BOCA RATON, Fla.--With the recent sale of its construction division for approximately $5.3 million, announced March 22, Devcon International has made significant progress toward its goal of becoming a pure-play security company. At the same time, investor agreements announced April 2 should give the company some time to execute its plan.
By entering into forbearance and amendment agreements with certain institutional investors and filing for a 10-K filing extension, Devcon will be able to "focus on the electronic security business, the whole reason we made the investment in the first place," said Robert Farenhem, chief financial officer of Devcon International.
There is one potential snag with the agreement, however. One of the three investors cerned would not participate in the forbearance agreement. And, as Security Systems News went to press in early April, that investor had transmitted a notice of redemption for Devcon stock with a face value of $7 million.
Farenhem said the company believes that investor was bound by the agreement because a majority of the three investors participated in the agreement. Further, Devcon announced in a statement that it intended to "vigorously contest any actions taken by this investor to enforce such an alleged right."
The sale of the construction division leaves Devcon with only one legacy operation, a ready mix company on the island of St. Maarten. Donald L. Smith, who founded Devcon in 1950 and still serves on its board of directors, is a principal buyer of the construction assets. The names of other investors were not released.
Farenhem was named CFO in February after George Hare stepped down from that post. Farenhem is a partner in Royal Palm Capital, a private equity firm that made the initial investment in Devcon in 2004 and brought former chief executive officer Steve Ruzika and the current management team to Devcon. Richard Rochon, another of the initial investors, is serving as chief executive officer. He assumed that role in January when Ruzika stepped down. At that time, the board indicated that it would conduct a search for a new CEO. That search is "not fully active" at this time, Farenhem said, as the board has been busy dealing with other issues.
Also in early April, Devcon asked for a 10-K filing extension due to delays in compiling financial information related to the sale and forbearance agreement. Citing "higher interest expenses," Devcon expects to report a net loss from continuing operations of $32.1 million for 2006. In 2005, the net loss from continuing operations was $15.4 million. Devcon also expects revenue for its security division to grow by $35.5 million for 2006, offset by a $4.1 million revenue decrease for its construction division. Revenue growth of $2.6 million is expected for its materials division.
Farenhem said the company is eager to turn the corner on its financial challenges and said, "We think we've assembled a compelling group of assets in Florida and New York. We're working hard and would like nothing more than to allow Devcon to focus on day-to-day operations instead of being distracted by capital structure concerns."