-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R+XKExIUKeYdc/RFnbnAJSU9ztiDHI9IcnUkzlD/Kx45QvpyQp/cKW/cIRjuLKMj BlIYQRyzQkOq3IbiLW0kJw== 0000950135-99-001764.txt : 19990402 0000950135-99-001764.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950135-99-001764 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRUNSWICK TECHNOLOGIES INC CENTRAL INDEX KEY: 0000826075 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILS, MAN MADE FIBER & SILK [2221] IRS NUMBER: 010402052 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-10721 FILM NUMBER: 99582963 BUSINESS ADDRESS: STREET 1: 43 BIBBER PKWY CITY: BRUNSWICK STATE: ME ZIP: 04011 BUSINESS PHONE: 2077297792 MAIL ADDRESS: STREET 1: 43 BIBBER PARKWAY CITY: BRUNSWICK STATE: ME ZIP: 04011 10-K405 1 BRUNSWICK TECHNOLOGIES, INC. FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] Annual report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the year ended December 31, 1998. [ ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for transition period to . Commission File Number 0-22089 BRUNSWICK TECHNOLOGIES, INC. (Exact Name of Registrant As Specified In Its Charter) MAINE 01-0405052 (State of other jurisdiction of incorporation or (IRS Employer Identification No.) organization) 43 BIBBER PARKWAY, BRUNSWICK, MAINE 04011 (Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (207) 729-7792 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.0001 par value 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 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 or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's Common Stock held by non-affiliates as of March 22, 1998 was approximately $24,060,803 based on the closing price as reported on such date on the NASDAQ National Market. Indicate the number of shares outstanding of each of the registrant's classes of Common Stock, as of March 22, 1998: 5,191,687 shares of Common Stock, $0.0001 par value. The registrant's definitive proxy statement for its Annual Meeting of Stockholders, to be held on May 20, 1999, which will be filed with the Commission on or before April 30, 1999, is incorporated by reference in response to Part III, Items 10, 11, 12, and 13. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 BRUNSWICK TECHNOLOGIES, INC. TABLE OF CONTENTS
PAGE ---- Securities and Exchange Commission Item Numbers and Description - ---------------------------------------------------------------------- PART I Item 1. Business.................................................... 2 Item 2. Properties.................................................. 11 Item 3. Legal Proceedings........................................... 12 Item 4. Submission of Matters to a Vote of Security Holders......... 12 PART II Item 5. Market for the Registrant's Common Equity and Related 12 Stockholder Matters......................................... Item 6. Selected Financial Data..................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition 14 and Results of Operations................................... Item 7A. Quantitative and Qualitative Disclosures About Market 21 Risk........................................................ Item 8. Financial Statements and Supplementary Data................. 21 Item 9. Changes in and Disagreements with Accountants on Accounting 40 and Financial Disclosure.................................... PART III Item 10. Directors and Executive Officers of the Registrant.......... 40 Item 11. Executive Compensation...................................... 40 Item 12. Security Ownership of Certain Beneficial Owners and 40 Management.................................................. Item 13. Certain Relationships and Related Transactions.............. 40 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 41 8-K.........................................................
1 3 Information contained in this report with respect to expected financial results and future events and trends is forward-looking based on Management's estimates and assumptions and is subject to risks and uncertainties. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Cautionary Statement Concerning Forward-Looking Statements." ITEM 1: BUSINESS GENERAL Brunswick Technologies, Inc. (the "Company") is a technologically advanced, leading developer and producer of engineered reinforcement fabrics used in the fabrication of composite materials. The Company's technologically advanced stitchbonding equipment and processes prepare glass, carbon and other high modulus fibers for combination with resin to produce laminates used in the construction of such diverse items as boats, skis, diving boards, protective helmets and ballistic armor applications, car and truck parts, and industrial tanks and pipes, and have undersea oil well head and pipeline protection covers. Since the invention of composite reinforcement fabrics in the early 1940's, these materials have developed broad applicability as substitutes for wood, steel and concrete. Composite products offer substantial benefits over conventional materials, including: a higher strength-to-weight ratio, greater design flexibility while maintaining structural integrity, chemically inert properties and lower maintenance requirements. As a result of their superior features, composite reinforcement fabrics are increasingly demanded by a growing number of industries and applications, including transportation, infrastructure, recreation, petro-chemical and construction. Management believes the use of engineered composite reinforcement fabrics will continue to grow as the markets are made more aware of the positive features of such materials and as the cost of more advanced composite fibers such as carbon continues to decline. The Company's principal strength lies in its innovative quadraxial single-step stitchbonding fabrication process. Through use of its proprietary production equipment, the Company can quickly and cost effectively produce engineered composite reinforcement fabrics in sizes and shapes not otherwise generally available. Fabrics created from the Company's proprietary manufacturing process offer characteristics integral to the production of composite materials in infrastructure, industrial and large scale commercial applications. The Company has introduced a number of manufacturing processes that not only more efficiently create composite reinforcement fabrics, but also optimize the performance characteristics of such fabrics. In a proprietary single-step production process, the Company is able to stitchbond fibers in different directions without diminishing the composite fibers' inherent properties, thus dramatically improving the structural strength of the reinforcement fabric. This compares favorably, firstly, with traditional composite fabrics which are woven, and therefore require the use of more resin to achieve the same degree of structural integrity, and secondly, with the more costly multi-step processes of other weft-insertion or stitchbonding manufacturing technologies. In addition, the Company's proprietary, high through-put manufacturing processes have the ability to produce heavyweight quadraxial fabrics over 100 inches wide in a single-step, which allows for cost-effective fabrication of composite parts of up to 10 inches thick. The combination of these features produces fabrics which enable composite fabricators to manufacture end-products at competitive costs while maintaining the maximum structural integrity of these products. In addition to its proprietary processes, the Company also utilizes other commercially available equipment to produce a broadly competitive line of reinforcement fabrics. The Company's strategy is to increase revenues and net income by increasing its domestic and international market share in the composite reinforcement fabric industry as well as making additional strategic acquisitions for product and market presence. Key elements of this strategy include: (i) increasing market share for Company's products; (ii) continuing to build the customer and project base for White Steel(R) (see "Joint Projects"); (iii) aggressively moving further into the carbon fiber fabric market; and (iv) expanding further into the European market. 2 4 In a move to accelerate the implementation of its strategic business plan and expand its product line, the Company acquired Advanced Textiles, Inc. ("ATI"), a subsidiary of Burlington Industries, Inc. ("Burlington") on October 30, 1996. During 1997, ATI was fully integrated into the operations of the Company, including sales, distribution and manufacturing. In order to accelerate the Company's penetration of the European market, the Company acquired the business and assets, including technology, of Tech Textiles International Ltd. ("TTI"), located in Andover, UK on March 2, 1998, which it operates as a wholly owned subsidiary, Brunswick Technologies Europe Ltd. ("BTI-Europe"). The acquisition will serve as a platform for the transfer of the Company's proprietary process technology and production of White Steel(R) while providing access to European suppliers and other sales distribution channels. INDUSTRY BACKGROUND Since the invention of composite reinforcement fabrics made from fiberglass in the early 1940's, various attempts have been made to commercialize the potential of these fabrics as replacements for wood, steel and concrete. These diverse pioneering projects include the 1953 Corvette and Wonder Bread delivery trays from the early 1950's. While these efforts were remarkable for their day, the potential of these materials did not start to be realized until the mid-1960's when much of the recreational boat industry converted from wood to composite reinforcement fabrics. This development spurred the expansion of the composite fiber industry from occasional to broad usage in a wide variety of consumer products such as skis, diving boards and protective helmets, and industrial applications, including cars, trucks, ballistic armor applications and industrial tanks & pipes. Over this period the processes used to create fabrics composed of composite fibers have dramatically evolved. Traditionally, reinforcement fibers were woven together to create a composite reinforcement fabric. The weaving process aligns these fibers along the zero-to-ninety degree axis, inserting them over and under each other to create the weave, resulting in the bending of such fibers, or crimping. While woven fabrics are highly suitable for certain applications such as ballistic protection, the crimping which occurs in the weaving process reduces each individual fiber's strength and reinforcement properties. As the mechanical properties of the composite reinforcement fabric is the key parameter for the design of the underlying product or application, the integrity of the fibers performance defines the amount of such fibers needed to achieve specific performance specifications. In contrast to weaving, weft insertion or stitchbonding a composite fabric allows the manufacturer to optimize the fibers mechanical properties, thus reducing the volume of fibers required as compared to the weaving process. The weft insertion process, while optimizing the fibers mechanical properties, is typically a multi-step, relatively slow process used for select niche markets. In 1990, the Company introduced a revolutionary new product line, BiTexTM, the first generation of price-competitive, heavy-weight stitchbonded reinforcement fabrics. For the first time, weft-inserted or stitchbonded composite reinforcement fabrics, whose market potential was previously limited by their high cost, became competitive in numerous composite applications, from automobile bumpers and one-piece molded commercial aircraft structures to high-strength consumer products such as boat hulls and skis. The Company's innovative stitchbonding production processes align the composite reinforcement fibers in a variety of axes. All of this takes place in a single production step with high production throughputs, all without crimping the fiber and thereby avoiding degradation of the fibers strength. While the Company does offer some weft inserted multi-step products, these are generally offered in traditional lightweight markets. Certain of the Company's competitors also can offer weft-inserted or stitchbonded reinforcement fabrics, though they generally manufacture their products in multi-step processes. The competitors' manufacturing processes are more costly due to the greater number of steps in the process and the lower throughput rate as compared to the Company's proprietary, high throughput, one-step process. 3 5 COMPANY STRATEGY The Company's strategy to continue its current growth includes the following elements: - Continue to build market share in existing markets by: (i) accelerating the pace of marine conversions through the development of new fabrics and production techniques; (ii) aligning itself with high volume end users by expanding the Company's knowledge of their production needs and end market requirements; and (iii) realigning North American distribution to optimize market impact; - Grow White Steel(R) business by: (i) seeking out and developing high volume applications for White Steel(R) as a replacement for wood, steel and concrete; (ii) adding additional value for the end user by enhancing the processability of the delivered product (iii) developing partnerships to accelerate the conversion of traditional materials to composites; and (iv) investing in the Company's core manufacturing process technology to drive the cost competitiveness of White Steel(R); - Develop European market presence by: (i) using BTI-Europe as a base to expand the Company's technology in the European marketplace; (ii) increasing penetration of White Steel(R) into key markets and projects; and (iii) expanding BTI-Europe's base growth rate by increasing product offerings; - Increase market presence in the developing carbon fiber market by: (i) developing carbon fiber based processing techniques and reinforcement fabrics to highlight carbon fibers inherent advantages; and (ii) fostering joint development teams to increase the market for carbon reinforcing fabrics and throughput capacity; - Continued expansion of its leadership position in the composite reinforcement fabrics industry through the development of new products and processes to answer the needs of a wide range of industries including the continuing integration of fabric design elements with the specific needs of composite fabricators and capitalization of the Company's position as the only supplier of composite reinforcement fabrics to develop and manufacture its own production equipment; and - Pursuit of additional acquisitions to further broaden the Company's product line as well as manufacturing capacity, product market coverage, and distribution channels. ACQUISITION OF ADVANCED TEXTILES, INC. AND TECH TEXTILES INTERNATIONAL LTD. On October 30, 1996, the Company acquired all of the outstanding capital stock of ATI pursuant to a Stock Purchase Agreement dated as of October 22, 1996 among the Company, Burlington and Peter L. DeWalt, the President (and partial owner) of ATI. In consideration for the capital stock of ATI, the Company (i) agreed to pay to Burlington the sum of $600,000 in cash (discounted to $513,000 using an interest rate of 8.25%) over a two to six year period and issued to Burlington a convertible subordinated promissory note in the aggregate principal amount of $7,296,500 (the "Convertible Note"), and (ii) issued to Mr. DeWalt 5,350 shares of Common Stock. The acquisition was the result of extensive negotiations between the Company and Burlington. The Company elected to pursue this acquisition because it believes that by offering a product line which satisfies a broader range of composite reinforcement fabric requirements, it is better positioned to be the principal provider of these fabrics to its expanded customer base. The Company believes it is capturing additional market share by cross-marketing its existing products to ATl's customers and vice versa. The Company is applying its specialized know-how and technical skills to ATI's manufacturing capabilities and achieving cost savings through economies of scale. Additionally, the acquisition offers integrated distribution channels and higher manufacturing efficiencies at ATI's production facility. ATI is now doing business as Brunswick Technologies, Inc. On March 2, 1998 the Company acquired the business and assets of TTI based in Andover, UK from T&N plc for approximately $5.9 million in cash. The acquisition was made through a wholly owned subsidiary in the UK, Brunswick Technologies Europe Ltd. ("BTI-Europe"). The acquired business will be the Company's base of operations for the Company's continued expansion into Europe. 4 6 BTI-Europe is a composite reinforcement materials company which manufactures glass, carbon and other high modulus reinforcements, many of which is used in high margin applications in aerospace, automotive and wind generation. It is based in a 30,600 square foot (previously 25,000 square foot) manufacturing facility which currently employs 28 people with annual sales exceeding $6 million. The Company expects the acquisition will strengthen its leading market share position in the reinforcement market and help advance its key growth strategy to serve a worldwide market in the composite industry. Management believes that the acquisition is a platform for the transfer of the Company's proprietary process technology and production of White Steel(R) and provides access to European suppliers and other sales distribution channels. The Company also anticipates greater opportunities with current industry partnerships, many of which are European-based and are subject to Common Market product origin requirements. Other financial and competitive advantages include significant savings on duty, shipping costs and material delivery time. TTI's management team has continued to manage the day to day operations. PRODUCTS The Company currently manufactures composite reinforcement fabrics, also referred to as stitchbonded or weft inserted non-crimped fabrics, primarily from glass, carbon and aramid fibers, and is distributing them under the BiTex(R), COfil(R), White Steel(R), Black Steel(R), and CoTech(R) trade names. The Company is continuously researching new methods of producing other types of composite fabrics and the use of new fibers to create them. The Company's introduction of its proprietary stitchbonding production processes in 1990 enabled composite reinforcement fabrics to compete more successfully with conventional materials by reducing such fabric's manufacturing costs, which previously had been prohibitively high. ATI, which the Company purchased in 1996, was a pioneer in the industry's transition to non-crimped reinforcement fabrics, although it still produces some woven fabrics for specific applications, such as ballistic armor applications. The ATI operation, which was integrated into the Company during 1997, offers a product range that focuses on high-margin, high-quality, specialty products required by a wide range of end users. In general, the weft-inserted light-weight and super-light-weight fabrics produced are not sold as commodities. BTI-Europe, located in Andover, UK and acquired in March, 1998, manufactures products similar to those manufactured by ATI using weft insertion stitchbonding technology. The Company's composite reinforcement fabrics permit a reduction in the quantity of fibers used and the consequential reduction in the quantity of resin required, leading to significant reductions in cost for equivalent mechanical performance. The Company believes that it is currently the only supplier of composite reinforcement fabrics which develops and manufactures its own production equipment. The Company's proprietary stitchbonding production processes allow it to offer composite reinforcement fabrics of varying weights, widths and fiber orientations, and to produce fabric at unrivaled efficiencies. Furthermore, these fabrics can be engineered to respond to a customer's specific requirements. The Company's experience indicates that these proprietary processes can be successfully applied to other base materials, allowing for production of reinforcement fabrics from various carbons, aramid and other fibers. The Company's current output is presently used by end-product manufacturers to build a wide range of products, including boats, diving boards, snowboards, swimming pools, truck bodies, ballistic protection products, corrosion sensitive vessels, and large undersea oil well protection systems. Engineered composite reinforcement fabrics offer significant advantages over other currently used materials: - Strength-to-Weight Ratio. Composite products possess a strength-to-weight ratio much higher than that of steel, wood or concrete. Composite reinforcement fabrics are uncommonly strong for their weight and density. Use of these materials in transportation industries provides for substantial fuel savings and greater payload capacity. The marine market is the most mature of the industries currently using composite reinforcement fabrics. Truck and railcar manufacturers are developing bodies made out of these materials. Certain light-weight woven fabrics offer high energy-absorption characteristics and, therefore, are ideal for ballistic shielding applications. Furthermore, due to their inherent strength-to- weight ratio, construction materials can be built from reinforcement fabrics in both load and no-load 5 7 designs and in shapes too complex to be built from much heavier metals. The Company is working in a joint development project to develop products for infrastructure applications such as bridges and reinforced column wrapping for earthquake protection. - Longer Life-Cycle. Products produced from composite reinforcement fabrics do not rust or rot, are chemically inert, non-conductive and generally maintenance free, making their life-cycles significantly longer than those of steel, concrete or wood. These features allow use of composite reinforcement fabrics in environmentally corrosive situations, such as salt water immersion or highway construction. Accordingly, these products are increasingly used in finished products such as marine pilings, electric transmission towers, one-piece septic tanks, guardrails, building columns, bridge columns, and bridges. - Greater Safety. Products produced with composite reinforcement fabrics do not suffer from the disintegration failures suffered by steel and concrete. Moreover, composite materials offer significantly greater high-energy impact absorption, and their one-piece fabrication means that no weak seams need to be introduced into the part. The Company is working with its customers to develop products made from composite reinforcement fabrics which will offer non-varying mechanical strength and stiffness through the entire life-cycle of the product, and to lower the risk of continuous deterioration and degradation of strength, which can be caused by metal fatigue in steel or environmental erosion in concrete. These tougher products are being developed for use in automotive and highway safety applications, bullet-resistant applications, structural support, and as components of deep-sea oil drilling platforms. - Design and Process Freedom and Efficiency. Composite reinforcement fabrics can be molded in tremendously flexible ways, allowing the creation of complex parts. Manufacturers assembling final products using these materials are able to use one part, formed in a complex shape, instead of having to use two or more simpler parts formed from metals. This obviously results in significant cost savings, in both material and labor costs. Architecturally, designers can create shapes that would not otherwise be buildable from conventional construction materials. - Environmental Benefits. Use of the Company's stitchbonded products reduces the amount of resin required to manufacture the end-product resulting in the decreased release of volatile organic compounds by end-product fabricators. The use of composite reinforcement fabrics in products which substitute for wood, steel or concrete can also diminish the amount of chemicals released in the environment. For example, marine pilings constructed of composite materials would not be treated with arsenic or other toxic substances presently required to provide adequate product cycle life to wood products. Due to their high strength-to-weight ratios, composite reinforcement fabrics offer the transportation industry substantial fuel savings and permit the transport of greater payloads due to increased truck capacity. The construction industry is starting to use these fabrics as a shield from noise, heat, weather, and Electro-magnetic interference. These products can be highly insulating, in addition to their chemically non-reactive nature, making them ideal for use as pipes, tanks and ducting, especially in corrosive situations. The paper and petrochemical industries are starting to use these types of products in hostile environments. PRODUCT ENGINEERING, MANUFACTURING AND DEVELOPMENT The Company believes that its strongest competitive advantage is its technical and developmental know-how. The principal reasons for its progress in technical development thus far are the quality of its product design and its engineering and manufacturing capabilities. These capabilities enable the Company to design and engineer products that meet or exceed end-product manufacturers performance and reliability specifications. The Company believes that it has created and will continue to create know-how and technology to manufacture products at lower costs than its competitors by pursuing its engineering and manufacturing development in-house. The quality of the technology and know-how of a business or product line is an important factor in the Company's evaluation of potential acquisition candidates. The Company's operations utilize current-generation computer systems for product design and documentation as well as for performance testing. A key to the Company's ability to reduce manufacturing cost has 6 8 been the reduction of direct labor through the introduction of its proprietary single-step, automated or semi-automated manufacturing processes. The Company believes that its ability to produce fabric in a single step at 20 feet per minute is the fastest in the composite reinforcement fabrics industry. It also believes that it has the unique capacity to produce quadraxial reinforcements over 100 inches wide in a single step. The Company's proprietary capabilities allow composite reinforcement fabrics to be produced by continuously placing reinforcement fibers in layers at different angular orientations and concurrently stitching them together to achieve certain desired properties, depending upon the application, such as greater carrying capability and corresponding strength. The Company's machines are capable of producing reinforcements in five different directions/orientations and planes or any combination thereof. The Company has continued to build on the success of its BiTex(R) and White Steel(R) product lines, and has introduced the following product and process innovations: - First commercial binderless mat production process introduced in 1990; - First single-step quadraxial products introduced in 1992; - First l00 + inch-wide single-step fabrics commercialized in 1993; - First capability to produce, in a single-step, 150 inch 0-90 degree binderless mat product, and commercialization of same in 1994; and - Introduction of a second generation White Steel(R) machine capable of producing fabrics in excess of 100 oz. per square yard in 1997. The Company invests in product development to meet and anticipate customer requirements. The Company also undertakes end-product manufacturer-sponsored or joint sponsored product development contracts. Accordingly, the Company's development activities are generally product or program specific. The Company spent $498,038, $677,192, and $611,923 on both Company-sponsored and customer-sponsored research and development in the fiscal years ended December 31, 1996, 1997 and 1998, respectively. A certain amount of the Company's R&D activities are dedicated to the building of new production equipment. MARKETING AND SALES The Company's competitive position in the marketplace is dependent upon its continuing ability to design innovative processes to generate products for specific composite fabricator applications. The Company's marketing philosophy is to have a team of employees work directly with prospective and active composite fabricators. The Company markets its products primarily through its own marketing and sales force directly to composite fabricators either individually or at trade shows. The Company sells through distributors and directly to end users. In 1996, 1997 and 1998, Domestic sales (goods produced or sold by the Company's North American operations) were concentrated in five distributors. The distributors are either national or represent strong regional presence and are typically comprised of a subset of multiple local distribution points serving regional markets. Internationally (goods produced or sold by BTI-Europe), sales are also made through distributors and directly to end users with only one distributor making up more than 10% of total sales. Management believes that the key to the Company's sales and marketing strategy is the development of long-term relationships with end-product manufacturers through its team approach of combining product development and sales. The Company's production and sales managers work with sales staff in all markets to develop products for particular end-product manufacturers. The Company's competitive position in the European market has been greatly enhanced through the March, 1998, acquisition of TTI in Andover, UK. TTI's sales managers had been utilizing a similar team approach to that of the Company's and now have a broader product line with which to compete in the market. Management believes that further expansion of the use of heavy and super-heavy weight fabrics throughout the composite industry will uniquely benefit sales of the Company's White Steel(R) product line. 7 9 SUPPLY There are three significant suppliers of E-Glass raw material utilized by the Company. Vetrotex America Corp. ("Vetrotex"), a shareholder of the Company, is the primary supplier which supplies approximately 58% of the requirements. PPG Industries is the second largest supplier accounting for approximately 38% of the supply. Owens Corning Fibers accounts for about 4% of the requirements. Additional suppliers include Jushi Fiberglass of China. The Company's ability to grow is dependent upon its ability to obtain an adequate supply of fiberglass at a competitive cost. The Company had a supply agreement with Vetrotex to supply 90% of its requirement which expired in August 1996. Since then the Company has developed stronger relationships with the other suppliers to insure adequate supply and cost effective pricing to support the anticipated growth in the years ahead. The acquisition of ATI and TTI increased the demand significantly and also improved the Company's position to negotiate with the vendors for more favorable terms. BACKLOG The Company's backlog as of December 31, 1998 was approximately $3,619,000, or approximately 4.5 weeks of sales. Backlog as of December 31, 1997 was approximately $3,079,000, or approximately 4.9 weeks of sales. The increased backlog is due to the addition of BTI-Europe's backlog which stood at $696,500 as of December 31, 1998, in part, to the somewhat higher mix of sales directly to end users who place extended purchase orders with the Company. The Company's backlog fluctuates by up to one week of sales, or more, depending on the ordering pattern of individual distributors and end users. JOINT PROJECTS In February 1995, the Company entered into a Collaborative Agreement with E.I. du Pont de Nemours and Company, Inc. ("DuPont"), Hardcore Composites Ltd. ("Hardcore"), The Dow Chemical Company and Hopkins University under the Federal Advanced Technology Program to develop agile heavyweight composites for large civil bridge infrastructure applications. For its part in the cooperative project, the Company was awarded up to $750,000 in matching funds over three years as part of a $13.5 million grant from the U.S. Department of Commerce and the National Institute of Standards and Technology. The project began in May of 1996 and ran through September of 1998 and was directed toward the study of the manufacturing competency of composites produced with Seeman Composite Resin Infusion Molding Process (SCRIMP) technology (a process of layering dry fabric and drawing resin through the layered fabric with the use of vacuum pressure) and their ability to increase the life of large structures such as bridges, while reducing such structures cost and weight. The project enabled the Company to independently develop its newest White Steel(R) machine which had its first trials in early 1997. This development is considered enabling technology which has enhanced the speed, quality and cost-effectiveness of composite reinforcement production. The entire budget of the program contemplated by the Collaborative Agreement is approximately $1,547,000, which was to be spent over three years. The Company expended $1,492,547 over the three years of the program. Reimbursement of expenses related to expenditures on new technologies from a grant from the National Institute of Standards and Technology ("NIST") in the amount of $143,274 was included as a benefit to the 1997 statement of income. Cost of goods sold was credited for $24,166 of this amount while $119,108 was credited to other income. In 1998, the Company incurred eligible costs and applied for reimbursement for $75,978. Cost of goods sold was credited for $22,212 of this amount while $53,766 was credited to other income. The Company is responsible for adherence to applicable federal laws and regulations covering both federal funds, including allowability of costs. The parties to the Collaborative Agreement have mutually agreed to protect each other's proprietary information for a period of five years. Any technology jointly developed in the performance of the Collaborative Agreement ("Program Technology") is to be owned jointly by the project participants, with the right to use the same on an unrestricted basis. The Program Technology may also be subject to a non-exclusive, non-transferable paid-up license to the United States government which may not publicly disclose any proprietary information relative to the Program Technology. 8 10 The Department of Defense has awarded funding through the 1995 Defense Experimental Program to Stimulate Competitive Research (DEPSCOR) to the University of Maine (Orono) relative to a study of the dynamics of thick composite structures. The Company has agreed to provide the project with industrial composite expertise, laminate engineering, reinforcement materials, composite fabrication through subcontracts, and participation through analytical reviews and program management reviews. The Company will also provide up to $45,000 of in-kind support to University of Maine for this project. While the Company does not expect to generate material profits from this project, it will provide the Company with valuable experience and modeling techniques for the use of the Company's heavyweight fabrics in the Naval, off-shore oil, sub-marine and waterfront infrastructure materials markets. Additionally, the Company has agreed to partially fund a University of Maine graduate student through to his doctoral dissertation concerning wood composite highbred materials for use in civil infrastructure. A significant by-product of this agreement has been the development of a composite laminate design program owned by the Company for use in assisting customers in optimizing their laminates. The cost of this sponsorship is approximately $12,500 per year through 1999. Funding for each of these projects is part of the Company's regular, on-going research and development expense. Except for Hardcore DuPont, a participant in the NIST project, and North End Composites, a subcontractor in the DEPSCOR project, the Company does not have any supply arrangements with the entities involved in these projects. COMPETITION The Company's principal competitors are producers of woven reinforcement fabrics and other producers of stitched or weft-inserted reinforcement products. Competition is based on price, product performance and customer support. The Company's continued success will depend in part on its ability to continue to develop and introduce cost competitive quality products that meet or exceed end-product manufacturer requirements. Management is not aware of any competitor that manufactures products that are substantially similar to or competitive with all of the Company's products. However, there are competitors for each of the Company's products and the Company believes that there are only two companies remaining after its acquisition of ATI that have significant shares of the North American market. These are Johnston Composite Industries, a subsidiary of Johnston Industries Inc., and Knytex, a division of Owens Corning. The Company believes that it has one of the largest shares of the North American market for weft-inserted or stitchbonded (non-crimped) composite reinforcement fabrics. The Company also competes in the European market, which is highly fragmented with up to 17 small competitors addressing many niche markets. The Company has established itself as a significant competitor in this market with its 1998 acquisition of Tech Textiles International Ltd. and its growing White Steel(R) business in northern Europe. EMPLOYEES As of December 31, 1998, the Company had 176 full time employees, of whom 143 were employed in engineering and manufacturing, 16 in sales and marketing and 17 in administrative and management functions. No employees are represented by unions. The Company believes its relations with employees are good. INTELLECTUAL PROPERTY Although the Company has three registered trademarks and owns two patents relating to its products, the Company relies almost entirely upon unpatented technology in its production processes. The Company relies in part upon state and federal trade secrets and unfair competition laws to protect its intellectual property. Management's philosophy is to patent only those processes as to which the process may be determined when analyzing the product produced. There can be no assurances that the Company can adequately protect its rights in such unpatented proprietary technology or that others will not independently develop substantially 9 11 equivalent or better proprietary information or techniques, or otherwise gain access to the Company's proprietary technology or disclose such technology. The Company will seek additional protection for newly developed intellectual property as deemed appropriate. One patent, which expires in September 2011, relates to a bound structurally reinforced thermoplastic multi-layer composite fabric which is moldable. No product relating to this patent has yet been commercialized. Although the other patent, which expires in December 2009, relates to a manufacturing process commercialized by the Company, management believes that it would be very difficult to assess whether a competitive product was produced by a process which infringes the process covered by such patent. YEAR 2000 The year 2000 ("Y2K") issue is best defined as the ability of systems to accurately process all date related information before, during and after midnight on 12/31/99, including other "magic" or "null-set" dates such as 9/9/99, 1/11/11. The Company has undertaken an initiative (begun in the second quarter of 1998) to assess the readiness of its internal systems in regards to compliance with the pending millennium change. The company has assigned direct responsibility for the Y2K project to the corporate controller, in conjunction with the chief financial officer. The Company has identified three broad categories of internal Y2K risk: network hardware and software, manufacturing systems and processes, and financial, manufacturing and time and attendance software. - All network hardware has been inventoried, reviewed for compliance and tested where necessary and appropriate. Upon completion of the testing it was determined that some hardware was not in compliance, replacement hardware has been purchased and installation will be complete by April 1999. - The manufacturing equipment upon which the Company places primary reliance for production of saleable goods has been inventoried for date sensitive components. Components identified with the potential for containing date sensitive processors were researched through the original manufacturer to determine compliance and upgraded or replaced as necessary. Appropriate final testing will be completed as necessary. - The Company has fully implemented the financial modules of a third party supplied Enterprise Resource Planning ("ERP") system, which is Y2K compliant, and separately it has successfully upgraded its time and attendance system with Y2K compliant software. The manufacturing portion of the ERP is scheduled to be online during the second quarter of 1999, initially in the Maine facility, followed by the Texas facility. It is not critical that this module be implemented internationally at the UK facility. The impetus for installing the new ERP system was the need for an enhanced, fully integrated, management information system to support continued growth, not specifically due to Y2K exposure. The Company continues to capitalize the costs of the ERP consistent with GAAP under Management Information Systems, which totaled $394,300 as of December 31,1998. The implementation of this ERP system substantially addresses Y2K compliance issues related to our financial and manufacturing data collection and reporting systems. In addition to assessing our internal systems, the Company is reviewing suppliers, service providers and customers whose systems failures as a result of Y2K non-compliance could have a significant impact on our continued business operations. The Company is principally dependent on a small number of suppliers for the majority of its raw material. The Company has initiated communications to directly address these suppliers' Y2K preparedness, however the company has limited or no control over the actions of these third party suppliers to address and resolve their Y2K issues. Any failure of these principal third party suppliers to resolve their Y2K issues could have a materially adverse effect on continued uninterrupted business operations. It is the Company's goal to be Y2K system compliant and to have performed a thorough assessment of critical third parties by the end of the second quarter of 1999. Based on the results of the internal compliance initiative and the assessment of third parties preparedness for the millennium change, management will 10 12 determine the extent to which contingency planning is necessary. At this time, based on management's opinion of overall risk, no formal contingency planning has been completed. It is management's opinion that the Company's overall internal, as opposed to supplier, risks associated with the Y2K problem are low. The implementation costs associated with the ERP project are the only material costs incurred to date in system software that would be reviewed as part of our Y2K project. The Company has not incurred any other material costs related to the Y2K project, and it is anticipated that total future costs associated with ensuring compliance will not exceed $50,000 and will be funded by cash flows generated from ongoing business operations. However, these expectations are subject to uncertainties. Although the Company expects that its internal systems will be Y2K compliant by the end of 1999, there can be no assurances that system failures will not occur, or that such failures will not have a materially adverse effect on continued uninterrupted business operations. The following table provides a synopsis of the status, timetable, costs and contingency plans of the categories the Company has identified as sensitive to Y2K.
- --------------------------------------------------------------------------------------------------------------------------- ESTIMATED SYSTEM/ ESTIMATED CONTINGENCY CONTINGENCY PROCESS PHASE STATUS TIMETABLE COST PLAN/RISKS COST - --------------------------------------------------------------------------------------------------------------------------- Financial, Implementation $500,000 In the event $0 Manufacturing, and of Integrated that the Time & Attendance ERP System This cost is manufacturing Software Financial Complete -- not a direct and customer Purchasing Complete -- result of the service systems Manufacturing In process 8/99 Y2K initiative, are not fully Customer In process 8/99 but was installed, Service incurred to current support processes will Implementation Complete -- continued support of new time and business growth continued attendance operations. system - --------------------------------------------------------------------------------------------------------------------------- Network Hardware Inventory Complete -- $15,000 Greatest risk $20,000 and Software System is over WAN, Equipment disruption would Test Complete -- necessitate Hardware/ local Software installation of ERP software Upgrade/Replace In process -- 4/99 non-complaint hardware is being replaced - --------------------------------------------------------------------------------------------------------------------------- Manufacturing Inventory Complete -- $0 Manufacturing $0 Equipment and System process does Systems Equipment not rely on date sensitive Test as Complete -- processing appropriate equipment Remediate Complete -- - ---------------------------------------------------------------------------------------------------------------------------
ITEM 2: PROPERTIES The Company's executive offices and major manufacturing/warehouse facility is located in a facility in Brunswick, Maine, of approximately 77,000 square feet which was substantially completed in March 1996 and expanded in 1998. The Company leases the property from the Brunswick Development Corporation ("BDC"), a Maine corporation wholly owned by the town of Brunswick. The Company's lease was originally for a term of 10 years and commenced on January 1, 1996 with an option to extend the term for an additional five year period. In June 1998, the Company and BDC modified the lease when the building was expanded by BDC. The current lease is for a term of 15 years with a commencement date of January 1, 1996. The Company also has an option to purchase the facility at any time between the conclusion of the fifth year of the current lease and the end of the lease, at an option price equal to the greater of fair market value of the facility 11 13 or the residual debt payable to BDC on the bonds issued to finance the construction of the facility. The Company may, however, consider the purchase of the property prior to the option date, which purchase would require the consent of the bond holders. The rent for the facility is $315,700 annually through the year 2000; the lease provides for periodic scheduled rent increases, with a final annual rent of $392,700 for the last year (2010) of the current lease. The Maine operation currently leases an additional 10,000 square feet at $43,200 per year for storage of finished goods to maximize the effectiveness of material movements and traffic operations. With the acquisition of ATI, the Company acquired approximately 42,000 square feet of manufacturing, office and warehouse space in Seguin, Texas, including underlying real estate. In 1997, an additional 10,000 square feet was constructed bringing the total to approximately 52,000 square feet. The Seguin operation also rents approximately 6,000 square feet at $6,900 per year for storage of spare machine parts and miscellaneous equipment. The Company, through its subsidiary Brunswick Technologies Europe, Ltd., leases a total of approximately 30,600 square feet of modem manufacturing, offices and warehouse space in Andover, UK. Annual rent of L109,440 is paid in quarterly installments. The three triple-net leases run through December, 2001, with the rental payments subject to adjustment in July, 2000. ITEM 3: LEGAL PROCEEDINGS The Company is involved from time to time in litigation incidental to its business. The Company is not party to any material pending legal proceedings. Owens Corning Fibers, Inc. ("OCF"), in correspondence and other contacts commencing in December, 1998, has expressed its belief that the Company is infringing Hutson U.S. Patent Nos. 4,484,459 and 4,550,045 acquired by OCF. It is the Company's position that no valid claim of any of the mentioned patents is infringed by the Company, and that they also have other good defenses. The Company and OCF are continuing to discuss this matter but have yet to resolve the infringement claim. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS The Company's shares of Common Stock (trading symbol: BTIC) have been quoted and traded on the NASDAQ National Market tier of the NASDAQ Stock Market since February 5, 1997. The initial public offering price for the Common Stock was $9.50 per share. The following table sets forth the high and low sale prices as reported by NASDAQ for the fiscal period indicated:
1998 1997(1) ------------- ------------- PERIOD HIGH LOW HIGH LOW - ------ ---- --- ---- --- First Quarter.............................. 17 12 1/4 10 7/8 9 1/2 Second Quarter............................. 15 1/8 10 1/4 9 3/8 8 5/8 Third Quarter.............................. 13 1/6 5 17/32 19 1/2 9 1/8 Fourth Quarter............................. 8 1/2 4 20 3/16 14
- --------------- (1) For the year 1997, first quarter is the period from February 5 (initial public trading day) through March 31, 1997. The approximate number of stockholders of record of the Company's Common Stock as of March 22, 1999 is 3,600. 12 14 To date, the Company has not paid any dividends on its Common Stock. The Company currently intends to retain future earnings to finance the growth and development of the Company's business and does not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the Board of Directors and will depend upon the Company's earnings, its capital requirements, financial condition and other relevant factors. Item 701 Disclosure: On February 10, 1997, the Company completed its initial public offering of common stock. The sale to the public totaled 2,675,000 shares, with 1,700,000 new shares being sold by the Company and 975,000 shares being sold from the holdings of an existing shareholder. The offering price was $9.50 per share with proceeds to the Company, after offering expenses, of approximately $13,700,000. From the proceeds, the Company was obligated to pay $3,648,250 of the convertible subordinated note held by Burlington Industries, plus accrued interest thereon of $94,954. From the proceeds, the Company also paid off the balance of its bank debt, approximately $2,892,960 million. Deferred charges of $512,679 at December 31, 1996, and other transactional expenses (together aggregating approximately $1.3 million) were offset against stockholders equity upon completion of the offering. For the year ended December 31, 1997, the Company expended $855,900 of the proceeds in purchases of property, plant and equipment and $4,394,000 of the proceeds for working capital. The balance of the proceeds of the initial public offering that had not been expended as of December 31, 1997 was invested in high-grade governmental and corporate obligations. On March 2, 1998 the Company acquired the business and assets of TTI based in Andover, UK from T&N plc for approximately $5.9 million in cash. This substantially completed the re-investment of the remaining proceeds of the IPO. ITEM 6: SELECTED FINANCIAL DATA The selected financial data set forth below for the Company's fiscal year ended December 31, 1994 and at December 31, 1994 are derived from the financial statements of the Company audited by KPMG Peat Marwick LLP, independent public accountants. The selected financial data set forth below for the Company's fiscal years ended December 31, 1995, 1996, 1997 and 1998 and at December 31, 1995, 1996, 1997 and 1998 are derived from the financial statements of the Company audited by PricewaterhouseCoopers, LLP, independent public accountants, which are included elsewhere in this Report. The selected financial data set forth below should be read in conjunction with the Financial Statements and Notes thereto and with MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS appearing elsewhere in this Report. 13 15 BRUNSWICK TECHNOLOGIES, INC.
YEARS ENDED DECEMBER 31, -------------------------------------------------- 1998(2) 1997 1996(1) 1995 1994 ------- ------- ------- ------- ------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Net Sales................................. $41,422 $30,510 $19,816 $15,476 $9,596 Cost of goods sold........................ 32,224 22,807 15,318 11,979 7,382 ------- ------- ------- ------- ------ Gross profit.............................. 9,198 7,702 4,498 3,497 2,214 Other operating expenses.................. 7,234 5,921 3,521 2,492 1,874 Moving costs.............................. -- -- 248 9 -- Facility repair costs..................... -- -- (148) 150 -- ------- ------- ------- ------- ------ Operating income.......................... 1,964 1,781 877 846 340 Other income, net......................... 422 202 51 (61) (26) ------- ------- ------- ------- ------ Income before taxes....................... 2,386 1,983 928 785 314 Income tax (benefit) expense.............. 839 707 335 (122) -- ------- ------- ------- ------- ------ Net income................................ 1,548 1,275 593 907 314 ======= ======= ======= ======= ====== Preferred stock dividend.................. -- (51) (450) (450) (450) Accretion of preferred stock Redemption value................................... -- (5) (82) (76) (71) ------- ------- ------- ------- ------ Net income (loss) attributable to Common stock................................... $ 1,548 $ 1,219 $ 74 $ 375 $ (212) ======= ======= ======= ======= ====== Basic earnings per share.................. $ 0.30 $ 0.29 $ 0.25 $ 1.33 $ -- Diluted earnings per share(3)............. $ 0.28 $ 0.26 $ 0.17 $ 0.03 $ --
AT DECEMBER 31, --------------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- (IN THOUSANDS) BALANCE SHEET DATA Working capital.......................... $ 8,963 $12,414 $ 1,412 $ 905 $ 631 Total assets............................. 29,639 25,216 18,634 7,867 5,665 Long-term liabilities.................... 1,173 623 8,975 1,069 1,177 Total liabilities........................ 4,701 1,989 14,289 4,168 2,886 Preferred stock.......................... -- -- 6,589 6,070 5,538 Stockholders' equity (deficit)........... $24,938 $23,227 $(2,244) $(2,371) $(2,759)
- --------------- (1) Reflects the consolidation of the operations and financial condition of ATI with those of the Company for the last two months of 1996. (2) Reflects the consolidation of the operations and financial condition of BTI-Europe with these of the Company for the ten months from March 2, 1998 to December 31, 1998. (3) Calculation is shown in Note 1 of Notes to Consolidated Financial Statements of the Company. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is a leading developer and producer of engineered reinforcement fabrics used in the fabrication of composite materials. Since the invention of composite reinforcement fabrics in the early 1940's, these materials have developed broad applicability as substitutes for wood, steel, and concrete. The Company's principal strength lies in its innovative quadraxial single-step stitchbonding fabrication process. 14 16 ACQUISITION OF ADVANCED TEXTILES, INC. On October 30, 1996, the Company acquired Advanced Textiles, Inc. ("ATl"), a subsidiary of Burlington Industries, Inc. ("Burlington") for a total acquisition cost of $8,539,000, payable through the issuance of a note ($7,296,500) convertible into the Company's common stock, $0.000l par value (the "Common Stock") at the initial public offering ("IPO") price of $9.50 per share; deferred cash payments discounted to $513,000; the issuance of Common Stock valued at $53,500 to a minority shareholder in ATI; cash payments of $351,000; and acquisition costs of $325,000. The acquisition was accounted for under the purchase method of accounting. The fair market value of the assets acquired is estimated at $3,178,000, resulting in goodwill of $5,361,000 which amount is being amortized over 20 years. The operations of ATI for November and December 1996 are included in the 1996 consolidated statements of income and cash flow. All inter-company transactions have been eliminated in the consolidated financial statements. Except where noted, the discussion below is directed at 1996 operations so consolidated. ATI contributed $1,723,573, $380,162, $105,527, and ($9,890) of net revenue, gross margin, operating income and net (loss) respectively to the 1996 consolidated statement of income. The ATI operations for the two months (November and December of 1996) resulted in a net loss due to the amortization of goodwill ($51,137) and the interest expense on the debt to Burlington ($122,582). On February 10, 1997, upon the closing of the Company's IPO, one half of the convertible subordinated note to Burlington ($3,648,250) was paid, which reduced interest expense by $28,882 a month. On November 7,1997 the Company called the remaining $3,648,250 outstanding under the convertible subordinated note and Burlington chose to convert the note into Common Stock in a two stage conversion: $1,500,000 was converted on November 7, 1997 into 157,894 shares of Common Stock at the exercise price of $9.50 per share. The remaining $2,148,250 was converted on November 17, 1997 into an additional 226,131 Common Shares at the same exercise price of $9.50 per share. This completed the financing of the ATI acquisition and eliminated the remaining monthly interest expense of $28,882. On March 2, 1998 the Company acquired the business and assets of TTI based in Andover, UK from T&N plc for approximately $5.9 million in cash. The 10 month operations of Brunswick Technologies Europe, Ltd. ("BTI-Europe", the Company's wholly owned subsidiary formed to hold the acquired assets of TTI and located in Andover, UK) are included in the 1998 consolidated statements of income and cash flow while BTI-Europe's net assets are included in the December 31, 1998 consolidated balance sheet and statement of shareholders' equity. All inter-company transactions have been eliminated in the consolidated financial statements. Except where noted, the discussion below is directed at 1998 operations so consolidated. BTI is organized primarily on the basis of products being marketed, produced and shipped from either "domestic" plants (those located in the United States) or the sole "international" plant, BTI-Europe located in Andover, UK. Domestic operations utilize a unified sales force selling a unified product line directly to customers as well as through a unified group of distributors. Products are sold substantially within North America, though products are also shipped worldwide. International operations sell primarily to a distinct customer base utilizing a locally based sales force and independently established distribution channels. Products are shipped throughout Europe and the world. 15 17 The following table sets forth certain financial data as a percentage of net sales: BRUNSWICK TECHNOLOGIES, INC.
YEARS ENDED DECEMBER 31, 1998 1997 1996 ------ ------ ------ Net Sales................................................... 100.0% 100.0% 100.0% Cost of goods sold.......................................... 77.8% 74.8% 77.3% ----- ----- ----- Gross profit................................................ 22.2% 25.2% 22.7% Selling, general and administrative expenses................ 16.0% 17.2% 15.3% Research and development expenses........................... 1.5% 2.2% 2.5% Moving costs................................................ 0.0% 0.0% 1.3% Facility repair costs....................................... 0.0% 0.0% -0.7% ----- ----- ----- Operating income............................................ 4.7% 5.8% 4.4% Other income (expense) Interest expense.......................................... 0.0% -1.1% -1.3% Miscellaneous, net........................................ 1.0% 1.7% 1.6% ----- ----- ----- Income before taxes......................................... 5.8% 6.5% 4.7% Income tax expense.......................................... 2.0% 2.3% 1.7% ----- ----- ----- Net income.................................................. 3.7% 4.2% 3.0%
16 18 Net sales, cost of goods sold and gross profit The percentage increases and per pound values in the consolidated net sales, cost of goods sold and gross profit accounts for the years 1998, 1997 and 1996 are shown below. The percentage increase and per pound values for the domestic operations of net sales, cost of goods sold and gross profit accounts are shown below as is the per pound values of net sales, cost of goods sold and gross profit for the international operations.
% INCREASE ------------------ 1998 1997 1996 1997-98 1996-97 ----------- ----------- ----------- ------- ------- CONSOLIDATED Pounds sold...................... 26,899,116 20,721,483 13,893,086 29.8% 49.1% Net sales........................ $41,422,131 $30,509,675 $19,815,711 35.8% 54.0% Average price per pound.......... $ 1.540 $ 1.472 $ 1.426 4.6% 3.2% Cost of goods sold............... $32,224,028 $22,807,179 $15,317,619 41.3% 48.9% Average cost per pound........... $ 1.198 $ 1.101 $ 1.103 8.8% -0.2%
% INCREASE ------------------ 1998 1997 1996 1997-98 1996-97 ----------- ----------- ----------- ------- ------- DOMESTIC Pounds sold...................... 24,631,140 20,721,483 13,893,086 18.9% 49.1% Net sales........................ $36,113,189 $30,509,675 $19,815,711 18.4% 54.0% Average price per pound.......... $ 1.466 $ 1.472 $ 1.426 -0.4% 3.2% Cost of goods sold............... $28,469,581 $22,807,179 $15,317,619 24.8% 48.9% Average cost per pound........... $ 1.156 $ 1.101 $ 1.103 5.0% -0.2%
1998 ---------- INTERNATIONAL Pounds sold....................... 2,267,976 Net sales......................... $5,308,942 Average price per pound........... $ 2.341 Cost of goods sold................ $3,754,447 Average cost per pound............ $ 1.655
1998 compared to 1997 NET SALES. Consolidated net sales increased $10.9 million in 1998 or 29.8% to $41.4 million. Domestic net sales increased $5.6 million, or 18.4%, to $36.1 million and international operations (which represents only 10 months of BTI Europe's operations) contributed $5.3 million to consolidated net sales. Domestic gains were due to continued increases in the number of end uses of the Company's products as well as increases in market share for existing end use applications. Gains were achieved in all of the major industry sectors using the Company's products: marine, transportation, corrosion, oil and gas, recreational and general industrial. One of the stronger gains was experienced in the industrial market where composites are utilized in large scale blade applications. The Company's White Steel(R) product line continued to increase during the year with gross sales reaching $1.9 million for the year, up 90% from 1997's levels. Most of these products are currently being sold into the transportation and offshore oil and gas markets. This continues the trend of the Company's success at diversifying the base business to reduce the Company's historically high dependence on the marine sector through growth and development of new markets. GROSS PROFIT MARGIN. Consolidated gross profit margin declined from 25.2% in 1997 to 22.2% in 1998 as the domestic gross margin, which was down to 21.2%, was negatively impacted by: (1) an increase in raw stock pricing which was unable to be passed through to the end user; (2) manufacturing inefficiencies caused by higher frequency of style changes to meet demand for certain product lines which also generated greater quantities of second quality material ; (3) high regional unemployment which increased training and other 17 19 costs associated with high worker turnover; (4) increased overhead associated with new capacity coming on line and the expansion of physical plant space to accommodate future additional production machines, and; (5) replacement material being provided to an export customer in compensation for out of spec material. The average domestic sell price per pound declined $.006. However, the average cost per pound increased $.055 to $1.156 resulting in a gross profit per pound at $0.310, down from $0.371 in 1997. International operations helped to partially offset the lower domestic gross margin. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and administrative ("SG&A") expenses increased from $5.24 million in 1997 to $6.62 million in 1998 but declined as a percentage of net sales from 17.2% to 16.0%. Domestic SG&A dropped to 15.4% during the year. Within that category shipping costs as a percentage of net sales increased from 3.9% to 4.5% as the Company had a greater number of export shipments. This was more than offset by a decrease in selling expense as a percentage of sales which dropped from 6.8% to 5.5%. Domestic general and administrative expenses increased by $208,000 to $1.94 million but also decreased as a percentage of net sales from 5.7% in 1997 to 5.4% in 1998. Internationally, SG&A totaled 12.9% of net sales for the ten months. It should be noted that the corporate overhead is borne by domestic operations so a direct comparison of domestic and international expense structures is not appropriate. RESEARCH AND DEVELOPMENT EXPENSES. Consolidated research and development ("R&D") expenses declined 9.6% in 1998 to $612,000, or 1.5% of net sales. R&D expenses are heavily influenced by where the Company is in the development cycle of a new machine which can run from 6 to 18 months. The Company brought a new White Steel(R) machine on line in 1997. The development expense associated with that machine was greater than the new 150" 0 degrees/90 degrees machine brought on line in 1998. INTEREST INCOME. Interest income declined in 1998 as the remaining proceeds from the Company's 1997 initial public offering were substantially reinvested from short term liquid investments into the acquisition of the business and assets of TTI on March 2, 1998. This reduced interest income and shifted income to operating income through the consolidated of BTI-Europe. INTEREST EXPENSE. Interest expense declined in 1998 due primarily to the deleveraging of the Company following the Company's initial public offering in February, 1997. Approximately $44,500 of interest expense was incurred during 1998 due to short term borrowings under the Company's unsecured line of credit from the Company's bank. This was offset by a like amount of interest which was capitalized into machines and other construction in progress. MISCELLANEOUS INCOME. Miscellaneous income includes some of the impact of reimbursement of expenses related to expenditures on new technologies from a grant from the NIST in 1998 when the amount of $76,000 was included as a benefit to the 1998 statement of income. Cost of goods sold was credited for $22,200 of this amount while $53,800 was credited to other income. Cash discounts, which are also included in miscellaneous income, earned through the early payment of trade debt, totaled $197,000 in 1998 and the Company had $12,700 in realized gains on foreign exchange during the year. INCOME TAX EXPENSE. Income tax expense of $838,500 reflected a blended tax rate of 35.1%, down slightly from 1997's 35.7% rate. The domestic tax rate of 37% is blended with a 31% effective rate on international pre-tax earnings. 1997 compared to 1996 NET SALES. Net sales increases reflect the positive impact of a full 12 months of ATI's activity as well as the successful cross-selling of the integrated product lines during the year. Revenues have also increased during the periods presented due to continued increases in the number of end uses of the Company's products as well as increases in market share for existing end use applications. Sales increases have been experienced in all of the major industry sectors using the Company's products: Marine, transportation, infrastructure, oil and gas, recreational and industrial. Most notably, sales of the Company's White Steel(R) product line increased over 45% to over $1.0 million in gross sales. Sales within periods have historically been affected by fluctuations in the general availability of the raw material of fiberglass strands used by the Company in its manufacturing process. With an ample supply of fiberglass (which occurred in 1996), the Company's customers tend to 18 20 reduce their inventories on the basis that supplies are readily available. This resulted in Company sales for 1996 being adversely effected as customer inventories were reduced to two to three weeks of use compared to significantly higher customer inventory levels in 1995. Supplies within the industry remained readily available throughout 1997. GROSS PROFIT MARGIN. Gross profit margin continued to improve in 1997 as the Company was able to enjoy a $.046 per pound increase in the average selling price while pushing cost of goods sold down .2% to $1.10l per pound. These numbers reflect the positive impact of ATI's higher margin business as well as favorable special pricing on raw stock that the Company was able to achieve in the first half of the year. Pricing of raw stock returned to more normal levels in the second half of the year. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for 1997 were impacted by the inclusion of a full 12 months of ATI's activities plus increased administrative costs associated with being a publicly traded company. Selling, general and administrative expenses for 1997 increased 74%, or $2,221,800. Within that category, selling expense increased by 89.7%, or $977,500 and as a percentage of net sales, selling expense rose from 5.5% to 6.8%, due primarily to increases in salaries associated with the acquisition of ATI. General and administrative expenses ("G&A") increased $695,300, or 67.3%. As a percentage of net sales, G&A expenses increased from 5.2% in 1996 to 5.7% in 1997 with the increase caused by an increase in salaries and bonuses associated primarily with the acquisitions of ATI plus the higher legal, accounting and insurance fees associated with the Company's Common Stock being traded in the public markets. Directors and Officers insurance ("D&O") increased from $10,000 annually to $75,900 annually as a result of the Company's IPO in February, 1997, while outside legal and accounting expenses (net of those directly supporting the IPO) increased by approximately $58,000 in 1997. Also in G&A, goodwill amortization increased by $224,400 resulting from a full 12 months amortization associated with the ATI acquisition in 1997 versus only two months in 1996. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased by $179,200, or 36% in 1997. Most of the increase is due to costs associated with the development of the Company's new White Steel(R) production machine, which was brought on line during the later part of the third quarter. MOVING COSTS. Moving costs in 1996 reflect the cost of moving to the new, Brunswick, Maine facility which move was completed in the first half of 1996. In connection with the move to the new facility, the Company recorded in 1995 an expense of $150,000 to cover the expenses estimated to be incurred for the restoration of the facilities being vacated. The repairs thought to be required when the expense was recorded did not materialize and therefore the unexpended amount of $147,500 as recognized as an addition to operating income in June 1996 which offset, to some extent, other increases in operating expenses. INTEREST INCOME. Interest income of $319,100 was earned in 1997 and resulted from the investment of some of the net proceeds from the Company's IPO. INTEREST EXPENSE. Interest expense increased as a result of the debt due to Burlington, which was incurred in November 1996 and partially retired in February 1997, in conjunction with the IPO. The remaining balance was converted into Common Stock in November 1997. Also, the Company had capitalized interest associated with the construction phase of new machines totaling $72,100 in 1997, up from only $14,000 in 1996. MISCELLANEOUS INCOME. Miscellaneous income includes some of the impact of reimbursement of expenses related to expenditures on new technologies from a grant from the NIST in 1997 when the amount of $143,300 was included as a benefit to the 1997 statement of income. Cost of goods sold was credited for $24,200 of this amount while $119,100 was credited to other income. The reimbursement of certain expenditures from this grant resulted in a credit of $93,600 and $34,300 to cost of goods sold and recognition of $332,400 and $66,700 as other income in the 1996 and 1995 periods, respectively. Cash discounts, which are also included in miscellaneous income, earned through the early payment of trade debt, totaled $131,500 in 1997 and was achieved by utilization of some of the net proceeds of the Company's IPO. INCOME TAXES. In 1997, the Company recorded income tax expense of $707,400, for an effective rate of 35.7%. In 1996, the Company recorded income tax expense at an effective rate of 36.1%. 19 21 Liquidity And Capital Resources INITIAL PUBLIC OFFERING. On February 10, 1997, the Company issued and sold 1,700,000 new shares of its Common Stock in its IPO. As part of the IPO, a stockholder which owned a large percentage of the Company sold 800,000 of its shares to the public so that the total sale to the public was 2,500,000 shares. The price to the public was $9.50 per share. After selling commissions of 7%, the Company realized proceeds of $8.835 per share or $15,019,500. Expenses associated with the offering were approximately $1 million so that net proceeds were about $14 million. In accordance with the terms of the note to Burlington, upon the closing of the IPO, 50% of the note was redeemed in the amount of $3,648,300 plus accrued interest of $95,000. Bank debt totaling $2,694,000 was also paid with the IPO proceeds. In connection with the IPO, the Company was recapitalized as follows: all shares of Common Stock were split on a 33 for 1 basis; all shares of the Company's preferred stock, converted into shares of Common Stock on a 33 for 1 basis; the holders of preferred stock were issued in the aggregate an additional 211,088 shares of Common Stock in payment of $2,005,300 in accrued cash dividends pursuant to the terms of the preferred stock; and the Company's no par value Common Stock was converted into Common Stock with a par value of $0.0001 per share. On October 30, 1997, (one year from the date of the acquisition of ATI), the outstanding balance of the convertible note to Burlington became convertible into Common Stock at a rate of $9.50 per share. On October 30, the Company called the remaining $3,648,300 outstanding under the convertible subordinated note and Burlington chose to convert the note into Common Stock in a two stage conversion: $1,500,000 was converted on November 7, 1997 into 157,894 shares of Common Stock at the exercise price of $9.50 per share. The remaining $2,148,300 was converted on November 17, 1997 into an additional 226,131 shares of Common Stock at the same exercise price of $9.50 per share. This completed the financing of the ATI acquisition and eliminated the remaining monthly interest expense of $28,882. The Company used approximately $2.2 million of the net proceeds from the IPO to accelerate the payment of trade debt in order to take advantage of early payment discount incentives being offered by major suppliers. OTHER CONSIDERATIONS. The TTI acquisition which was made for approximately $5.9 million in cash substantially reduced the liquidity of the Company in 1998. In addition, the company invested an additional $1.82 million during the year in new plant and equipment, including a new management information system (see "Year 2000"). During the year, the Company closed on a new $4.0 million unsecured line of credit which was increased from $2.5 million by the Company's bank. The company has utilized the line from time to time and at December 31, 1998 there was $261,000 outstanding under the line. Details of the arrangement are given in Note 4 of Notes to the Consolidated Financial Statements of the Company. Management believes cash flow from ongoing operations and funds available under the Company's credit facility will be adequate to meet the Company's needs during 1999. Three of the Company's largest distributors have announced a merger which is to be consummated on March 31, 1999. The Company estimates that sales to the combined entity will represent in excess of 45% of the Company's annualized domestic sales. While this increases the Company's credit risk concentration and market concentration, management believes that there will be enhanced market benefits to the consolidation of the three distributors, as well. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Information contained in this report with respect to expected financial results and future events and trends is forward-looking, based on Management's estimates and assumptions and is subject to risks and uncertainties. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation reform Act of 1995. The Company cautions investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors and risks. 20 22 The Company's future operating results are dependent on its ability to achieve increased sales and to control expenses. Factors such as lower than expected inflation, product cost fluctuations, changes in product mix, continued or increased competitive pressures from existing competitors and new entrants, including price cutting strategies, and deterioration in general for regional economic conditions are all factors which could adversely affect sales projections. Additionally, the Company's operating results may be negatively affected by (i) difficulties and uncertainties associated with the merger of three of the Company's large distributors, (ii) fluctuations in valuation of the pound Sterling versus other European currencies and the US Dollar, (iii) the failure to obtain necessary capital for the expansion of facilities and acquisitions, and (iv) unforeseen results of the Y2K problem. Other components of operating results could be adversely affected by state or federal legislation or regulation that increases costs, increases in labor rates due to low unemployment or other factors, or the inability to control various expense categories. ITEM 7A: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Management feels that the Market Risk profile of the Company is low. The Company has a wholly owned subsidiary, BTI-Europe, located in Andover, UK. The value of the Company's interest in, and inter-company obligations to and from, BTI-Europe may fluctuate from time to time in response to changes in the relative exchange rates between the US Dollar ($) and British Pound Sterling (L). The financial statements of BTI-Europe are consolidated into the financial statements of the Company for financial reporting purposes in accordance with Generally Accepted Accounting Principals ("GAAP") and, as such, are translated into US currency at the exchange rates prescribed by GAAP. The Company also sells product throughout the world and, from time to time, may agree to sell based on the local currencies. The Company may, from time to time, enter into foreign exchange forward contracts in order to hedge against currency fluctuations associated with these foreign sales or anticipated sales. Accordingly, the Company's accounts receivable may be subject to realized and unrealized foreign exchange gains or losses and are reported in accordance with GAAP. At December 31, 1998, the Company had no outstanding foreign exchange forward contracts outstanding. The Company has a $4.0 million dollar unsecured line of credit from the Company's bank. The details of the line may be found in Note 4 of the Notes to the Consolidated Financial Statements. The Company has used the line from time to time and borrowings under the line are subject to interest rates which may fluctuate with the prevailing interest rate environment. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following described consolidated financial statements of the Company are included in response to this item: Report of Independent Public Accountants Consolidated Statements of Income for the years ended December 31, 1998, 1997, and 1996. Consolidated Balance Sheets as of December 31, 1998 and 1997. Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Comprehensive Income for the years ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements 21 23 REPORT OF INDEPENDENT ACCOUNTANTS February 12, 1999 Board of Directors and Shareholders of Brunswick Technologies, Inc. In our opinion, the accompanying consolidated balance sheets and the related statements of income, shareholders' equity (deficit), cash flows and comprehensive income present fairly, in all material respects, the financial position of Brunswick Technologies, Inc. and Subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Portland, Maine 22 24 BRUNSWICK TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Net sales........................................... $41,422,131 $30,509,675 $19,815,711 Cost of goods sold (raw material purchased from a stockholder amounted to $10,309,104 in 1998, $8,933,450 in 1997, and $8,548,754 in 1996)....... 32,224,028 22,807,179 15,317,619 ----------- ----------- ----------- Gross Profit.............................. 9,198,103 7,702,496 4,498,092 Selling, general and administrative expenses........ 6,621,756 5,244,016 3,022,240 Research and development expenses................... 611,923 677,192 498,038 Moving costs........................................ -- -- 248,314 Facility repair costs............................... -- -- (147,545) ----------- ----------- ----------- Operating income.......................... 1,964,424 1,781,288 877,045 ----------- ----------- ----------- Other income (expense): Interest income................................... 96,193 319,071 4,102 Interest expense.................................. -- (328,415) (255,931) Miscellaneous, net................................ 325,731 210,845 303,181 ----------- ----------- ----------- 421,924 201,501 51,352 ----------- ----------- ----------- Income before income tax.................. 2,386,348 1,982,789 928,397 Income tax expense.................................. 838,500 707,400 335,000 ----------- ----------- ----------- Net income................................ 1,547,848 1,275,389 593,397 ----------- ----------- ----------- Preferred stock dividend............................ -- (50,561) (450,120) Accretion of preferred stock redemption value....... -- (5,439) (69,559) ----------- ----------- ----------- Net income attributable to common stock............. $ 1,547,848 $ 1,219,389 $ 73,718 =========== =========== =========== Basic: Earnings per share................................ $ 0.30 $ 0.29 $ 0.25 Weighted average common shares outstanding........ 5,164,113 4,215,827 297,140 Diluted: Earnings per share................................ $ 0.28 $ 0.26 $ 0.17 Weighted average common shares outstanding........ 5,438,355 4,936,033 3,498,302
The accompanying notes are an integral part of the financial statements 23 25 BRUNSWICK TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- 1998 1997 ----------- ----------- ASSETS Current assets: Cash...................................................... $ 795,764 $ 352,839 Marketable securities available for sale.................. -- 6,607,344 Accounts receivable (net of allowance for doubtful accounts of $125,000 in 1998 and $46,000 in 1997)...... 6,056,155 2,908,648 Inventories............................................... 4,806,799 3,308,031 Refundable income taxes................................... 27,049 -- Deferred income taxes..................................... 274,500 179,600 Other current assets...................................... 530,588 353,704 ----------- ----------- Total current assets................................... 12,490,855 13,710,166 Property, plant and equipment: Land and building......................................... 973,512 937,317 Furniture and fixtures.................................... 535,220 458,043 Leasehold improvements.................................... 116,446 80,731 Machinery and equipment................................... 10,284,156 6,375,110 Machine under construction................................ 280,227 231,354 Vehicles.................................................. 92,318 92,318 Management information systems............................ 394,267 102,000 ----------- ----------- 12,676,146 8,276,873 ----------- ----------- Less accumulated depreciation and amortization............ (2,876,833) (2,003,050) ----------- ----------- Net property, plant and equipment...................... 9,799,313 6,273,823 ----------- ----------- Due from shareholder........................................ 110,877 69,581 Other assets, including investment in Euro-Technology (net of accumulated amortization of $128,111 in 1998 and $1,185 in 1997).................................................. 2,181,830 123,678 Goodwill (net of accumulated amortization of $581,280 in 1998 and $321,898 in 1997)................................ 5,055,899 5,039,102 ----------- ----------- Total assets...................................... $29,638,774 $25,216,350 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank overdraft............................................ $ 473,931 $ -- Note payable to bank...................................... 261,000 -- Current installments of long-term debt.................... 110,741 100,000 Accounts payable shareholder.............................. 225,708 83,854 Accounts payable.......................................... 1,876,264 538,601 Accrued expenses.......................................... 579,934 513,744 Income taxes payable...................................... -- 130,000 ----------- ----------- Total current liabilities.............................. 3,527,578 1,366,199 Long-term debt, excluding current installments.............. 139,179 253,244 Deferred income taxes....................................... 1,034,200 370,000 Commitments (Note 5) Shareholders' equity: Common stock, $0.0001 par value; 20,000,000 shares authorized, 5,186,889 outstanding in 1998 and 5,146,606 outstanding in 1997.................................... 519 515 Additional paid-in capital................................ 24,837,224 24,714,963 Treasury stock at cost: 3,300 shares in 1998 and 1997..... (5,000) (5,000) Cumulative translation adjustment......................... 40,797 -- Accumulated earnings (deficit)............................ 64,277 (1,483,571) ----------- ----------- Total shareholders' equity............................. 24,937,817 23,226,907 ----------- ----------- Total liabilities and shareholders' equity........ $29,638,774 $25,216,350 =========== ===========
The accompanying notes are an integral part of the financial statements 24 26 BRUNSWICK TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ADDITIONAL TREASURY STOCK CUMULATIVE TOTAL ------------------ PAID-IN ---------------- ACCUMULATED TRANSLATION SHAREHOLDERS' SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT ADJUSTMENT EQUITY (DEFICIT) --------- ------ ----------- ------ ------- ----------- ----------- ---------------- BALANCE AT DECEMBER 31, 1995....................... 289,674 $ 29 $ 410,290 (3,300) $(5,000) $(2,776,678) $ -- $(2,371,359) Exercise of common stock options.................... 6,600 -- 200 -- -- -- 200 Issue of stock in acquisition of Advanced Textiles, Inc........................ 5,350 1 53,499 -- -- -- 53,500 Accrual of preferred stock dividend................... -- -- -- -- -- (450,120) (450,120) Accretion of preferred stock redemption value........... -- -- -- -- -- (69,559) (69,559) Net income................... -- -- -- -- -- 593,397 593,397 --------- ---- ----------- ------ ------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1996....................... 301,624 30 463,989 (3,300) (5,000) (2,702,960) -- (2,243,941) Accrual of preferred stock dividend................... -- -- -- -- -- (50,561) (50,561) Accretion of preferred stock redemption value........... -- -- -- -- -- (5,439) (5,439) Conversion of preferred shares to common stock..... 2,548,280 255 6,644,954 -- -- -- 6,645,209 Issuance of common stock to public..................... 1,700,000 170 13,741,499 -- -- -- 13,741,669 Exercise of warrants to purchase common stock...... 178,089 18 (18) -- -- -- -- Issuance of stock upon conversion of debt......... 384,026 38 3,648,212 -- -- -- 3,648,250 Exercise of common stock options under employee compensation plans including tax benefit of $215,000................... 34,587 4 216,327 -- -- -- 216,331 Net income................... -- -- -- -- -- 1,275,389 1,275,389 --------- ---- ----------- ------ ------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1997....................... 5,146,606 515 24,714,963 (3,300) (5,000) (1,483,571) -- 23,226,907 Exercise of common stock options under employee compensation plans including tax benefit of $67,000.................... 35,040 4 99,262 -- -- -- -- 99,266 Issuance of stock to directors for compensation............... 5,243 -- 22,999 -- -- -- -- 22,999 Foreign currency translation adjustment................. 40,797 Net income................... -- -- -- -- -- 1,547,848 1,588,645 --------- ---- ----------- ------ ------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1998....................... 5,186,889 $519 $24,837,224 (3,300) $(5,000) $ 64,277 $40,797 $24,937,817 ========= ==== =========== ====== ======= =========== ======= ===========
The accompanying notes are an integral part of the financial statements 25 27 BRUNSWICK TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 1998 1997 1996 ----------- ------------ ----------- Cash flows from operating activities: Net income................................................ $ 1,547,848 $ 1,275,389 $ 593,397 Adjustments to reconcile net income to net provided by (used in) operating activities: Depreciation and amortization........................... 1,274,098 846,974 479,669 Deferred taxes.......................................... 389,300 235,500 229,000 Changes in assets and liabilities: (Increase) decrease in accounts receivable.............. (1,788,774) (358,830) 172,493 Increase in inventories................................. (855,737) (45,181) (725,564) (Increase) decrease in refundable income taxes.......... (27,049) 21,061 (5,061) (Increase) decrease in other current assets............. 101,353 (53,514) (176,721) Increase in due from shareholder........................ (41,296) (69,581) -- Increase (decrease) in accounts payable shareholder..... 141,854 (960,705) (587,619) Increase (decrease) in accounts payable and accrued expenses.............................................. 311,006 (1,438,262) 721,129 Increase (decrease) in income taxes payable............. (105,368) 344,942 (32,000) ----------- ------------ ----------- Net cash provided by (used in) operating activities... 947,235 (202,207) 668,723 ----------- ------------ ----------- Cash flows from investing activities: Acquisition of businesses, net of cash acquired, including technology.............................................. (5,993,058) -- (294,512) Purchases of marketable securities........................ -- (96,947,023) -- Sale of marketable securities............................. 6,607,344 90,339,679 -- Purchases of property, plant and equipment................ (1,820,948) (849,408) (1,132,236) Decrease in other assets.................................. 49,917 31,300 17,687 ----------- ------------ ----------- Net cash used in investing activities................. (1,156,745) (7,425,452) (1,409,061) ----------- ------------ ----------- Cash flows from financing activities: Increase (decrease) in bank overdraft..................... 473,931 (300,809) 84,187 Net proceeds (repayments) under line of credit............ 261,000 (1,179,968) 1,179,968 Proceeds from long-term debt borrowings................... -- -- 321,375 Repayment of long-term debt............................... (114,065) (5,149,568) (95,566) Net proceeds received from issuance of common stock to public.................................................. -- 14,682,689 -- Proceeds from exercise of common stock options warrants and stock granted as directors compensation............. 32,266 1,389 200 Transactional expenses associated with issuance of stock................................................... -- (428,341) (512,679) ----------- ------------ ----------- Net cash provided by financing activities............. 653,132 7,625,392 977,485 Net effect of currency exchange rates on cash............. (697) -- -- ----------- ------------ ----------- Net increase (decrease) in cash....................... 442,925 (2,267) 237,147 Cash at beginning of period................................. 352,839 355,106 117,959 ----------- ------------ ----------- Cash at end of period....................................... $ 795,764 $ 352,839 $ 355,106 =========== ============ =========== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest (including interest capitalized of $44,535 in 1998 and $72,064 in 1997)............................. $ 40,939 $ 528,889 $ 141,886 Income taxes............................................ $ 583,550 $ 100,300 $ 168,626 Acquisition of business, net of cash acquired: Working capital, other than cash.......................... $ 1,096,550 $ 1,259,027 Property, land and equipment.............................. 2,552,372 1,537,675 Goodwill/technology....................................... 2,524,136 5,360,810 Deferred taxes............................................ (180,000) -- Convertible note due to seller............................ -- (7,296,500) Other amount due to seller................................ -- (513,000) Issuance of common stock.................................. -- (53,500) ----------- ----------- Net cash used to acquire businesses....................... $ 5,993,058 $ 294,512 =========== =========== Noncash financing activities: Conversion of preferred stock into common stock in February 1997........................................... $ 6,645,209 Conversion of debt into common stock in November 1997..... $ 3,648,250
The accompanying notes are an integral part of the financial statements 26 28 BRUNSWICK TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- -------- Net income.............................................. $1,547,848 $1,275,389 $593,397 Foreign currency translation adjustments................ 40,797 -- -- ---------- ---------- -------- Comprehensive income.................................... $1,588,645 $1,275,389 $593,397 ========== ========== ========
The accompanying notes are an integral part of the financial statements 27 29 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Brunswick Technologies, Inc. is a developer and manufacturer of stitchbonded engineered composite reinforcement fabrics made from glass, carbon and other fibers. Its products are used worldwide in a diverse range of products, including those used in the marine, recreational board, automotive, oil & gas, construction, and transportation industries. Principles of Consolidation The Consolidated Financial Statements include the accounts of Brunswick Technologies, Inc. and its wholly-owned subsidiaries, Advanced Textiles, Inc. ("ATI") and Brunswick Technologies Europe Ltd. ("BTI-Europe"). The accounts of ATI are included from October 30, 1996, the date of acquisition. The accounts of BTI-Europe are included from March 2, 1998, the date of acquisition. All significant inter-company balances and transactions have been eliminated in the Consolidated Financial Statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories Inventories are stated at the lower of standard cost, which approximates the first-in, first-out method, or market. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is provided on the straight-line method over estimated useful lives as follows:
YEARS ----- Buildings................................................... 20-30 Furniture and fixtures...................................... 2-7 Machinery and equipment..................................... 4-15 Vehicles.................................................... 5
Amortization of capitalized leased assets and leasehold improvements is provided on the straight-line method over the shorter of the lease term or the useful life. Interest expense incurred on borrowings used to finance the construction of production machinery is capitalized and included in the cost basis of the asset. Expenditures for maintenance, repairs and minor replacements are charged to operations while expenditures for major replacements and betterments are added to the property, plant and equipment accounts. When fixed assets are retired or otherwise disposed of, the asset cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in income. 28 30 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Capitalized Computer Software Costs The Company records expenditures for computer software in accordance with the provision of Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." The Company reports computer software cost in MIS. The Company had capitalized $317,337 in 1998 and $85,403 in 1997. Amortization of software cost is provided on a straight-line basis over 5 years. Research and Development Expenditures for research and development are charged to operations as incurred. Patents Costs associated with securing patents for the Company's products are capitalized and amortized over the shorter period of 17 years, or the estimated useful life. Grants Revenues from government agencies' research grants are recognized when reimbursable expenses are incurred. Revenue Recognition Revenues are recognized when finished goods are shipped to customers or services rendered, with appropriate provision for uncollectible accounts. Stock Split and Authorized Shares On January 6, 1997, the Board of Directors approved a 33 to 1 stock split of the Company's common stock to be effective immediately prior to the effective date of the registration statement for the Company's initial public offering on February 10, 1997 (see Note 12). All share and per share amounts have been retroactively restated to reflect this stock split. In addition, on August 14, 1996 the Board and the shareholders approved an increase in the authorized shares of common stock to 20,000,000 shares, to be effective immediately prior to the effective date of the registration statement. The Board and the shareholders also authorized the creation of a new undesignated class of preferred stock consisting of 1,000,000 shares, $10 par value. Computation of Earnings per Share Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," provides reporting standards for basic and diluted earnings per share and is effective for financial statement periods ending after December 15, 1997. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period, which during 1998, 1997 and 1996 were 5,164,113, 4,215,827 and 297,140, respectively. Diluted earnings per share is computed using income available to common shareholders and weighted average common shares outstanding during the period after considering the potential dilutive effect of common stock equivalents based on the treasury stock method. The diluted weighted average number of common shares outstanding for 1998, 1997 and 1996 were 5,438,355, 4,936,033 and 3,498,302, respectively. All prior period earnings per share data has been restated to conform to the provisions of this statement. 29 31 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Marketable Securities Marketable securities classified as available for sale are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. Marketable securities held to maturity are stated at cost adjusted for amortization of bond premiums and accretion of bond discounts. At December 31, 1997 the cost of marketable securities approximated fair value. At December 31, 1998, there were no marketable securities held by the Company. Fair Value of Financial Instruments At December 31, 1998, the carrying amounts of the Company's financial instruments included in current assets and current liabilities approximate fair value because of the short maturity of those instruments. The carrying amounts of the Company's long-term debt also approximate their fair value as of December 31, 1998, based upon the borrowing rates currently available to the Company for loans with similar terms and maturities. Foreign Currency Foreign subsidiaries' balance sheet and income statement accounts expressed in local functional currencies are translated into U.S. dollars using ending and average exchange rates, respectively. The resulting translation adjustments are reported in a separate component of stockholders' equity. Forward foreign exchange contracts are used to hedge committed foreign currency sales. Realized and unrealized gains and losses on these contracts are recorded in net income in the same period in which the hedged transactions affect earnings. The Company had no forward foreign currency exchanged contracts outstanding at December 31, 1998. Goodwill and Technology Goodwill represents the excess of the cost of the ATI and BTI-Europe acquisitions over the fair value of the net assets at the date of the acquisition and is being amortized over 20 years. Acquired technology is being amortized over 15 years. Impairment Accounting The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in 1996. The Company reviews the recoverability of its long-lived assets, including goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The measurement of possible impairment is based on the Company's ability to recover the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. The measurement of impairment requires management to make estimates of expected future cash flows related to long-lived assets. It is at least reasonably possible that future events or circumstances could cause these estimates to change. The Company's policy on impairment prior to the adoption of SFAS No. 121 was not materially different. Income Taxes The provision for income taxes includes amounts currently payable and deferred income taxes, which result from differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized. 30 32 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) New Accounting Standards In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those financial instruments at fair value. The accounting for changes in the fair value of a derivative under SFAS 133 depends on the intended use of the derivative and its hedging destination. SFAS 133 is required to be adopted for the Company's year ending December 31, 2000 and the Company has not yet determined the impact SFAS 133 will have on its results of operations, liquidity or financial position. In April 1998, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." It requires costs of start-up activities and organization costs to be expensed as incurred. SOP 98-5 is required to be adopted for fiscal years beginning after December 15, 1998. The Company does not believe SOP 98-5 will have a material effect on the financial statements. Reclassifications Certain prior year amounts have been reclassified to conform with the presentation used in the 1998 financial statements. 2. BUSINESS COMBINATIONS On March 2, 1998 the Company acquired the business and assets of Tech Textiles International Ltd. ("TTI") based in Andover, UK from T&N plc, for approximately $5.9 million in cash. The acquisition was made by the Company and through the Company's recently formed wholly owned subsidiary in the UK, Brunswick Technologies Europe Ltd. ("BTI-Europe") and is being accounted for using the purchase method of accounting. A preliminary allocation of the purchase price has been made to the assets and technology acquired. The operations of BTI-Europe have been included in financial results of the Company since March 2, 1998 and have been consolidated for the period ending December 31, 1998. Proforma unaudited results of operations of the Company, assuming the acquisition had occurred on January 1, 1997, are as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS) Net sales................................................ $42,588 $36,824 ======= ======= Net income............................................... $ 1,635 $ 1,562 ======= ======= Diluted earnings per share............................... $ 0.30 $ 0.32 ======= =======
On October 30, 1996, the Company acquired ATI, a subsidiary of Burlington Industries, Inc. for a total acquisition cost of $8,359,000, payable through the issuance of a note for $7,296,500 convertible into the Company's common stock at $9.50 per share; deferred cash payments discounted to $513,000; the issuance of common stock valued at $53,500 to a minority shareholder in ATI; cash payments of $351,000; and acquisition costs of $325,000. The acquisition was accounted for under the purchase method of accounting. The fair market value of the assets acquired is estimated at $3,178,000, resulting in goodwill of $5,361,000 which amount is being amortized over 20 years. 31 33 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pro forma unaudited results of operations of the Company, assuming the acquisition had occurred on January 1, 1996 are as follows:
YEAR ENDED DECEMBER 31, 1996 -------------- (IN THOUSANDS) Net sales................................................. $26,444 ======= Net income................................................ $ 2,804 ======= Diluted earnings per share................................ $ 0.81 =======
3. INVENTORIES Inventories consist of the following components:
DECEMBER 31, ------------------------ 1998 1997 ---------- ---------- Raw materials............................................. $1,393,964 $ 752,428 Work in progress.......................................... 956,868 706,353 Finished goods............................................ 2,455,967 1,849,250 ---------- ---------- $4,806,799 $3,308,031 ========== ==========
4. DEBT Long-term debt consists of the following:
DECEMBER 31, ---------------------- 1998 1997 --------- --------- Non-interest bearing obligation incurred in the purchase of ATI, discounted at 8.25%................................. $ 234,703 $ 353,244 Other...................................................... 15,217 --------- --------- 249,920 353,244 Less current installments................................ (110,741) (100,000) --------- --------- $ 139,179 $ 253,244 ========= =========
The schedule of maturities of long-term debt at December 31, 1998, is as follows: 1999.................................................. $ 110,741 2000.................................................. 139,179 --------- --------- $ 249,920 ========= =========
The Company has an existing debt facility with a bank. The agreement allows unsecured borrowings up to $4.0 million. At the Company's option, interest is charged at either the bank's prime rate or the London Interbank Borrowing Rate (LIBOR), plus 1.75%. There is an unused line fee of 1/8% of 1% of the unused portion. At December 31, 1998 there was $261,000 borrowings outstanding at a rate of 7.75% and there were no borrowings outstanding at December 31, 1997. The line of credit expires on June 1, 1999. The non-interest bearing obligation is payable in annual installments of $100,000 on December 15 of each year until the entire obligation is paid. In addition, the annual payment may be increased by an amount up to $100,000 based on certain income tax effects experienced by the holder of the note. In 1998, an increase in the annual payment of $46,801 was required. 32 34 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LEASES Commencing January 1, 1996, the Company began leasing a newly constructed manufacturing facility. The Company has the option to purchase the facility at fair market value at any time between the end of the fifth year of the lease and the end of the lease. In July 1997 the Company agreed to an increase in the lease in exchange for the fit-out of additional space. In June 1998, the Company expanded the leased facility and modified the lease terms, including extending the term to 15 years. In connection with the vacating of its former facility in December 1995, the Company recorded $150,000 as its estimated cost to make repairs to the premises as specified in its lease agreement. However, this estimate was not realized and $147,545 was reversed in June 1996. In connection with the relocation to its new facility, the Company recorded a separate operating expense for the cost of the move, which included the rental expense for the old facility for the six months through June 30, 1996. The Company also has operating leases for a manufacturing facility in the UK, equipment and a vehicle. Total rental expense under all operating leases was $436,211, $346,400 and $288,454 for the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998, future minimum lease payments under all non-cancelable leases are as follows: 1999........................................................ $ 619,107 2000........................................................ 516,151 2001........................................................ 391,835 2002........................................................ 331,596 2003........................................................ 338,800 Thereafter.................................................. 2,587,200 ---------- $4,784,689 ==========
6. CONVERTIBLE PREFERRED STOCK The Company's convertible preferred stock, no par value consists of four series whose activity is shown in the following table:
SERIES AA SERIES BB SERIES C SERIES D ------------------ --------------------- --------------------- --------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ --------- ------- ----------- ------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1995............ 3,657 $ 375,023 33,167 $ 2,295,681 18,000 $ 1,250,152 16,000 $ 2,148,674 Accrual of preferred stock dividend...... -- 18,285 -- 165,835 -- 90,000 -- 176,000 Accretion of preferred stock redemption value............... -- 35,869 -- 15,080 -- 5,715 -- 12,895 ------ --------- ------- ----------- ------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1996............ 3,657 429,177 33,167 2,476,596 18,000 1,345,867 16,000 2,337,569 Accrual of preferred stock dividend...... -- 2,054 -- 18,628 -- 10,109 -- 19,770 Accretion of preferred stock redemption value............... -- 2,805 -- 1,179 -- 447 -- 1,008 Conversion of preferred stock..... (3,657) (434,036) (33,167) (2,496,403) (18,000) (1,356,423) (16,000) (2,358,347) ------ --------- ------- ----------- ------- ----------- ------- ----------- BALANCE AT DECEMBER 31, 1997............ -- -- -- -- -- -- -- -- BALANCE AT DECEMBER 31, 1998............ -- $ -- -- $ -- -- $ -- -- $ -- ====== ========= ======= =========== ======= =========== ======= =========== TOTAL CONVERTIBLE PREFERRED SHARES --------------------- SHARES AMOUNT ------- ----------- BALANCE AT DECEMBER 31, 1995............ 70,824 $ 6,069,530 Accrual of preferred stock dividend...... -- 450,120 Accretion of preferred stock redemption value............... -- 69,559 ------- ----------- BALANCE AT DECEMBER 31, 1996............ 70,824 6,589,209 Accrual of preferred stock dividend...... -- 50,561 Accretion of preferred stock redemption value............... -- 5,439 Conversion of preferred stock..... (70,824) (6,645,209) ------- ----------- BALANCE AT DECEMBER 31, 1997............ -- -- BALANCE AT DECEMBER 31, 1998............ -- $ -- ======= ===========
Shares of all series of preferred stock are entitled to cumulative dividends at the rate of 10% per annum of the original price. In addition, shares of preferred stock have a liquidation preference. On February 10, 1997, 33 35 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the date of the closing of the Company's initial public offering, all of the Company's four series of outstanding preferred stock were converted to 2,337,192 shares of common stock. In addition, holders of shares of preferred stock received 211,088 shares of common stock in payment of accrued dividends of $2,005,342 as of the date of conversion. 7. CAPITAL STOCK The Company has three employee stock option plans, one each established in 1991, 1994 and 1997. The plans reserve for issuance a total of 990,000 common shares. Options granted prior to June 29, 1995 vest at a rate of 20% per year beginning on the date of the grant. Options granted on June 29, 1995 and after vest at 20% per year beginning one year after the date of grant. All the shares available in the 1991 and 1994 plans have been granted. The Company's 1997 Equity Incentive Plan was adopted by the Board of Directors on January 22, 1997 and approved by the shareholders at a meeting held on January 23, 1997. A total of 421,740 shares of Common Stock have been reserved for awards under the 1997 Plan. Pursuant to the 1997 Plan, a committee of the Board of Directors is authorized to grant incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock or similar securities defined thereunder, all in its discretion, to key individuals, consultants and directors of the Company or one of its affiliates. At December 31, 1998, 328,770 shares remained available to be granted. A summary of changes in common stock options during 1996, 1997, and 1998 is:
WEIGHTED AVERAGE SHARES EXERCISE PRICE ------- ---------------- Outstanding grants at December 31, 1995..................... 517,539 $ 0.74 Granted................................................... 9,900 $ 9.50 Exercised................................................. (6,600) $ 0.03 Canceled.................................................. -- -- ------- ------ Outstanding grants at December 31, 1996..................... 520,839 $ 0.91 Granted................................................... 48,000 $ 9.50 Exercised................................................. (34,587) $ 0.15 Canceled.................................................. (1,500) $ 9.50 ------- ------ Outstanding grants at December 31, 1997..................... 532,752 $ 1.66 Granted................................................... 60,100 $10.27 Exercised................................................. (35,040) $ 0.92 Canceled.................................................. (17,280) $ 4.12 ------- ------ Outstanding grants at December 31, 1998..................... 540,532 $ 2.67 ======= ====== Options exercisable at December 31, 1996.................... 408,969 $ 0.47 ======= ====== Options exercisable at December 31, 1997.................... 374,217 $ 0.59 ======= ====== Options exercisable at December 31, 1998.................... 422,882 $ 1.12 ======= ======
The weighted average grant date fair values of options granted during 1998, 1997 and 1996 were $5.59, $4.85 and $4.84, respectively. 34 36 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Options outstanding at December 31, 1998:
WEIGHTED AVERAGE ----------------------- REMAINING WEIGHTED NUMBER EXERCISE CONTRACTUAL NUMBER AVERAGE RANGE OF EXERCISE PRICE OUTSTANDING PRICE LIFE EXERCISABLE EXERCISE PRICE - ----------------------- ----------- -------- ----------- ----------- -------------- $0.03 - 0.16...................... 216,246 $ 0.04 2.2 years 216,246 $0.04 $1.50 - 1.60...................... 212,036 $ 1.52 5.3 years 187,286 $1.52 $4.00 - 10.00..................... 75,500 $ 8.37 8.4 years 19,350 $9.50 $10.50 - 15.00.................... 36,750 $13.08 9.0 years -- $ --
In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." This statement requires a fair value based method of accounting for employee stock options and would result in expense recognition for the Company's employee stock plans. It also permits a company to continue to measure compensation expense for such plans using the intrinsic value based method as prescribed by Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." The Company has elected to follow APB 25 in accounting for its employee stock plans, and accordingly, no compensation cost has been recognized. Had compensation cost for the Company's stock plans been determined based on the fair value requirements of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 ---------- ---------- -------- Net income: As reported........................................... $1,547,848 $1,275,389 $593,397 ========== ========== ======== Pro Forma............................................. $1,417,121 $1,237,985 $585,920 ========== ========== ======== Diluted earnings per share: As reported........................................... $ 0.28 $ 0.26 $ 0.17 ========== ========== ======== Pro Forma............................................. $ 0.26 $ 0.25 $ 0.17 ========== ========== ========
The fair value of stock options in the pro forma accounts for fiscal 1998, 1997 and 1996 is not necessarily indicative of the future effects on net income and earnings per share. The fair value of each stock option grant has been estimated on the date of grant at its minimum value using the following weighted average assumptions for 1998, 1997 and 1996: risk-free interest rates of 5.3 -- 6.2%, expected life of five to six years, no dividend yield and 50% volatility in 1998 and 1997 only. In conjunction with the issuance of the preferred stock, the Company issued warrants for the purchase of its common stock. Each warrant was exercisable for one share of common stock. In 1997, 211,200 warrants were exercised on a "cashless" basis by non-employee shareholders which resulted in 178,089 shares of common stock being issued. Also in conjunction with the IPO, the Company granted the Underwriter Warrants to purchase 125,000 shares of common stock at a price 20% higher than the initial offering price of $9.50. The warrants became exercisable 1 year following the IPO and expire in 2002. 8. CONCENTRATION OF CREDIT RISK The Company utilizes a national and international distribution system that sells to approximately 700-1,000 end users. Domestically (defined as goods produced in plants located in Maine and Texas), four individual distributors accounted for approximately 76% of the Company's 1996 revenues and in 1997, five 35 37 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) individual distributors accounted for approximately 68% of the Company's revenues. The same distributors represented 38% of the Company's accounts receivable balances at December 31, 1997. In 1998, 5 individual distributors and customers accounted for approximately 77% of the Company's domestic revenues. The same distributors represented 66% of the Company's domestic accounts receivable balances at December 31, 1998. Internationally (defined as goods produced in BTI-Europe's plant in Andover, UK) one individual distributor accounted for 6% of international revenues with no other single customer making up more than 5%. At December 31, 1998, three distributors and two customers accounted for 52% of the international accounts receivable. 9. INCOME TAXES Income tax (benefit) expense consists of the following:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1998 1997 1996 -------- -------- -------- Current: Federal.................................. $351,100 $441,400 $103,000 State.................................... 61,900 30,500 3,000 Foreign.................................. 36,200 -------- -------- -------- 449,200 471,900 106,000 -------- -------- -------- Deferred: Federal.................................. 186,900 242,500 36,000 State.................................... 36,000 (7,000) 193,000 Foreign.................................. 166,400 -------- -------- -------- 389,300 235,500 229,000 -------- -------- -------- Total tax expense................ $838,500 $707,400 $335,000 ======== ======== ========
The actual income tax (benefit) expense differs from the expected tax computed by applying the U.S. federal corporate tax rate of 34% to income before income tax as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1998 1997 1996 -------- -------- -------- Computed expected income tax............... $811,400 $674,000 $315,000 State income taxes......................... 104,400 78,500 54,000 Foreign tax rate differential.............. (86,500) Other...................................... 9,200 (45,100) (34,000) -------- -------- -------- Total tax (benefit) expense...... $838,500 $707,400 $335,000 ======== ======== ========
36 38 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities consist of the following at:
DECEMBER 31, ------------------------ 1998 1997 ----------- --------- Deferred tax assets (liabilities): Reserves......................................... $ 220,200 $ 65,800 Net operating loss carryforward.................. 131,900 186,500 Alternative minimum tax credit carryforward...... 170,600 238,000 Compensation..................................... 36,400 39,000 Other............................................ 126,400 78,300 Depreciation and amortization.................... (1,263,900) (798,000) Goodwill......................................... (181,300) ----------- --------- Net deferred tax (liabilities)........... $ (759,700) $(190,400) =========== ========= Current deferred tax assets...................... $ 274,500 $ 179,600 ----------- --------- Non-current deferred tax liabilities............. $(1,034,200) $(370,000) =========== =========
As of December 31, 1998, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $347,500, which expire at various dates through 2006. Under Internal Revenue Code Section 382, utilization of net operating loss carryforwards may be limited in the event of changes in the ownership structure of the Company. Such a change occurred in 1990 and in 1997, and the net operating loss carryforwards are limited for utilization at approximately $156,700 per year. In addition, the Company has alternative minimum tax credit carryforwards of approximately $170,600 which have no expiration date. The company has not established a valuation allowance against the deferred tax assets at December 31, 1998 and 1997. 10. RELATED PARTY The Company purchases a significant portion of its raw materials inventory from a shareholder. For the years ended December 31, 1998, 1997 and 1996, purchases of raw materials were $10,309,104, $8,933,450 and $8,548,754, respectively. At December 31, 1998, and 1997, the Company had due this stockholder, $225,708 and $83,854, respectively, for purchases of raw materials. 11. NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST) GRANT The Company is a participant in a consortium to develop a manufacturing competency to replace wood, steel, and concrete with high performance composites. The project has been awarded a grant by NIST whereby 50% of the project's costs will be reimbursed. In 1996, the Company incurred project eligible costs of, and applied for reimbursement for, $426,070, for which the Company has recorded miscellaneous income of $332,432 and reduced cost of goods sold by $93,638. In 1997, the Company incurred eligible costs and applied for reimbursement for $143,274, for which the Company has recorded miscellaneous income of $119,108 and reduced cost of goods sold by $24,166. In 1998, the Company incurred eligible costs and applied for reimbursement for $75,978, for which the Company has recorded miscellaneous income of $53,766 and reduced cost of goods sold by $22,212. 12. INITIAL PUBLIC OFFERING On February 10, 1997, the Company completed its initial public offering of common stock. The sale to the public totaled 2,500,000 shares, with 1,700,000 new shares being sold by the Company and 800,000 shares 37 39 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) being sold from the holdings of an existing shareholder. The offering price was $9.50 per share with proceeds to the Company, after all offering expenses, of approximately $13.7 million. From the proceeds, the Company was obligated to pay $3,648,250 of the convertible subordinated note plus accrued interest thereon (see Note 4). With the remaining proceeds, the Company also paid off the balance of its bank debt, approximately $2.6 million. Deferred charges of $512,679 at December 31, 1996, and other transactional expenses (together aggregating approximately $1 million) were offset against stockholders' equity upon completion of the offering. Pursuant to the terms of the preferred stock agreements, the outstanding shares of preferred stock were automatically converted to common stock, on the consummation of the Company's initial public offering. As a result, 70,824 shares of preferred stock were converted to 2,337,192 shares of common stock. In addition, on August 14, 1996, the Board of Directors approved the issuance of common stock in lieu of cash payment of the cumulative preferred dividend. This resulted in an additional 211,088 shares of common stock being issued to holders of preferred stock as of the closing of the offering. In addition, the Board approved the grant of stock to Directors totaling 1,000 shares (subsequently increased to 2,000 shares), to be issued at the closing of the offering. 13. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations:
1998 1997 1996 ------------------------------ ------------------------------ ---------------------------- NET PER NET PER NET PER INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE ---------- --------- ----- ---------- --------- ----- -------- --------- ----- Basic EPS........................ $1,547,848 5,164,113 $0.30 $1,219,389 4,215,827 $0.29 $ 73,718 297,140 $0.25 Effect of dilutive securities: Conversion of Preferred.......... 56,000 283,142 519,679 2,548,280 Conversion of Stock Options...... 274,242 437,064 652,882 ---------- --------- ----- ---------- --------- ----- -------- --------- ----- Diluted EPS...................... $1,547,848 5,438,355 $0.28 $1,275,389 4,936,033 $.026 $593,397 3,498,302 $0.17 ========== ========= ===== ========== ========= ===== ======== ========= =====
The conversion of the Company's convertible subordinated note was anti-dilutive and has been excluded from Diluted EPS in 1997 and 1996. The note was converted in November 1997. 14. UNAUDITED QUARTERLY FINANCIAL INFORMATION Unaudited financial results by quarter for the fiscal years ended December 31, 1998 and 1997 are summarized below and should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition.
MARCH JUNE SEPTEMBER DECEMBER ------- -------- ---------- --------- 1998 (IN THOUSANDS EXCEPT PER SHARE INFORMATION) Net sales........................................... $9,048 $10,968 $10,309 $11,097 Cost of sales....................................... 6,856 8,444 8,158 8,766 Net income.......................................... 418 518 260 352 Income applicable to common shares.................. 418 518 260 352 Diluted EPS......................................... $ 0.08 $ 0.10 $ 0.05 $ 0.07
38 40 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH JUNE SEPTEMBER DECEMBER 1997 ------ ------ --------- -------- Net sales............................................ $7,332 $8,073 $7,603 $7,502 Cost of sales........................................ 5,448 5,872 5,682 5,805 Net income........................................... 287 446 446 97 Income applicable to common shares................... 231 446 446 97 Diluted EPS.......................................... $ 0.07 $ 0.09 $ 0.09 $ 0.02
15. 401K PLAN The Company sponsors a 401K retirement savings plan. Under the plan, the Company will make matching contributions of at least 25% of a participant's contribution up to 4% of the participant's eligible compensation, subject to limitations required by governmental laws or regulations. Company contributions to the plan in 1998 and 1997 were $30,165 and $6,906, respectively. No contributions were made in 1996. 16. SEGMENT INFORMATION In 1998, the Company adopted SFAS No. 131, "Financial Reporting for Segments of a Business Enterprise." The prior years' segment information has been restated to present the Company's two reportable segments - (1) Domestic and (2) International. The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies." Performance of the segments is evaluated on Net Sales, Operating Income, Interest Income, Interest Expense, Pretax Income, Income Tax and Net Income in addition to EBITDA. The tables below present information about reported segments for the years ended December 31, 1998, 1997 and 1996. Revenue and asset information is based on the country in which the legal entities are located. Segment data includes intersegment revenues, as well as a royalty charge pursuant to an intersegment technology licensing agreement. BTI is organized primarily on the basis of products being marketed, produced and shipped from either "domestic" plants (those located in the United States) or the sole "international" plant, BTI-Europe located in Andover, UK. Domestic operations utilize a unified sales force selling a unified product line directly to customers as well as through a unified group of distributors. Goods are sold substantially within North America, though goods are also shipped worldwide. International operations sell primarily to a distinct customer base utilizing a locally based sales force and independently established distribution channels. Goods are shipped throughout Europe and the world. The international segment was acquired on March 2, 1998.
1998 1997 1996 ------- ------- ------- (IN THOUSANDS) DOMESTIC Net sales........................................... $36,113 $30,510 $19,816 Operating income.................................... 1,104 1,781 877 Intercompany income................................. 267 -- -- Interest income..................................... 76 319 4 Interest expense.................................... -- 328 256 Pretax income....................................... 1,727 1,983 928 Income tax.......................................... 638 707 335 Net income.......................................... 1,089 1,275 593
39 41 BRUNSWICK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 1997 1996 ------- ------- ------- (IN THOUSANDS) INTERNATIONAL Net sales........................................... 5,309 -- -- Operating income.................................... 860 -- -- Intercompany expense................................ 267 -- -- Interest income..................................... 20 -- -- Interest expense.................................... -- -- -- Pretax income....................................... 659 -- -- Income tax.......................................... 201 -- -- Net income.......................................... 458 -- EBITDA Domestic............................................ $ 2,792 $ 3,158 $ 1,664 International....................................... 868 -- -- ------- ------- ------- Total....................................... $ 3,660 $ 3,158 $ 1,664 ======= ======= ======= ASSETS Domestic............................................ $28,060 $25,216 International....................................... 3,481 -- (Intercompany elimination).......................... (1,902) -- ------- ------- Total assets................................ $29,639 $25,216 ======= =======
Total segment sales, profitability and total segment EBITDA are equal to total consolidated sales and EBITDA, respectively. Accordingly, no reconciliation is provided. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEMS 10, 11, 12, AND 13 Information required by Part III (Items 10 through 13) is incorporated by reference to the Company's definitive proxy statement, for its annual meeting of stockholders to be held on May 20, 1999, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, on or before April 30, 1999. If for any reason such a statement is not filed within such a period, this report will be appropriately amended. 40 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K (a) Financial Statements The following described consolidated financial statements of the Company are included in this report: Report of Independent Public Accountants Consolidated Statements of Income for the years ended December 31, 1998, 1997, and 1996. Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December 31, 1998, 1997, and 1996. Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996. Consolidated Statements of Comprehensive Income for the years ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements Financial Statement Schedules: Schedules are omitted because not applicable or the information is included elsewhere herein. (b) Reports on Form 8-K None (c) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- *2 Agreement by and among the Registrant, Brunswick Technologies Europe Limited, T&N PLC and Tech Textiles International Limited, dated as of March 2, 1998. Incorporated by reference to Exhibit 2 to the Registrant's Report on Form 8-K dated March 2, 1998. *3.1 Amended and Restated Articles of Incorporation of the Registrant *3.2 Third Restated Bylaws of the Registrant. *4.1 Amended and Restated Registration Rights Agreement dated August 25, 1993. *4.2 Amendment No. 1 to the Registration Rights Agreement dated October 30, 1996. *4.3 Amendment No. 2 to the Registration Rights Agreement dated October 30, 1996. *4.4 Form from Josephthal Warrant. *4.5 Specimen Stock certificate for shares of Common Stock. *4.6 Amendment No. 3 to Registration Rights Agreement dated February 3, 1997 *10.1 Loan Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996. *10.2 Security Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996. *10.3 Demand Note in favor of Fleet Bank of Maine dated May 30, 1996. *10.4 Supply Agreement between the Registrant and Vetrotex CertainTeed Corp. dated August 25, 1993 (confidential portion of which have been omitted and filed separately with the Commission under the request for confidential treatment pursuant to Rule 406 under the Securities Act). *10.5 Private Activity Bond Requirements Certificate of Brunswick Technologies Inc. dated December 1, 1995 *10.6 Lease Agreement between the Registrant and Brunswick Development Corporation dated August 1, 1995. *10.7 Collaborative Agreement between the Registrant and E.I. du Pont de Nemours and Company, Inc., et al. *10.8 Financial Advisory Agreement and Indemnification Agreement between the Registrant and Josephthal Lyon & Ross Incorporated.
41 43
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- *10.9 Installment Promissory Note between the Registrant and Vetrotex CertainTeed Corp. dated March 31, 1992. *10.10 Security Agreement between the Registrant and Vetrotex CertainTeed Corp. dated March 31, 1992. *10.11 Stock Purchase Agreement among the Registrant, Burlington Industries, Inc. and Peter L. DeWalt dated October 22, 1996 and First Amendment to Stock Purchase Agreement dated October 29, 1996. *10.12 Registration Rights among the Registrant, Burlington Industries, Inc., and Peter L. DeWalt, dated October 30, 1996. *10.13 Employment Agreement between Advanced Textiles, Inc., a subsidiary of the Registrant, and Peter L. DeWalt, dated October 30, 1996. *10.14 Convertible Subordinated Promissory Note made by the Registrant in favor of Burlington Industries, Inc., dated October 30, 1996. *10.15 Recapitalization Agreement among the Registrant and the holders of its common stock. *10.16 Term Note in favor of Fleet Bank of Maine dated May 30, 1996. *10.17 First Amendment to Term Note dated December, 1996. *10.18 First Amendment to Loan Agreement dated December, 1996. *10.19 First Amendment to Demand Note dated December, 1996. *10.20 First Amendment to Security Agreement dated December, 1996. *10.21 1991 Stock Option Plan. *10.22 Amendment No. 1 to 1991 Stock Option Plan. *10.23 1994 Employee Stock Option Plan. *10.24 Amendment No. 1 to 1994 Employee Stock Option Plan. *10.25 1997 Equity Incentive Plan *10.26 Form of Common Stock Purchase Warrant. *10.27 Form of Amendment No. 1 to Common Stock Purchase Warrant. *10.28 Agreement regarding lending arrangements dated June 6, 1997. *10.29 Amended and Restated Lease Agreement between Brunswick development Corporation and Brunswick Technologies Inc. dated June 5, 1998 +10.30 Demand Note ($4,000,000) in favor of Fleet Bank of Maine dated May, 1998. +10.31 Agreement regarding lending arrangements dated May, 1998 +21 Registrant's subsidiaries. +23 Consent of PricewaterhouseCoopers LLP +27.1 Financial Data Schedule.
- --------------- * Previously filed and incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 333-10721). + Filed with this report. 42 44 SIGNATURES Pursuant to the requirements of Section 13 or 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, on the 30th day of March, 1999. BRUNSWICK TECHNOLOGIES, INC. By: /s/ MARTIN S. GRIMNES ------------------------------------ Martin S. Grimnes Principal Executive Officer Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the date indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ MARTIN S. GRIMNES Principal Executive Officer and March 30, 1999 - --------------------------------------------------- Director Martin S. Grimnes /s/ DAVID COIT Director March 30, 1999 - --------------------------------------------------- David M. Coit /s/ WILLIAM M. DUBAY President, Principal Operating March 30, 1999 - --------------------------------------------------- Officer and Director William M. Dubay /s/ DONALD R. HUGHES Director March 30, 1999 - --------------------------------------------------- Donald R. Hughes /s/ MAX G. PITCHER Director March 30, 1999 - --------------------------------------------------- Max G. Pitcher /s/ DAVID E. SHARPE Director March 30, 1999 - --------------------------------------------------- David E. Sharpe /s/ PETER N. WALMSLEY Director March 30, 1999 - --------------------------------------------------- Peter Walmsley /s/ ALAN CHESNEY Treasurer and Principal Financial March 30, 1999 - --------------------------------------------------- and Accounting Officer Alan Chesney
43 45 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION OF EXHIBIT PAGE - ------- ---------------------- ------------ *2 Agreement by and among the Registrant, Brunswick Technologies Europe Limited, T&N PLC and Tech Textiles International Limited, dated as of March 2, 1998. Incorporated by reference to Exhibit 2 to the Registrant's Report on Form 8-K dated March 2, 1998. *3.1 Amended and Restated Articles of Incorporation of the Registrant *3.2 Third Restated Bylaws of the Registrant. *4.1 Amended and Restated Registration Rights Agreement dated August 25, 1993. *4.2 Amendment No. 1 to the Registration Rights Agreement dated October 30, 1996. *4.3 Amendment No. 2 to the Registration Rights Agreement dated October 30, 1996. *4.4 Form from Josephthal Warrant. *4.5 Specimen Stock certificate for shares of Common Stock. *4.6 Amendment No. 3 to Registration Rights Agreement dated February 3, 1997 *10.1 Loan Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996. *10.2 Security Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996. *10.3 Demand Note in favor of Fleet Bank of Maine dated May 30, 1996. *10.4 Supply Agreement between the Registrant and Vetrotex CertainTeed Corp. dated August 25, 1993 (confidential portion of which have been omitted and filed separately with the Commission under the request for confidential treatment pursuant to Rule 406 under the Securities Act). *10.5 Private Activity Bond Requirements Certificate of Brunswick Technologies Inc. dated December 1, 1995 *10.6 Lease Agreement between the Registrant and Brunswick Development Corporation dated August 1, 1995. *10.7 Collaborative Agreement between the Registrant and E.I. du Pont de Nemours and Company, Inc., et al. *10.8 Financial Advisory Agreement and Indemnification Agreement between the Registrant and Josephthal Lyon & Ross Incorporated. *10.9 Installment Promissory Note between the Registrant and Vetrotex CertainTeed Corp. dated March 31, 1992. *10.10 Security Agreement between the Registrant and Vetrotex CertainTeed Corp. dated March 31, 1992. *10.11 Stock Purchase Agreement among the Registrant, Burlington Industries, Inc. and Peter L. DeWalt dated October 22, 1996 and First Amendment to Stock Purchase Agreement dated October 29, 1996. *10.12 Registration Rights among the Registrant, Burlington Industries, Inc., and Peter L. DeWalt, dated October 30, 1996. *10.13 Employment Agreement between Advanced Textiles, Inc., a subsidiary of the Registrant, and Peter L. DeWalt, dated October 30, 1996. *10.14 Convertible Subordinated Promissory Note made by the Registrant in favor of Burlington Industries, Inc., dated October 30, 1996. *10.15 Recapitalization Agreement among the Registrant and the holders of its common stock. *10.16 Term Note in favor of Fleet Bank of Maine dated May 30, 1996. *10.17 First Amendment to Term Note dated December, 1996. *10.18 First Amendment to Loan Agreement dated December, 1996. *10.19 First Amendment to Demand Note dated December, 1996. *10.20 First Amendment to Security Agreement dated December, 1996.
44 46
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION OF EXHIBIT PAGE - ------- ---------------------- ------------ *10.21 1991 Stock Option Plan. *10.22 Amendment No. 1 to 1991 Stock Option Plan. *10.23 1994 Employee Stock Option Plan. *10.24 Amendment No. 1 to 1994 Employee Stock Option Plan. *10.25 1997 Equity Incentive Plan *10.26 Form of Common Stock Purchase Warrant. *10.27 Form of Amendment No. 1 to Common Stock Purchase Warrant. *10.28 Agreement regarding lending arrangements dated June 6, 1997. *10.29 Amended and Restated Lease Agreement between Brunswick development Corporation and Brunswick Technologies Inc. dated June 5, 1998 +10.30 Demand Note ($4,000,000) in favor of Fleet Bank of Maine dated May, 1998. +10.31 Agreement regarding lending arrangements dated May, 1998 +21 Registrant's subsidiaries. +23 Consent of PricewaterhouseCoopers LLP +27.1 Financial Data Schedule.
- --------------- * Previously filed and incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 333-10721). + Filed with this report. 45 EX-10.30 2 DEMAND NOTE 1 EXHIBIT 10.30 DEMAND NOTE $4,000,000 Portland, Maine May 28, 1998 FOR VALUE RECEIVED, BRUNSWICK TECHNOLOGIES, INC., a Maine corporation (the "Maker"), promises to pay to the order of FLEET BANK OF MAINE (the "Bank"), its successors and assigns, ON DEMAND or, if not earlier demanded, on the Maturity Date, the principal sum of Four Million Dollars ($4,000,000), or so much hereof as may be outstanding at the time this obligation becomes due and payable (whether on the Maturity Date or upon demand, or otherwise). Maker promises to pay interest (computed on the basis of the actual number of days elapsed in a 360 day year) on the unpaid principal balance outstanding from time to time on this Note or any advance hereunder until paid in full (whether at maturity, by acceleration after demand, or otherwise) at a rate of interest per annum equal to the Prime Lending Rate then in effect, floating daily, or, at the election of Maker, at a rate of interest per annum equal to the LIBOR Rate (namely, LIBOR plus 1.75% per annum) for any LIBOR Interest Period selected by Maker in accordance with the terms and provisions of the Loan Agreement of even date by and between the Maker as borrower and the Bank as lender (as the same may be amended from time to time, the "Loan Agreement"). In no event shall any LIBOR Interest Period so selected extend beyond the Maturity Date. In the event Maker has not selected an alternative interest rate option upon expiration of any applicable fixed rate interest period, the principal amount hereof shall bear interest at the Prime Lending Rate until an alternative interest rate option based on the LIBOR Rate is selected by Maker in accordance with the terms hereof and the Loan Agreement. Interest is due and payable in arrears on the first day of each month, commencing on the first of such dates next succeeding the date hereof and continuing thereafter on the first day of each month until this obligation becomes due and payable (whether upon demand or otherwise). In any period during which interest is accruing at the Prime Lending Rate based index, a change in the rate of interest on this Note shall be effective on the date of any change in the Prime Lending Rate. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Loan Agreement. If the Maker shall fail to make any regular monthly payment on this Note, and such failure continues for more than ten (10) days, the Maker shall pay to the Bank or other holder of this Note, as the case may be, on demand by such holder, an additional amount as premium in an amount equal to five percent (5%) of the overdue installment amount. 2 The holder of this Note also shall have the right to charge interest on the unpaid principal balance hereof at an interest rate equal to the sum of four percent (4%) per annum PLUS the rate of interest otherwise payable as provided herein upon demand and following, and during the continuance of, a Default or Event of Default under this Note or any of the Loan Documents, but only following the expiration of any applicable period of grace without a cure having been effected. The failure by the holder of this Note to collect any such late charge, or to charge a default rate of interest on one occasion shall not be deemed a waiver by the holder of this Note of its right to collect late charges or to collect such charges in any other instance involving a late payment hereunder, or to charge a default rate of interest at a later date or on another occasion. All payments in respect of this Note shall be payable to the Bank at its offices at Two Portland Square, Portland, Maine, Attention: Corporate Banking Department, or such other address as the Bank or other holder hereof shall notify the Maker in writing, in United States Dollars. This Note is subject to prepayment in whole or in part, without premium or penalty, except that the parties acknowledge that the Maker may prepay the principal of any advance which is subject to a LIBOR Pricing Option prior to the end of the applicable LIBOR Rate Interest Period, only with the permission of the Bank and in each such case Maker shall pay to the Bank a Prepayment Fee calculated in the manner set forth in the Loan Agreement. This Note evidences the loan or loans under and is issued pursuant to the Loan Agreement, to which reference is made for a complete description of the rights, obligations, limitations and restrictions of the Maker and the holder of this Note. The holder of this Note is entitled to the benefit of the Loan Agreement and the other Loan Documents, but neither this reference to such Loan Agreement or any of the related Loan Documents, nor any provisions thereof, shall affect or impair the absolute and unconditional obligation of the Maker to pay the principal of and interest on this Note when and as the same shall become due and payable. Upon the earlier of demand or the Maturity Date, this Note shall become immediately due and payable without presentment, additional demand, protest or notice of any kind, all of which are hereby waived, which remedies are in addition to and not in any respect in limitation of any other rights or remedies Bank may have under the other Loan Documents or at law or in equity. The Bank shall not be obligated to make advances under any of the Loan Documents that it might otherwise be obligated to make thereunder following (a) demand or (b) if, after giving effect to a Loan hereunder to be made, a Default or Event of Default (or any event which with notice, the passage of time, or both, would constitute a Default or Event of Default under the Loan Documents) shall have occurred and be continuing. -2- 3 The Maker and all other parties liable herefor, whether as maker, principal, guarantor, endorser or otherwise, acknowledge and agree that they are jointly and severally liable for all amounts due and owing hereunder, hereby severally waive presentment, demand, protest, notice of dishonor and all notices and demands of every kind in connection with the delivery, acceptance, performance and enforcement of this Note, and waive all recourse to suretyship and guarantorship defenses generally, including, but not limited to, any extension of time for payment or performance which may be granted to the Maker or to any other liable party, any impairment of any collateral for the loans evidenced by this Note, any release of security, and all other indulgences of any type which may be granted by the holder hereof to the Maker or any other party liable herefor. Maker shall pay all reasonable costs and expenses, including without limitation any attorneys' or paralegals' fees and disbursements that may be incurred by the Bank or any subsequent holder of this Note in connection with the enforcement or collection of this Note or any security for this Note. This Note is subject to the condition that at no time shall the Maker or any other party liable hereon be obligated or required to pay interest at a rate which could subject the holder hereof to either civil or criminal liability, forfeiture or loss of principal, interest, or other sums as a result of being in excess of the maximum interest rate which obligors are permitted by law to contract or agree to pay or which the holder hereof is permitted to receive. If by the terms of this Note the Maker or any other party liable hereon is at any time required or obligated to pay interest at a rate in excess of such maximum rate, the rate of interest under the Note shall be deemed to be immediately reduced to such maximum rate for so long as such maximum rate shall be in effect and shall thereafter be payable at the rate herein provided. If any obligation or a portion of this Note is determined to be invalid or unenforceable under applicable law, it shall not affect the validity or enforcement of the remaining obligations or portions hereof. UNDER MAINE LAW, NO PROMISE, CONTRACT OR AGREEMENT TO LEND MONEY, EXTEND CREDIT, FOREBEAR FROM COLLECTION OF A DEBT OR MAKE ANY OTHER ACCOMMODATION FOR THE REPAYMENT OF A DEBT FOR MORE THAN $250,000 MAY BE ENFORCED IN COURT AGAINST A LENDER UNLESS THE PROMISE, CONTRACT OR AGREEMENT IS IN WRITING AND SIGNED BY THE LENDER. ACCORDINGLY, MAKER CANNOT ENFORCE ANY ORAL PROMISE UNLESS IT IS CONTAINED IN LOAN DOCUMENTS SIGNED BY THE BANK, NOR CAN ANY CHANGE, FORBEARANCE, OR OTHER ACCOMMODATION RELATING TO THE OBLIGATIONS, THE NOTE OR ANY OTHER OF THE LOAN DOCUMENTS BE ENFORCED, UNLESS IT IS IN WRITING AND SIGNED BY THE BANK. MAKER ALSO UNDERSTANDS AND AGREES THAT ALL FUTURE PROMISES, CONTRACTS OR AGREEMENTS OF THE BANK RELATING TO ANY OTHER TRANSACTION BETWEEN IT AND THE BANK -3- 4 CANNOT BE ENFORCED IN COURT UNLESS THEY ARE IN WRITING AND SIGNED BY THE BANK. BY EXECUTION OF THIS NOTE, MAKER HEREBY ACKNOWLEDGES AND AGREES THAT THE REQUIREMENT OF A WRITING DESCRIBED IN THIS PARAGRAPH SHALL APPLY TO THIS NOTE, THE OBLIGATIONS, THE LOAN DOCUMENTS, ANY EXTENSION, MODIFICATION, RENEWAL, FORBEARANCE OR OTHER ACCOMMODATION RELATING HERETO OR THERETO AND TO ANY OTHER CREDIT RELATIONSHIP BETWEEN MAKER AND THE BANK (WHETHER NOW EXISTING OR CREATED IN THE FUTURE), WHETHER OR NOT THE AMOUNT INVOLVED EXCEEDS $250,000. THE BANK AND THE MAKER FURTHER AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT OR OTHER PROCEEDING RELATING TO THIS NOTE, THE OTHER LOAN DOCUMENTS OR ANY DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE BANK AND THE MAKER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE MAKER HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. This Note evidences a loan for business or commercial purposes and not for personal, family or household uses. This Note shall be construed in all respects in accordance with and governed by the laws of the State of Maine. Maker submits to the jurisdiction of the courts of the State of Maine and the United States District Court for the District of Maine, and agrees that at Bank's option all litigation under or relating to this Note shall be conducted in such courts. IN WITNESS WHEREOF this Note has been executed as a sealed instrument and delivered on the date above written by a duly authorized representative of the undersigned. WITNESS: BRUNSWICK TECHNOLOGIES, INC. By: /s/ Alan Chesney - ---------------------------------- -------------------------------- Its: Chief Financial Officer ------------------------------- -4- EX-10.31 3 LOAN AGREEMENT 1 LOAN AGREEMENT THIS LOAN AGREEMENT is dated as of May __, 1998, by and between BRUNSWICK TECHNOLOGIES, INC., a Maine corporation with a place of business in Brunswick, Maine (hereinafter referred to as the "Borrower" or the "Debtor" or the "Company"), and FLEET BANK OF MAINE, a Maine banking corporation with a place of business in Portland, Maine (hereinafter called "Lender" or the "Bank"). In consideration of the mutual covenants and promises hereinafter set forth, Borrower and Bank agree as follows: SECTION 1. DEFINITIONS ----------- 1.1 As used herein, unless otherwise specifically defined, the following capitalized words and phrases shall have the following meanings: "BANKING DAY" means any day of the week other than (a) Saturday or Sunday or (b) any other day on which banks in the City of Portland, Maine are not required or authorized to conduct the business of banking and, for each such day, when used in connection with a LIBOR Loan, means a day on which deposits in Dollars may be dealt with in the London interbank market. "CAPITAL LEASE" means any lease of property (real, personal or mixed) which, in accordance with GAAP, should be capitalized on the lessee's balance sheet or for which the amount of the asset and liability hereunder if so capitalized should be disclosed in a note to such balance sheet. "CODE" means the Internal Revenue Code of 1986, as amended. "CONSENTS" means, in respect of any person, any permit, license or exemption from, approval, consent of, registration or filing with any local, state or federal governmental or regulatory agency or authority, required under applicable law. "CONSOLIDATED INTEREST EXPENSE" shall mean, with reference to any period, the total interest expense (not net of interest income other than intercompany interest that is netted out in consolidation) of the Borrower and its Subsidiaries for such period (including, without limitation, interest expense attributable to Capital Leases), all determined in accordance with GAAP on a consolidated basis. 2 "CONSOLIDATED TOTAL LIABILITIES" All liabilities of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP and Indebtedness of the Borrower and its Subsidiaries, whether or not so classified. "ERISA" means the Employee Retirement Income Security Act of 1974. "EUROCURRENCY RESERVE PERCENTAGE" means, for any LIBOR Interest Period in respect of any LIBOR Loan, as of any date of determination, the aggregate of the then stated maximum reserve percentages (including any marginal, special, emergency or supplemental reserves), expressed as a decimal, applicable to such LIBOR Interest Period (or if more than one such percentage is applicable, the daily average of such percentages for those days in such LIBOR Interest Period during which any such percentage shall be so applicable) by the Board of Governors of the Federal Reserve System, any successor thereto, or any other banking authority, domestic or foreign, to which Bank may be subject in respect of eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board) or in respect of any other category of liabilities including deposits by reference to which the interest rate on a LIBOR Loan is determined or any category of extension of credit or other assets that include the LIBOR Loan. For purposes hereof, such reserve requirements shall include, without limitation, those imposed under Regulation D of the Federal Reserve Board and the LIBOR Loan shall be deemed to constitute Eurocurrency Liabilities subject to such reserve requirements without benefit of credits for proration, exceptions or offsets which may be available from time to time to any Bank under said Regulation D. "FIFO" means the lower of standard costs or market which approximates the first in, first out method of accounting. "FINANCIALS" means, in respect of any period, the consolidated balance sheet of the Borrower and Guarantors, on a consolidated basis, as at the end of such period, and the related consolidated statement of income and consolidated statement of cash flows for such period, each with consolidating schedules, setting forth in comparative form the figures for the previous fiscal period, calculated on a FIFO basis in reasonable detail in accordance with GAAP. "GAAP" means generally accepted accounting principles consistent with those adopted by the Financial Accounting Standards Board and its predecessor, (a) generally, as in effect from time to time, and (b) for purposes of determining compliance by the Borrower with its financial covenants set forth herein, as in effect for the fiscal year ended on the Balance Sheet Date. "GUARANTORS" means Advanced Textiles, Inc. and Brunswick Technologies Europe Limited. -2- 3 "GUARANTY" means the unlimited and unconditional guaranty of the Obligations executed by the Guarantors. "INDEBTEDNESS" or "CONSOLIDATED INDEBTEDNESS" means all items (except items of capital stock or capital paid-in surplus or retained earnings) which in accordance with generally accepted accounting principles ("GAAP") would be included in determining total liabilities as shown on the liability side of the consolidated balance sheet of the Borrower and its Subsidiaries as of the date on which such indebtedness is to be determined. "LIBOR" means, for any LIBOR Interest Period with respect to a LIBOR Rate Loan, the quotient (rounded upwards, if necessary, to the nearest one sixteenth of one percent (1/16th of 1%)) of: (x) the per annum rate of interest, determined by Bank in accordance with its usual procedures (which determination shall be conclusive absent manifest error) as of approximately 11:00 a.m. (London time) two Banking Days prior to the beginning of such LIBOR Interest Period pertaining to such LIBOR Rate Loan, appearing on Page 3750 of the Telerate Service (or any successor or substitute page of such Service, or any successor to or substitute for such Service providing rate quotations comparable to those currently provided on such page of such Service, as determined by Bank from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) as the rate in the London interbank market for dollar deposits in immediately available funds with a maturity comparable to such LIBOR Interest Period DIVIDED BY (y) a number equal to 1.00 MINUS the Eurocurrency Reserve Percentage. In the event that such rate quotation is not available for any reason, then the rate (for purposes of clause (x) hereof) shall be the rate, determined by Bank as of approximately 11:00 a.m. (London time) two Banking Days prior to the beginning of such LIBOR Interest Period pertaining to such LIBOR Rate Loan, to be the average (rounded upwards, if necessary, to the nearest one sixteenth of one percent (1/16th of 1%)) of the per annum rates at which dollar deposits in immediately available funds in an amount comparable to such LIBOR Rate Loan and with maturity comparable to such LIBOR Interest Period are offered to the prime banks by leading banks in the London interbank market. The LIBOR Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Percentage. "LIBOR INTEREST PERIOD" means for any LIBOR Loan the period commencing on the date such Loan is made and ending on the last day of such period as selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding LIBOR Interest Period and ending on the last day of such period as selected by the Borrower pursuant to the provisions below. The duration of each LIBOR Interest Period for any -3- 4 LIBOR Rate Loan shall be thirty (30) days, sixty (60) days, ninety (90) days, one hundred twenty (120) days, one hundred fifty (150) days, one hundred eighty (180) days or three hundred sixty (360) days, in each case as the Borrower may select upon notice, as set forth herein, provided that if any such LIBOR Interest Period with respect to a LIBOR Rate Loan would otherwise end on a day that is not a Banking Day, that LIBOR Interest Period shall be extended to the next succeeding Banking Day. Each determination by the Bank of any LIBOR Interest Period shall, in the absence of manifest error, be conclusive and, at the Borrower's request, the Bank shall demonstrate the basis for any such determination. If the Borrower shall fail to give notice of a new LIBOR Loan in accordance with the terms hereof following the end of a LIBOR Interest Period, the Borrower shall be deemed to have requested a conversion of the affected LIBOR Rate Loan to a Prime Rate Loan on the last day of the then current LIBOR Interest Period with respect thereto. Any LIBOR Interest Period relating to any LIBOR Rate Loan that would otherwise extend beyond the Maturity Date shall end on the Maturity Date. "LIBOR LOANS" means any Loan made by Bank to Borrower under Section 2 hereof from time to time in an amount not less than $100,000 for which interest is to be computed on the basis of the LIBOR Rate. "LIBOR PORTION" means the portion of any Loan specified in a LIBOR Rate Request which is not less than $100,000 in the aggregate (and thereafter in increments of $100,000) and which does not exceed the availability under the revolving credit facility established under Section 2 hereof, and which as of the date of the request has met all conditions for basing the interest on such advance on LIBOR. "LIBOR RATE" means for any LIBOR Loan made by Bank to Borrower pursuant to Section 2 hereof the per annum rate of interest equal to LIBOR for the LIBOR Interest Period for which interest is to be determined based on LIBOR Rate plus 1.75% per annum. "LIBOR RATE OPTION" The option granted pursuant to Section 2 of this Loan Agreement to have interest on all or any portion of the principal amount of a revolving credit loan based on LIBOR. "LIBOR RATE REQUEST" means the notice in writing (or by telephonic communication confirmed in writing on the same day as the telephonic request) from the Borrower to the Bank requesting that interest on all or a qualified portion of a Loan made pursuant to Section 2 hereof be based on the LIBOR Rate, which request shall be received by 11:00 a.m. Portland, Maine time at least two (2) Banking Days prior to the date of any proposed LIBOR Loan, which request shall specify the first day of the LIBOR Interest Period, the proposed length of the LIBOR Interest Period and the dollar amount -4- 5 of the LIBOR Portion (which shall not be less than $100,000), and such other information as the Bank may require, subject in all cases to the terms and provisions hereof. "LIEN" as applied to the property of any person shall mean any charge, conditional sale or other title retention agreement, lease constituting a capital lease, lien, mortgage, pledge or other security interest or encumbrance of any kind in respect of any property of such person, or upon the income, rents or profits therefrom; any arrangement, express or implied under which any property of such 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 or priority to the payment of the general, unsecured creditors of such person; any indebtedness for wages or indebtedness arising for any other reason which if unpaid more than 30 days after the same shall have become due and payable under Chapter 5 of the United States Bankruptcy Code or any other law (whether or not the events or conditions (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 and been satisfied) would be given any priority whatsoever over general unsecured creditors of such persons; and the execution and delivery by Borrower of, or any agreement to give any financing statement under the Uniform Commercial Code or its equivalent or analog in any jurisdiction. "LOAN" or "LOANS" means the loans or advances made by the Bank to the Borrower from time to time pursuant to Section 2 hereof. "LOAN DOCUMENTS" means this Agreement, the Note issued to evidence the Loans, the Guaranty, and any and all instruments, documents and agreements evidencing, governing or otherwise in any way relating to the Obligations, whether now existing, executed contemporaneously herewith, or executed at any time in the future, as the same may be amended, extended, renewed, restated or otherwise modified from time to time. "MATERIALLY ADVERSE EFFECT" means any materially adverse effect on the financial condition or business operations of the Borrower or any material impairment of the ability of the Borrower to perform its Obligations. "MATURITY DATE" means the earliest of May 31, 1998 (or such other date occurring after May 31, 1998, as Bank may, in its sole discretion, designate as the stated Maturity Date in a writing delivered by Bank to Borrower in which Bank states that it is extending the stated Maturity Date for purposes of this Agreement, in which case that date shall be the Maturity Date for purposes of this Agreement), or demand. "NET INCOME" means the Net Income of the Borrower, calculated on a FIFO basis in accordance with GAAP, after deduction of all of the Borrower's expenses, taxes -5- 6 and other proper charges (after eliminating therefrom all extraordinary non-recurring items of income). "NOTE" or "NOTES" means the promissory note issued by the Borrower to the Bank pursuant to Section 2, together with any and all amendments and modifications thereto, substitutions therefor and renewals and extensions and rearrangements thereof. "OBLIGATIONS," as used herein, means any and all notes (including, without limitation, the Note issued by Borrower pursuant to Section 2 hereof, together with any amendments thereto, extensions or renewals thereof or substitutions therefor), liabilities, advances, loans, sums due or to become due under any letters of credit and indebtedness of Borrower to Bank of every kind, nature and description (whether or not evidenced by any note or other instrument, and whether or not for the payment of money), direct or indirect, absolute or contingent, primary or secondary, joint or several, secured or unsecured, due or to become due, now existing or hereafter arising, regardless of how they arise or were acquired, also, including, without limitation, those facilities listed on SCHEDULE 1.1 attached hereto, any liability of Borrower to Bank as a guarantor or surety of the indebtedness or liabilities of others, obligations to perform acts and refrain from taking action as well as obligations to pay money, and all interest, fees, charges and expenses (including reasonable attorneys' fees) paid or incurred by Bank at any time in connection with the commitment for, preparation, execution, delivery, amendment, review, perfection, administration and/or enforcement of this Agreement and any other of the Loan Documents and any and all obligations of Borrower to Bank pursuant to the Loan Documents. "PERMITTED LIENS" are any liens, security interests and other encumbrances permitted by Section 6.2 hereof. "PERSON" shall mean any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. "PREPAYMENT FEE" or "PREPAYMENT PREMIUM" shall mean the payment required in the event of any prepayment of principal on the Note prior to the end of an applicable LIBOR Interest Period which amount shall be calculated as follows: the latest published rate preceding the date of a prepayment for United States Treasury Notes or Bills (Bills on a discounted basis shall be converted to a bond equivalent) as published weekly in the Federal Reserve Statistical Release with a maturity date closest to the expiration date of the LIBOR Interest Period shall be subtracted from the Matched Rate (the "Matched Rate" shall mean the rate of interest then payable on the Note for the LIBOR Interest Period). If the result is zero or a negative number, no prepayment premium shall be payable. If the result is a positive number, that number shall be -6- 7 multiplied by the amount of the principal balance being repaid. The resulting amount will be divided by 360 and multiplied by the number of days remaining on the LIBOR Interest Period. Said amount shall be reduced to present value calculated by using the number of days remaining in the designated term and using the above-referenced United States Treasury Note or Bill rate and the number of days remaining in the Term Note as of the date of prepayment. The resulting amount shall be a Prepayment Premium due to the Bank on any prepayment of the Note. Appropriate adjustments shall be made for partial prepayments. "PRIME RATE" or "PRIME LENDING RATE" means the annual rate of interest designated by the Bank at its main branch in Portland, Maine, from time to time, for the internal guidance of its lending personnel, as its "Prime Lending Rate", whether or not such rate is otherwise published. The Prime Lending Rate is simply an indicator rate for all loans making reference thereto and is not necessarily the lowest or most favorable rate provided by Bank to any particular group of borrowers. The Prime Lending Rate floats upward and downward, automatically, at the time specified in any announcement relating thereto, without any special notice to Borrower. If the Bank shall cease designating such a rate, for any reason, then the term "Prime Lending Rate" shall mean the rate of interest published in the WALL STREET JOURNAL as the Prime Rate or the base rate on corporate loans for large United States money center banks, as it may vary from time to time. "REQUIREMENT OF LAW" means, in respect of any person or entity, any law, treaty, rule, regulation, the interpretation or application thereof, or determination of an arbitrator, court, or other governmental authority, in each case applicable to or binding upon such Person or affecting any of its property. "SUBSIDIARY" means any corporation, association, trust, or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock, including without limitation the Guarantors. "TANGIBLE NET WORTH of the Borrower means, as of the date of any determination thereof, the aggregate book value of the assets of the Borrower and its Subsidiaries on a consolidated basis (after deduction therefrom of all applicable reserves and allowances) minus any of the following to the extent the same has been included in the calculation of aggregate book value (without duplication) (i) total liabilities, (ii) any write-up in the value of assets occurring after the date hereof, and (iii) all intangibles including, but not limited to, investments in and loans to Subsidiaries, goodwill, leasehold improvement, patents, trademarks and the like. 1.2 RULES OF INTERPRETATION. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented and in effect -7- 8 from time to time in accordance with its terms and the terms of this Loan Agreement; (b) the singular includes the plural and the plural includes the singular; (c) a reference to any law includes any amendment or modification to such law; (d) a reference to any Person includes its permitted successors and assigns; (e) accounting terms not otherwise defined herein have the meanings assigned to them by GAAP applied on a consistent basis by the accounting entity to which they refer; (f) all calculations for the purposes of Section 7 hereof shall be made in accordance with GAAP; (g) the words "include", "includes" and "including" are not limiting; (h) all terms not specifically defined herein or by GAAP, which terms are defined in the Uniform Commercial Code as in effect in the State of Maine, have the meanings assigned to them therein; (i) reference to a particular "Section" refers to that section of this Loan Agreement unless otherwise indicated; and (j) the words "herein", "hereof", "hereunder" and words of like import shall refer to this Agreement as a whole and not to any portion, section or subdivision of this Agreement. SECTION 2. REVOLVING CREDIT LOANS ---------------------- 2.1 ESTABLISHMENT OF REVOLVING CREDIT FACILITY. (a) Subject to the terms and conditions hereof, and in reliance on the representations and warranties of the Borrower set forth herein, Bank agrees to advance to Borrower from time to time, up to $4,000,000 under the revolving credit facility established under this Section 2. The Borrower may borrow, repay, and prepay amounts advanced hereunder, subject in all cases to the terms hereof. (b) Loans (which shall be in minimum amounts of $100,000) shall be made at such times as Borrower shall request by notice given no later than 2:00 p.m. on the day when the Loan is to be made as to any advance hereunder bearing interest at the Prime Lending Rate, except for LIBOR Loans, which shall be subject to all requirements of a LIBOR Rate Request. (c) The Borrower hereby authorizes its chief financial officer, treasurer or assistant treasurers to request advances by telephone (a "Telephonic Advance Request"). All Telephonic Advance Requests shall be followed by written confirmation transmitted by telecopier. Bank shall have no obligation to inquire into the circumstances, use, purpose, disposition or application of funds advanced pursuant to a Telephonic Advance Request and shall have no liability relating thereto. (d) This facility shall expire on and all amounts due hereunder shall become due and payable on the earlier of demand or the Maturity Date. (e) In the absence of demand by Bank, the Borrower may borrow, repay and reborrow from time to time amounts under this line of credit through the Maturity Date, provided that in no event shall the aggregate principal amount outstanding -8- 9 hereunder exceed $4,000,000 (the "Revolving Credit Commitment Amount"). Any revolving credit advance not previously repaid shall be due and payable on the earlier of demand or the Maturity Date. 2.2 INTEREST RATE APPLICABLE ON REVOLVING CREDIT ADVANCES. (a) The rate of interest due and payable on each advance hereunder shall be a per annum rate equal to the Prime Lending Rate per annum unless Borrower elects a fixed rate pricing option for such advance based on LIBOR, in which case the advance in respect of which a fixed rate pricing option has been chosen shall bear interest at the applicable LIBOR Rate for the LIBOR Interest Period, so selected by the Borrower in the request for such an advance. If Borrower does not notify Bank of an alternative interest rate option prior to the end of the applicable fixed rate interest period, interest on the outstanding principal amount of such advance shall convert automatically to a Prime Lending based index and accrue at the Prime Lending Rate until an alternative rate is chosen in accordance with the terms hereof. Interest shall be adjusted daily and calculated on the basis of a three hundred sixty (360) day year counting the actual number of days elapsed. The change in the rate of interest due and payable on a Loan shall be effective on the date of any change in the Prime Lending Rate as to any advance bearing interest at the Prime Lending Rate. (b) Subject to the terms and conditions hereof and so long as there exists no event of default hereunder or under the Note evidencing Loans under this Section 2, the Borrower, in its sole discretion upon notice to the Bank in the form required in any fixed rate request, may elect to have the principal amount of an advance under this credit facility accrue and bear daily interest during LIBOR Interest Period so selected in said notice at a LIBOR Rate, as applicable. Once selected, the applicable fixed rate shall be the rate of interest per annum paid by Borrower in respect of any such advance so designated for the interest period so selected. Upon expiration of any such interest period, the Borrower may select further fixed rate pricing options for the next succeeding fixed rate interest period in accordance with the terms hereof or, in the absence of such an election, the advance shall bear interest at the Prime Lending Rate. 2.3 PAYMENTS OF PRINCIPAL AND INTEREST. Interest payments shall be due and payable monthly in arrears on the first day of each month commencing on the first such date next succeeding the date hereof and continuing thereafter on the first day of each month so long as Loans hereunder remain available or outstanding. Principal payments shall be repaid on the earlier of demand or on the Maturity Date. 2.4 REVOLVING CREDIT NOTE. The Loans made by Bank pursuant to this Section 2 shall be evidenced by the execution and delivery of a revolving credit note substantially in the form attached hereto as EXHIBIT A (the "Revolving Credit Note"), payable to the order of the Bank, on demand, duly executed on behalf of the Borrower, dated as of the Closing Date and in the original principal amount of Four Million Dollars ($4,000,000). The then -9- 10 outstanding principal balance of the Revolving Credit Note shall be due and payable on the earlier of demand or the Maturity Date. 2.5 PAYMENT OF PREPAYMENT FEE. Any loans or advances hereunder bearing interest at the LIBOR Rate may be prepaid in full prior to the end of the applicable LIBOR Interest Period only with the consent of the Bank and only upon payment of the applicable Prepayment Fee, if any. Prime Lending Rate based loans may be prepaid in part or in full without prepayment penalty. 2.6 OVERDUE PAYMENTS. In the event that the Borrower shall fail to make any payment of the principal of, or interest on the Revolving Credit Note when due, whether at a date fixed for the payment of any installment or prepayment thereof, and such failure continues for more than ten (10) days, Borrower shall pay to Bank upon demand a late fee of five percent (5%) of the overdue installment amount. The holder of this Note also shall have the right to charge interest on the unpaid principal balance hereof at an interest rate equal to the sum of four percent (4%) per annum PLUS the rate of interest otherwise payable as provided herein upon demand following, and during the continuance of a Default or Event of Default under this Agreement or any of the Loan Documents, but only following the expiration of any applicable period of grace without a cure having been effected. The failure by the holder of the Revolving Credit Note to collect any such late charge or to apply a default rate of interest on one occasion shall not be deemed a waiver by the holder of the Note of its right to collect late charges in any other instance involving a late payment hereunder, or to apply a default rate of interest thereafter following any such failure to pay. 2.7 MONTHLY STATEMENTS. After the end of each month, Bank will render to Borrower a statement of Borrower's account activity, showing all applicable credits and debits as of the date specified in said statement. Absent manifest error, each statement shall be considered correct and to have been accepted by Borrower and shall be conclusively binding upon Borrower in respect of all charges, debits and credits of whatever nature contained therein under or pursuant to this Agreement, and the closing balance shown therein, unless Borrower notifies Bank in writing of any discrepancy or disagreement within thirty (30) days from the mailing by Bank to Borrower of any such monthly statement. 2.8 FORM AND TERMS OF PAYMENT. All payments by the Borrower of the principal of or interest on the Revolving Credit Note and of any fee due hereunder shall be made at the address of the Bank set forth in Section 9.1 and shall be made in United States dollars in immediately available funds. The Borrower hereby authorizes the Bank to charge the Borrower's deposit accounts for the purpose of effecting all such payments. If any payment of principal of or interest on the Revolving Credit Note shall become due on a day which is not a Banking Day, such payment may be made on the next succeeding -10- 11 Banking Day and such extension shall be included in computing interest in connection with such payment. 2.9 UNUSED COMMITMENT FEE. Borrower shall pay to Bank an unused commitment fee equal to one-eighth of one percent (.125%) per annum (computed on the basis of the actual number of days elapsed over a 360 day year) of the daily unused portion of the Revolving Credit Commitment Amount, which amount shall be payable quarterly in arrears on the last day of each March, June, September and December of each year, commencing on the first of such dates next succeeding the date hereof, and continuing until Maturity Date, whichever is earlier. The unused commitment fee will be pro-rated for any partial calendar quarter. The unused commitment fee provided for in this Section is in addition to any fees, balances or charges which may be applicable to other services now or hereafter provided to Borrower by the Bank. 2.10 INABILITY TO DETERMINE LIBOR RATE. In the event that prior to the commencement of any LIBOR Interest Period relating to any LIBOR Rate Loan, Bank shall determine in the exercise of its reasonable commercial judgment that adequate and reasonable methods do not exist for ascertaining the LIBOR Rate for such Interest Period, Bank shall forthwith give notice of such determination (which shall be conclusive and binding on Borrower) to the Borrower. In such event (a) any notice from Borrower requesting a LIBOR Rate for a Loan shall be automatically withdrawn and shall be deemed a request for a Loan bearing interest at the applicable Prime Lending Rate, and (b) each LIBOR Loan will automatically, on the last day of the then current LIBOR Rate Interest Period, convert to an amount accruing interest at the Prime Lending Rate per annum, and no further LIBOR Loans will be permitted until Bank determines in the exercise of its reasonable commercial judgment that the circumstances giving rise to such suspension no longer exist, whereupon Bank shall so notify Borrower. 2.11 USE OF PROCEEDS. Borrower shall use the proceeds of all loans and advances hereunder derived for working capital, and for any other uses as may be approved in writing by the Bank from time to time. 2.12 DEMAND OBLIGATIONS. Borrower acknowledges and agrees that the revolving credit loans are demand obligations, as defined in the Maine Uniform Commercial Code, Section 3-108, which may be called by Lender for full and immediate payment at any time, in Lender's sole discretion. Borrower acknowledges and agrees that the demand nature of such obligations is not waived by Lender or otherwise negated or affect in any way, notwithstanding any provisions herein, in the Note evidencing such loans or elsewhere which may indicate Lender's present willingness to accept various payments over time and notwithstanding references in this Agreement or in the Note to Defaults or Events of Default. -11- 12 SECTION 3. CONDITIONS OF LENDING --------------------- 3.1 INITIAL LOAN. The obligation of the Bank to make the initial Loan(s) hereunder is subject to the following conditions: (a) On or prior to the date of the first advance, the Bank shall have received the Note, the Guaranty and all other Loan Documents duly completed, executed and delivered. (b) The receipt of a favorable opinion of counsel for the Borrower, dated as of such date and in form and substance satisfactory to the Bank and its counsel. (c) A copy of the Borrower's organizational documents. (d) All other information and documents which the Bank or its counsel may reasonably have requested in connection with the transactions contemplated by this Agreement, such information and documents where appropriate to be certified by the proper officers of Borrower or governmental authorities. 3.2 CONDITIONS PRECEDENT TO ALL LOANS. On the date of each Loan hereunder and any advance under the revolving credit facility (a) the representations and warranties of the Borrower contained in Section 4 of this Agreement shall be true on and as of such dates as if they had been made on such dates (except to the extent that such representations and warranties expressly relate to an earlier date or are affected by the consummation of transactions permitted under this Agreement); (b) the Borrower shall be in compliance with all material terms and provisions set forth herein on its part to be observed or performed on or prior to such dates as well as those terms and provisions the non-compliance with which could have a material adverse effect on the business or operations of Borrower or the Bank's ability to recover all Obligations; (c) after giving effect to any Loan hereunder to be made on such dates, no Event of Default, nor any event which with the giving of notice or expiration of any applicable grace period or both would constitute such an Event of Default, shall have occurred and be continuing; (d) since the date of this Agreement, there shall have been no material adverse change in the assets or liabilities or in the financial or other condition of the Borrower or any Guarantor; and (e) upon request of the Bank, the Borrower shall deliver to the Bank an officer's certificate in form satisfactory to the Bank affirming compliance with the conditions of subsection 3.2 as of such. Each request for a Loan made by the Borrower hereunder shall constitute a representation and warranty to the Bank that all of the conditions specified in this subsection 3.2 have been satisfied as of the date of each such Loan. SECTION 4. REPRESENTATIONS AND WARRANTIES ------------------------------ -12- 13 4.1 CORPORATE AUTHORITY. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Maine and is duly qualified and is in good standing in every other jurisdiction where it is doing business. The execution, delivery and performance of the Loan Documents by the Borrower and the transactions contemplated hereby and thereby (a) are within the corporate authority of the Borrower, (b) have been duly authorized, (c) do not conflict with or result in any breach or contravention of any laws or regulations (including without limitation any provision of the Code applicable to Subchapter S corporations) and (d) do not conflict with any provision of the corporate charter or bylaws of, or any agreement or other instrument binding upon, the Borrower. The execution and delivery of the Loan Documents will result in valid and legally binding obligations of the Borrower enforceable against it in accordance with the respective terms and provisions hereof and thereof. 4.2 GOVERNMENTAL APPROVALS; COMPLIANCE WITH LAWS. The execution, delivery and performance of the Borrower's Obligations, and exercise of the Borrower's rights under the Loan Documents, including the borrowing under this Agreement (a) do not require any consents from third parties or any person, and (b) are not and will not be in conflict with or prohibited or prevented by (i) any Requirement of Law, or (ii) its corporate charter, bylaws, any resolution or any agreement to which it is a party (including, without limitation, any agreement evidencing the borrowing of money), in each case binding on it or affecting its property. The Borrower is not in violation of its corporate charter, bylaws, any resolution, instrument or agreement to which it is a party or affecting its property, or any Requirement of Law, in a manner which could have a Materially Adverse Effect, including, without limitation, all applicable federal and state tax laws, ERISA and environmental laws. 4.3 TITLE TO PROPERTIES. The Borrower owns all of the assets reflected in the consolidated balance sheet of the Borrower as of the Balance Sheet Date (December 31, 1996) or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, except Permitted Liens. The Borrower possesses all franchises, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others. 4.4 FINANCIAL STATEMENTS, ETC. There have been furnished to the Bank (a) Borrower's audited financial statements for the fiscal year ended on December 31, 1996, and (b) its unaudited financial statements as at December 31, 1997, certified by the treasurer of the Borrower. Such financial statements are complete and accurate and fairly present the consolidated financial condition of the Borrower as at the close of business on the respective dates thereof and the results of operations for the respective periods then ended, except that the financial statements referred to in clause (b) are subject to year-end adjustment and are absent of footnotes. -13- 14 4.5 NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date, there has occurred no materially adverse change of any kind which could have a Materially Adverse Effect. 4.6 NO LITIGATION. There are no legal or other proceedings or investigations of any kind pending or threatened against the Borrower before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, have a Materially Adverse Effect. 4.7 TAX STATUS. The Borrower(s) has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (b) has paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings for which adequate reserves have been established, and (c) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Borrower know of no basis for any claim, except those being contested in good faith and by appropriate proceedings and for which adequate reserves have been established. 4.8 NO EVENT OF DEFAULT. No Default or Event of Default has occurred and is continuing. 4.9 CERTAIN TRANSACTIONS. None of the officers, directors, or employees of the Borrower is presently a party to any transaction with the Borrower (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 4.10 SUBSIDIARIES; AFFILIATES. The Borrower does not have any Subsidiaries, except as disclosed in SCHEDULE 4.10 attached hereto. SECTION 5. AFFIRMATIVE COVENANTS --------------------- The Borrower covenants that, until the Loan is fully and indefeasibly paid, it will: -14- 15 5.1 PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loans, all in accordance with the terms thereof. 5.2 RECORDS AND ACCOUNTS. The Borrower will: (a) keep true and accurate records and books of account in which full, true and correct entries will be made in accordance with GAAP; (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, obsolescence and amortization of its properties, contingencies, and other reserves; and (c) permit the Bank to inspect any of the properties of the Borrower, to examine the books of account of the Borrower (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrower with and to be advised as to the same by its officers, all at the expense of the Borrower and at such reasonable times and intervals as the Bank may reasonably request. 5.3 FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower will deliver to the Bank: (a) as soon as practicable, but in any event not later than one hundred and twenty (120) days after the end of each fiscal year of the Borrower, Financials of the Borrower and Guarantors, on a consolidated basis, and Form 10K Report for such fiscal year, certified (as to such Financials) without qualification by a firm of certified public accountants chosen by the Borrower and satisfactory to the Bank, together with a written statement from such accountants to the effect that they have read a copy of this Loan Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default, PROVIDED that such accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each fiscal quarter of the Borrower, copies of its Form 10Q Report for such quarter and unaudited Financials of the Borrower and the Guarantors for such quarter and the portion of the fiscal year then elapsed, together with a certification by the chief financial officer or treasurer that the information contained in such financial reports fairly presents the consolidated financial position of the Borrower and all consolidated entities on the date thereof (subject to year-end adjustments); -15- 16 (c) simultaneously with the delivery of the financial statements and reports referred to in subsections (a) and (b) above, a statement certified by the chief financial officer or treasurer in substantially the form of EXHIBIT B hereto and setting forth in reasonable detail computations evidencing compliance with the covenants contained in Section 7 (if applicable) and reconciliations to reflect changes in GAAP since the Balance Sheet Date; and (d) from time to time such other financial data and information as the Bank may reasonably request. 5.4 NOTICES. The Borrower will promptly notify the Bank in writing of (a) the occurrence of any Default or Event of Default; (b) (i) any material violation of any environmental law or of ERISA and (ii) any material inquiry, proceeding, investigation, or other action in respect thereof which could have a Materially Adverse Effect; and (c) any material threatened or pending litigation or similar proceedings affecting the Borrower or any material change in any such litigation or proceeding previously reported. 5.5 CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will maintain its chief executive office in the United States and will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises. The Borrower will (a) cause all of its properties to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, and (b) cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 5.6 TAXES. The Borrower will duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its real properties, sale and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property, PROVIDED that any such tax, assessment or other charge need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower shall have set aside on its books adequate reserves with respect thereto; and PROVIDED FURTHER that the Borrower will pay all such taxes, assessments or other charges forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 5.7 COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS. The Borrower will comply with (a) the applicable Requirements of Law, including ERISA and all environmental laws, (b) the provisions of its charter document and bylaws, (c) all -16- 17 agreements and instruments by which it or any of its properties may be bound and (d) all applicable Consents. If any Consent shall become necessary or required in order that the Borrower may fulfill any of its Obligations under any of the Loan Documents, the Borrower will immediately take, or will cause to be taken, all reasonable steps within the power of the Borrower to obtain such Consent and furnish the Bank with evidence thereof. 5.8 USE OF PROCEEDS. The Borrower will not use the proceeds of the Loan for the purpose of carrying "margin security" or "margin stock" within the meaning of Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 5.9 FURTHER ASSURANCES. The Borrower will cooperate with the Bank and execute such further instruments and documents as the Bank shall reasonably request to carry out to its satisfaction the transactions contemplated by the Loan Documents. 5.10 INSURANCE. The Borrower will maintain or cause to be maintained with respect to all insurable properties now or hereafter owned by Borrower insurance against loss or damage by fire, explosion or other casualty to the extent customary, and with customary deductibles, with respect to like properties of companies conducting similar businesses, all in form and substance reasonably satisfactory to Bank, and will also maintain or cause to be maintained public liability and workmen's compensation insurance (or through an individual self-insurance trust established and operated in accordance with Maine laws) insuring the Borrower upon the foregoing terms with respect to other hazards, risks and liabilities to persons and property and, upon request, will furnish to the Bank satisfactory evidence of the same. 5.11 LIABILITY FOR AND REIMBURSEMENT OF COSTS AND EXPENSES. The Borrower will pay or reimburse the Bank, on demand, for all reasonable expenses (including, without limitation, counsel fees and expenses) incurred or paid by the Bank in connection with the preparation, review, interpretation and amendment or restatement of the Loan Documents and any instrument, agreement or document executed and delivered pursuant thereto or in connection therewith, or with the enforcement by the Bank of its rights as against the Borrower or any other person primarily or secondarily liable to the Bank in respect of any Obligations of the Borrower to the Bank. 5.12 DEPOSITORY ACCOUNT. The Borrower will maintain its primary deposit relationship with the Bank, so long as any amount remains outstanding or available hereunder. SECTION 6. CERTAIN NEGATIVE COVENANTS OF THE BORROWER ------------------------------------------ -17- 18 The Borrower covenants and agrees that, so long as any Loan is outstanding or available hereunder: 6.1 RESTRICTIONS ON INDEBTEDNESS. The Borrower will not create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Bank; (b) Current liabilities of the Borrower incurred in the ordinary course of business not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (c) Indebtedness in respect of taxes, assessments or other governmental charges and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of Section 4.6; (d) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower shall at the time in good faith be pre-securing an appeal or proceeding for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) Indebtedness with respect to worker's compensation awards; (f) Indebtedness consisting of obligations in respect of deferred compensation agreements, termination benefits and other employee benefit plans, as each such agreement, benefit and plan is in effect on the date hereof; (g) Unsecured and secured Indebtedness listed on SCHEDULE 6.1(G) hereto as in effect on the date hereof and any refinancing thereof in an amount not in excess of the amount outstanding (as to term loans) or committed (as to revolving credit facilities) on the date hereof; or (h) With the prior written consent of Bank, which consent may be granted or withheld in the sole discretion of the Bank, additional unsecured Indebtedness. 6.2 RESTRICTIONS ON LIENS. The Borrower will not (a) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits -18- 19 therefrom; (b) transfer any of its property or assets of any character whether now owned or hereafter acquired or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (d) suffer to exist for a period of more than thirty (30) days or until past due after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse, except in the ordinary course of business, PROVIDED that the Borrower may create or incur or suffer to be created or incurred or to exist: (i) liens to secure taxes, assessments and other government charges or claims for labor, material or supplies in respect of obligations not overdue; (ii) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (iii) liens in respect of judgments or awards, the Indebtedness with respect to which is permitted by Section 6.1(d); (iv) liens of carriers, warehousemen, mechanics and materialmen, and other like liens, in existence less than 120 days from the date of creation thereof in respect of obligations not overdue; (v) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereof, landlord's or lessor's liens under leases to which the Borrower is a party, and other minor liens or encumbrances none of which in the opinion of the Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrower, which defects do not individually or in the aggregate have a Materially Adverse Effect; (vi) liens securing the Indebtedness permitted under Section 6.1(g) hereof; (vii) liens in favor of the Bank securing the Indebtedness incurred under the Loan Documents. -19- 20 6.3 (Intentionally omitted) 6.4 RESTRICTIONS ON INVESTMENTS. The Borrower will not make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America or municipalities located in the United States of America or any agencies of either of the foregoing; (b) certificates of deposit, bankers acceptances and time deposits of any Bank or any other United States bank having total assets in excess of $500,000,000; (c) securities commonly known as "commercial paper" issued by any corporation which is organized and existing under the laws of the United States of America or any state thereof, if at the time of purchase, such commercial paper has been rated and the ratings therefor are not less than "P-2" if rated by Moody's Investors Service, Inc., and not less than "A-2" if rated by Standard & Poor's Corporation; and (d) Investments existing on the date hereof listed on SCHEDULE 6.4 hereto. 6.5 MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS. (a) The Borrower will not become party to any merger or consolidation unless it is the surviving corporation thereof. (b) The Borrower will not become a party to or agree to or effect any disposition of all or substantially all of its assets (including without limitation any sale and leaseback transaction). 6.6 NO CHANGE OF BUSINESS. The Borrower will not engage in any business except the businesses now conducted by it and businesses reasonably related thereto. SECTION 7. FINANCIAL COVENANTS OF THE BORROWER. ----------------------------------- The Borrower covenants and agrees that, so long as any Loan is outstanding: 7.1 LEVERAGE RATIO. The Borrower will not permit the ratio of Consolidated Total Liabilities to Tangible Net Worth to exceed 1.0 to 1.0. 7.2 DEBT SERVICE COVERAGE. The Borrower will not permit the ratio of its Debt Service Coverage Ratio for any period of four (4) consecutive fiscal quarters (each such period, a "Measurement Period") to be less than 1.2 to 1.0 for each Measurement Period -20- 21 ending after the date hereof. For purposes of this calculation, Debt Service Coverage Ratio shall be determined by dividing Borrower's (a) Net Income PLUS depreciation, amortization and interest expense for the period in question by (b) Consolidated Interest Expense PLUS the current maturities of long term debt for the period in question. 7.3 MEASUREMENT. The leverage ratio under Section 7.1 shall be measured quarterly based upon management prepared financial statements and annually based on independent accountant's audited statements, and the debt service coverage ratio under Section 7.2 shall be measured annually based on independent accountant's audited statements. -21- 22 SECTION 8. DEFAULTS; REMEDIES ------------------ 8.1 EVENTS OF DEFAULT; ACCELERATION. If any of the following events (each an "Event of Default" or a "Default") shall occur: (a) Demand, in the Bank's sole discretion; or (b) The Borrower shall default in the payment of the principal of, or any prepayments or interest on the Note, and such default shall continue for five (5) days or default is made in respect of the payment of any other fee or amount due hereunder or thereunder, whether at maturity, by acceleration or at a date fixed for the payment thereof or otherwise, and such default shall continue for five (5) days after written notice of default from Bank to Borrower; or (c) The Borrower shall default in the performance of or compliance with the terms and provisions of Sections 4, 5 or 6 hereof; or (d) The Borrower shall fail to perform any other term or covenant hereof, and such default (other than a monetary default referred to in paragraph (a) hereof) is not rectified and cured within fifteen (15) days after notice of default or breach by the Bank to the Borrower; or (e) Any material representation or warranty made by the Borrower or any other party in any Loan Document shall prove to have been false or incorrect in any material respect when made; or (f) The Borrower or any Guarantor shall default in any payment due on any Indebtedness to a third party, including the Bank or in the performance or compliance with any term of any agreement or document relating to such Indebtedness and such default or breach is not waived by such third party, including the Bank or cured by Borrower or such Guarantor within any applicable cure period or otherwise prior to declaration of default hereunder by Bank, including without limitation failure to pay amounts due under or comply with the terms of or the occurrences of a default or event of default under any of the loan documents described in SCHEDULE 1.1 attached hereto; or (g) The Borrower or any Guarantor shall discontinue its business or shall make an assignment for the benefit of creditors, or shall fail generally to pay its debts as such debts become due, or shall apply for or consent to the appointment of or taking possession by a trustee, receiver or liquidator (or other similar official) of the Borrower or any Guarantor or any substantial part of its property, or shall commence a case or have an order for relief entered against it under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other -22- 23 similar law, or if the Borrower or any Guarantor shall take any action looking to the dissolution or liquidation of the Borrower or any Guarantor; (h) A decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower or any Guarantor bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Borrower or any Guarantor in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) There shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether or not consecutive, any final judgment not covered by insurance against the Borrower or any Guarantor that, with other outstanding final judgments not covered by insurance, undischarged, against the Borrower or such Guarantor, exceeds in the aggregate $100,000; (j) Any of the Loan Documents shall be cancelled, terminated, revoked or rescinded otherwise than in accordance with the terms thereof or with the express prior written agreement consent or approval of the Bank, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of the Borrower, any Guarantor, or any of their respective shareholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; or (k) The Borrower or any Guarantor shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, either or both of the following actions may be taken, in addition to and not in limitation of any additional remedies as may be set forth herein or in any related Loan Documents or under applicable law: (a) the Bank may declare the principal of and accrued interest in respect of the Note to be forthwith due and payable, whereupon the principal, premium, if any, and accrued interest in respect of the Note shall become forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower, together with all other amounts due hereunder or thereunder; (b) the Bank may proceed to protect, enforce and exercise its rights by an action at law, suit in equity or other appropriate proceeding, including without limitation a right of set-off against any and all deposits, accounts, certificate of deposit balances, claims or other sums at any time credited by or due from -23- 24 the Bank to the Borrower. Notwithstanding anything to the contrary herein or in any Loan Document, the Bank shall not be obligated to make advances to Borrower under Section 2 hereof following any monetary default or during any cure or grace period following such a default. SECTION 9. RIGHTS OF SET-OFF ----------------- (a) In addition to Bank's Liens, Borrower hereby expressly grants to Bank the right to set-off against all deposits and other sums at any time held or credited by or due from Bank to Borrower, in accordance with the provisions of this Section 9. The rights of Bank under this Section 9 are in addition to other rights and remedies (including, without limitation, other rights of set-off under law or equity) which Bank may have under law or by agreement. (b) Bank is hereby authorized at any time and from time to time, after the occurrence and during the continuation of an Event of Default, to the fullest extent permitted by law, at its option, without notice or demand and without liability, to set off and apply any and all deposits (general or special, time or demand, provisional or final, excepting, however, any fiduciary or escrow accounts established by Borrower into which only funds of unrelated third-parties are deposited, and provided that Borrower has informed Bank of the nature of such accounts) at any time held, and other indebtedness at any time owing, by Bank to or for the credit or the account of Borrower against any and all of the Obligations now or hereafter existing under this Agreement, the Notes and the other Loan Documents, in such order and manner as Bank may determine in its sole discretion. (c) Borrower agrees, to the fullest extent it may effectively do so under applicable law, that Bank and any holder of a participation in the Note of which Borrower has been given prior notice may exercise rights of set off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of Borrower in the amount of such participation, provided that any such set-off by the holder of a participation shall be subject to the provisions of Section 9(b). (d) Borrower hereby grants to Bank a lien, security interest and right of setoff as security for the Obligations, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Fleet Financial Group, Inc., or in transit to any of them. At any time after the occurrence and during the continuation of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any Obligation of Borrower regardless of the adequacy of any other collateral securing the Loan. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO -24- 25 ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. SECTION 10. MISCELLANEOUS ------------- 10.1 NOTICES. All notices and other communications hereunder shall be in writing and shall be personally delivered or mailed by first class mail, postage prepaid, as follows: (a) If to the Bank: Fleet Bank of Maine P.O. Box 1280 Portland, ME 04104-5006 Attention: Claude R. Carbonneau, Vice President FAX: (207) 874-5167 with a copy to: Michael E. High, Esq. Drummond Woodsum & MacMahon 245 Commercial Street P.O. Box 9781 Portland, ME 04104-5081 FAX: (207) 772-3627 (b) If to the Borrower: Brunswick Technologies, Inc. 43 Bibber Parkway Brunswick, ME 04011 Attention: Chief Executive Officer with a copy to: Daniel G. McKay, Esq. Eaton, Peabody, Bradford & Veague, PA Fleet Center, Exchange Street P.O. Box 1210 Bangor, ME 04402-1210 FAX: (207) 942-3040 -25- 26 or to such other address or addresses as the party to whom such notice is directed may have designated in writing to the other party hereto. A notice shall be deemed to have been given upon the earlier to occur of (i) three (3) days after the date on which it is deposited in the U.S. mails properly addressed, first class postage prepaid, by certified or registered mail, return receipt requested, or (ii) receipt by the party to whom such notice is directed. 10.2 CROSS DEFAULTS, ETC. It is intended, and the Borrower and the Bank hereby agree that a default under or in respect of any Obligation issued pursuant hereto or any Loan Documents shall constitute a default in respect of the other Obligations of Borrower to Bank, whether now existing or hereafter arising. 10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of 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 rights or remedies provided by law. 10.4 SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of Borrower, Bank, and their respective successors and assigns. 10.5 GOVERNING LAW. This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed and interpreted in accordance with the laws of the State of Maine. 10.6 WAIVER. Borrower and all other parties liable herefor, whether principal, guarantor, endorser or otherwise, hereby severally waive demand, notice and protest, and waive all recourse to suretyship and guarantorship defenses generally, including but not limited to any extension of time for payment or performance which may be granted to Borrower or to any other liable party, any modifications or amendments to this Agreement or any documents securing payment and performance hereof, any act or omission to act by or on behalf of Bank, any invalidity or unenforceability of security given herefor, any release, whether intentional, unintentional, or by operation of law, or security, any release, whether intentional, unintentional or by operation of law, of a liable party or parties, and all other indulgences of any type which may be granted by Bank to the Borrower or any party liable herefor, and do also agree to pay all costs of collection of the indebtedness evidenced hereby, including reasonable attorneys' fees which may be incurred in connection therewith. -26- 27 10.7 SURVIVAL OF REPRESENTATIONS. All representations and warranties of the Borrower and all terms and provisions, covenants and conditions and agreements to be performed by the Borrower herein and in any of the other Loan Documents shall be true and satisfied at the time of the delivery of this Agreement and shall survive the execution and delivery of this Agreement. 10.8 ENTIRE AGREEMENT. This Agreement and the other Loan Documents, together with the commitment letter attached hereto, contain the entire agreement of the parties hereto and thereto with respect to the matters discussed herein and therein. This Agreement may not be altered or amended except by agreement in writing signed by the parties. 10.9 COUNTERPARTS. This Agreement may be executed in two or more counterparts each of which shall be an original and all of which shall constitute one agreement. 10.10 REPLACEMENT NOTES. Upon receipt of an affidavit of an officer of Bank as to the loss, theft, destruction or mutilation of the Note or any other security document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon surrender and cancellation of such Note or other security document. Borrower will issue, in lieu thereof, a replacement Note or other security document in the same principal amount thereof and otherwise of like tenor. 10.11 BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that Borrower may not assign or transfer any of its interest hereunder without the prior written consent of the Lender. (b) Lender may make, carry or transfer loans at, to or for the account of, any of its branch offices or the office of an affiliate of Lender. (c) Lender may assign all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its commitments and the Loans at the time owing to it and the Note held by it) to any financial institution whether as a direct assignment of all or any portion hereof or the sale of a participation interest or interests herein. (d) Lender may at any time pledge all or any portion of its rights under the Loan Documents including any portion of the Note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release Lender from its obligations under any of the Loan Documents. -27- 28 (e) Lender shall have the unrestricted right at any time or from time to time, and without Borrower's consent, to assign all or any portion of its respective rights and obligations hereunder to one or more banks or other financial institutions (each, an "Assignee"), and Borrower agrees that it shall execute, or cause to be executed, such documents, including, without limitation, amendments to this Agreement and to any other documents, instruments and agreements executed in connection herewith as Lender shall deem necessary to effect the foregoing. In addition, at the request of Lender and any such Assignee, Borrower shall issue one or more new promissory notes, as applicable, to any such Assignee and, if Lender has retained any of its rights and obligations hereunder following such assignment, to such Lender, which new promissory notes shall be issued in replacement of, but not in discharge of, the liability evidenced by the promissory note held by such Lender prior to such assignment and shall reflect the amount of the respective commitments and loans held by such Assignee and Lender after giving effect to such assignment. Upon the execution and delivery of appropriate assignment documentation, amendments and any other documentation required by Lender in connection with such assignment, and the payment by Assignee of the purchase price agreed to by such Lender, such Assignee shall be a party to this Agreement and shall have all of the rights and obligations of Lender hereunder (and under any and all other guaranties, documents, instruments and agreements executed in connection herewith) to the extent that such rights and obligations have been assigned by Lender pursuant to the assignment documentation between Lender and such Assignee, and such Lender shall be released from its obligations hereunder and thereunder to a corresponding extent. (f) Lender shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Borrower, to grant to one or more banks or other financial institutions (each, a "Participant") a participation interest in Lender's obligation to lend hereunder and/or any or all of the Loans held by Lender hereunder. In the event of any such grant by Lender of a participation interest to a Participant, whether or not upon notice to Borrower, such Lender shall remain responsible for the performance of its obligations hereunder and Borrower shall continue to deal solely and directly with Lender in connection with such Lender's rights and obligations hereunder. (g) The Lender may furnish any information concerning Borrower in its possession from time to time to prospective Assignees and Participants, provided that such Lender shall require any such prospective Assignee or Participant to agree in writing to maintain the confidentiality of such information. 10.12 NO ORAL PROMISES. UNDER MAINE LAW, NO PROMISE, CONTRACT OR AGREEMENT TO LEND MONEY, EXTEND CREDIT, FOREBEAR FROM COLLECTION OF A DEBT OR MAKE ANY OTHER ACCOMMODATION FOR THE REPAYMENT OF A DEBT FOR MORE THAN $250,000 MAY BE ENFORCED -28- 29 IN COURT AGAINST A BANK UNLESS THE PROMISE, CONTRACT OR AGREEMENT IS IN WRITING AND SIGNED BY THE BANK. ACCORDINGLY, BORROWER CANNOT ENFORCE ANY ORAL PROMISE UNLESS IT IS CONTAINED IN LOAN DOCUMENTS SIGNED BY THE BANK NOR CAN ANY CHANGE, FORBEARANCE, OR OTHER ACCOMMODATION RELATING TO THE OBLIGATIONS, THE NOTES OR ANY OTHER OF THE LOAN DOCUMENTS BE ENFORCED, UNLESS IT IS IN WRITING AND SIGNED BY THE BANK. BORROWER ALSO UNDERSTANDS AND AGREES THAT ALL FUTURE PROMISES, CONTRACTS OR AGREEMENTS OF THE BANK RELATING TO ANY OTHER TRANSACTION BETWEEN IT AND THE BANK CANNOT BE ENFORCED IN COURT UNLESS THEY ARE IN WRITING AND SIGNED BY THE BANK. BY EXECUTION OF THIS AGREEMENT AND THE NOTES, BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT THE REQUIREMENT OF A WRITING DESCRIBED IN THIS PARAGRAPH SHALL APPLY TO THIS NOTE, THE OBLIGATIONS, THE LOAN DOCUMENTS, ANY EXTENSION, MODIFICATION, RENEWAL, FORBEARANCE OR OTHER ACCOMMODATION RELATING HERETO OR THERETO AND TO ANY OTHER CREDIT RELATIONSHIP BETWEEN BORROWER AND THE BANK (WHETHER NOW EXISTING OR CREATED IN THE FUTURE), WHETHER OR NOT THE AMOUNT INVOLVED EXCEEDS $250,000. 10.13 JURY WAIVER. BOTH BANK AND BORROWER AND THEIR SUCCESSORS KNOWINGLY, VOLUNTARILY AND MUTUALLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THE TRANSACTIONS UNDER THIS AGREEMENT, ANY ALLEGED ORAL OR WRITTEN COMMITMENT BY THE BANK, OR ANY COLLECTION PROCEEDINGS WITH RESPECT TO THIS AGREEMENT. [The remainder of this page has intentionally been left blank. The next page is the signature page.] -29- 30 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above. WITNESS: BRUNSWICK TECHNOLOGIES, INC. By: /s/ Alan Chesney - -------------------------------- ------------------------------------ Its: Chief Financial Officer ------------------------------------ FLEET BANK OF MAINE By: /s/ Claude Carbonneau - -------------------------------- ------------------------------------ Its: Vice President ------------------------------------ -30- 31 EXHIBIT/SCHEDULE INDEX EXHIBIT NO. DESCRIPTION - ---------- ----------- A $4,000,000 Revolving Loan Note B Compliance Certificate SCHEDULE NO. DESCRIPTION - ----------- ----------- 1.1 Obligations 4.10 Subsidiaries; Affiliates 6.1(g) Indebtedness 6.4 Investments EX-21 4 SUBSIDIARIES OF BRUNSWICK TECHNOLOGIES, INC. 1 EX-21 SUBSIDIARIES OF BRUNSWICK TECHNOLOGIES, INC. Advanced Textiles, Inc. ("ATI"). ATI is a wholly-owned subsidiary of the Registrant, and is incorporated in the State of Texas. Brunswick Technologies Europe Limited ("BTE") BTE is a wholly-owned subsidiary of the Registrant and is incorporated under the laws of the United Kingdom. EX-23 5 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Brunswick Technologies, Inc. on Forms S-8 (File Nos. 333-36921 and 333-47915) of our report dated February 12, 1999, on our audits of the consolidated financial statements of Brunswick Technologies, Inc. as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997, and 1996, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP Portland, Maine March 30, 1999 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 796 0 6,181 125 4,807 12,491 12,676 2,877 29,639 3,528 0 0 0 24,837 64 29,639 41,422 41,844 32,224 39,458 0 0 0 2,386 839 1,548 0 0 0 1,548 0.30 0.28
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