UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the fiscal year ended Commission File Number
December 31, 1999 2-44764
BALTEK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2646117
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Fairway Court
P.O. Box 195 07647
Northvale, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number: (201) 767-1400
Securities Registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
<PAGE>
The aggregate market value of the voting stock held by nonaffiliates on
March 2, 2000 amounted to $7,355,000
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date, March 2, 2000: 2,523,261
shares, Common Stock, $1.00 par value.
Documents incorporated by reference: Portions of the registrant's proxy
statement dated April 27, 2000 for use in connection with its 1999 annual
meeting of stockholders are incorporated by reference in Part II of this Annual
Report on Form 10-K to the extent set forth in items 10, 11, and 12 hereof.
<PAGE>
PART I
Item 1. BUSINESS
Principal Products
The registrant and its subsidiaries (hereinafter collectively referred
to as the "Company") is a multinational manufacturing and marketing company. The
Company operates in two lines of business: 1) supplying core materials,
primarily balsa wood and balsa wood products, linear and cross-linked PVC foam
products, and non-woven polyester mat, and 2) seafood, including aquaculture,
the farming and processing of shrimp, and as an importer. The foam and mat
products, together with the Company's balsa products, position the Company as a
complete supplier to the composite structural core market. The core materials
are typically used by the Company's customers to manufacture a variety of
products by laminating metal or fiberglass reinforced plastic skins to both
sides of the core material, thereby creating a sandwich structure. The products
manufactured by the Company's customers include fiberglass boats, aircraft cargo
pallets, aircraft flooring, fiberglass storage and processing tanks and
fiberglass tub and shower bottoms. Balsa lumber is used mostly by the hobby
industry to manufacture model airplanes.
The Company mills and sells graded and finished balsa lumber in standard
sizes and balsa wood strips and blocks. "Standard sizes" of balsa lumber are
measured in boardfeet (12" x 12" x 1") for the English system of measure or in
cubic meters for the metric system of measure. Shipments to Europe (except the
U.K.) and Japan are made in cubic meters while shipments to the U.S. and the
U.K. are in boardfeet. The Company, for production and statistical purposes,
converts all metric measurements into boardfeet, thus the Company's "standard"
is boardfeet. The Company also manufactures and sells custom-made bonded panels,
bonded blocks of balsa wood, and a flexible balsa wood block mat called
"Contourkore." Glued-up balsa blocks are marketed in two ways. Part is sold
directly to customers in block or panel form, the balance is shipped to the
Company's factory in Northvale, NJ for further processing into Contourkore and
other products.
The Company's mat products are imported from Holland and Japan and
resold without further manufacturing. These products are marketed as "Coremat"
and "BaltekMat," principally to the pleasure boat industry.
The Company is the sole North American source and nonexclusive
distributor in Central and South America of Airex(R) (a registered trademark of
Alusuisse Airex AG) and Airlite(TM), structural PVC foam products. The foam is
purchased from Airex for further processing in the U.S. and is sold to customers
as rigid or flexible panels in various thicknesses.
The Company is also in the seafood business, including aquaculture and
as an importer. The aquaculture business, specifically shrimp farming in
Ecuador, South America, consists of a hatchery, two farms and a packing plant.
Shrimp larvae are supplied by the hatchery to the farms, and after harvest,
transferred to the packing plant for processing and shipment. The Company
supplies frozen blocks that are purchased in wholesale quantities by importers
and/or large processors. Typically these companies buy container loads of shrimp
and then either distribute them to other users or process and redistribute them
as cooked, breaded or repacked products. They are sold under their own brand
names and to a very large network of smaller specialized users and retailers
(supermarkets, restaurants, etc.). The Company also operates as a seafood
<PAGE>
importer, purchasing various types of seafood products such as shrimp, salmon
and lobster from independent producers located throughout the world and shrimp
from the Company's own farms. The products are then sold to customers, such as
seafood distributors, primarily in the United States. The Company maintains a
variety of products in inventory for the convenience of its customers in
addition to arranging simultaneous shipments (purchases) from producers and
sales to customers, commonly called "back-to-back" transactions. The import
business is located in Northvale, New Jersey.
All of the Company's balsa and shrimp are produced in Ecuador. The
dependence on foreign countries for raw materials represents some inherent
risks. However, the Company, or its predecessors, has operated without
interruption in Ecuador since 1940. Operating in Ecuador has enabled the Company
to produce raw materials at a reasonable cost in an atmosphere that has been
favorable to exporters such as the Company. To mitigate the risk of operating in
Ecuador, in 1999 the Company obtained a five-year expropriation insurance
policy. This policy provides the Company coverage for its assets in Ecuador
against expropriatory conduct (as defined in the policy) by the government of
Ecuador. The amount of the recoverable loss is governed by the terms of the
policy. Recent economic and political developments in Ecuador caused significant
volatility in the value of the sucre in 1999, which continues into 2000. The
value of the sucre was approximately 8,000 sucre to the U.S. dollar at January
1, 1999, and decreased to 25,000 sucre per dollar early in 2000. In 2000 the
Ecuadorian government has announced plans to adopt the U.S. dollar as its
national currency, a plan commonly being called "Dollarization". This plan
requires government approval in Ecuador and the U.S. in addition to major
operational changes in the Ecuadorian economy. It is not clear at this time if
the plan will be implemented or precisely how certain aspects of Dollarization
will be introduced. With the exception of Panama, no other country in Latin
America has adopted the U.S. dollar as its national currency. Due to the
significant uncertainty surrounding the plan, the effects of Dollarization on
the Company, if implemented, cannot be determined at this time.
Principal Markets and Methods of Distribution
The Company's balsa products are sold throughout the United States,
Canada, Europe, Japan, Australia and Latin America to approximately 1,600
ultimate users. The foam and mat products are sold primarily in North America.
The Company's salesmen are used extensively in the sale of its core material
products. The Company makes approximately 30% of its domestic core material
product sales directly. The remainder of the sales is handled through regional
distributors in the United States, Europe, Canada and the Pacific Rim. Sales of
Contourkore to customers outside the United States are handled through a wholly-
owned Foreign Sales Corporation.
The Company's shrimp is sold in the United States, Europe and Canada.
In 1999, approximately 79% of the shrimp production was sold to the European
market; the balance was sold to the U.S. and Canadian markets.
Competitive Conditions
As part of their overall business, other companies, with aggregate
facilities and financial resources substantially greater than those of the
Company, manufacture and sell various natural and synthetic products for nearly
all the purposes for which balsa, foam and mat products are sold by the Company.
Some of these competitive products are produced and sold at a lower price than
the Company's products, and sales of these competing products are substantially
greater than the Company's sales of core materials.
<PAGE>
In North America and Europe, the Company also directly competes with
companies, some with greater resources than the Company, that manufacture and
sell balsa and foam products at prices which may be lower than those offered by
the Company.
The Company's shrimp business competes against many larger companies
that produce shrimp through similar methods in addition to fishing for shrimp in
the traditional method of trawling.
The importing business competes against other companies, some
substantially larger than the Company, which also import seafood products.
Additionally, certain of these companies also act as their own processors,
wholesalers or distributors, thus providing more services to the customer than
the Company.
Material Customer
No customer accounted for more than 10% of revenues in 1999, 1998 or
1997.
Backlog
As of December 31, 1999 and 1998, the Company had a backlog of orders
believed to be firm in the amounts of $9,607,000 and $12,488,000, respectively.
The 1999 backlog is reasonably expected to be filled within the current fiscal
year.
Sources and Availability of Raw Materials
The Company acquires, partly from its own plantations and partly from
others, substantially all of its balsa wood from western and coastal Ecuador,
accessible by roads so that the balsa lumber can be transported by truck to its
sawmills. The Company presently considers the timber standing in this area to be
ample to supply all the Company's requirements in the foreseeable future. The
Company may, however, make periodic purchases of land to supplement its existing
plantations and provide for future growth. The Company also receives small
quantities of balsa from other Latin American countries. The Company has
experienced no difficulties in purchasing its foam and mat materials and
anticipates that the manufacturers will be able to produce adequate quantities
to meet demand. The resins, fiberglass and other materials used in the Company's
manufacturing processes are available from numerous commercial sources. To date,
the Company has experienced no difficulty in obtaining such materials needed for
its operations.
The Company owns and operates two shrimp farms and a shrimp hatchery in
Ecuador for the production of a steady and plentiful supply of shrimp. The
hatchery supplies substantially all the larvae required by the Company's ponds.
The Company also owns a shrimp packing plant in Ecuador, thereby achieving
complete vertical integration of the shrimp business. The import operations are
able to purchase its products from a variety of producers and, with the
exception of shrimp, are expected to have an adequate supply of seafood.
Patents, Trademarks and Licenses
The Company features its registered trademark "Belcobalsa(R)" for
lumber, dimension stock, and bonded panels and blocks, "Contourkore(R)",
"LamPrep(R)" and "AL-600/10(R)" for the flexible wood block mat, "Durakore(R)",
a balsa hardwood composite, "D100(R)" for end-grain panels and "Decolite(R)" a
balsa composite panel used as an alternative to plywood, and low-density
laminate bulkers, marketed as "BaltekMat(R)".
The Company also features "Airlite(TM)", a cross-linked PVC foam,
"AIREX(R)"(registered trademark of Alusuisse Airex AG), a linear foam and "Firet
Coremat(R)", also a low-density laminate bulker.
<PAGE>
Estimated Research Costs
The Company has incurred approximately $597,000 during 1999 for
research and development, compared to expenditures of $609,000 in 1998 and
$331,000 in 1997. All expenditures are related to the core materials segment.
The Company continues to actively explore possible new applications of its core
materials and new processes to improve the manufacturing of those products.
Environmental Impact
The Company has experienced no material impact upon its capital
expenditures, earnings or competitive position as a result of its compliance
with federal, state or local provisions relating to the protection of the
environment. Balsa is not a rainforest species, nor does it grow in the
rainforest. It is usually harvested within five years. The fast growth rate
makes balsa similar to short-cycle agricultural crops and an ideal tree species
for forest plantations.
Employees
The Company has 1,174 employees in Ecuador, 173 in the United States
and 10 in Europe, aggregating 1,357 employees.
Seasonality
The Company's business is not seasonal.
<PAGE>
Classes of Products
The following table sets forth the amount and percentage of net sales
represented by each of the Company's product classes in each of the three years
in the period ended December 31, 1999 (dollars in thousands):
Year Core Materials Seafood Total
1999 $58,938 $27,089 $86,027
69% 31% 100%
1998 $53,600 $14,095 $67,695
79% 21% 100%
1997 $44,004 $12,136 $56,140
78% 22% 100%
Segment Information
The Company is engaged in two lines of business, that of manufacturing
and supplying products which are used principally as the structural core
material in composite applications in various industries, and in the seafood
business, as a shrimp producer in Ecuador and as an importer.
Reference is made to the information set forth in Note 11 to the Notes
to Consolidated Financial Statements, Part II, Item 8 hereof, with respect to
assets and operating results for different business segments.
Foreign Operations
The Company, through its Ecuadorian subsidiaries, owns and operates
five woodworking plants and approximately 14,510 acres of forest land in
Ecuador. In addition, the Company owns and operates two shrimp farms on
approximately 2,500 acres, a shrimp hatchery and a shrimp packing plant.
At the Company's woodworking plants, rough balsa lumber is received
from plantations or independent loggers and then processed into finished lumber
and other manufactured products.
The Company's shrimp ponds are stocked with larvae. After feeding,
controlling the pond environment and monitoring the growth of the shrimp for a
period of approximately six months, the shrimp are harvested, frozen, packed and
sold for export.
The Company, through its European subsidiaries, operates sales offices
in France, the United Kingdom and Denmark.
Reference is made to the information set forth in Note 11 to the Notes
to Consolidated Financial Statements, Part II, Item 8 hereof, with respect to
assets and operating results by geographic areas.
No prediction can be made as to any future increase or decrease of the
Company's foreign business. The Company has experienced differences in
profitability between foreign and domestic sales due to the changing value of
the U.S. dollar in relation to the foreign currencies of countries where its
products are sold.
<PAGE>
Item 2. PROPERTIES
The Company owns or leases the properties indicated in the following table:
<TABLE>
<CAPTION>
Property and Location Status
<S> <C>
One-story concrete and steel building containing the Company's principal Leased
offices, manufacturing plant and warehouse space, approximately 85,000 square
feet on 4-1/2 acres. (Northvale, New Jersey)
Approximately 94,000 square feet of warehouse and office space in three Leased
buildings. (Norwood and Northvale, New Jersey)
Woodworking plant housed in several wood, concrete and steel buildings, Owned
approximately 180,000 square feet. (Guayaquil, Ecuador)
Woodworking plant housed in several wood, concrete and steel buildings, Owned
approximately 30,000 square feet on 7 acres of land. (Guayaquil, Ecuador)
14,510 acres of timberland in Ecuador. Owned
2,000 acres of land for shrimp farming in Ecuador, including 10 wood buildings Owned
and one concrete building totaling approximately 11,000 square feet.
444 acres of land for shrimp farming in Ecuador, including 4 concrete buildings Leased
and 4 wood buildings totaling 4,357 square feet.
Shrimp hatchery housed in several concrete buildings on 3.7 acres of land. (San Owned
Pablo, Ecuador)
Shrimp packing plant housed in three concrete and steel buildings on 2.6 acres Owned
of land. (Duran, Ecuador)
Woodworking plant housed in four concrete and steel buildings, 165,000 square Owned
feet on approximately 28 acres of land. (Santo Domingo de los Colorados,
Ecuador)
Woodworking plant housed in four concrete and steel buildings, 62,000 square Owned
feet on approximately 7 acres of land. (Manta, Ecuador)
Woodworking plant housed in one wood building, 26,000 square feet on Owned
approximately 8 acres of land. (Quevedo, Ecuador)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Maintenance facilities for the Balsa Raw Material Department in a concrete and Owned
wood building, 16,875 square feet. (Quevedo, Ecuador)
Office space in concrete building, 8,489 square feet. (Guayaquil, Ecuador) Owned
Office space in concrete building, 1,000 square feet. (Croydon, U.K.). Leased
Office space in stone and wood building, 2,000 square feet. (Paris, France) Lease
</TABLE>
All of the above properties, except the shrimp farming land, hatchery
and packing plant and approximately 2,000 square feet of office space in
Northvale, New Jersey, are used in the core materials business.
All of the Company's properties, plants and equipment are considered to
be presently sufficient for their respective purposes.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no submission of matters to a vote of security holders during
the fourth quarter of 1999.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
under the Symbol: BTEK. The following is the range of high and low prices for
the last two years.
1999 1998
--------------------- --------------------
HIGH LOW HIGH LOW
1st Quarter $10.44 $8.00 $10.50 $7.63
2nd Quarter 10.00 7.63 12.00 8.75
3rd Quarter 10.00 7.75 10.81 8.53
4th Quarter 8.25 7.00 11.75 9.75
The Company had approximately 143 stockholders of record as of March 2,
2000.
No cash dividends were paid during the past two years.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts)
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 86,027 $ 67,695 $ 56,140 $ 48,366 $ 45,784
Net income 2,816 3,259 1,841 450 1,962
Earnings per common share 1.12 1.29 .73 .18 .78
Total assets 52,905 46,077 41,755 39,315 38,816
Long-term obligations 591 1,581 3,015 1,957 1,993
Cash dividends declared per common
share -- -- -- -- --
Average shares outstanding 2,523,261 2,523,261 2,523,261 2,523,261 2,523,261
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity historically have been and are
expected to continue to be cash flow generated from operations and available
borrowings under short-term lines of credit. The Company increased its borrowing
capacity under its domestic line of credit to $12.5 million in 1999. The Company
also continues to have lines of credit in Ecuador and Europe totaling
approximately $4.7 million. Working capital and borrowing requirements increased
in 1999 and are expected to continue to increase as a result of the Company's
expanded operations as a seafood importer as well as organic growth in its core
material business. Capital expenditures are expected to be funded by a
combination of cash generated from operations and outside financing, if
necessary.
The Company's financial position remains strong. At December 31, 1999,
the Company had working capital of $14.8 million compared to $13.8 million at
December 31, 1998. Cash was provided and used in varying amounts during the
two-year period, principally as a result of changes in the elements of current
assets and current liabilities and in the amount of cash provided by net income.
Inventories and accounts receivable increased in 1999 due to the Company's
expansion into the seafood import business. The Company's short-term borrowings,
which were used to finance higher working capital requirements, also increased
in 1999.
Cash used in investing activities for the three-year period was due to
investments in balsa plantations, purchase of new equipment in addition to
replacement of old equipment and structural improvements of the shrimp ponds.
The Company has no material commitments for capital expenditures.
The Company had unused lines of credit of approximately $6.7 million
with a domestic bank, approximately $1.6 million with Ecuadorian banks and
approximately $0.7 million with European banks for working capital purposes. The
Company expects that future operations and its unused lines of credit will
provide sufficient resources to support its planned expansion and maintain its
favorable liquid position.
RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1999, 1998 AND 1997
Total sales increased 27%, 21% and 16% in 1999, 1998 and 1997,
respectively. The gains in all three years were due to increased core materials
and seafood sales.
Core material sales were $58,938,000, $53,600,000 and $44,004,000 in
1999, 1998 and 1997, respectively. The continued robust economy has resulted in
strong demand in all industries that use core materials, including the Company's
largest customer group, the boating industry. Many of the Company's end user
markets, including boating, are highly cyclical. Demand within those industries
is dependent upon, among other factors, discretionary income, inflation,
interest rates and consumer confidence. Fluctuating interest rates and other
changes in economic conditions make it difficult to forecast short or long range
trends. The increase in core material sales in 1999 compared to 1998 was
attributable to higher pricing and volume.
Seafood sales were $27,089,000, $14,095,000 and $12,136,000 in 1999,
1998 and 1997, respectively. The increase in 1999 was the result of sales of
<PAGE>
seafood products from the Company's import business, which began in the first
quarter. The increases in 1998 and 1997 were the result of higher volume of
shrimp shipped.
The overall gross margin as a percentage of sales decreased in 1999 and
increased in 1998 and 1997. The typical margin in the seafood import business is
lower than the company's historical margins realized as a core materials
producer/distributor and shrimp producer. The overall margin was therefore
expected to decline in 1999 as a result of the Company's importing activities.
The margin for the Company's core products remained approximately the same in
1999 after increasing in 1998 and 1997. The margins primarily improved due to
improved pricing. The margins from shrimp sales decreased in 1999, 1998 and
1997. A virus, commonly called "White Spot" disease, has affected shrimp farms
in South America and other parts of the world. This disease has resulted in
lower revenues in 1999 because of 1) lower production at the Company's farms and
2) the Company is harvesting its production earlier (smaller sizes sell for less
per pound than larger sizes). There has also been increased volatility in shrimp
prices in 1999 as compared to 1998. Lower revenues have resulted in a lower
gross margin for 1999 as compared to 1998. The Company is taking all possible
steps to mitigate the effect of this disease on its farms, but since other farms
in South America are effected, no determination can be made as to its longevity
and effect on shrimp prices in the marketplace. The gross margin from shrimp
sales decreased in 1998 and 1997. The decrease in margins in 1998 and 1997 is
attributable to a higher volume of shrimp purchased from outside suppliers,
which have lower margins than shrimp grown at the Company's own farms.
Selling, general and administrative expenses as a percentage of sales
declined in 1999, 1998 and 1997. The seafood import business, which began during
the first quarter of 1999, has a lower percentage of S,G&A expenses to revenues
as compared to the Company's historical relationship. This, as expected, reduced
S,G&A expenses as a percentage of sales. The decline in all years, but primarily
1998 and 1997, was due to a better absorption of fixed expenses, primarily
general and administrative expenses, as a result of increased sales.
Sales and expenses were affected in all three years by the different
exchange rates applied in translating the books of accounts of the Company's
foreign subsidiaries.
Interest expense decreased in 1999 after increasing in 1998 and 1997.
In 1999, the Company's short-term borrowings for working capital purposes in
Ecuador were primarily U.S. dollar denominated loans. Sucre-based loans were
available on a limited basis during much of 1999. In 1998, the Company borrowed
money for working capital purposes in Ecuador in local currency (sucre)
denominated loans. The sucre-based loans bear higher interest rates than U.S.
dollar loans, which was partially offset by gains resulting from the devaluation
of the sucre. This practice increased interest expense in 1998 as compared to
1997 but created a corresponding foreign exchange gain. The Company's interest
rate on U.S. loans was lower in 1999 and its average borrowings were
significantly higher in 1999 as compared to 1998. The level of borrowing in all
periods is related to the Company's working capital needs and cash flows
generated from operations.
The Company had a foreign exchange loss of $336,000 in 1999 compared to
a gain in 1998 of $814,000 and a loss of $84,000 in 1997. Gains were lower in
1999 due mainly to the Company's shift from sucre based to dollar denominated
loans described above. Translation gains and losses are mainly caused by the
relationship of the U.S. dollar to the foreign currencies in the countries where
the Company operates, and arise when translating foreign currency balance sheets
into U.S. dollars. The Company utilizes foreign exchange contracts to hedge
certain inventory purchases and may also employ certain strategies whose
objective is to reduce earnings and cash flow volatility associated with foreign
exchange rate changes. The Company has not and does not intend to enter into
foreign currency transactions for speculative purposes.
<PAGE>
Management is unable to forecast the impact of translation gains or losses on
future periods due to the unpredictability in the fluctuation of foreign
exchange.
The effective income tax rate amounted to 32% in 1999, 26% in 1998 and
28% in 1997. Reconciliation of the effective rate with the U.S. statutory rate
is detailed in Note 8 to the Notes to Consolidated Financial Statements.
Year 2000
The Company experienced no major problems with its internal information
technology ("IT") systems and non-IT systems, nor did it experience any problems
with critical suppliers, customers and other third parties the Company utilizes
for various processing functions. The costs of Year 2000 compliance did not have
a material effect on its financial position or results of operations. There can
be no assurance, however, that the Company or its' suppliers may not face future
problems as a result of Year 2000 issues.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which was
amended by SFAS No. 137. The statement establishes accounting and reporting
standards for derivative instruments and hedging activities and requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. Provisions of the statement
are required to be adopted for years beginning after June 15, 2000. The Company
is currently evaluating the impact of this statement on its financial position
and results of operations.
* * * * *
Forward Looking Statements - Cautionary Factors
The foregoing discussion and analysis contains forward-looking
statements regarding the Company. Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, economic
conditions in the United States, Europe and Ecuador that affect relative
interest rates, foreign exchange rates and other costs and prices related to the
Company's business.
<PAGE>
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in
commodity prices, foreign currency fluctuations and interest rates. To manage
the volatility associated with foreign currency purchases of materials created
in the normal course of business, the Company enters into a limited number of
derivative hedging transactions. Gains and losses related to qualifying hedges
of foreign currency firm commitments are deferred and included in the basis of
the underlying transactions. The deferred gains and losses on these instruments
at December 31, 1999 were not material. The Company does not hold or issue
derivative financial instruments for speculative purposes.
In addition, in order to hedge currency exposures related to the net
investments in foreign subsidiaries, the Company utilizes local currency and
U.S. dollar denominated financing entered into by the subsidiaries. The Company
manages interest rate cost relating to these financings by using variable
interest rates. Although the use of variable interest rate bearing debt
instruments has the potential for market risk, the Company's overall interest
rate exposure as of and during the year ended December 31, 1999 would not be
materially affected by a near-term change in interest rates.
For quantitative disclosure regarding the Company's derivative
instruments see Note 12 to the Consolidated Financial Statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant and
subsidiaries, and supplemental schedule are annexed hereto and made part hereof.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted from this Report since a definitive Proxy Statement, pursuant
to Regulation 14A containing the required information, will be filed with the
Commission not later than 120 days after the close of registrant's fiscal year.
Item 11. EXECUTIVE COMPENSATION
Omitted from this Report since a definitive Proxy Statement, pursuant
to Regulation 14A containing the required information, will be filed with the
Commission not later than 120 days after the close of registrant's fiscal year.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Omitted from this Report since a definitive Proxy Statement, pursuant
to Regulation 14A containing the required information, will be filed with the
Commission not later than 120 days after the close of registrant's fiscal year.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Inapplicable.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) and (2) Consolidated Financial
Statements and Financial
Statement Schedule See Index
to Consolidated Financial
Statements and Financial
Statement Schedule annexed
hereto and made part hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were
filed by or on behalf of the
registrant for the quarter
ended December 31, 1999, the
last quarter in the period
covered by this Annual Report
on Form 10-K.
(c) List of Exhibits
Exhibit No. Item
3.2 Articles of Incorporation
(By-laws), filed as Exhibit
3.2 to Registration Statement
on Form S-1(Reg. No. 2-44764)
is incorporated herein by
reference
10.1 Revolving Loan and Security
Agreement between the Company
and Summit Bank, dated
December 21, 1999 *
21 Subsidiaries of Registrant *
27 Financial Data Schedule *
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALTEK CORPORATION
Registrant
By /s/ Jacques Kohn
-----------------
Jacques Kohn,
President
Director
By /s/ Ronald Tassello
-------------------
Ronald Tassello,
Controller (Principal
Financial Officer and
Principal Accounting
Officer)
Dated: March 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
By /s/ Jacques Kohn By /s/ Benson J. Zeikowitz
----------------- -----------------------
Jacques Kohn, Benson J. Zeikowitz
Director Director
By /s/ Margot W. Kohn By /s/ William F. Nicklin
------------------- ----------------------
Margot W. Kohn, William F. Nicklin
Director Director
By /s/ Henri-Armand Kohn By /s/ Jean J. Kohn
---------------------- ----------------
Henri-Armand Kohn, Jean J. Kohn
Director Director
By /s/ Bernard J. Wald
--------------------
Bernard J. Wald
Director
Dated March 22, 2000
REVOLVING LOAN AND SECURITY AGREEMENT
THIS REVOLVING LOAN AND SECURITY AGREEMENT is dated as of December 21,
1999, and is by and among BALTEK CORPORATION, a Delaware corporation having its
principal executive offices at 10 Fairway Court, Northvale, New Jersey 07647
("Baltek") and CRUSTACEA CORPORATION,a Delaware corporation having its principal
executive offices at 106 Stonehurst Court, Northvale, New Jersey 07647
("Crustacea") (each a "Borrower" and collectively the "Borrowers") and SUMMIT
BANK, a banking institution of the State of New Jersey having an office located
at 250 Moore Street, Hackensack, New Jersey 07602 (the "Bank").
W I T N E S S E T H
WHEREAS, the Borrowers and the Bank desire to enter into this Revolving
Loan and Security Agreement in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and mutual agreement
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
I. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following words
and terms shall have the following meanings:
"Account Debtor" shall mean a Person obligated under or with respect to
an Account Receivable.
"Accounts Receivable" shall mean, in addition to the definition of the
term "accounts" contained in the Code, any and all obligations of any kind at
any time due and/or owing to Borrowers (including any such obligation that might
be characterized or classified under the Code as accounts, contract rights,
chattel paper, general intangibles or otherwise), and all rights of Borrowers to
receive payment or any other consideration whether arising from goods sold or
leased by the Borrowers or services rendered or otherwise, whether or not such
right has been earned by performance, whether secured or unsecured, including
without limitation, invoices, contract rights, accounts receivable, notes,
drafts, acceptances, instruments, refunds, including tax refunds, all Contracts,
and all other debts, obligations and liabilities in whatever form owing to
Borrowers from any person, firm, governmental authority, corporation or any
other entity, all security and guaranties therefor, all of the Borrowers'
rights, in, to and under all purchase orders heretofore, now or hereafter,
received by the Borrowers for goods or services, and all Borrowers' rights to
goods sold (whether delivered, undelivered, in transit or returned), which may
be represented thereby, including all of Borrowers' rights as an unpaid vendor
or lienor, including stoppage in transit, replevin and reclamation, whether now
existing or hereafter arising, and all books, records, ledger cards and other
tangible and intangible property pertaining to same (including printed copies of
<PAGE>
all computerized data, electronic machine-readable media of such data, and
software owned or licensed (to the extent it can be freely assigned) by
Borrowers.
"Advances" shall have the meaning ascribed to such term in Section 2.1
hereof.
"Agreement" shall mean this Revolving Loan and Security Agreement,
together with any and all exhibits, schedules, amendments or supplements hereto.
"Bank" shall mean Summit Bank, a banking institution of the State of
New Jersey.
"Bank Costs" shall mean all taxes and insurance premiums of every kind
and nature of the Borrowers paid by the Bank; all filing, recording,
publication, and search fees incurred in connection with and relating to the
Borrowers paid by the Bank; all reasonable out-of-pocket costs incurred and sums
expended by the Bank, with or without suit, to correct any default, to make
advances of principal and interest or payments to prior secured parties, to
enforce any right or remedy of the Bank, or in connection with any other
provision of any Loan Document, including without limitation, any reasonable
out-of-pocket costs incurred by the Bank with respect to any other lender in
connection with the Loan Documents and the transactions contemplated thereby;
all reasonable out-of-pocket costs incurred and sums expended in gaining
possession of, inspection of, maintaining, handling, reserving, repairing,
renovating, storing, shipping, finishing, selling, preparing for sale, and
advertising to sell the Collateral, whether or not a sale is consummated;
reasonable out-of-pocket costs of using, operating, controlling and managing the
Collateral, including but not limited to rental and licensing costs; reasonable
out-of-pocket costs of collecting and receiving rent, income, revenue, earnings,
issues and profits of the Collateral; reasonable out-of-pocket costs of suit
incurred by the Bank in enforcing or defending this Agreement or any other Loan
Document or any portion thereof; all reasonable out-of-pocket costs and expenses
including reasonable attorneys' fees and expenses incurred by the Bank in
preparing, reviewing, enforcing, amending, modifying, administering, defending
or otherwise concerning this Agreement or any other Loan Document or any portion
hereof or thereof; and whether or not suit is brought, all reasonable
out-of-pocket costs of arbitration and insolvency proceedings. Except as
otherwise provided herein, Bank costs shall not include any costs or expenses
incurred by the Bank which (i) arise in connection with the compliance by the
Bank with any directive, order or request of any federal or state regulatory
agency or authority; and (ii) are not the result of, or caused by, whether
directly or indirectly, in whole or in part, any action or inaction on the part
of the Borrowers or any Guarantor.
"Base Rate" shall mean the rate of interest announced from time to time
by the Bank as its "base rate" or "base lending rate". This rate of interest is
determined from time to time by the Bank as a means of pricing some loans to its
customers and is neither tied to any external rate of interest or index nor does
it necessarily reflect the lowest rate of interest actually charged by the Bank
to any particular class or category of customers of the Bank.
"Base Rate Loans" collectively means that portion of the loan earning
interest at the Base Rate minus three-quarters of one percent (3/4 of 1%).
"Borrowers" shall mean Baltek Corporation and Crustacea Corporation;
"Borrower" means each of the Borrowers individually.
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other day
on which banks are authorized or required to be closed in the State of New
Jersey, and with respect to LIBOR Based Rate Loans, a day on which dealings in
U.S. Dollars may be carried on by the Bank in the London interbank eurodollar
market.
"Code" shall mean the Uniform Commercial Code as in effect in the State
of New Jersey.
"Collateral" shall have the meaning ascribed to such term in Section
3.1 hereof.
"Collateral Proceeds Account" shall have the meaning ascribed to such
term in Section 3.2 hereof.
"Commitment" means the commitment of the Bank to make loans to the
Borrowers in the maximum aggregate amount of $12,500,000.00 in accordance with
this Agreement.
"Contracts" shall mean all contracts, instruments, undertakings,
documents or other agreements with respect to the Collateral in or under which
the Borrowers may now or hereafter have any right, title or interest.
"Default" shall mean any of the events specified in Article VII hereof,
which, with the passage of time or giving of notice or both, would constitute an
Event of Default.
"Event of Default" shall mean any of the events specified in Article
VII hereof, provided that any requirement for notice or lapse of time or any
other condition has been satisfied.
GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.
"Guarantors" shall mean Balsa Ecuador Lumber Corporation, a New
Jersey corporation, Balsa Development Corporation, a New Jersey corporation,
Sanlam Corporation, a New York corporation, Cryogenic Structures Corporation, a
Delaware corporation, and each new subsidiary of Baltek and Crustacea organized
under any federal or state laws of the United States in the future (each a
"Guarantor").
"Guaranty Agreement" shall mean that certain Guaranty Agreement dated
the date hereof from the Guarantors in favor of the Bank.
"Indebtedness" shall mean (i)all items (other than capital stock,
capital surplus and retained earnings) which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet as at the date on which Indebtedness is to be determined and (ii)
whether or not so reflected, all indebtedness, obligations and liabilities,
whether unsecured or secured by any Lien, and all capitalized lease obligations.
"Inventory" shall mean "inventory" as such term is defined in the Code,
and shall include, without limitation, all goods and other personal property of
the Borrowers, held for sale or lease, or furnished or to be furnished under
contracts for services, sale or lease, including all goods returned or reclaimed
<PAGE>
from customers, and all raw materials, work in process and materials owned by
the Borrowers and used or consumed or to be used or consumed in its business, or
in the processing, packaging or shipping of the same, and all finished goods and
all assets of a type classified as Inventory as reflected, in accordance with
GAAP, on the financial statements of the Borrowers, whether now owned or
hereafter acquired or in which the Borrowers now have or hereafter may acquire
any right, title or interest, and wherever located, whether in transit or
otherwise.
"LIBOR Based Rate" means the LIBOR Rate plus 150 basis points.
"LIBOR Based Rate Loans" collectively means that portion of the Loan
bearing interest at the LIBOR Based Rate.
"LIBOR Rate" means the rate of interest for deposits in U.S. Dollars
for a maturity equal to the Interest Period therefor which appears on Telerate
Page 3750 as of 11:00 a.m., London time, on the date that is two Business Days
prior to the commencement of such Interest Period. If such rate does not appear
on Telerate Page 3750, the rate utilized shall be the rate which appears, or if
two or more such rates appear, the average (rounded upward, if necessary, to the
next 1/16 of 1%) of the rates which appear, on the Reuters Screen LIBO Page as
of 11:00 a.m., London time, on the date that is two Business Days prior to the
commencement of such Interest Period.
"Lien" shall mean (a) any lien, judicial lien, assignment, charge,
conditional sale or other title retention agreement, hypothecation, mortgage,
pledge, or other security interest, encumbrance or title retention agreement of
any kind, whether legal or equitable, in respect of any property of a Person, or
upon the income, rents or profits therefrom; (b) any arrangement, express or
implied, under which any property of a Person is transferred, sequestered or
otherwise identified for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to the payment
of the general unsecured creditors of such Person; (c) any Indebtedness for
wages or Indebtedness arising for any other reason which is unpaid more than 30
days after the same shall have become due and payable and which, if unpaid,
might by Section 507 of the Bankruptcy Code or any other law (whether or not the
events or condition (other than the existence of such Indebtedness or the
initiation of legal proceedings available generally to unsecured creditors) set
forth in such law, have occurred or been satisfied) be given any priority
whatsoever over general unsecured creditors of such Person; and (d) the filing
of, or any agreement to give, any financing statement under the Code or its
equivalent of any jurisdiction.
"Loan Documents" shall collectively mean this Agreement, the Note, the
Guaranty Agreement, any Letter of Credit Agreement, together with all
amendments, supplements, extensions or modifications thereof or replacements
therefor, and all other agreements, documents, instruments and certificates
executed and delivered to the Bank in connection therewith.
"Maturity Date" shall mean September 30, 2000.
"Note" shall have the meaning ascribed to such term in Section 2
hereof.
"Notice Of Conversion Or Continuation" shall have the meaning ascribed
to such term in Section 2.1(A) hereof.
<PAGE>
"Obligations" means all indebtedness, obligations and liabilities of
Borrowers to Bank of every kind and description, direct or indirect, secured or
unsecured, joint or several, absolute or contingent, due or to become due,
including any overdrafts, whether for payment or performance, now existing or
hereafter arising, whether presently contemplated or not, regardless of how the
same arise, or by what instrument, agreement or book account they may be
evidenced, or whether evidenced by any instrument, agreement or book account,
including, but not limited to all loans (including any loan by modification,
renewal or extension), all indebtedness including any arising from any
derivative transactions, all undertakings to take or refrain from taking any
action, all indebtedness, liabilities or obligations owing from Borrowers to
others which Bank may have obtained by purchase, negotiation, discount,
assignment or otherwise; and all interests, taxes, fees, charges, expenses and
attorney's fees (whether or not such attorney is a regularly salaried employee
of Bank, any parent corporation or any subsidiary or affiliate thereof, whether
now existing or hereafter created) chargeable to Borrowers or incurred by Bank
under this Agreement, or any other document or instrument delivered in
connection herewith or therewith.
"Permitted Indebtedness" shall mean:
(i) Indebtedness owing to the Bank;
(ii) Indebtedness incurred in favor of trade creditors and in
the ordinary course of business and not more than 90 days overdue (unless a
longer period is consistent with accepted trade practice provided that such
longer period shall not exceed 120 days or unless being contested in good faith
and by appropriate proceedings promptly initiated and diligently conducted, but
only as long as foreclosure, distraint, sale or other similar proceedings shall
not have been commenced and such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been provided therefor);
(iii) Indebtedness in respect of taxes, assessments, governmental
charges, worker's compensation, levies and claims for labor, materials, supplies
and rentals to the extent otherwise permitted under this Agreement to remain
unpaid and undischarged;
(iv) Indebtedness existing on the date hereof and fully described on
Schedule I attached hereto;
(v) Indebtedness incurred in the ordinary course of business with
respect to the purchase by the Borrowers of trucks, cars, machinery, equipment
or computers (including capitalized lease obligations associated with the
acquisition of any such assets), provided that the amount of any such
Indebtedness does not exceed the purchase price of the asset acquired and
provided further that the aggregate amount of all such Indebtedness in any
fiscal year does not exceed $375,000.00.
"Permitted Liens" shall mean:
(i) any Lien in favor of the Bank;
(ii) Liens that exist on the date hereof and are set forth in
Schedule II attached hereto;
(iii) Liens for taxes, assessments or governmental charges or
levies not yet due or which are delinquent and which are being contested in good
faith and by appropriate proceedings promptly initiated and diligently conducted
for which reserves have been established in accordance with GAAP with respect
thereto and as to which foreclosure, distraint, sale or other similar
proceedings shall not have been commenced;
<PAGE>
(iv) carriers', warehousemens', mechanics', materialmens',
repairmens', or other like Liens arising in the ordinary course of business
which are not overdue or which are being contested in good faith and by
appropriate proceedings promptly initiated and diligently conducted for which
reserves have been established in accordance with GAAP with respect thereto and
as to which foreclosure, distraint, sale or other similar proceedings shall not
have been commenced;
(v) pledges or deposits in connection with workers' compensation,
workers' compensation insurance, unemployment insurance and other social
security legislation;
(vi) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(vii) Liens created by or existing from any litigation or legal
proceeding; provided that the execution or other enforcement of such Liens is
effectively stayed, the claims secured thereby are being actively contested in
good faith by appropriate proceedings, adequate book reserves have been
established in accordance with GAAP with respect thereto and no Default or Event
of Default arises or is created as a result thereof; and
(viii) Liens arising in connection with the Indebtedness described in
paragraph (v) of the definition of Permitted Indebtedness, provided that such
Liens only encumber the assets acquired with the proceeds of such Indebtedness.
"Person" shall mean any individual, corporation, partnership,
association, joint stock company, trust, unincorporated organization, joint
venture, court or government or political subdivision or agency thereof.
"Proceeds" and "Products" shall have the meaning ascribed to such terms
in the Code and shall include in any event (i) whatever is received upon any
collection, exchange, sale or other disposition or refinancing of any of the
Collateral and any property into which any of the Collateral is converted,
whether cash or non-cash proceeds; (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to the Borrowers from time to time with
respect to any of the Collateral; (iii) any and all payments (in any form
whatsoever) made or due and payable to the Borrowers from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any Person acting under color of governmental
authority); and (iv) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"Tangible Net Worth" as of any date shall mean the excess of the assets
(excluding amounts due from affiliated or related parties) of the Borrowers over
its liabilities, all as determined in accordance with GAAP, but excluding from
such assets all items that would be considered "intangible assets" under GAAP
and the amount of any write-up or re-evaluation of any asset.
1.2 The words "hereof", "herein", and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
<PAGE>
II. REVOLVING LOAN
2.1 Advances. From time to time, during the period from the date hereof
until the Maturity Date, in the manner hereinafter set forth, the Borrowers may
borrow from the Bank and, upon request of the Borrowers and upon the terms and
conditions contained herein, the Bank shall lend to the Borrowers a sum or sums
(the "Advances") which, when added to the outstanding principal amount of the
Advances theretofore made pursuant to this Agreement, will not exceed in the
aggregate at any time the principal amount of $12,500,000.00.
2.2 Procedure for Advances. Subject to the terms and conditions set
forth herein, the Borrowers may borrow, pay or prepay and reborrow from the Bank
under this Agreement. Each Advance shall be made upon telephonic request from
the Borrowers to the Bank specifying the proposed date of such borrowing and the
principal amount thereof (which notice shall be received by the Bank prior to
12:00 p.m. with respect to any Advance to be made on the same date). On the date
of each such Advance, upon fulfillment of the conditions precedent set forth
herein, the Bank shall make available to the Borrowers the amount of such
Advance by transferring such funds to the Borrowers' account maintained at the
Bank.
(A) The Borrowers shall have the option (i) to convert at any
time all or any part of its Base Rate Loans to LIBOR Based Rate Loans or (ii)
upon the expiration of any Interest Period applicable to a LIBOR Based Rate
Loan, to continue all or any portion thereof as a LIBOR Based Rate Loan or to
convert all or any portion thereof to a Base Rate Loan. In order to effect any
of the foregoing, the Borrower shall deliver a notice of conversion or
continuation (the "Notice Of Conversion Or Continuation") to the Bank not later
than 12:00 p.m. New York City time (i) at least three Business Days prior to the
requested conversion or continuation date with respect to the conversion to or
continuation of a LIBOR Based Rate Loan or (ii) on the same Business Day of the
proposed conversion in the case of a conversion of a LIBOR Based Rate Loan to a
Base Rate Loan. A Notice Of Conversion Or Continuation shall specify (i) the
proposed conversion/continuation date, which shall be a Business Day, (ii) the
amount of the Advance which is to be converted or continued, (iii) the nature of
the proposed conversion or continuation and (iv) in the case of a conversion to
or a continuation of a LIBOR Based Rate Loan, the requested Interest Period. In
the event the Bank does not receive a Notice Of Conversion Or Continuation in
accordance with the provisions hereof with respect to a LIBOR Based Rate Loan,
upon the expiration of the Interest Period applicable thereto, the same shall
automatically be converted to a Base Rate Loan. Notwithstanding the provisions
of this Section 2.2(A) hereof, (i) each LIBOR Based Rate Loan shall be in the
minimum amount of $250,000.00 or integral multiples of $10,000.00 in excess
thereof and (ii) if an Event of Default exists hereunder, the Borrower shall not
be entitled to request or convert Base Rate Loans to LIBOR Based Rate Loans.
(B) Except as provided in Section 2.6 and 2.8 hereof, the
outstanding daily principal balance of the Note representing LIBOR Based Rate
Loans shall bear interest for the Interest Periods applicable thereto at a rate
per annum equal to the LIBOR Based Rate and the outstanding daily principal
balance of the Note representing Base Rate Loans shall bear interest at a
floating rate per annum equal to the Base Rate minus three-quarters of one
percent (3/4 of 1%) or, upon the occurrence of an Event of Default, such higher
rate as provided in the Note. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. The rate of interest on that
portion of the outstanding principal amount of the Note representing Base Rate
Loans shall be adjusted automatically as of the opening of business on each day
<PAGE>
on which any change in the Base Rate is announced by the Bank at its principal
office. As used herein, "Interest Period" shall mean either 30, 60 or 90 days,
as designated by the Borrower in its request for an Advance or Notice Of
Conversion Or Continuation, with respect to each LIBOR Based Rate Loan;
provided, however, that (i) if an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period 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 next preceding Business Day
subject to clause (iii) below; (ii) interest shall accrue from and including the
first day of each Interest Period to, but excluding, the day on which any
Interest Period expires; (iii) with respect to any Interest Period which 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), the Interest Period shall end on the last Business Day of a calendar
month and (iv) no Interest Period shall extend beyond the Maturity Date.
2.3 Note. The indebtedness of the Borrowers to the Bank with respect to
the Advances made from time to time hereunder shall be evidenced by a revolving
credit note (the "Note"), made payable to the Bank, dated the date hereof,
signed by the Borrowers and delivered to the Bank. All Advances made by the Bank
to the Borrowers shall be noted by the Bank on the reverse side or last page of
the Note as indicated thereon, and the Bank is authorized to make such notations
which shall be prima facia evidence of the principal amount outstanding
thereunder at any time, provided, however, that any failure to make such a
notation (or any errors in notation) shall not limit or otherwise affect the
obligation of the Borrowers hereunder or under the Note, which is and shall
remain absolute and unconditional.
2.4 Letters of Credit. Subject to the terms hereof, Advances under the
Note may be, if requested by the Borrowers, in the form of payments by the Bank
pursuant to the terms of Standby Letters of Credit or Commercial Letters of
Credit for Borrowers, (the "Letter of Credit"). In the event the Borrowers
desire to obtain an Advance in the form of a Letter of Credit the Borrowers
shall (i) provide the Bank with at least one (1) Business Day's prior written
notice, (ii) complete, execute and deliver to the Bank such applications,
agreements, resolutions and/or certificates as required by the Bank, (iii) pay
to the Bank with respect to Standby Letters of Credit, any fees and expenses as
required by the Bank in connection with such Letters of Credit, and (iv) take
such other actions as required by the Bank. The term of any Standby Letter of
Credit shall not exceed one year. The maximum aggregate amount available to be
drawn plus unreimbursed drawings under the terms of Standby Letters of Credit
shall not exceed the sum of $1,000,000.00. Notwithstanding anything contained
herein to the contrary (i) no Letter of Credit shall have an expiration date
after the Maturity Date and (ii) the maximum aggregate amount of all Letters of
Credit outstanding hereunder shall not exceed $1,000,000.00.
(1) Reimbursement. Upon a drawing with respect to any Letter
of Credit, the Borrowers shall be irrevocably and unconditionally obligated
forthwith without presentment, demand, protest or other formalities of any kind,
to reimburse Bank for any amounts paid with respect to a Letter of Credit. The
Borrowers hereby authorize and direct Bank, at the Bank's option, to debit the
Borrowers' account in the amount of any payment made with respect to any Letter
of Credit.
(2) Obligations Absolute. The obligation of Borrowers to
reimburse Bank for payments made under, and other amounts payable in connection
with, any Letter of Credit shall be unconditional and irrevocable and shall be
paid strictly in accordance with the terms of this Agreement, including, without
limitation, the following circumstances:
<PAGE>
(A) any lack of validity or enforceability of any
Letter of Credit or any agreement;
(B) the existence of any claim, set-off, defense or
other right which any Borrower, any of its affiliates, the Bank, on the one
hand, may at any time have against any beneficiary or transferee of any Letter
of Credit (or any Persons for whom any such transferee may be acting), or any
other Person, on the other hand, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrowers or any of its affiliates and the
beneficiary of the Letter of Credit);
(C) any draft, demand, certificate or any other
document presented under any Letter of Credit is alleged to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect;
(D) payment under a Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit; provided that, in the case of
any payment by Bank under any Letter of Credit, the Bank has not acted with
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction) in determining that the demand for payment under such Letter of
Credit complies on its face with any applicable requirements for a demand under
such Letter of Credit.
(E) any other circumstance or happening whatsoever,
which is similar to any of the foregoing; or
(F) the fact that a Default or an Event of Default
shall have occurred and be continuing.
(3) Nature of Bank's Duties. The Borrower assumes all risks of
the acts and omissions of, or misuse of any Letter of Credit by the beneficiary
thereof. In furtherance and not in limitation of the foregoing, the Bank shall
not be responsible: (i) for the form, validity, accuracy, genuineness or legal
effect of any document by any party in connection with the application for and
issuance of any Letter of Credit, even if it should in fact prove to be in any
or all respects invalid, inaccurate, fraudulent or forged; (ii) for the validity
or sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason; (iii) for failure of the beneficiary of any Letter
of Credit to comply fully with conditions required in order to demand payment
thereunder; provided that, in the case of any payment by the Bank under any
Letter of Credit, the Bank has not acted with gross negligence or willful
misconduct (as determined by a court of competent jurisdiction) in determining
that the demand for payment under such Letter of Credit complies on its face
with any applicable requirements for a demand for payment thereunder; (iv) for
errors omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they are
in cipher; (v) for errors in interpretation or technical terms; (vi) for any
loss or delay in the transmission or otherwise of any document required in order
to make a payment under any Letter of Credit; (vii) for the credit of the
proceeds of any drawing under any Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of the Bank as the case may
<PAGE>
be. None of the above shall affect, impair or prevent the vesting of the Bank's
rights or powers hereunder.
(4) Liability. In furtherance and extension of and not in
limitation of, the specific provisions herein above set forth, any action taken
or omitted by the Bank under or in connection with any Letter of Credit, if
taken or omitted in good faith and provided that the Bank has not acted with
gross (not mere) negligence or willful misconduct (as determined by a court of
competent jurisdiction in a final non-appealable judgment), shall not put Bank
under any resulting liability to any Borrower or any other Person.
2.5 Interest Rate. The Note shall bear interest from the date thereof
on the outstanding daily principal amount thereof, which interest shall be
payable on the dates provided for therein, at a fluctuating rate per annum equal
to the Base Rate minus three quarters of one percent (3/4 of 1%) or at the LIBOR
Based Rate as the case may be. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. The rate of interest on the
Note for Based Rate Loans shall be adjusted automatically as of the opening of
business on each day on which any change in the Base Rate is announced by the
Bank at its principal office.
2.6 Alternate Interest Rate. If within one Business Day of any date
that the Borrowers request a LIBOR Based Rate Loan, the Bank shall determine in
its sole discretion that it is unable to quote the requested LIBOR Based Rate or
that it is unable or impossible to fund the requested LIBOR Based Rate Loan for
the Interest Period requested, the Bank shall promptly notify the Borrower of
such determination and no LIBOR Based Rate Loan shall be made by the Bank on the
borrowing date and/or no Base Rate Loan shall be converted to a LIBOR Based Rate
Loan, as applicable. Upon receipt of such notification, the Borrowers may
withdraw any outstanding request for a LIBOR Based Rate Loan by giving written
notice of withdrawal to the Bank prior to such borrowing date. Unless withdrawn
in accordance with this Section 2.6, any outstanding request for such LIBOR
Based Rate Loan shall be deemed to be a request for a Base Rate Loan in equal
principal amount, and such Base Rate Loan shall be made on such borrowing date.
2.7 Indemnification For LIBOR Based Rate Loans. Except as provided in
Section 2.6 hereof, each request for a LIBOR Based Rate Loan shall be
irrevocable and binding upon the Borrower. The Borrowers hereby agree to
indemnify the Bank, upon demand by the Bank at any time, against any and all
actual losses (including any actual loss of profit), costs or expenses which the
Bank may at any time or from time to time sustain or incur as a consequence of:
(a) any breach by the Borrower of its obligation to borrow on the borrowing date
specified in any request for a LIBOR Based Rate Loan, (b) any failure by the
Borrowers to pay punctually on the due date thereof, any amount payable by the
Borrowers to the Bank on LIBOR Based Rate Loans, (c) the acceleration of the
time of payment of any of the Borrowers' obligations in respect of LIBOR Based
Rate Loans in accordance with Article VI of the Loan Agreement, (d) the
repayment or prepayment of the principal of any of the LIBOR Based Rate Loans on
a date other than the end of the applicable Interest Period or (e) the
conversion of a LIBOR Based Rate Loan to a Base Rate Loan on a date other than
the end of the applicable Interest Period. Such losses, costs or expenses shall
include, without limitation, (i) any costs incurred by the Bank in carrying
funds which were to have been borrowed by the Borrowers or in advancing funds to
cover any overdue principal, overdue interest or any other overdue sums payable
by the Borrowers to the Bank in respect of LIBOR Based Rate Loans, (ii) any
interest payable by the Bank to the lenders of the funds referred to in the
immediately preceding clause (i), and (iii) any actual losses (including any
<PAGE>
actual loss of profit) incurred or sustained by the Bank in liquidating or
re-employing funds acquired from third parties to make any of the LIBOR Based
Rate Loans or to fund or maintain all or any part of the principal of any of the
LIBOR Based Rate Loans.
2.8 Changes in Circumstances. If at any time the Bank shall, in the
exercise of its reasonable discretion, determine that:
(a) the Bank is unable to obtain funds in the principal amount
specified in any request for a LIBOR Based Rate Loan for periods equal to the
specified Interest Period;
(b) the LIBOR Based Rate does not or will not accurately
reflect the cost to the Bank of obtaining or maintaining any LIBOR Based Rate
Loan during any Interest Period despite the Borrowers' compliance with its
obligations under Section 2.9 hereof; or
(c) any change in applicable law or regulation (or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof) has made or will make it unlawful for
the Bank to make or maintain any LIBOR Based Rate Loan or to comply with any of
the Bank's obligations in respect of any LIBOR Based Rate Loan;
then, in each case, the Bank may promptly give notice of such determination and
the reasons therefor to the Borrowers. Upon such notification, the Bank's
obligations to make LIBOR Based Rate Loans shall be suspended until the Bank
determines that the circumstances described in subparagraphs (a), (b) and (c) of
this Section 2.8 have ceased to exist. Following the Bank's notice under
subparagraphs (b) or (c) of this Section 2.8, all outstanding LIBOR Based Rate
Loans shall be converted to Base Rate Loans at the end of the applicable
Interest Period; provided, however, that if it shall be unlawful for the
conversion of such LIBOR Based Rate Loans to Base Rate Loans to be effective as
of the end of the applicable Interest Period, such conversion shall be deemed to
occur as of the date of such notice by the Bank.
2.9 Additional Costs and Expenses. The Borrowers recognize that the
cost to the Bank of making or maintaining LIBOR Based Rate Loans or any portion
thereof may fluctuate, and the Borrowers agree to pay to the Bank, within ten
days after written demand, an additional amount or amounts as the Bank shall
reasonably determine will compensate the Bank for additional costs incurred by
the Bank in maintaining LIBOR Based Rate Loans or any portion thereof as a
result of:
(a) the imposition after the date of any LIBOR Based Rate Loan
of, or changes after the date of any LIBOR Based Rate Loan in, the reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
of the United States, including, but not limited to, any reserve on Eurocurrency
Liabilities (as defined in Regulation D of the Board of Governors of the Federal
Reserve System of the United States) at the ratios provided in such Regulation
from time to time, it being agreed that the portion or portions of the Note
bearing interest at LIBOR Based Rates shall be deemed to constitute Eurocurrency
Liabilities, as defined by the such Regulation, and it being further agreed that
such Eurocurrency Liabilities shall be deemed to be subject to such reserve
requirements without benefit of, or credit for, prorations, exceptions or
offsets that may be available to the Bank or from time to time under such
regulations and irrespective of whether the Bank actually maintains all or any
portion of the reserve;
<PAGE>
(b) any change, after the date of LIBOR Based Rate Loan, in
any applicable laws, rules or regulations or in the interpretation or
administration thereof by any domestic or foreign governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) or by any domestic or foreign court changing the basis of taxation
of payments to the Bank of the principal of or interest on any LIBOR Based Rate
Loan or any other payments made hereunder (other than taxes imposed on all or
any portion of the overall net income of the Bank), or imposing, modifying or
applying any reserve, special deposit or similar requirement against assets of,
deposits with or for the account of, credit extended by, or any other
acquisition of funds for loans by the Bank, or imposing on the Bank or on the
London Interbank market any other condition affecting this Agreement or the
portion or portions of the Note bearing interest at LIBOR Based Rates so as to
increase the cost to the Bank of making or maintaining LIBOR Based Rate Loans or
to reduce the amount of any sum received or receivable by the Bank under the
Note (whether of principal, interest or otherwise); or
(c) if after the date of any LIBOR Based Rate Loan, the Bank
shall have determined that the applicability of any law, rule, regulation or
guideline adopted or arising out of the July 1988 report of the Basle Committee
on Banking Regulations and Supervisory Practices entitled "International
Convergence of Capital Measurement and Capital Standards", or the adoption after
the date hereof of any other law, rule, regulation or guideline regarding
capital adequacy, or any change therein, or any change in any of the foregoing
or in the interpretation or administration of any of the foregoing by any
domestic or foreign governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's capital as a consequence of the Bank's obligations with respect to the
Advances or under the Note or this Agreement, to a level below that which the
Bank could have achieved but for such adoption, change or compliance (taking
into consideration the Bank's policies with respect to capital adequacy).
Any amount or amounts payable by the Borrower to the Bank in
accordance with the provisions of this Section 2.9 shall be paid within ten (10)
days of receipt by the Borrowers from the Bank of a statement setting forth the
amount or amounts due and the basis for the determination from time to time of
such amount or amounts. Failure on the part of the Bank to demand compensation
for any increased costs in any Interest Period shall not constitute a waiver of
the Bank's right to demand compensation for any increased costs incurred during
any such Interest Period or in any other or subsequent or prior Interest Period.
2.10 Optional Prepayments. The Borrowers shall have the right to
prepay, in whole or in part and without premium or penalty, the Note at any time
and from time to time. Each optional prepayment hereunder shall be applied by
the Bank to the Advances made hereunder in such order as the Bank shall
determine in its sole discretion.
2.11 Mandatory Prepayment. If at any time and for whatever reason the
aggregate outstanding principal amount of Advances hereunder exceeds
$12,500,000.00, such excess, together with accrued interest thereon, shall be
due and payable by the Borrowers upon receipt by the Borrowers of notice thereof
from the Bank.
2.12 Method of Payment. The Borrowers shall make each payment to be
made by it hereunder and under the Note (including, without limitation, all
<PAGE>
principal, interest and option and mandatory prepayments), without set-off or
counterclaim, not later than 3:00 p.m. (New York City time) on the day when due
in lawful money of the United States of America and in immediately available
funds to the Bank at its principal office set forth on the first page of this
Agreement.
2.13 Business Day. Whenever any payment hereunder or under the Note
shall be stated as due on any day other than a Business Day, the maturity of
such payment shall be extended to the next succeeding Business Day and interest
and all other fees shall accrue during such extension.
2.14 Maturity Date. All amounts outstanding under the Note and this
Agreement, shall be immediately due and payable on the Maturity Date, without
any requirement of notice or otherwise. Notwithstanding the foregoing, the Bank
may, but shall have no obligation to, extend or renew this Agreement and the
Note upon such terms and provisions as shall be agreeable by the parties hereto.
The Borrowers acknowledge that the Bank shall have no obligation or
responsibility to extend or renew this Agreement and the Note regardless of the
financial condition or results of operations of the Borrowers.
2.15 Charge. Without in any way limiting any right of offset,
counterclaim or banker's lien which the Bank may otherwise have at law, the
Borrowers hereby irrevocably authorize and direct the Bank to charge against
the Borrowers' account or accounts at the Bank an amount or amounts as are due
and payable hereunder to the Bank from time to time.
2.16 Operating Account. The Borrowers shall maintain their main
operating accounts with the Bank, which shall be charged automatically by the
Bank on a monthly basis for payments due under the Note.
2.17 Fees.
(a) The Borrowers shall pay the Bank on the date hereof, in
immediately available funds, a fee (the "Closing Fee") of $15,625.00;
(b) The Borrowers agree to pay to the Bank, in arrears (i) on
the last day of January, April and July 2000 and (ii) on the Maturity Date, in
immediately available funds, a fee (the "Unused Line Fee") of 1/8 of 1% per
annum on the average daily unused amount of the Commitment during the quarter
(or similar period commencing with the date hereof or ending with the Maturity
Date) ending on such date. The purpose of calculating such average daily unused
amount on any date of determination, each Advance made on such date shall be
considered a use of Bank's Commitment. The Unused Line Fee shall be calculated
on the basis of the actual number of days elapsed in a year of 360 days.
III. SECURITY INTEREST
-----------------
3.1 Grant of Security Interest.
(a) As collateral security for the prompt and complete payment
and performance when due (whether at the stated maturity, by acceleration or
otherwise) of all Obligations and in order to induce the Bank to enter into this
Agreement and, among other things, make the Advances to the Borrowers as
provided herein, the Borrowers hereby mortgage, pledge, hypothecate, transfer
and grant to the Bank a security interest in and lien on all of the Borrowers'
<PAGE>
right, title and interest in and to the following, whether now owned or
hereafter acquired (all of which being hereinafter collectively called the
"Collateral"):
(i) all Accounts Receivable;
(ii) all Inventory;
(iii) the Collateral Proceeds Account;
(iv) any and all moneys or notes of any kind of the
Borrowers, now or hereafter held or received by or in transit to the Bank from
or for the Borrowers (including, without limitation, all moneys held or
deposited in any lock box maintained at any office of the Bank), or which may
now or hereafter be in the possession of the Bank, or as to which the Bank may
now or hereafter be in the control or possession of, by documents of title or
otherwise, whether for safekeeping, custody, pledge, transmission, collection or
otherwise, and any and all deposits, general or special, balances, sums,
proceeds and credits of the Borrowers, and all rights and remedies which the
Borrowers might exercise with respect to any of the foregoing but for this
Agreement;
(v) all Proceeds and Products of the foregoing.
(b) All Collateral heretofore, herein or hereafter given or
granted to the Bank by the Borrowers shall secure payment of all of the
Obligations. The Bank shall be under no obligation to proceed against any or all
of the Collateral before proceeding directly against the Borrowers or any
Guarantor.
(c) In addition to the security interest of the Bank in the
Collateral as herein provided, all of the Obligations shall be secured by the
Guaranty Agreement, in accordance with the respective terms and provisions set
forth therein.
3.2 Rights of the Bank; Limitations on Bank's Obligations.
(a) It is expressly agreed by the Borrowers that, anything
herein to the contrary notwithstanding, the Borrowers shall remain liable under
each Contract to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with and pursuant to
the terms and provisions of each such Contract. The Bank shall not have any
obligation or liability under any Contract by reason of or arising out of this
Agreement or the receipt by the Bank of any payment relating to any Contract
pursuant hereto, nor shall the Bank be required or obligated in any manner to
perform or fulfill any of the obligations of the Borrowers under or pursuant to
any Contract, or to make any payment, or to make any inquiry as to the nature or
the sufficiency of any payment received by it or the sufficiency of any
performance by any party under any Contract, or to present or file any claim, or
to take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
(b) Each Borrower is authorized to collect amounts owing it
with respect to the Collateral, provided that the Bank may, following an Event
of Default, upon written notice to the Borrowers curtail or terminate said
authority. If required by the Bank, following the occurrence of an Event of
Default, any Proceeds, when collected by the Borrowers, whether consisting of
checks, notes, drafts, bills of exchange, money orders, commercial paper of any
<PAGE>
kind whatsoever, or other documents, received as payment in respect of any
Collateral shall be promptly deposited by the Borrowers in precisely the form
received, except for its endorsement when required, in a special bank account
maintained by the Bank (the "Collateral Proceeds Account"), subject to
withdrawal as hereinafter provided, and until so turned over, shall be deemed to
be held in trust by the Borrowers for and as the Bank's property and shall not
be commingled with the Borrowers' other funds. Such Proceeds, when deposited,
shall continue to be Collateral for all of the obligations and shall not
constitute payment thereof until applied as hereinafter provided. If an Event of
Default shall have occurred and be continuing, the Bank shall, at such intervals
as it shall determine, apply all or any part of the funds on deposit in the
Collateral Proceeds Account on account of the principal of and/or interest on
the Obligations, the order and method of such application to be determined by
the Bank in its sole discretion.
(c) The Bank may, following the occurrence of an Event of
Default, notify Account Debtors to the effect that the Accounts Receivable have
been assigned to the Bank and that payments shall be made directly to the
Collateral Proceeds Account or as the Bank shall otherwise direct. Upon the
request of the Bank at any time following the occurrence of an Event of Default,
the Borrowers will so notify such Account Debtors and will indicate on all bills
that payments shall be made directly to the Collateral Proceeds Account or as
the Bank shall otherwise direct. The Bank may in its own name or in the name of
others communicate with Account Debtors in order to verify with them to the
Bank's satisfaction the existence, amount and terms of any Accounts Receivable.
(d) The Bank shall have the right to make test verifications
of the Accounts Receivable in any manner and through any medium that it
considers advisable, and the Borrowers agree to pay the reasonable costs thereof
and to furnish all such assistance and information as the Bank may require in
connection therewith.
(e) At any time and from time to time upon request by the
Bank, the Borrowers shall forthwith endorse and deliver to the Bank all chattel
paper, notes and other instruments and negotiable documents in the possession of
the Borrowers.
IV. REPRESENTATIONS AND WARRANTIES.
-------------------------------
4. In order to induce the Bank to enter into this Agreement and, among
other things, make the Advances provided herein, the Borrowers hereby represent,
warrant and agree that:
4.1 Subsidiaries. Baltek has no subsidiaries with the exception of the
subsidiaries referred to in Baltek's consolidated financial statements provided
to the Bank.
4.2 Organization; Power; Qualification. Each Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) has the full power and authority to own and
operate its properties and assets and to carry on the business now conducted by
it; (iii) does not conduct business under any trade name or fictitious name; and
(iv) is qualified or authorized to do business and in good standing in all
<PAGE>
jurisdictions wherein the character of the property owned or the nature of the
business conducted by such Borrower makes such qualification or authorization
necessary, except such jurisdictions in which the lack of qualification or
authorization does not materially adversely affect the business, results of
operations or financial condition of such Borrower.
4.3 Authorization of Agreement. Each Borrower has full power and
authority to execute, deliver and perform any action which may be necessary or
advisable to carry out the terms of the Loan Documents; and each Loan Document
to which the Borrowers and is the legal, valid and binding obligation of the
Borrowers enforceable in accordance with its terms.
4.4 No Legal Bar. The execution, delivery and performance of the Loan
Documents will not (i) violate any provision of any existing law, statute, rule,
regulation or ordinance, (ii) conflict with, result in a breach of or constitute
a default under (a) the certificate of incorporation or by-laws of the
Borrowers, or (b) any order, judgment, award or decree of any court,
governmental authority, bureau or agency, or (c) any mortgage, lease, material
contract or other material agreement or undertaking to which the Borrowers are a
party or by which the Borrowers or any of its properties or assets may be bound;
and (iii) result in the creation or imposition of any Lien upon or with respect
to any property or asset now or hereafter acquired by the Borrowers other than
the Liens created by the Loan Documents.
4.5 Consent. No consent, license, permit, approval or authorization of,
exemption by, notice to, report to, or registration, filing or declaration with
any Person is required in connection with the execution, delivery, performance
or validity of the Loan Documents or the transactions contemplated thereby,
other than filing or recordation of the financing statements and like documents
in connection with the Liens being granted in favor of the Bank.
4.6 Compliance With Law. Each Borrower is not in violation of any
applicable law, rule, regulation, statute, ordinance, or any order, judgment,
award or decree of any court, governmental authority, bureau or agency, the
violation of which might have a materially adverse effect on the business,
assets, liabilities, financial condition, results of operation or business
prospects of said Borrowers.
4.7 Title to Properties and Assets; Liens. Except for Permitted Liens,
each Borrower has good, marketable and legal title to, or a valid leasehold
interest in, the properties and assets as reflected on the balance sheet of
Baltek as at September 30, 1999, delivered to the Bank except such properties or
assets as have been disposed of by the Borrowers subsequent to the date thereof
in the ordinary course of business. All of said properties and assets are in
good working order. The Borrowers do not own, or have any interest in, any real
property other than its leasehold interest set forth in Schedule II attached
hereto. Except for financing statements naming the Bank as secured party, or
with respect to Permitted Liens, no financing statement under the Code as in
effect in any jurisdiction which names either Borrower as debtor has been filed
in any jurisdiction, and the Borrowers have not signed any such financing
statement or any security agreement authorizing any secured party thereunder to
file any such financing statement in any such jurisdiction.
4.8 No Default. Neither Borrower is in default in any material respect
in the payment or performance of any of its obligations or in the performance of
any mortgage, indenture, lease, contract or other agreement or undertaking to
which it is a party or by which it or any of its properties or assets may be
<PAGE>
bound, and no Default or Event of Default has occurred and is continuing.
Neither Borrower is in default under any material order, award or decree of any
court, arbitrator, or governmental authority binding upon or affecting it or by
which any of its properties or assets may be bound or affected, and no such
order, award or decree, if any, materially adversely affects the ability of
either Borrower to carry on its business as presently conducted or, to perform
its obligations under the Loan Documents.
4.9 No Litigation. No litigation, investigation or proceeding of or
before any court, arbitrator or governmental authority is currently pending,
nor, to the knowledge of the Borrowers, threatened, against the Borrowers or any
of its properties and revenues, which, if adversely determined, would materially
adversely affect the business, operations, financial condition or results of
operations of the Borrowers.
4.10 No Burdensome Restrictions. Neither Borrower is a party to or is
bound by any contract or agreement or instrument nor subject to any restriction
materially and adversely affecting the business, operations, properties or
financial or other condition of said Borrower.
4.11 Tax Returns and Payments. All federal, state and other tax returns
of the Borrowers required by law to be filed have been duly filed or extensions
obtained, and all federal, state and other taxes, assessments and governmental
charges or levies upon the Borrowers or any of its properties, income, profits
or assets which are due and payable have been paid or provided for, except such
tax returns the non-filing of which, and such taxes the nonpayment of which,
would not have a material adverse effect upon the business, assets, liabilities,
financial condition, results of operation or business prospects of the Borrowers
and except for such taxes and assessments which the Borrowers are disputing in
good faith and for which the Borrowers have established adequate reserves on its
books for the payment of such disputed taxes or assessments in accordance with
GAAP.
4.12 Financial Statements. The Borrowers have furnished to the Bank
copies of the audited consolidated balance sheet of Baltek as at December 31,
1998, and the related audited consolidated statement of income, retained
earnings and changes in cash flows for the 12 months then ended, as certified by
Deloitte & Touche, LLP, independent certified public accountants. Such financial
statements fairly present the financial position and results of operations and
changes in cash flows of Baltek on the dates and for the periods then ended, in
accordance with GAAP, consistently applied throughout the periods involved and
show all direct liabilities and all known contingent liabilities of a material
nature of Baltek in accordance with GAAP, as well as consolidating statements
for Baltek with a separate column for Crustacea.
4.13 No Adverse Changes. Since December 31, 1998, no material adverse
change has occurred in the business, assets, liabilities, financial condition,
results of operations or business prospects of the Borrowers, and no event has
occurred or failed to occur which has had or is likely to have a material
adverse effect on the business, assets, liabilities, financial condition,
results of operations or business prospects of the Borrowers.
4.14 ERISA.
(a) Each Borrower is in compliance in all material respects
with the applicable provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and all regulations issued thereunder; and
<PAGE>
(b) No "employee benefit plan", as defined in Section 3 of
ERISA, maintained and administered by Borrowers, as from time to time in effect
(the "Plans"), nor any trusts created thereunder, nor any trustee or
administrator thereof, has engaged in a "prohibited transaction," as defined in
Section 4975 of the Internal Revenue Code of 1986, which could subject the
Borrowers, any Plan or any such trust, or any trustee or administrator thereof,
or any party dealing with any Plan or any such trust to the tax or penalty on
prohibited transactions imposed by said Section 4975. Neither any of the Plans
nor any such trusts have been terminated, nor has there been any "reportable
event," as defined in Section 4043 of ERISA, or "accumulated funding
deficiency." Borrowers have not incurred any liability to the Pension Benefit
Guaranty Corporation.
4.15 Federal Reserve Regulations; Use of Proceeds.
Each Borrower is not engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of purchasing or carrying
any margin stock (within the meaning of Regulations U and X of the Board of
Governors of the Federal Reserve System). No part of any of the Advances
hereunder shall be used to purchase or carry any such margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin
stock. All Advances hereunder shall be used for working capital purposes and
requirements of the Borrowers' operations in the United States.
4.16 Collateral.
(a) Each Borrower is (or, in the case of after acquired property, will
be) the sole owner of each item of Collateral and has good and marketable title
thereto, free and clear of any and all Liens except for Permitted Liens. No
amounts payable under or in connection with any of the Collateral are evidenced
by promissory notes, bonds, debentures, chattel paper or other instruments
(negotiable or non-negotiable) of any kind.
(b) No security agreement, financing statement, mortgage, deed of
trust, equivalent security or lien instrument or continuation statement covering
all or any part of the Collateral is on file or of record in any public office,
except for Permitted Liens.
(c) This Agreement constitutes a valid and continuing first lien on
and, upon the filing of a UCC-1 Financing Statement in the office of the
Secretary of State of New Jersey, a first perfected security interest in the
Collateral in favor of the Bank, prior to all other liens, encumbrances,
security interests and rights of others (except for Permitted liens), and is
enforceable as such or against creditors of and purchasers from the respective
Borrowers. All action necessary or desirable to protect and perfect such
security interest in each item of Collateral has been duly taken.
(d) Schedule II attached hereto sets forth the location of the
Borrowers' respective principal place of business which is the place where its
records concerning the Collateral are kept. Schedule II also sets forth the
various locations at which any Inventory may be found (except for items in
transit), including any Inventory which may be held on consignment or under any
field warehousing arrangement. Schedule II further sets forth whether any of
such locations are owned by the respective Borrowers or leased from any other
Person, and if leased, the name and address of the lessor thereunder.
(e) Each Account Receivable is a bona fide, valid and legally
enforceable obligation of the Account Debtor in respect thereof and does not
<PAGE>
represent a sale on consignment, sale or return, or other similar understanding.
Except as otherwise arising in the ordinary course of business, the right, title
and interest of the Borrowers in each Account Receivable is not subject to any
defense, offset, counterclaim, or other claim, nor have any of the foregoing
been asserted or alleged against the Borrowers as to any Account Receivable nor
will any of the foregoing, whether or not arising in the ordinary course of
business, have a material adverse effect on the business, financial condition or
results of operations of the Borrowers or the aggregate value of the Accounts
Receivable. The amount represented by the Borrowers to the Bank as owing by each
Account Debtor in respect of the Accounts Receivable is the correct amount
actually and unconditionally owing by such Account Debtor thereunder.
4.17 Accuracy and Completeness of Information. No document furnished or
statement made to the Bank in connection with the negotiation, preparation or
execution of the Loan Documents contains or will contain any untrue statement of
fact or omits or, will omit to state a material fact necessary in order to make
the statements contained therein not misleading. No fact is known to the
Borrowers which has had or may in the future have (so far as Borrowers can
reasonably foresee) a material adverse effect upon the Borrowers' business,
assets, liabilities, condition, financial or otherwise, or results of operations
that has not been set forth in the financial statements furnished to the Bank or
other reports or other papers or data otherwise disclosed in writing to the
Bank.
4.18 Year 2000 Compliance. To the best of Borrowers' knowledge, the
advent of the year 2000 shall not adversely affect the Borrowers' operations or
the performance of its information technology. Without limiting the generality
of the foregoing, (i) the hardware and sofware utilized by Borrowers are
designed to be used prior to, during, and after calendar year 2000 A.D. and such
hardware and software will operate during each such time period without error
relating to date data, specifically including any error relating to, or the
conduct of, date data which represents or references different centuries or more
than one century, (ii) the hardware and software utilized by Borrowers will not
abnormally end or provide invalid or incorrect results as a result of date data,
and (iii) the hardware and software utilized by Borrowers have been designed to
provide year 2000 A.D. compatibility, including date data, century recognition,
leap year, calculations which accommodate same century and multicentury formulas
and date values, and date data interface values that reflect the century.
V. COVENANTS
5. Each Borrower covenants and agrees that until all the Obligations
have been satisfied and paid in full, it will comply with the following
covenants:
5.1 Preservation of Existence. Each Borrower will do or cause to be
done all things reasonably necessary to preserve and maintain in full force and
affect its corporate existence and all contracts, rights, licenses, permits,
franchises and trade names which in its judgment are necessary or useful to the
proper conduct of its business and shall qualify and remain qualified as a
foreign corporation and authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization, except such jurisdictions in which the lack of
qualification or authorization does not materially adversely affect the
business, results of operations or financial condition of said Borrowers.
5.2 Nature of Business; Use of Proceeds. The Borrowers will continue to
<PAGE>
be engaged in the business of manufacturing and selling composite materials,
shrimp farming and importing seafood. NO part of any advances hereunder shall be
used to purchase or carry any margin stock (within the meaning of Regulations U
and X of the Board of Governors of the Federal Reserve System) or to extend
credit to others for the purpose of purchasing or carrying any such margin
stock. All advances hereunder shall be used for working capital purposes and the
requirements of the respective Borrower's operations in the United States.
5.3 Compliance with Laws. Each Borrower will comply with all laws,
ordinances, governmental rules and regulations to which it or its properties or
assets is, or might become subject (unless the same shall be contested by such
Borrowers in good faith and by appropriate proceedings and such contest shall
operate to stay any such non-compliance), the noncompliance with which might
materially interfere with the performance of its obligations under the Loan
Documents or with the proper conduct of its business.
5.4 Maintenance of Properties.Each Borrower will maintain or cause to
be maintained in working order and condition, ordinary wear and tear excepted,
all of its assets and properties which are material to the conduct of its
business, and from time to time, make or cause to be made all necessary repairs,
replacements, additions, betterments and improvements thereto, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
5.5 Accounting Methods. Each Borrower will maintain a system of
accounting established and administered in accordance with GAAP, keep adequate
records and books of account in which complete entries will be made in
accordance with GAAP, make provision in its accounts in accordance with GAAP for
reserves for depreciation, obsolescence and amortization and all other proper
reserves and accruals which in accordance with GAAP should be established.
5.6 Payment of Taxes and Claims. Each Borrower will pay and discharge
promptly (i) all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits or upon any of its properties or assets
before the same shall become delinquent, (ii) all bona fide claims of
materialmen, mechanics, carriers, warehousemen, landlords, and other similar
persons for labor, materials, supplies and rentals which, if unpaid, might by
law become a Lien or charge upon Collateral and (iii) all of its Indebtedness
and other obligations of whatever nature when due (subject, where applicable, to
grace periods, normal credit terms and to other forbearance in the ordinary
course of business); provided, however, that none of the foregoing need to be
paid while being contested in good faith and by appropriate proceedings.
5.7 Visits and Inspections; Audits. Each Borrower will permit the Bank
and its agents and representatives, at any time during normal business hours and
upon reasonable prior notice, to (i) visit and inspect the properties of said
Borrower, (ii) inspect and make extracts from the books and records of said
Borrower, and (iii) discuss with said Borrower's principal officers, employees
and independent public accountants any and all matters with respect to the
business, assets, liabilities, financial condition, results of operations and
business prospects of said Borrowers. Without limiting the generality of the
foregoing, the Bank shall be permitted to conduct periodic audits of the
Borrowers and their respective businesses and operations in accordance with the
Bank's normal and customary practices. The parties agree that the foregoing
audits and inspections may be conducted between the months of January and
September or at such other time or times as the parties may mutually agree.
5.8 Information Covenants. Baltek will furnish or cause to be furnished
---------------------
the following information to the Bank:
<PAGE>
As soon as practicable, and, in any case, within 90 days after the end
of each fiscal year an audited consolidated balance sheet of Baltek as at the
end of such fiscal year and the related statement of income, retained earnings
and changes in cash flow for such fiscal year, setting forth in comparable form
the figures as at the end of and for the previous fiscal year, certified by
independent certified public accountants satisfactory to the Bank by furnishing
copies of Baltek's l0Ks. As soon as practicable, and in any case within 45 days
of the end of each quarter, Baltek shall also furnish quarterly consolidating
balance sheets with the related statement of income, on such quarterly basis for
Baltek and Crustacea, certified by the chief financial officers of Baltek and
Crustacea, respectively. Baltek shall also furnish the Bank copies of its l0Qs
on such quarterly basis.
(ii) Certificate. At the time the financial statements are
furnished pursuant to subsection; above, the Borrowers shall also furnish a
certificate of the chief executive officer or chief financial officer of the
Borrowers stating that no event has occurred which constitutes a Default or an
Event of Default under any of the Loan Documents or if such an event has
occurred, disclosing each such event or failure and its nature, when it
occurred, whether it is continuing and the steps being taken by the Borrowers
with respect to such event or failure.
(iv) Notice of Litigation and Other Matters. Prompt notice
--------------------------------------
of:
(1) the commencement of any proceeding or
investigation by or before any governmental body and any action or proceeding in
any court or before any arbitrator against or in any other way relating
adversely to the Borrowers or any of its properties, assets or business, which,
if adversely determined, would singly or when aggregated with all other
proceedings, investigations or action, materially and adversely affect the
business of operations or financial condition of the Borrowers;
(2) any notice received from any
administrative official or agency relating to any order, ruling, statute or
other law or information which would materially and adversely affect the
operations of the Borrowers;
(3) any amendment of the certificate of
incorporation or by-laws of the Borrowers;
<PAGE>
(4) any material adverse change with respect
to the business, assets, liabilities financial condition or results of
operations of the Borrowers; and
(5) any Default or Event of Default by the
Borrowers hereunder or any default under any other material agreement to which
each Borrower is a party or by which any of its properties may be bound.
(v) ERISA.
-----
(a) As soon as possible, and in any event within 30
days after any executive officer of the Borrowers knows or has reason to know
that any reportable event (as defined in Section 4043 of ERISA) with respect to
any Plan has occurred, a statement of the chief financial officer setting forth
details as to such reportable event and the action that the Borrowers propose to
take with respect thereto, together with a copy of the notice of such reportable
event given to the Pension Benefit Guaranty Corporation.
(b) Promptly after receipt thereof, a copy of any
notice the Borrowers may receive from the Pension Benefit Guaranty Corporation
relating to the intention of said Corporation to terminate any Plan or to
appoint a trustee to administer any Plan.
5.9 Accuracy and Completeness of Information. The Borrowers covenant
that all information, reports, statements, and other papers and data furnished
to the Bank pursuant to any provision or term of any of the Loan documents shall
be, at the time the same is so furnished, complete and correct in all material
respects.
5.10 Insurance. The Borrowers shall maintain with financially sound and
reputable insurance companies insurance policies (i) insuring the Inventory
against loss by fire, explosion, theft and such other casualties as are usually
insured against by companies engaged in the same or similar businesses and (ii)
insuring the Borrowers and the Bank against liability for bodily injury and
property damage, such policies shall name the Bank as an additional insured and
shall be in such form and in such amounts and coverage as may be reasonably
satisfactory to the Bank. The Borrowers shall, if so requested by the Bank,
deliver to the Bank as often as the Bank may reasonably request a report of a
reputable insurance broker with respect to the insurance on the Collateral. All
insurance with respect to the Collateral shall (a) name the Bank as "loss
payee", (b) provide that no cancellation, reduction in amount or change in
coverage thereof shall be effective until at least ten days after receipt by the
<PAGE>
Bank of written notice thereof and (c) be reasonably satisfactory in all
material respects to the Bank. In addition, the Borrowers shall at all times
maintain expropriation insurance issued by Great Northern Insurance Company (or
other insurance carrier acceptable to the Bank) in the amount of not less than
$25,216,000.00 covering the direct and indirect interests of Baltek in the
securities, assets, business operations and prospects of its subsidiaries
operating directly or indirectly in Ecuador and the terms and conditions of such
insurance shall be reasonably satisfactory to the Bank.
The Borrowers shall give the Bank prompt notice of any and all
insurance claims made by the Borrowers with respect to the Inventory which are
in excess of $25,000.00 and are in dispute or unpaid unless such dispute is
resolved or such claim is paid within 30 days of the date of the claim. Provided
that (i) no Default or Event of Default exists hereunder and (ii) the amount of
insurance proceeds does not exceed $25,000.00, the Bank shall remit all
insurance proceeds to the Borrowers. If a Default or Event of Default exists
hereunder or if the amount of insurance proceeds exceed $25,000.00, the Bank
shall have the right to retain such proceeds as additional Collateral hereunder
or apply the same to the repayment of any amounts owing under the Note or
hereunder.
5.11 Indebtedness. The Borrowers will not create, assume, incur,
guarantee or in any manner become liable, contingently or otherwise, in respect
of any Indebtedness except for Permitted Indebtedness; provided, however, that
the foregoing provision shall not apply if, concurrently with the incurrence of
such Indebtedness, the proceeds thereof are applied to the complete satisfaction
and payment in full of all Obligations.
5.12 Liens. The Borrowers will not create, assume or incur or cause to
be created, assumed or incurred, or permit to exist, any Liens on its properties
or assets except for Permitted Liens, and the Borrowers will defend the right,
title and interest of the Bank in and to any of the Borrowers' rights to the
Collateral and in and to the Proceeds and Products thereof against the claims
and demands of all Persons whomsoever.
5.13 Sale of Assets; Merger.
----------------------
The Borrowers shall not (a) sell, transfer, assign, lease or
otherwise dispose of (whether in one transaction or a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
or (b) consolidate with or merge into any other corporation or permit any
corporation to merge into it, unless (i) such Borrower is the surviving entity
of such merger or consolidation, (ii) the Bank receives pro forma financial
<PAGE>
statements from an independent certified public accountant satisfactory to the
Bank to reflect such merger or consolidation, and such pro forma statements set
forth in a Tangible Net Worth of the Borrowers which equals or exceeds the
Tangible Net Worth of the Borrowers prior to such event, (iii) no Default or
Event of Default shall occur as a result of and after giving effect to such
event and (iv) the security interest of the Bank in the Collateral (and the
priority position of the Bank with respect thereto) shall not be affected,
diminished or impaired in any way.
5.14 Guarantees. The Borrowers shall not guarantee, endorse, become
surety for, or otherwise in any way become or be responsible for, the
obligations of any other Person whether by agreement to purchase the
indebtedness of any other Person,or agreement for the furnishing of funds,
directly or indirectly, for the purpose of payment of indebtedness of any other
Person, other than in connection with Permitted Indebtedness and endorsements of
negotiable instruments for deposit or collection in the ordinary course of its
business.
5.15 Collateral.
----------
(a) The Borrowers will keep and maintain at its own cost and
expense satisfactory and complete records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the Collateral. The
Borrowers will mark its books and records pertaining to the Collateral to
evidence the security interest therein granted hereby as the Bank may reasonably
request. For the Bank's further security, the Borrowers agree that the Bank
shall have a security interest in and a Lien upon all of the Borrowers' books
and records (including all computer programs, software, discs, drives, printouts
and similar items) pertaining to the Collateral, and if any Event of Default
shall have occurred and be continuing, the Borrowers shall promptly deliver and
turn over any such books and records, or copies thereof, to the Bank or its
representatives at any time upon demand.
(b) Except as otherwise permitted in Section 5.15(e), the
Borrowers will not sell, transfer, lease or otherwise dispose of any or all of
the Collateral, or attempt, offer or contract to do so, without the express
prior written consent of the Bank, except for sales or other dispositions or use
of Inventory in the ordinary course of business.
(c) The Borrowers will perform and comply in all material
respects with all obligations under all Contracts and all other material
agreements to which it is a party or by which it is bound relating to the
Collateral.
<PAGE>
(d) The Borrowers will not (i) amend, modify, terminate or
waive any provision of any material Contract in any manner which might
materially adversely affect the value of the Collateral, (ii) fail to exercise
promptly and diligently each and every material right which it may have under
each material Contract (other than any right of termination) or (iii) fail to
deliver to the Bank a copy of each material demand, notice or document received
by it relating in any way to any material Contract.
(e) Except as otherwise permitted by this Agreement, the
Borrowers will not grant any extension of the time of payment of any of the
Accounts Receivable, or compromise, compound or settle the same for less than
the full amount thereof, or release, wholly or partly, any person liable for the
payment thereof, or allow any credit or discount whatsoever thereon other than
any may be granted in the normal course of business.
(f) The Borrowers will furnish to the Bank, from time to time,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Bank may reasonably
request, all in reasonable detail.
(g) The Borrowers will immediately advise the Bank, in
complete detail, (i) of any Lien asserted or claim made against any of the
Collateral, (ii) of any material change in the composition of the Collateral,
and (iii) of the occurrence of any other event which would have a material
effect on the aggregate value of the Collateral or on the security interest
created hereunder.
(h) The Borrowers will not change its name, identity or
corporate structure in any manner which might make any financing or continuation
statement filed hereunder misleading, nor will the Borrowers change its
principal place of business, recordkeeping location or remove any of its books
and records or the Inventory to any location other than as set forth in Schedule
II hereto (except as otherwise permitted in Section 5.15(b) hereof) unless, in
each case, the Borrowers shall have given the Bank at least 30 days' prior
written notice thereof or shall have delivered to the Bank acknowledgment copies
of financing statements recording such change duly executed and duly filed in
each jurisdiction in which financing statements on Form UCC-1 are required to be
filed in order to perfect the security interest granted by this Agreement in the
Collateral and shall have taken all action necessary or reasonably requested by
the Bank to amend
<PAGE>
such financing statement or continuation statement so that it is not seriously
misleading.
5.16 Dividends. Any dividends issued by the Borrowers shall be limited
---------
to a maximum of current year Net Income of the respective Borrower.
5.17 Further Documentation. At any time and from time to time upon the
Bank's written request and at the Borrowers' sole expense, the Borrowers will
promptly and duly execute and deliver such further documents and instruments and
do such further acts and things as the Bank may reasonably request in order to
obtain the full benefits of this Agreement and the Loan documents and the rights
and powers herein and therein granted, including the filing of any financing or
continuation statements and amendments thereto under the Code in effect in any
jurisdiction and any and all other recording documents with respect to the Liens
and security interests granted to the Bank pursuant to the Loan Documents. The
Borrowers also hereby authorize the Bank to file any such financing or
continuation statement without the signature of the Borrowers to the extent
permitted by applicable law. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any promissory note or
other instrument, such note or other instrument shall be immediately pledged to
the Bank hereunder, duly endorsed in a manner satisfactory to the Bank and
delivered to the Bank.
5.18 Bank's Appointment as Attorney-in-Fact.
--------------------------------------
(a) The Borrowers hereby irrevocably constitute and appoint
the Bank, and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of the Borrowers and in the name of the Borrowers or in
its own name, from time to time in the Bank's reasonable discretion following
the occurrence and continuance of an Event of Default, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby gives the Bank the power and right, on behalf of the
Borrowers upon written notice to the Borrowers to do the following:
(i) upon the occurrence and continuance of an Event of
Default, to ask, demand, collect, receive and give acquittances and receipts for
any and all moneys due and to become due under or in connection with any
Collateral and, in the name of the Borrowers or its own name or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
<PAGE>
acceptances or other instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or proceeding in
any court of law or equity or otherwise deemed appropriate by the Bank for the
purpose of collecting any and all such moneys due under any Collateral whenever
payable; and
(ii) upon the occurrence and continuance or any Event of
Default (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due and to become due
thereunder directly to the Bank or as the Bank shall direct; (B) to receive,
open and dispose of all mail addressed to the Borrowers and to notify postal
authorities to change the address for delivery thereof to such address as may be
designated by the Bank; (C) to receive payment of and receipt for any and all
moneys, claims and other amounts due and to become due at any time in respect of
or arising out of any Collateral; (D) to sign and endorse and invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts and
other documents relating to the Collateral; (E) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral; (F) to defend any suit, action or
proceeding brought against the Borrowers with respect to any Collateral; (G) to
settle, compromise or adjust any suite, action or proceeding described above
and, in connection therewith, to give such discharges or releases as the Bank
may deem appropriate; and (H) generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Bank were the absolute owner thereof for all
purposes, and to do, at the Bank's option and the Borrowers' expense, at any
time or from time to time, all acts and things which the Bank deems necessary to
protect, preserve or realize upon the Collateral and the Bank's security
interest therein, in order to effect the intent of this Agreement, all as fully
and effectively as the Borrowers might do.
(b) The Borrowers hereby ratify all that said attorneys shall
lawfully do or cause to be done by virtue hereof. This power of attorney is a
power coupled with an interest and shall be irrevocable.
(c) The powers conferred on the Bank hereunder are solely to
protect the interests of the Bank in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Bank shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither
<PAGE>
it nor any of its officers, employees or agents shall be responsible
to the Borrowers for any act or failure to act, except for its gross negligence
or willful misconduct.
(d) The Borrowers also authorize the Bank at any time and from
time to time following an Event of Default (i) to communicate with Account
Debtors and any party to any Contract with regard to the assignment of Accounts
Receivable hereunder and other matters relating thereto and (ii) to execute any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
5.19 Performance by Bank of Borrowers' Obligations. If the Borrowers
fail to perform or comply with any of its agreements contained herein, and the
Bank, as provided for by the terms of this Agreement, shall perform or comply,
or otherwise cause performance or compliance, with such agreement, the expenses
of the Bank incurred in connection with such performance or compliance (together
with interest thereon at the rate of the Base Rate plus 5% per annum) shall be
payable by the Borrowers to the Bank on demand and shall constitute obligations
secured hereby.
5.20 Inter-Company Loans. The Borrowers shall not, on a long-term
basis, make any inter-company loans or downstream or transfer any funds (except
with respect to purchases and sales in the ordinary course of business) to any
domestic parent, affiliate, subsidiary or related entity. In addition, the
Borrowers shall not make any inter-company loans or downstream or transfer any
funds (except with respect to purchases and sales in the ordinary course of
business) to any foreign affiliate, subsidiary or related entity.
5.21 New Subsidiaries. Each of the Borrowers shall give the Bank
written notice of its intention, after the date herein, to create or acquire a
new subsidiary. Such notice shall be delivered within a reasonable period of
time prior to the effective date of such creation or acquisition. At the request
of the Bank, the Borrowers shall cause any new domestic subsidiary, on such
effective date, to become a Guarantor under this Agreement, and to create in
favor of the Bank, a valid and perfected first priority Lien on all of such new
domestic subsidiary's Accounts Receivable and Inventory, subject only to
Permitted Encumbrances.
5.22 Acquisitions. Each Borrower may purchase or acquire the capital
stock of, or all or substantially all of the assets of a business unit of, or
otherwise make an investment in or loan to a Person, or effect a merger,
consolidation or similar business combination with such Person (each a "Capital
Event"), provided
<PAGE>
that (i) the business of such Person is substantially related to the business of
the Borrowers, (ii) in the case of any such merger, consolidation or similar
business combination, the surviving entity is a Borrower or a subsidiary, (iii)
no Event of Default shall have occurred and be continuing at the time of the
proposed Capital Event, and no Event of Default shall occur after giving effect
to the consummation of such Capital Event, and (iv) the aggregate fair market
value of all consideration to be paid and all liabilities assumed by the
Borrowers in connection with the propsed Capital Event, together with the
aggregate fair market value of all cash consideration paid and all liabilities
assumed by the Borrowers in connection with the Capital Events consummated after
the Closing Date, shall not exceed $3,000,000.00 in the aggregate.
VI. CONDITIONS PRECEDENT
6.1 Conditions Precedent to Initial Advance. The obligation of the Bank
to make the initial Advance hereunder is subject to the condition precedent that
the Bank shall have received each and every one of the following on or before
the day of such Advance in form and substance satisfactory to the Bank:
(a) An originally executed copy of this Agreement and each of
the other Loan Documents, including but not limited to the Note, Guaranty
Agreements, UCC-1 Financing Statements and Landlord Waivers;
(b) A copy of the certificate of incorporation and bylaws of
the Borrowers, certified as a true copy of the Secretary or an Assistant
Secretary of the Borrowers;
(c) A good standing certificate with respect to the Borrowers
issued at a recent date by the Secretary of State of the State of New Jersey;
(d) A certificate of the Secretary or an Assistant Secretary
of the Borrowers certifying the names and true signatures of the officers of the
Borrowers authorized to sign each of the Loan Documents to which the Borrowers
is a party;
(e) A copy of the resolutions approved by the Board of
Directors of the Borrowers authorizing the execution, delivery and performance
by the Borrowers of each of the Loan Documents to which the Borrowers is a
party, certified as a true copy by the Secretary or an Assistant Secretary of
the Borrowers;
(f) A written opinion of counsel to the Borrowers;
<PAGE>
(g) Evidence reasonably satisfactory to the Bank that the
Inventory is properly insured in accordance with the provisions of this
Agreement and that the Collateral is not subject to any Lien other than
Permitted Liens;
(h) Evidence reasonably satisfactory to the Bank that all
filings, recordings and other actions that are necessary or desirable in order
to establish and perfect the Bank's security interest in the Collateral as a
valid perfected first priority security interest shall have been or shall be
duly effected, including, without limitation, the filing of financing
statements, the recordation of landlord and/or mortgagee waivers or disclaimers
and the filing or recordation of such other documents as the Bank shall deem
necessary or desirable, all in form and substance satisfactory to the Bank, and
all fees, taxes and other charges relating to such filings and recordings shall
have been paid by the Borrowers; and
(i) The expropriation insurance policy required by Section
5.10 herein;
(j) Such other documents and information as the Bank shall
reasonably request, in form and substance reasonably satisfactory to the Bank,
and all legal matters and documents with respect to the transactions
contemplated by this Agreement shall be satisfactory to counsel for the Bank.
6.2 Conditions Precedent to Additional Advances. The Bank shall have no
obligation to make any additional Advance subsequent to the initial Advance
unless each of the following conditions precedent has been either satisfied or
waived prior to or concurrently with the making of such Advance.
(a) Each of the Loan Documents shall be in full force and
effect.
(b) The representations and warranties of the Borrowers set
forth herein shall be true and correct as of the date of each Advance as if made
on and as of such date.
(c) No Default or Event of Default has occurred and is
continuing as of the date of each Advance.
(d) There is and has been no adverse change in Borrowers'
financial condition, results of operations or otherwise which would, in the
judgment of the Bank, impair the Borrowers' ability to repay all or any portion
of the Note or any Advance.
<PAGE>
(e) No further action, including any filing or recording of
any agreement, document or instrument, is necessary to establish and perfect the
Bank's lien and priority in the Collateral.
Each request for an Advance by the Borrowers shall be deemed a
representation and warranty by the Borrowers that each of the conditions
precedent set forth in Sections 6.2(a), (b), (c), (d) and (e) has been
satisfied, unless the Bank has waived satisfaction of any such condition in
writing prior to or concurrently with the making of such Advances, in which case
the representation and warranty of the Borrowers will not be deemed to extend to
that particular condition.
VII. EVENTS OF DEFAULT
-----------------
7. Each of the following shall constitute an Event of Default, whatever
the reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any governmental body.
7.1 The Borrowers fail to make any payment of principal, interest or
any other amount payable under the Note or hereunder when and as the same shall
become due and payable.
7.2 If any material warranty or representation made by or on behalf of
the Borrowers contained herein or in any of the Loan Documents or in any
document furnished in compliance or connection with the Loan Documents is false
or incorrect in any material respect when made and is continuing for 30 days
after written notice thereof to the Borrowers from the Bank.
7.3 (i) The Borrowers shall default in the performance or observance of
any covenant or agreement set forth in Section 5.1 through and including 5.22 or
(ii) the Borrowers shall default in the performance or observance of any other
covenant or agreement contained in this Agreement (which is not the subject of
Sections 7.1 above) and such default shall continue unremedied for 30 days after
written notice to the Borrowers from the Bank.
7.4 If any Event of Default shall occur under any of the other Loan
Documents (including the expiration of any grace periods provided herein).
7.5 The Borrowers shall (i) default in any payment of the principal of
or interest on any Indebtedness (other than the Loan) owing to the Bank beyond
the period of grace, if any, provided in the instrument or agreement under which
such
<PAGE>
Indebtedness was created, (ii) default in any payment of the principal of or
interest on any Indebtedness, which, whether individually or together with all
such other Indebtedness as to which a default has occurred, equals or exceeds
$100,000.00 (other than the Loan) beyond the period of grace, if any, provided
in the instrument or agreement under which such Indebtedness was created; or
(iii) default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur, the effect of which default or other event is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity and as the result of
such default or event such indebtedness has been accelerated and become due and
payable prior to its stated maturity.
7.6 (i) Either Borrower shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or either Borrower shall make a general
assignment for the benefit of its creditors; or (ii) there shall be commenced
against either Borrowers any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of a final order
not subject to appeal for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against either Borrower any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets, which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) either Borrower shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (i), (ii) or (iii) above.
7.7 A final judgment shall be entered against either Borrower by any
court for the payment of money which, together with all other outstanding
judgments against either Borrower exceeds $100,000.00 in the aggregate, which
judgment is not fully
<PAGE>
covered by insurance (without reservation), or a warrant of attachment or
execution of similar process shall be issued or levied against property of
either Borrower which together with other such property subject to other such
process, exceeds in value $100,000.00 in the aggregate and, if within 30 days
after the entry, issue or levy thereof, such judgment, warrant or process shall
not have been discharged or stayed pending appeal, or, if within 30 days after
the expiration of any such stay, such judgment, warrant or process
shall not have been discharged.
7.8 (i) A reportable event (as defined in Section 4043 (b) of Title IV
of ERISA) shall have occurred with respect to any "employee benefit plan" (as
defined in Section 3 of ERISA) maintained by either Borrower or to any
multi-employer plan in which either Borrower participates (collectively, the
"Benefit Plans") or any Benefit Plan of either Borrower shall have been
voluntarily terminated as provided in Section 4041(a) of ERISA and the
guaranteed, nonfunded, nonforfeitable benefits (as such terms are defined in
Section 4022 of ERISA) of any such Benefit Plan that has been voluntarily
terminated or with respect to which a reportable event has occurred, when
included in the financial statements of either Borrower on a pro form basis as a
current liability and as a deduction from net worth, would cause the Borrowers
to have a negative net worth; (ii) A trustee shall be appointed by a United
State District Court to administer any Benefit Plan; or (iii) the Pension
Benefit Guaranty Corporation shall institute proceedings to terminate any
Benefit Plan.
7.9 If either Borrower shall commence any action or step with respect
to, or shall approve any plan of, any liquidation or dissolution of the
Borrowers, unless provision is otherwise made for the payment in full of the
Obligations.
7.10 If Baltek does not deliver on or before April 30, 2000 a
landlord's waiver agreement and consent, in a form reasonably satisfactory to
the Bank, from the landlord of l08 Fairway Court, Northvale, New Jersey
extending landlord's waiver beyond May 30, 2000.
VIII. REMEDIES
--------
8.1 Upon the occurrence of an Event of Default set forth in Section
7.6, the Bank shall have no obligation to make any further Advance, and all
amounts outstanding (with accrued interest thereon) and all other amounts owing
under the Note and the other Loan Documents shall immediately become due and
payable without presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived by the Borrowers.
<PAGE>
8.2 Upon the occurrence of any other Event of Default, the Bank shall
have no obligation to make any further Advance and the Bank may declare all
amounts outstanding (with accrued interest thereon) and all other amounts owing
to it under the Note and the other Loan Documents to be due and payable
forthwith, whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers.
8.3 Upon the occurrence of any Event of Default:
(i) All payments received by the Borrowers under or in
connection with any of the Collateral shall be held by the Borrowers in trust
for the Bank, shall be segregated from other funds of the Borrowers and shall
forthwith upon receipt by the Borrowers be turned over to the Bank, in the same
form as received by the Borrowers (duly endorsed by the Borrowers to the Bank,
if required); and
(ii) Any and all such payments so received by the Bank
(whether from the Borrowers or otherwise) may, in the sole discretion of the
Bank, be held by the Bank as collateral security for, and/or then or at any time
thereafter applied in whole or in part by the Bank against, all or any part of
the Obligations in such order as the Bank shall determine in its sole
discretion. Any balance of such payments held by the Bank and remaining after
payment in full of all such Obligations shall be paid over to the Borrowers or,
if the Bank has knowledge that another Person is lawfully entitled to receive
the same, to such other Person.
8.4 If any Event of Default shall occur and be continuing, the Bank may
exercise, in addition to all other rights and remedies granted to it in this
Agreement and in any other Loan Document, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the Bank
may, without any requirement of notice, set off any and all amounts owing by the
Borrowers to it against any deposit account maintained in the Bank by the
Borrowers or any other property of the Borrowers which may now or hereafter be
in the Bank's possession or control, and such right of setoff shall be deemed to
have been exercised immediately upon such stated or accelerated maturity as
aforesaid even though such set off is not noted on the Bank's records until a
later time. Without limiting the generality of the foregoing, the Borrowers
expressly agree that in any such event the Bank, without demand of performance
or other demand, advertisement or notice of any kind to or upon the Borrowers or
any other Person (all and each of which demands, advertisements and/or notices
are hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or sell or otherwise dispose
of and deliver the Collateral (or contract to do so), or any part thereof, in
one or more parcels at public sale or sales, for cash or on credit or for future
delivery without assumption of any credit risk. The Bank shall have the right
upon any such public sale or sales, to the extent permitted by law, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Borrowers which shall be released. The Borrowers further
agree, at the Bank's request, to assemble the Collateral and make it available
to the Bank at places which the Bank shall reasonably select, whether at the
Borrowers' premises or elsewhere. The Bank shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses or every kind incurred therein or
incidental to the care, safekeeping or otherwise of any or all of the Collateral
or in any way relating to the rights of the Bank hereunder, including reasonable
attorneys' fees and legal expenses, to the Bank for payment in whole or in part
<PAGE>
of the Obligations, in such order as hereinafter provided, the Borrowers
remaining liable for any deficiency remaining unpaid after such application, and
only after paying over such net proceeds and after the payment by the Bank of
any other amount required by any provision of law, need the Bank account for the
surplus, if any, to the Borrowers. To the extent permitted by applicable law,
and, provided, the Bank shall have acted in good faith, the Borrowers waive all
claims, damages and demands against the Bank arising out of the repossession,
retention or sale of the Collateral. Subject to the notice provisions otherwise
contained in this Agreement, the Borrowers agree that the Bank need not give
more than 10 days' notice (which notification shall be deemed given when mailed,
postage prepaid, addressed to the Borrowers at its address set forth in Section
10.1 hereof) of the time and place of any public sale or of the time after which
a private sale may take place and that such notice is reasonable notification of
such matters. The Borrowers shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
all amounts to which the Bank is entitled, the Borrowers also being liable for
the reasonable fees of any attorneys employed by the Bank to collect such
deficiency.
8.5 The Borrowers also agree to pay all Bank Costs incurred with
respect to the collection of any of the Obligations and the enforcement of any
of the Bank's rights hereunder.
8.6 The Borrowers hereby waive (i) presentment, demand, protest or any
notice (to the extent permitted by applicable law) of any kind in connection
with this Agreement or any Collateral,
<PAGE>
except as otherwise provided herein, (ii) all rights to seek from any court any
bond or security prior to the exercise by the Bank of any remedy described
herein, (iii) the benefit of all valuation, appraisement and exemption laws and
(iv) all rights to demand or to have any marshalling of assets upon any power of
sale granted herein or pursuant to judicial proceedings or upon any foreclosure
or any enforcement of this Agreement.
8.7 Without limiting the generality of any of the rights and remedies
conferred upon the Bank in this Agreement, the Bank may, after the occurrence of
an Event of Default and to the full extent permitted by applicable law: (i) take
immediate possession of the Collateral, either personally or by means of a
receiver appointed by a court of competent jurisdiction; (ii) at the Bank's
option, use, operate, manage and control the Collateral in any lawful manner;
(iii) collect and receive all rents, income, revenue, earnings, issues and
profits therefrom; and (iv) maintain, repair, renovate, alter or remove the
Collateral as the Bank may determine in its sole discretion.
IX. INDEMNIFICATION
---------------
9.1 Indemnification. The Borrowers agree to pay, reimburse, indemnify
and hold harmless, the Bank, its directors, officers, employees, agents and
representatives from and against any and all actions, costs, damages,
disbursements, expenses (including attorneys' fees), judgments, liabilities,
losses, obligations, penalties and suits of any kind or nature whatsoever with
respect to:
(i) the enforcement, of any of the Loan Documents;
(ii) the lawful exercise of any right or remedy granted in any
of the Loan Documents, the collection or enforcement of any of the Obligations
and the proof of allowability of any claim arising under any of the Loan
Documents, whether in any bankruptcy or receivership proceeding or otherwise;
(iii) any claim of third parties, and the prosecution or
defense thereof, arising out of or in any way connected with any of the Loan
Documents; and
(iv) any and all recording and filing fees and taxes, and any
and all liabilities with respect thereto, or resulting from any delay in paying
stamp and other taxes, if any, which may be payable or determined to be payable
in connection with the Loan Documents.
<PAGE>
X. MISCELLANEOUS
-------------
10.1 Notice. All notices and other communications
------
given to or made upon any party hereto in connection with this
Agreement shall, except as otherwise expressly herein provided, be in writing
(including telexed or telegraphic communication) and mailed (by first class,
United States mail, postage prepaid) telexed, telegraphed and delivered to the
respective parties, as follows:
Bank: Summit Bank
250 Moore Street
Hackensack, New Jersey 07601
Attn: Richard H. Mady, Vice President
- with a copy to -
Harwood Lloyd
130 Main Street
Hackensack, New Jersey 07601
Attn: Richard W. LeBlancq, Esq.
Borrowers: Baltek Corporation
10 Fairway Court
Northvale, New Jersey 07647
Attn: Ronald Tassello
and
Crustacea Corporation
10 Fairway Court
Northvale, New Jersey 07647
Attn: Ronald Tassello
- with a copy to -
Herzfeld & Rubin, P.C.
40 Wall Street
New York, New York 10005
Attn: Bernard J. Wald, Esq.
or to such changed address as may be fixed by notice. All such notices and other
communications shall, except as otherwise expressly herein provided, be
effective when received by the party to whom properly addressed, the written
receipt by any employee of any such party constituting sufficient evidence of
such receipt, in the case of telex or telecopy, when received, and in the case
of telegraph, when delivered to the telegraph company, charge prepaid.
10.2 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Bank, any right, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any right's and remedies provided by law.
<PAGE>
10.3 Survival of Agreements. All agreements, representations and
warranties made herein, and in any certificates delivered pursuant hereto shall
survive the execution and delivery of this Agreement and the Note and the making
of any Advances.
10.4 Amendment. No modification, amendment or waiver of any provision
of this Agreement or Note, nor consent to any departure by the Borrowers shall
in any event be effective unless the same shall be in writing and signed by the
party granting such modification, amendment or waiver, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
10.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Bank, all future holders of the Note
and their respective successors and assigns, except that the Borrowers may not
assign or transfer any of its rights under this Agreement without the prior
written consent of the Bank.
10.6 Severability. In case any one or more of the provisions contained
in this Agreement or the Note should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby.
10.7 Counterparts. This Agreement may be executed by the parties hereto
on any number of separate counterparts and all such counterparts taken together
shall constitute one and the same instrument.
10.8 Governing Law; No Third Party Rights. This Agreement and the Note
and the rights and obligations of the parties hereunder and thereunder shall be
governed by and construed and interpreted in accordance with the law of the
State of New Jersey. This Agreement is solely for the benefit of the parties
hereto and their respective successors and assigns, and no other person shall
have any right, benefit, priority or interest in, under or because of the
existence of, this Agreement.
10.9 Waiver of Jury Trial. THE BORROWERS HEREBY WAIVE THEIR RIGHTS TO A
<PAGE>
TRIAL BY JURY IN CONNECTION WITH ANY AND ALL LITIGATION INVOLVING THE SUBJECT
MATTER OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
10.10 Joint and Several. Notwithstanding anything contained herein to
the contrary, the representations, warranties and covenants of the Borrowers
contained in this Agreement, and in the other Loan Documents to which the
Borrowers are a party are joint and several, including but not limited to the
Borrowers' obligations to make payments hereunder and thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ATTEST: BALTEK CORPORATION
By:___________________________ By:_____________________________
Name:
Title:
ATTEST: CRUSTACEA CORPORATION
By:___________________________ By:_____________________________
Name:
Title:
SUMMIT BANK
By:____________________________
RICHARD H. MADY
Vice President
<PAGE>
Schedules
To
Revolving Loan and Security Agreement
by and among
Baltek Corporation and Crustacea Corporation
and
Summit Bank
Schedule I - Permitted Indebtedness
Schedule II - Offices and Locations of Inventory
<PAGE>
SCHEDULE I - PERMITTED INDEBTEDNESS
- - Toyota Leases
- - Fixed asset financing previously disclosed by the Borrowers to the Bank.
- - Capital Lease of l0 Fairway Court, Northvale, New Jersey.
<PAGE>
SCHEDULE II - OFFICES AND LOCATION OF INVENTORY
1. 10 Fairway Court
Northvale, New Jersey
2. l08 Fairway Court
Northvale, New Jersey
3. l06 Stonehurst Court
Northvale, New Jersey
4. 495 Walnut Street
Norwood, New Jersey
5. 536 Fayette Street
Perth Amboy, New Jersey
EXHIBIT 21
BALTEK CORPORATION AND SUBSIDIARIES
Subsidiaries of Registrant
December 31, 1999
Voting
Where Securities
Incorporated Owned
------------ -----
Balmanta S.A. (2) Ecuador 100%
Compania Ecuatoriana de Balsa, S.A. Ecuador 100%
Maderas Secas C.A. (2) Ecuador 100%
Marines C.A.(6) Ecuador 100%
Plantaciones De Balsa, S.A. (3) Ecuador 100%
Productos del Pacifico, S.A. Ecuador 100%
Recorcholis,S.A. (8) Ecuador 100%
Servicios Contables, S.A. (5) Ecuador 100%
Balsa Ecuador Lumber Corporation New Jersey 100%
Balsa Development Corporation New Jersey 100%
Sanlam Corporation New York 100%
Baltek Foreign Sales Corporation U.S. Virgin Islands
100%
Crustacea Corporation Delaware 100%
Cryogenic Structures Corporation Delaware 94% (1)
<PAGE>
EXHIBIT 21
(Continued)
BALTEK CORPORATION AND SUBSIDIARIES
Subsidiaries of Registrant
December 31, 1999
Voting
Where Securities
Incorporated Owned
------------ -----
Pacific Timber Ltd. (4) Great Britain 100% (1)
Baltek GmbH Germany 100% (1)
Baltek, S.A. France 100% (1)
Baltek, Ltd. Great Britain 100% (1)
Baltek Scandinavia Aps (7) Denmark 100% (1)
(1) Includes qualifying shares in the names of individuals associated with the
Company.
(2) Wholly-owned by Productos del Pacifico, S.A. and Compania Ecuatoriana de
Balsa, S.A.
(3) Wholly-owned by Baltek Corporation, Compania Ecuatoriana de Balsa, S.A,
Productos del Pacifico, S.A., Maderas Secas, C.A., Balmanta, S.A., and
Servicios Contables, S.A.
(4) Wholly-owned by Baltek Ltd.
(5) Wholly-owned by Compania Ecuatoriana de Balsa, S.A., Maderas Secas C.A.,
Balmanta, S.A., and Productos del Pacifico, S.A.
(6) Wholly-owned by Baltek Corporation, Maderas Secas C.A.and Balmanta, S.A.
(7) Wholly-owned by Baltek, S.A.
(8) Wholly-owned by Marines C.A.
The above subsidiaries are included in the Company's consolidated financial
statements.
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
AS OF DECEMBER 31, 1999 AND 1998 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
PREPARED FOR FILING AS PART OF THE
ANNUAL REPORT (FORM 10-K)
TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1999
**********
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
PREPARED FOR FILING AS PART OF THE ANNUAL REPORT
(FORM 10-K) TO THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT................................................1
Consolidated Balance Sheets as of December 31, 1999 and 1998.............2
Consolidated Statements of Income for Each of the Three Years
in the Period Ended December 31, 1999................................3
Consolidated Statements of Stockholders' Equity for Each of the Three
Years in the Period Ended December 31, 1999..............................4
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1999....................................5
Notes to Consolidated Financial Statements for Each of the Three
Years in the Period Ended December 31, 1999...........................6-16
FINANCIAL STATEMENT SCHEDULE AS OF AND FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1999:
II - Valuation and Qualifying Accounts.....................................17
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission have been omitted because of the absence
of the conditions under which they are required or because the required
information called for is set forth in the consolidated financial statements or
notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Baltek Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Baltek
Corporation and Subsidiaries (the "Corporation") as of December 31, 1999 and
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedule listed in the
accompanying index. These financial statements and financial statement schedule
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Baltek Corporation and Subsidiaries
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 13, 2000
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except per share data)
- --------------------------------------------------------------------------------
December 31,
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 967 $ 1,056
Accounts receivable (less allowance for doubtful
accounts - 1999, $175; 1998, $144) 9,285 6,942
Inventories 18,478 14,667
Prepaid expenses 551 425
Other 1,185 1,148
------- -------
Total current assets 30,466 24,238
PROPERTY, PLANT AND EQUIPMENT - Net 13,565 13,114
TIMBER AND TIMBERLANDS 8,200 8,186
OTHER ASSETS 674 539
------- -------
TOTAL ASSETS $52,905 $46,077
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 8,079 $ 4,681
Accounts payable 4,821 2,438
Income taxes payable 211 216
Accrued salaries, wages and bonuses payable 1,211 1,440
Accrued expenses and other liabilities 683 876
Current portion of long-term debt 199 449
Current portion of obligation under capital lease 415 381
------- -------
Total current liabilities 15,619 10,481
OBLIGATION UNDER CAPITAL LEASE 547 961
LONG-TERM DEBT 44 620
UNION EMPLOYEE TERMINATION BENEFITS 99 235
------- -------
Total liabilities 16,309 12,297
------- -------
<PAGE>
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par; 5,000,000 shares
authorized and unissued -- --
Common stock, $1.00 par; 10,000,000 shares authorized,
2,523,261 shares issued and outstanding 2,523 2,523
Additional paid-in capital 2,157 2,157
Retained earnings 31,916 29,100
------- -------
Total stockholders' equity 36,596 33,780
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $52,905 $46,077
======= =======
See notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, except per share data)
- --------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
NET SALES $ 86,027 $ 67,695 $ 56,140
COST OF PRODUCTS SOLD 66,337 50,607 42,322
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 13,850 11,954 10,423
-------- -------- --------
Operating income 5,840 5,134 3,395
-------- -------- --------
OTHER INCOME (EXPENSES):
Interest expense (1,356) (1,554) (760)
Foreign exchange (loss) gain (336) 814 (84)
Interest income 15 4 3
Other, net -- 5 2
-------- -------- --------
Total (1,677) (731) (839)
-------- -------- --------
INCOME BEFORE TAXES 4,163 4,403 2,556
INCOME TAX PROVISION 1,347 1,144 715
-------- -------- --------
NET INCOME $ 2,816 $ 3,259 $ 1,841
======== ======== ========
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ 1.12 $ 1.29 $ 0.73
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Common Additional
Stock, Paid-in Retained
$1 Par Capital Earnings
BALANCE, JANUARY 1, 1997 $ 2,523 $ 2,157 $24,000
Net income - 1997 -- -- 1,841
------- ------- -------
BALANCE, DECEMBER 31, 1997
2,523 2,157 25,841
Net income - 1998 -- -- 3,259
------- ------- -------
BALANCE, DECEMBER 31, 1998
2,523 2,157 29,100
Net income - 1999 2,816
------- ------- -------
BALANCE, DECEMBER 31, 1999 $ 2,523 $ 2,157 $31,916
======= ======= =======
See notes to consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
BALTEK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 2,816 $ 3,259 $ 1,841
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,002 2,492 2,324
Foreign exchange loss (gain) 336 (814) 84
Deferred taxes (180) (93) (59)
Changes in assets and liabilities, net of the effect
of foreign currency translation and acquisition:
Accounts receivable (2,338) (1,829) (555)
Income tax payable/receivable (15) 206 129
Inventories (3,390) (67) (832)
Prepaid expenses and other current assets 36 17 207
Other assets (14) (2) 184
Accounts payable and accrued expenses 1,839 (405) 626
Other (234) (72) (17)
------- ------- -------
Net cash provided by operating activities 1,858 2,692 3,932
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net acquisitions of property, plant and equipment (2,410) (3,296) (1,681)
Increase in timber and timberlands (943) (1,737) (1,338)
Acquisition of seafood assets, net of cash acquired (491) -- (68)
------- ------- -------
Net cash used in investing activities (3,844) (5,033) (3,087)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable 3,398 1,529 (2,050)
Borrowings of long-term debt -- 1,428 2,528
Payments of long-term debt (1,357) (1,756) (535)
Principal payments under capital lease (382) (337) (295)
------- ------- -------
Net cash provided by (used in) financing activities 1,659 864 (352)
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 238 1,356 (431)
------- ------- -------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (89) (121) 62
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 1,056 1,177 1,115
------- ------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 967 $ 1,056 $ 1,177
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,281 $ 1,292 $ 472
======= ======= =======
Income taxes $ 1,509 $ 1,025 $ 684
======= ======= =======
</TABLE>
See notes to consolidated financial statements
-5-
<PAGE>
BALTEK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Baltek Corporation and subsidiaries (the "Company") is a multinational
manufacturing and marketing company. The Company operates in two lines of
business: supplying core materials, principally balsa wood and balsa wood
products, linear and cross-linked PVC Foam and non-woven polyester mat to
various composite industries; and in the seafood business, as a shrimp
producer and as an importer. Approximately 69% of Baltek's revenues are
derived from its core materials segment and 31% from the seafood segment.
The principal market for the Company's core materials is in the United
States, while the seafood market is divided between the United States and
Europe.
The balsa and shrimp products are produced in Ecuador, South America. The
supply of raw materials has been without interruption for almost 60 years.
The balsa and shrimp identifiable assets located at various facilities in
Ecuador are included in the Company's consolidated balance sheet and total
approximately $24 million at December 31, 1999. Foam and mat products are
purchased from outside vendors; the foam products are further processed by
the Company for sale to customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents - Cash equivalents consist of short-term highly
liquid investments with maturities of three months or less when purchased.
Cash flows from Baltek's operations in foreign countries are calculated
based on their reporting currencies. As a result of this, amounts related
to changes in assets and liabilities reported on the consolidated
statement of cash flows will not necessarily agree to changes in the
corresponding balances on the consolidated balance sheets. The effect of
exchange rate changes on cash balances held in foreign currencies is
reported on a separate line below cash flows from financing activities.
Inventories - Inventories are valued at the lower of cost or market. Cost
is determined by use of the first-in, first-out (FIFO) method.
Property - Property, plant and equipment is stated at cost. Depreciation
is provided for depreciable assets over their estimated useful lives using
various accepted depreciation methods. The asset under capital lease and
leasehold improvements are amortized over their estimated useful lives, or
the life of the lease, whichever is shorter.
-6-
<PAGE>
Income Taxes - Taxes on current income are provided by the Company and
each subsidiary as prescribed by local tax laws. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.
Timber and Timberlands - Timberlands are carried at cost. Timber-deferred
cultivation costs represent the cost of preparing, clearing and seeding
the Company's balsa wood plantations. Amortization of deferred cultivation
costs is based on units of production. Timber carrying costs, which
include the regular maintenance and overseeing of timberlands, are
expensed as incurred.
Foreign Currency Translation - The financial statements of the Company's
foreign subsidiaries are remeasured into U.S. dollars, the Company's
functional currency.
Foreign Currency Risk Management - The Company uses forward foreign
currency exchange contracts to reduce currency exchange rate risk on firm
commitment purchases denominated in foreign currencies. Gains or losses
resulting from these contracts are deferred and are included in the
purchase price of the materials. The maximum term of these contracts is
less than one year. The Company does not intend to enter into derivative
financial instruments for speculative purposes.
Common Stock - Holders of the Company's Common Stock have full voting,
dividend and liquidation preferences in the Company.
Concentrations of Credit Risk - Baltek's core material products, as well
as shrimp and other seafood products, are sold to a number of markets,
including boating, transportation, military, hobby, and the retail food
industry. Baltek's products are sold throughout the United States, Canada,
Europe, Japan and Australia to approximately 1,600 ultimate users. Credit
risk related to Baltek's trade receivables is limited due to the large
number of customers in differing industries and geographic areas.
Fair Value of Financial Instruments - At December 31, 1999 and 1998, the
carrying value of cash, accounts receivable and accounts payable
approximated their fair values. The carrying amount of the notes payable
and other debt obligations approximates fair value based on the nature and
terms of the loans, including borrowing rates and other terms available to
the Company for loans with similar terms and conditions.
Research and Development - Research and development costs are charged to
expense as incurred. Research and development expenditures charged to
operations were approximately $597,000, $609,000 and $331,000 in 1999,
1998 and 1997, respectively.
Earnings per Common Share - Earnings per share is computed by dividing net
income by the weighted-average number of common shares outstanding. The
weighted-average number of common shares outstanding for all periods
presented is 2,523,261. The Company does not have any potentially dilutive
instruments; therefore, the reporting of diluted earnings per share is not
applicable.
Use of Estimates - The Company's financial statements include the use of
estimates and assumptions which have been developed by management based on
available facts and information. Actual results could differ from those
estimates.
Reclassifications - Certain amounts in prior year financial statements
have been reclassified to conform with the current year presentation.
-7-
<PAGE>
3. INVENTORIES
Inventories of the core materials and shrimp segments are summarized as
follows (amounts in thousands):
1999 1998
Raw materials $ 5,260 $ 6,407
Work-in-process 3,050 4,476
Finished goods 10,168 3,784
------- -------
Inventories $18,478 $14,667
======= =======
Included in the above amounts are inventories relating to the Company's
seafood operations of $4,358,000 and $1,566,000 at December 31, 1999 and
1998, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following (amounts in
thousands):
Estimated
Useful Lives 1999 1998
Land $ 125 $ 125
Shrimp properties 5-20 years 18,755 17,694
Buildings and improvements 20 years 2,057 1,826
Machinery and equipment 5-10 years 12,164 11,202
Leasehold improvements 1,012 890
Assets under capital lease 2,499 2,499
Construction-in-progress -- 6
------ ------
Total 36,612 34,242
Less accumulated depreciation and amortization 23,047 21,128
------ ------
Property, plant and equipment -net $13,565 $ 13,114
======= ========
Shrimp properties consist principally of shrimp ponds, a hatchery and a
packing plant. Accumulated amortization related to the asset under
capital lease at December 31, 1999 and 1998 was $1,957,000 and
$1,707,000, respectively.
In April 1999, the Company signed an agreement to purchase certain
assets and inventory totaling approximately $500,000 from the seafood
importing subsidiary of Nissho Iwai Corporation. The acquisition
increases the Company's presence in the seafood industry and allows the
Company to sell not only shrimp but many other types of seafood,
including lobster, crab, and salmon. Due to the immateriality of the
acquisition, pro-forma information is not presented herein.
-8-
<PAGE>
5. TIMBER AND TIMBERLANDS
Timber and Timberlands are comprised of the following (amounts in
thousands):
1999 1998
Timberlands $ 3,906 $ 3,813
Timber-deferred cultivation costs 4,294 4,373
------- -------
Timber and Timberlands $ 8,200 $ 8,186
======= =======
Amortization of deferred cultivation costs was approximately $928,000 and
$572,000 at December 31, 1999 and 1998, respectively.
6. NOTES PAYABLE
Notes payable under various agreements consist of the following (amounts
in thousands):
1999 1998
U.S. Bank loan, with interest at
prime less 3/4% in 1999 and 1998
(7.75% and 7% at December 31, 1999
and 1998, respectively) $ 5,801 $ 2,800
Ecuadorian bank loans, payable in
sucres, due within one year from
the origination date, with interest
rates between 46.3% and 63.0% (see
also Note 7) 421 --
Ecuadorian bank loans, payable in
U.S. dollars, due within one year
from the origination date, with
interest rates between 10.6% and
18.0% (see also Note 7) 1,857 1,881
------- -------
$ 8,079 $ 4,681
======= =======
Notes payable
The U.S. Bank loan , which expires on September 30, 2000, represents
borrowings under a secured $12,500,000 line of credit with a domestic
bank. Borrowings under the line are secured by the Company's domestic
accounts receivable and inventory. The loan agreement contains
non-financial affirmative and negative covenants and limits the amount of
dividends the Company may declare. The Company is also required to pay a
commitment fee on the unused portion of its credit line on a quarterly
basis. The Company was in compliance with all loan covenants at December
31, 1999.
The weighted average interest rate on borrowings outstanding at December
31, 1999 and 1998 was approximately 12.0% and 8.2%, respectively.
-9-
<PAGE>
7. LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
1999 1998
Equipment loan $ -- $ 173
Ecuadorian bank loans, payable in sucres 165 827
Other notes, with interest rates between
4.4% and 6.0%, due at various dates through 2002
78 69
------- -------
243 1,069
Less current portion (199) (449)
------- -------
Long-term debt $ 44 $ 620
======= =======
At December 31, 1999, the Company had a line of credit available under
Ecuadorian borrowing arrangements of $4,000,000, of which approximately
$1,557,000 was unused. Borrowings under the line are secured by a mortgage
on certain land and buildings and a negative pledge against certain
machinery.
Included in the outstanding line of credit are dollar and sucre
denominated short-term loans (see Note 6) and sucre denominated term
loans. The term loans require principal payments every three or six months
and interest payments every three months. The interest rates on sucre
denominated loans at December 31, 1999 and 1998 were approximately 65% and
69%, respectively, and are adjustable quarterly. Final payments on both
loans are due in September 2000.
Additionally, the Company has unused lines of credit under European
borrowing arrangements amounting to approximately $700,000.
The aggregate maturities of long-term debt at December 31, 1999 are as
follows (amounts in thousands):
2000 $ 199
2001 29
2002 15
-----
$ 243
=====
-10-
<PAGE>
8. INCOME TAXES
Income before income taxes is comprised of (amounts in thousands):
1999 1998 1997
Domestic $ 3,566 $ 2,697 $ 1,753
Foreign 597 1,706 803
-------- -------- --------
Total $ 4,163 $ 4,403 $ 2,556
======== ======= ========
The provision for income taxes consists of the following (amounts in
thousands):
1999 1998 1997
Federal:
Current $ 1,049 $ 966 $ 666
Deferred (180) (93) (59)
State 154 142 100
Foreign 324 129 8
-------- ------- -------
Total $ 1,347 $ 1,144 $ 715
======== ========= =======
The reconciliation between the Company's effective tax rate and the
statutory Federal tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory Federal tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
Foreign income - effect of rates differing
from statutory rates, effect of nontaxable
exchange gains and losses, and foreign losses
producing no current benefit 2.9 (12.0) (9.6)
Refunds and change in current valuation
allowance 0.0 (0.0) (2.5)
State taxes, net of Federal income tax benefit 2.3 2.0 2.5
Foreign tax credits (4.5) (2.5) 0.0
Other - net (3.4) 3.5 2.6
------- ------- ------
Effective tax rate 32.3% 26.0% 28.0%
======= ======= =======
</TABLE>
In 1997, the Company utilized foreign tax loss carryforwards, for which a
full valuation allowance had been recorded in prior years.
-11-
<PAGE>
Significant components of the Company's deferred tax assets and liabilities are
as follows (amounts in thousands):
1999 1998
Current assets (liabilities):
Inventory capitalization $ 223 $ 105
Unexpired insurance (179) (127)
Reserve amounts not currently deductible 102 116
Other - net 45 39
----- -----
Total current asset, net $ 191 $ 133
===== =====
Noncurrent assets:
Capital lease $ 99 $ 182
Other 275 71
Foreign tax loss carryforwards 25 91
Less valuation allowance (25) (91)
----- -----
Total noncurrent asset, net $ 374 $ 253
===== =====
As of December 31, 1999 and 1998, the Company had a full valuation
allowance recorded against its foreign tax loss carryforwards related to
certain European locations. Management believes that it is more likely
than not that the remaining carryforwards will expire unutilized.
The total current and noncurrent amounts presented above are included in
other assets (current and noncurrent) in the consolidated balance sheet.
The Company has not accrued federal income taxes on the equity in the
undistributed earnings of its foreign subsidiaries, which amounted to
approximately $8,564,000 at December 31, 1999, because such earnings are
permanently reinvested. It is not practicable to estimate the tax
liability that might arise if these earnings were remitted.
9. EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing plan under which an annual contribution
may be paid from accumulated profits at the discretion of the Board of
Directors for the benefit of eligible employees upon their retirement.
Contributions to this plan by the Company amounted to approximately
$329,000, $350,000 and $313,000 in 1999, 1998 and 1997, respectively.
Additionally, the plan allows for all participants to defer between 1
percent and 15 percent of their salary. Amounts deferred are paid to the
trustee of the plan. The plan does not provide for matching Company
contributions.
In 1999, the Company adopted a non-qualified deferred compensation plan
for the benefit of certain eligible employees. The plan allows
participants to defer up to 100% of their compensation. The Company does
not contribute into the plan.
Certain employees of the Company's Ecuadorian subsidiary companies are
covered by termination and retirement plans incorporated under statutory
requirements of labor laws and collective bargaining agreements. Included
in the accompanying consolidated balance sheets are union employee
termination benefits which approximate unpaid vested benefits under such
plans. The amount of benefits to be received by an employee is established
by the collective bargaining agreements and is based on length of service
and compensation. Provisions of approximately $27,000, $54,000 and $75,000
were charged to income during 1999, 1998 and 1997, respectively.
-12-
<PAGE>
The Company participates in a multiemployer pension plan for the union
employees at the Northvale, New Jersey facility. Provisions of
approximately $200,000, $174,000 and $139,000 were charged to income
during 1999, 1998 and 1997, respectively.
10. LEASES
The Company leases its primary office space and plant facilities in
Northvale, New Jersey under a long-term capital lease agreement which
expires in 2002. The lease provides that the Company pay all real estate
taxes, maintenance and insurance relating to the facilities.
The Company also has operating lease agreements for warehouse and office
space in the United States and Europe. The longest lease obligation
extends to 2008. Certain leases contain renewal options and generally
require the Company to pay other facility related costs such as taxes,
maintenance and insurance. Rent expense under these operating leases
amounted to $502,000, $361,000 and $204,000 in 1999, 1998 and 1997,
respectively.
Future minimum lease payment obligations, as of December 31, 1999, for the
capital lease described above, as well as operating leases, are as follows
(amounts in thousands):
Capital Operating
Year Lease Leases
2000 $ 470 $ 446
2001 488 446
2002 82 372
2003 -- 213
2004 -- 113
Thereafter -- 117
------ -------
Minimum lease payments 1,040 $ 1,707
=======
Less amounts representing interest (78)
------
Capital lease obligation $ 962
=======
-13-
<PAGE>
11. SEGMENT INFORMATION
The Company and its subsidiaries operate in two segments, as a
manufacturer and supplier of structural core materials in composite
applications to various industries, and in the seafood industry, as a
shrimp producer and as an importer. The segments are managed and reported
separately because of the difference in products they produce and markets
they serve. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on operating income, i.e. results of
operations before interest, income taxes and foreign exchange gains and
losses. There are no intersegment sales.
No single customer provided more than 10% of the Company's revenue in
1999, 1998 or 1997.
Information about the Company's operations by segment is as follows:
<TABLE>
<CAPTION>
(In Thousands)
1999 1998 1997
Net sales to unaffiliated customers
<S> <C> <C> <C>
Core materials segment $58,938 $53,600 $44,004
Seafood segment 27,089 14,095 12,136
------- ------- -------
Total net sales $86,027 $67,695 $56,140
======= ======= =======
Operating income
Core materials segment $ 4,569 $ 3,721 $ 1,635
Seafood segment 1,271 1,413 1,760
------- ------- -------
Total operating income $ 5,840 $ 5,134 $ 3,395
======= ======= =======
Identifiable assets
Core materials segment $35,728 $35,105 $31,387
Seafood segment 17,177 10,972 10,368
------- ------- -------
Total identifiable assets $52,905 $46,077 $41,755
======= ======= =======
Capital expenditures, net, including timberlands
And capital leases
Core materials segment $2,197 $3,641 $2,305
Seafood segment 1,271 1,392 737
------ ------ ------
Total capital expenditures $3,468 $5,033 $3,042
====== ====== ======
</TABLE>
-14-
<PAGE>
Information pertaining to the Company's operations in different geographic
areas is as follows:
<TABLE>
<CAPTION>
(In Thousands)
1999 1998 1997
Net sales to unaffiliated customers
<S> <C> <C> <C>
United States - domestic $65,293 $49,399 $38,835
United States - export 11,263 11,289 11,642
Ecuador 87 131 116
Europe 9,384 6,876 5,547
------- ------- -------
Total net sales $86,027 $67,695 $56,140
======= ======= =======
Identifiable assets
United States $24,781 $16,973 $15,457
Ecuador 23,957 25,217 22,672
Europe 4,167 3,887 3,626
------- ------- -------
Total identifiable assets $52,905 $46,077 $41,755
======= ======= =======
</TABLE>
-15-
<PAGE>
12. FINANCIAL INSTRUMENTS
At December 31, 1999, the Company did not have any material foreign
exchange contracts outstanding. At December 31, 1998, the Company held
forward foreign currency exchange contracts for the purchase of French
francs with a notional amount of approximately $269,000. Firm commitments
existed which correlated to the maturity dates of the forward exchange
contracts.
13. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
was amended by SFAS No. 137. The statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair
value. Provisions of the statement are required to be adopted for years
beginning after June 15, 2000. The Company is currently evaluating the
impact of this statement on its financial position and results of
operations.
******
-16-
<PAGE>
<TABLE>
<CAPTION>
Schedule II
BALTEK CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
Dollars in Thousands
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
----------- ------- -------- ---------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful
accounts receivable $ 144 $ 66 $ 35 $ 175
====== ===== ===== ======
Inventory $ 266 $ -- $ 116 $ 150
====== ===== ===== ======
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful
accounts receivable $ 73 $ 74 $ 3 $ 144
====== ===== ===== ======
Inventory $ 90 $ 176 $ -- $ 266
====== ===== ===== ======
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful
accounts receivable $ 63 $ 30 $ 20 $ 73
====== ===== ===== ======
Inventory $ -- $ 90 $ -- $ 90
====== ===== ===== ======
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 967
<SECURITIES> 0
<RECEIVABLES> 9,460
<ALLOWANCES> 175
<INVENTORY> 18,478
<CURRENT-ASSETS> 30,466
<PP&E> 36,612
<DEPRECIATION> 23,047
<TOTAL-ASSETS> 52,905
<CURRENT-LIABILITIES> 15,619
<BONDS> 0
0
0
<COMMON> 2,523
<OTHER-SE> 34,073
<TOTAL-LIABILITY-AND-EQUITY> 52,905
<SALES> 86,027
<TOTAL-REVENUES> 86,027
<CGS> 66,337
<TOTAL-COSTS> 80,187
<OTHER-EXPENSES> 1,677
<LOSS-PROVISION> 66
<INTEREST-EXPENSE> 1,356
<INCOME-PRETAX> 4,163
<INCOME-TAX> 1,347
<INCOME-CONTINUING> 2,816
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,816
<EPS-BASIC> 1.12
<EPS-DILUTED> 1.12
</TABLE>
