-----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, GPJm4cbpX1+AbeRSUlQWR753MDMAQhyE6WOCgGwYUKqUjO5iAIgSO9PTuDZ3aqGZ QQCtreoEsNej4JsPuSzgQw== 0000950130-02-006741.txt : 20020926 0000950130-02-006741.hdr.sgml : 20020926 20020926165445 ACCESSION NUMBER: 0000950130-02-006741 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020926 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOLT TECHNOLOGY CORP CENTRAL INDEX KEY: 0000354655 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 060773922 STATE OF INCORPORATION: CT FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12075 FILM NUMBER: 02773466 BUSINESS ADDRESS: STREET 1: FOUR DUKE PL CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 2038530700 MAIL ADDRESS: STREET 1: FOUR DUKE PL CITY: NORWALK STATE: CT ZIP: 06854 10-K 1 d10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 2002 or [_]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number 0-10723 BOLT TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Connecticut 06-0773922 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Four Duke Place, Norwalk, Connecticut 06854 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 853-0700 Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Each Exchange -------------- on Which Registered ------------------- Common Stock, without par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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. [X] The aggregate market value of Common Stock, without par value, held by non-affiliates on September 12, 2002: $22,418,000. As of September 20, 2002 there were 5,414,357 shares of Common Stock, without par value, outstanding. Documents Incorporated By Reference Definitive Proxy Statement for 2002 Annual Meeting, which will be filed no later than 120 days after June 30, 2002, is incorporated by reference in Part III to the extent stated in this report. Note Regarding Forward-Looking Statements Forward-looking statements in this Form 10-K, future filings by the Company with the Securities and Exchange Commission, the Company's press releases and oral statements by authorized officers of the Company are intended to be subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation (i) the risk of technological change relating to the Company's products and the risk of the Company's inability to develop new competitive products in a timely manner, (ii) the risk of decreased demand for the Company's products due to fluctuations in energy industry activity, (iii) the Company's reliance on certain significant customers, (iv) risks associated with a significant amount of foreign sales, and (v) the risk of fluctuations in future operating results. The Company believes that forward-looking statements made by it are based on reasonable expectations. However, no assurances can be given that actual results will not differ materially from those contained in such forward-looking statements. The words "estimate," "project," "anticipate," "expect," "predict," "believe" and similar expressions are intended to identify forward-looking statements. PART I Preliminary Note: In this annual report on Form 10-K, we refer to Bolt Technology Corporation and its subsidiaries as "we", "our", "us", "the registrant" or "the Company", unless the context clearly indicates otherwise. ITEM 1. Business The Company was organized as a corporation in 1962. We operate in two business segments: geophysical equipment and industrial products. Geophysical equipment includes the development, manufacture and sale of marine seismic energy sources and underwater electrical connectors and cables, air gun signature hydrophones and pressure transducers used by the marine seismic industry. Our industrial products segment manufactures and sells miniature industrial clutches, brakes and sub-fractional horsepower electric motors. See Note 9 to the consolidated financial statements for information regarding industry segments and sales by geographic areas. A description of the Company's products follows. During fiscal 2000 and 2001, demand for the Company's geophysical products decreased due to reductions in capital spending by seismic contractors, consolidations and mergers among energy producers and excess geophysical equipment in the field causing weak demand for new equipment. Market conditions have improved in the last half of fiscal 2001 and into fiscal 2002. Geophysical Equipment Marine Air Guns Energy sources, such as our air guns, used in seismic exploration create elastic waves at frequencies that readily travel to great depths in the earth. As elastic waves travel through the earth, portions are reflected by variations in the underlying rock layers and the reflected energy is received as signals by devices known as hydrophones. A shipboard unit containing electronic recording equipment converts the signals to digital form. By using computer programs with complex calculations to manipulate the processed seismic data, geoscientists can model and visualize the subsurface through the creation and analysis of spatial representations. The analysis of seismic and other geological data forms the basis for decisions to drill exploratory and development wells. Because of the significant expense associated with drilling oil and gas wells, decisions on whether or where to drill are critical to the overall process. A seismic exploration vessel may tow 60 to 70 air guns along with multiple hydrophone streamers of 6,000 to 10,000 meters in length. The air guns are fired simultaneously every 75 to 150 feet along the survey line. Over the past ten years, improvements in drilling success rates through the 2 ITEM 1. Business (cont'd.) Geophysical Equipment (cont'd.) use of advanced seismic survey techniques, particularly 3-D techniques, substantially increased the demand for seismic data. As a result, 3-D surveys utilizing these advanced technologies have gained increasing acceptance in the oil and gas industry as an exploration risk management tool. Moreover, 3-D surveys are increasingly employed in field development and reservoir management activities. The precise shot to shot repeatability of our marine air guns and their reliability of operation make them especially beneficial for use in 3-D surveys. Our long-life marine air guns, introduced in the late 1990s, extend the period between routine air gun maintenance cycles. These guns also provide improved high peak sound pressure levels and improved frequency spectrum as compared with older models. These improved characteristics are advantageous to geoscientists in designing 3-D surveys. A retro-fit kit, which incorporates the improvements of the long-life guns, allows users to easily upgrade older air gun models to the long-life standard. In fiscal 2000, we completed the initial development of our Annular Port Air Gun ("APG"). This new design provides significant improvements in both operating efficiency and acoustic output. The principal feature of the Annular Port Air Gun is an annulus containing the air chamber and shuttle valve surrounding a hollow passage through which air supply hoses and electrical control cables are routed. This new configuration permits the implementation of simplified multi-gun arrays that produce less towing drag while being easier to deploy and retrieve than conventional air gun arrays. Significant improvements in operating efficiency are also achieved by shielding fragile hoses and cables from the effects of the high pressure air blast released from the air gun. In fiscal 2001 and 2002, we continued to test and refine the APG technology, but to date we have not sold any units. We sell various models of air guns that range in price from $3,000 to $76,000. A majority of the air guns sold are priced in the $10,000 range. A significant source of our revenue comes from the sale of replacement parts. Underwater Cables, Connectors and Hydrophones Our marine cables and connectors are injection molded of thermoplastic polyurethane designed for marine air gun firing lines, bulkhead connectors and other connectors which are needed from the rear of the seismic vessel to the marine air guns. The cables and connectors are primarily for use with marine air guns and firing control systems where the connector is operating in close proximity to the high pressure release of air from marine air guns. We manufacture cables and connectors that can be used with marine air guns manufactured by us as well as air guns manufactured by others. Our signature hydrophones and pressure transducers are designed for marine applications in a high shock environment. Their primary use is with marine air gun firing and control systems. The purpose of the hydrophone and pressure transducer is for near field measurements of the outgoing energy waveforms from marine air guns. Industrial Products Our Industrial Products segment spans two basic disciplines: power transmission (miniature industrial clutches and brakes) and motion control (sub-fractional horsepower electric motors). Our clutch and brake products include a complete line of mechanical and pneumatic precision miniature slip clutches, one-way clutches, 3 ITEM 1. Business (cont'd.) Industrial Products (cont'd.) toothed jaw clutches and torque limiters. A slip clutch will start to slip once its torque setting is exceeded. This feature is useful as overload protection, constant tensioning or functional torque, in different industrial applications. Among other applications, our clutches and brakes are used in airplane video systems, hospital beds, barcode labelers and banking machines. Unit prices range from $7 to $400. In addition, we offer an electromagnetic clutch and brake product line which includes high performance engage/disengage clutches and brakes, power off brakes, magnetic particle clutches and brakes and multiple plate slip clutches. Applications include high speed mailing machines, packaging machines, elevators, machine tools and robotics. Unit prices range from $50 to $1,500. Our motor line is comprised of A.C. and D.C. sub-fractional horsepower motors and gear motors. These are available in various shapes and offer several design options (speed, voltage, etc.). Applications include air conditioning systems, valve timers, vending machines, point of purchase displays and business machines. Capacity ranges from 3 to 10 watts. Unit prices range from $4 to $20. Foreign Sales During fiscal 2002, 2001 and 2000, approximately 58%, 46% and 41%, respectively, of the Company's sales were derived from customers outside the United States. See Note 9 to the consolidated financial statements for the geographic distribution of sales. Backlog Geophysical Equipment Because of the short period between order and shipment dates for the principal portion of geophysical equipment sales, the dollar amount of current backlog is not considered to be a reliable indication of future sales. Industrial Products As of June 30, 2002, we had an order backlog of $622,000 as compared to $816,000 at June 30, 2001. It is estimated that substantially all of the backlog as of June 30, 2002 will be shipped during the fiscal year ending June 30, 2003. Competition Geophysical Equipment Our marine air guns compete primarily with marine air guns manufactured by Input/Output, Inc. and Seismic Systems, Inc. Our principal competitor for connectors and cables is Input/Output, Inc. We believe that technology, product reliability and durability are the primary bases of competition in the market for geophysical equipment and that the remaining competitive factors in the industry are field product support and price. We believe that we compete effectively with respect to each of these factors, although there can be no assurance that 4 ITEM 1. Business (cont'd.) Competition (cont'd.) the sales of our geophysical equipment will not be adversely affected if current competitors or others introduce equipment with better performance or lower price. Industrial Products It is not possible to determine with accuracy our relative competitive position in the market for industrial products. The industry in which we operate is characterized by active and substantial competition. No single company dominates the market for the types of products we manufacture. Our competitors include both larger and smaller manufacturers and divisions of larger diversified companies with substantial financial resources. Principal competitive factors in the market for our industrial products include quality, service, reliability and price. Our products also compete with other torque control devices to solve design problems. Marketing Geophysical Equipment Our principal customers for geophysical equipment are seismic contractors, which operate seismic vessels for collection of seismic data in accordance with their customers' specifications or for their own seismic data libraries and foreign national oil and gas companies. Marketing of our geophysical equipment is principally performed by salaried sales personnel, all of whom are based in the United States. We also use sales agents for individual sales in certain foreign countries. In general, we market our products and services through our sales force, together with our technical services and engineering staffs, primarily to representatives of major geophysical contractors. The principal marketing techniques used are direct sales visits to current and potential customers, product demonstrations and participation at industry trade shows and meetings. In general, products are sold on standard 30-day credit terms. In certain instances, we require our customers to furnish letters of credit payable upon shipment or advance payments. In limited cases, the Company allows customers extended payment terms of up to 12 months. Industrial Products Our industrial products are sold primarily to original equipment manufacturers ("OEMs"). OEMs use our products to solve torque related problems which will provide lower installed cost and high reliability, thereby lowering production and service costs. Our engineering staff and independent sales representatives continually work in close collaboration with OEMs to determine the appropriate product for the specific application. Sales are made on standard 30-day credit terms. We sell our industrial products primarily in the United States, Canada and Europe. Research and Development Our ability to compete successfully depends upon, among other things, the development of new products as well as the improvement of the technical capabilities of our existing products. During the fiscal years 2002, 2001, and 2000, we spent $253,000, $271,000, and $348,000, respectively, to develop new products and to upgrade 5 ITEM 1. Business (cont'd.) Research and Development (cont'd.) existing products. The Company's primary research and development efforts over the last three years have been focused on the development and field testing of the Annular Port Air Gun. Employees As of June 30, 2002, we employed approximately 89 people on a full-time basis, all of whom are employed in the United States. We are not a party to any collective bargaining agreement and have had no work stoppages. We believe that our employee relations are good. Manufacturing and Raw Materials We manufacture and assemble our geophysical equipment in Norwalk, Connecticut and Cypress, Texas and manufacture our industrial products in North Haven, Connecticut. Our manufacturing and assembly operations consist of machining or molding the necessary components and assembling and testing the final product. We maintain adequate levels of inventory to enable us to satisfy customer requirements within the shortest amount of time. The raw materials used in our products are generally in adequate supply. For some marine air gun orders, we occasionally supply auxiliary equipment such as compressors, air gun controllers or towing equipment manufactured by others. We have not experienced any supply problems with respect to these auxiliary items. Because we manufacture based on customer orders, no inventory of fully assembled finished products is maintained. Regulatory Matters We believe that we are currently in compliance with the requirements of environmental and occupational health and safety laws and regulations. Compliance with such laws and regulations has not resulted in a significant expense in the past and we do not foresee the need for material expenditures to ensure compliance with such laws and regulations as they currently exist. Intellectual Property We seek to protect our intellectual property by means of patents, trademarks and other measures. We currently own more than 22 United States patents and 30 patents in foreign countries relating to the manufacture of our products. These patents have been of value in the growth of our business and may continue to be of value in the future. However, our business is generally not dependent upon the protection of any patent and would not be materially affected by the expiration thereof. Major Customers Geophysical Equipment Historically, a significant portion of our sales has been attributable to a few large customers. In fiscal year 2002, WesternGeco and VeritasDGC accounted for 17% and 14%, respectively, of consolidated sales. The loss of WesternGeco or VeritasDGC as a customer or a significant decrease in the amount of their purchases could have a material adverse effect on the Company. 6 ITEM 1. Business (cont'd.) Major Customers (cont'd.) Industrial Products No customer accounted for more than 10% of consolidated revenue in fiscal year 2002. ITEM 2. Properties The following table sets forth certain information with respect to the Company's principal properties:
Approximate Area Expiration Location Nature of Property (Sq. Feet) Date of Lease - -------- ------------------ ---------- ------------- Norwalk, Connecticut Manufacturing 22,300 month-to-month Norwalk, Connecticut Administration/Engineering/Sales 6,600 month-to-month Houston, Texas Sales Office 3,000 2004 North Haven, Connecticut Manufacturing 6,500 2004 Cypress, Texas Manufacturing 30,000 2005
Geophysical equipment is manufactured and assembled in the Norwalk, Connecticut and Cypress, Texas facilities. Industrial Products are manufactured in the North Haven, Connecticut facility. In the opinion of the Company's management, the properties described above are in good condition and repair and are suitable and adequate for the Company's purposes. The properties are currently fully utilized on a one-shift basis, which provides sufficient productive capacity. The building located in Cypress, Texas is leased from the former shareholder of A-G Geophysical Products, Inc. which was acquired by the Company in April 1999. Monthly rental payments are $10,750. The Company has an option to purchase the facility for $1,000,000 during the term of the lease. ITEM 3. Legal Proceedings We are not aware of any current or pending litigation or proceedings that could have a material adverse effect on our results of operations, cash flows or financial condition. ITEM 4. Submission of Matters to a Vote of Security Holders None. 7 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters Our Common Stock is listed on the American Stock Exchange under the symbol "BTJ". The following table sets forth the high and low sales prices for our Common Stock for the quarters indicated: Fiscal 2002 High Low - ----------- ---- --- First Quarter $5.93 $4.56 Second Quarter 4.95 4.25 Third Quarter 5.60 4.45 Fourth Quarter 4.74 4.00 Fiscal 2001 High Low - ----------- ---- --- First Quarter $5.44 $3.75 Second Quarter 5.89 3.13 Third Quarter 4.87 3.63 Fourth Quarter 6.25 4.50 The number of stockholders of record at September 17, 2002 was 288 and does not include those stockholders who had shares in broker nominee accounts. We believe that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of our Common Stock is held of record in broker "street names". We have not paid a dividend since 1985. We do not intend to pay cash dividends on our Common Stock in the foreseeable future. Any future decision to pay cash dividends will depend upon our growth, profitability, financial condition and other factors that the Board of Directors may deem relevant. Employee stock options to purchase an aggregate of 40,000 shares of Common Stock were exercised during fiscal year 2002. The stock options were granted under the Bolt Technology Corporation Amended and Restated 1993 Stock Option Plan. These shares were acquired pursuant to cashless exercises which resulted in exercising optionees receiving an aggregate of 5,624 shares of Common Stock. The issuance of the Common Stock was exempt from registration under the Securities Act of 1933 (the "Act") pursuant to Section 4(2) of the Act. Equity Compensation Plan Information The following table sets forth aggregate information for the Bolt Technology Corporation Amended and Restated 1993 Stock Option Plan, which is the Company's only equity compensation plan in effect as of June 30, 2002, and which has been approved by the Company's stockholders:
- ------------------------------------------------------------------------------------------------------------------------------------ Plan category Number of securities to be Weighted-average exercise Number of securities remaining issued upon exercise of price of outstanding options, available for future issuance outstanding options, warrants warrants and rights under equity compensation plans and rights (excluding securities reflected in column (a)) (a) (b) (c) - ------------------------------------------------------------------------------------------------------------------------------------ Equity compensation plans approved by security holders 169,000 $6.24 145,190 - ------------------------------------------------------------------------------------------------------------------------------------ Equity compensation plans not approved by security holders - - - - ------------------------------------------------------------------------------------------------------------------------------------ Total 169,000 $6.24 145,190 - ------------------------------------------------------------------------------------------------------------------------------------
8 ITEM 6. Selected Financial Data The following table has been derived form the Company's audited financial statements and sets forth selected consolidated financial data with respect to the Company and its subsidiaries. This information should be read in conjunction with the consolidated financial statements provided elsewhere in this Form 10-K.
Years Ended June 30, -------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (In thousands, except per share amounts) Income Statement Data: Sales ........................................................ $ 17,991 $ 15,496 $ 14,748 $ 19,591 $ 18,053 -------- -------- -------- -------- -------- Costs and expenses: Cost of sales ........................................... 9,967 8,912 7,968 10,091 9,745 Research and development ................................ 253 271 348 386 216 Selling, general and administrative ..................... 4,520 4,250 4,257 3,804 3,300 Amortization of intangibles ............................. - 660 660 335 114 Interest expense (income), net .......................... 162 332 425 (34) (98) -------- -------- -------- -------- -------- 14,902 14,425 13,658 14,582 13,277 -------- -------- -------- -------- -------- Income before income taxes ................................... 3,089 1,071 1,090 5,009 4,776 Provision (benefit) for income taxes ......................... 1,218 675 557 728 (358)(1) -------- -------- -------- -------- -------- Net income ................................................... $ 1,871 $ 396 $ 533 $ 4,281 $ 5,134 ======== ======== ======== ======== ======== Per Share Data: Earnings per common share: Basic ................................................. $ 0.35 $ 0.07 $ 0.10 $ 0.81 $ 1.00 Diluted ............................................... $ 0.35 $ 0.07 $ 0.10 $ 0.80 $ 0.97 Average number of common shares outstanding: Basic ................................................. 5,412 5,409 5,387 5,293 5,146 Diluted ............................................... 5,416 5,414 5,408 5,379 5,287 Financial Data: Working capital ......................................... $ 8,479 $ 5,572 $ 7,791 $ 7,651 $ 6,500 Total assets ............................................ 22,860 24,734 25,038 27,887 16,462 Current portion of note payable ......................... - 3,600 1,700 1,700 - Long-term debt .......................................... - - 3,600 5,300 - Stockholders' equity .................................... 20,700 18,829 18,433 17,865 13,043 Cash dividends paid ..................................... - - - - -
(1) Reflects recognition of previously reserved tax benefits. 9 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following management's discussion and analysis should be read together with the consolidated financial statements and accompanying notes and other detailed information appearing elsewhere in this Form 10-K. This discussion includes forward-looking statements about the demand for our products and future results. Please refer to the "Note Regarding Forward-Looking Statements" section of this Form 10-K. Overview Sales of the Company's geophysical products are generally related to the level of worldwide oil and gas exploration and development activity which is dependent, primarily, on oil and gas prices. Because of the rapid decline in oil prices in 1999, oil companies reduced exploration budgets which caused the Company's customers, primarily seismic exploration contractors, to reduce activities. This reduction in activity resulted in underutilized and idle seismic vessels. With recent increases in oil and gas prices, seismic contractors have gradually reduced excess vessel capacity but the industry continues to remain cautious in its capital spending plans. During the last half of fiscal 2001 and in fiscal 2002, there has been an increase in marine seismic exploration activity which has benefited the Company's geophysical equipment sales and profitability. As for the industrial products segment of the Company's business, sales continue to be adversely affected by the general slowdown in the national economy. Liquidity and Capital Resources At June 30, 2002, the Company had $1,474,000 in cash and cash equivalents. For the year ended June 30, 2002, cash and cash equivalents increased by $145,000. Cash flow from operating activities after changes in operating assets and liabilities was $3,827,000 for the year ended June 30, 2002, primarily due to net income and a decrease in the level of accounts receivable. For the year ended June 30, 2002, the Company used $82,000 for capital expenditures which was funded from operating cash flow. For fiscal year 2003, capital expenditures are estimated to be $150,000 and are expected to be funded from operating cash flow. The Company used cash of $3,600,000 during the year ended June 30, 2002 for the scheduled payments of a note issued in connection with the acquisition of A-G Geophysical Products, Inc. in 1999. In April 2002, the final payment was made and all obligations under this note were satisfied. At June 30, 2001, the Company had $1,329,000 in cash and cash equivalents. For the year ended June 30, 2001, cash and cash equivalents decreased by $1,198,000. Cash flow from operating activities after changes in operating assets and liabilities was $585,000 for the year ended June 30, 2001, primarily due to net income and higher accounts payable and accrued liabilities partially offset by higher accounts receivable. For the year ended June 30, 2001, the Company used $83,000 for capital expenditures and $1,700,000 for the scheduled payments of the A-G Geophysical Products, Inc. note. 10 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont'd.) Liquidity and Capital Resources (cont'd.) In May 2002, the Company entered into a one-year $1,500,000 unsecured line of credit agreement with a bank to support working capital requirements. The details of this facility are summarized in Note 2 to the consolidated financial statements under "Credit Facility". Under the terms of the 1998 asset purchase agreement for Custom Products Inc., the Company could have been required to make additional annual payments to the former owners in the maximum amount of $4,000,000 if net sales of Custom Products increase to certain levels by December 2002. To date, additional payments have not been required because the sales have not met amounts specified in the agreement. In the opinion of management, no additional payments will have to be made. In October 1998, the Company's Board of Directors approved a stock repurchase program under which the Company was authorized to buy up to 500,000 shares of its Common Stock in open market or private transactions. Although the program remains authorized, the Company has not repurchased any shares and currently has no firm plan to make repurchases. Current cash and cash equivalent balances, the borrowing capacity under the new line of credit and projected cash flow from operations are considered adequate to meet foreseeable operating needs. The Company's liquidity is not dependent on the use of off-balance sheet financing arrangements and the Company does not have any relationship with unconsolidated entities or any special purpose entities. The Company has not made any financial guarantees and all material obligations and commitments are summarized in Note 8 to the consolidated financial statements. In addition, the Company has not entered into any transactions with related persons or entities which are material to the Company's financial statements. Results of Operations Year Ended June 30, 2002 Compared to Year Ended June 30, 2001 Sales for the year ended June 30, 2002 increased by $2,495,000 or 16% from the year ended June 30, 2001. Sales of geophysical equipment increased by $2,939,000 or 24% reflecting an increase in marine seismic activity. This increase was partially offset by a $444,000 or 15% sales decrease in sales of industrial products compared to the year ended June 30, 2001, as that business was adversely affected by the continuing general economic slowdown. During the first three quarters of fiscal year 2001, sales of geophysical equipment were depressed due to reduced activity by marine seismic contractors. Cost of sales as a percentage of sales decreased from 58% for the year ended June 30, 2001 to 55% for the year ended June 30, 2002. The major reason for this improvement was increased manufacturing efficiencies associated with the higher sales volumes for geophysical equipment, partially offset by decreased manufacturing efficiencies for industrial products caused by the lower sales volume in that segment. Selling, general and administrative expenses increased by $270,000 or 6% for the year ended June 30, 2002 versus the previous fiscal year primarily due to higher compensation costs and professional fees. 11 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont'd.) Results of Operations (cont'd.) As indicated in Note 1 to the consolidated financial statements, SFAS No. 142, "Goodwill and Other Intangible Assets," was adopted by the Company effective July 1, 2001. Accordingly, there was no goodwill amortization for the year ended June 30, 2002. For the year ended June 30, 2001, goodwill amortization was $660,000. The Company had been amortizing goodwill prior to July 1, 2001 over 20 years. If the adoption of SFAS No. 142 had been in effect on July 1, 2000, the reported net income of $396,000 would have increased to $963,000. Interest expense for the year ended June 30, 2002 was $194,000 which was $175,000 less than the previous fiscal year due to the lower average balance outstanding on the A-G Geophysical Products, Inc. note. The provision for income taxes for the year ended June 30, 2002 was $1,218,000, an effective tax rate of 39%, which was higher than the federal statutory rate of 34% primarily due to the effect of state income taxes. The Company's tax provision for the year ended June 30, 2001 of $675,000 on income before taxes of $1,071,000 was significantly higher than the federal statutory rate of 34% primarily due to the effect of goodwill amortization relating to the A-G Geophysical Products, Inc. acquisition which was not deductible for income tax purposes and a reduction in the amount of investment tax credit carry-forwards. Year Ended June 30, 2001 Compared to Year Ended June 30, 2000 Sales for the year ended June 30, 2001 increased by $748,000 or 5% from the year ended June 30, 2000. Sales of geophysical equipment increased by $1,256,000 or 11% reflecting the increase in the level of marine seismic activity over the low activity level in the previous year, including an increase in air gun systems sales in the last half of fiscal year 2001. This increase was partially offset by a $508,000 or 15% sales decrease in sales of industrial products compared to the previous last year, as that business was adversely affected by the general economic slowdown. Cost of sales as a percentage of sales increased from 54% for the year ended June 30, 2000 to 58% for the year ended June 30, 2001. Despite the sales increase for geophysical equipment, cost of sales as a percentage of sales for that segment increased from 57% for the year ended June 30, 2000 to 60% for the year ended June 30, 2001 reflecting very low factory utilization in the first half of the year and the negative impact of auxiliary equipment purchased for marine air gun systems which have lower margins than the Company's proprietary products. Cost of sales as a percentage of sales for industrial products increased from 45% for the year ended June 30, 2000 to 47% for the year ended June 30, 2001 primarily due to decreased manufacturing efficiencies caused by the lower sales volume in that business segment. Research and development costs decreased by $77,000 from $348,000 for the year ended June 30, 2000 to $271,000 for the year ended June 30, 2001 primarily due to the final development and testing of the "annular port gun," a new marine air gun. Selling, general and administrative expenses decreased by $7,000 from $4,257,000 for the year ended June 30, 2000 to $4,250,000 for the year ended June 30, 2001. There was no significant change in any individual selling, general and administrative expense item. 12 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont'd.) Results of Operations (cont'd.) Interest expense for the year ended June 30, 2001 was $369,000 which was $141,000 less than the previous fiscal year due to the lower average balance outstanding on the A-G Geophysical Products, Inc. note. Interest income for the year ended June 30, 2001 was $37,000 which was $48,000 less than the previous fiscal year due to lower average cash and cash equivalents balances and lower interest rates. The provision for income taxes for the year ended June 30, 2001 was $675,000, an effective tax rate of 63%, which was higher than the federal statutory rate of 34% primarily due to the effect of the goodwill amortization relating to the A-G Geophysical Products, Inc. acquisition which was not deductible for income tax purposes and a reduction in the amount of the investment tax credit carry-forwards. The Company's tax provision for the year ended June 30, 2000 of $557,000 on income before taxes of $1,090,000 was significantly higher than the federal statutory rate of 34% primarily due to the effect of goodwill amortization relating to the A-G Geophysical Products, Inc. acquisition which was not deductible for income tax purposes and state income taxes. Critical Accounting Policies: The methods, estimates and judgments we use in applying the accounting policies most critical to our financial statements have a significant impact on the results we report in our financial statements. The U.S. Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results, and require us to make our most difficult and subjective judgments. Based on this definition, our most critical policies include: recording of inventory reserves; deferred taxes; and the assessment of recoverability of goodwill and other intangible assets. Below, we discuss these policies further. We also have other key accounting policies including policies for revenue recognition. We believe that these other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For additional information see Note 1 to the consolidated financial statements. Although we believe that our estimates and assumptions are reasonable, they are based upon information presently available. Actual results may differ significantly from our estimates and our estimates could be different using different assumptions or conditions. Inventory Reserves We establish reserves to reflect those conditions when the cost of the inventory is not expected to be recovered. We review such circumstances including when products are not expected to be saleable. The reserve recorded is equal to all or a portion of the cost of the inventory based on the specific facts and circumstances. We monitor inventory levels on a regular basis and record changes in inventory reserves in cost of sales. Deferred Taxes We apply an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are 13 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont'd.) Critical Accounting Policies (cont'd.) expected to reverse. The recoverability of deferred tax assets is dependent upon our assessment of whether it is more likely than not that sufficient future taxable income will be generated in the relevant tax jurisdiction to utilize the deferred tax asset. We review our internal forecasted sales and pre-tax earnings estimates to make our assessment about the utilization of deferred tax assets. In the event we determine that future taxable income will not be sufficient to utilize the deferred tax asset, a valuation allowance is recorded. If that assessment changes, a charge or a benefit would be recorded in the consolidated statement of income. Goodwill and Intangible Assets In connection with acquisitions, we determine the amounts and related useful lives assigned to goodwill and intangibles based on purchase price allocations. These allocations, including an assessment of estimated useful lives, have been performed by qualified independent appraisers using generally accepted valuation methodologies. Valuation of intangible assets is generally based on the estimated cash flows related to those assets, while the value assigned to goodwill is the residual of the purchase price over the fair value of all identifiable assets acquired and liabilities assumed. Useful lives are determined based on the expected future period of benefit of the asset, which considers various characteristics of the asset, including historical cash flows. As required by SFAS No. 142, "Goodwill and Other Intangible Assets", we will review goodwill annually or more frequently if impairment indicators arise for impairment. Recent Accounting Developments: Accounting for Asset Retirement Obligations In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period incurred with a corresponding increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. We believe that the adoption of SFAS 143 will not have a material impact on our results of operations or financial position. Accounting for Impairment or Disposal of Long-Lived Assets In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement addresses financial accounting and reporting for the impairment of long-lived assets. This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". This statement also amends ARB No. 51, "Consolidated Financial Statements", to eliminate the exception to consolidation for 14 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont'd.) Recent Accounting Developments (cont'd.) a subsidiary for which control is likely to be temporary. This statement requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. This statement also broadens the presentation of discontinued operations to include more disposal transactions. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. We believe that the adoption of SFAS 144 will not have a material impact on our results of operations or financial position. Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, SFAS 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS 145 also rescinds SFAS 44, "Accounting for Intangible Assets of Motor Carriers." SFAS 145 amends SFAS 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicablity under changed conditions. This statement is effective for financial statements issued for fiscal years beginning after May 15, 2002. We believe that the adoption of SFAS 145 will not have a material impact on our results of operations or financial condition. Accounting for Costs Associated with Exit or Disposal Activities In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring")("EITF 94-3"). SFAS 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF 94-3. This statement is effective for exit or disposal activities initiated after December 31, 2002. We believe that the adoption of SFAS 146 will not have a material impact on our results of operations or financial position. ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk Not applicable. ITEM 8. Financial Statements and Supplementary Data See Item 14 for an Index to Financial Statements and Financial Statement Schedule. Such Financial Statements and Schedule are incorporated herein by reference. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 15 PART III ITEM 10. Directors and Executive Officers of the Registrant The information as to directors and executive officers required by Item 10 is incorporated by reference to the information appearing under the captions "Election of Directors," "Management" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement relating to the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K (the "Definitive Proxy Statement"). ITEM 11. Executive Compensation The information required by Item 11 is incorporated by reference to the information appearing under the caption "Executive Compensation" in the Definitive Proxy Statement. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 is incorporated by reference to the information under the caption "Equity Compensation Plan Information" under Item 5 of this Form 10-K and the information appearing under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Definitive Proxy Statement. ITEM 13. Certain Relationships and Related Transactions The information required by Item 13 is incorporated by reference to the information appearing under the caption "Certain Relationships and Related Transactions" in the Definitive Proxy Statement. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Consolidated Financial Statements Page Number ----------- Independent Auditors' Report 18 Consolidated Balance Sheets as of June 30, 2002 and 2001 19 Consolidated Statements of Income for the Years Ended June 30, 2002, 2001 and 2000 20 Consolidated Statements of Cash Flows for the Years Ended June 30, 2002, 2001 and 2000 21 Notes to Consolidated Financial Statements 22-34 Financial Statement Schedule for the Years Ended June 30, 2002, 2001 and 2000 II - Valuation and Qualifying Accounts 35
Schedules other than that listed above are omitted because they are not applicable, or the required information is shown in the financial statements or the notes thereto. 16 Exhibit Index Exhibit No. - ------- 2.1 Asset Purchase Agreement dated as of November 14, 1997, by and among Bolt Technology Corporation and Gerald Shaff and Carole Shaff (incorporated by reference to Exhibit 2.1 to Form 8-K dated January 14, 1998). 2.2 Stock Purchase Agreement for the acquisition at A-G Geophysical Products, Inc. by Bolt Technology Corporation from Albert H. Gerrans, Jr., Stephen Clay and Robert Bernard dated as of April 20, 1999 (incorporated by reference to Exhibit 2.1 to Form 8-K dated April 30, 1999). 3.1 Amended and Restated Certificate of Incorporation of the Registrant, as further amended (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 2001). 3.2 By-laws of the Registrant, as amended and restated effective January 16, 2002 (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended March 31, 2002). 10.1 Bolt Technology Corporation Amended and Restated 1993 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Form 10-K for the year ended June 30, 1998). 10.2 Lease Agreement dated April 20, 1999 between Albert H. Gerrans, Jr. and Bolt Technology Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K dated April 30, 1999). 10.3 Employment Agreement between Bolt Technology Corporation and Raymond M. Soto effective as of June 10, 1996; Amendment to Employment Agreement between Bolt Technology Corporation and Raymond M. Soto effective as of September 20, 2001 (incorporated by reference to Exhibits 10.1 and 10.2 to Form 10-Q for the quarter ended September 30, 2001). 10.4 Bolt Technology Corporation Severance Compensation Plan.* 10.5 Commercial Loan Agreement, dated May 15, 2002, by and among Bolt Technology Corporation and Fleet National Bank.* 21. Subsidiaries of the Registrant.* 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).* 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).* Reports on Form 8-K None. *filed herewith 17 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Bolt Technology Corporation Norwalk, Connecticut We have audited the accompanying consolidated balance sheets of Bolt Technology Corporation and subsidiaries as of June 30, 2002, and 2001, and the related consolidated statements of income and cash flows for each of the three years in the period ended June 30, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Bolt Technology Corporation and subsidiaries as of June 30, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Deloitte & Touche LLP Stamford, Connecticut August 15, 2002 18 Bolt Technology Corporation and Subsidiaries Consolidated Balance Sheets
June 30, -------- Assets 2002 2001 ---- ---- Current Assets: Cash and cash equivalents .................................. $ 1,474,000 $ 1,329,000 Accounts receivable, less allowance for uncollectible accounts of $199,000 in 2002 and $187,000 in 2001 ................................. 3,509,000 4,607,000 Inventories ................................................ 4,734,000 4,492,000 Deferred income taxes ...................................... 704,000 923,000 Other current assets ....................................... 93,000 126,000 ------------ ------------ Total current assets ............................ 10,514,000 11,477,000 ------------ ------------ Plant and Equipment: Building and leasehold improvements ........................ 555,000 555,000 Geophysical equipment ...................................... 269,000 269,000 Machinery and equipment .................................... 6,017,000 5,978,000 Equipment held for rental .................................. 320,000 320,000 ------------ ------------ 7,161,000 7,122,000 Less accumulated depreciation ........................... (6,055,000) (5,777,000) ------------ ------------ 1,106,000 1,345,000 Goodwill, net ................................................. 11,170,000 11,276,000 Deferred Income Taxes ......................................... - 603,000 Other Assets .................................................. 70,000 33,000 ------------ ------------ Total assets .................................... $ 22,860,000 $ 24,734,000 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Note payable ............................................... $ - $ 3,600,000 Accounts payable ........................................... 495,000 984,000 Accrued expenses ........................................... 1,540,000 1,321,000 ------------ ------------ Total current liabilities........................ 2,035,000 5,905,000 Deferred Income Taxes.......................................... 125,000 - ------------ ------------ Total liabilities ............................... 2,160,000 5,905,000 ------------ ------------ Stockholders' Equity: Common stock, no par value, authorized 9,000,000 shares; issued and outstanding 5,414,357 shares in 2002 and 5,408,733 in 2001 ................................................. 26,152,000 26,152,000 Accumulated deficit ........................................ (5,452,000) (7,323,000) ---------- ------------ Total Stockholders' Equity .............................. 20,700,000 18,829,000 ------------ ------------ Total liabilities and stockholders' equity ...... $ 22,860,000 $ 24,734,000 ============ ============
See Notes to Consolidated Financial Statements. 19 Bolt Technology Corporation and Subsidiaries Consolidated Statements of Income
For the Years Ended June 30, ---------------------------- 2002 2001 2000 ---- ---- ---- Revenues: Sales ........................................... $ 17,991,000 $ 15,496,000 $ 14,748,000 Costs and Expenses: Cost of sales ................................... 9,967,000 8,912,000 7,968,000 Research and development ........................ 253,000 271,000 348,000 Selling, general and administrative ............. 4,520,000 4,250,000 4,257,000 Amortization of intangibles ..................... - 660,000 660,000 Interest expense ................................ 194,000 369,000 510,000 Interest (income) ............................... (32,000) (37,000) (85,000) ------------ ------------ ------------- 14,902,000 14,425,000 13,658,000 ------------ ------------ ------------- Income before income taxes ......................... 3,089,000 1,071,000 1,090,000 Provision for income taxes ......................... 1,218,000 675,000 557,000 ------------ ------------ ------------- Net income ................................... $ 1,871,000 $ 396,000 $ 533,000 ============ ============ ============= Earnings per share: Basic ........................................... $ 0.35 $ 0.07 $ 0.10 Diluted ......................................... $ 0.35 $ 0.07 $ 0.10 Average number of common shares outstanding: Basic ........................................... 5,411,890 5,408,733 5,386,824 Diluted ......................................... 5,416,281 5,413,626 5,408,486
See Notes to Consolidated Financial Statements. 20 Bolt Technology Corporation and Subsidiaries Consolidated Statements of Cash Flows
For the Year Ended June 30, --------------------------- 2002 2001 2000 ---- ---- ---- Cash Flows From Operating Activities: Net income .......................................... $ 1,871,000 $ 396,000 $ 533,000 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization .................... 321,000 954,000 940,000 Deferred income taxes ............................ 1,053,000 616,000 426,000 ----------- ----------- ----------- 3,245,000 1,966,000 1,899,000 Change in operating assets and liabilities: Accounts receivable .............................. 1,098,000 (2,519,000) 120,000 Inventories ...................................... (242,000) 44,000 622,000 Other assets ..................................... (4,000) 94,000 (70,000) Accounts payable ................................. (489,000) 564,000 (129,000) Accrued liabilities .............................. 70,000 436,000 (913,000) Income taxes payable ............................. 149,000 - (693,000) ----------- ----------- ----------- Net cash provided by operating activities........ 3,827,000 585,000 836,000 ----------- ----------- ----------- Cash Flows From Investing Activities: Purchase of property and equipment .................. (82,000) (83,000) (144,000) ----------- ----------- ----------- Net cash used in investing activities ........... (82,000) (83,000) (144,000) ----------- ----------- ----------- Cash Flows From Financing Activities: Exercise of stock options ........................... - - 35,000 Repayment of debt ................................... (3,600,000) (1,700,000) (1,700,000) ----------- ----------- ----------- Net cash used in financing activities ........... (3,600,000) (1,700,000) (1,665,000) ----------- ----------- ----------- Net increase (decrease) in cash ........................ 145,000 (1,198,000) (973,000) Cash and cash equivalents at beginning of year ......... 1,329,000 2,527,000 3,500,000 ----------- ----------- ----------- Cash and cash equivalents at end of year ............... $ 1,474,000 $ 1,329,000 $ 2,527,000 =========== =========== =========== Supplemental disclosure of cash flow information: Cash transactions: Interest paid .......................................... $ 194,000 $ 369,000 $ 510,000 Income taxes paid ...................................... $ 121,000 $ 62,000 $ 873,000 Non-cash transactions: Transfer of inventory to plant and equipment ........... - $ 255,000 -
See Notes to Consolidated Financial Statements. 21 Bolt Technology Corporation Notes To Consolidated Financial Statements Note 1 - Description of Business and Significant Accounting Policies Bolt Technology Corporation operates in two business segments: geophysical equipment and industrial products. Geophysical equipment includes the development, manufacture and sale of marine seismic energy sources, underwater electrical connectors, cables, air gun signature hydrophones and pressure transducers. The industrial products segment manufactures and sells miniature industrial clutches, brakes and sub-fractional horsepower electric motors. Principles of Consolidation: The consolidated financial statements include the accounts of Bolt Technology Corporation and its subsidiary companies. All significant intercompany balances and transactions have been eliminated. Cash and Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories: Inventories are valued at the lower of cost or market, with cost principally determined on an average cost method which approximates the first-in, first-out method. The Company reserves for all slow moving inventory. Amounts are charged to the reserve when the Company scraps or disposes of inventory. Fixed Assets and Depreciation: Plant and equipment are stated at cost. Depreciation for financial accounting purposes is computed using the straight-line method over the estimated useful lives of 5 to l0 years for machinery and equipment and rental assets, 1 to l0 years for geophysical equipment, 15 to 30 years for buildings, and over the term of the lease for leasehold improvements. Major improvements which add to the productive capacity or extend the life of an asset are capitalized, while repairs and maintenance are charged to expense as incurred. Goodwill: Goodwill represents the excess cost over the value of net tangible assets acquired in business combinations and was being amortized using the straight-line method over 20 years. Accumulated amortization at June 30, 2002 and 2001 was $1,750,000. Effective July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill amortization ceased when the new standard was adopted. The standard also requires an initial goodwill impairment assessment in the year of adoption and annual impairment tests thereafter. The initial assessment for goodwill impairment was completed and the results indicated no impairment of the Company's recorded goodwill. If the adoption of SFAS No. 142 had been in effect on July 1, 2000, net income and earnings per share would have been as indicated below: 22 Bolt Technology Corporation Notes To Consolidated Financial Statements Note 1 - Description of Business and Significant Accounting Policies (cont'd.) Goodwill:
Year ended June 30, ------------------- 2002 2001 ---- ---- Reported net income $1,871,000 $ 396,000 Elimination of goodwill amortization, net of tax effect - 567,000 ---------- --------- Adjusted net income $1,871,000 $ 963,000 ========== ========= Basic and diluted earning per share: Reported net income $ 0.35 $ 0.07 Elimination of goodwill amortization, net of tax effect - 0.10 ---------- --------- Adjusted net income $ 0.35 $ 0.17 ========== =========
As a result of an acquisition in fiscal year 1998, the Company generated tax deductible goodwill which exceeded the goodwill recorded for book purposes. The goodwill reduction during fiscal year 2002 of $106,000 is a result of the tax benefits generated by the excess tax deductions. Revenue Recognition and Warranty Costs: Sales revenue is recognized when the risk of ownership has been transferred to the buyer, which is generally upon shipment. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," summarizing certain guidance in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted the provisions of SAB 101 in the fourth quarter of 2001, retroactive to July 1, 2000. The adoption of SAB 101 had no effect on the Company's financial position or results of operations. Warranty costs and product returns incurred by the Company have not been significant. Income Taxes: The deferred tax provision is determined under the liability method. Deferred tax assets and liabilities are recognized based on differences between the book and tax bases of assets and liabilities using currently enacted tax rates. The provision for income taxes is the sum of the amount of income tax paid or payable for the year determined by applying the provisions of enacted tax laws to the taxable income for that year and the net change during the year in the Company's deferred tax assets and liabilities. Stock-Based Compensation: The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," in 1997. Under SFAS No. 123, companies can, but are not required to, elect to recognize compensation expense for all stock-based awards using a fair value methodology. The Company has adopted the disclosure-only provisions, as permitted by SFAS No. 123. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based plans. Accordingly, no compensation expense has been recognized for grants under the Company's stock option plan. 23 Bolt Technology Corporation Notes To Consolidated Financial Statements Note 1 - Description of Business and Significant Accounting Policies (cont'd.) Long-Lived Assets: The Company reviews for the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is considered impaired when anticipated undiscounted cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company believes that no material impairment existed at June 30, 2002. 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 disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Computation of Earnings Per Share: Basic earnings per share is computed by dividing net income by the average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the average number of common shares outstanding assuming dilution, the calculation of which assumes that all stock options are exercised at the beginning of the period and the proceeds used to purchase shares at the average market price for the period. The following is a reconciliation from basic earnings per share to diluted earnings per share for each of the last three years:
Years Ended June 30, -------------------- 2002 2001 2000 ---- ---- ---- Net income available to common stockholders $ 1,871,000 $ 396,000 $ 533,000 =========== ========== ========== Divided by: Weighted average common shares 5,411,890 5,408,733 5,386,824 Weighted average common share equivalents 4,391 4,893 21,662 ----------- ---------- ---------- Total weighted average common shares and common share equivalents 5,416,281 5,413,626 5,408,486 =========== ========== ========== Basic earnings per share $ 0.35 $ 0.07 $ 0.10 =========== ========== ========== Diluted earnings per share $ 0.35 $ 0.07 $ 0.10 =========== ========== ==========
The above calculations do not include options to acquire 160,000 shares, 148,000 shares and 183,000 shares in the years ended June 30, 2002, 2001, and 2000, respectively, since their inclusion would have been anti-dilutive. 24 Bolt Technology Corporation Notes To Consolidated Financial Statements Note 1 - Description of Business and Significant Accounting Policies (cont'd.) Recent Accounting Developments: Accounting for Asset Retirement Obligations In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period incurred with a corresponding increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. We believe that the adoption of SFAS 143 will not have a material impact on our results of operations or financial position. Accounting for Impairment or Disposal of Long-Lived Assets In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement addresses financial accounting and reporting for the impairment of long-lived assets. This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". This statement also amends ARB No. 51, "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. This statement requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. This statement also broadens the presentation of discontinued operations to include more disposal transactions. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. We believe that the adoption of SFAS 144 will not have a material impact on our results of operations or financial position. Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, SFAS 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS 145 also rescinds SFAS 44, "Accounting for Intangible Assets of Motor Carriers." SFAS 145 amends SFAS 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical 25 Bolt Technology Corporation Notes To Consolidated Financial Statements Note 1 - Description of Business and Significant Accounting Policies (cont'd.) corrections, clarify meanings, or describe their applicability under changed conditions. This statement is effective for financial statements issued for fiscal years beginning after May 15, 2002. We believe that the adoption of SFAS 145 will not have a material impact on our results of operations or financial condition. Accounting for Costs Associated with Exit or Disposal Activities In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3,"Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (Including Certain Costs Incurred in a Restructuring)" ("EITF 94.3"). SFAS 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF 94-3. This statement is effective for exit or disposal activities initiated after December 31, 2002. We believe that the adoption of SFAS 146 will not have a material impact on our results of operations or financial position. Note 2 - Debt Note Payable In connection with the 1999 acquisition of A-G Geophysical Products, Inc., the Company issued a $7,000,000 note to the selling shareholder for a portion of the purchase price. The balance of the note at June 30, 2001 was $3,600,000. The Company made required quarterly principal payments of $425,000 on August 1, 2001, November 1, 2001 and February 1, 2002, with the final principal payment of $2,325,000 in April 2002. Therefore, all obligations under this note have been satisfied. Credit Facility In May 2002, the Company entered into a one-year $1,500,000 unsecured line of credit agreement with a bank to support working capital requirements. The agreement provides for, among other things, an interest rate option of prime rate or libor plus 1.75 percent and a fee of .375 basis points per annum on the unutilized portion of the facility. In addition, the agreement contains certain financial covenants including (i) maintaining a debt service coverage ratio of at least 3-to-1, (ii) maintaining a ratio of total liabilities to tangible net worth of not greater than 2-to-1 and (iii) that the Company cannot report more than two consecutive quarters of losses or a loss for any fiscal year. The Company is in compliance with all covenants of the agreement at June 30, 2002, and to date there have been no borrowings under this facility. 26 Bolt Technology Corporation Notes To Consolidated Financial Statements Note 3 - Inventories Inventories, net of reserves, at June 30 consist of the following: 2002 2001 ---- ---- Raw materials and sub-assemblies $4,233,000 $4,095,000 Work-in-process 501,000 397,000 ---------- ---------- $4,734,000 $4,492,000 ========== ========== Note 4 - Income Taxes Income tax expense consists of the following for the three years ended June 30: 2002 2001 2000 ---- ---- ---- Current: Federal $ - $ 21,000 $ 32,000 State 165,000 38,000 99,000 Deferred: Federal 1,053,000 616,000 426,000 ---------- ---------- ---------- Income tax expense $1,218,000 $ 675,000 $ 557,000 ========== ========== ========== A reconciliation of the federal statutory rate to the effective tax rate reflected in the total provision for income taxes is as follows: Year Ended June 30, -------------------- 2002 2001 2000 ---- ---- ---- Federal income taxes at the statutory rate 34% 34% 34% State income taxes, net of federal tax benefit 5 3 6 Nondeductible expenses, principally goodwill in 2001 and 2000 1 17 11 Reduction in investment tax credit carry-forward 1 14 - Exempt income from foreign sales (2) (5) - --- --- --- Federal income taxes at the effective rate 39% 63% 51% === === === 27 Bolt Technology Corporation Notes to Consolidated Financial Statements Note 4 - Income Taxes (cont'd.) Deferred income taxes under the liability method reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company's net deferred income tax asset were as follows:
2002 2001 ---- ---- Deferred tax assets: Tax loss carry-forward $ - $ 841,000 Investment tax credit carry-forward - 49,000 Inventory reserves 347,000 339,000 Allowance for doubtful accounts 79,000 69,000 Plant and equipment 22,000 7,000 Alternative minimum tax credit carry-forward 278,000 318,000 ---------- ----------- Gross deferred tax asset 726,000 1,623,000 Deferred tax liability: Amortization of intangibles (147,000) (97,000) ---------- ----------- Gross deferred tax liability (147,000) (97,000) ---------- ----------- Net deferred tax asset $ 579,000 $ 1,526,000 ========== ===========
Note 5 - Benefit Plans The Company maintains defined contribution retirement plans covering substantially all employees who satisfy the age and service requirements of the plans. The Company's contributions to the plans for the years ended June 30, 2002, 2001, and 2000 amounted to $191,000, $200,000, and $150,000, respectively. Note 6 - Stock Options The Company's 1993 Stock Option Plan provides for the granting of options to purchase up to 550,000 shares of Common Stock of the Company at a price not less than fair market value at date of grant. Options granted to employees are exercisable for a period of up to ten years. The plan also provides for the granting to non-employee directors of options to purchase 3,000 shares of Common Stock each time they are elected directors. A summary of the Stock Option Plan at June 30, 2002, 2001, and 2000 and the changes during the years ended on those dates is presented below.
2002 2001 2000 ------------------ ------------------ ----------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ -------- ------ -------- ------ -------- Outstanding at beginning of year 224,000 $5.84 203,000 $5.97 236,750 $5.20 Granted 3,000 $4.55 21,000 $4.56 9,000 $4.38 Exercised (40,000) $4.13 -- -- (41,000) $1.15 Canceled (18,000) $5.70 -- -- (1,750) $6.63 ------- ------- ------- Outstanding at end of year 169,000 $6.24 224,000 $5.84 203,000 $5.97 ======= ======= =======
There were 145,190 options available for future grants under the plan at June 30, 2002. 28 Bolt Technology Corporation Notes to Consolidated Financial Statements Note 6 - Stock Options (cont'd.) The following table summarizes information concerning outstanding and exercisable stock options at June 30, 2002:
Options Outstanding Options Exercisable ------------------------------------------------------ --------------------------------- Range of Number Outstanding Weighted Average Weighted Number Weighted Exercise at Remaining Average Exercisable Average Prices June 30, 2002 Contractual Life Exercise Price At June 30, 2002 Exercise Price - ----------- ------------------ ---------------- -------------- ---------------- -------------- $4.38-$4.56 31,000 3.0 Years $4.51 28,000 $4.50 $6.25-$7.75 138,000 0.7 Years $6.62 138,000 $6.62 ------- ------- 169,000 1.1 Years $6.24 166,000 $6.27 ======= =======
The estimated fair value of options granted during 2002, 2001 and 2000 were $1.36, $2.66 and $2.12 per share, respectively. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plan. Accordingly, no compensation cost has been recognized for its stock option grants. If compensation cost for the stock option grants had been determined based on the fair value at option grant dates in accordance with accounting provisions of FAS 123, the Company's net income and earnings per share for the years ended June 30, 2002, 2001 and 2000 would have been reduced to the pro forma amounts indicated below: Net Income: 2002 2001 2000 - ----------- ---- ---- ---- As reported $1,871,000 $396,000 $533,000 Pro forma $1,870,000 $331,000 $448,000 Basic earnings per share: - ------------------------ As reported $ 0.35 $ 0.07 $ 0.10 Pro forma $ 0.35 $ 0.06 $ 0.08 Diluted earnings per share: - -------------------------- As reported $ 0.35 $ 0.07 $ 0.10 Pro forma $ 0.35 $ 0.06 $ 0.08 29 Bolt Technology Corporation Notes to Consolidated Financial Statements Note 6 - Stock Options (cont'd.) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 2002 2001 2000 ---- ---- ---- Expected dividend yield 0% 0% 0% Expected stock price volatility 58% 62% 46% Risk-free interest rate 3.47% 6.00% 6.10% Expected life (years) 5 5 5 Note 7 - Stockholders' Equity Changes in issued Common Stock and stockholders' equity for the three years ended June 30, 2002 were as follows:
Common Stock -------------------- Accumulated Shares Amount Deficit Total ------ ------ ------------ ----- Balance June 30, 1999 .................. 5,370,378 $ 26,117,000 $ (8,252,000) $ 17,865,000 Exercise of stock options ......... 38,355 35,000 - 35,000 Net income ........................ - - 533,000 533,000 --------- ------------ ------------ ------------ Balance June 30, 2000 .................. 5,408,733 26,152,000 (7,719,000) 18,433,000 Net income ........................ - - 396,000 396,000 --------- ------------ ------------ ------------ Balance June 30, 2001 .................. 5,408,733 26,152,000 (7,323,000) 18,829,000 Exercise of stock options ......... 5,624 - - - Net income ........................ - - 1,871,000 1,871,000 --------- ------------ ------------ ------------ Balance June 30, 2002 .................. 5,414,357 $ 26,152,000 $ (5,452,000) $ 20,700,000 ========= ============ ============ ============
Note 8 - Commitments and Contingencies Concentration of Credit Risk: Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents and trade accounts receivable. The Company believes that the concentration of credit risk in its trade receivables is substantially mitigated by the Company's ongoing credit evaluation and its short collection terms. The Company does not generally require collateral from its customers but, in certain cases, the Company does require the customer to provide a letter of credit or an advance payment. In limited cases the Company will grant customers extended payment terms of up to 12 months. The Company establishes an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers. Historically, the Company has not incurred significant credit related losses. The Company invests its excess cash in certificates of deposit with maturities of usually less than one month in an effort to maintain safety and liquidity. 30 Bolt Technology Corporation Notes to Consolidated Financial Statements Note 8 - Commitments and Contingencies (cont'd.) Financial Instruments: The Company does not hold or issue financial instruments for trading or hedging purposes, nor does it hold interest rate, leveraged, or other types of derivative financial instruments. Fair values of accounts receivable, note payable, accounts payable and accrued expenses reflected in the June 30, 2002 and 2001 balance sheets approximate carrying values at those dates. Lease Commitments: Rent expense amounted to $470,000, $453,000, and $455,000 for the years ended June 30, 2002, 2001, and 2000, respectively. Minimum annual rental commitments under operating leases with terms in excess of one year are as follows: 2003 - $189,000; 2004 - $183,000; and 2005 - $107,000. The Company leases a building from the former shareholder of A-G Geophysical Products, Inc. for $10,750 per month. The lease agreement expires in April 2005. Employment Agreements: The Company has a severance compensation plan for certain executive officers and key employees of the Company which becomes operative upon their termination if such termination occurs within 24 months subsequent to a change in ownership of the Company, as defined in the plan. The Company also has an employment agreement with its president and chief executive officer which provides for severance in the case of voluntary or involuntary termination or change in control. The employment agreement has a term through June 30, 2005, subject to extension as set forth in the agreement. The aggregate severance commitment under these agreements approximates $3,488,000 at June 30, 2002. The Company also has employment contracts with two other key executives. The aggregate amount due under these agreements, which expire in January and February 2003, respectively, is $234,000 at June 30, 2002. Litigation: From time to time, the Company is a party to routine litigation and proceedings that are considered part of the ordinary course of its business. The Company is not aware of any current or pending litigation. 31 Bolt Technology Corporation Notes to Consolidated Financial Statements Note 9 - Segment and Customer Information The Company's reportable segments are geophysical equipment and industrial products. The following table provides selected financial information for each segment for the years ended June 30, 2002, 2001 and 2000. Geophysical Industrial Fiscal Year ended June 30, 2002 Equipment Products Total - ------------------------------- --------- -------- ----- Sales $15,447,000 $ 2,544,000 $ 17,991,000 Interest income 32,000 - 32,000 Interest expense 194,000 - 194,000 Depreciation and amortization 284,000 37,000 321,000 Income before income taxes 2,738,000 351,000 3,089,000 Segment assets 18,165,000 4,695,000 22,860,000 Fixed asset additions 65,000 17,000 82,000 Geophysical Industrial Fiscal Year ended June 30, 2001 Equipment Products Total - ------------------------------- --------- -------- ----- Sales $12,508,000 $ 2,988,000 $ 15,496,000 Interest income 37,000 - 37,000 Interest expense 369,000 - 369,000 Depreciation and amortization 694,000 260,000 954,000 Income before income taxes 590,000 481,000 1,071,000 Segment assets 18,786,000 5,948,000 24,734,000 Fixed asset additions 76,000 7,000 83,000 Geophysical Industrial Fiscal Year ended June 30, 2000 Equipment Products Total - ------------------------------- --------- -------- ----- Sales $11,252,000 $ 3,496,000 $ 14,748,000 Interest income 85,000 - 85,000 Interest expense 510,000 - 510,000 Depreciation and amortization 684,000 256,000 940,000 Income before income taxes 283,000 807,000 1,090,000 Segment assets 18,820,000 6,218,000 25,038,000 Fixed asset additions 84,000 60,000 144,000 The Company does not allocate income taxes to segments. 32 Bolt Technology Corporation Notes to Consolidated Financial Statements Note 9 - Segment and Customer Information (cont'd.) The following table reports sales by country for the years ended June 30, 2002, 2001 and 2000. Sales are attributed to each country based on the location of the customer.
2002 2001 2000 ---- ---- ---- United States .................... $ 7,509,000 $ 8,321,000 $ 8,703,000 Norway ........................... 3,501,000 2,546,000 2,025,000 Peoples Republic of China ........ 852,000 1,269,000 866,000 United Kingdom ................... 1,786,000 689,000 602,000 Former Soviet Union .............. 1,101,000 178,000 81,000 Singapore ........................ 1,598,000 1,171,000 1,385,000 France ........................... 765,000 513,000 484,000 Other ............................ 879,000 809,000 602,000 ----------- ------------ ----------- $17,991,000 $ 15,496,000 $14,748,000 =========== ============ ===========
A relatively small number of customers has accounted for the Company's geophysical equipment segment sales. Customers accounting for 10% or more of consolidated sales for 2002, 2001 and 2000 are as follows: 2002 2001 2000 ---- ---- ---- Customer A ....................... 17% 17% 30% Customer B ....................... 14 11 11 Note 10 - Supplementary Information Accrued expenses at June 30 consist of the following: 2002 2001 ---- ---- Compensation and related taxes ....... $ 685,000 $ 259,000 Compensated absences ................. 242,000 274,000 Commissions payable .................. 309,000 609,000 Professional fees .................... 106,000 64,000 Income taxes payable ................. 118,000 - Other ................................ 80,000 115,000 ----------- ----------- $ 1,540,000 $ 1,321,000 =========== =========== 33 Bolt Technology Corporation Notes to Consolidated Financial Statements Note 11 - Quarterly Results (unaudited) The following table summarizes results for each of the four quarters in the years ended June 30, 2002 and 2001.
Three Months Ended ------------------ Sept. 30 Dec. 31 March 31 June 30 -------- ------- -------- ------- 2002 - ---- Sales $ 4,191,000 $ 4,280,000 $ 4,760,000 $ 4,760,000 Cost of sales 2,505,000 2,350,000 2,640,000 2,472,000 Income before taxes 491,000 674,000 769,000 1,155,000 Net income 302,000 409,000 469,000 691,000 Basic and diluted earnings per share $ 0.06 $ 0.07 $ 0.09 $ 0.13 Three Months Ended ------------------ Sept. 30 Dec. 31 March 31 June 30 -------- ------- -------- ------- 2001 - ---- Sales $3,076,000 $ 3,000,000 $ 4,405,000 $ 5,015,000 Cost of sales 1,891,000 1,724,000 2,457,000 2,840,000 Income (loss) before taxes (256,000) 14,000 480,000 833,000 Net income (loss) (214,000) (48,000) 253,000 405,000 Basic and diluted earnings (loss) per share: $ (0.04) $ (0.01) $ 0.05 $ 0.07
34 Bolt Technology Corporation Schedule II - Valuation and Qualifying Accounts For the Three Years Ended June 30, 2002
Additions Charged Balance At To Beginning Of Costs And Balance At Description Year Expenses Deductions End of Year ----------- ------------ ----------------- ---------- ------------ Allowance for uncollectible accounts: 2000 $360,000 $147,000 $ (33,000) $474,000 2001 474,000 125,000 (412,000) 187,000 2002 187,000 97,000 (85,000) 199,000 Reserve for inventory valuation: 2000 $860,000 $ 13,000 - $873,000 2001 873,000 42,000 - 915,000 2002 915,000 - - 915,000
35 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. BOLT TECHNOLOGY CORPORATION By: /s/ Raymond M. Soto -------------------------------- Raymond M. Soto (Chairman of the Board, President and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ Raymond M. Soto Chairman of the Board, September 26, 2002 - ----------------------------- President, Chief Executive (Raymond M. Soto) Officer and Director (Principal Executive Officer) /s/ Joseph Espeso Senior Vice President - Finance, September 26, 2002 - ----------------------------- Chief Financial Officer and (Joseph Espeso) Director (Principal Financial Officer and Principal Accounting Officer) /s/ Kevin M. Conlisk Director September 26, 2002 - ----------------------------- (Kevin M. Conlisk) /s/ Michael H. Flynn Director September 26, 2002 - ----------------------------- (Michael H. Flynn) /s/ George R. Kabureck Director September 26, 2002 - ----------------------------- (George R. Kabureck) /s/ John H. Larson Director September 26, 2002 - ----------------------------- (John H. Larson) /s/ Joseph Mayerick, Jr. Director September 26, 2002 - ----------------------------- (Joseph Mayerick, Jr.) /s/ Gerald H. Shaff Director September 26, 2002 - ----------------------------- (Gerald H. Shaff) /s/ Gerald A. Smith Director September 26, 2002 - ----------------------------- (Gerald A. Smith)
36 CERTIFICATIONS I, Raymond M. Soto, certify that: 1. I have reviewed this annual report on Form 10-K of Bolt Technology Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: September 26, 2002 /s/ Raymond M. Soto ------------------------------- Chairman of the Board, President and Chief Executive Officer I, Joseph Espeso, certify that: 1. I have reviewed this annual report on Form 10-K of Bolt Technology Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: September 26, 2002 /s/ Joseph Espeso ------------------------------- Senior Vice President - Finance and Chief Financial Officer 37 EX-10.4 3 dex104.txt SEVERANCE COMPENSATION PLAN EXHIBIT 10.4 BOLT TECHNOLOGY CORPORATION SEVERANCE COMPENSATION PLAN --------------------------- Defined Corporate Change - ------------------------ In the event of: (1) the acquisition of beneficial ownership of 30% of the shares of the common stock of the Company by or for any person (as such term is defined in Section 14(d)(2) of the Securities Exchange Act of 1934), including for purposes of calculating such person's ownership all shares beneficially owned by the affiliates and associates (as such terms are defined in Rule 12b-2 of said Act) of such person, or (2) during any period of 24 consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute a majority thereof, unless the election, or nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period, or (3) the Company's stockholders shall approve (a) the merger or consolidation of the Company with or into another corporation and the Company shall not be the surviving corporation or (b) an agreement to sell or otherwise dispose of all or substantially all of the Company's assets (including a plan of liquidation), or (4) any other event of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the aforesaid Act as in effect on December 19, 1985, then, in the case of the employees designated by the Board as participating in this Severance Compensation Plan, there shall be paid to each such employee whose employment shall terminate (which shall include resignation) within the 24-month period following the date on which any of the above-described events occurs a Special Severance Benefit in cash unless prior to such termination of employment (a) this Plan shall have been amended to reduce or postpone payments, (b) this Plan shall have been terminated, or (c) such employee's participation in this Plan shall have ended. Shares shall be deemed to be beneficially owned, for purposes hereof, if indirectly as well as directly owned or if a person has the right to acquire or the right to vote such shares. Such payment shall be made regardless of the reason for termination and shall be made within 10 days of termination of employment. Special Severance Benefit - ------------------------- The Special Severance Benefit shall be equal to a multiple (to be determined by the Company's Executive Compensation Committee and set forth in the Designation of Participation) of the sum of (a) such employee's annualized base salary (calculated on the basis of amount received during the period immediately prior to the time of the occurrence of the Defined Corporate Change), (b) the average of such employee's bonuses in the three highest years during the five-year period prior to the date of termination, and (c) the amount of annual premiums, determined by the Company on an individual basis, for medical insurance of the same nature and amount provided by the Company. The Company shall from time to time notify the employee of such premium cost. Limitation on Payment - --------------------- Notwithstanding the foregoing, the amount of the Special Severance Benefit shall be limited to the maximum amount which can be paid without having any amount paid hereunder being treated as a "parachute payment" within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1954, as the same may be amended, after giving effect to all other payments of compensation described in Section 280G(b)(2)(A)(i) and (ii). Amendment or Termination - ------------------------ This Plan may not be amended or terminated nor may any employee who has been designated as participating herein be treated as not so participating at any time after any person has commenced a tender offer, proposed a merger or otherwise communicated to the Company or the public its plan or intention to acquire the 30% stock interest referred to in (1) above, under Defined Corporate Change, or has filed proxies with the Company or taken any other steps designed to change the composition of the Board as indicated in (2) above; provided, however, that if the Board of Directors shall have supported the transaction that will result in the occurrence of the Defined Corporate Change (e.g., by voting to encourage the Company's stockholders to accept a tender offer or to vote for a merger), this Plan may be amended or terminated at any time prior to the actual occurrence of the Defined Corporate Change, including a termination which is conditional upon such occurrence; and, furthermore, if at any time before the composition of the Board shall have changed as set forth in (2) above, under Defined Corporate Change, this Plan may be terminated notwithstanding the actual acquisition of the 30% stock interest if the Board shall then be supportive of the transaction. Adopted December 19, 1985 -2- BOLT TECHNOLOGY CORPORATION SEVERANCE COMPENSATION PLAN Designation of Participation ---------------------------- Referring to the Severance Compensation Plan (the "Plan") of Bolt Technology Corporation (the "Company"), a copy of which is attached hereto, this will evidence the designation of _________________ (the "Employee"), as a participant in the Plan, effective ______________. Reference is made to the Plan for the full statement of the defined terms used below. In the event of a "Defined Corporate Change", a "Special Severance Benefit" shall be paid in cash equal to ______ times the amount specified in the Plan to the Employee within 10 days of termination of employment (which shall include resignation) if such termination occurs subsequent to such Defined Corporate Change and prior to 24 months after such Defined Corporate Change, unless prior to such termination of employment (a) the Plan shall have been amended, to reduce or postpone payments, or terminated, or, (b) the Employee's participation in the Plan shall have ended. The Company shall withhold from the Special Severance Benefit the amount of federal, state, local and foreign taxes which it in its sole discretion deems appropriate. Notwithstanding any provision in the Plan to the contrary, the Employee shall not be entitled to receive the Special Severance Benefit in the event his employment shall terminate by reason of his death, his disability or his retirement. If any litigation shall be brought by the Employee to enforce or interpret any provision contained in the Plan or herein, the Company hereby indemnifies the Employee for his reasonable attorneys' fees and disbursements incurred in any such litigation in which the Employee prevails, and hereby agrees to pay pre-judgement interest on any money judgment obtained by the Employee calculated at The Connecticut Bank and Trust Company prime interest rate in effect from time to time from the date that payment to him should have been made under the Plan. The indemnification hereby provided for shall be subject to the "Limitation on Payment" provided for in the Plan. The Company's obligation to pay the Employee the Special Severance Benefit shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else. The Employee shall not be obligated to seek other employment in mitigation of the amount payable and the obtaining of such other employment shall in no event effect any reduction of the Company's obligations to make the payment required to be made under the Plan. Any provision under the Plan and hereunder which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. IN WITNESS WHEREOF, this Designation has been executed and delivered by a duly authorized officer of the Company in accordance with the terms and provisions of the Plan. BOLT TECHNOLOGY CORPORATION BY _____________________________________ Acknowledged and Accepted: _______________________ Employee Attachment EX-10.5 4 dex105.txt COMMERCIAL LOAN AGREEMENT DATED 05/15/02 EXHIBIT 10.5 COMMERCIAL LOAN AGREEMENT THIS COMMERCIAL LOAN AGREEMENT is dated May 15, 2002, by and among BOLT TECHNOLOGY CORPORATION, a Connecticut corporation with a principal office at Four Duke Place, Norwalk, Connecticut 06854 (the "Borrower") and FLEET NATIONAL BANK, a national banking association with an office located at One Landmark Square, Stamford, CT 06901 ("Fleet"). RECITALS A. Borrower has requested that Fleet extend to Borrower a $1,500,000 revolving loan facility to be used for general working capital purposes and the issuance of letters of credit. B. Fleet is willing to extend the loan facility to Borrower subject to the terms and conditions contained herein. AGREEMENT In consideration of the Recitals, the terms and conditions contained in this Agreement, and other good and valuable consideration, Borrower and Fleet agree as follows: I. DEFINITIONS 1.01 DEFINED TERMS. The following terms shall have the following meanings when used in the Agreement: (a) "Affiliate", as applied to any Person, means any other Person directly or indirectly through one or more intermediaries controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Person, whether through the ownership of voting securities or by contract or otherwise. (b) "Agreement" shall mean this Commercial Loan Agreement as the same from time to time may be amended, supplemented or modified. (c) "Debt Service Coverage Ratio" shall mean the ratio of (i) EBIT to (ii) Interest. -1- (d) "Default(s)" shall mean any of the events specified in Section 8.01 below, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. (e) "Dollars" and "$" shall mean lawful currency of the United States of America payable in immediately available funds. (f) "Earnings Before Interest and Taxes ("EBIT")" shall mean, for the applicable period, income from continuing operations before interest and tax expense, determined in accordance with GAAP. (g) "ERISA" shall mean the Employee Retirement Income Security Act of 1974 and all rules and regulations promulgated pursuant to said Act, as amended from time to time. (h) "Event(s) of Default" shall mean any of the events specified in Section 8.01 below, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. (i) "GAAP" shall mean generally accepted accounting principles applied in a manner consistent with that employed in the preparation of the financial statements described in Section 6.01 below. (j) "Governmental Authority" shall mean any nation or government, any state or other political subdivision, any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing. (k) "Guarantor" shall collectively mean Custom Products Corporation and A-G Geophysical Products, Inc. (l) "Indebtedness" shall mean all obligations that in accordance with GAAP should be classified as liabilities upon Borrower's balance sheet as liabilities or reference to which should be made by footnotes to the balance sheet. (m) "Intangible Assets" shall mean assets that in accordance with GAAP are properly classifiable as intangible assets, including, but not limited to, goodwill, franchises, licenses, patents, trademarks, trade names and copyrights. (n) "Interest" shall mean, for the applicable period, all interest paid or payable, including, but not limited to, interest paid or payable on Indebtedness and on capital leases, determined in accordance with GAAP. -2- (o) "Leverage Ratio" shall mean the ratio of Total Liabilities to Tangible Net Worth. (p) "Lien" shall mean any mortgage, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). (q) "Loan" shall mean the Revolving Loan made by Fleet to Borrower pursuant to this Agreement. (r) "Loan Documents" shall mean this Agreement, the Note, and all other documents or agreements executed in connection with this Agreement, together with any amendments, supplements or modifications hereto or thereto executed by the Borrower. (s) "Note" shall mean the Revolving Loan Note. (t) "Obligations" shall mean and include all loans, advances, interest, indebtedness, liabilities, obligations, guaranties, covenants and duties at any time owing by Borrower to Fleet of every kind and description arising under this Agreement, the Note, and the other Loan Documents or arising under any swap transactions for LIBOR Loans, whether or not evidenced by any note or other instrument, whether or not for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter, and all costs, expenses, fees, charges, expenses and attorneys', paralegals', and professionals' fees reasonably incurred in connection with any of the foregoing, or in any way connected with, involving or related to the preservation, enforcement, protection, and defense of this Agreement, the Note, the other Loan Documents, any related agreement, document or instrument, any Lien, and the resulting rights and remedies. (u) "Person" shall mean any individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization or any other juridical entity, or a government or state or any agency or political subdivision thereof. (v) "Plan" shall mean any plan of a type described in Section 4021(a) of ERISA in respect of which Borrower is an "employer" as defined in Section 3(5) of ERISA. (w) "Post Default Rate" shall mean at any time a rate of interest equal to 4.0% per annum in excess of the rate that would be in effect on the date of default. (x) "Prime Rate" shall mean the variable per annum rate of interest so designated from time to time by Fleet as its "Prime Rate." The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. -3- (y) "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. (z) "Revolving Loan" shall mean the Loan(s) made pursuant to Section 2.01 below. (aa) "Revolving Loan Borrowing Date" shall mean the date(s) on which a Revolving Loan is disbursed to Borrower. (ab) "Revolving Loan Maturity Date" shall mean May 14, 2003. (ac) "Revolving Loan Note" shall mean the note referred to in Section 2.01 below. (ad) "Revolving Loan Commitment" shall mean the obligation of Fleet to make Revolving Loans to Borrower during the Revolving Loan Commitment Period pursuant to the terms of this Agreement as such Revolving Loan Commitment is described in Section 2.01 below. (ae) "Revolving Loan Commitment Period" shall mean the period from the date of this Agreement until the Revolving Loan Maturity Date. (af) "Subsidiary or Subsidiaries" of any Person shall mean any corporation or corporations of which the Person or one or more of its Subsidiaries, owns, directly or indirectly, at least a majority of the securities having ordinary voting power for the election of directors. (ag) "Tangible Net Worth" shall mean Total Net Worth minus Intangible Assets. (ah) "Total Assets" shall mean total assets determined in accordance with GAAP. (ai) "Total Liabilities" shall mean total Indebtedness determined in accordance with GAAP. (aj) "Total Net Worth" shall mean, for the applicable period, the excess of Total Assets minus Total Liabilities. 1.02 ACCOUNTING TERMS. Except as otherwise specifically set forth in this Agreement, each accounting term used in this Agreement shall have the meaning given to it under GAAP. Any dispute or disagreement between Borrower and Fleet relating to the determination of GAAP shall, in the absence of manifest error, be conclusively resolved for all purposes by the written opinion delivered to Fleet, of independent accountants selected by -4- Borrower and approved by Fleet for the purposes of auditing the periodic financial statements of Borrower. II. LOAN FACILITY 2.01 REVOLVING LOAN. Subject to the terms and conditions, and relying upon the representations and warranties set forth in this Agreement, Fleet agrees to make revolving loans (each a "Revolving Loan") to Borrower at any time and from time to time until terminated as provided in Section 3.02 below, up to the principal amount of the Revolving Loan Note. In addition to this Agreement, the Revolving Loan shall be evidenced by the Commercial Revolving Promissory Note of this date, a copy of which is attached as Exhibit "A" (the "Revolving Loan Note"). Procedure For Revolving Loan Borrowing. Provided that the Revolving Loan Commitment has not been terminated as provided in Section 3.02 below, during the Revolving Loan Commitment Period Borrower may borrow under the Revolving Loan Commitment by giving Fleet irrevocable notice of a request for a Revolving Loan, such irrevocable notice setting forth (A) the amount of the Loan requested, which shall not be less than $25,000, and (B) the requested Borrowing Date, (i) which date shall not be less than two (2) days with respect to a LIBOR Loan, as such term is defined in the Note, or (ii) which date may be the same date of such notice with respect to Prime Rate loans. Such notice must be written (including, without limitation, via facsimile transmission) and shall be sufficient if received by 2:00 p.m. (Eastern Standard Time) on the date on which such notice is to be given. Unless notification is otherwise furnished by Borrower to Fleet (in a manner consistent with the requirements of this Section 2.01(a)), Revolving Loans will be made by credits to Borrower's deposit account maintained with Fleet. Advances under the Revolving Loan Note may be used for issuance of commercial letters of credit for the account of the Borrower. All commercial letters of credit shall be made available at standard issuance costs and may have expiration dates of up to ninety (90) days after the Revolving Loan Maturity Date. 2.02 OTHER EVENTS. (a) In the event that, after the date hereof, any enactment of or change in applicable law, regulation, condition, directive or interpretation thereof (including any request, guideline or policy whether or not having the force of law and including, without limitation, Regulation D promulgated by the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect) is made by any governmental authority charged with the administration or interpretation thereof: (i) subjects Fleet to a tax with respect to any Loan (other than any tax measured by or based upon the overall net income of Fleet or any branch or office thereof, imposed by the United States of America or by any other jurisdiction in which Fleet is qualified to do business or any political subdivision or taxing authority); or -5- (ii) imposes, modifies or deems applicable any reserve or deposit requirements against any assets held by, deposits with or for the account of, or loans or commitments by, an office of Fleet in connection with payments by Fleet under this Agreement other than is currently in effect; or (iv) imposes upon Fleet any other condition with respect to any amount paid or payable to or by Fleet pursuant to this Agreement other than is currently in effect; and the result of any of the foregoing is to increase the cost to Fleet of making the payment or maintaining its commitment or to reduce the amount of the payment receivable by Fleet or to require Fleet to make the payment on or calculated by reference to the gross amount of the sum received by it pursuant to this Agreement, in each case by an amount which Fleet in its reasonable judgment deems material, then: (A) Fleet shall promptly notify Borrower in writing of the happening of such event; (B) Fleet shall promptly deliver to Borrower a certificate stating the change which has occurred or the reserve requirements or other conditions which have been imposed on Fleet or the request, direction or requirement with which it has complied, together with the date thereof, the amount of such increased cost, reduction or payment and the way in which such amount has been calculated; and (C) Borrower shall have thirty (30) days after delivery of the certificate referred to in clause (B) above to either pay to Fleet such an amount or amounts as will reasonably compensate Fleet for such additional cost, reduction, or payment, or repay all advances under this Agreement and terminate its right to any future advances under this Agreement. (b) No failure on the part of Fleet to demand compensation under subsection (a) above on any one occasion shall constitute a waiver of its right to demand such compensation on any other occasion and no failure on the part of Fleet to deliver any certificate in a timely manner shall in any way reduce any obligations of Borrower to Fleet under this Section 2.02. III. INTEREST, TERM, AND FEES 3.01 INTEREST RATE. (a) The Note shall bear, and Borrower promises to pay, interest on the indebtedness on the terms and conditions set forth in the Note. (b) All agreements between the Borrower and Fleet are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to -6- be paid to Fleet for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then the Note shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of the Borrower and Fleet in the execution, delivery, and acceptance of the Note to contract in strict compliance with the laws of the State of Connecticut from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the Loan Documents at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever Fleet should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between the Borrower and Fleet. 3.02 TERM AND TERMINATION. Unless sooner terminated as a result of the occurrence of an Event of Default, the Revolving Loan Commitment shall terminate and be due and payable in full on the Revolving Loan Maturity Date. Upon termination of the Revolving Loan Commitment, Borrower shall have no ability to receive, and Fleet shall have no obligation to make any further advances under the Revolving Loan Commitment. All of the rights, interest, and remedies of Fleet and Obligations of Borrower under this Agreement and the other Loan Documents shall survive termination of the Revolving Loan Commitment until all of the Obligations of Borrower are fully satisfied. 3.03 REPAYMENTS. All payments shall be applied first to the payment of all fees, expenses and other amounts due to Fleet (excluding principal and interest), then to accrued interest, and the balance on account of outstanding principal; provided, however, that after demand or default, payments will be applied to the Obligations of Borrower to Fleet as Fleet determines in its sole discretion. 3.04 PREPAYMENTS. (a) Prime Rate Loans. If the interest rate selected by the Borrower is Fleet's Prime Rate, Borrower may prepay the Revolving Loan without any penalty or premium. (b) Fixed Rate Loans. Borrower may prepay a LIBOR Loan only upon at least three (3) Business Days prior written notice to Fleet (which notice shall be irrevocable), and any such prepayment shall occur only on the last day of the interest period for such LIBOR Loan. Borrower shall pay to Fleet, upon request of Fleet, such amount or amounts as shall be sufficient (in the reasonable opinion of Fleet) to compensate it for any loss, cost, or expense incurred as a result of: (i) any payment of a LIBOR Loan on a date other than the last day of the interest period for such Loan; (ii) any failure by Borrower to borrow a LIBOR Loan on the date specified by Borrower's written notice; (iii) any failure by Borrower to pay a LIBOR Loan on the date for -7- payment specified in Borrower's written notice. Without limiting the foregoing, Borrower shall pay to Fleet a "yield maintenance fee" in an amount computed as follows: The current rate for United States Treasury securities (bills on a discounted basis shall be converted to a bond equivalent) with a maturity date closest to the term chosen pursuant to the LIBOR Rate Election as to which the prepayment is made, shall be subtracted from the LIBOR in effect at the time of prepayment. If the result is zero or a negative number, there shall be no yield maintenance fee. If the result is a positive number, then the resulting percentage shall be multiplied by the amount of the principal balance being prepaid. The resulting amount shall be divided by 360 and multiplied by the number of days remaining in the term chosen pursuant to the LIBOR Rate Election as to which the prepayment is made. Said amount shall be reduced to present value calculated by using the above referenced United States Treasury securities rate and the number of days remaining in the term chosen pursuant to the LIBOR Rate Election as to which prepayment is made. The resulting amount shall be the yield maintenance fee due to Fleet upon the prepayment of a LIBOR Loan. Each reference in the paragraph to "LIBOR Rate Election" shall mean the election by Borrower of the LIBOR Rate. If by reason of an Event of Default, Fleet elects to declare the Note to be immediately due and payable, then any yield maintenance fee with respect to a LIBOR Loan shall become due and payable in the same manner as though Borrower had exercised such right of prepayment. 3.05 FACILITY FEE. The Borrower shall pay a fee on the unadvanced portion of the Revolving Loan equal to three eighths of one (.375%) percentage point per annum. This fee is calculated on a daily basis and shall be paid quarterly in arrears on the first business day of the first month after such quarter. IV. CONDITIONS OF LENDING Borrower agrees that the Loan is subject to fulfillment by Borrower of the following conditions precedent, all in form, scope and substance satisfactory to Fleet and its counsel in their sole discretion: (a) Evidence of Corporate Action. Fleet shall have received certified copies of all corporate action taken by Borrower to authorize the execution, delivery, and performance of this Agreement, the Note, the other Loan Documents, and the borrowings to be made hereunder, together with copies of Borrower's Certificate of Incorporation and Bylaws, all amendments thereto, and such other papers and documents as Fleet or its counsel may require. (b) Note. Fleet shall have received the duly executed Note drawn to its order. (c) Guarantees. Fleet shall have received the duly executed guaranty agreements from the Guarantor. (d) Opinion of Counsel. Borrower shall provide Fleet with an opinion from its counsel in form and content reasonably satisfactory to Fleet opining that, among other things, that the Loan Documents are valid, binding, and enforceable against the Borrower, that the -8- Borrower is duly authorized to enter into the Loan Documents, and that to such counsel's knowledge the Borrower's execution and delivery of the Loan Documents is not in violation of any agreement to which the Borrower is a party, or any order binding upon the Borrower. (e) Accounts Receivable Aging. Fleet shall have received a recent accounts receivable aging for Borrower, Custom Products Corporation, and A-G Geophysical Products, Inc. which shall be acceptable to Fleet in all respects. (f) Other. Fleet shall have received such other documents as it deems necessary. V. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to Fleet that: (a) Good Standing and Qualification. Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the state or province, as the case may be, of its incorporation. Borrower has all requisite corporate power and authority to own and operate its properties and to carry on its business as presently conducted and is qualified to do business and is in good standing as a foreign corporation in each jurisdiction wherein the character of the properties owned or leased by it therein or in which the transaction of its business therein makes such qualification necessary other than jurisdictions in which failure to qualify would not have a material adverse effect. (b) Corporate Authority. Borrower has full power and authority to enter into and perform the obligations under this Agreement and to make the borrowings contemplated, to execute and deliver the Note and the other Loan Documents and to incur the obligations provided for, all of which have been duly authorized by all necessary and proper corporate action. No other consent or approval or the taking of any other action in respect of shareholders or of any public authority is required as a condition to the validity or enforceability of this Agreement, the Note, or any of the other Loan Documents. The execution and delivery of this Agreement is for valid purposes and will not violate its Certificate of Incorporation, By-Laws, or any other agreement to which it is a party or by which it is bound. (c) Binding Agreements. This Agreement constitutes, and the Note and the other Loan Documents delivered in connection herewith shall constitute, valid and legally binding obligations of Borrower, enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally. (d) Litigation. There are no actions, suits, proceedings or investigations pending or, to the knowledge of the officers of Borrower, threatened against Borrower before any court or administrative agency, which either in any case or in the aggregate, if adversely determined, would materially and adversely affect the financial condition, assets or operations of -9- Borrower or which question the validity of this Agreement, the Note, or any of the other Loan Documents, or any action to be taken in connection with the transaction contemplated hereby. (e) No Conflicting Law or Agreements. The execution, delivery, and performance by Borrower of this Agreement, the Note, and the other Loan Documents (i) do not violate any provision of the Certificate of Incorporation or By-Laws of Borrower, (ii) do not violate any order, decree or judgment, or any provision of any statute, rule, or regulation, in each case applicable to Borrower, (iii) do not violate or conflict with, result in a breach of, or constitute (with notice or lapse of time, or both) a default under any shareholder agreement, stock preference agreement, mortgage, indenture, or contract to which Borrower is a party, or by which any of its properties are bound, and (iv) do not result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any property or assets of Borrower except as contemplated in this Agreement. (f) Taxes. With respect to all taxable periods of Borrower, Borrower has filed all tax returns required to be filed by it and has paid all Federal, state, municipal, franchise, and other taxes shown on such filed returns and has reserved against the same, as required by GAAP, and Borrower knows of no unpaid assessments against it. (g) Financial Statements. Borrower has delivered to Fleet its company-prepared financial statements as of December 31, 2001. Such statements fairly present the financial condition of Borrower as of the dates and for the periods referred to therein and have been prepared in accordance with GAAP applied on a consistent basis by Borrower throughout the periods involved. There are no liabilities, direct or indirect, fixed or contingent, of Borrower as of the date of the balance sheet which are not reflected therein or in the notes thereto, other than liabilities or obligations not material in amount which are not required to be reflected in corporate balance sheets prepared in accordance with GAAP. There has been no material adverse change in the financial condition, business, operations, affairs or prospects of Borrower since the date of such financial statements. (h) Existence of Assets and Title Thereto. Borrower has good and marketable title to its properties and assets, including the properties and assets reflected in the financial statements referred to above. These properties and assets are not subject to any mortgage, pledge, security interest, or other recordable encumbrance except as reflected in the Borrower's financial statements or those permitted under the terms of this Agreement, or as set forth in Schedule 5(h), and none of the foregoing prohibit or interfere with ownership of any of Borrower's assets or the operation of its business presently conducted. (i) Regulations G, T, U, and X. The proceeds of the Loan will not be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock in contravention of Regulations G, T, U, or X promulgated by the Board of Governors of the Federal Reserve System. -10- (j) Compliance. Borrower is not in default with respect to or in violation of any order, writ, injunction or decree of any court or of any Federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency, authority or official, or in violation of any law, statute, rule or regulation to which it or its properties is or are subject, where such default or violation would materially and adversely affect the financial condition of Borrower. Borrower represents that it has not received notice of any such default from any party. Borrower is not in default in the payment or performance of any of its obligations to any third parties or in the performance of any mortgage, indenture, lease, contract or other agreement to which it is a party or by which any of its assets or properties are bound where such default could have a material adverse effect. (k) Leases. Borrower enjoys quiet and undisturbed possession under all leases under which it is operating, and all such leases are valid and subsisting and Borrower is not in default under any of its leases where such default could have a material adverse effect. (l) Pension Plans. No fact, including but not limited to any "Reportable Event", as that term is defined in Section 4043 of ERISA, as the same may be amended from time to time exists in connection with any Plan of Borrower which might constitute grounds for termination of any such Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a Trustee to administer any such Plan. No "Prohibited Transaction" as defined by ERISA exists or will exist upon the execution and delivery of this Agreement or the performance by the parties hereto of their respective duties and obligations hereunder. Borrower agrees to do all acts including, but not limited to, making all contributions necessary to maintain compliance with ERISA and agrees not to terminate any such Plan in a manner or do or fail to do any act which could result in the imposition of a lien on any property of any of Borrower pursuant to Section 4068 of ERISA. Borrower has not incurred any withdrawal liability under the Multiemployer Pension Plan Amendment Act of 1980. Borrower has no unfunded liability in contravention of ERISA. (m) Contingent Liabilities. Borrower is not a party to any suretyship, guarantyship, or other similar type agreement; and it has not offered its endorsement to any individual, concern, corporation or other entity or acted or failed to act in any manner which would in any way create a contingent liability that does not appear in the financial statements referred to above. (n) Union Contracts and Pension Plans. Borrower is not a party to any collective bargaining, union or pension plan agreement. (o) Licenses. Borrower has all material licenses, permits, approvals, and other authorizations required by any government, agency or subdivision thereof, or from any licensing entity necessary for the conduct of its business, all of which Borrower represents to be current, valid and in full force and effect. -11- (p) Financial Information. All financial information submitted by Borrower to Fleet, whether previously or in the future, is and will be true and correct in all material respects, and is and will be complete insofar as may be necessary to give Fleet a true and accurate knowledge of the subject matter. (q) Environmental Health and Safety Laws. Borrower has not received any notice, order, petition, or similar document in connection with or arising out of any violation or possible violation of any environmental health or safety law, regulation or order which remains uncured, and Borrower knows of no basis for any such violation or threat thereof for which it may become liable. (r) Parent, Affiliate or Subsidiary Corporations. Except as set forth on attached Schedule 5(r), Borrower has no parent corporation and has no domestic or foreign Affiliate or Subsidiary corporations. VI. COVENANTS 6.01 FINANCIAL REPORTING. Borrower covenants and agrees that from the date hereof until payment in full of all Obligations and the termination of this Agreement, Borrower shall furnish to Fleet the following: (a) within ninety (90) days after the end of each fiscal year, its annual 10-K financial report together with its unqualified audited financial statements prepared on a consolidated and consolidating basis by an independent certified public accountant, reasonably acceptable to Fleet, showing the operations and financial condition of Borrower at the close of such year. Such statements shall be prepared in conformity with GAAP and applied on a basis consistent with the preceding period. (b) within forty-five (45) days after the end of each quarter of each year, its 10-Q financial report for the quarter and period then ending together with a Certificate of Compliance of Borrower in the form of the attached Exhibit B and certified by the Borrower's President and Chief Financial Officer. (c) promptly upon Fleet's written request from time to time, such other information about the financial condition and operations of Borrower as Fleet may reasonably request in such form as shall be satisfactory to Fleet. 6.02 AFFIRMATIVE COVENANTS. Borrower covenants and agrees from the date hereof until payment in full of all obligations and termination of this Agreement, Borrower shall: (a) Insurance and Endorsement. Keep its properties and business insured against fire and other hazards (so-called "All Risk" coverage) in amounts and with companies reasonably satisfactory to Fleet covering such risks as are herein set forth; maintain public liability coverage, against claims for personal injuries or death; and maintain all worker's -12- compensation, employment or similar insurance as may be required by applicable law. All insurance shall be in amounts, contain such terms, be in such form, be for such periods, and be written by carriers duly licensed by the state of Connecticut, all of which shall be reasonably satisfactory to Fleet. Without limiting the generality of the foregoing, such insurance must provide that it may not be canceled without thirty (30) days prior written notice to Fleet. In the event of failure to provide and maintain insurance as so provided, Fleet may, at its option, provide such insurance and charge the amount to the Revolving Loan. Borrower shall furnish to Fleet certificates or other satisfactory evidence of compliance with the foregoing insurance provisions. (b) Taxes and Other Liens. Comply with all statutes and government regulations and pay all taxes, assessments, governmental charges or levies, or claims for labor, supplies, rent and other obligations made against it or its property which, if unpaid, might become a lien or charge against Borrower or its properties, except liabilities being contested in good faith and against which, if requested by Fleet, Borrower shall set up reserves in amounts and in form reasonably satisfactory to Fleet. (c) Place of Business. Maintain its chief place of business and chief executive offices at the address set forth in the beginning of this Agreement. (d) Inspections. After reasonable notice and during normal business hours, allow Fleet by or through any of its officers, attorneys, accountants, or other agents designated by Fleet, to enter the offices and plants of Borrower or its subsidiaries to examine or inspect any of the properties, books, and records or extracts therefrom, to make copies of such books and records or extracts therefrom, and to discuss the affairs, finances, and accounts with Borrower all at such reasonable times and for such purpose as Fleet or any representatives of Fleet may reasonably require. (e) Litigation. Advise Fleet of the commencement or threat of litigation, including arbitration proceedings and any proceedings before any governmental agency, which is instituted against Borrower and is reasonably likely to have a material adverse effect upon the condition, financial, operating, or otherwise, of Borrower. (f) Maintain Existence. Maintain its corporate existence and comply with all applicable statutes, rules, and regulations where failure to comply could have a material adverse effect. (g) Maintain Assets. Maintain its properties in good repair, working order, and operating condition. Borrower shall immediately notify Fleet of any event causing material loss in the value of its assets overall. (h) ERISA. Comply in all material respects with ERISA. Borrower shall provide Fleet with any information Fleet may reasonably request in connection with any ERISA plan maintained by Borrower. -13- (i) Notice of Certain Events. Give prompt written notice to Fleet of: (i) any dispute that arises between Borrower and any governmental regulatory body or law enforcement agency, if said dispute is reasonably likely to have a material adverse effect on the condition, financial, operating, or otherwise of Borrower; (ii) any labor controversy resulting or likely to result in a strike or work stoppage against Borrower; (iii) any proposal by any public authority to acquire all or a material portion of the assets or business of Borrower; (iv) any proposed or actual change of the name of Borrower; and (v) any other matter which has resulted or is likely to result in a material adverse change in the financial condition or operations of Borrower. (j) Defaults. Give prompt written notice to Fleet upon the occurrence of any Default or of any event which, but for giving of notice or passage of time or both, would constitute an Event of Default, signed by the president or chief financial officer of Borrower describing such occurrence and the steps, if any, being taken to cure the Default. (k) Compliance with Law. Comply with any and all Federal, state, and local laws affecting its business, including, but not limited to, payment of all Federal, state and provincial taxes. (l) Officers and Directors. Promptly notify Fleet in writing upon any changes or additions to any of Borrower's officers or directors. (m) Operating Account. Maintain its primary operating accounts with Fleet. 6.03 NEGATIVE COVENANTS. Borrower covenants and agrees that from the date hereof until payment in full of all Obligations and termination of this Agreement, Borrower shall not without the prior written consent of Fleet: (a) Encumbrances. Incur or permit to exist any lien, mortgage, charge, or other encumbrance against any of its properties or assets, whether now owned or hereafter acquired, including the Collateral, except: (i) liens required or expressly permitted by this Agreement; (ii) pledges or deposits in connection with or to secure worker's compensation, unemployment, or liability insurance; and (iii) tax liens which are being contested in good faith and in compliance with this Agreement provided, however, that Borrower shall be entitled to enter into lease financing arrangements in an aggregate amount not in excess of $100,000 for the -14- capitalized leasing of equipment including, without limitation, telephones and telephone systems, and computers and computer systems and manufacturing equipment. (b) Limitation on Indebtedness. Create, incur, or guaranty any indebtedness or obligation, borrow money from, or issue or sell any obligations of Borrower to any lender or Person other than Fleet, Custom Products Corporation, A-G Geophysical Products, Inc., and except in the ordinary course of business. (c) Contingent Liabilities. Assume, guaranty, endorse or otherwise become liable upon the obligations of any person, firm or corporation, or enter into any purchase or option agreement or other arrangement having substantially the same effect as such a guarantee, except by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and except with respect to Custom Products Corporation and A-G Geophysical Products, Inc. (d) Consolidation or Merger. Merge into or consolidate with or into any corporation or entity. (e) Loans, Advances, Investments. Use the proceeds of the Loan, either directly or indirectly, to make or permit to exist any loans or advances to (other than in the ordinary course of business), or purchase any stock, other than securities or evidences of indebtedness, or make or permit to exist any investment, including without limitation the acquisition of stock of a corporation, or acquire any interest whatsoever in, any other person or entity. (f) Sale and Lease of Assets. Sell, lease, or otherwise dispose of any of its assets, except in the ordinary course of business. (g) Prohibited Transfers. Except with respect to Custom Products Corporation and A-G Geophysical Products, Inc., transfer, in any manner, either directly or indirectly, any cash, property, or other assets to any parent or any Affiliate or Subsidiary, and except for any sales made in the ordinary course of business and for fair consideration on terms no less favorable than if such sale had been an arms-length transaction between Borrower and an unaffiliated entity. (h) Use of Proceeds. Except with respect to Custom Products Corporation and A-G Geophysical Products, Inc., apply any of the proceeds from the Loan to any Affiliate or Subsidiary. (i) Leasebacks. Lease any real estate or other capital asset from any lessor who shall have acquired such property from Borrower. (j) Business Operations. Engage in any business other than the business in which it is currently engaged or a business reasonably related thereto. -15- (k) Investment, Loans. Guarantees, Revolving Loans. Except with respect to Custom Products Corporation and A-G Geophysical Products, Inc., or otherwise in the ordinary course of business, lend or advance money, credit or property to any Person, or invest in (by capital contribution, creation of subsidiaries or otherwise), or purchase or repurchase the stock or indebtedness, or all or a substantial part of the assets of properties, of any Person, or enter into any exchange of securities with any Person, or guaranty, assume, endorse, or otherwise become responsible for (directly or indirectly or by any instrument having the effect of assuring any Person's payment or performance or capability) the indebtedness, performance, obligations, stock, or dividends of any Person, or agree to do any of the foregoing, or permit or suffer any Subsidiary to do so, except: (i) endorsement of negotiable instruments for deposit or collection in the ordinary course of business; (ii) investments representing the indebtedness of any Person owing as a result of the sale of goods by Borrower or Borrower' Subsidiaries in the ordinary course of business; (iii) the extension of credit to customers in the ordinary course of business. (l) Immigration. Hire any employee in violation of any law or regulating immigration and naturalization. 6.04 FINANCIAL COVENANTS. Borrower agrees and covenants that from the date hereof until payment in full and performance of all Obligations, it shall not: (a) Minimum Debt Service Coverage Ratio. Permit its Debt Service Coverage Ratio to be less than 3.00 to 1.00 at any time. This covenant shall be tested quarterly on a rolling four quarters basis. (b) Maximum Leverage. Permit its Leverage Ratio to be greater than 2.00 to 1.00 at any time. This covenant shall be tested quarterly. (c) Quarterly and Annual Losses: Permit its net income, as defined by GAAP, to be less than one dollar ($1.00) in any two consecutive quarters or for any fiscal year. VII. GRANT OF COLLATERAL THIS SECTION INTENTIONALLY DELETED. -16- VIII. DEFAULT 8.01 EVENTS OF DEFAULT. The Obligations shall, at the option of Fleet, become immediately due and payable in full without notice or demand unless otherwise provided in this Agreement upon the occurrence of any of the following events (collectively, "Events of Default" and individually, an "Event of Default"): (a) failure of Borrower to pay any installment of principal or interest or any other Obligation arising under this Agreement, the Note, or the other Loan Documents when due; (b) breach of any of the Obligations by Borrower including, without limitation, any covenant, representation, or warranty contained in this Agreement, or of Borrower's failure to perform any act, duty or obligation as required by this Agreement or any of the other Loan Documents which breach or failure is not cured within ten (10) days written notice from Fleet to Borrower; (c) the making by Borrower of any material misrepresentation of a material fact to Fleet; (d) insolvency (failure of Borrower to pay its debts as they mature or when the fair value of Borrower's assets is less than its liabilities) of Borrower, or business failure, appointment of a receiver or custodian, or assignment for the benefit of creditors or the commencement of any proceedings under any bankruptcy or insolvency law by or against Borrower for the Obligations; appointment of a committee of creditors or liquidating banks, or offering of a composition or extension to creditors by, for or of Borrower; however, if an involuntary bankruptcy petition is filed, an Event of Default shall occur if the petition is not dismissed within ninety (90) days of filing; (e) the loss, revocation or failure to renew any license, permit, or franchise right now held or hereafter acquired by Borrower which materially affects the ability of the Borrower to continue its operations as presently conducted; (f) a default, after any applicable notice and cure period, in any other Loan Document or other agreements between Fleet and Borrower; (g) the filing of any lien or security interest not permitted under this Agreement, voluntary or involuntary, against any of the Borrower's assets, which in the case of an involuntary lien is not bonded or discharged of record within thirty (30) days of filing; (h) dissolution or termination of existence of Borrower; (i) failure by Borrower to pay or perform any other Indebtedness in excess of $100,000 when due after any applicable cure period, or if any such other Indebtedness shall be -17- accelerated, or if there shall exist any default under any instrument, document or agreement governing, evidencing or securing such other Indebtedness; (j) a material adverse change in the condition, financial or otherwise, of Borrower as determined by Fleet in its reasonable discretion; Upon the happening of any one or more Events of Default, any requirements upon Fleet to make further Revolving Loans shall terminate. Borrower expressly waives any presentment, demand, protest, notice of protest or other notice of any kind. Fleet may proceed to enforce the rights of Fleet whether by suit in equity or by action at law, whether for specific performance of any covenant or agreement contained in this Agreement, the Note, or any other Loan Documents, or in aid of the exercise of any power granted in either this Agreement, the Note, or the other Loan Documents, or it may proceed to obtain judgment or any other relief whatsoever appropriate to the enforcement of such rights, or proceed to enforce any legal or equitable right which it may have by reason of the occurrence of any Event of Default. 8.02 SPECIFIC POWERS. Fleet may at any time, after the occurrence of an Event of Default, at its sole discretion, exercise all other rights granted in this Agreement and the other Loan Documents and do any and all things necessary and proper to carry out the purposes contemplated in this Agreement, to carry out the purposes contemplated in this Agreement, the other Loan Documents, and any other agreement between the parties. Fleet and any person acting as its attorney hereunder shall not be liable for any acts or omissions or for any error of judgment or mistake of fact or law, except for bad faith, gross negligence, and willful misconduct. Borrower agrees that the powers granted hereunder, being coupled with an interest, shall be irrevocable so long as any Obligation remains unsatisfied. Notwithstanding the foregoing, it is understood that Fleet is under no duty to take the foregoing actions and that after having made demand upon the account debtors of Borrower for payment. 8.03 BORROWER'S INDEMNIFICATION. Fleet shall not, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the enforcement of any of its rights and remedies available to it under this Agreement or pursuant to applicable law. Borrower shall indemnify and hold harmless Fleet against and from any claim, loss or damage arising out of such enforcement provided that Fleet acted in a commercially reasonable manner. 8.04 CUMULATIVE REMEDIES. The enumeration of Fleet's rights and remedies set forth in this Section is not intended to be exhaustive, and the exercise by Fleet of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative and shall be in addition to any other right or remedy given hereunder or under any other agreement between the parties or which may now or hereafter exist in law or at equity or by suit or otherwise. No delay or failure to take action on the part of Bank in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any event of default. No -18- course of dealing between Borrower and Fleet or their employees shall be effective to change, modify, or discharge any provision of this Agreement or to constitute a waiver of any default. IX. MISCELLANEOUS 9.01 EXPENSES. Borrower shall pay on demand all expenses of Fleet in connection with the preparation, administration, default, collection, waiver or amendment of loan terms, or in connection with Fleet's exercise, preservation or enforcement of any of its rights, remedies or options hereunder, including, without limitation, reasonable fees of outside legal counsel, accounting, consulting, brokerage or other similar professional fees or expenses, and any fees or expenses associated with travel or other costs relating to any appraisals or examinations conducted in connection with the loan or any collateral therefor, and the amount of all such expenses shall if unpaid 30 days after demand, until paid, bear interest at the rate applicable to principal hereunder (including any default rate) and be an obligation secured by any collateral. 9.02 SET-OFF. The Borrower hereby grants to Fleet, a continuing lien, security interest, and right of setoff as security for all liabilities and obligations to Fleet, 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 Fleet or any entity under the control of FleetBoston Financial Corporation, or in transit to any of them. At any time, without demand or notice (any such notice being expressly waived by Borrower), Fleet may set off the same or any part thereof and apply the same to any liability or obligation of the Borrower and any Guarantor even though unmatured and regardless of the adequacy of any other collateral securing the Loan. ANY AND ALL RIGHTS TO REQUIRE FLEET TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO 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. 9.03 COVENANTS TO SURVIVE. BINDING AGREEMENT. All covenants, agreements, warranties, and representations made herein, in the Note, in the other Loan Documents, and in all certificates or other documents of Borrower shall survive the advances of money made by Fleet to Borrower and the delivery of the Note, and the other Loan Documents. All such covenants, agreements, warranties, and representations shall be binding upon Borrower and its successors and assigns, and inure to the benefit of Fleet and its successors and assigns, whether or not so expressed. 9.04 CROSS-COLLATERALIZATION. All Collateral which Fleet may at any time acquire from Borrower or from any other source in connection with Obligations arising under this Agreement and the other Loan Documents shall constitute collateral for each and every Obligation, without apportionment or designation as to particular Obligations. All Obligations, however and whenever incurred, shall be secured by all Collateral however and wherever acquired. Fleet shall have the right, in its sole discretion, to determine the order in which its -19- rights in or remedies against any Collateral are to be exercised and which type of Collateral or which portions of Collateral are to be proceeded against and the order of application of proceeds of Collateral as against particular Obligations. 9.05 CROSS-DEFAULT. The Loan shall be cross-defaulted with current and future financing accommodations extended or to be extended by Fleet to Borrower so that a default under any loan to Borrower shall be an Event of Default hereunder and under all of the other loans extended by Fleet. 9.06 AMENDMENTS AND WAIVERS. This Agreement, the Note, the other Loan Documents, and any term, covenant, or condition hereof or thereof may not be changed, waived, discharged, modified or terminated except by a writing executed by the parties. The failure on the part of Fleet to exercise, or Fleet's delay in exercising, any right, remedy or power hereunder or under the Note or the other Loan Documents shall not preclude any other or future exercise thereof, or the exercise of any other right, remedy or power. 9.07 NOTICES. All notices, requests, consents, demands and other communications shall be in writing and shall be mailed by registered or certified first class mail or delivered by an overnight courier to the respective parties to this Agreement as follows: If to Borrower: Bolt Technology Corporation Four Duke Place Norwalk, Connecticut 06854 Attention: Raymond M. Soto If to the Bank: Fleet National Bank One Landmark Square Stamford, Connecticut 06901 Attention: Charlene S. O'Connell 9.08 TRANSFER OF INTEREST. (a) Fleet 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 Fleet from its obligations under any of the Loan Documents. (b) Fleet shall have the unrestricted right at any time and from time to time, and without the consent of or notice to the Borrower (or any Guarantor), to grant to one or more banks or other financial institutions (each, a "Participant") participating interests in Fleet's obligation to lend hereunder and/or any or all of the loans held by Fleet hereunder. In the event of any such grant by Fleet of a participating interest to a Participant, whether or not upon notice to Borrower, Fleet shall remain responsible for the performance of its obligations hereunder and -20- Borrower shall continue to deal solely and directly with Fleet in connection with Fleet's rights and obligations hereunder. (c) Fleet shall have the unrestricted right at any time or from time to time, and without Borrower's or any Guarantor's consent, to assign all or any portion of its rights and obligations hereunder to one or more banks or other financial institutions (each, an "Assignee"), and Borrower and each Guarantor 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 Fleet shall deem necessary to effect the foregoing. In addition, at the request of Fleet and any such Assignee, Borrower shall issue one or more new promissory notes, as applicable, to any such Assignee and, if Fleet has retained any of its rights and obligations hereunder following such assignment, to Fleet, which new promissory notes shall be issued in replacement of, but not in discharge of, the liability evidenced by the promissory note held by Fleet prior to such assignment and shall reflect the amount of the respective commitments and loans held by such Assignee and Fleet after giving effect to such assignment. Upon the execution and delivery of appropriate assignment documentation, amendments and any other documentation required by Fleet in connection with such assignment, and the payment by Assignee of the purchase price agreed to by Fleet, and such Assignee, such Assignee shall be a party to this Agreement and shall have all of the rights and obligations of Fleet 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 Fleet pursuant to the assignment documentation between Fleet and such Assignee, and Fleet shall be released from its obligations hereunder and thereunder to a corresponding extent. (d) Fleet may furnish any information concerning Borrower in its possession from time to time to prospective Assignees and Participants, provided that Fleet shall require any such prospective Assignee or Participant to agree in writing to maintain the confidentiality of such information. 9.09 SECTION HEADINGS, SEVERABILITY, ENTIRE AGREEMENT. Section and subsection headings have been inserted herein for the convenience of Fleet only and shall not be construed as part of this Agreement. Every provision of this Agreement, the Note, and the other Loan Documents is intended to be severable; if any term or provision of this Agreement, the Note, the other Loan Documents, or any other document delivered in connection herewith shall be invalid, illegal, or unenforceable for any reason whatsoever, the validity, legality, and enforceability of the remaining provisions hereof or thereof shall not in any way be affected or impaired thereby. All Exhibits and Schedules to this Agreement shall be deemed to be part of this Agreement. This Agreement, the other Loan Documents, and the Exhibits and Schedules attached hereto and thereto embody the entire agreement and understanding between Borrower and Fleet and supersede all prior agreements and understandings relating to the subject matter hereof unless otherwise specifically reaffirmed or restated herein. -21- 9.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered shall be an original, and it shall not be necessary when making proof of this Agreement to produce or account for more than one counterpart. 9.11 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement and the other Loan Documents, and all transactions, assignments and transfers hereunder and thereunder, and all the rights of the parties, shall be governed as to validity, construction, enforcement and in all other respects by the laws of the State of Connecticut. Borrower agrees that the Superior Court for the Judicial District of Stamford or the United States District Court for the District of Connecticut at Bridgeport shall have jurisdiction to hear and determine any claims or disputes pertaining to the financing transactions of which this Agreement is a part and to any matter arising or in any way related to this Agreement or any other agreement between Fleet and Borrower. Borrower expressly submits and consents in advance to such jurisdiction in any action or proceeding. 9.12 FURTHER ASSURANCES/REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of an officer of Fleet 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. 9.13 PREJUDGMENT REMEDY WAIVER; WAIVERS. BORROWER ACKNOWLEDGES THAT THE LOAN AND SECURITY INTERESTS EVIDENCED HEREBY ARE COMMERCIAL TRANSACTIONS AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH FLEET MAY DESIRE TO USE, AND FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS. BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY, AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. 9.14 JURY TRIAL WAIVER. BORROWER AND FLEET (BY ACCEPTANCE OF THE NOTE) MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THE NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF -22- DEALINGS, STATEMENTS OR ACTIONS OF FLEET RELATING TO THE ADMINISTRATION OF THE LOAN OR ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. BORROWER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF FLEET HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT FLEET WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR FLEET TO ACCEPT THE NOTE AND MAKE THE LOAN. -23- The parties have executed this Agreement on May 15, 2002. Signed in the presence of: BOLT TECHNOLOGY CORPORATION /s/ Barbara A. Young - ------------------------------- By: /s/ Raymond M. Soto ------------------------------- /s/ Seth L. Cooper Raymond M. Soto - ------------------------------- Its President, duly authorized FLEET NATIONAL BANK /s/ Barbara A. Young - ------------------------------- By: /s/ Andrew H. Harris /s/ Seth L. Cooper -------------------------------- - ------------------------------- Andrew H. Harris Its Senior Vice President -24- STATE OF CONNECTICUT ) ) ss: COUNTY OF FAIRFIELD ) On this the 15th day of May, 2002, before me, the undersigned officer, personally appeared Raymond M. Soto who acknowledged himself to be the President of Bolt Technology Corporation, a Connecticut corporation, and that he, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained and acknowledged the same to be his free act and deed individually and as such officer, and the free act and deed of the corporation. IN WITNESS WHEREOF, I hereunto set my hand. /s/ Barbara A. Young ----------------------------------- Commissioner of the Superior Court STATE OF CONNECTICUT ) ) ss: COUNTY OF FAIRFIELD ) On this the 15th day of May, 2002, before me, the undersigned officer, personally appeared Andrew H. Harris who acknowledged herself to be a Senior Vice President of FLEET NATIONAL BANK, a national banking association, and that she, as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein contained and acknowledged the same to be her free act and deed individually and as such officer, and the free act and deed of the national banking association. IN WITNESS WHEREOF, I hereunto set my hand. /s/ Seth L. Cooper ------------------------------ Commissioner of the Superior Court List of Exhibits and Schedules Exhibit A Revolving Loan Note Exhibit B Form of Certificate of Compliance Schedule 5(h) Permitted Encumbrances Schedule 5(r) Affiliate Organizations -25- EX-21 5 dex21.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES The Registrant, Bolt Technology Corporation, a Connecticut corporation, has no parent. The following are the subsidiaries of the Registrant State of Incorporation ------------- A-G Geophysical Products, Inc. Texas Custom Products Corporation Connecticut The names of certain subsidiaries are omitted since such subsidiaries considered in the aggregate would not constitute a significant subsidiary at the end of the year covered by this report. EX-99.1 6 dex991.txt CERTIFICATION PURSUANT TO 18 USC SECTION 1350 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Bolt Technology Corporation (the "Company") on Form 10-K for the fiscal year ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Raymond M. Soto, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: September 26, 2002 /s/ Raymond M. Soto ----------------------------------------- Raymond M. Soto Chairman of the Board, President and Chief Executive Officer EX-99.2 7 dex992.txt CERTIFICATION PURSUANT TO 18 USC SECTION 1350 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Bolt Technology Corporation (the "Company") on Form 10-K for the fiscal year ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph Espeso, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: September 26, 2002 /s/ Joseph Espeso ------------------------------------- Joseph Espeso Senior Vice President - Finance and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----