in connection with what is set
forth in Annex 4.15.
----------
Neither the Company nor the Subsidiary has issued any stock option plan for the
benefit of its employees or legal representatives.
Neither the Company nor the Subsidiary has any outstanding obligation to any
employee or officer for a termination of any contract or service or for a
severance pay or for severance pay in the event of a dismissal without cause or
for non-compliance with an obligation to reinstate an employee.
The Company and the Subsidiary have complied with all instructions and
obligations imposed by the competent labour and social security authorities and
with all other applicable regulations governing employment agreements, including
health and safety regulations.
The regulations governing workers' councils, personnel representatives and
similar organisations have been complied with.
No current employment agreement or contract with a legal representative provides
for "abnormal" provisions such as severance pay exceeding importantly that
provided for in the collective bargaining agreement or the applicable
regulations, or grants exceptional specific advantages to the beneficiary
including specific social advantages.
At the date hereof there are no strikes, nor any conflict or labour unrest
within the Company or the Subsidiary and no prior notice or threat or warning or
such has been notified to the Company or the Subsidiary.
Neither the Company nor the Subsidiary book any reserves in their accounts for
the pension indemnity of its employees. No warranty shall be due on this matter
by the Seller to the Buyer.
At the date hereof, and except for the resignation planned as under section
2.2a).5 and 6 hereabove, no senior personnel (cadres) or legal representative
has resigned or been dismissed or revoked of his functions within the Company or
the Subsidiary nor has made known his intention to resign.
Annex 4.15 sets forth a complete true and accurate description of the number
- ----------
type and remuneration of the consultants and agents of the Company and the
Subsidiary at the date hereof.
No indemnification shall be due by the Seller to the Buyer regarding the burden
incurred by the Company for the termination, for any reason whatsoever, of the
labour contracts of Mrs. Palka and Mr. Iche.
<PAGE>
13
4.16 CORPORATE DOCUMENTS AND REGISTERS
---------------------------------
All accounts, books, financial archives and other documents of the Company and
the Subsidiary, required to be held and kept by the laws and regulations and/or
which are usually kept by virtue of commercial usage (including for accounting
or tax reasons) are all kept at the Company's or Subsidiary's respective
registered offices. They all have been regularly and duly kept.
The registers containing the minutes of the meetings of the shareholders'
general meeting and the meetings of the board of directors of the Company or the
Subsidiary, which are all kept at the respective registered offices of the
Company and the Subsidiary have all been regularly and duly kept.
4.17 CLIENTS
-------
a) Annex 4.17 details the list of the 12 most important clients of the Company
----------
and the Subsidiary in terms of sales over the last 12 months to the date hereof.
As at the date hereof, none of the clients in this list has terminated nor
modified in any material manner its commercial relations with the Company or the
Subsidiary nor has mentioned the intention to so terminate or modify its
relations.
b) As at the date hereof, with reserve regarding Marquardt and Westcode
companies to which the Seller has presented the buyer, who will take care of the
relationships with these companies, no supplier of the Company has broken nor
modified substantially his relationships with the Company or the Subsidiary, nor
has informed the Seller of his intention to break nor modify such relationships.
4.18 POWERS AND AUTHORITIES
----------------------
Neither the Company nor the Subsidiary have granted any power or authority in
any manner whatsoever in favour of anyone to the effect of entering into any
contract or commitment of any nature whatsoever, on their behalf, subject to the
usual authority of the employees to enter into usual contracts within the
framework of their positions.
Annex 4.18 details the list of banks or financial institutions with which the
- ----------
Company and the Subsidiary have an account or a safe as well as the names and
addresses of the persons authorised to effect any operations on such account or
to have access to such safes.
<PAGE>
14
4.19 COMPLETE INFORMATION
--------------------
Each representation made by the Seller in this Agreement as well as the
information contained in the annexes are true The Seller is not aware of any
fact, act or event that may cause such information to be untrue, or fallacious.
4.20 ABSENCE OF OBLIGATION TOWARD THE SELLER
---------------------------------------
The Seller represents and warrants that at the date hereof, there exists no
obligation of any nature whatsoever, whether it be between the Company, the
Subsidiary and the Seller or any natural person or corporate entity, except for
the tenant-lessee relationships regarding the SCI Raynex and for what is
specified at the Contract hereof regarding the EURL Arnould Etude et Ingenierie.
ARTICLE 5 INDEMNIFICATION
- --------- ---------------
5.1 GENERAL INDEMNIFICATION OBLIGATION
----------------------------------
The Seller undertakes to indemnify the Buyer, as a reduction of the price paid
for the Shares for all cost, damage, loss or prejudice incurred or assumed by
the Company, or the Subsidiary and resulting from :
(i) any inaccuracy relating to the representations and warranties under
Article 4 of this Agreement, or,
(ii) any violation of such representation and warranties.
Such costs, damages, losses or prejudices will hereafter be referred to as a
"Loss", or the "Losses".
It being understood that to be acceptable a claim with respect to a Loss shall
exclusively relate to facts relating to the management of the Company or the
Subsidiary prior to the date hereof, and shall not, in any respect, relate to
facts expressly mentioned to the Buyer in the present Agreement (including as
well the Annexes).
5.2 INDEMNITY
---------
In order to calculate the indemnity actually due by the Seller to the Buyer with
respect to a Loss or Losses (hereafter the "Indemnity"):
(i) Losses which are tax deductible from the results of the Company or the
Subsidiary shall be taken into account for their amount reduced by the
tax saving accrued to the benefit of the Company or the Subsidiary.
For tax, customs or social security matters, Losses that only result in a
charge being deferred (for instance, and without limitation, a
<PAGE>
15
reassessment by the relevant authorities of depreciation allowances or
reserves) will not be taken into account, except for penalties or
interest for late payment incurred by the Company or the Subsidiary.
(ii) The amount of any Loss shall be reduced by any amount payable by a third
party to the Company or the Subsidiary for such Loss.
(iii) The amount of any Loss shall be increased, without having what follows
constituting a limitation, by any cost, loss, indemnity of whatever
nature (including indemnity for late payment), increases, penalties,
rights and/or double-rights, fine, interest and expenses of any sort
(including reasonable counsel's fees) incurred or paid by the Company,
the Subsidiary or the Buyer as a result of the Loss.
(iv) In addition, the amount of any Loss shall be increased by the amount of
any tax, or an amount equal to the reduction of the tax loss carry
forward multiplied by the corporate income tax applicable, as such are
incurred or shall be incurred by the Buyer as a result of the payment of
the Indemnity by the Seller.
(v) The Losses shall be reduced, if need be, of the amounts of the "reprises
sur provisions" over "provisions" contained in the accounts and that will
be realised after the date hereof during the same fiscal year as the one
during which the Loss has been recorded and until June 30, 2001.
5.3 NOTICES
-------
(i) Any Loss the origin of which is not a claim from a third party shall be
notified by the Buyer to the Seller within 30 days of the Buyer becoming
aware of such a Loss, together with all reasonable details.
(ii) Any Loss the origin of which is a claim from a third party shall be
notified by the Buyer to the Seller within 30 days of the receipt of such
a claim by the Company or the Subsidiary, together with all reasonably
detailed documents supporting such claim.
A notice made pursuant to (i) or (ii) above shall be hereafter referred to as a
"Notice".
The Notice shall contain all reasonable details sufficient to enable the Seller
to apply the provisions of section 4.4 hereafter and notwithstanding the delays
set out above, such Notice shall be made in due time to permit the Seller to
apply the provisions of section 4.4 hereafter.
5.4 PROCEDURE
---------
In case of a Notice the origin of which is a written claim or proceedings
commenced against the Company or the Subsidiary, the Seller shall be allowed to
participate, at its own cost, in the defence against said claim or proceedings,
<PAGE>
16
with the assistance of its chosen counsel. Should the Seller chose not to
participate in the defence, the Buyer shall keep the Seller informed of any
developments relating to such claim or proceedings in a timely manner.
Such claims or proceedings shall not be settled without the Seller's prior
written consent, which shall not be unreasonably withheld.
5.5 PAYMENT
-------
The Seller shall pay to the Buyer the Indemnity within 15 days of the notice by
the buyer to the Seller due to the Loss incurred by the Company or the
Subsidiary, subject to the provisions of section 5.6 hereof.
All amounts overdue by the Seller to the Buyer shall bear legal interests, from
the time of the notification as under the previous section and payable until
effective payment thereof; interest shall begin to accrue on a daily basis, and
shall be calculated on the basis of a 360-day year. Interest shall also accrue
on the interest, in accordance with the provisions of Article 1154 of the French
Civil Code.
5.6 MAXIMUM AND MINIMUM AMOUNTS
---------------------------
The total amount of all sums that may be due by the Seller to the Buyer pursuant
to all Notices notified by the Buyer under this Agreement, shall in no event
exceed the amount of [one million six hundred thousand] ([1,600,000]) francs.
No Indemnity shall be due for a notification made regarding a Loss of an
individual amount inferior to 30.000 francs, being understood however that the
sum of such Notices, when it will exceed this amount, shall be indemnified
conforming the provisions of the Contract hereof.
5.7 EXPIRATION OF THE OBLIGATION OF INDEMNIFICATION
-----------------------------------------------
All Notices, in order to be valid, shall be made by the Buyer before July 30,
2001, except for tax, customs and social security matters for which the
corresponding Notice may be made until the expiration of a period of 1 (one)
month after the respective applicable statutes of limitation for such matters.
ARTICLE 6 SPECIFIC COVENANTS OF THE SELLER
- --------- --------------------------------
6.1 NONCOMPETITION CLAUSE
---------------------
The Seller hereby expressly covenants not to undertake the following without the
Buyer prior approval:
<PAGE>
17
1) For a period of 3 years as of the date hereof, alone or in co-operation with
any individual or legal entity, be employed, practice as a consultant or
invest in any entity developing its activity in the same area to that in
which the Company and the Subsidiary exercise their activity;
2) For a period of 3 years as of the date hereof, alone or in co-operation with
any individual or legal entity, solicit directly or indirectly any client or
supplier of the Company or the Subsidiary;
3) For a period of 3 years as of the date hereof, alone or in co-operation with
any individual or legal entity, solicit directly or indirectly any person
which was or has been employed by the Company or the Subsidiary at any time
during the two preceding years before the date hereof, except for Ms. Palka
and to the secretary to M. Arnould;
4) At any time as of the date hereof, in connection with any professional
activity, use the acronym AEI or any name having the same initials or any
other trademark or tradename that may create a confusion with the AEI logo
or any of the trademarks of the Company or the Subsidiary except for the
activity exercised by the Seller through the EURL Arnould Etudes et
Ingenierie, as detailed herein;
5) At any time as of the date hereof, in connection with any professional
activity, present oneself or represent to third parties that the Seller is
still related in any manner whatsoever to the Company or the Subsidiary.
The Seller shall also transfer to the Buyer the 2 trademarks using the AEI logo
for 1 (one) franc that he has personally registered.
It is understood between the parties that, notwithstanding what is mentioned
above, that the Buyer authorises from now on the Seller to pursue the management
of the Arnould El, EURL, limited company with a capital share of 50.000 francs,
having its registered office at 59, avenue Gabriel Peri, 93400 Saint-Ouen,
incorporated at the Trade Registry of Bobigny under number B 414 866 269, in
which he is the sole shareholder and manager, and whose activity consists in
selling installation electrical material as stated in the inventories detailed
in Annex 4.4.
Consequently, the Buyer agrees to withdraw page B8 from the commutation
catalogue.
6.1 CONFIDENTIALITY
---------------
The Seller undertakes also to keep confidential any and all information
currently in its possession or which may come into its possession in the future
concerning the Company and the Subsidiary and/or their businesses or assets and
not to use said information for its own benefit or for the benefit of any third
party. Confidential information mean all information on whatever medium, of a
non public nature, relating to the technical know-how, the cost and price
structures of the services provided by the Company and the Subsidiary, as well
as all information relating to markets, clients and suppliers of the Company and
the Subsidiary.
<PAGE>
18
ARTICLE 7 MISCELLANEOUS
- --------- -------------
7.1 SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall bind and inure to the benefit of the parties hereto as well
as to their respective successors. Any transfer or delegation by the Buyer of
its rights or obligations under this Agreement shall not been authorised without
the Seller's prior written approval, which shall not be unreasonably withheld.
Notwithstanding the foregoing, the Buyer is entitled at any time to transfer and
assign, all or part of its rights hereunder to any entity which is a member of
its group or to any lender of monies.
7.2 AMENDMENTS AND MODIFICATIONS
----------------------------
No amendment or modifications to this Agreement nor any waiver of any of its
provisions shall be valid unless made in writing and signed by each party
hereto.
7.3 NOTICES
-------
All notices between the parties shall be validly served to the address of the
representatives set out below until notice of a new address by the party in
question. All notices shall be made by registered letter with acknowledgement of
receipt and shall be deemed validly effected as of the date of first delivery to
the other party, unless otherwise provided for herein.
If to the Seller : With a copy to :
Monsieur Jean Charles Arnould Sonier & Associes
2square Henri Bataille, 75016 Paris Care of Me Guilhem
69, avenue Victor Hugo
75116 Paris
Fax : 01.45.01.26.65
If to the Buyer : With a copy to :
CDI Holding Veil Armfelt Jourde La Garanderie
Care of the President Care of Me [...]
5 a 7, allee Louis Breguet 69, avenue Victor Hugo
93420 Villepinte 75116 Paris
Fax : 01.48.60.41.42 Fax : 01.44.17.50.30
<PAGE>
19
7.4 DISJUNCTION
-----------
If any provision of this Agreement is held to be null, invalid or unenforceable,
partly or wholly, all other provisions of this Agreement shall continue to
apply. Moreover, the parties shall attempt, through negotiations in good faith,
to replace any provision of this Agreement so held to be null, invalid or
unenforceable by a provision of comparable effect. The failure of the parties to
reach agreement on a replacement provision shall neither affect the validity of
the remaining provisions of this Agreement nor the validity of the valid or
enforceable part of any provision held partly invalid, which provision shall
take effect to the maximum extent permitted by law.
7.5 CONFIDENTIALITY
---------------
This Agreement shall be kept strictly confidential between the parties which
undertake not to disclose its contents unless obligated to do so by law or
regulation or to defend their rights in the course of legal proceedings or to
conform with a law or an applicable (administrative) regulation.
7.6 WHOLE AGREEMENT
----------------
This agreement (which together with all its Annexes shall be referred to as the
"Agreement") sets out the whole of the agreement between the parties in
connection with its object and supersedes all prior oral or written agreements
entered into between the parties in respect of the transaction contemplated
herein.
7.7 LAW AND ARBITRATION
--------------------
This Agreement shall be governed by and construed in all respect according to
French law.
Any disputes or litigation that may arise in connection with this Agreement
shall be settled by arbitration, in accordance with the Reglement de
l'Association Francaise d'Arbitrage to which the parties expressly subscribe.
The arbitral tribunal shall be constituted of three arbitrators appointed in
accordance with said Reglement. The arbitration shall take place in Paris,
France. The award shall be definitive, irrevocable and not subject to appeal and
shall be enforceable by any competent authority. The above arbitration
provisions are without prejudice of the right of any party to apply to any
competent court for provisional remedies.
7.8 NO IMPLIED WAIVER
-----------------
The tolerance, omission or lack of action on the part of any party shall not be
construed to mean the waiver of its respective rights under this Agreement and
shall not prevent such party from enforcing such rights hereunder at any time
thereafter.
<PAGE>
20
7.9 EXPENSES
---------
Except for the broker's fees of Mssrs. Renault and Forestier which shall be paid
by the Buyer, each of the parties shall bear all fees and expenses incurred by
it in connection with this Agreement and the transactions contemplated herein.
Made in Paris,
On June 29, 1998
In two originals
- ------------------------- -------------------------
BUYER SELLER
CDI Holding International Jean Charles Arnould
<PAGE>
Exhibit 11
CONTROL DEVICES, INC.
CALCULATION OF EARNINGS PER SHARE
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 2,233 $ 1,689 $ 4,155 $ 3,225
Weighted Average Common Shares Outstanding - Basic 8,292 8,272 8,290 8,272
Add-Dilute effect of outstanding options ( as determined
by the application of the treasury stock method) 498 178 482 183
Weighted Average Common Shares Outstanding - Diluted 8,790 8,450 8,772 8,455
============ =========== ============ ============
Earnings per share:
Basic $0.27 $0.20 $0.50 $0.39
============ =========== ============ ============
Diluted $0.25 $0.20 $0.47 $0.38
============ =========== ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 10,195 0
<SECURITIES> 0 0
<RECEIVABLES> 13,715 0
<ALLOWANCES> (524) 0
<INVENTORY> 8,423 0
<CURRENT-ASSETS> 34,278 0
<PP&E> 22,578 0
<DEPRECIATION> 8,857 0
<TOTAL-ASSETS> 56,792 0
<CURRENT-LIABILITIES> 16,211 0
<BONDS> 0 0
0 0
0 0
<COMMON> 20,096 0
<OTHER-SE> (635) 0
<TOTAL-LIABILITY-AND-EQUITY> 56,792 0
<SALES> 19,845 18,811
<TOTAL-REVENUES> 19,845 18,811
<CGS> 12,524 11,766
<TOTAL-COSTS> 16,795 16,030
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (73) 60
<INCOME-PRETAX> 3,123 2,721
<INCOME-TAX> 890 1,032
<INCOME-CONTINUING> 2,233 1,689
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,233 1,689
<EPS-PRIMARY> 0.27 0.20
<EPS-DILUTED> 0.25 0.20
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<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
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 39,122 36,098
<TOTAL-REVENUES> 39,122 36,098
<CGS> 25,145 22,580
<TOTAL-COSTS> 33,452 30,677
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (104) 147
<INCOME-PRETAX> 5,774 5,274
<INCOME-TAX> 1,619 2,049
<INCOME-CONTINUING> 4,155 3,225
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,155 3,225
<EPS-PRIMARY> 0.50 0.39
<EPS-DILUTED> 0.47 0.38
</TABLE>
