-----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, EmSXQbElgRyLlc6F0QfvVEXVnsO1qR+k2F031JEFqGWUmjMWSVjGNoLf5D7nQDPJ GSwkcwgD5gBarWCIqjIXPg== 0000892569-95-000730.txt : 19951218 0000892569-95-000730.hdr.sgml : 19951218 ACCESSION NUMBER: 0000892569-95-000730 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIMCO INC /DE/ CENTRAL INDEX KEY: 0000791243 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 330251163 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14828 FILM NUMBER: 95602078 BUSINESS ADDRESS: STREET 1: 265 BRIGGS AVE CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145464460 MAIL ADDRESS: STREET 2: 265 BRIGGS AVENUE CITY: COSTA MESA STATE: CA ZIP: 92626 FORMER COMPANY: FORMER CONFORMED NAME: CIMCO DATE OF NAME CHANGE: 19900926 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1995 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: 0-16249 CIMCO, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 265 Briggs Avenue, Costa Mesa, California 92626 (Address of principal executive offices) (Zip Code) 33-0251163 (I.R.S. Employer Identification No.) Registrant's telephone number, including area code: (714) 546-4460 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 ninety (90) days. Yes X No --- --- The registrant had 2,970,481 shares of common stock outstanding as of December 11, 1995. 2 CIMCO, INC. AND SUBSIDIARIES INDEX
PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets - October 31, 1995 (Unaudited) and April 30, 1995 3 Consolidated Statements of Operations (Unaudited) - Three Months and Six Months Ended October 31, 1995 and 1994 4 Consolidated Statements of Cash Flows (Unaudited) Six Months Ended October 31, 1995 and 1994 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Recent Developments 13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15
-2- 3 PART 1- FINANCIAL INFORMATION CIMCO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(UNAUDITED) OCTOBER 31, 1995 APRIL 30, 1995 ---------------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,799,620 $ 802,887 Short-term cash investments -- -- Accounts receivable, less allowance for doubtful accounts of $214,000 at October 31, 1995 and $204,000 at April 30, 1995 18,875,323 16,451,712 Federal income tax receivable -- 761,000 Inventories - at lower of cost or market Raw materials 7,690,081 6,234,425 Work in process 1,235,284 1,010,435 Finished goods 4,418,738 4,014,030 ----------- ----------- 13,344,103 11,258,890 Prepaid expenses 689,332 408,132 ----------- ----------- Total current assets 36,708,018 29,682,621 PROPERTY, PLANT AND EQUIPMENT - at cost Land 3,459,712 3,459,712 Buildings 9,014,680 9,074,966 Machinery and equipment 35,674,875 34,260,057 Leasehold improvements 1,915,015 2,077,330 ----------- ----------- 50,064,282 48,872,065 Less accumulated depreciation and amortization 23,599,408 22,570,610 ----------- ----------- 26,464,874 26,301,455 OTHER ASSETS Other 2,227,502 2,598,734 ----------- ----------- $65,400,394 $58,582,810 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $14,668,400 $14,390,500 Notes payable to bank 4,324,327 3,816,327 Accounts payable 16,846,351 10,177,863 Accrued expenses 2,430,264 2,427,811 Income taxes payable (18,601) 325,950 ----------- ----------- Total current liabilities 38,250,741 31,138,451 LONG-TERM DEBT, net of current portion -- -- DEFFERRED INCOME TAXES 1,881,000 2,129,000 COMMITMENTS -- -- STOCKHOLDERS' EQUITY Preferred stock - $.01 par value; authorized 5,000,000 shares; issued and outstanding, none -- -- Preferred stock - Series A Junior Participating - $.01 par value; authorized 100,000 shares; issued and outstanding, none -- -- Common stock - $.01 par value; authorized 10,000,000 shares; issued and outstanding, 2,965,481 shares at October 31, 1995 and 2,960,481 at April 30, 1995 29,655 29,605 Capital in excess of par value 7,294,332 7,258,757 Retained earnings 18,120,410 18,323,858 Foreign currency translation adjustment 26,859 (24,598) ----------- ----------- 25,471,256 25,587,622 Less note receivable from Employee Stock Ownership Plan (202,603) (272,263) ----------- ----------- 25,268,653 25,315,359 ----------- ----------- $65,400,394 $58,582,810 =========== ===========
The accompanying notes are an integral part of these statements. -3- 4 CIMCO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 31, OCTOBER 31, ------------------------- ------------------------- 1995 1994 1995 1994 ------------------------- ------------------------- Net sales $29,906,468 $20,276,376 $55,119,256 $38,544,069 Costs and expenses: Manufacturing costs 25,151,200 17,614,781 47,040,807 33,366,715 Engineering and tooling expenses 1,507,901 898,188 2,769,289 2,030,239 Selling, general and administrative expenses 2,599,809 2,335,563 4,887,027 4,359,668 Operating profit (loss) 647,558 (572,156) 422,133 (1,212,553) Interest income (6,440) (20,158) (18,563) (39,882) Interest expense 364,623 297,626 735,144 566,632 ----------- ----------- ----------- ----------- 358,183 277,468 716,581 526,750 ----------- ----------- ----------- ----------- Income (loss) before provision/benefit for income taxes 289,375 (849,624) (294,448) (1,739,303) Provision (benefit) for income taxes 93,000 (308,000) (91,000) (628,000) ----------- ----------- ----------- ----------- Net income (loss) $ 196,375 $ (541,624) $ (203,448) $(1,111,303) =========== =========== =========== =========== Earnings (loss) per common share $ 0.07 $ (.18) $ (.07) $ (.37) =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. -4- 5 CIMCO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED OCTOBER 31, 1995 1994 -------------------------- Increase (decrease) in cash and cash equivalents Cash flow from operating activities: Net income (loss) $ (203,448) $(1,111,303) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,837,917 1,722,002 (Gain) loss on sale of property, plant and equipment (5,583) (15,671) Provision for bad debts 10,000 -- (Increase) decrease in accounts receivable (2,433,611) (2,615,282) (Increase) decrease in federal income tax receivable 761,000 -- (Increase) decrease in inventories (2,085,213) (796,948) (Increase) decrease in prepaid expenses (281,200) (395,598) (Increase) decrease in other assets 371,232 (256,562) Increase (decrease) in accounts payable 6,668,488 2,229,350 Increase (decrease) in accrued expenses 2,453 36,217 Increase (decrease) in income taxes payable (344,551) 274,718 Increase (decrease) in deferred income taxes (248,000) (1,008,000) ----------- ----------- Net cash provided by (used in) operating activities 4,049,484 (1,937,077) ----------- ----------- Cash flow from investing activities: Proceeds from the sale of property, plant and equipment 182,078 921,577 Redemption of short-term cash investments -- 889,460 Purchase of short-term cash investments -- (11,058) Capital expenditures (2,177,831) (1,577,776) ----------- ----------- Net cash provided by (used in) investing activities (1,995,753) 222,203 ----------- ----------- Cash flow from financing activities: Net increase (decrease) in short-term borrowings 508,000 2,994 Proceeds from issuance of common stock 35,625 -- Proceeds from issuance of long-term debt 1,420,000 1,835,000 Principal payments on long-term debt (1,142,100) (1,621,267) Repurchase of common stock -- (112,483) Loan to Employee Stock Ownership Program 69,660 -- ----------- ----------- Net cash provided by (used in) financing activities 891,185 104,244 ----------- ----------- Foreign currency translation gain (loss) 51,457 51,889 ----------- ----------- Net increase (decrease) in cash and cash equivalents 2,996,373 (1,558,741) Cash and cash equivalents at beginning of the year 802,887 2,284,191 ----------- ----------- Cash and cash equivalents at end of the year $ 3,799,260 $ 725,450 ----------- ----------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 736,617 $ 552,661 Income taxes $ 91,626 $ 19,510
The accompanying notes are an integral part of these statements. -5- 6 CIMCO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PRESENTATION OF INTERIM INFORMATION The consolidated balance sheet as of October 31, 1995 and the related consolidated statements of operations and cash flows for the three month and six month periods ended October 31, 1995 and 1994 are unaudited; in the opinion of management, all adjustments for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the Company's audited financial statements and notes for the fiscal year ended April 30, 1995. 2. EARNINGS (LOSS) PER COMMON SHARE Earnings (loss) per common share are based on the weighted average number of shares of common stock outstanding during the related periods. Primary and fully diluted earnings (loss) per share do not differ materially from net earnings (loss) per common share, and thus have not been presented. Weighted average shares outstanding were 2,961,133 and 2,966,506 for the three month periods and 2,960,805 and 2,973,550 for the six month periods ended October 31, 1995 and 1994, respectively. -6- 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A. RESULTS OF OPERATIONS Three Months Ended October 31, 1995 vs. October 31, 1994 The following table shows the amounts of certain items included in the Company's statements of operations and percentages of these items as they relate to net sales for the three months ended October 31, 1995 and 1994; also shown are the amounts and percentages of increase or decrease of these items in the current period as compared to the corresponding period in the preceding year. AMOUNTS AND PERCENTAGES OF CERTAIN ITEMS (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED ------------------------------------- INCREASE (DECREASE) OCTOBER 31, 1995 OCTOBER 31, 1994 1995 VS. 1994 ---------------- ----------------- ------------------- AMOUNT % AMOUNT % AMOUNT % ---------------- ----------------- ------------------- Net sales $29,906 100.0 $20,276 100.0 $9,630 47.5 ------- ----- ------- ----- ------ Manufacturing costs 25,151 84.1 17,615 86.9 7,536 42.8 Engineering and tooling expenses 1,508 5.0 898 4.4 610 67.9 Selling expenses 977 3.3 721 3.6 256 35.5 General and administrative expenses 1,623 5.4 1,615 7.9 8 0.5 Interest expense, net 358 1.2 277 1.4 81 29.2 ------- ----- ------- ----- ------ Income (loss) before for income taxes 289 1.0 (850) (4.2) 1,139 134.0 Provision (benefit) for income taxes 93 0.3 (308) (1.5) 401 130.2 ------- ----- ------- ----- ------ Net income (loss) $ 196 0.7 $ (542) (2.7) $ 738 136.2 ======= ===== ======= ===== ======
Net sales increased 47.5% to $29,906,000 in the current quarter from $20,276,000 in the second quarter of fiscal 1995 after eliminating intersegment sales of $443,000 and $883,000, respectively, in those quarters. Costs and expenses did not increase at the same rate as sales, largely for the reasons discussed below. The restructuring of the Company's Commercial/Industrial Segment and Medical Segment was completed during the second quarter of the current fiscal year. The restructuring included, among other things, the integration of the commercial and medical molding operations, sale of equipment, and manufacturing personnel reductions. This Segment has been renamed the Molding Segment. As a result, the Medical Segment now primarily consists of proprietary respiratory care products and, as such, has been renamed the Respiratory Segment (see also Recent Developments). There have been no changes made to the reporting of the Compounding Segment. Operating segment results of operations for prior periods have been restated for comparability to conform to the new configuration: Compounding, Molding and Respiratory Segments. The Compounding Segment's gross sales were $21,403,000 for the second quarter of this year, up 105% from $10,466,000 during the same quarter last year. The greater sales were primarily the result of higher sales volumes and prices to the Segment's largest customer and its molders. Sales to several other customers also increased, in both volume and price, but not at the same magnitude as sales to the largest customer. Sales were up at all of the Compounding Segment's facilities, particularly Singapore and Corona. Operating profit increased 424% to -7- 8 $2,107,000 in the current quarter versus $402,000 for the same quarter a year ago. The increase in operating profit is primarily attributable to the increase in sales as noted above, and the resulting greater utilization of plant capacity. All major manufacturing cost components, as well as selling, general and administrative expenses, increased at a lesser rate than did gross sales, except raw material costs which increased slightly as a percentage of sales. Gross sales of the Molding Segment decreased 18.3% to $7,761,000 in the current quarter from $9,499,000 of a year ago. The decrease was largely the result of the continued downward trend of sales to the segment's three largest customers, partially offset by sales to new customers and price increases to existing customers. The operating loss for the current quarter was $1,470,000 versus a loss of $1,082,000 for the same quarter last fiscal year. Underutilization of molding plant capacity, resulting from the previously mentioned decrease in sales volume, as well as costs associated with the restructuring of the Company's Southern California molding operations, reduced operating profit for the current quarter. These cost increases were partially offset by improvements in raw material and direct labor costs as a percentage of sales. The Respiratory Segment's gross sales decreased less than 1% to $1,185,000 in the current quarter from $1,194,000 during the same period last year. The operating profit for the current quarter was $11,000 compared to $108,000 for the same quarter last year. The reduction in operating profit in the current quarter was primarily due to increases in outside costs related to product mix changes and increases in selling expenses. Engineering and tooling expenses, which are reflected exclusively in the Molding Segment, increased 67.9% to $1,508,000 in the current quarter from $898,000 during the same quarter last year as tooling sales increased 73.5%. Selling expenses increased 35.5% to $977,000 in the current quarter from $721,000 in the same quarter last year. The increase resulted primarily from greater sales and commission expense in connection with the 47.5% increase in net sales. The expenses were 3.3% of net sales in the current quarter and 3.6% of net sales for the quarter last year. General and administrative expenses increased 0.5% to $1,623,000 in the current quarter from $1,615,000 the same quarter last year. The expenses decreased to 5.4% of net sales in the current quarter from 7.9% for the same quarter last year. Net interest expense increased to $358,000 or 1.2% of net sales in the current quarter from $277,000 or 1.4% of net sales in the same quarter a year ago. Interest expense increased as a result of greater debt and higher costs of borrowed funds in the current quarter. The income tax expense in the current quarter relates to the pre-tax income in the current quarter. The income tax benefit in the same quarter of last year relates to the pre-tax loss in that period. The net income for the second quarter of the current year was $196,000 versus a net loss of $542,000 for the same quarter last year. The current period's net income compared to the net loss of a year ago resulted primarily from the continued trend of increased sales and operating profit of the Compounding Segment, partially offset by the continued trend of declining sales and resulting underutilization of the Molding Segment's plant capacity. -8- 9 Six Months ended October 31, 1995 vs. October 31, 1994 The following table shows the amounts of certain items included in the Company's statements of operations and percentages of these items as they relate to net sales for the six months ended October 31, 1995 and 1994; also shown are the amounts and percentages of increase or decrease of these items in the current period as compared to the corresponding period in the preceding year. AMOUNTS AND PERCENTAGES OF CERTAIN ITEMS (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED -------------------------------------- INCREASE (DECREASE) OCTOBER 31, 1995 OCTOBER 31, 1994 1995 VS. 1994 ---------------- ----------------- ----------------- AMOUNT % AMOUNT % AMOUNT % ---------------- ----------------- ----------------- Net sales $55,119 100.0 $38,544 100.0 $16,575 43.0 ------- ----- ------- ----- ------- Manufacturing costs 47,041 85.4 33,367 86.6 13,674 41.0 Engineering and tooling expenses 2,769 5.0 2,030 5.3 739 36.4 Selling expenses 1,839 3.3 1,360 3.5 479 35.2 General and administrative expenses 3,048 5.5 3,000 7.7 48 1.6 Interest expense, net 716 1.3 526 1.4 190 36.1 ------- ----- ------- ----- ------- Loss before credit for income taxes (294) (0.5) (1,739) (4.5) 1,445 83.1 Credit for income taxes (91) (0.1) (628) (1.6) 537 85.5 ------- ----- ------- ----- ------- Net earnings (loss) $ (203) (0.4) $(1,111) (2.9) $ 908 81.7 ======= ===== ======= ===== =======
Net sales increased 43.0% to $55,119,000 in the first six months of the current year from $38,544,000 in the same period of fiscal 1995 after eliminating intersegment sales of $864,000 and $1,667,000, respectively, in those periods. Costs and expenses did not increase at the same rate as sales, largely for the reasons discussed below. The restructuring of the Company's Commercial/Industrial Segment and Medical Segment was completed during the second quarter of the current fiscal year. The restructuring included, among other things, the integration of the commercial and medical molding operations, sale of equipment, and manufacturing personnel reductions. This Segment has been renamed the Molding Segment. As a result, the Medical Segment now primarily consists of proprietary respiratory care products and, as such, has been renamed the Respiratory Segment (see also Recent Developments). There have been no changes made to the reporting of the Compounding Segment. Operating segment results of operations for prior periods have been restated for comparability to conform to the new configuration: Compounding, Molding and Respiratory Segments. The Compounding Segment's gross sales were $38,610,000 for the first six months of the current year, up 92.9% from $19,858,000 during the same period last year. The greater sales were primarily the result of higher sales volumes and prices to the Segment's largest customer and its molders. Sales to several other customers also increased, but not to the same magnitude as sales to the largest customer. Sales increased at all of the Compounding Segment's facilities, particularly Singapore and Corona. Operating profit increased 471% to $3,709,000 in the current six month period versus $649,000 for the same period a year ago. The increase in operating profit is primarily attributable to the increase in sales as noted above, and the resulting greater utilization of plant capacity. All major manufacturing cost components, as well as selling, -9- 10 general and administrative expenses, increased at a lesser rate than did gross sales, except raw material costs which increased slightly as a percentage of sales. Gross sales of the Molding Segment decreased 17.4% to $15,110,000 in the current six month period from $18,285,000 of a year ago. The decrease was largely the result of the continued downward trend of sales to the segment's three largest customers, partially offset by sales to new customers and price increases to existing customers. The operating loss for the current six months was $3,245,000 versus a loss of $1,962,000 for the same period last fiscal year. Underutilization of molding plant capacity, resulting from the previously mentioned decrease in sales volume, as well as an increase in workers' compensation expense, loss on sale of obsolete inventory, employee relocation expenses and costs associated with the restructuring of the Company's Southern California molding operations, reduced operating profit for the current six months. These cost increases were partially offset by improvements in raw material and direct labor costs as a percentage of sales. The Respiratory Segment's gross sales increased 9.5% to $2,263,000 in the current six month period from $2,067,000 during the same period last year. The operating loss for the current six months was $42,000 compared to an operating profit of $100,000 for the same period last year. The reduction in operating profit in the current six months was primarily due to increases in outside costs relating to product mix changes and increases in selling expenses. Engineering and tooling expenses, which are reflected exclusively in the Molding Segment, increased 36.4% to $2,769,000 in the current six month period from $2,030,000 during the same period last year as tooling sales increased 39.8%. Selling expenses increased 35.2% to $1,839,000 in the current six month period from $1,360,000 in the same period last year. The increase resulted primarily from greater sales and commission expense in connection with the 43.0% increase in net sales. The expenses were 3.3% of net sales in the current period and 3.5% of net sales for the same period last year. General and administrative expenses increased 1.6% to $3,048,000 in the current six month period from $3,000,000 the same period a year ago. The expenses decreased to 5.5% of net sales in the current period from 7.7% for the same period last year. Net interest expense increased to $716,000 or 1.3% of net sales in the current six month period from $526,000 or 1.4% of net sales in the same period a year ago. Interest expense increased as a result of greater debt and higher costs of borrowed funds in the current period. The decreased tax benefit in the current six month period versus the same period a year ago was the result of the decreased pre-tax loss in the current period versus a year ago. The net loss for the first six months of the current year was $203,000 versus a net loss of $1,111,000 for the same period last year. The current period's reduced net loss compared to the net loss of a year ago resulted primarily from the continued trend of increased sales and operating profit of the Compounding Segment, partially offset by the continued trend of declining sales and resulting underutilization of the Molding Segment's plant capacity. B. LIQUIDITY AND CAPITAL RESOURCES The Company has previously financed its capital expenditures and working capital requirements from operating cash flow, trade credit, cash reserves, and borrowings under its line of credit. In fiscal 1994, the Company borrowed $5,625,000 through an industrial development revenue bond ("IDRB") issued by the state of Nevada. The proceeds of this bond were used to construct and equip the new molding facility in Dayton, Nevada. -10- 11 On February 1, 1995, the Company renegotiated its credit agreement with its bank. The new credit agreement ("Credit Agreement") provides for a $6,000,000 (as amended on June 9, 1995) revolving line of credit ("Line of Credit") expiring September 15, 1995 (extended as described below), a $7,500,000 term loan ("Term Loan"), and a standby letter of credit in the amount of $5,736,000 which secures the $5,625,000 IDRB discussed above. As of October 31, 1995, the Company had borrowed $4,324,000 under the Line of Credit, which bears interest at the bank's prime rate plus 1/4%. The Term Loan is payable in forty-eight equal monthly installments commencing March 1, 1995, and bears interest at the bank's prime rate plus 1/2%. Borrowings under the Credit Agreement are collateralized by substantially all of the Company's assets, except for certain of the Costa Mesa land and buildings and all of the Singapore assets. In addition to the borrowings described above the Company has a standby letter of credit in favor of the State of California for Workers' Compensation, as well as various other letters of credit. The Credit Agreement contains various covenants that, among other things, require the maintenance of certain balance sheet ratios, minimum levels of net worth (as defined in the agreement), restrictions which limit the payment of dividends to $100,000 annually, and limitations on the acquisition of, or investment in, other entities. At October 31, 1995, the Company was not in compliance with certain financial covenants of the Credit Agreement. On August 24, 1995, the Company amended the Credit Agreement with its bank which extended the expiration of the Credit Agreement until November 1, 1995 (extended as discussed below), waived financial covenant requirements, provided for additional revolving borrowings of $1,800,000 at the banks' prime rate plus 2%, and required the Company to pledge 100% of the outstanding capital stock of Compounding Technology, Inc. On October 27, 1995, the Company amended the Credit Agreement with its bank which extends the expiration of the Credit Agreement until December 28, 1995, waived certain financial covenants, and obtained the bank's consent to allow the Company to sell certain real and personal property, with the proceeds applied to the outstanding principal balance of the Term Loan, in inverse order of payment maturity. Available sources of funds at October 31, 1995 consisted of approximately $3,799,000 in cash and cash equivalents, and $380,000 in unused lines of credit with its bank. The increased sales activity of the Company's Singapore operations has resulted in a substantial increase in bank balances subject to foreign clearings, thereby increasing the amount of cash recorded in the Company's financial statements at October 31, 1995. Statement of Financial Accounting Standards No. 78 (SFAS No. 78) requires that long-term obligations that are callable by the creditor within a one-year period subsequent to year end be classified as current liabilities. Accordingly, the Company has reclassified all long-term debt to the current portion of long-term debt, resulting in a working capital deficit. Working capital was $(1,543,000) at October 31, 1995 versus $(1,456,000) at April 30, 1995. Capital expenditures aggregated $2,178,000 and $1,558,000 in the first six months of the current and last fiscal year. Compounding Segment capital expenditures were $1,238,000 for the first half of the current year. The Compounding Segment has made a commitment to establish a facility in Saint Etienne, France, which will require approximately $3,500,000 in capital expenditures for a building, machinery and equipment in fiscal 1996. Capital expenditures relating to the France facility for the first six months of the current year were $457,000. The Company anticipates funding the remaining $3,000,000 in expenditures via a mortgage note, working capital generated from the other Compounding Segment operations and additional borrowings. The balance of the Compounding Segment's expenditures were to upgrade existing equipment at the other facilities. The purchase of new molding machines per a customer contract comprised the majority of the -11- 12 Molding Segment's $876,000 in capital expenditures. The balance of the expenditures were used to upgrade machinery in the Respiratory Segment. The Company has sustained substantial losses from operations in fiscal 1994, fiscal 1995, and the first half of fiscal 1996, used cash in its operations in fiscal 1995, and at October 31,1995, had a deficit in working capital caused by a reclassification of debt as per SFAS No. 78. The Company's continuation as a going concern is dependent upon its ability to secure sufficient additional financing. Management has implemented measures to reduce operating costs, reduce debt through sales of certain real and personal property, and is currently negotiating a proposed acquisition of the Company by M.A. Hanna Company, as discussed in Recent Developments. If the proposed acquisition is not consummated, the Company will resume discussions with its primary lender and others regarding extension and expansion of the Company's credit facilities. Of the alternatives available, management believes that bank financing is the most desirable option if the acquisition is not consummated. Subject to the Company's ability to secure additional financing and successfully replace its existing credit facility, management believes that financial resources will be adequate to support working capital requirements and planned capital expenditures during the next twelve months. However, there can be no assurance that the Company will be successful in securing additional financing and renewing or replacing its existing credit facility. -12- 13 RECENT DEVELOPMENTS On November 8, 1995, the Company announced a preliminary agreement for M.A. Hanna Company to make a tender offer to acquire all of the Company's outstanding capital stock for $10.50 per share. The preliminary agreement obligates the Company to work exclusively with M.A. Hanna Company on the proposed acquisition up to and including December 15, 1995, as amended. The transaction is subject to approval by the board of directors of both corporations, negotiation and execution of definitive agreements, obtaining government approvals and other conditions. On November 20, 1995, the Company sold the real property located at 13435 Estelle, Corona, CA in a sale-leaseback transaction for $1,130,000. The initial cash proceeds of $489,000 were used to reduce outstanding debt. The Company also accepted a mortgage note for $555,000, plus interest, due in full no later than July 20, 1996, the proceeds of which will be used to reduce outstanding debt. On December 5, 1995 the Company sold substantially all of the assets and liabilities relating to the Misty Ox proprietary respiratory care product line to Vital Signs CA, Inc. for $2,150,000 in cash, which was used to reduce outstanding debt. Sales of the Misty Ox product line were approximately $1,900,000 for the six months ended October 31, 1995 and are reflected in the Respiratory Segment. The sale also resulted in a workforce reduction of approximately 40 employees. -13- 14 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company's annual meeting of stockholders was held on October 17, 1995. (b) The directors elected at the meeting were: Russell T. Gilbert Utta K. Harrison Adolph Posnick Franklin I. Remer Frederick M. Swenson (c) Other matters voted upon at the meeting and the results of those votes were as follows:
For Against Abstain ------------ ------- ------- Ratification of the Appointment of Deloitte & Touche LLP as Auditors for the Fiscal Year Ending April 30, 1996 .............. 2,343,180 6,739 7,149
While Deloitte & Touche LLP have been appointed by the Company as its auditors, Deloitte & Touche LLP has declined engagement as a result of the Company's proposed merger. The foregoing matters are described in detail in the Company's proxy statement dated September 18, 1995 for the 1995 Annual Meeting of Stockholders. -14- 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.1 Letter of intent, dated November 2, 1995, from M.A. Hanna to the Company offering to acquire all of the capital stock of the Company. 2.2 Press release, dated November 8, 1995, regarding the preliminary agreement for M.A. Hanna to acquire all of the Company's outstanding capital stock. 2.3 Amendment, dated December 4, 1995, to the M.A. Hanna letter of intent dated November 2, 1995, extending the exclusivity period. 2.4 Press release, dated December 5, 1995, regarding the sale of the Misty Ox product line to Vital Signs CA, Inc. 2.5 Amendment, dated December 11, 1995, to the M.A. Hanna letter of intent dated November 2, 1995, extending the exclusivity period. 10.25 Third Amendment dated October 27, 1995 to Credit Agreement between Wells Fargo Bank, National Association and Registrant. 27 Financial Data Schedule. (b) Reports on Form 8-K 1) Report on Form 8-K dated August 12, 1995. -15 16 SIGNATURES Pursuant to the requirements 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. CIMCO, INC. (Registrant) Date: December 14, 1995 /s/ RUSSELL T. GILBERT ---------------------- Russell T. Gilbert President and Chief Executive Officer Date: December 14, 1995 /s/ L. RONALD TREPP ------------------- L. Ronald Trepp Chief Financial Officer (Principal Financial and Accounting Officer) -16- EX-2.1 2 LETTER OF INTENT DATED NOV. 2,1995 1 Exhibit 2.1 [M.A. Hanna Company Letterhead] HIGHLY CONFIDENTIAL VIA TELECOPIER AND OVERNIGHT COURIER November 2, 1995 The Board of Directors CIMCO, Inc. 265 Briggs Avenue Costa Mesa, CA 92626-4555 Dear Madam and Sirs: We hereby offer to acquire all of the capital stock of CIMCO for $10.50 per share in cash on the following terms and conditions: 1. Subject to the conditions set forth in this letter, Hanna will promptly negotiate with CIMCO a Merger Agreement containing provisions standard in such agreements. After approval of the Merger Agreement by the Boards of Directors of Hanna and CIMCO, Hanna will make a tender offer to acquire all of the outstanding stock of CIMCO (the "Acquisition"). Concurrently with the approval of the Merger Agreement, the CIMCO Board will also approve the Hanna option to acquire in the tender the CIMCO shares owned by Russell T. Gilbert and the CIMCO shares subject to acquisition by exercise of stock options held by Mr. Gilbert, and the amendment of CIMCO's stockholder rights plan to exclude Hanna's transaction from its operation. It is understood that the proposed acquisition is not contingent upon Mr. Gilbert's purchase of the molding division. 2. For purposes of this offer, we have assumed that (a) Phase 1 environmental audits of CIMCO's properties being prepared for CIMCO will not indicate any actual or potential substantial liabilities, (b) the Respiratory Medical Products business will be sold for a cash consideration of at least $2,568,000, the purchaser will assume trade liabilities relating to the business of no less than $290,000 and CIMCO will not retain any substantial liabilities arising out of that business and (c) the two Corona properties of CIMCO will be sold for at least a gross price of $1,130,000 and $650,000 each and the cash proceeds of the sales will be used to reduce CIMCO's indebtedness and the purchaser of the Corona property now 2 occupied by Compounding Technology, Inc. will enter into a lease with Compounding Technology, Inc. on arms-length, commercial terms. 3. Hanna reserves the right to complete its due diligence investigation and requests delivery of definitive documentation reflecting the audits and transactions referred to in paragraph 2 above. 4. After reviewing the PaineWebber engagement letter dated August 16, 1995, Hanna requests that CIMCO obtain written confirmation from PaineWebber that it agrees that in the event that the transaction described in this letter is consummated, its M & A Advisory Fee will not apply to transactions executed subsequent to the date of acceptance of this letter. 5. For a period of 30 days commencing with the acceptance of this letter, subject customary fiduciary out provisions based upon advice of counsel, CIMCO will work exclusively with Hanna on the Acquisition and will not directly or indirectly encourage, invite, pursue or take any action to facilitate other offers to purchase CIMCO and/or its subsidiaries or any assets of CIMCO and/or its subsidiaries or effect any other business combination involving CIMCO and/or its subsidiaries. In the event CIMCO shall receive such an offer, it will immediately notify Hanna and provide details of the offer. For a period of one year after the date of this letter CIMCO also agrees to reimburse Hanna for its expenses incurred in connection with the transactions proposed in this letter, not to exceed $500,000, if CIMCO closes an alternative transaction within such year and Hanna has not terminated its participation for reasons other than the fault of CIMCO. 6. From and after the date of receipt of this letter, CIMCO agrees to conduct its businesses in the ordinary course consistent with past practice and will grant Hanna the right to review and veto any disposal or acquisition of stock or assets having a value in excess of $500,000 proposed to be made after the acceptance of this letter, which veto rights shall not be used unreasonably. 7. CIMCO will not make any press releases, announcement, report, disclosure or filing with respect to the transaction described in this letter without prior written consent of Hanna, except as required by law based on the advice of counsel. 8. Closing of the Acquisition transaction described in this letter is subject among other things to: * Approval by governmental agencies and regulatory authorities; and * the absence at the time of the Acquisition of any environmental, health, safety, product or other liabilities known to CIMCO's management which, if realized, would have a material adverse effect on the financial condition of CIMCO. 9. It is the intention of Hanna, and by signing this letter CIMCO acknowledges that it is CIMCO's intention as well, that this letter and any actions of the parties with respect hereto, not be deemed to constitute legally binding obligations except with respect to the matters described in paragraphs 5, 6 and 7 above, or an obligation or 2 3 commitment to enter into any definitive agreements. Any legal obligation binding upon the parties hereto with respect to the transactions described in this letter, except with the respect to paragraphs 5, 6 and 7 above, is subject to, and shall exist only upon, the due execution and delivery of the definitive agreements with respect to such transactions, and all obligations and rights of the parties hereto (except as aforesaid) shall be governed by such agreements. Your signature below shall indicate your intentions and obligations with respect to the matters discussed above; please return a fully signed copy to us. Upon your execution of this letter, we will deliver to you a draft Merger Agreement which we have already prepared. If we have not received a fully signed copy of this letter by 5:00 p.m. EST on Friday, November 3, 1995, this offer will expire and the intentions stated in this letter shall be null and void. Whether or not you elect to accept this letter, please by kind enough to provide a written response. Very truly yours, M.A. HANNA COMPANY MARTIN D. WALKER Martin D. Walker Chairman and Chief Executive Officer cc: PaineWebber, incorporated, Attention: G. R. Brundage Accepted this 3rd day of November, 1995. CIMCO, Inc. RUSSELL T. GILBERT Russell T. Gilbert President and CEO 3 EX-2.2 3 PRESS RELEASE DATED NOV. 8, 1995 1 Exhibit 2.2 [CIMCO, INC. LETTERHEAD] FOR IMMEDIATE RELEASE M.A. Hanna Contacts: CIMCO Contacts: (Investor) (Media) Cecilia Wilkinson Jennifer Shea Barb Gould Andy Opila Pondel Parsons & Wilkinson Vice President 216 589-4085 216 589-4018 310 207-9300 714 546-4460 CIMCO ANNOUNCES PRELIMINARY AGREEMENT TO BE ACQUIRED BY M.A. HANNA COSTA MESA, California -- November 8, 1995 -- CIMCO, Inc. (Nasdaq:CIMC), a producer of thermoplastic compounds and plastic components, and M.A. Hanna Company, an international specialty chemicals company, jointly announced today a preliminary agreement for M.A. Hanna Company to acquire for $10.50 a share all of the outstanding capital stock of CIMCO. The transaction is subject to approval by the board of directors of both corporations, negotiation and execution of definitive agreements, obtaining governmental approvals and other conditions. The CIMCO board of directors established a special committee of independent directors to evaluate and make recommendations to the board as to whether the transaction as finally negotiated is in the best interests of the Company and its stockholders. Russell T. Gilbert, president and chief executive officer of CIMCO and CIMCO's largest stockholder, has stated that he intends, subject to approval of the acquisition as finally negotiated by the special committee and board of CIMCO, to sell his 615,984 shares, or 21 percent of CIMCO's shares outstanding, to M.A. Hanna on the same terms offered to other CIMCO stockholders. Consistent with its strategy of being an intermediary between the polymer producer and the end product manufacturer, M.A. Hanna intends to sell CIMCO's plastics components business and retain its plastics compounding operations. M.A. Hanna has received an offer from Gilbert to purchase the molded components business as a going concern. M.A. Hanna has advised Gilbert that it intends to sell the molded components business to him promptly after completing the acquisition of CIMCO. The transaction would be subject to negotiation and execution of definitive agreements and other conditions, but the sale of the molded components business is not a condition of the proposed CIMCO acquisition by M.A. Hanna. CIMCO's plastics compounding businesses, which operate as Compounding Technology, Inc. (CTi), are located in Singapore; Corona, California; and Charlotte, North Carolina. "The acquisition of CTi helps us on three fronts to have a more balanced market profile. First, we will grow our international business. CTi provides M.A. Hanna with an excellent base for growth in Asia. In fact, the operation in Singapore is CTi's largest," said Martin D. Walker, M.A. Hanna 2 chairman and chief executive officer. "CTi is also in the process of expanding its production capabilities into Europe to service one of its global customers." "Second, CTi's strong engineering plastics compounding business will add breadth to our specialty compounding portfolio throughout the world," Walker continued. "Finally, we are able to build a stronger position in the electrical and electronics and business machines markets." CTi, formed in 1980, had sales of $44 million in fiscal 1995 and has 95 employees. In addition to the facility in Asia and the two in the United States, accounting for 31 million pounds of capacity, a facility is under construction in France. CTi develops and produces engineering plastic compounds with an emphasis on polycarbonate resins, which are used in the electrical/electronics, business machine and appliance markets because of the material's toughness, clarity and heat resistance. "CTi's expertise in polycarbonate complements our leadership position as the number one independent compounder of nylon, another engineering plastic. In addition, CTi provides us with access to compounding technologies to offer conductive, internally lubricated and reinforced thermoplastics for demanding specialty applications, and this fits with our capabilities in flame retardant materials, which are developed for the same markets," said Douglas J. McGregor, president and chief operating officer of M.A. Hanna. "Additionally, the management team of CTi has an excellent track record of growing the compounding business -- especially in Southeast Asia -- and we are looking forward to having them on our team," he added. Founded in 1959, CIMCO, Inc. with headquarters in Costa Mesa, California, reported sales of $83 million for fiscal 1995. CIMCO is a major developer and manufacturer of high performance plastic components for commercial, industrial and medical markets. CIMCO supplies more than 100 original equipment manufacturers in the computer, commercial irrigation, automotive safety, residential products, telecommunications and health care industries. M.A. Hanna Company is a leading international specialty chemicals company. Its primary businesses are plastics and rubber compounding, color and additive concentrates and distribution of plastic resins and engineering shapes. ### EX-2.3 4 AMEND. DATED DEC.4, 1995 TO LETTER OF INTENT 1 Exhibit 2.3 [M.A. Hanna Company Letterhead] HIGHLY CONFIDENTIAL December 4, 1995 The Board of Directors CIMCO, Inc. 265 Briggs Avenue Costa Mesa, CA 92626-4555 Attention: Mr. Russell T. Gilbert President and Chief Executive Officer Dear Madam and Sirs: Please reference our letter dated November 2, 1995 to you, accepted by CIMCO, Inc. on November 3, 1995. This will confirm our agreement reached on December 1, 1995 to amend the first sentence of paragraph 5 of the letter to extend the period of exclusivity to and including December 11, 1995. All other provisions of the November 2, 1995 letter shall remain in full force and effect. Your signature below shall indicate your obligations with respect to the matters discussed above; please return a fully signed copy to us. Thank you. Very truly yours, M.A. HANNA COMPANY JOHN S. PYKE, JR. John S. Pyke, Jr. Accepted the 4th day Vice President, General Counsel and Secretary of December, 1995 CIMCO, Inc. RUSSELL T. GILBERT Russell T. Gilbert President and CEO EX-2.4 5 PRESS RELEASE DATED DEC. 5, 1995 1 Exhibit 2.4 [Vital Signs Inc. Letterhead] FOR IMMEDIATE RELEASE Contact: Terence D. Wall Tony Dimun Judy Santiago Vital Signs, Inc. Vital Signs, Inc. Torrance Group 201/ 790-1330 201/ 790-1330 212/ 508-3460 VITAL SIGNS ACQUIRES RESPIRATORY PRODUCT LINE AND ENTERS INTO MULTI-YEAR MANAGED CARE CONTRACT TOTOWA, N.J. -- December 5, 1995 -- Vital Signs, Inc. (Nasdaq: VITL) announced today that it has signed a definitive agreement to acquire the respiratory product line from Medical Molding Corporation of America Inc., a subsidiary of CIMCO, Inc. The respiratory product line, consisting of nebulizer and humidifier products are sold under the trademark Misty Ox (R) with sales of approximately $3.3 million by Medical Molding for its fiscal year ended April 30, 1995. Terence D. Wall, president and chief executive officer of Vital Signs, stated: "The Mist Ox respiratory products line expands our respiratory product offering for the Vital Signs direct sales force. Given the strong market share presence that Vital Signs enjoys in the anesthesia and respiratory market, the Mist Ox product line with its established niche, will enable our sales personnel to present an even broader menu of respiratory products to our hospital customers. Opportunities for increased sales of Mist Ox products exist in the domestic hospital and home care markets where Misty Ox products have been sold and in the international markets where sales efforts have just started." Additionally, Vital Signs announced that it has entered into a multi-year sole source contract to sell anesthesia and critical care products to Tenet Healthcare through October 1, 1998. Products under contract include anesthesia face masks, circuits and circuit components for three years. A sole source two-year contract for single patient blood pressure cuffs has also been awarded. "We believe supplier/provider partnerships will be a key to success in the future," stated Dan Reuvers, vice president of sales for Vital Signs. "The Tenet relationship is an exciting stride in that direction." Tenet is the second largest investor owned hospital group in the United States with nearly one-hundred hospital under ownership. These facilities, along with some of their affiliate groups (ORNDA,BRIM) will participate in this relationship. Vital Signs, was recognized in the November, 1995 issue of Forbes Magazine as one of "The 200 Best Small Companies in America"; signifying Vital Signs continual commitment to design the highest quality single-patient use medical product for anesthesia and critical care applications. # # # EX-2.5 6 AMEND. DATED DEC. 11, 1995 TO LETTER OF INTENT 1 Exhibit 2.5 [M.A. Hanna Company Letterhead] HIGHLY CONFIDENTIAL December 11, 1995 The Board of Directors CIMCO, Inc. 265 Briggs Avenue Costa Mesa, CA 92626-4555 Attention: Mr. Russell T. Gilbert President and Chief Executive Officer Dear Madam and Sirs: Please reference our letter dated November 2, 1995 to you, accepted by CIMCO, Inc. on November 3, 1995, as amended by our letter dated December 4, 1995. This will confirm our agreement reached today to amend the first sentence of paragraph 5 of the letter to extend the period of exclusivity to and including December 15, 1995. All other provisions of the November 2, 1995 letter shall remain in full force and effect. Your signature below shall indicate your obligations with respect to the matters discussed above; please return a fully signed copy to us. Thank you. Very truly yours, M.A. HANNA COMPANY MICHAEL S. DUFFY Michael S. Duffy Accepted the 11th day Vice President, Chief Financial of December, 1995 Officer and Treasurer CIMCO, Inc. RUSSELL T. GILBERT Russell T. Gilbert President and CEO EX-10.25 7 3RD AMEND. DATED 10-27-95 TO CREDIT AGREEMENT 1 EXHIBIT 10.25 THIRD AMENDMENT TO CREDIT DOCUMENTS This Third Amendment to Credit Documents (this "Amendment") is entered into as of October 27, 1995, by and among CIMCO, INC., a Delaware corporation ("Borrower"), WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") and MEDICAL MOLDING CORPORATION OF AMERICA, a California corporation ("MMC"). Recitals -------- WHEREAS, Borrower and Bank are parties to that certain Credit Agreement, dated as of February 1, 1995, as heretofore amended by that certain First Amendment to Credit Agreement, dated as of June 9, 1995, and as further heretofore amended pursuant to that certain Second Amendment to Credit Agreement and Revolving Line of Credit Note, dated as of August 24, 1995, and as may be further amended from time to time (the "Credit Agreement"). WHEREAS, pursuant to the terms of the Credit Agreement, Borrower has executed a Revolving Line of Credit Note in favor of Bank, dated as of June 9, 1995 and in the original principal amount of $6,758,500 (as amended from time to time, the "Revolving Note"). WHEREAS, pursuant to the terms of the Credit Agreement, Borrower has executed a Promissory Note in favor of Bank, dated as of February 1, 1995 and in the original principal amount of $7,500,000 (as amended from time to time, the "Term Note"). WHEREAS, on or about August 24, 1995, Borrower executed in favor of Bank that certain Promissory Note, dated as of August 24, 1995 and in the original principal amount of $1,800,000 (as amended from time to time, the "Bridge Note"). WHEREAS, on or about August 24, 1995, Borrower entered into a Pledge Agreement in favor of Bank, dated as of August 24, 1995 (the "Pledge Agreement"). WHEREAS, on or about October 14, 1994, MMC executed in favor of Bank a Third Party Security Agreement: Rights to Payment and Inventory, dated as of October 14, 1994 (as amended from time to time, the "MMC Rights to Payment Security Agreement"). The MMC Rights to Payment Security Agreement was given to secure obligations of Borrower to Bank. WHEREAS, on or about October 14, 1994, MMC executed in favor of Bank a Third Party Security Agreement: Equipment, dated as of October 14, 1994 (as amended from time to time, the "MMC Equipment Security Agreement"). The MMC Equipment Security Agreement was given to secure obligations of Borrower to Bank. WHEREAS, Borrower and Bank are parties to that certain Reimbursement Agreement, dated as of September 1, 1993 (as amended from time to time, the "Reimbursement Agreement"). Pursuant to the terms of the Reimbursement Agreement, a -1- 2 letter of credit was issued by Bank for the account of Borrower in the stated amount of $5,735,960. WHEREAS, pursuant to the terms of the Reimbursement Agreement, Borrower has executed in favor of Bank a Deed of Trust with Assignment of Rents, dated as of September 1, 1993 and recorded in the Official Records of the Riverside County, California Recorder on September 13, 1993 (the "California Deed of Trust"). WHEREAS, Borrower and MMC have requested that Bank consent to certain matters and modify or waive certain provisions of the foregoing credit documents, including: A. An agreement to extend of the maturity date of the Revolving Note and the Bridge Note; B. A waiver of certain financial covenants contained in the Credit Agreement; C. A consent to the sale of two parcels of real property owned by Borrower and the release of the lien of the California Deed of Trust on one such parcel; D. A consent to the extension of credit and the incurrence of a lease obligation by Borrower in conjunction with the foregoing sale of real property; and E. A consent to the sale by MMC of certain assets of MMC and the release of the lien of Bank on such assets. WHEREAS, Bank has agreed to certain of Borrower's requests in accordance with the terms and subject to all conditions set forth in this Amendment. NOW THEREFORE, the parties hereto agree as follows: 1. The second sentence of the first full paragraph on page 2 of the Revolving Note is amended to read "The outstanding principal balance of this Note shall be due and payable in full on December 28, 1995." 2. The "Maturity Date," as defined in the Bridge Note, is amended to be December 28, 1995 instead of November 1, 1995. 3. Compliance with the financial covenants specified in Section 4.9 of the Credit Agreement is hereby waived by Bank for the period from November 1, 1995 through December 28, 1995 only. For all points of time from and after December 28, 1995, full compliance with such Section 4.9 shall be required as though this waiver had not occurred. 4. The effectiveness of the modifications and waivers specified in Sections 1, 2 and 3, above, is expressly conditioned upon the due execution of this Amendment by Bank, Borrower, MMC, and Compounding Technology Inc., a California corporation and the delivery to Bank by Borrower of a restructure fee of $12,500. Borrower agrees to pay such a restructure fee to Bank upon the execution of this Amendment by Bank, and such restructure fee is fully earned at such time and is nonfundable. -2- 3 5. Borrower hereby requests the consent of Bank to the sale by Borrower to Jack M. Langson, an individual, of certain real property owned by Borrower and located at 13435 Estelle Street, Home Gardens, California. Bank hereby gives its consent to such sale subject to the satisfaction of each of the following conditions: a. There shall exist at the time the sale is completed no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or passage of time or both would constitute any such Event of Default. b. Bank shall be paid the net cash proceeds to Borrower of such sale directly out of the closing escrow for the sale. Such net cash proceeds shall in no event be less than $518,500 and shall be applied in reduction of outstanding indebtedness of Borrower to Bank, with first application to the outstanding principal balance of the Term Note, in inverse order of payment maturity; c. The sale shall in all events be completed, and the payment described in Section 5(b) made, no later than November 15, 1995. d. All contractual arrangements between Borrower and the buyer pertaining to the sale of the property, including any lease-back by Borrower of the property sold, shall be subject to the prior review and reasonable approval of Bank. e. Borrower shall receive, as partial compensation for the sale, a promissory note (the "Langson Note") from the buyer secured by a first priority trust deed on the property sold. The Langson Note shall be in the principal amount of no less than $555,000 and shall (i) provide for interest at the rate of no less than nine percent (9%) per annum, (ii) provide that outstanding principal is all due and payable on or before July 2, 1996 and (iii) be evidenced by credit documentation subject to the prior review and reasonable approval of Bank. The Langson Note (and associated credit documents and a title insurance policy reasonably acceptable to Bank) shall be delivered to Bank directly out of the sale escrow at the time of the sale closing and shall serve as additional Pledged Collateral pursuant to the terms of the Pledge Agreement. The Langson Note shall be accompanied by a written confirmation by the obligor thereunder to Bank that such obligor will make all principal payments under said Note directly to Bank for application against obligations of Borrower in accordance with terms of the Pledge Agreement. Borrower shall execute and deliver to Bank an appropriate endorsement to the Langson Note at the time of its delivery. 6. Borrower hereby requests the consent of Bank to the sale by Borrower to Rene Jacober, an individual, of certain real property owned by Borrower consisting of approximately 4.9 acres in Corona, California and further requests the release of Bank's lien on such property at the time of such sale. bank hereby gives its consent to such sale, and agrees to reasonably cooperate in releasing the lien of the California Deed of Trust on such property, subject to the satisfaction of each of the following conditions: a. There shall exist at the time the sale is completed no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or passage of time or both would constitute any such Event of Default. -3- 4 b. Bank shall be paid the net cash proceeds to Borrower of such sale directly out of the closing escrow for the sale. Such net cash proceeds shall in no event be less than $292,500 and shall be applied in reduction of outstanding indebtedness of Borrower to Bank, with first application to the outstanding principal balance of the Term Note, in inverse order of payment maturity. c. The sale shall in all events be completed, and the payment described in Section 6(b) made, no later than December 20, 1995. d. All contractual arrangements between Borrower and the buyer pertaining to the sale of the property shall be subject to the prior review and reasonable approval of Bank. e. Borrower shall receive, as partial compensation for the sale, a promissory note (the "Jacober Note") from the buyer secured by a first priority trust deed on the property sold. The Jacober Note shall be in the principal amount of no less than $325,000 and shall (i) provide for interest at the rate of no less than nine percent (9%) per annum, (ii) provide that principal is payable in twelve (12) equal monthly installments, beginning January 15, 1996 and (iii) be evidenced by credit documentation subject to the prior review and reasonable approval of Bank. The Jacober Note (and associated credit documents and a title insurance policy reasonably acceptable to Bank) shall be delivered to Bank directly out of the sale escrow at the time of the sale closing and shall serve as additional Pledged Collateral pursuant to the terms of the Pledge Agreement. The Jacober Note shall be accompanied by a written confirmation by the obligor thereunder to Bank that such obligor will make all principal payments under said Note directly to Bank for application against obligations of Borrower in accordance with terms of the Pledge Agreement. Borrower shall execute and deliver to Bank an appropriate endorsement to the Jacober Note at the time of its delivery. 7. Borrower and MMC hereby requests the consent of Bank (pursuant to Section 6(b)(v) of the MMC Rights to Payment Security Agreement and Section 6(b)(vi) of the MMC Equipment Security Agreement) to the sale by MMC to Vital Signs, Inc., a corporation, of certain personal property (along with the assumption of certain liabilities) owned by MMC pertaining to its respiratory care products line and further requests the release of Bank's lien on such property at the time of such sale. Bank hereby gives its consent to such sale, and agrees to reasonably cooperate in releasing its lien on such property, subject to the satisfaction of each of the following conditions: a. There shall exist at the time the sale is completed no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or passage of time or both would constitute any such Event of Default. b. Bank shall be paid the net cash proceeds to MMC of such sale directly out of the closing escrow for the sale. Such net cash proceeds shall in no event be less than $2,000,000 and shall be applied in reduction of outstanding indebtedness of Borrower to Bank, with first application to the outstanding principal balance of the Term Note, in inverse order of payment maturity. c. The sale shall in all events be completed, and the payment described in Section 7(b) made, no later than November 29, 1995. -4- 5 d. The form and financial condition of the buyer and all contractual arrangements between MMC and the buyer pertaining to the sale of the property shall be subject to the prior review and reasonable approval of Bank. In addition, Bank shall have approved in its sole and absolute discretion the assets to be transferred to and the liabilities to be assumed by the buyer in connection with the sale. 8. The Pledge Agreement is amended by adding a new Section 6.3 thereto, reading as follows: "6.3 Distribution Rights Re Pledged Collateral. Notwithstanding any provision hereof to the contrary (except as expressly provided in Section 6.2), all collections, payments and recoveries of any nature with respect to the Pledged Collateral, whether before or after any Event of Default, shall be paid directly to Secured Party for application against indebtedness secured hereby in such order and manner as Secured Party shall determine in its sole and absolute discretion. Any and all collections or other amounts received by Grantor with respect to Pledged Collateral, or with respect to any security therefore, shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Grantor, and shall immediately be paid over to Secured Party for such application in the same form as so received by Grantor (with any necessary endorsements)." 9. Borrower acknowledges that all costs and expenses of Bank incurred in connection with the negotiation and preparation of this Amendment, or in connection with any document or transaction contemplated herein, are, without limitation, obligations of Borrower pursuant to Section 7.3 of the Credit Agreement. 10. Except as specifically provided herein, all terms and conditions of the agreements referenced herein remain in full force and effect, without waiver or modification. 11. Borrower hereby remakes all representations and warranties contained in the credit documents identified herein and reaffirms all covenants set forth therein. Borrower further certifies as of the date of this Amendment, other than is heretofore disclosed in writing to Bank, there exists no Event of Default as defined in the Credit -5- 6 Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first written above. Date: October 27, 1995 CIMCO, INC., a Delaware corporation By: RUSSELL T. GILBERT ----------------------------------- Russell T. Gilbert President WELLS FARGO BANK, NATIONAL ASSOCIATION By: ART BROKX ----------------------------------- Art Brokx, VP ----------------------------------- Printed Name and Title MEDICAL MOLDING CORPORATION OF AMERICA, a California corporation By: RUSSELL T. GILBERT ----------------------------------- Russell T. Gilbert President REAFFIRMATION OF SECURITY AGREEMENTS By their execution hereof, Medical Molding Corporation of America, a California corporation and Compounding Technology Inc., a California corporation do hereby consent to all terms and provisions contained in all transactions contemplated by the foregoing -6- 7 Amendment and hereby reaffirm that all security agreements and other undertakings heretofore made by them in favor of Bank remain in full force and effect. Date: October 27, 1995 MEDICAL MOLDING CORPORATION OF AMERICA, a California corporation By: RUSSELL T. GILBERT ----------------------------------- Russell T. Gilbert President COMPOUNDING TECHNOLOGY INC., a California corporation By: RUSSELL T. GILBERT ----------------------------------- Russell T. Gilbert Chairman of the Board -7- EX-27 8 FINANCIAL DATA SCHEDULE
5 6-MOS APR-30-1996 MAY-01-1995 OCT-31-1995 3,799,260 0 19,089,323 214,000 13,344,103 36,708,018 50,064,282 23,599,408 65,400,394 38,250,741 0 29,655 0 0 25,238,998 65,400,394 55,119,256 55,119,256 47,040,807 47,040,807 7,646,316 10,000 716,581 (294,448) (91,000) (203,448) 0 0 0 (203,448) (0.07) (0.07)
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