SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 1996
Commission File Number: 000-21133
SPURLOCK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Virginia 84-1019856
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5090 General Mahone Hwy., Waverly, VA 23890
(Address and zip code of principal executive offices)
(804)834-3113
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
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 the filing requirements for
at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
Number of Shares Outstanding
Class as of June 30, 1996
Common Stock, no par value 100
<PAGE>
SPURLOCK INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Spurlock Industries, Inc. (the "Registrant") had no activity for the period
ended June 30, 1996. The financial statements and notes thereto included in this
Form 10-Q reflect the consolidated financial position and results of operations
of Air Resources Corporation, a Colorado corporation, (the "Company") for the
period ended June 30, 1996. A plan of merger was approved by the shareholders of
the Company at a special meeting of shareholders held on June 11, 1996. The
merger became effective on July 15, 1996.
<PAGE>
AIR RESOURCES CORP
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash Equivalents $ 109,707 $ 250,751
Trading Securities 362,500 200,000
Accounts Receivable - Trade 2,143,708 1,813,775
Other Accounts Receivable 9,500 62,179
Accounts and Notes Receivable - Officers Current 46,458 40,520
Inventories 501,917 595,765
Deferred Tax Asset 98,300 98,300
Estimated Taxes Paid 403,500 0
Prepaid Expenses 309,840 38,124
----------- -----------
Total Current Assets $ 3,989,430 $ 3,099,414
Property, plant and equipment, net
of accumulated depreciation of
$3,703,385 and $3,559,436 5,964,428 5,712,885
Other assets:
Accounts and Notes Receivable - Officers 118,119 118,119
Investments 150,000 150,000
Financing Fees 148,525 262,550
----------- ------------
$10,370,502 $ 9,342,968
=========== ============
</TABLE>
<PAGE>
AIR RESOURCES CORP.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable - Line of Credit $ 1,727,929 $ 1,329,096
Notes Payable - Other 0 82,447
Current Portion of Long-Term Debt 551,253 993,590
Accounts Payable 1,496,294 2,069,561
Accrued Expenses 382,345 249,922
Amounts Due Stockholders and
Related Parties 73,690 95,622
Deferred Rent 450,070 510,070
------------ ------------
Total Current Liabilities 4,681,572 5,330,308
Long-term debt 801,420 983,652
Deferred tax liability 753,701 109,900
Stockholders' equity
Preferred stock, convertible, $2 par value,
5,000,000 shares authorized, 0 and 1,200,000
shares issued and outstanding at June 30, 1996
and December 31, 1995, respectively 0 2,400,000
Common stock, $.001 par value,
50,000,000 shares authorized,
6,725,066 and 4,325,066 shares
issued and outstanding at June 30, 1996
and December 31, 1995, respectively 6,725 4,325
Paid in capital 4,922,089 2,524,489
Retained earnings (795,005) (2,009,706)
------------ ------------
4,133,809 2,919,108
----------- -----------
$ 10,370,502 $ 9,342,968
============ ============ ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
AIR RESOURCES CORP.
Consolidated Statements of Operations
For the Three Months and Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 7,914,276 $ 8,740,295 $ 15,387,443 $ 19,168,072
Cost of sales 5,471,222 9,125,106 5,471,222 9,125,106
--------- --------- --------- ---------
2,217,574 1,894,633 4,219,519 3,197,305
Selling, general and
administrative expenses 1,008,090 1,000,512 2,025,819 1,823,824
--------- --------- --------- ---------
Income (loss) from
operations 1,209,484 894,121 2,193,700 1,373,481
Other income and (expense):
Other income 25,216 10,796 34,820 13,718
Other expense (5,000) (84,475) (5,000) (84,475)
Interest expense (145,781) (130,487) (255,118) (291,108)
-------- -------- -------- --------
(125,565) (204,166) (225,298) (361,865)
Net income before
income taxes 1,083,919 689,955 1,968,402 1,011,616
Provision for
income taxes 399,908 0 753,701 0
------- ------ ------- ---------
Net income (loss) $ 684,011 $ 689,955 $ 1,214,701 $ 1,011,616
============ ============ ============ ============
Net income (loss)
per share $ .10 $ .16 $ .16 $ .23
============ ============ ============ ============
Average shares
outstanding 6,725,066 4,326,066 6,725,066 4,326,066
============ ============ ============ ============
See accompanying notes to unaudited consolidated financial statements
</TABLE>
<PAGE>
AIR RESOURCES CORP.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,214,701 $ 1,011,616
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 293,210 311,643
(Increase) in accounts receivable (267,754) (725,589)
(Increase) in trading securities (162,500) 0
Decrease in inventories 93,848 597,086
(Increase) in prepaid expenses (275,716) (89,939)
(Increase) in other assets (304,913) 0
(Decrease) in accounts payable and accrued expenses (440,844) (1,295,178)
Increase in deferred tax liability 643,801 0
-------- ---------
Total adjustments (420,868) (1,201,977)
--------- ---------
Net cash provided by (used in) operating activities 793,833 (190,361)
Investing activities: Purchase of fixed assets (544,753) (209,517)
Financing activities:
Repayment of notes and loans payable (390,124) 432,941
Stock and stock subscriptions terminated 0 (3,597)
-------- ---------
Net cash provided by (used in) investing activities (390,124) 429,374
Cash and cash equivalents,
beginning of period 250,750 76,984
-------- ---------
Cash and cash equivalents, end of period $ 109,706 $ 106,450
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
AIR RESOURCES CORP.
Notes to Consolidated Financial Statements
June 30, 1996
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year or for any other
interim period. Historically, the Company's business has been significantly
affected by seasonal factors. The Company typically has greater sales revenues
in the spring and fall months of the year.
Income taxes were computed using a statutory rate of 34% net of the effects of
federal surtax exemptions and deductions for state income taxes.
Income (loss) per share was computed using the weighted average number of common
shares outstanding.
The preferred stock shares were converted to common stock in January 1996.
<PAGE>
AIR RESOURCES CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
For the three months and six months ended June 30, 1996, the Company
generated net income after tax of $684,011 and $1,214,701 as compared to net
income of $689,955 and $1,011,616, respectively, for the same period last year.
Earnings per share for the three months and six months ended June 30, 1996 are
$.10 and $.18 compared to earnings per share of $.16 and $.23 for the same
period last year.
The Company's net sales for the three months and six months ended June 30, 1996
were $7,914,276 and $15,387,443 as compared to $8,740,295 and $19,168,072,
respectively, for the same period for 1995. All the sales were from shipments of
resin and formaldehyde by the Company's wholly owned subsidiary, Spurlock
Adhesives, Inc. The decrease in sales as compared to the same period in 1995 can
be attributed to reduced raw material cost which resulted in lower average
selling prices. Product volume shipments were very similar between the two
periods.
Cost of goods sold for the second quarter and year to date were $5,696,702 or
72.0% of net sales and $11,167,924 or 72.6% of net sales as compared to
$6,845,662 or 78.3% of net sales and $15,970,767 or 83.3% of net sales for the
same period in 1995. The decrease in cost of goods sold as a percentage of net
sales is primarily a result of a concerted effort by the Company to improve its
profit margins on its products and a decrease in raw material costs. Another
factor is a change in the Company's working capital credit facilities that took
effect late in the first quarter of 1995 which reclassified certain charges as
interest expense that previously had been deducted directly from gross sales.
Accordingly, gross margin for the three months and six months ended June 30,
1996 compared to June 30, 1995 has increased $2,217,574 and $1,894,633 and
$4,219,519 and $3,197,305.
Operating expenses (sales, general & administrative expenses) for the three
months and six months ended June 30, 1996 were $1,008,090 or 12.7% of net sales
and $2,025,819 or 13.2% of net sales as compared to $1,000,512 or 11.4% of net
sales and $1,823,824 or 9.5% of net sales for the same period in 1995.
Interest expense was $145,781 or 1.8% of net sales and $255,118 or 1.6% of net
sales as compared to $130,487 or 1.5% of net sales and $291,108 or 1.5% of net
sales in 1995. The decrease in interest expense for the six months ended
June 30, 1996 is a direct result of the lower net sales, as the balance on the
Company's working capital line of credit is lower due to the lower net sales.
The increase in the interest expense for the three months ended June 30, 1996
was the
<PAGE>
result of refinancing the credit line to achieve a lower interest rate. The
higher percentages are due to lower net sales.
The Company began to accrue for state income taxes in the third quarter of 1995
and started to accrue for federal income taxes in the first quarter of 1996. The
total tax accrual for the second quarter and year to date was $399,908 and
$753,701, respectively.
Liquidity and Capital Resources
Operating Activities
Net cash provided by operating activities was $793,833 and $(190,361) for the
six months ended June 30, 1996 and 1995, respectively. At June 30, 1996 and
1995, working capital was $(1,194,059) and $(3,311,350), respectively.
Historically, the Company's business has been generally slower in the winter
months and more vigorous in the spring and fall months. The effect on the
balance sheet is consistent with this increased activity and the balance sheet
for the same period last year. The exception is inventories and accounts payable
which decreased due to lower cost of raw materials.
Investing Activities
Net cash used for investing activities of $544,753 and $209,577 for the six
months ended June 30, 1996 and 1995, respectively, reflects capital
expenditures. The increase in capital expenditures was due to an upgrade of
Spurlock Adhesives' formaldehyde equipment to increase the efficiency of the
production process.
Financing Activities
Net cash used for financing activities was $ 390,124 and $(414,062) for the six
months ended June 30, 1996 and 1995, respectively. This represents the repayment
of loans. In July 1996, the Company refinanced its working capital line of
credit in order to reduce interest expense. The maximum amount available under
the line of credit remains at $3,500,000. The Company also borrowed $3,639,000
to purchase the formaldehyde plant from D. B. Western, Inc. and to repay several
other loans. The loan agreements are secured by all of the assets of the Company
and are for terms of three years for the line of credit and six years for the
term loan. Repayment of both loans are required upon termination of either loan.
Management believes that its present working capital position, combined with
projected cash flows from operations and available borrowing capacity will be
sufficient to meet the Company's 1996 anticipated cash requirements for
operating needs and projected capital expenditures.
<PAGE>
SPURLOCK INDUSTRIES, INC.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
In July 1996, the Company refinanced its working capital line of
credit and repaid debt as part of the refinancing. The loan
agreement restricts the payment of dividends to the lesser of after
tax net profits or 25% of the average excess availability on the
line of credit for the two months preceding the declaration. The
Company has not paid a cash dividend to date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The registrant has included the following exhibits pursuant to
Item 601 of Regulation S-K.
Exhibit No. Description
----------- -----------
10 Loan and Security Agreement, dated
July 1, 1996, between Spurlock Adhesives,
Inc. and National Canada Finance Corporation
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
SPURLOCK INDUSTRIES, INC.
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.
SPURLOCK INDUSTRIES, INC.
(Registrant)
Dated: August 14, 1996 By: /s/ H. Norman Spurlock, Jr.
---------------------------
H. Norman Spurlock, Jr.
Vice-President and Secretary
Chief Financial Officer
Dated: August 14, 1996 By: /s/ Warren E. Beam, Jr.
-----------------------
Warren E. Beam, Jr.
Treasurer and Controller
Chief Accounting Officer
<PAGE>
SPURLOCK INDUSTRIES, INC.
Exhibit Index
Exhibit No. Description
----------- -----------
10 Loan and Security Agreement, dated July 1, 1996,
between Spurlock Adhesives, Inc. and National
Canada Finance Corporation
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
LOAN AND SECURITY AGREEMENT
dated as of July 1, 1996
between
SPURLOCK ADHESIVES, INC.
and
NATIONAL CANADA FINANCE CORPORATION
<PAGE>
TABLE OF CONTENTS*
ARTICLE I
General Definitions
Section 1.1. Definitions............................................. 1
Section 1.2. Accounting Terms and Determinations..................... 10
ARTICLE II
Credit Facilities
Section 2.1. Commitment to Make Revolving Loans...................... 10
Section 2.2. Method of Borrowing..................................... 11
Section 2.3. Overadvances............................................ 11
Section 2.4. Term Loan............................................... 12
Section 2.5. Interest Rate........................................... 12
Section 2.6. Computation of Interest................................. 12
Section 2.7. Fees.................................................... 13
Section 2.8. Extension of Credit Period.............................. 13
Section 2.9. Statements of Account................................... 13
Section 2.10. Payments................................................ 13
Section 2.11. Letters of Credit....................................... 14
ARTICLE III
Conditions to Loans
Section 3.1. First Revolving Loan.................................... 14
Section 3.2. All Revolving Loans..................................... 16
Section 3.3. Term Loan............................................... 17
ARTICLE IV
Security Interests
Section 4.1. Grant of Security Interests............................. 19
Section 4.2. Continuing Liability of the Borrower.................... 19
Section 4.3. Sales and Collections................................... 20
Section 4.4. Verification of Receivables............................. 21
ARTICLE V
Representations and Warranties
Section 5.1. Corporate Existence and Power........................... 21
Section 5.2. Corporate and Governmental
Authorization; Contravention...................... 21
Section 5.3. Binding Effect.......................................... 22
Section 5.4. Financial Statements.................................... 22
Section 5.5. Litigation.............................................. 23
Section 5.6. Ownership and Liens..................................... 23
i
<PAGE>
Section 5.7. Place of Business; Location of
Collateral........................................ 23
Section 5.8. Trade Names............................................. 23
Section 5.9. Filings................................................. 23
Section 5.10. Regulation U............................................ 23
Section 5.11. Environmental Compliance................................ 23
Section 5.12. ERISA................................................... 24
ARTICLE VI
Financial Covenants
Section 6.1. Tangible Net Worth...................................... 24
Section 6.2. Debt to Tangible Net Worth.............................. 24
Section 6.3. Net Profit After Tax.................................... 24
Section 6.4. Capital Expenditures.................................... 25
ARTICLE VII
Other Covenants
Section 7.1. Reporting Requirements.................................. 25
Section 7.2. Payment of Obligations.................................. 26
Section 7.3. Maintenance of Property and Insurance................... 27
Section 7.4. Conduct of Business and Maintenance of
Existence......................................... 27
Section 7.5. Compliance with Laws.................................... 27
Section 7.6. Accounting; Inspection of Property,
Books and Records................................. 28
Section 7.7. Maintenance of Security Interests....................... 28
Section 7.8. Debt.................................................... 28
Section 7.9. Restriction on Liens.................................... 28
Section 7.10. Notices................................................. 29
Section 7.11. Right of Inspection..................................... 30
Section 7.12. Consolidations, Mergers and Sales of
Assets............................................ 30
Section 7.13. Transactions with Affiliates............................ 30
Section 7.14. Restricted Payments..................................... 30
Section 7.15. Investments............................................. 30
Section 7.16. Transactions with Other Persons......................... 31
Section 7.17. Use of Proceeds......................................... 31
Section 7.18. Independence of Covenants............................... 31
ARTICLE VIII
Default/Remedies
Section 8.1. Events of Default....................................... 31
Section 8.2. Termination of Commitment/Acceleration.................. 33
Section 8.3. UCC Rights.............................................. 34
Section 8.4. Right of Set-Off........................................ 34
Section 8.5. Payments on Collateral.................................. 34
Section 8.6. Possession of Collateral................................ 34
Section 8.7. Sale of Collateral...................................... 35
Section 8.8. Rights of Purchasers.................................... 35
ii
Section 8.9. Remedies Not Exclusive.................................. 35
Section 8.10. Power of Attorney....................................... 35
Section 8.11. Application of Proceeds................................. 37
ARTICLE IX
Miscellaneous
Section 9.1. Notices................................................. 37
Section 9.2. No Waivers.............................................. 37
Section 9.3. Expenses................................................ 38
Section 9.4. Amendments and Waivers.................................. 38
Section 9.5. Successors and Assigns.................................. 38
Section 9.6. Virginia Law............................................ 38
Section 9.7. Counterparts; Effectiveness............................. 39
Section 9.8. Waiver of Jury Trial; Submission to
Jurisdiction...................................... 39
Section 9.9. Severability............................................ 39
Section 9.10. Entire Agreement........................................ 39
- - - --------------------
* The Table of Contents is not a part of the Loan and Security Agreement.
iii
<PAGE>
SCHEDULES
---------
Schedule 1 - Chief Executive Offices/Principal Places of
Business
Schedule 2 - Locations of Inventory/Equipment
Schedule 3 - Trade Names
Schedule 4 - Liens/Security Interests
Schedule 5 - Litigation
Schedule 6 - Debt
Schedule 7 - Investments
EXHIBITS
--------
Exhibit A - Revolving Note
Exhibit B - Term Note
Exhibit C - Power of Attorney
Exhibit D - Arkansas Mortgage
Exhibit E - Virginia Deed of Trust
iv
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This LOAN AND SECURITY AGREEMENT (as amended, supplemented or modified
from time to time, this "Agreement") is dated as of July 1, 1996 and is between
SPURLOCK ADHESIVES, INC. (the "Borrower") and NATIONAL CANADA FINANCE
CORPORATION (the "Bank").
Recitals:
---------
A. The Borrower has requested that the Bank provide a
revolving credit facility to finance accounts receivable and
inventory and provide certain term debt financing.
B. The Bank is willing to provide the revolving credit
facility and the term debt financing to the Borrower upon the
terms and conditions of this Agreement.
Agreement:
----------
NOW, THEREFORE, for and in consideration of the above premises and the
mutual covenants and agreements contained herein, the Bank and the Borrower
hereby agree as follows:
ARTICLE I
General Definitions
-------------------
Section 1.1. Definitions. The following terms, as used herein, have
the following meanings:
"Arkansas Mortgage" means the Mortgage substantially in the form of
Exhibit D attached hereto that is to be recorded against the Borrower's plant,
property, fixtures and equipment in Malvern, Arkansas.
"Arkansas Real Estate" means the real property and fixtures owned by
the Borrower in Malvern, Arkansas and more specifically described in Exhibit A
to the Arkansas Mortgage.
"Account Debtor" means, with respect to any Receivable or General
Intangible, any Person obligated to make payment thereunder, including without
limitation any account debtor thereon.
"Accounts" means any "Account," as such term is defined in Section
9-106 of the UCC, now or hereafter owned by the Borrower, and shall also mean
and include any right of the Borrower to payment for goods sold or leased or for
services rendered which the Borrower may now have or hereafter acquire, whether
or not such right has been earned by performance.
<PAGE>
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "Controlling Person") or
(ii) any Person (other than the Borrower or a Subsidiary) which is controlled by
or is under common control with a Controlling Person. As used herein, the term
"control" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise.
"Availability" means, at anytime, the amount by which the Borrowing
Base exceeds the aggregate amount of all outstanding Revolving Loans.
"Bank" means National Canada Finance Corporation.
"Borrower" means Spurlock Adhesives, Inc., a Virginia corporation and
any successors.
"Borrowing Base" means the sum of (a) eighty-five percent (85%) of
Eligible Accounts, plus (b) the lesser of (i) sixty percent (60%) of Eligible
Inventory or (ii) $1,000,000.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Richmond, Virginia are authorized by law to close.
"Capital Expenditures" means for any period the gross amount of
additions to property, plant and equipment of the Borrower during such period,
as reflected in the Borrower's statement of changes in financial position for
such period, minus the principal amount of Debt incurred during such period by
the Borrower as lessee under Capital Leases or secured by a purchase money Lien
on any property, plant or equipment of the Borrower.
"Capital Lease" means a lease that should be capitalized on the balance
sheet of the lessee prepared in accordance with GAAP.
"Cash Collateral Account" means a deposit account at a financial
institution reasonably acceptable to the Bank into which the Borrower shall
deposit all Proceeds, including any and all collections in respect of any
Receivables and General Intangibles, and from which only the Bank will have
authority to make withdrawals.
"CERCLA" means Comprehensive Environmental Response Compensation and
Liability Act.
"Code" means the Internal Revenue Code of 1986, as amended.
2
<PAGE>
"Collateral" means all of the property which is subject or is to be
subject to the Liens as provided in Section 4.1 of this Agreement or as provided
in the other Collateral Documents.
"Collateral Documents" means this Agreement, all UCC Financing
Statements, all Real Estate Collateral Documents and any other documents
concerning the creation or perfection of liens in any Collateral.
"Corporate Guarantor" means Air Resources Corporation, a Colorado
corporation having its chief executive office and principal place of business at
5090 General Mahone Highway, Waverly, Virginia.
"Credit Period" means the period from the Effective Date to and
including the Termination Date.
"Debt" means (i) indebtedness or liability for borrowed money; (ii)
obligations evidenced by bonds, debentures, notes and other similar instruments;
(iii) obligations for the deferred purchase price of property or services
(including trade obligations); (iv) obligations as Lessee under Capital Leases;
(v) current liabilities in respect of unfunded vested benefits under plans
covered by ERISA; (vi) obligations under letters of credit; (vii) obligations
under acceptance facilities; (viii) all guarantees, endorsements (other than
collection or deposit in the ordinary course of business), and other contingent
obligations to purchase, to provide funds for payment, to supply funds to invest
in any person or entity, or otherwise to assure a creditor against loss; and
(ix) obligations secured by any liens, whether or not the obligations have been
assumed, provided that for purposes of Section 6.2 hereof that Debt contributed
to the Borrower by an Affiliate and subordinated to the Bank shall not be
considered debt.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, becomes an Event of Default.
"Effective Date" means the date on which this Agreement becomes
effective in accordance with Section 9.7.
"Eligible Accounts" means at the time of any determination thereof, all
Accounts which are deemed by the Bank in the exercise of its sole and absolute
discretion to be eligible for inclusion in the calculation of the Borrowing
Base. Unless otherwise approved in writing by the Bank, no Account shall be
deemed an Eligible Account unless it meets all of the following requirements:
(a) the Borrower has lawful and absolute title to each of such Accounts; (b)
each of such Accounts is a valid, legally enforceable obligation of the Account
Debtor; (c) none of
3
<PAGE>
such Accounts are subject to any material dispute, offset, counterclaim or other
claim or defense on the part of the Account Debtor or to any claim on the part
of the Account Debtor denying liability under such Account in whole or in part;
(d) the Borrower has full and unqualified right to assign and grant a security
interest in such Accounts to the Bank as security for the Obligations; (e) all
of such Accounts are subject to a fully perfected, first-priority security
interest in favor of the Bank pursuant to this Agreement, prior to the rights
of, and enforceable as such against, any other Person; (f) none of such Accounts
are subject to any security interest or Lien in favor of any Person other than
the Lien of the Bank pursuant to this Agreement; (g) each of such Accounts is
evidenced by an invoice rendered to the Account Debtor and is not evidenced by
any instrument or chattel paper; (h) each of such Accounts arose from the sale
(on an absolute and not a consignment, approval or sale-and-return basis) of
goods by the Borrower in the ordinary course of the Borrower's business, which
goods have been shipped or delivered to the Account Debtor for such Accounts;
(i) no Account Debtor in respect of any of the Accounts is (A) incorporated in
or primarily conducting business in any jurisdiction located outside of Canada
or the United States of America or (B) an Affiliate of the Borrower or (C) any
foreign government or any agency, department or instrumentality thereof; (j) the
Borrower is not aware of any reorganization, bankruptcy, receivership,
custodianship, insolvency or other like condition in respect of any Account
Debtor for any of the Accounts; (k) none of the Accounts are unpaid 90 days
after the date of the respective invoice(s); and (1) none of the Accounts are
owing by an Account Debtor who, at the time of any determination of Eligible
Accounts, has Accounts with the Borrower of which fifty percent (50%) or more
are unpaid 90 days after the date of the respective invoice(s).
"Eligible Inventory" means, at the time of any determination thereof,
all items of Inventory of the Borrower which are deemed by the Lender in the
exercise of its sole and absolute discretion to be eligible for inclusion in the
calculation of the Borrowing Base. Unless otherwise approved in writing by the
Lender, no Inventory shall be deemed to be Eligible Inventory unless it meets
all of the following requirements: (a) the Borrower has lawful and absolute
title to such Inventory; (b) the Borrower has the full and unqualified right to
assign and grant a security interest in such Inventory to the Lender as security
for the Obligations; (c) all of such Inventory is subject to a fully perfected,
first security interest in favor of the Lender pursuant to this Agreement, prior
to the rights of, and enforceable as such against, any other Person; (d) none of
such Inventory is subject to any security interest or other Lien in favor of any
Person other than the Lien of the Lender pursuant to this Agreement; (e) none of
such Inventory consists of raw materials that are more than one year old; (f)
all of such
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Inventory is located at premises owned by the Borrower or leased by the Borrower
for which the Lender has received satisfactory landlord and other waivers; (g)
none of such inventory is obsolete, unsalable, damaged or otherwise unfit for
sale as determined by the Lender in its discretion; and (h) none of such
Inventory has been declared by the Lender in its sole discretion as being
ineligible.
"Equipment" means all equipment now owned or hereafter acquired by the
Borrower, including all items of machinery, equipment, computer hardware and
related items, furnishings and fixtures of every kind, whether affixed to real
property or not, as well as all automobiles, trucks and vehicles of every
description, (including trailers, handling and delivery equipment) all additions
to, substitutions for, replacements of or accessions to any of the foregoing,
all attachments, components, parts (including spare parts) and accessories
whether installed thereon or affixed thereto and all fuel for any thereof.
"Eurodollar Loan" means any Loan bearing interest at a rate determined
by reference to LIBOR Rate in accordance with Article II of this Agreement.
"Event of Default" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles in the
United States.
"General Intangibles" means all contract rights, documents, books,
ledgers, records, money and general intangibles now owned or hereafter acquired
by the Borrower including, without limitation, all customer lists, permits,
federal and state tax refunds, Trademarks, other rights in intellectual
property, all claims, choses in action or causes of action, all monies of the
Borrower and all rights to payment of money of the Borrower, and all books,
ledgers and records and all computer programs, tapes, discs, punch cards, data
processing software, transaction files, master files and related property and
rights (including computer and peripheral equipment) necessary or helpful in
enforcing, identifying or establishing any item of Collateral.
"Government" means any Federal, state or local government, authority,
agency, court or other body, officer or entity, and any arbitrator with
authority to bind a party at law.
"Guaranty" means the Guaranty dated as of the date of this Agreement
executed by the Corporate Guarantor in favor of the Bank.
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"Intangible Assets" means at any date the amount of (i) all write-ups
(other than write-ups resulting from write-ups of assets of a going concern
business made within twelve months after the acquisition of such business) in
the book value of any asset owned by the Borrower, (ii) all unamortized debt
discount and expense, unamortized deferred charges, capitalized start-up costs,
goodwill, patents, licenses, trademarks, trade names, copyrights, organization
or developmental expenses, covenants not to compete and other intangible items
owned by the Borrower, and (iii) any Receivable owed by an Affiliate.
"Interest Period" means, as to any Eurodollar Loan, the period
commencing on the date of any such borrowing or on the last day of the preceding
Interest Period applicable to such borrowing and ending on the day that is 30,
60 or 90 days thereafter, as the Borrower elects pursuant to its notice of
borrowing pursuant to Article II of this Agreement, provided that (i) if any
Interest Period would end on a day that is not a Business Day, such Interest
Period shall be extended to the next Business Day unless such next Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day, and (ii) no Interest Period shall end
later than the Termination Date.
"Inventory" means all inventory now owned or hereafter acquired by the
Borrower, including (i) all goods and other personal property which are held for
sale or lease or are furnished or are to be furnished under a contract of
service or which constitute raw materials, work in process or materials used or
consumed or to be used or consumed in the Borrower's business, (ii) all
inventory, wherever located, evidenced by negotiable and non-negotiable
documents of title, warehouse receipts and bills of lading, (iii) all of the
Borrower's rights in, to and under all purchase orders now owned or hereafter
received or acquired by them for goods or services and (iv) all rights of the
Borrower as an unpaid seller, including rescission, replevin, reclamation and
stopping in transit.
"LIBOR Rate" means, at any time, London Interbank Offered Rate, as
specified in the Wall Street Journal (New York Edition), provided, that to the
extent that such published rate does not reflect the Bank's required reserves
applicable to the Eurodollar Loan(s) the rate shall be adjusted to reflect such
required reserves.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower shall be deemed to own subject
to a Lien any asset which they have acquired or hold subject to the interest of
a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
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"Loan" means any Revolving Loan or the Term Loan; "Loans" means all
such loans.
"National Priority List" means a list of environmentally contaminated
sites targeted for clean-up and identified by the Environmental Protection
Agency of the United States of America
pursuant to 40 C.F.R. Part 300.
"Net Profit After Tax" means, for any period, the net income of the
Borrower after provisions for taxes as determined in accordance with GAAP.
"Notes" means the Revolving Note and the Term Note.
"Obligations" means all obligations or liabilities now or hereafter
payable by the Borrower to the Bank pursuant to this Agreement and all other
indebtedness, obligations and liabilities of the Borrower to the Bank, now
existing or hereafter arising or incurred, whether or not evidenced by notes or
other instruments, and whether such indebtedness, obligations and liabilities
are direct or indirect, fixed or contingent, liquidated or unliquidated, due or
to become due, secured or unsecured, joint, several or joint and several,
similar or dissimilar to the indebtedness arising out of or in connection with
this Agreement, including, without limitation, all obligations of the Borrower
with respect to the Revolving Loans, any indebtedness of the Borrower that is
purchased by or assigned to the Bank, and any indebtedness of the Borrower to
any assignee of all or a portion of any obligation referred to in this
definition.
"Permitted Liens" means the Liens referred to in clauses (i) through
(vii) of Section 7.9.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Prime Rate" means the rate of interest publicly announced by the
National Bank of Canada in New York City, New York from time to time as its
prime or base rate. It is a rate set by the Bank based upon various factors,
including its costs and desired return, general economic conditions and other
factors, is used by the Bank as a reference point for pricing some loans and is
not necessarily the lowest rate charged to customers of the Bank. Any change in
the Prime Rate shall take effect on the opening of business on the day specified
in the announcement of such change.
"Prime Rate Loan" means any Loan bearing interest at the Prime Rate.
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"Proceeds" means all proceeds, including (i) whatever is received upon
any collection, exchange, sale or other disposition of any of the Collateral and
any property into which any of the Collateral is converted, whether cash or
non-cash, (ii) any and all payments or other property (in any form whatsoever)
made or due and payable on account of any insurance, indemnity, warranty or
guaranty payable to the Borrower with respect to any of the Collateral, (iii)
any and all payments (in any form whatsoever) made or due and payable in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any person, corporation, agency, authority or
other entity acting under color of any governmental authority), (iv) any claim
of the Borrower against third parties for past, present or future infringement
of any Patent or for past, present or future infringement or dilution of any
Trademark or for injury to the goodwill associated with any Trademark or for the
breach of any License and (v) any and all other amounts from time to time paid
or payable under or in connection with any of the Collateral.
"Real Estate" means the Virginia Real Estate and the Arkansas Real
Estate.
"Real Estate Collateral Documents" means the Arkansas Mortgage and the
Virginia Deed of Trust and all related recording, insurance and title insurance
certifications and documentation, each in form and substance satisfactory to the
Bank.
"Receivables" means all Accounts now or hereafter owing to the
Borrower, and shall also mean all accounts, accounts receivable, contract
rights, book debts, instruments and chattel paper, notes, drafts, acceptances,
payments under leases of equipment or sale of Inventory and other forms of
obligations now or hereafter received by or belonging or owing to the Borrower
for goods sold or leased and/or services rendered by it, and all of the
Borrower's rights in, to and under all purchase orders, instruments, and other
documents now or hereafter received by it evidencing obligations for and
representing payment for goods sold or leased and/or services rendered, and all
monies due or to become due to the Borrower under all contracts for the sale or
lease of goods and/or the performance of services by it, now in existence or
hereafter arising (including without limitation the right to receive the
Proceeds of said purchase orders and contracts), together with all Inventory
returned by or reclaimed from customers wherever such Inventory is located, and
all guaranties, securities and liens held for the payment of any such account,
account receivable, contract right, document, instrument or chattel paper.
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"Revolving Commitment" means the commitment to make Revolving Loans in
an amount up to $3,500,000 as set forth in Sections 2.1 and as limited by the
terms and conditions of this Agreement.
"Revolving Loan" means a loan made by the Bank to the Borrower pursuant
to this Agreement, "Revolving Loans" means all of such loans, and "First
Revolving Loan" means the Revolving Loan made on the Effective Date to refinance
or replace in whole, or in part, the obligations of the Borrower to Finova
Capital Corporation.
"Revolving Note" means the promissory note referred to in Section 2.1
and substantially in the form of Exhibit A.
"Securities" has the meaning assigned to such term in Section 2(l) of
the Securities Act of 1933, as amended.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by any Borrower.
"Tangible Net Worth" means at any date the excess of Total Assets less
Total Liabilities, less Intangible Assets.
"Term Loan" means a loan to be made by the Bank to the Borrower in an
amount not to exceed $3,639,000 as set forth in Section 2.4 and as limited by
the terms and conditions of this Agreement.
"Term Note" means the promissory note referred to in section 2.4 and
substantially in the form of Exhibit B.
"Termination Date" means June 30, 1999, unless such date is extended
pursuant to Section 2.8.
"Tax" means any fee (including any license, filing and registration
fee), tax (including any income, gross receipts, franchise, sales, use or real,
personal, tangible or intangible property tax), interest equalization or stamp
tax, assessment, levy, impost, duty, charge or withholding of any kind or nature
whatsoever, imposed or assessed by any Government, together with any penalty,
fine or interest thereon.
"Total Assets" means at any date the total assets of the Borrower that
would be reflected on a balance sheet of the Borrower prepared in accordance
with GAAP as of such date.
"Total Liabilities" means at any date the total liabilities of the
Borrower that would be reflected on a consolidated balance
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sheet of the Borrower prepared in accordance with GAAP as of such date.
"Trademark" means all right, title or interest which the Borrower may
now or hereafter have in any or all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, service
marks, logos, other source of business identifiers, prints and labels on which
any of the foregoing have appeared or appear, designs and general intangibles of
like nature, now existing or hereafter adopted or acquired, all registration and
recordings thereof and all applications in connection therewith, including
without limitation, registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or political subdivision
thereof and all reissues, extensions or renewals thereof.
"UCC" means at any time the Uniform Commercial Code as the same may
from time to time be in effect in the Commonwealth of Virginia, provided that,
if, by reason of mandatory provisions of law, the validity or perfection of any
security interest granted herein is governed by the Uniform Commercial Code as
in effect in a jurisdiction other than Virginia then, as to the validity or
perfection of such security interest, "UCC" shall mean the Uniform Commercial
Code in effect in such other jurisdiction.
"Virginia Deed of Trust" means the Deed of Trust substantially in the
form of Exhibit E attached hereto.
"Virginia Real Estate" means the real property and fixtures owned by
the Borrower in Waverly, Virginia more specifically described in Exhibit A to
the Virginia Deed of Trust.
Section 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with GAAP as
in effect from time to time, applied on a basis consistent (except for changes
concurred in by the Borrower's independent public accountants) with the most
recent audited financial statements of the Borrower delivered to the Bank.
ARTICLE II
Credit Facilities
-----------------
Section 2.1. Commitment to Make Revolving Loans. The Bank agrees, on
the terms and conditions set forth in this Agreement, to make Revolving
Loans to the Borrower from time to time during the Credit Period in an amount
not to exceed the lesser of (a)
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the Borrowing Base or (b) $3,500,000. Subject to the terms and conditions of
this Agreement, the Borrower may borrow under this paragraph, prepay and
reborrow. The Borrower's obligation to repay the Revolving Loans shall be
evidenced by a promissory note (the "Revolving Note") substantially in the form
of Exhibit A.
Section 2.2. Method of Borrowing. (a) At the time any Revolving Loan is
requested, the Borrower shall deliver to the Bank a loan request accompanied by
a report ("Collateral Report") detailing the status of the Collateral, which
report shall be delivered to the Bank within twenty-four (24) hours of the
ending date of such report. Such report shall be signed by the chief financial
officer, treasurer or president of the Borrower and shall be in a form approved
by the Bank and shall include the status of all Inventory and Accounts with a
calculation of the Borrowing Base and, if requested by the Bank, shall include
proper evidence of sales giving rise to the Accounts and of purchases giving
rise to the Inventory, including invoices, receipts, shipping documents, bills
of lading and/or other evidence of collections of Receivables and sales and/or
purchases at the Bank. Each Collateral Report shall be a representation by the
Borrower (and the person signing the report) that the information and
calculations contained therein are based upon this Agreement and are true and
correct. Provided the request(s) would not cause the amount of outstanding
Revolving Loans to exceed the Borrowing Base or the Borrower is not otherwise in
Default, the Bank shall honor the loan request or such portion of the loan
request as may be appropriate.
(b) At the time any Revolving Loan is requested, the Borrower
shall specify whether such Revolving Loan shall be a Prime Rate Loan or a
Eurodollar Loan and, in the case of a Eurodollar Loan, shall specify the
Interest Period, provided, further that at any time that a Eurodollar Loan is
requested, the Borrower shall give the Bank not less than three (3) days notice
of the request and shall specify the applicable Interest Period. The failure to
specify a rate basis shall result in any requested Revolving Loan to be made as
a Prime Rate Loan and the failure to specify an Interest Period for a Eurodollar
Loan shall result in a 30-day Interest Period. All Eurodollar Loans shall be in
an amount of not less than $500,000 and in increments of $100,000.
Section 2.3. Overadvances. The Bank may from time to time make loans to
the Borrower in excess of the Revolving Commitment and/or in excess of any
lending formulas or caps (the "Overadvances"). The Bank shall have no obligation
whatsoever to make any Overadvances, which may be made in the Bank's sole and
absolute discretion. In the event that any Overadvances are made they will be
treated in all respects hereunder as Revolving Loans and shall be entitled to
all of the rights and benefits hereunder, including that repayment will be
secured by the Collateral.
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Section 2.4. Term Loan. (a) The Bank agrees to make a term loan to the
Borrower in the amount of $3,639,000 (the "Term Loan") for the purpose of
financing the Borrower's purchase of the formaldehyde plant, property and
equipment at Waverly, Virginia. The Borrower's obligation to repay the Term Loan
shall be evidenced by a promissory note in the form of Exhibit B and shall be
secured by the Collateral as provided herein. The Term Note shall, among other
terms, provide for repayment in seventytwo (72) substantially equal monthly
installments of principal in the amount of $50,541.67 plus interest monthly in
arrears as provided in section 2.5, provided that the entire principal amount
shall be due and payable at such time that all Revolving Loans have been repaid
in full.
(b) The Borrower shall specify to the Bank in writing (not
less than three (3) days prior to the funding of the Term Loan) whether the
unpaid principal balance of the Term Loan (or such portion thereof) shall bear
interest based upon the Prime Rate or the LIBOR Rate, and, in the case of a
Eurodollar Loan, such writing shall also specify the applicable Interest Period.
Not less than three (3) days prior to the expiration of any Interest Period, the
Borrower shall specify a new Interest Period for such Eurodollar Loans. The
failure to specify timely any rate basis will result in any Loans so affected
having interest based upon the Prime Rate. The failure to specify the Interest
Period when an Eurodollar Loan is requested will result in a 30- day Interest
Period. All Eurodollar Loans shall be in an amount not less than $500,000 and in
increments of $100,000.
Section 2.5. Interest Rate. (a) Interest shall accrue on average daily
outstanding balance of all Loans at a rate per annum equal to either (i) the sum
of one-half of one percent (0.5%) plus the Prime Rate for such day for Prime
Rate Loans and (ii) the sum of two and three quarters percent (2.75%) plus the
LIBOR Rate for such Interest Period as provided herein for Eurodollar Loans.
(b) Interest shall be paid by the Borrower monthly in arrears
on the first day of each month. The final payment of all accrued and unpaid
interest shall be due and payable on the date that the outstanding principal
amount of the Loans is paid or due and payable in full.
(c) In the event that any Eurodollar Loan is prepaid prior to
the end of the applicable Interest Period, the Borrower shall pay to the Bank a
prepayment charge or premium, which shall be in an amount sufficient to
compensate the Bank for its costs in obtaining the funds to permit the Bank to
make such Eurodollar Loan(s).
Section 2.6. Computation of Interest. Interest hereunder shall be
computed on the basis of a year of 360 days and paid for
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the actual number of days elapsed (including the first day but excluding the
last day).
Section 2.7. Fees. The Borrower shall pay the following fees to the
Bank:
(a) an origination/closing fee equal to one percent (1.0%)
of the maximum amount of the Revolving Commitment, which is due and payable at
the closing of this Agreement;
(b) an audit fee equal to the aggregate of (i) $450 per day
for each individual utilized by the Bank (the "auditors") to perform any audits
or field work in connection with the Loans and (ii) the out-of-pocket expenses
of such auditors, provided, that during any twelve month period of time such
audit fees will not exceed $10,000 unless the Borrower is in Default, in which
case there shall not be a cap on such expenditures; and
(c) in the event that the Revolving Loans are prepaid prior to
June 30, 1997 a prepayment fee equal to one percent (1.0%) of the maximum amount
of the Revolving Commitment.
Section 2.8. Extension of Credit Period. The Credit Period shall
expire automatically unless the Borrower makes a written request to the
Bank not later than 90 days prior to expiration of the Credit Period requesting
an extension of the Credit Period and such request is approved by the Bank prior
to expiration of the Credit Period. Unless a Default exists, the Bank shall
provide the Borrower with not less than thirty (30) days notice of its intent
not to extend the Credit Period. The right of the Bank not to extend the Credit
Period shall be unconditional and within its sole discretion, notwithstanding
that no Event of Default exists under this Agreement and regardless of the
adequacy of the Collateral for each Borrower's performance of its obligations
hereunder and thereunder.
Section 2.9. Statements of Account. The obligation of the Borrower to
the Bank to repay the Revolving Loans (and any unpaid interest or expenses
relating thereto) will be evidenced by a grid or other promissory note. The
outstanding balance of all Revolving Loans shall be recorded on the books and
records of the Bank. The Bank shall render a statement of account monthly and
such statement rendered by the Bank shall be deemed binding on the Borrower
unless the Borrower notifies the Bank in writing of their objection to such
statement within thirty (30) Business Days after the date of such statement. Any
such notice shall be deemed an objection only to those items specifically
objected to therein.
Section 2.10. Payments. The outstanding principal amount of the
Revolving Loans (together with accrued and unpaid interest and expenses and any
other obligations that may be due to the
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Bank under this Agreement) shall be due and payable by the Borrower to the Bank
on the earlier of (i) the expiration of the Credit Period or (ii) the
termination of this Agreement by the Bank or the Borrower in accordance with the
terms of this Agreement. All payments by the Borrower shall be made to the Bank
at its address set forth on the signature page hereof in lawful money of the
United States of America and in immediately available funds. Whenever any
payment to be made hereunder shall be due on a day which is not a Business Day,
such payment shall be made on the first Business Day thereafter, and such
extension of time shall in such case be included in the computation of interest
hereunder.
Section 2.11. Letters of Credit. The Bank is not providing to the
Borrower, at this time, a credit facility to be used for the issuance of letters
of credit. In the event, however, that the Borrower requests the issuance of one
or more letters of credit and the Bank agrees to such issuance, the obligations
created thereby shall be included as Obligations hereunder and the Bank may
impose reserves against availability under the Revolving Commitment.
ARTICLE III
Conditions to Loans
-------------------
As a condition precedent to any obligation of the Bank to fund any of
the Revolving Loans or to fund the Term Loan, as applicable and as provided
below, the Borrower must satisfy the following conditions:
Section 3.1. First Revolving Loan. In the case of the First
Revolving Loan:
(i) all legal matters incident to this Agreement, the Revolving
Note, the Guaranty, and the transactions contemplated hereby and
thereby shall be reasonably satisfactory to counsel for the Bank;
(ii) receipt by the Bank of (A) a copy the Borrower's articles of
incorporation, as amended, certified by the appropriate state office;
(B) a certificate of such office, dated as of a recent date, as to the
good standing and charter documents of the Borrower on file; (C) a
certificate of the Secretary or an Assistant Secretary of the Borrower
dated the date of such Revolving Loan and certifying (1) that the
articles of incorporation of the Borrower has not been amended since
the date of the last amendment thereto indicated on the certificate
furnished pursuant to clause (A) above, (2) as to the absence of
dissolution or liquidation proceedings by or against the Borrower, (3)
that attached thereto is a true, correct and
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complete copies of the Borrower's By-laws as then in effect and of
resolutions adopted by the Borrower authorizing the execution, delivery
and performance of this Agreement, and any other documents to which the
Borrower and the Bank are parties and that said resolutions have not
been amended and are in full force and effect on the date of such
certificate and (4) as to the incumbency and specimen signatures of the
officers of the Borrower executing this Agreement and any other
documents to which the Borrower and the Bank are parties, or any other
document delivered in connection herewith or therewith; and (D) a
certificate of the President of the Borrower dated as of the date of
such Revolving Loan and certifying the absence of a Default and the
accuracy of the representations and warranties contained in this
Agreement;
(iii) receipt by the Bank of executed copies of this
Agreement, the Revolving Note, and the Guaranty;
(iv) receipt by the Bank of the opinion of counsel for the
Borrower, in a form satisfactory to the Bank and its counsel, and
covering such matters relating to the transactions contemplated hereby
as the Bank may reasonably request;
(v) on or prior to the date of the First Revolving Loan, each
document (including, without limitation, each Uniform Commercial Code
financing statement) required by law or reasonably requested by the
Bank to be filed, registered or recorded in order to create in favor of
the Bank a perfected, firstpriority security interest in the Collateral
shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof
is so required or requested, and the Bank shall have received an
acknowledgment copy, or other evidence satisfactory to it, of each such
filing, registration or recordation;
(vi) receipt by the Bank of certified copies of Requests for
Information or Copies (Form UCC-11), or equivalent reports, listing the
financing statements referred to in clause (v) above and all other
effective financing statements that name the Borrower (under its
present name and any previous names) as debtor or seller and that are
filed in the jurisdictions referred to in clause (v) above, together
with copies of such other financing statements (none of which shall
cover the Collateral, except as otherwise disclosed in writing to, and
accepted by, the Bank);
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(vii) receipt by the Bank of any and all landlord's or mortgagee's
waivers it may deem necessary or, in the opinion of the Bank, desirable
to ensure the priority of the Liens created by this Agreement;
(viii) receipt by the Bank of evidence of the insurance required by
this Agreement;
(ix) receipt by the Bank of all documents it may reasonably
request relating to the existence of the Borrower and its corporate
authority to execute, deliver and perform this Agreement and any other
documents to which the Borrower and the Bank are parties and the
validity of this Agreement and such other documents and any other
matters relevant hereto or thereto, all in form and substance
satisfactory to the Bank;
(x) receipt by the Bank of all documents it requires in connection
with its commitment to make Revolving Loans;
(xi) receipt by the Bank of a Collateral Report of the Borrower as
of the Effective Date demonstrating that the Borrowing Base is not less
than the amount of the First Revolving Loan.
All documents and opinions referred to in this Article shall be in form and
substance satisfactory to the Bank and its counsel.
Section 3.2. All Revolving Loans. In the case of each Revolving Loan:
(i) receipt by the Bank of any Collateral Report, loan
request, and/or application required by Section 2.2 and all such other
documents it requires in connection with its commitment to make
Revolving Loans, including all documents required concerning applicable
Interest Periods;
(ii) the fact that no Default has occurred and is continuing or
would result from making such Revolving Loan; and
(iii) the fact that the representations and warranties of the
Borrower contained in this Agreement and any other documents to which
the Borrower and the Bank are parties (and of the Corporate Guarantor
contained in the Guaranty) shall be true on and as of the date of such
Revolving Loan.
Each borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date thereof that the facts
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hereinabove set forth in clauses (ii) and (iii) of this Section are true as of
such date.
Section 3.3. Term Loan. In the case of the Term Loan
(i) all legal matters incident to this Agreement, the Term Note,
the Guaranty, and the Real Estate Collateral Documents and the
transactions contemplated hereby and thereby shall be reasonably
satisfactory to counsel for the Bank;
(ii) receipt by the Bank of (A) a copy the Borrower's articles of
incorporation, as amended, certified by the appropriate state office;
(B) a certificate of such office, dated as of a recent date, as to the
good standing and charter documents of the Borrower on file; (C) a
certificate of the Secretary or an Assistant Secretary of the Borrower
dated the date of such Term Loan and certifying (1) that the articles
of incorporation of the Borrower has not been amended since the date of
the last amendment thereto indicated on the certificate furnished
pursuant to clause (A) above, (2) as to the absence of dissolution or
liquidation proceedings by or against the Borrower, (3) that attached
thereto is a true, correct and complete copies of the Borrower's
By-laws as then in effect and of resolutions adopted by the Borrower
authorizing the execution, delivery and performance of this Agreement,
and any other documents to which the Borrower and the Bank are parties
and that said resolutions have not been amended and are in full force
and effect on the date of such certificate and (4) as to the incumbency
and specimen signatures of the officers of the Borrower executing this
Agreement and any other documents to which the Borrower and the Bank
are parties, or any other document delivered in connection herewith or
therewith; and (D) a certificate of the President of the Borrower dated
as of the date of such Term Loan and certifying the absence of a
Default and the accuracy of the representations and warranties
contained in this Agreement;
(iii) receipt by the Bank of executed copies of this
Agreement, the Term Note, the Guaranty and the Real Estate Collateral
Documents;
(iv) receipt by the Bank of the opinion of counsel for the
Borrower, in a form satisfactory to the Bank and its counsel, and
covering such matters relating to the transactions contemplated hereby
as the Bank may reasonably request;
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(v) on or prior to the date of the Term Loan, each document
(including, without limitation, each Uniform Commercial Code financing
statement) required by law or reasonably requested by the Bank to be
filed, registered or recorded in order to create in favor of the Bank a
perfected, first-priority security interest in the Collateral shall
have been properly filed, registered or recorded in each jurisdiction
in which the filing, registration or recordation thereof is so required
or requested, and the Bank shall have received an acknowledgment copy,
or other evidence satisfactory to it, of each such filing, registration
or recordation;
(vi) receipt by the Bank of certified copies of Requests for
Information or Copies (Form UCC-11), or equivalent reports, listing the
financing statements referred to in clause (v) above and all other
effective financing statements that name the Borrower (under its
present name and any previous names) as debtor or seller and that are
filed in the jurisdictions referred to in clause (v) above, together
with copies of such other financing statements (none of which shall
cover the Collateral, except as otherwise disclosed in writing to, and
accepted by, the Bank);
(vii) receipt by the Bank of any and all landlord's or mortgagee's
waivers it may deem necessary or, in the opinion of the Bank, desirable
to ensure the priority of the Liens created by this Agreement;
(viii) receipt by the Bank of evidence of the insurance required
by this Agreement;
(ix) receipt by the Bank of all documents it may reasonably
request relating to the existence of the Borrower and its corporate
authority to execute, deliver and perform this Agreement and any other
documents to which the Borrower and the Bank are parties and the
validity of this Agreement and such other documents and any other
matters relevant hereto or thereto, all in form and substance
satisfactory to the Bank; and
(x) receipt by the Bank of all documents it requires in connection
with its commitment to make the Term Loan.
All documents and opinions referred to in this Article shall be in form and
substance satisfactory to the Bank and its counsel.
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ARTICLE IV
Security Interests
------------------
Section 4.1. Grant of Security Interests. To secure the due and
punctual payment of all Obligations, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing or due or to become due, in accordance with the terms thereof and to
secure the due and punctual performance of all of the obligations of the
Borrower contained in this Agreement and in any other documents to which the
Borrower and the Bank are parties and in order to induce the Bank to enter into
this Agreement and make the Revolving Loans the Borrower hereby grants to the
Bank a security interest in all of its right, title and interest in, to and
under the following, whether now existing or hereafter acquired (all of which
are herein collectively called the "Collateral"):
(i) all Receivables;
(ii) all General Intangibles;
(iii) all Inventory;
(iv) all Equipment;
(v) to the extent not included in the foregoing, all other
personal property, whether tangible or intangible and wherever located,
including, but not limited to, the balance of every deposit account now
or hereafter existing of the Borrower with any bank and all monies of
the Borrower and all rights to payment of money of the Borrower;
(vi) to the extent not included in the foregoing, all books,
ledgers and records and all computer programs, tapes, disks, punch
cards, data processing software, transaction files, master files and
related property and rights (including computer and peripheral
equipment) necessary or helpful in enforcing, identifying or
establishing any item of Collateral;
(vii) to the extent not otherwise included, all cash and noncash
Proceeds and products of any or all of the foregoing, whether existing
on the date hereof or arising hereafter.
Section 4.2. Continuing Liability of the Borrower. Anything herein to
the contrary notwithstanding, the Borrower shall remain liable to observe and
perform all the terms and conditions to be observed and performed by it under
any contract, agreement, warranty or other obligation with respect to the
Collateral, and shall do nothing to impair the security interests
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herein granted. The Bank shall not have any obligation or liability under any
such contract, agreement, warranty or obligation by reason of or arising out of
this Agreement or the receipt by the Bank of any payment relating to any
Collateral, nor shall the Bank be required to perform or fulfill any of the
obligations of the Borrower with respect to the Collateral, to make any inquiry
as to the nature or sufficiency of any payment received by it or the sufficiency
of the performance of any party's obligations with respect to any Collateral.
Furthermore, the Bank shall not be required to file any claim or demand to
collect any amount due or to enforce the performance of any party's obligations
with respect to, the Collateral.
Section 4.3. Sales and Collections. (a) The Borrower is
authorized (i) to sell in the ordinary course of its business consistent
with past practices for fair value and on an arm's-length basis any of its
Inventory normally held by it for such purpose and (ii) to use and consume, in
the ordinary course of its business, any raw materials, supplies and materials
normally held by it for such purpose. The Bank may upon the occurrence of any
Event of Default, and after notice to the Borrower, curtail or terminate such
authority at any time.
(b) The Borrower shall deposit all Proceeds and any other collections
received by it in the Cash Collateral Account and until so deposited shall be
held in trust for and as the Bank's property and shall not be commingled with
any funds of the Borrower not constituting Proceeds of Collateral.
Notwithstanding the foregoing, upon an Event of Default, the Bank may notify
Account Debtors obligated to make payments under any or all Receivables or
General Intangibles that the Bank has a security interest in such Collateral and
that payments shall be made directly to the Bank. Upon the request of the Bank
at any time, the Borrower will so notify such Account Debtors. The Borrower will
use all reasonable efforts to cause each Account Debtor to comply with the
foregoing instruction. In furtherance of the foregoing, the Borrower authorizes
the Bank (i) to ask for, demand, collect, receive and give acquittances and
receipts for any and all amounts due and to become due under any Collateral and,
in the name of the Borrower or its own name or otherwise, (ii) to take
possession of, endorse and collect any checks, drafts, notes acceptances or
other instruments for the payment of monies due under any Collateral and (iii)
to file any claim or take any other action in any court of law or equity or
otherwise which it may deem appropriate for the purpose of collecting any
amounts due under any Collateral.
(c) As to any amount payable under or in connection with any of the
Collateral that shall be or shall become evidenced by any promissory note or
other instrument, the Borrower will immediately pledge and deliver such note or
other instrument to
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the Bank as part of the Collateral, duly endorsed in a manner satisfactory to
the Bank.
(d) The Borrower will not, without the Bank's prior written consent,
(i) grant any extension of the time of payment of any Receivable, (ii)
compromise or settle any Receivable for less than the full amount thereof, (iii)
release, wholly or partly, any person liable for the payment of any Receivable
or (iv) allow any credit or discount whatsoever in respect of any Receivable,
provided, that the Borrower may grant extensions, compromise Receivables and
allow discounts if such extensions, compromises and/or trade discounts are
granted in the normal course of business consistent with past practices and are
necessary in the reasonable judgment of the Borrower to enhance the
collectability of any Receivable.
Section 4.4. Verification of Receivables. The Bank shall have the
right to make test verifications of Receivables in any manner and through
any medium that it considers advisable (which may include contacting directly
any Account Debtor), and the Borrower agrees to furnish all such assistance and
information as the Bank may require in connection therewith. The Borrower at its
expense will cause its chief financial officer to furnish to the Bank at any
time, and from time to time promptly upon the Bank's request, the following
reports: (i) a reconciliation of all Receivables, (ii) an aging of all
Receivables, (iii) trial balances and (iv) a test verification of such
Receivables as the Bank may request.
ARTICLE V
Representations and Warranties
------------------------------
The Borrower represents and warrants that:
Section 5.1. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing, and in good standing under
the laws of Virginia and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. The Borrower is duly qualified as a foreign
corporation, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a material adverse effect on the business, financial position,
results of operations, properties or prospects of the Borrower.
Section 5.2. Corporate and Governmental Authorization;
Contravention. The execution, delivery and performance by the Borrower of this
Agreement and any other documents to which the
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Borrower and the Bank are parties, including but not limited to the creation of
the security interests provided for herein (i) are within the Borrower's
corporate power, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or in respect of, or filing with, any
Government (except with respect to the filing and/or recording of financing
statements or other instruments) and do not contravene, or constitute (with or
without the giving of notice or lapse of time or both) a default under, any
provision of applicable law or of the articles of incorporation or by-laws of
the Borrower or of any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting the Borrower or result in the creation or
imposition of any Lien (other than the Lien of the Collateral Documents) on any
of its assets.
Section 5.3. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and the obligations hereunder are enforceable
against the Borrower in accordance with its terms, except as (i) the
enforceability hereof and thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
Section 5.4. Financial Statements. (a) The consolidated balance sheet
of the Borrower as of December 31, 1995 and the related statements reported on
by Winter, Scheifley & Associates, P.C., copies of which have been delivered to
the Bank, fairly present, in conformity with GAAP, the financial position of the
Borrower at such date and their results of operations and changes in financial
position for such fiscal year. As of the date of such financial statements, the
Borrower did not have any material contingent obligation, contingent liability
or liability for taxes, long-term lease or unusual forward or long-term
commitment, which is not reflected in any such financial statements or notes
thereto.
(b) The unaudited balance sheet of the Borrower as of March
31, 1996 and the related unaudited statements for the three (3) months then
ended, copies of which have been delivered to the Bank, fairly present (in
conformity with GAAP, applied on a consistent basis with the financial
statements referred to in clause (a) of this section) the financial position of
the Borrower as of such date and their results of operations and changes in
financial position for such three-month period (subject to normal year-end
adjustments).
(c) Since March 31, 1996, there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower.
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Section 5.5. Litigation. Except as disclosed on Schedule 5, there is no
action, suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower before any Government in which
there is a reasonable possibility of an adverse decision which could materially
adversely affect the business, financial position or results of operations of
the Borrower or which in any manner draws into question the validity of this
Agreement or any Collateral Document and there is no basis known to the Borrower
for any such action, suit or proceeding.
Section 5.6. Ownership and Liens. The Borrower is the sole owner of
and has good and marketable title to all its properties and assets subject to no
Lien, except Permitted Liens.
Section 5.7. Place of Business; Location of Collateral. Schedule 1
correctly sets forth the Borrower's chief executive office, principal place of
business and offices where records concerning Receivables and General
Intangibles are kept. Schedule 2 correctly sets forth the location of all
equipment and Inventory. No Inventory is evidenced by a negotiable document of
title, warehouse receipt or bill of lading. No non-negotiable document of title,
warehouse receipt or bill of lading has been issued to any person other than the
Borrower, and the Borrower has retained possession of all of such non-negotiable
documents, warehouse receipts and bills of lading. No amount payable under or in
connection with any of the Collateral is evidenced by promissory notes or other
instruments.
Section 5.8. Trade Names. Any and all trade names, division names,
assumed names or other names under which the Borrower transacts, or intends to
transact, business are specified on Schedule 3.
Section 5.9. Filings. All actions by or in respect of, and all filings
with, any Government required in connection with the execution, delivery and
performance of this Agreement and any other documents to which the Borrower and
the Bank are parties, or necessary for the validity or enforceability thereof or
for the protection or perfection of the rights and interests of the Bank
thereunder, will, prior to the date of delivery thereof, have been duly taken or
made, as the case may be, and will at all times thereafter remain in full force
and effect.
Section 5.10. Regulation U. The Borrower does not own any "margin
stock" as such term is defined in Regulation U, except as disclosed on Schedule
7.
Section 5.11. Environmental Compliance. (a) The Borrower is in
material compliance with all applicable laws, rules, regulations and orders of
all Governments relating to
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environmental matters and the release, handling and disposal of hazardous, toxic
and polluting substances.
(b) There are no outstanding notices of violation, orders, claims,
citations, complaints, penalty assessments, suits or other proceedings,
administrative, criminal or civil, at law or in equity, pending against the
Borrower or its properties that would have a material adverse effect on the
Borrower's business, financial position, results of operations or prospects or
on any facility or the operation of any facility, and no investigation or review
is pending or to the knowledge of Borrower threatened against the Borrower by
any Government with respect to any alleged violation of any Governmental
environmental law, regulation, ordinance, standard, permit or order in
connection with its ownership or use of any real estate or the conduct of its
business.
(c) To the best knowledge of the Borrower, no waste generated by the
Borrower has ever been sent, nor is waste generated by the Borrower being sent,
directly or indirectly, to any site listed or formerly proposed for listing on
the National Priority List promulgated pursuant to CERCLA or to any site listed
on any state list of hazardous substances sites requiring investigation or clean
up.
Section 5.12. ERISA. The Borrower does not maintain any plan covered
by Title IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
ARTICLE VI
Financial Covenants
-------------------
The Borrower agrees that so long as the Bank is committed to making
Revolving Loans hereunder or any amount payable hereunder or under any other
document to which the Borrower and the Bank are parties remains unpaid:
Section 6.1. Tangible Net Worth. The Borrower's Tangible Net Worth
shall not (i) as of June 30, 1996 or for any subsequent quarter through December
31, 1996 be less than $4,000,000 and (ii) as of March 31, 1997 or for any
subsequent quarter be less than $4,500,000.
Section 6.2. Debt to Tangible Net Worth. The ratio of the Borrower's
Debt to Tangible Net Worth will not on June 30, 1996 or, thereafter, for any
subsequent quarter exceed 2.0 to 1.0.
Section 6.3. Net Profit After Tax. The Borrower's Net Profit After
Tax shall not be less than (i) $1,000,000 as of June 30, 1996 (cumulative
year-to-date); (ii) $1,250,000 as of
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September 30, 1996 (cumulative year-to-date); (iii) $1,500,000 as of December
31, 1996 (cumulative year-to-date); (iv) $500,000 as of March 31, 1997; (v)
$1,000,000 as of June 30, 1997 (cumulative year-to-date); and, thereafter, (vi)
$300,000 for each subsequent quarter.
Section 6.4. Capital Expenditures. The Borrower will not directly (by
the way of the acquisition of securities of a person or otherwise) make or
commit to make any expenditures in respect of the purchase or other acquisition
of fixed or capital assets (excluding normal replacements and maintenance which
are properly charged to current operations), provided, that the Borrower may
make capital expenditures during calendar year 1996 in an amount not to exceed
$5,000,000 and, thereafter, for any calendar year, in an amount not to exceed
$800,000.
ARTICLE VII
Other Covenants
---------------
The Borrower agrees that so long as the Bank is committed to making
Revolving Loans hereunder or any amount payable hereunder or under any other
document to which the Borrower and the Bank are parties remains unpaid:
Section 7.1. Reporting Requirements. The Borrower will deliver or
cause to be delivered to the Bank:
(i) as soon as available and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Borrower, a
balance sheet of the Borrower as of the end of such fiscal year and the
related statements of the Borrower for such fiscal year, setting forth
in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and accompanied by an opinion thereon by
independent public accountants satisfactory to the Bank, which opinion
shall state that such financial statements present fairly the financial
position of the Borrower as of the date of such financial statements
and the results of its operations for the period covered by such
financial statements in conformity with GAAP applied on a consistent
basis (except for changes in the application of which such accountants
concur) and shall not contain any "going concern" or like qualification
or exception or qualifications arising out of the scope of the audit;
(ii) as soon as available and in any event within thirty (30) days
after the end of each month of each fiscal year of the Borrower, a
balance sheet and related financial statements of the Borrower for such
month and for the portion of the Borrower's fiscal year ended at the
end of such month all certified (subject to normal year-end audit
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adjustments) as complete and correct by the chief financial officer of
the Borrower;
(iii) simultaneously with the delivery of each set of financial
statements referred to in clauses (i) and (ii) required (A) for the
first six months of the Borrower's fiscal year and (B) at the end of
the Borrower's fiscal year above, a certificate of the chief financial
officer of the Borrower stating whether, since the date of the most
recent previous delivery of financial statements pursuant to clause (i)
or (ii) of this Section, there has been any material adverse change in
the business, financial position, results of operations or prospects of
the Borrower, and, if so, the nature of such material adverse change;
(iv) as soon as available and in any event within ten (10) days of
the end of each month, a monthly accounts receivable aging, a monthly
accounts payable aging and monthly inventory listing. The accounts
receivable aging, the accounts payable aging and the inventory data
shall be certified as complete and correct by the chief financial
officer of the Borrower;
(v) forthwith upon the occurrence of any Default, a
certificate of the chief financial officer of the Borrower setting
forth the details thereof and the action which the Borrower is taking
or proposes to take with respect thereto;
(vi) as soon as reasonably practicable after obtaining knowledge
of the commencement of, or of a material threat of the commencement of,
an action, suit or proceeding against the Borrower which could
materially adversely affect the business, properties, financial
position, results of operations or prospects of the Borrower or which
in any manner questions the validity of this Agreement, any other
document to which the Borrower and the Bank are parties or any of the
other transactions contemplated hereby or thereby, the nature of such
pending or threatened action, suit or proceeding and such additional
information as may be reasonably requested by the Bank;
(vii) detailed written notice of the adoption and maintenance of
any plan covered by Title IV of ERISA; and
(viii) from time to time such additional information regarding the
financial position, results of operations or business of the Borrower
as the Bank may reasonably request.
Section 7.2. Payment of Obligations. The Borrower will pay and
discharge, as the same shall become due and payable, (i)
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all its obligations and liabilities, including all claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like persons
which, in any such case, if unpaid, might by law give rise to a Lien upon any of
its property or assets, and (ii) all lawful Taxes, assessments and charges or
levies made upon it or its property or assets, by any Government except where
any of the items in clause (i) or (ii) of this Section 7.2 may be diligently
contested in good faith by appropriate proceedings, and the Borrower shall have
set aside on its books, if required under GAAP, appropriate reserves for the
accrual of any such items.
Section 7.3. Maintenance of Property and Insurance. The Borrower
will keep all property useful and necessary in its business in good working
order and condition, subject to ordinary wear and tear; will maintain (either in
the name of the Borrower and in the name of the Bank to the extent required by
this Agreement) with financially sound and reputable insurance companies,
insurance on all its properties in at least such amounts and against at least
such risks (and with such risk retentions) as are usually insured against by
companies engaged in the same or a similar business; and will furnish to the
Bank upon request full information as to the insurance carried. All insurance
with respect to the Inventory and the equipment shall (i) contain a standard
mortgagee and/or loss payee clause in favor of the Bank, (ii) provide that any
loss shall be payable in accordance with the terms thereof notwithstanding any
act of the Borrower which might otherwise result in forfeiture of such
insurance, (iii) provide that no cancellation, reduction in amount or change in
coverage therefor shall be effective until at least thirty (30) days after
receipt by the Bank of written notice thereof and (iii) provide that the Bank
may, but shall not be obligated to, pay premiums in respect thereof.
Section 7.4. Conduct of Business and Maintenance of Existence. The
Borrower will continue to engage in business of the same general type as
conducted by the Borrower and maintain the Collateral in the place(s) identified
in Section 5.7, and will preserve, renew and keep in full force and effect its
corporate existence and its rights, privileges and franchises necessary or
desirable in the normal conduct of business. The Borrower will notify the Bank
of any change in its place of business, location(s) of the Collateral and
location(s) of books and records at least thirty (30) days prior to such
change(s). In addition, the Borrower will not change its name, identity or
corporate structure in any manner or use any trade, assumed or fictitious name
except as set forth on Schedule 3.
Section 7.5. Compliance with Laws. The Borrower will comply with all
applicable laws, ordinances, rules, regulations, and requirements of
Governmental authorities except where the
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necessity of compliance therewith is contested in good faith by appropriate
proceedings.
Section 7.6. Accounting; Inspection of Property, Books and Records. The
Borrower will keep proper books of record and account in which full, true and
correct entries in conformity with GAAP shall be made of all dealings and
transactions in relation to its business and activities, will maintain its
fiscal reporting periods on the present basis and will permit representatives of
the Bank to visit and inspect any of its properties, to examine and make
abstracts from any of its books and records and to discuss its affairs, finances
and accounts with its officers, employees and independent public accountants,
all at such reasonable times and as often as may reasonably be desired.
Section 7.7. Maintenance of Security Interests. The Borrower will,
from time to time and at its expense, execute, deliver, file or record such
financing statements pursuant to the Uniform Commercial Code, applications for
certificates of title and such other statements, assignments, instruments,
documents, agreements or other papers and take any other action that may be
necessary or desirable, or that the Bank may reasonably request, in order to
create, preserve, perfect, confirm or validate the security interests, to enable
the Bank to obtain the full benefits of this Agreement or to enable it to
exercise and enforce any of its rights, powers and remedies hereunder,
including, without limitation, its right to take possession of the Collateral,
and will use its best efforts to obtain such waivers from landlords and
mortgagees as the Bank may request.
Section 7.8. Debt. The Borrower will not incur or at any time be liable
with respect to any Debt except (i) Debt outstanding under this Agreement or any
other document to which the Borrower and the Bank are parties; (ii) normal and
customary trade Debt incurred in the ordinary course of the Borrower's business;
(iii) Debt secured by a Lien of the type described in (and subject to the Debt
limit of) Section 7.9(iii); or (iv) Debt disclosed to the Bank on Schedule 6.
Section 7.9. Restriction on Liens. The Borrower will not at any time
create, assume or suffer to exist any Lien on any property or asset now owned or
hereafter acquired by them or assign or subordinate any present or future right
to receive assets except:
(i) Liens existing on the date of this Agreement and described on
Schedule 4 hereto securing Debt outstanding on the date of this
Agreement;
(ii) any Liens created by any other documents to which the
Borrower and the Bank are parties;
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(iii) any purchase money security interest on any capital asset of
the Borrower if such purchase money security interest attaches to such
capital asset concurrently with the acquisition thereof, provided the
Debt so secured does not cause the Borrower to breach Section 6.4 of
this Agreement;
(iv) Liens securing Taxes, assessments or Governmental charges or
levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons; provided (A) with
respect to Liens securing state and local Taxes, such Taxes are not yet
payable, (B) with respect to Liens securing claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and the like,
such Liens are in an amount not greater than $50,000 and are contested
in good faith, or (C) with respect to Taxes, assessments or
Governmental charges or levies or claims or demands secured by such
Liens, payment of which is not at the time required by Section 7.2;
(v) Liens, not securing Debt, which are incurred in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance, social security and other like laws;
(vi) any Lien arising pursuant to any order of attachment,
distraint or similar legal process arising in connection with court
proceedings so long as the execution or other enforcement thereof is
effectively stayed and the claims secured thereby are being contested
in good faith by appropriate proceedings; or
(vii) zoning restrictions, easements, licenses, reservations,
covenants, conditions, waivers, restrictions on the use of property or
other minor encumbrances or irregularities of title which do not
materially impair the use of any property in the operation or business
of the Borrower or the value of such property for the purpose of such
business.
Section 7.10. Notices. The Borrower will advise the Bank promptly and
in reasonable detail, (i) of any Lien, security interest, encumbrance or claim
made or asserted against any of the Collateral, (ii) of any material change in
the composition of the Collateral, (iii) of any supplier (or situation where a
supplier) places the Borrower on cash-on-delivery basis of receiving goods and
or services and (iv) of the occurrence of any other event which would have a
material effect on the aggregate value of the Collateral or on the security
interests granted to the Bank in this Agreement.
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Section 7.11. Right of Inspection. The Bank shall at all times have
full and free access during normal business hours to all the books and records
of the Borrower, and the Bank or its representatives may examine the same, take
extracts therefrom, make photocopies thereof and have such discussions with
officers, employees and public accountants of the Borrower as the Bank may deem
necessary, and the Borrower agrees to render to the Bank, at the Borrower's cost
and expense, such clerical and other assistance as may be reasonably requested
with regard thereto. The Bank and its representatives shall at all times also
have the right to enter into and upon any premises where any of the Inventory is
located for the purpose of inspecting the same, observing its use or protecting
interests of the Bank therein.
Section 7.12. Consolidations, Mergers and Sales of Assets. The Borrower
will not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer all or any substantial part of its assets to any
other Person.
Section 7.13. Transactions with Affiliates. The Borrower will not
directly or indirectly, pay any funds to or for the account of, make any
investment in, engage in any transaction with or effect any transaction in
connection with any joint enterprise or other joint arrangement with any
Affiliate (excluding those existing loans to Affiliates set forth on Schedule
7), provided, however, that (a) the Borrower may pay the reasonable compensation
of employees who may be Affiliates, and (b) the Borrower may make payments to
the Corporate Guarantor (i) for the purpose of permitting the Corporate
Guarantor to redeem stock outstanding not to exceed $200,000 in the aggregate
and (ii) in respect of administrative overhead not to exceed (A) $600,000 in
fiscal year ending December 31, 1996 and (B) $250,000 in any subsequent fiscal
year.
Section 7.14. Restricted Payments. The Borrower will not (i) declare or
pay any dividend or other distribution on any shares of the Borrower's capital
stock, (except dividends payable solely in shares of its capital stock) or (ii)
make any payment on account of the purchase, redemption, retirement or
acquisition of (A) any shares of the Borrower's capital stock (except shares
acquired upon the conversion thereof into other shares of its capital stock) or
(B) any option, warrant or other right to acquire shares of the Borrower's
capital stock, provided, however, the Borrower may declare and pay annual
dividends in an amount not to exceed twenty-five percent (25%) of (a) the
average monthly Availability for the two months immediately prior to the
declaration or payment of such dividend or (b) the Borrower's Net Profit After
Tax for the twelve (12) months immediately prior to the declaration or payment
of such dividend.
Section 7.15. Investments. The Borrower will not make or acquire any
investment in any Person (whether by share purchase,
30
<PAGE>
capital contribution, loan, time deposit or otherwise) other than (i) in time
deposits with, including certificates of deposit issued by the Bank, provided
such have been pledged and otherwise assigned to the Bank as part of the
Collateral, or (ii) employee loans not to exceed $1,000 per employee at any time
and not to exceed $25,000 in the aggregate at any time, provided, (a) the
Borrower may maintain (but not increase or enlarge) the investments shown on
Schedule 7 hereto and (b) the Borrower may make such investments that are of
investment grade if it is not in Default and the amount of the outstanding
Revolving Loans is zero ($0).
Section 7.16. Transactions with Other Persons. The Borrower shall not
enter into any agreement with any Person whereby any of them shall agree to any
restriction on the Borrower's right to amend or waive any of the provisions of
this Agreement.
Section 7.17. Use of Proceeds. The proceeds of the Revolving Loans will
not be used, directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any "margin stock" within the
meaning of Regulation U.
Section 7.18. Independence of Covenants. All covenants contained herein
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that such action or condition
would be permitted by an exception to, or otherwise be within the limitations of
another covenant shall not avoid the occurrence of a Default if such action is
taken or condition exists.
ARTICLE VIII
Default/Remedies
----------------
Section 8.1. Events of Default. Any of the following conditions or
events shall constitute Events of Default:
(i) the Borrower shall fail to pay when due any principal of
or interest on any Loan, any fee or any other amount payable hereunder,
or under any document to which the Borrower and the Bank are parties or
with respect to any other Obligation of the Borrower to the Bank;
(ii) the Borrower shall fail to observe or perform any covenant
contained in Article VI or in Section 7.4, 7.8, 7.9, 7.11, 7.12, 7.13,
7.14, 7.15, 7.16 or 7.17;
(iii) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by
clauses (i) or (ii) above) for thirty
31
<PAGE>
(30) days after written notice of failure to observe or perform any
covenant or agreement contained in this Agreement has been given to the
Borrower by the Bank;
(iv) any representation, warranty, certification or statement
made by the Borrower in this Agreement or any document to which the
Borrower and the Bank are parties or by the Borrower in any
certificate, financial statement or other document delivered pursuant
hereto or thereto shall prove to have been incorrect in any material
respect when made;
(v) the Borrower shall fail to make any payment in respect of any
Debt exceeding $250,000 individually or in the aggregate for all such
Debt when due or within any applicable grace period and provide the
Bank with notice thereof unless the Borrower contests such obligation
in good faith and the Borrower, if requested by the Bank, provides the
Bank with a full explanation and documentation regarding the contest;
(vi) any event or condition shall occur which results in the
acceleration of the maturity of any Debt in excess of $250,000 of the
Borrower or enables (or, with the giving of notice or lapse of time or
both, would enable) the holder of such Debt or any Person acting on
such holder's behalf to accelerate the maturity thereof;
(vii) the Borrower shall commence a case, action or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take
any corporate action to authorize any of the foregoing;
(viii) the Borrower shall have commenced against it a case, action
or other proceeding seeking liquidation, reorganization or other relief
under any bankruptcy, insolvency or similar law and such case, action
or other proceeding remains pending for a period of thirty (30) days or
an Order for Relief is entered;
(ix) one or more judgments or orders for the payment of money in
excess of $250,000 shall be rendered against the
32
<PAGE>
Borrower and such judgment or order shall continue unstayed or
unsatisfied for a period of thirty (30) days;
(x) (A) any financing statement or any other document to which
the Borrower and the Bank are parties shall cease for any reason to be
in full force and effect or shall cease to be effective to grant a
security interest in the Collateral or such security interest shall
cease to be in full force and effect or shall be declared null and
void, or the validity or enforceability of such security interest or
any such document shall be contested by the Borrower, or the Borrower
shall deny that it has any further liability or obligation under this
Agreement or any other document to which the Borrower and the Bank are
parties, or the Borrower shall fail to perform any of its obligations
under such document, or (B) any creditor of the Borrower shall obtain
possession of any of the Collateral (other than securities identified
on Schedule 7) by any means, including, without limitation, levy,
distraint, replevin or self-help or any such creditor (other than a
creditor having a purchase money security interest permitted by Section
7.9 and then solely with respect to the related asset) shall establish
or obtain any right in the Collateral which is equal to or senior to
the security interests of the Bank in such Collateral (other than those
creditors identified on Schedule 4, provided, however, it shall not be
a Default or an Event of Default if First Union Bank of Virginia, Bank
of Waverly and Bank of Malvern shall have or maintain security
interests in any Equipment or in any Real Estate prior to the funding
of the Term Loan);
(xi) (A) the expiration of thirty (30) days after the Bank has
given the Borrower notice of the Bank's good faith determination that
(x) the Bank deems itself insecure or (y) that a material adverse
change in the financial condition of the Borrower has occurred since
the date hereof or (z) that the Bank's prospect of payment hereunder
has been impaired, or (B) the reasonable suspicion by the Bank that one
or more Events of Default have occurred and the failure of the
Borrower, upon thirty (30) days' notice thereof from the Bank, to
provide reasonably satisfactory evidence to the Bank that such Events
of Default have not in fact occurred; and
(xii) the Borrower shall prepay the Revolving Loans or
terminate the Revolving Commitment without paying in full the Term
Loan.
Section 8.2. Termination of Commitment/Acceleration. Upon the
occurrence and continuance of any Event of Default as described in Section
8.1, the Bank, at its option, may without notice to the Borrower terminate the
Revolving Commitment,
33
<PAGE>
declare the Obligations (together with accrued and unpaid interest and expenses
and any other obligations that may be due to the Bank under this Agreement or
any document to which the Borrower and the Bank are parties) to be, immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
Section 8.3. UCC Rights. If any Event of Default shall have occurred,
the Bank may in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, exercise all rights and remedies of a secured party
under the UCC and all other rights available to the Bank at law or in equity.
Section 8.4. Right of Set-Off. Upon the occurrence and during the
continuance of any Event of Default, the Bank is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Bank to
or for the credit or the account of the Borrower against any and all of the
obligations now or hereafter existing under this Agreement or any other document
to which the Borrower and the Bank are parties, irrespective of whether or not
the Bank shall have made any demand hereunder and although such obligation may
be unmatured.
Section 8.5. Payments on Collateral. Without limiting the rights of
the Bank under any other provision of law or this Agreement, if an Event of
Default shall occur and be continuing:
(i) all payments received by the Borrower under or in
connection with any of the Collateral shall be held by the Borrower in
trust for the Bank, shall be segregated from other funds of the
Borrower and shall forthwith upon receipt by the Borrower be turned
over to the Bank, in the same form as received by the Borrower (duly
indorsed by the Borrower to the Bank, if required to permit collection
thereof by the Bank); and
(ii) all such payments received by the Bank (whether from the
Borrower or in respect of the Collateral) shall be applied by the Bank
to the payment of Obligations and any expenses as set forth in Section
9.3.
Section 8.6. Possession of Collateral. In furtherance of the foregoing,
the Borrower expressly agrees that, if an Event of Default shall occur and be
continuing, the Bank may (i) by judicial powers, or without judicial process if
it can be done without breach of the peace, enter any premises where any of such
Collateral is or may be located, and without charge or liability
34
<PAGE>
to the Bank seize and remove such Collateral from such premises and (ii) have
access to and use of the Borrower's books and records relating to such
Collateral.
Section 8.7. Sale of Collateral. The Borrower expressly agrees that if
an Event of Default shall occur and be continuing, the Bank, without demand of
performance or other demand and after five (5) days notice to the Borrower, may
forthwith collect, receive, appropriate and realize upon the Collateral and/or
forthwith sell, lease, assign, give an option or options to purchase or
otherwise dispose of and deliver the Collateral (or contract to do so) or any
part thereof in one or more parcels at public or private sale, at any exchange,
broker's board or at any office of the Bank or elsewhere in such manner as is
commercially reasonable and as the Bank may deem best, for cash or on credit or
for future delivery without assumption of any credit risk, provided, that
nothing contained herein shall limit or restrict the Bank's right upon Default
to collect any Receivable. The Bank shall have the right upon any such public
sale, and, to the extent permitted by law, upon any such private sale, to
purchase the whole or any part of the Collateral so sold. The Borrower further
agrees, at the Bank's request, to assemble the Collateral, and to make it
available to the Bank at places which the Bank may reasonably select. To the
extent permitted by applicable law, the Borrower waives all claims, damages and
demands against the Bank arising out of the foreclosure, repossession, retention
or sale of the Collateral, provided such remedies are pursued in a commercially
reasonable manner.
Section 8.8. Rights of Purchasers. Upon any sale of the Collateral
(whether public or private), the Bank shall have the right to deliver, assign
and transfer to the purchaser thereof the Collateral so sold. Each purchaser
(including the Bank) at any such sale shall hold the Collateral so sold free
from any claim or right of whatever kind, including any equity or right of
redemption of the Borrower and to the extent permitted by law, Borrower hereby
specifically waives all rights of redemption, including, without limitation, the
right to redeem the Collateral under Section 9-506 of the UCC, and any right to
a judicial or other stay or approval which it has or may have under any law now
existing or hereafter adopted.
Section 8.9. Remedies Not Exclusive. No remedy conferred upon or
reserved to the Bank in this Agreement is intended to be exclusive of any other
remedy or remedies, but every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law, in equity or by statute.
Section 8.10. Power of Attorney. The Borrower hereby irrevocably
constitutes and appoints the Bank, with full power of substitution, as its true
and lawful attorney-in-fact with full
35
<PAGE>
irrevocable power and authority in the place and stead of the Borrower and in
the name of the Borrower or in its own name, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Article VIII and
Section 7.3 or Section 7.7 and, without limiting the generality of the
foregoing, hereby gives the Bank the power and right, on behalf of the Borrower,
without notice to or assent by the Borrower, but after an Event of Default, to
do the following:
(i) to pay or discharge taxes, liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral;
(ii) to effect any repairs or any insurance called for by the
terms of this Agreement and to pay all or any part of the premiums
therefor and the costs thereof; and
(iii) (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due and to come
due thereunder directly to the Bank or as the Bank shall direct; (B) to
receive payment of and receipt for any and all moneys, claims and other
amounts due and to become due at any time in respect of or arising out
of any Collateral; (C) to sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection
with accounts and other documents relating to the Collateral; (D) to
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the Collateral
or any thereof and to enforce any other right in respect of any
Collateral; (E) to defend any suit, action or proceeding brought
against the Borrower with respect to any Collateral; (F) to settle,
compromise and adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as
the Bank may deem appropriate; (G) to assign any Patent or Trademark
(along with the goodwill of the business to which such Trademark
pertains), for such term or terms, on such conditions, and in such
manner, as the Bank shall in its sole discretion determine; and (H)
generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as
though the Bank were the absolute owner thereof for all purposes, and
to do, at the Bank's option and the Borrower's expense, at any time, or
from time to time, all acts and things which the Bank deems necessary
to protect, preserve or realize upon the Collateral and the Bank's
security interest therein, in order to effect the intent of this
Agreement, all as fully and effectively as the Borrower might do.
36
<PAGE>
The Borrower hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. Notwithstanding the foregoing, the
Bank shall not exercise any such power unless or until a Default exists. The
Borrower further agrees to execute a duplicate of this power of attorney as set
forth as Exhibit C, which the Bank is authorized to use after an Event of
Default.
Section 8.11. Application of Proceeds. The Bank shall retain the net
proceeds of any collection, recovery, receipt, appropriation, realization or
sale of the Collateral and, after deducting all reasonable costs and expenses of
every kind incurred therein or incidental to the care and safekeeping of any or
all of the Collateral or in any way relating to the rights of the Bank
hereunder, including reasonable attorneys' fees and legal expenses, apply such
net proceeds to the payment in whole or in part of the Obligations or certain of
the Obligations in such order and against such Obligations as the Bank may
elect, the Borrower remaining liable for any amount remaining unpaid (and any
attorneys fees paid by the Bank in collecting such deficiency) after such
application. The Bank shall have no obligation whatsoever to seek satisfaction
from any particular item(s) or type(s) of property or Collateral in any
particular order, but may, in its sole discretion, foreclose upon, realize
against or otherwise enforce its rights in items of Collateral in any order or
priority it chooses and may pursue (or decide not to pursue or to defer pursuit
against) any guarantor (or other third-party obligor) at any time in its sole
discretion. To the extent that the Borrower has any right to direct the
application of such Proceeds, or to direct the order or priority by which the
Bank seeks recovery against any Collateral or any guarantor (or other
third-party obligor) the Borrower hereby waives any and all such rights.
ARTICLE IX
Miscellaneous
Section 9.1. Notices. All notices, requests and other communications to
a party hereunder shall be in writing and shall be given to such party at its
address set forth on the signature pages hereof or such other address as such
party may hereafter specify for the purpose by notice to the other. Each such
notice, request or other communication shall be effective (i) if given by mail,
three (3) days after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (ii) if given by any other
means, when delivered at the address specified in this Section.
Section 9.2. No Waivers. No failure or delay by the Bank in
exercising any right, power or privilege hereunder or under
37
<PAGE>
any other document to which the Borrower and the Bank are parties shall operate
as a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
Section 9.3. Expenses. The Borrower shall pay to the Bank all costs and
out-of-pocket expenses of the Bank, including the reasonable fees and
disbursements of counsel for the Bank, in connection with (i) the preparation,
closing and administration of this Agreement and any requests by the Borrower
concerning this Agreement or its administration, including any waiver, extension
or consent hereunder or any amendment hereof or any Default or alleged Default
hereunder; (ii) enforcing or defending any of the Bank's rights hereunder,
including but not limited to, any action taken to enforce anything the Borrower
is obligated to do hereunder or any action taken to protect or defend the Bank
after the commencement of any proceeding against the Borrower (including any
involuntary bankruptcy petition) even if such commencement does not at that time
create or constitute an Event of Default; and (iii) any Event of Default and
collection and other enforcement proceedings resulting therefrom, including any
action taken to preserve, protect, sell or otherwise dispose of any collateral
and any action taken to defend the Bank concerning the Collateral or on account
of any action it may take to enforce any right hereunder or any right to any
Collateral. The Borrower shall indemnify the Bank against any transfer taxes,
documentary taxes, assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement or any other documents to
which the Borrower and the Bank are parties.
Section 9.4. Amendments and Waivers. Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by the Borrower and the Bank.
Section 9.5. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
otherwise transfer any of its rights under this Agreement without the prior
written consent of the Bank.
Section 9.6. Virginia Law. This Agreement and any other documents to
which the Borrower and the Bank are parties shall be deemed to be contracts made
under seal and shall (except the Arkansas Mortgage) be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, except as otherwise
provided herein.
38
<PAGE>
Section 9.7. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when the Bank shall have received
counterparts hereof signed by both parties.
Section 9.8. Waiver of Jury Trial; Submission to Jurisdiction. The
Borrower hereby irrevocably and unconditionally waives all right to trial by
jury in any action, proceeding, or counterclaim arising out of or related to
this Agreement, the Revolving Loans or any other document to which the Borrower
and the Bank are parties or any of the transactions contemplated hereby or
thereby. Any legal action or proceeding with respect to this Agreement, the
Revolving Loans, or any other document to which the Borrower and the Bank are
parties or any document related hereto or thereto shall be brought in the courts
of the Commonwealth of Virginia in Richmond, Virginia or of the United States of
America for the Eastern District of Virginia and in no other courts, and by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The Borrower hereby irrevocably and unconditionally
waives any objection, including without limitation, any objection to the laying
of venue or based on the grounds of the forum non conveniens which it now or
hereafter may have to the bringing of any action or proceeding in such
respective jurisdictions.
Section 9.9. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in order to carry out the
intentions of the parties hereto as nearly as may be possible; and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provisions in any other
jurisdiction.
Section 9.10. Entire Agreement. This Agreement sets forth the entire
agreement of the parties (limited to the signatories to this Agreement) with
respect to the subject matter hereof and supersedes all previous understandings,
written or oral, in respect thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
[SIGNATURES APPEAR ON THE FOLLOWING PAGES]
39
<PAGE>
Borrower:
SPURLOCK ADHESIVES, INC.
By: /s/ H. Norman Spurlock
----------------------------------
Vice President - Secretary
----------------------------------
5090 General Mahone Highway
P.O. Box 8
Waverly, Virginia 23890
Facsimile No. (804)834-2860
Bank:
NATIONAL CANADA FINANCE CORPORATION
By: /s/ William R. O'Connor
----------------------------------
William R. O'Connor, Vice President
and Manager
By: /s/ Charles Nuttle
----------------------------------
Charles T. Nuttle, Vice President
Suite 1140
901 East Byrd Street
Richmond, Virginia 23219
Facsimile No. (804) 649-3446
Corporate Guarantor:
AIR RESOURCES CORPORATION
By: /s/ H. Norman Spurlock
---------------------------------
Vice President - Secretary
---------------------------------
P.O. Box 8
Waverly, Virginia 23890
40
<PAGE>
Exhibit A
FORM OF REVOLVING NOTE
$3,500,000 July 1, 1996
Richmond, Virginia
For value received, SPURLOCK ADHESIVES, INC., a Virginia corporation
(the "Borrower"), promises to pay to the order of NATIONAL CANADA FINANCE
CORPORATION (the "Bank") on June 30, 1999 the principal sum of $3,500,000 or, if
less, the aggregate unpaid principal amount of each Revolving Loan made by the
Bank to the Borrower pursuant to the Loan Agreement referred to below.
Furthermore, the Borrower promises to pay interest on the aggregate
unpaid principal amount of such Loans for each day from the date hereof until
paid, commencing on the first such date after the date of the First Revolving
Loan at a rate per annum equal to (i) the sum of one half of one percent (0.5%)
plus the rate publicly announced by the Bank from time to time as its prime rate
(the "Prime Rate") for such day, or (ii) at the Borrower's option and as more
specified such forth in the Loan Agreement, the sum of 2.75% plus the LIBOR
Rate. Interest on the Revolving Loans shall be adjusted automatically on and as
of the effective date of any change in the Prime Rate (or, as applicable, the
LIBOR Rate) and shall be computed on the basis of a year of 360 days and paid
for the actual number of days for which due. All payments of principal and
interest shall be made in lawful money of the United States at the office of the
Bank at 901 East Byrd Street, Suite 1140, Richmond, Virginia 23219.
All Revolving Loans made by the Bank to the Borrower pursuant to the
Loan Agreement and all repayments of the principal thereof shall be recorded by
the Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided, that any failure by the Bank to make such a notation or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Revolving Loans in accordance with the terms hereof.
This Note is the Revolving Note referred to in the Loan and Security
Agreement dated as of July 1, 1996 between the Borrower and the Bank (as the
same may be amended from time to time, the "Loan Agreement"). Terms defined in
the Loan Agreement are used herein with the same meanings. Reference is made to
the Loan Agreement for provisions concerning collateral security and for the
repayment hereof and the acceleration of the maturity hereof.
SPURLOCK ADHESIVES, INC.
By:
----------------------------------
H. Norman Spurlock, Vice President
and Secretary
<PAGE>
EXHIBIT B
[TERM NOTE]*
*to be in form and substance acceptable to the Bank
41
<PAGE>
EXHIBIT D
[Arkansas Mortgage]*
*to be in form and substance acceptable to the Bank
42
<PAGE>
Exhibit E
[Virginia Deed of Trust]*
*to be in form and substance acceptable to the Bank
43
EXHIBIT 11
AIR RESOURCES CORP.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Earnings:
<S> <C> <C> <C> <C>
Net income $ 684,011 $ 689,955 $1,214,701 $1,011,616
Shares:
Weighted average number
of shares used in computing
primary and fully diluted
earnings per share 6,725,066 4,326,066 6,725,066 6,666,066
Earnings per share: 0.10 0.16 0.18 0.23
==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 109,707 250,751
<SECURITIES> 362,500 200,000
<RECEIVABLES> 2,143,708 1,813,775
<ALLOWANCES> 0 0
<INVENTORY> 501,917 595,765
<CURRENT-ASSETS> 3,989,430 3,099,414
<PP&E> 9,817,073 9,005,251
<DEPRECIATION> 3,852,645 3,170,839
<TOTAL-ASSETS> 10,370,502 9,342,968
<CURRENT-LIABILITIES> 4,681,572 5,330,308
<BONDS> 0 0
0 0
0 2,400,000
<COMMON> 6,725 4,325
<OTHER-SE> 4,922,089 2,524,489
<TOTAL-LIABILITY-AND-EQUITY> 10,370,502 9,342,968
<SALES> 15,387,443 19,168,072
<TOTAL-REVENUES> 15,387,443 19,168,072
<CGS> 11,167,924 15,970,737
<TOTAL-COSTS> 2,025,819 1,823,824
<OTHER-EXPENSES> 5,000 84,475
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 255,118 291,108
<INCOME-PRETAX> 1,968,402 1,011,616
<INCOME-TAX> 753,701 0
<INCOME-CONTINUING> 1,214,701 1,011,616
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,214,701 1,011,616
<EPS-PRIMARY> .18 .23
<EPS-DILUTED> .18 .23
</TABLE>
